After sitting at my desk for the best part of half an hour refreshing my screen, the Department of Energy and Climate Change (DECC) finally published what we have all been waiting for: the consultation on the comprehensive review of feed-in tariffs. Shortly after 10.30 this morning the new rates were announced, and the UK solar industry was delivered its fate.
After I had recovered from the shock of it all (I’m never at my best first thing on a Monday morning, but a week rushed off my feet in Birmingham at Solar Power UK 2011 rendered me nigh on traumatized by harsh cuts and amended dates), I sat down to soak up the comments and questions from those currently active in this exciting – if not infuriating – sector.
Many of you will be more than familiar with this morning’s news, but for those of you who have somehow managed to miss out, the following has today been proposed:
- Feed-in tariffs could be cut to 21p for systems up to 4kW
- New rates for systems up to 250kW could be as low as 12.9p
- New rates will go through from April 1, but will affect all systems installed on or after December 12, 2011.
Other (less poignant) proposals were also put forward today, but judging by your comments, phone calls and email messages I believe the above are the areas that everyone is most concerned about and so these are the points I will concentrate on in the ensuing bluster.
It’s not all about the money, money, money
The proposed 21p rate has prompted, as was strongly suspected, extreme backlash from the UK solar industry. While this rate is far higher than the rumoured 9p, and marginally elevated from the anticipated 20p rate, the fact remains that reducing the feed-in tariff rate for systems up to 4kW to 21p is slicing more than 50 percent off solar industry income.
Taking to the Solar Power Portal comments section to vent their anger, solar industry players outlined just what the cuts mean to them. A selection of Solar Power Portal readers’ comments include:
“RIP solar PV. How to kill an industry overnight!” (Ray Lacey)
“Goodbye solar industry!” (SolarMourner)
“Anybody who does not see this drop killing the industry is a fool. A drop to 31p would be nearer the mark.” (Richard)
“We were expecting the cut in April, but the December deadline means sensible projects that have taken months to develop are killed instantly, and a whole sector of the economy has been wasting its time.” (Matthew Rhodes)
As I write this piece, more than 50 of you have remarked on the announcement so far, highlighting the furious state in which many of you are currently find yourselves.
My hands are tied
While many of you wave goodbye to hopes of a lucrative UK solar industry, others are bidding farewell to members of staff welcomed through the door just a matter of months ago.
Business Green reported this morning that at least one firm is now expecting to begin redundancy proceedings this week, as it will need to give staff a 30-day notice period before actually letting them go. Others have commented on Solar Power Portal to express how they will be forced to implement job cuts on the back of these drastic changes.
“[I’ve] just wasted 12 months of my life and about 20k in setting a business up. Need to go sort termination of employment letters for the staff!!! Have the Government thought about 26,000 jobs and loss of tax and NI revenue? I think not!” said the aptly named Ex Solarman.
Howard Johns of the recently-launched ‘Cut Don't Kill’ campaign said, “We are happy to accept some cuts, but the government must recognise that wiping out 4,000 companies and 25,000 jobs by cutting too deeply would be an appalling waste of economic potential.
“Our message to the government is cut us, but don't kill us – we want a sustainable cut that would allow us to survive and deliver the green growth that David Cameron said he was committed to.
“The government has a choice – either they can cut like this and make an entire industry go bust, or they can work with us to properly plan the phasing out of the tariff bit by bit, which will produce a flourishing industry that won't need any subsidy or support.”
Jeremy Leggett, Founder of Solarcentury, took to Twitter to say, “@GregBarkerMP: RU ashamed that DECC announces 1,000 jobs for Big6, cost of £1 billion, on day you cut thousands in solar 4 2 parts nothing?”
Meanwhile, a senior executive at one solar installation company explained that industry would see an 80 percent drop in demand, which could lead to an equivalent level of redundancies.
“This will result in massive job losses and my company is no exception,” he said.
Too much, too soon
While many of you were suitably outraged by the newly proposed rates, much of the reaction to today’s announcement has had more to do with the timing of the changes than anything else.
Under the proposals, the new tariff rates would apply to all new solar PV installations with an eligibility date on or after December 12 this year, meaning installers are now faced with a six-week timeframe to complete projects before incentive levels are sliced by more than 50 percent. What’s most striking about this aspect of today’s announcement is of course that the consultation will end on December 23rd, while the deadline for installations is now the December 12th.
Solar Power Portal reader DGL said: “Why oh why December? The UK only has a finite number of accredited installers. Everyone was expecting FiT rates to fall by the end of March 2012. Blame the 'bubble' on the last administration who introduced the FIT scheme, and who didn't foresee the global reduction in PV panel prices.”
Steve, another reader, exclaimed: “How is this a consultation if the changes start to happen before the consultation period is over???????!!!”
Currently, the level of return for those in the UK solar industry is around 10 percent for installations in the residential sector. The new FiT rates are expected to bring a ~5 percent level of return, highlighting why so many are outraged by the proposals.
"There were investors who, after the early changes to support for solar farms, said they would not in the future touch UK low carbon projects that were supported by policy," said Dave Sowden of the Micropower Council.
It’s not all doom and gloom
Piping faintly in the midst of all of the commotion are those who believe today’s announcement is a positive move.
An assortment of the more positive comments on Solar Power Portal today read:
“15.2p for systems 10kW – 50kW is great news, moving forward we will easily be able to sell this.
What isn't good is the 12th December cut off date. It will be 'squeeky bum time' [sic] for us for the next five weeks.....” (Shaun)
“It’s not all doom and gloom; the fact is the installer has been making substantial money per job, which still enabled the end user to make a double-digit investment. Now the margins will have to be cut and the end user can still make a double-digit investment, companies will have to sell their services rather than just relying on the FiTs to do their job.
I suggest stop moaning about something we have no control about and start working on how we can move the industry forward. Money is still out there to be made!” (Jim Beam)
“PV has had far too high tariffs which has led to the free solar install brigade who collect the FiT; this proves the tariff is too high… why else would anyone supply and install for free unless there was some serious money to be made, the industry can now get back to some normality, the gravy train has left.” (Chris Flaherty)
“Only the fittest will survive, so those companies with massive bank loans will struggle – as will those offering free solar... not cool, but not the end.” (SuperSolarStar)
Speaking with Chris Hopkins, Managing Director of Ploughcroft Solar, I heard more about how the new rates can be viewed as acceptable:
“The rate of the proposed FiT cut did come as a shock. We always knew the rate would be reduced as the solar industry boomed, but we did not expect it to be halved. All of the current news seems to be destructive, and this will only destroy consumers’ confidence in the solar market. We need to look at the positives that come from this announcement – and there are many,” he explained.
“With production and manufacturing costs coming down in price over the last 12 months, and a typical installation now only taking one day instead of two, then it stands to reason that the 41p FiT rate was unsustainable for the long-term. Although a cut to 21p per kWh is a big drop, look back to April 2010 when the FiT was first announced. If technology and installation costs have halved, then it stands to reason that the government would half the tariff.”
“I believe that the new FIT will be good for the sustainability of the solar sector,” he concluded.
And, interestingly, these voices are not alone. Solar Power Portal opened a poll this morning to gather some statistics from today’s announcement. Sure enough, while many felt that 21p would be impossible, more than 7 percent are confident they can make it work. Now I know this percentage is only marginal in comparison, but it proves that some people out there have faith, and that’s something at least…
What does 21p mean to me?
Having spent half the day gathering my thoughts, I believe I have finally got my head around what 21p really means.
I am not in any way pleased with 21p, and I want to get that across first and foremost. This tariff rate is not high enough, and these cuts should never have been proposed (please refer to my large-scale fast-track review articles for my full and frank feelings).
I do not agree that a fast-track review is the way to deal with growth, as there are hundreds – if not thousands – of you out there who will be left seriously out of pocket due to orders already in place and wheels already in motion.
However... I don’t believe DECC had much of a choice at this point.
The fact is: much of the damage to the industry we’re looking at today had already been done. The original FiT rates were too high, and when there was opportunity to change these back when the larger-scale systems were chopped down to 8.5p, DECC did nothing. Instead, almost three months later, the Minister is left with no choice but to reduce the FiT rates – and fast. Industry was shouting at the top of its voice for changes to be made in order to avoid this situation, but unfortunately, its shouts fell on deaf ears.
“For the industry the last eight months have been like riding a roller coaster. A second fast-track review of solar tariffs has become necessary, but could have been avoided had DECC taken our advice,” says Gaynor Hartnell, Chief Executive of the Renewable Energy Association.
“The REA had called for a more modest reduction some time ago. Had this been done, we’d have seen less boom and bust and the transition arrangements would be more straightforward. The installation rate is likely to fall drastically, and many of the 25,000 newly-employed in this industry may end up joining the dole queue. It is deeply regrettable that this technology, whose prices are falling so fast and which will inevitably have a bright future in the longer term, has had such a traumatic start in the UK.”
Looking at things from a more optimistic (let’s face it, someone needs to be) point of view, I can see the 21p working – but it will slow things down dramatically. Much of the supply-chain fat will be trimmed to the point that all ‘free PV’ or so-called ‘rent-a-roof’ programmes will fall flat, and all those who have got into the solar game for a large slice of profit pie will need to knock on someone else’s door.
As solar industry costs begin to fall and the market becomes less competitive, those with strong business models and trustworthy suppliers will prevail. It will not be an easy road, but many will make it. That, I firmly believe.
Until then, it is up to us as an industry to make as much noise as possible to ensure that if there is something that can be done, it is done. Your comments today prove that there is life in the old industry dog yet – let’s show them what we’ve got.
