Feed-in tariffs, a policy mechanism designed to accelerate investment in renewable energy technologies, have been used successfully in many countries to increase the amount of electricity being generated from renewable sources.
The UK has actually been fairly slow off the mark on this. Our aim to be ‘the greenest government ever’ included support for feed-in tariffs.
Indeed, in the Coalition Agreement the preamble to the section on Energy and Climate Change said: ‘We need to use a wide range of levers to cut carbon emissions, decarbonise the economy and support the creation of new green jobs and technologies.’ It went on to say ‘We will establish a full system of feed-in tariffs in electricity,’ and ‘We will encourage community-owned renewable energy schemes where local people benefit from the power produced.’
So what is happening to the system of feed-in tariffs? And how are the changes going to encourage community-owned renewable energy systems?
Well, the consultation that Chris Huhne’s Department for Energy & Climate Change has just started includes introducing a cut-off date for the current solar power scheme only six weeks into the two month consultation period, and a slashing of the feed-in tariff rates for smaller schemes.
The industry has gone into overdrive to install systems under the current regime. But what then?
The current tariff provides a payback of 10 years or less. The industry knew that this is over-generous and six months ago they were suggesting a cut of about 30% would be appropriate as competition and technology changes were bringing prices down.
But the proposed new rates would provide a payback of nearer 20 years, and only then if one has a near-perfect aspect for the installation. This will dramatically reduce the number of viable sites, and undermine the fledgling industry that has created 20,000, mostly skilled, jobs in the last year or so.
So how does the proposed change, and the way it is being handled, ‘support the creation of new green jobs and technologies’?
Community-ownership of renewable energy can come in many shapes and sizes, from a large wind or water turbine in a town or village, to photovoltaic panels on the community centre roof. And should ‘community’ in the wider sense be included, to mean some of those corporate bodies working for the good of their community, like social housing providers and schools?
If so, Chris Huhne’s proposals to slash rates for ‘multi-installations’ will undermine this element of the Agreement too.
Trying to be positive, the consultation does include a very valid point of encouraging investment in energy efficiency before investing in solar power or photovoltaics (PV). And of course, it IS consultation. When the results are analysed and the changes finalised, it may be better than both the industry and many householders fear…
I am naturally an optimist, but that doesn’t mean we shouldn’t fight to ensure that Chris Huhne’s department sees sense.
* Lucy Care is a member of the Lib Dems’ Federal Policy Committee and Federal Conference Committee; was a councillor in Derby from 1993 to 2010; and a general election candidate in 2005 and 2010.
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14 Comments
It seems reasonable to me that as the scheme gets established, and the price of installations starts to come down as a result, the tariff would steadily drop. In this way investors would continue to be offered a good enough rate of return to encourage investment without the overall cost to the Government becoming unaffordable.
However this sudden announcement of a sharp drop in the tariff seems counter-productive and sends out completely the wrong message.
Solar Power is on of the least efficient means of generating electricty, particularly in the UK which is not known for long periods of intense sunshine.
The effect of increasing solar power is to transfer money from poor working class electricity users to better off middle class home owners thus increasing fuel poverty.
A recent study commisisoned by the Consumers Association from Cambridge University has more information on the effect on poor households
http://www.eprg.group.cam.ac.uk/wp-content/uploads/2011/05/ReportforCAFinal100511EPRG.pdf
I entirely agree with the article. Whilst it is reasonable to expect adjustments to the FIT scheme over time, the current proposal undermine projects in progress and threaten to bring a crunching halt to installations over the winter at a severe cost to jobs. Much better for economy and the environment to start adjustments for next year in line with anticipations rather than shutting it off early.
To achieve the UK’s 20% renewable energy target for 2020 (that’s energy, not just electricity) we’ll need to invest in many different renewable technologies. According to DECC this will need to include 30% of our electricity coming from renewables. Although I agree that £ per kW solar is not as cost effective as some other technologies, it does have several advantages including; relatively low cost entry so allowing individuals to participate, being publicly acceptable unlike a lot of wind power schemes, and needing no electricity grid enhancements (except for solar farms). And at least we’ve been getting on with it!
Regarding low income households, as I mentioned in the article social housing providers are investing on behalf of their tenants (For example, Derby is spending £5m on this, and another £2m is now in limbo) and ‘rent-a-roof’ schemes have also provided the benefit of ‘free’ electricity when the sun is shining, for households without capital or borrowing ability. Funding the feed-in tariff is regressive, but it at least acts in the form of a clearly hypothecated tax (and subsidy) – and there is lots of help and ideas for both home-owners and tenants to reduce their energy demands. Incidentally a lower feed-in tariff will also make less-than-optimum installations financially unviable, so that fewer households will be in a position to benefit.
Meanwhile the more that we can reduce our dependence on fossil fuels for electricity, the less gas and coal we will need to import – which helps our balance of payments and international interest payments. And this will benefit everyone in the long term.
Brilliant article Lucy. The worst thing a government can do to any industry is to make short term decisions one after another. This consultation comes after the recent consultation on the 5MW limit for solar. NO ONE IN FUTURE IS GOING TO BELIEVE A THING THE GOVERNMENT SAYS ABOUT RENEWABLES AND FITS. The louder you can shout the better. This is no way for LibDems to act in government. Hard decisions are necessary when we are in such a financial state. Panic decisions just bring the government into disrepute – just like every other government before this one. Give ’em hell!
A payback time of 20 years is frankly ludicrous and for 99% of the population will fall in the “not worth bothering” category. Is this their intention?
Thank you for some common sense. The consultation proposals risk wrecking this country’s developing solar industry and undermine the Government’s claim to be the greenest ever.
It is misguided to consider FIT payments in terms of Return On Investment as money spent on panels cannot be cashed in like liquid investments. More important is the payback time; typically this is 8 or 9 years now but will double to 16-18 years. Few people stay so long in one house and no-one can know their circumstances far into the future.
Rather than reducing the FIT, it should be INCREASED but paid over a much shorter period, reviewed annually in line with installation costs. For instance, £1.05 per kWh paid over 5 years would be equivalent to the proposed 21p per kWh over 25 years. People would be fairly sure of recouping upfront costs, as well as benefiting from lower electricity bills indefinitely.
The FIT has resulted in over 90,000 installations since last April and a 900% growth in the country’s solar power potential since subsidies were introduced.
A huge industry has grown up around solar PV which is creating thousands of jobs at a time when most business sectors are in decline. In the past 12 months alone the number of people working in the industry has jumped from 3,000 to 26,000.
It’s vital that the cuts in the Feed In Tariff are made in a sustainable manner to continue this growth in UK Solar.
For all the doubters: pv is extremely effective. An average 4 bed detached house will use 4000kWhs per year. A 4kW system with 16 x 1.5m modules produces 3450kWhs per year. Some in the big6 might be getting twitchy! Step the fit down gradually and we will build an industry capable of achieving grid parity. (look at the German example: 8.7 billion contribution to the economy and 300000 jobs) Otherwise I will join the dole que with 30 colleagues and the knowledge I have gained is all for nothing. P.s I cancelled a large order with a British module manufacturer this week thanks to Greg Barker and the DECC. How will we deliver the Green Deal if we go out of business? 6 weeks notice is destroying a brilliant new industry. We have done everything the government has asked of us and to be treated like this is disgusting.
I would like to know where the party learned the art of shooting itself in the foot on these policy matters?
I shared Lucy’s concerns but at least one PV installation company doesn’t think this is a problem
“We had anticipated the FIT payments being slashed by the Government and actually think it is a good thing. It will clean up the industry. We will continue installing our free solar panels and it won’t affect our customers at all, who will continue to benefit from day one. Keep applying, we have thousands of free systems to install.”
http://ashadegreener.co.uk/
Great article Lucy. I have been commenting on this since the announcement last week on the members Forum and very disappointed with the response amongst LibDems. Hywel’s comment above is typical. This misses the point totally and RMeehans contribution is spot on. I like Alun J’s proposal too, the main problem being that for people contemplating the change to PV is the length of time till payback. One of the contributory factors here is the delay in rolling out the Green Deal which would help (in theory) by removing the need for upfront investment and making this available to a wider range of consumer.
The Tories continue to get their evil way in government despite not having won a majority. Wake up Nick! (and Chris, and, especially perhaps, Tim!!!)
The company Hywel mentions sounds like one of those taking advantage of the FITs to install systems on people’s roofs, retaining the FITs themselves. They are one of the “multi-installers”.
It’s a capitalist move in a capitalist economy – and nothing wrong with that. It allows people without capital to benefit from ‘free’ electricity. But as Simon McGrath pointed out, the return on investment is paid out by all electricity customers as the FIT. Do we feel differently when this return is going to a corporate entity rather than individual households?
The lower tariff will probably mean they will be fussier about the exact aspect of the roof and overshading, so a narrower range of people will be able to benefit.
The problem is that the many installs that groups like this have done have pushed the scheme over the Treasury-agreed limit.
The annoying thing is that this is an arbitrary limit (as far as I can see) and could be changed.
And when we hear that our balance of payments is the worst ever, and Nick’s recent investment announcement apparently included a solar panel manufacturing company in Birmingham…
Good article – hope all LibDems MPs who will be voting on this tomorrow have read it.
They should also read an older LDV post here
https://www.libdemvoice.org/clegg-unveils-plans-for-huge-expansion-in-renewable-energy-with-energy-independence-by-2050-3208.html
This was Nick Clegg promising an effort on renewables equivalent to putting people on the moon. Yet he and Huhne are presiding over a scheme being cut because fitting the same amount of solar in a year as Germany manage in a month is apparently far too much progress.
This gap on an issue as central to LibDems as green policy is so damaging to the party.