Unit 1: Government Failure - Is the Sun Dipping on Solar Subsidies?

To promote the expansion of renewable energy sources, many governments have introduced subsidies for consumers who install solar panels.


In April 2010, the Labour government introduced generous feed-in tariffs to encourage households to install solar photovoltaic systems. Anyone spending £13,000 up front to fit a system to their home was paid 41.3p per kilowatt hour (kWh) generated – enough to earn them a typical annual income of £900 a year in payments, on top of a £140-a-year saving in reduced electricity bills. The big six energy companies are required by law to pay householders who generate their own energy.

It looks like the days of generous subsidies for solar panels are coming to an end and there is a rush on to install them before the feed-in-tariff system is changed.

The number of installations of solar panels has risen due to incentives available from feed-in tariffs (FITs) and because of the rise in the cost of standard household energy. Since 2004 the average annual bill for a dual-fuel energy customer has risen by 117 per cent, to £1,293. The price of solar panels has come down as manufacturers have exploited economies of scale and the importation of cheap solar panels from China. The average cost of installation has dropped from an average £13,000 to £9,000 for the technology

For some economists, solar subsidies are inefficient with expensive opportunity costs. They argue that the millions of pounds allocated to the feed-in-tariff scheme is better spent encouraging innovation in marine energy, reliable offshore wind technology, organic solar cells and carbon capture and storage. The UK Treasury points to examples of mis-selling and inappropriate placing of solar panels as evidence that subsidies are being misused.

The money to pay for feed-in-tariffs comes from increasing everyone’s energy bills many of whom cannot even think of affording to install their own equipment.

In October 2011 the Coalition government announced that all homes with new solar electricity panels must meet minimum energy efficiency standards in order to benefit from subsidies

The British government has pledged to produce 20% of our electricity from renewable resources by 2020. With big-scale wind turbines running into planning difficulties, solar panels have an important part to play. But should the government continue to use generous feed-in-tariffs as the main incentive for this source of renewable energy? Can the sector survive without direct government intervention?

Check out these video links:

BBC news video: Rush to beat solar power deadline in Nottingham

BBC news video: Somerset solar farm build is under way in Puriton

BBC news video: Lower solar tariffs cost firm £1m
BBC News video: Thousands of council tenants offered free solar panels