LONDON (Reuters) - The government on Thursday recommended slashing subsidies for solar panels on homes from July 1 after a jump in installations last year nearly exhausted its support budget.
The Department of Energy and Climate Change (DECC) said it is proposing a reduction in Feed-in Tariffs (FITs) for solar installations of 10 percent every six months.
DECC is holding a consultation period and left open the option of smaller cuts if the 10 percent reduction is deemed too drastic.
The government has already decided to halve subsidies from March 3 to 21 pence per kilowatt-hour for solar installations of less than 4 kilowatts, which could save it an estimated 700 million pounds annually by 2014-15.
It is weighing three alternatives for further cuts from July 1, which will depend on how many further solar installations there are in March and April.
As costs of solar technology have dropped since the government introduced subsidies in April 2010, the number of installations in Britain has skyrocketed, straining the FITs budget.
"What we have to do is capture these falls in prices for the consumers so they get better value and we put the solar industry on course to becoming a mass market competitive alternative to fossil fuels," said Gregory Barker, minister for energy and climate change, at a briefing on Thursday.
The government estimates the number of solar installations in the 21 months since the subsidies were introduced was five times what had been predicted.
The number of installed solar projects in Britain doubled in less than two months to 230,000 projects until December, government data showed.
"Never again should we have a fixed price tariff that allows a bubble to grow and offer unduly large rewards," Barker said.
In addition to the planned biannual cuts, if there is a surge in the number of solar installations at a particular subsidy level, further tariff cuts could be triggered. All tariff cuts will be announced with two months' notice.
"Such rapid changes to the size of the subsidy would be in direct response to market signals," DECC said in its proposal. "So the tariff changes should have a stabilising rather than a destabilising effect."
Environmental groups and the solar industry have criticized planned cuts to solar subsidies, saying they would cause economic uncertainty and destroy jobs.
Barker said the lower tariffs will allow for more solar instalments overall, and said the government expects Britain to have 22 gigawatts of solar power generation by 2020.
A new tariff rate of 21 pence per kWh will apply to all home solar installations from March. A separate tariff of 16.8 pence per kWh will apply to organisations with 25 or more installations from April.
(Additional reporting by Oleg Vukmanovic; editing by Jason Neely)