Thursday 21st August 2014                 Change text size:

Bright future predicted for solar as government learns its lesson



Photo: Jimmy_Joe via Flickr

Mike Scott writes how there is little doubt that the UK’s attempts over the last year to get a grip on its solar incentives programme were handled terribly.

The government announced a consultation period on proposed cuts last October but set the date for the cuts to come into force two weeks before the consultation period ended. As well as suggesting that the decision had already been made, it understandably got the back up of the UK’s solar industry and environmental groups, which took the government to court on the basis that its actions were unlawful – and won.

It also rather undermined coalition claims that it wanted to be the “greenest government ever” and suggested that ministers were not taking seriously their own rhetoric about creating green jobs and a low-carbon economy.

But while the execution was incredibly cack-handed – a case study in how not to go about it, in fact – the rationale was surely right. Downing Streetwas caught out by just how fast costs were falling in the sector as Chinese manufacturers ramped up capacity and the cost of key raw materials such as silicon dropped. The price of photovoltaic (PV) modules is 75% lower than it was three years ago and even today the price of silicon continues to fall by around 1% every week.

This meant that UK subsidy payments, known as feed-in tariffs (FiTs) quickly became far higher than needed to encourage uptake of solar. It is a fine balance between encouraging the roll-out of new technology and lining the pockets of early adopters.

Although the industry is understandably grumbling that support has been cut from 25 to 20 years, consumers are unlikely to lose out given the way other energy prices are predicted to rise over that period. And while the last six months have been unsettling for the sector, the apocalyptic forecasts of its demise are overdone.

Indeed, solar is in many ways a victim of its own success in bringing its costs down and seems likely to be the first energy sector to wean itself off subsidies within the next few years, in stark contrast to the more traditional nuclear and fossil fuel providers, which after many decades still remain heavily supported, according to the International Energy Agency.

The solar experience will provide a blueprint for other renewable energy technologies such as wind, wave and tidal and if these technologies can show themselves able to move to a post-subsidy future, it is sure to add to the growing pressure on the fossil fuel sector to wean itself off public support, too – something that G20 governments have signed up to, at least in principle.

A new paper by Bloomberg New Energy Finance says that PV prices have fallen “to the point where solar power is now competitive with daytime retail power prices in a number of countries.

The shift in prices of solar technology carries major implications for policy and investment decision-makers, especially when it comes to the choice of generating technology and the design of tariff, fiscal and other support policies,” the clean energy analyst group says, “but many observers and decision-makers have yet to catch up with the improvements in the economics of solar power that have resulted from recent PV technology cost and price reductions.”

The UKis not the only country grappling with how to deal with this. Rates have been cut around Europe – in Spain, Italy, France, and the Czech Republic to name few – with even Germany, the world’s biggest solar market, struggling to reduce support in a smooth and predictable manner. According to the country’s grid regulator, German solar installations more than tripled in the first quarter compared to the same time a year ago in the run-up to a cut in the FiT.

The thing to remember is that the technology may have been around for decades, but as an industry, the solar sector is incredibly new and it remains extremely artificial. The world’s biggest solar markets are not China, where most solar equipment is made or Australia, Africa, India, Latin America and the Middle East where the solar resource is highest. Instead, they are Germany and Italy, thanks entirely to generous support schemes. But as costs continue to fall, solar power will become truly commoditised, its reach will increase further around the world, technology will continue to improve and costs will fall still further.

In the meantime, governments are having to learn as they go along how to manage subsidy regimes that are doing their job – as costs fall, subsidies are falling.

And the UK government does appear to have learnt its lesson – its latest proposals seem to have been well-received by the industry and provided the certainty that investors need. Cuts to the FiT have been delayed until August, from when the tariff for a small domestic solar installation will be 16p/kwh, down from 21p, and it will decrease every three months, with pauses if the market slows down. At the same time, the export tariff will be increased from 3.2p to 4.5p.

Even Friends of the Earth says that the industry “has been broadly put back on its feet”.

Just as importantly, the infrastructure the industry needs to enable it to thrive is catching up with the supply of cheap panels – recent examples include the change in planning regulations which means small-scale commercial solar installations no longer require planning permission and the announcement by Engensa of a dedicated loan that enables homeowners to “Pay-as-they-Save” for their solar PV system out of the FiT payments and savings from their energy bills.

The tale of UK solar subsidies was a sorry saga – but the future for the industry is looking brighter as a result of it.

Mike Scott is a freelance writer specialising in environment and business issues for the press and corporate clients. His work has been published in the Financial Times, The Times, the Guardian and the Daily Telegraph as well as in business publications ranging from Bloomberg New Energy Finance to Flight International.

Further reading:

Industry relief as feed-in tariff cuts delayed until August 

Germany solar market battles on despite subsidy cut warnings 

Davey confirms possible delay to feed-in tariff cuts

Cashing in on solar panels 


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