Judge rules plan to cut solar power subsidies 'legally flawed'

Government plans to slash incentive payments for householders who install solar panels were ruled "legally flawed" by a high court judge on Wednesday. The ruling opens the door for a judicial review that could force the government to delay its plans, and let thousands more people claim the higher subsidy.

Friends of the Earth and two solar panel companies argued that the government's decision to cut the feed-in tariff – the amount paid to those with solar panels installed – with only a few weeks' notice was premature and unlawful, and had led to unfinished or planned projects being abandoned. The tariff was cut from 43.3p to 21p per kWh of energy generated.

Thousands of individuals, farmers, councils and community groups had applied to install photovoltaic panels. The subsidy was set high to encourage people to invest when the scheme was launched in April 2010. But the government announced in October that it would cut the subsidy from 12 December, arguing that the cost of solar equipment had fallen sharply. This was 11 days before the consultation ended.

The judgment, by Mr Justice Mitting after a two-day court hearing, was hailed as a victory by green campaigners and the solar industry, after firms warned that the scale and pace of the proposed cuts could cripple the sector and cost thousands of jobs.

Mitting said the minister was "proposing to make an unlawful decision".

Friends of the Earth's executive director, Andy Atkins, said: "These botched and illegal plans have cast a huge shadow over the solar industry, jeopardising thousands of jobs. We hope this ruling will prevent ministers rushing through damaging changes to clean energy subsidies – giving solar firms a much-needed confidence boost."

Lawyers for the Department of Energy and Climate Change are seeking permission to appeal against the judge's ruling.

It came as a report by MPs on two select committees said the cuts were clumsily handled and may have fatally damaged a growing industry which could provide tens of thousands of jobs.

By giving consumers and companies just a few weeks' notice that it intended to halve the payments, the government has created uncertainty among investors and undermined public confidence in energy policy, said the MPs. "There is no question that solar subsidies needed to be urgently reduced, but the government has handled this clumsily. Ministers should have spotted the solar gold rush much earlier. That way subsidy levels could have been reduced in a more orderly way without delivering such a shock to the industry," said Tim Yeo, chair of the energy and climate change committee.

In addition, plans to require homes to meet a C-rated energy efficiency standard before they can receive subsidies will limit access to wealthier households and could have a "fatal impact" on the industry, the MPs warn. Eighty six per cent of homes would need to be better insulated to qualify for the scheme – increasing up-front costs for homeowners by between 5,600 and 14,000, even before the panels are purchased, they said.

Joan Walley, chair of the environmental audit committee said: "It doesn't make economic sense to let the sun go down on the solar industry in the UK. As well as helping to cut carbon emissions, every panel that is installed brings in VAT for the government and every company that benefits from the support is keeping people in work. The Government is right to encourage people to focus on saving energy before fitting solar panels, but these proposals will stop nine out of ten installations from going ahead, which will have a devastating effect on hundreds of solar companies and small building firms installing these panels across the country."

Rising energy bills and the falling cost of solar panels made the original subsidy rates so attractive that tens of thousands of households, companies and community groups have rushed to install photovoltaic (PV) systems since the scheme was introduced last year.

The government had evidence that solar panel prices were falling significantly as early as March 2011, but ministers did not act to stem rocketing levels of small solar installations until the end of October.

The MPs say the consultation then announced by the government was based on an inadequate impact assessment and unfairly set a 12 December deadline for changes to come into effect before the consultation closed on 23 December.

The scale and pace of the changes proposed was a shock for the solar industry and the suddenness of their introduction has damaged investor confidence across the whole energy sector, the MPs said. The government has proposed an even lower tariff (80% of the new rate) for generators who have more than one solar system registered for FiTs, in recognition of the economics of scale such aggregated schemes can achieve. This, said the MPs, will have an adverse impact on community solar projects.

"This could have a disproportionate impact on disadvantaged and poorer communities for whom such schemes are a good way of accessing the benefits of renewable energy and reducing electricity costs. The social housing sector and community owned schemes are going to be particularly hard hit by the reduced tariffs being brought in by the Government retrospectively," said the MPs.

The MPs' report and court ruling follows the decision by BP to close its solar division, blaming the "commoditisation" of the sector. It emerged this week that Mike Petrucci, chief executive of BP Solar, wrote to his remaining 100 staff last week to say that "the continuing global economic challenges have significantly impacted the solar industry, making it difficult to sustain long-term returns for the company."