November 18th, 2011

Cuts, cuts, cuts! How to Halt a UK Solar Boom

Government Policy -

Back in April 2010, the UK government introduced the feed-in tariff (FIT); a new scheme to incentivise uptake of distributed renewables throughout the country. A set tariff (different for each technology and size) is given to the generator. For example the smallest scale solar pv tariffs were set just above 40 pence per kilowatt. These are planned to gradually decrease over time, in line with a falling cost of technologies. Recent announcements indicate the cost of solar in the UK has fallen by 30% since 2010, in line with a global fall of 70% since 2008.

On an average home installation of 2.5 kW, this translates to around £1,000 untaxed, index linked income guaranteed for 25 years to the home owner. Installations of this type typically cost £10,000, so one would expect the average installations of this type to provide 15 years of income. An interesting proposition, no?

As in many other nations where FITs have been introduced, investment in and installations of solar pv have soared. By August 2010 there had been around 10,000 installations; a year later this figure had risen to almost 65,000. It now stands at over 90,000 with many more in planning. A huge increase with the vast majority of both installations and installed capacity being attributable to solar pv. A very successful policy, I hear you say.

There has unfortunately been a similar trend in the UK to that of other nations: a FIT that is ‘too generous’ and unsustainable, resulting in early cuts. In fact, they have been so successful that government is progressing with not one but two early tariff cuts, both in the first two years of the scheme. The first of which came earlier this summer, primarily cutting tariffs on large scale solar, with the most recent announced cut aimed at small scale solar.

The second came with Energy Minister, Chris Huhne stating “Since the FITs scheme started it has been successful in encouraging people up and down the country to get involved in local, clean green energy generation…However, the green economy does not exist in a vacuum and it is important, particularly in the current climate, that our approach to public subsidy is responsible and results in the widest possible deployment”.

Compare this to the Spanish collapse of solar investments during 2009, where the industry was crippled by drastic government subsidy cuts.

Nonetheless, FITs have been a successful policy; particularly in filling media inches and getting people outside of the ‘renewable world’ speaking about renewables and solar pv. FITs have generated great interest in renewables, which is a lasting positive to take from a policy that is currently treading an ominous path; for don’t they say any publicity is good publicity?

The FIT is a policy that requires clear and continued government support to guarantee future investment. The mixed signals generated by early tariff cuts clearly undermine confidence in renewable investment. There is danger that this could spread to other related, non-FIT markets; which could be catastrophic if they take hold.

What government needs to do over the coming months is manage these tariff cuts effectively and not mistakenly published details of an early consultation. I offer the following points of advice:

  1. Tariff levels: Getting the right tariff levels in the first place would avoid much unnecessary uncertainty in already wary investors!
  2. Intended outcome: Make sure the scheme is sufficiently controlled that it delivers the desired outcome and not one that means early changes are required. The UK FIT was originally designed to increase household uptake of renewables, but it instead led to some of the largest UK solar parks being created which have taken much of the available pot of money.
  3. Making announcements: How to announce a cut to a (too) successful policy is crucial and leaked papers only fuel rumours!
  4. Continued support: FITs have proved arguably too successful, especially for solar pv. In an industry that is being transformed by the scheme, government must continue support or risk undoing all its good work.

FITs are primarily a financial incentive and this alone is not sufficient to make lasting changes. It is but a mechanism, although a vital one; enabling lasting, wide spread change, moving the UK’s cleantech industry towards the ‘mainstream’ by building a lasting low carbon economy. By calling an early cut to the tariff, and only leaving industry six weeks to adjust can hardly be called sensitive. Neither is a date for changes to come into effect falling before the consultation period is over.

There has clearly been greater than expected investment in solar pv over the last 18 months, but this is sure not the most appropriate approach to manage ‘over-demand’; which indecently should not be a bad thing; should it?

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George Phillips

About George Phillips

George is a cleantech analyst and distributed energy campaigner. George launched the consulting venture IndREcon in 2010, reviewing cleantech innovation business plans before joining Orion Innovations, a London based specialist strategy consultancy firm focusing on innovations in emergent sectors, primarily Smartclean industries. George is originally from London, but lived in North America and Europe for almost 10 years. He is currently developing GLD in London UK. @gphillipsUK @GLD_UK *Views expressed are my own *

  • rob

    Hi all. i run a solar sales company, doing around 50 fits a week, have been in it from the start of the FIT.. so have been through the changes and the ups and downs.. its a pretty simple set of problems that’s holding the UK back…. 
    1. The “closed” market monopoly that the energy companies have means that if they support Solar PV they are supporting a product that will reduce their profits2. Because the energy companies pay the FIT they simply put the price of energy up, to cover it so you end up with people who have cash, installing solar getting a far lower bill ( usually in a bigger house) and a tax free income which is funded by people who can not afford solar via an increase in energy bills tax the poor to pay the rich3. The R.E.A.L ( solar police) is run by a x-trading standard woman who has no idea how to help an industry or any idea about business.. a classic example is.. you can not offer a discount to a customer if they recommend a friend.. its ok for SKY, M&S and a million other companies but not us, and if your are not a member or REAL you can not get MCS and thus can not sell and install solar.. guess who funds the REAL.. UK Gov.. who control the energy companies.. on the non exec directors of the big 6 energy companies.. there are now over 60 members taking an income and yes, you guessed it who all were/ are members of UK gov..4. the energy companies do not make energy, uk gov owns the power stations and sells electricity to the big 6 at around 3p/ 4p per kw… the big 6, dont actually do anything other than admin and the odd upgrade / repair but charge 16p per kw.. our tax money still pays to run the power stations to produce the product ( energy ) and the fuel to burn etc…. that we then have to pay for.. 5, You can not become an energy provider.. we tried, uk gov told us there would be a 2 year “vetting” procedure and then we had to buy 2 million customers electric supply up front before we sold or switched a single customer.. its 50-80 million cash punt.. oh and its reviewed every 6 months.. like most things in the uk when you start to get in to “big” business, its a closed market that is run for the gain of very few at the cost of the average Joe.. ( and i am x forces so proud to be British)  the really sad thing about all this is… SOLAR PV is the only real product that provides clean free energy, if a 3rd of the uk housing stock had it.. we wouldn’t need a single power station, its the best chance of saving the planet, creating sustained NONE IMPORTED ENERGY ( OIL GAS ETC) a future for the country and future generations and the actual cost, ( before vat, profit, commissions remedial work etc and over heads) is around 5k for a 4kw system ( more than any 1 home needs).. to put this in to perspective . we could become a solar “country” with no real bills etc etc , for less than British gases last years profits..or for the same amount that the 3 major gov parties spent on (wait for it)….. there combined election campaigns … we are an Island, as fossil fuels get short the cost of getting them here will go up and up…  unless uk gov starts to support the industry and takes the almost impossible regulations away, PV which is the future, HAS NONE…