The government has failed in an appeal against a decision which blocked its attempts to reduce solar subsidies.
The Court of Appeal case involved the government’s move to halve the payments made to households with solar panels, which it says are unsustainable.
However, the government has said it will seek leave to take the case to the UK’s Supreme Court.
Under the feed-in tariffs programme, people in Britain with solar panels are paid for the electricity they generate.
The rulings will not affect households that have installed panels before the changes on 12 December.
Solar businesses and campaigners had warned thousands of jobs could be lost as a result of the proposed tariff cut.
“We want to maximise the number of installations that are possible within the available budget rather than use available money to pay a higher tariff to halve the number of installations,” said Energy and Climate Change secretary Chris Huhne.
Employers’ group the CBI said the government should abandon its legal battle.
“The judgement should be used to draw a line under this saga, which saw the government scoring a spectacular own goal and confidence in the renewables sector undermined,” said director general John Cridland.
The decision, and the government’s intention to launch a second appeal, will lead to widespread uncertainty for consumers and installers.
It means consumers cannot know what subsidy they will receive for any panels installed since 12 December.
The previous tariff was just over 43p per kilowatt-hour generated.
The new tariff of 21p per kilowatt-hour had been expected to come into effect from 1 April.
But in October, the government said the cut would take place ahead of schedule, with the reduced rate paid to anyone who installed solar panels after 12 December.
The government announced a consultation on the proposals, which closed on 23 December – 11 days after the decision was to have been implemented.
The High Court ruled that changing the tariffs in this way was “legally flawed”, a decision the Court of Appeal has now upheld.
The change had particularly upset industry, as it affected projects which may already have been commissioned, but not installed.
“This decision has very important implications for the whole renewable energy sector in the UK,” said Ben Warren, a partner at Ernst and Young. ”It is a clear message that retrospective adjustment of support is not acceptable,”
The government has put a contingency plan in place which would see the current tariff, of 43p, remain in place until the start of March, when the tariff will reduce to 21p.
This means consumers can have certainty that any installations past 3 March will attract the lower rate.
However, the Supreme Court appeal means people installing panels now, or who have installed panels since 12 December, will not know what rate they will get until the legal process is over.
The government claims paying the higher rate between December and March would cost the scheme £1.5bn over 25 years.
The tariff for surplus electricity exported to the national grid remains 3.1p per kilowatt-hour paid in addition to the tariff, and is unaffected by the changes.
There is also uncertainty about the sustainability of the reduced rate – as a rush of installations now may use up the scheme’s remaining budget.
“The future of the feed in tariff beyond April 2012 is now hugely uncertain. Government and industry now need to work together to create a sustainable solar industry in the UK,” added Mr Warren.
The Renewable Energy Association has called for the overall budget to be increased.
“The government’s action and the subsequent court case had together thrown the solar industry into a state of extreme uncertainty,” said chief executive Gaynor Hartnell.
“We now want to put this behind us as swiftly as possible, and work with government and supporters to secure a larger budget for small-scale renewable energy generation,” she added.