The U.K. is on the green energy bandwagon. The nation's energy minister hopes to bring solar installations from 2.4 gigawatts (GW) in June of 2013 to 20 GW by 2020. The U.K. offers a host of solar feed-in tariffs, but the current scheme is only set in stone until January 2014. Changing political winds could wreak havoc on the market, and there are geographical constraints that put limits on the U.K.'s solar potential. 

The dark side
One of the U.K.'s biggest problems is its location. It is quite far north, and this limits the amount of sunlight that reaches the ground. In Spain unsubsidized solar systems are profitable, but the U.K. is simply more challenging. 

Some believe that an unsubsidized U.K. solar plant could already be profitable, but beyond other issues, such estimates commonly project annual energy inflation around 6%. At first this assumption looks realistic, as in the past 8 years the U.K. has seen energy costs grow at a 7.8% compound annual growth rate. The problem is that U.K. consumers are already in an uproar over energy prices, and the Labour Party has proposed freezing energy prices completely. 

If the Labour Party were to freeze energy prices, solar PV systems would be hurt. The majority of money on a solar PV system is made years after installation, when inflation has caused grid prices to skyrocket. The fact that the Labour Party is willing to make such a radical proposal shows that regardless of who gets elected, politicians are going to go to great lengths to push down energy inflation, thus decreasing solar's potential return. 

The lighter side
The recent cut in the U.K.'s feed-in tariff from 14.9 pence per KW to 6.85 pence per KW for small installations has hurt the industry, but some companies are expanding. The large retailer Ikea just announced that it will start selling solar PV systems in the U.K. 

Even in the worst case scenario where prices are frozen, feed-in tariffs are cut, and the U.K.'s solar PV market doesn't take off for another couple of years, SunPower (NASDAQ:SPWR) is one solar manufacturer to watch. The company makes high-efficiency panels, which would help U.K. citizens to use their real estate as effectively as possible. It hopes to bring its efficiencies up to 23% by 2015.

Right now falling subsidies have hurt its European operations. In fiscal year 2013 SunPower expects Europe, the Middle East, and Africa to be the smallest of its three geographical segments. 

Overall, SunPower's backing by the European energy company Total, its experience in the roof top market in Japan and its high efficiency products make it one of the better positioned manufacturers. 

The U.K.'s potential as a solar PV market needs to be measured in years, not quarters. First Solar (NASDAQ:FSLR) is another manufacturer to watch. In a couple years it may be able to substantially improve its efficiencies and offer a cost-effective product for the U.K. It just signed a deal with GE to take advantage of a number of new patents, and it should be able to bring its panels far beyond its second quarter 2013 average efficiency of 13%.

Thanks to Chilean Miners and Californian utilities, First Solar is currently focused on North America and Latin America. With $33.6 million in net income from continued operations and a total income before interest expenses of $41.9 million in Q2 2013, First Solar has the profits to supports its R&D spending and integrate GE's technology.

The Chinese story
Beijing recently decided it needs to revamp its solar sector. It banned expansions that only increase capacity, and it now requires manufacturer to spend 3% of revenues on R&D. In the short term this will only increase losses for a number of companies. In 2012 Yingli (NYSE:YGE) only spent 1.6% of revenue on R&D. In 2011 Suntech (NASDAQOTH:STPFQ) was even worse, spending 1.2% of its revenue on R&D.

Suntech is stuck in the middle of restructuring, and it is no guarantee the company will even be here in a couple years. Yingli doesn't look too good either. It has a huge debt load and a total debt-to-equity ratio of 11.6, but if it increases its R&D spending and survives, it could make a comeback with Beijing's backing.

Foolish conclusion
The U.K. government wants to generate green power, but rising energy costs are putting a dent in its plan. As feed-in tariffs are cut, it is harder to justify solar PV systems. The short-term U.K. solar market does not look too encouraging, but over the next decade it should improve thanks to more efficient panels.

SunPower is one of the better situated firms thanks to its high efficiency products. First Solar is another one to watch, as its latest deal with GE could make it more competitive by the time the U.K. market heats up.

Joshua Bondy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.