Solar companies mull legal challenge to Huhne

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Solar power companies are considering a legal challenge to Government plans for a review of the "feed-in tariff" (FIT) scheme, set up last year to boost investment in green energy schemes.

After months of uncertainty, the announcement by the Energy Secretary Chris Huhne last week of a fast-track review has created "pandemonium" in the industry, critics claim, leaving all but the smallest domestic projects "impossible to finance" and costing Britain's stuttering economy anything up to 18,000 new jobs.

The Government says the review is vital to avoid large-scale solar "farms" hogging funding and squeezing the domestic market for which the subsidy was intended. Solar companies are incensed. Not only does the move create yet more uncertainty for a nascent industry struggling to establish itself, they claim, but including projects of more than 50 kilowatts (KW) in the review will catch out community solar schemes from schools, hospitals and housing associations, as well as truly large-scale farm installations.

"This is bad news for the solar industry and bad news for the big society," said Jeremy Leggett, the executive chairman of Solar Century. "What the Government is doing is going to be really damaging for companies and investor confidence."

Under the original scheme, smaller roof-mounted solar projects faced a likely subsidy cut from 2013, giving the fledgling industry time to gain momentum. But the latest review, due to conclude in July, now covers both ground and roof panels, and has investors slamming on the brakes at all levels. Industry experts were forecasting 18,000 new jobs thanks to the FIT. But companies are now freezing hiring plans and existing jobs may be at risk, such as the 300 new hires by Sharp Solar for its factory at Llay, near Wrexham in Wales.

"There is pandemonium because this is not just about large-scale projects any more," said Ken Moss, the chief executive of mO3 Power.

The saga over FITs has been rumbling almost as long as they have existed. Within months of their introduction in April 2010, looming public spending cuts were causing concern. And although the scheme largely escaped the Chancellor's axe in the October Spending Review, the inclusion of a cap on the amount of solar power that could be added each year set alarm bells ringing. Within weeks, the Government voiced fears that the FIT was in danger of being dominated by industrial-scale farms and investment slowed.

Now any project reliant on bank or private equity finance will simply grind to a halt, warn insiders. "This is a disaster for the industry – it will be simply impossible to finance solar projects now," said a source at a private equity company that has already pulled out of some solar investments and will hold back on any more in the immediate future.

More than 50 solar companies will attend a second crisis meeting today to finalise a letter to Mr Huhne, spelling out the problems caused by the review. Although some high-profile figures, including Mr Leggett, do not back a legal challenge, insiders do not rule out a recourse to law and discussions with lawyers are being pursued in parallel with efforts to build bridges.