Creative Destruction: Feed In tariffs - are they doing their job?

In a new industry such as the solar PV industry initial prices can be high and government incentives such as the Feed in Tariff  (FiT) can help an industry grow.

Since April 2010 the FiT for solar PV installations on homes has been 43p per kW. In April 2010 prices of installations were quite high. Quotes being banded about at the time for a 3/4 kW installation were £15-20k.

Today the FiT is 21p and quotes being banded around for the same system are between £7500 and £9000.

Clearly prices have come down. This is due to the knowledge, scale of production, and general competitiveness within the market place improving. There are a variety of companies, all of whom have to select their panels on a basis of price and quality, and there are some good solutions for customers to choose from.

As a potential investor the best time to buy Solar PV was just before the rate came down when prices were at their best. However long term the industry is still supported and its general awareness in the population is growing.

Today there is a challenge to the government over the cut and that 29,000 jobs depend on the subsidy. Is this really the case?

My thoughts are that the subsidy cut was declared at very short notice and implemented immediately. On the ground home owners take time to consider installations and when they book them in it is sometimes some weeks or even a month or two in advance. They had no prior warning of the cut and so when it was announced there were many "jobs in progress" that would fail to meet the 12 December deadline.

This cut is therefore very inconvenient as it did not allow home owners and installers to plan effectively. However the basis of the cut seems to be fair and in line with the quotes that can be offered. Home owners will still get a return on their investment, just not as great as it could have been a few weeks earlier.

How can governments take account of this situation?

Possibly they can review the market on a more regular basis in a light touch way. small and regular adjustments in the tariff that are planned ahead leave time for individuals to act and make reasonable decisions.