Solar panels may no longer be viable for domestic users, experts warn, after Government proposes slashing feed-in-tariff by 87pc
Householders planning to install solar panels will receive 87pc less in subsidy payments as ministers attempt to halt a £1.5bn overspend on renewable energy.
The Government consultation published today follows the recent axing of a £540 million taxpayer-funded scheme, the Green Deal, which gave out loans and cash for energy-efficient home improvements.
Now feed-in-tariff payments on domestic solar panels will also be cut, lowering payments by £192 a year for the typical household, according to calculations.
The move came after Amber Rudd, energy secretary, said "Government support has driven down the cost of renewable energy significantly" and that renewable energy should "survive without subsidies" due to falling costs.
But state-backed incentives to promote solar panel take-up have become considerably less generous in recent years, as the chart, below, shows.
Around 700,000 households have installed solar panels since 2010 to take advantage of generous tax-free payments from the Government, in exchange for returning generated electricity to the grid. The payment rate has been reduced nearly every year for those joining the scheme.
Solar panels now cost around £6,800 for a typical 4kW system, down from £8,400 three years ago, according to the Renewable Energy Consumer Code.
Currently, home owners are paid for every unit of electricity that their domestic panels generate, set by a "feed in tariff", which is paid for the 20 years after installation and pegged to the Retail Prices Index.
Those who bought in when the scheme began in 2010 are paid up to 50p for every kWh they generate.
Home owners who have bought under the current rules receive 12.92p for half of the electricity their solar panels generate, known as the "generation tariff". The other half earns 4.85p, known as the "export tariff".
But the Government will slash the more-generous generation tariff to just 1.63p for new buyers from January, citing greater-than-expected takeup and falling costs. There has been a 26pc increase in uptake of home installations in the year to June, according to the Department for Energy and Climate Change.
The way in which tariffs increase will also change from the Retail Prices Index to the benchmark measure of inflation, the Consumer Prices Index (CPI) which tends to be lower.
Currently, a typical 4kW system generates 3,400 kWh per year. This would earn £302.09 a year in feed-in-tariff payments. But when the rate drops to 1.63p for the generation tariff in January, the payouts drop to £110.
Assuming generation stays at the same levels, this leads to a £3,840 reduction in payments versus the existing rate over a 20-year period, before taking inflation into account.
The cost of a set of solar panels would need to fall by more than £800 for home owners to see a return on their initial investment, according to calculations by the Energy Saving Trust.
Philip Sellwood, of the Energy Saving Trust, said: "The new rate is no longer cost effective for householders. Prices would need to fall by £840 by January for new panels to be cost-neutral in a typical home."
He added that Government payouts have brought down the cost of solar panels by increasing demand. "The feed-in-tariff has been extremely successful in driving the uptake of solar panels in the UK which has helped photovoltaic prices to fall by nearly 70pc in the past five years," he said.
Solar panel installers have reported an unprecedented rise in inquiries from home owners keen to install panels before the payouts drop.
"The industry won't be able to cope with this extreme cut in the tariff rates," said Leonie Greene from the Solar Trade Association, an industry body representing installers.
"We will have a massive boom in demand before January which installers can't meet.
"There was nothing in the Conservative manifesto about attacking solar power - we do not accept this is in the public mandate," Ms Greene added.
Feed-in-tariffs are reviewed every three months but the scale of these latest cuts has come as a shock to installers and green campaigners.
Juliet Davenport, who set up green energy firm Good Energy in 2003, said: "The proposed cuts mean installing solar panels is no longer attractive to families. We hope the government will re-think the value renewables bring to the market."
James Court of the Renewable Energy Association, a body representing green energy manufacturers, said the cut was "beyond their worst fears" and that "it is hard to see how homeowners could see solar as a viable option for the foreseeable future following these disproportionate cuts."
The report also suggested that smart meters, which track our energy use and communicate this information to suppliers, could facilitate further cuts to solar panel funding.
The £11bn nationwide roll-out, due to be completed by 2020, means every home in Britain will soon have a smart meter device instead of a traditional gas or electricity meter.
Smart meters work out how much energy is being consumed in ordinary homes, providing half-hourly updates.
But they will also be able to track how much power homes export to the national grid, if they have solar panels or other renewable energy installations.
Currently, the feed-in-tariff is paid at two levels - the "generation" rate for energy you use and the "export" rate for energy you don't. Instead of working out how much energy is actually exported, the Government pays homeowners on the assumption that they use 50pc of the energy generated and export the other half.
But smart meters will be able to track how much electricity is actually exported to make payments more accurate.
The report saiid the 50pc assumption was a "temporary measure to be in place until smart meters are available" and now will provide half-hourly updates of energy being exported.