The sudden cut in subsidies for the solar energy industry has been clumsily handled but is a victory for Chancellor George Osborne in his battle against green taxes.
The peremptory cut in subsidies for solar energy announced by the Government this week has stunned an industry that employs 25,000 people and that now faces ruin. The so-called feed-in tariff – which pays owners of solar panels for electricity they generate for the National Grid – will be halved after December 12. An estimated 4,000 companies that were encouraged to become involved in the sector by successive governments’ enthusiasm for renewable energy say that the move will force them into bankruptcy. This is hardly what the country needs as it looks for signs of economic growth.
We can understand these firms’ dismay – yet even if the decision has been clumsily handled, it was still the correct one to make. The way that the subsidy system was set up by Ed Miliband when he was energy secretary encouraged an investment bubble in solar technology. This came largely at the expense of the ordinary energy consumer, required to foot the bill via higher bills. Both politically and financially, falling installation costs have been making the generous returns available on solar investments unsustainable – indeed, solar subsidies have been falling steadily across Europe, so the decision should not have come as a total surprise to the industry.
Politically, this move represents a victory for George Osborne in his battle with Chris Huhne over subsidies for renewable energy, and the Department for Energy and Climate Change’s self-defeating devotion to green taxes. As the Chancellor said recently: “We’re not going to save the planet by putting our country out of business.” The solar debacle has demonstrated – to the chagrin of investors – that it is unwise to rely on renewable technologies underpinned by public subsidy, especially in a time of austerity. Perhaps Mr Osborne’s next target should be onshore wind farms.