Changes to UK Solar subsidies

The government is set to severely restrict the subsidies it will pay to new solar power plants. The policy U-turn, that will be laid out in detail by ministers later this week will limit the size of solar panel installations that will benefit from the maximum subsidy so cutting funding to larger scale "solar farms".

The likely result is that only small installations of less than 50kw capacity will be eligible for the feeb in tarrifs at current rates. 

These have fuelled the first widespread take-up of solar power in the UK, and created hundreds of new jobs 

This news has been greeted with dismay by businesses and investors. 

Under the revised proposals, anything bigger than 50kW– from a farmer's barn roof to a school building or a supermarket's covered car park – will receive much smaller subsidies, allowing a rate of return of about 5% rather than the 12% envisaged for smaller projects. 

The lower rate would not be enough to attract the bank loans and investment needed, solar experts fear, especially as investors and banks have been spooked by the government's willingness to drastically reform the system so soon after implementing it.

These proposed reforms mark a reversal of the original feed-in tariffs, brought in last April, under which sites of up to 5MW capacity – enough to cover about 30 acres with solar panels – were allowed. It is the second major reform within a few months, as the amount earmarked for feed-in tariffs was cut by £40m in last year's spending review.

The government argues the reforms are needed because the subsidies, paid for by adding a small amount to electricity bills, were intended to promote solar power among households, rather than encourage larger installations, of the kind being planned in the south-west. Greg Barker, climate minister, hit out at what he called "hot money" entering the solar market, with City speculators attracted by the prospect of rates of return of 10% or more. 

Solar farms can be built faster than erecting panels on roofs, and benefit from scale, as they are cheaper to install per unit of electricity generated. Ironically, given the government's localism agenda, solar panels – even in the biggest arrays covering 30 acres – tend to be much more popular than windfarms. Standing about 2 metres high - about the height of a field of maize - they can be hidden by hedge boundaries, make no noise, and the fields in which they are set can still be used for livestock grazing.