The UK Government lost its appeal on Wednesday 25 January against an earlier ruling that its cuts to solar power subsidies were illegal.

The Government has now indicated that they intend to take the case to the Supreme Court, further prolonging the uncertainty that has stalled the solar industry.

Announcing proposed cuts to the solar feed-in tariff payments in October from 43.3p per kWh of energy generated to 21p, ministers argued that unless the subsidy was cut, funding for a range of low-carbon technologies would be rapidly exhausted. In December, a high court judge ruled that the Government's handling of the cuts was "legally flawed" with the primary complaint being the speed of the changes, which were designed to come into effect just six weeks after they were announced. Critics also drew attention to the fact that the consultation did not end until 23 December – over a week after the changes were proposed to take place.

Given that four judges have now unequivocally ruled the Government's attempt to retrospectively cut incentives was unlawful, it is difficult to see how the Government will produce a more convincing legal argument. Perhaps this is not the point. From the Government’s perspective, maintaining that level of uncertainty will hold back the majority of opportunistic installations until the new 3 March deadline when the rate will definitely fall to 21p.

This Government introduced a spending cap on the feed-in tariff (FIT) scheme, which has been very quickly exhausted. Even if only one of the 100,000 home social landlord PV scheme goes ahead before 3 March it will further exceed this stated cap. The sums are not insignificant. It is reported that Stockport Homes alone stands to make an additional surplus of £5.8 million if the Government is denied an appeal in the Supreme Court.

Those who had systems in place prior to 12 December will still benefit from the higher tariff. It is still possible to make money from this scheme, but with the feed-in tariff being halved it will take longer to recoup outlay costs, even with the price of panels continuing to fall.

Some in the industry are suggesting that there is a gold rush now to 3 March to install and register systems, on the assumption that the Government will again be unsuccessful in their further legal challenge. It would be unwise to base a commercial decision on the outcome of an appeal that is yet to be heard. Those contemplating installing solar PV should calculate the costs on a worst case scenario of a 21p return and those of a more risk averse nature may prefer to wait until this matter has fully played itself out in the courts.

The industry is still awaiting news on whether the Government will move forward with the other controversial element of its consultation on solar feed-in tariffs, including the plan to restrict installations to the most efficient buildings, slashing the available market by 80 per cent.

It is rumored that the Department of Energy and Climate Change will respond to the angry reaction from industry and the public by unveiling further reforms this year to the feed-in tariff scheme that will make the incentive mechanism more sustainable and predictable. The Government must give clarity on the long-term level of incentives for solar energy (and other forms of microgeneration) and ideally raise the spending cap to ensure support is set at a level that allows the industry to continue to grow.

Until the legal battle is decisively concluded there remains considerable uncertainty over what the FIT rate has been / will be between 12 December and 3 March. This sorry saga is not over yet but it seems that the damage has already been done.

The Government’s further appeal to the Supreme Court gives little clarity to feed-in tariff schemes proposed to 3 March but more significant perhaps is the principle upheld by the court that retroactive changes to legislation are unlawful.

For further information please contact Bruce Farquhar, Head of Renewables or Martin Whiteford, Associate.

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