By Stephen Cirell
Last week the Solar Power UK conference was held in Birmingham and the keynote speaker was Greg Barker, Minister for Energy and Climate Change. It was rumoured that he would make a ‘big’ announcement but, in the end, this did not happen. The announcement was leaked in the following days and was finally released by DECC on Monday October 31. The result: a large cut in feed-in tariff rates from the end of this year.
The Government has formally consulted on these changes but has already announced its conclusions, which will come into effect in December. It seems likely that ‘emergency’ powers in the legislation will be used for this purpose and this has raised the possibility that the move will be challenged. No doubt the debate will throw up all of the reasons why the solar PV industry can feel indignation about this situation: the fact that the Government has capped the budget at all; the fact that insufficient funds were allocated by DECC; the loss of jobs in the solar industry at a critical time; the scale of the reductions and so on. But the simple fact is that the money that had been allocated to this budget has effectively gone and DECC needs to bridge the position until the end of the CSR period in 2014.
Whether a challenge is mounted and whatever its outcome is not the point for me – instead we need to look forward to where this leaves local authorities aspiring to renewable energy strategies that have not yet been delivered. From talking to a number of different people about this, I seem to be on a different plane to most others. I accept the reductions in FITs as inevitable and remain firmly positive about the future.
The reason for this is that a good local authority strategy was never just about solar PV anyway (or should not have been). Local authorities are now developing more sophisticated strategies that recognize the links between energy use, energy efficiency (particularly in buildings) and the generation of energy from renewable sources. A good strategy achieves balance between the different elements and ensures that one complements another. The move towards the goals that have been set in such strategies continues.
The simple advice to any local authority that is in a position to have solar PV fitting work undertaken before December 12 is to pull out all of the stops to do so. This might include authorities that are undertaking work now (which can be accelerated) or have tenders in that can be accepted and processed quickly enough, or which have other contracts (such as building maintenance) that can be used for this purpose.
If you are not in this group, however, the best advice is not to rush to try and get something sorted, but to play the longer game. Any attempt to get a job started and completed by the new deadline is likely to be fraught with difficulty and not necessarily end in the desired outcome.
The key points in any future approach are the strategy and the business case. Both can be viewed positively.
As for strategy, the focus recently has been on buildings based PV. My first large-scale experience in this field was the proposal to build a 5MW solar farm for Cornwall Council, using FIT rates. This type of project was shelved in August when the rate went down from 28p to just 8.5p per kwh. However, there is always more than one way to reach an outcome. The Renewables Obligation also applies so large solar PV installations and there are double ROCs on offer under that incentive, meaning that around 15p per kwh can be raised in income (including the sale of the electricity), using this route. As panel prices continue to fall, it will not be long before this will make sense again and so from 2012, this type of facility will be firmly back on the agenda. This is very relevant to land owning authorities.
The other element of strategy is the variety of different sources of money. The Renewable Heat Incentive is just about to begin and involves the Government paying money for renewable heating. There are those that say what has happened in relation to FITs should make us wary of the RHI. I say the opposite: learn from your experience. If you did not get in quickly enough on solar PV, be at the very front of the queue for RHI and Green Deal, both of which are yet to roll out and offer huge promise. Biomass, in particular, can make a huge difference to local authority renewable energy strategies.
Finally, a word on business cases. Despite the doom and gloom around, all is not lost on the new FIT rates. At Solar Power UK last week, I asked Swindon Commercial Services (a wholly owned company of Swindon Borough Council), which has developed considerable expertise in the solar market for local government and has put together a robust financial model, to run that model on 21p per kwh for social housing. The result was that a return of 5% was still possible on the new rates, if you are experienced enough to know where costs can be reduced. The PV panel manufacturers have also recognized their responsibility to drive down prices further in order to make up the gap left by the lowering of FiT rates.
One of my mantras on solar PV over the last year has been this: its not all about the money! Many have not listened to me on this, but the underlying message was always very sound. A local authority scheme offers many other benefits, as I outlined in the APSE paper The Virtuous Green Circle. These include community leadership, energy security, carbon benefits, effectiveness and efficiency and so on. Despite these hugely beneficial effects, the focus was very much on the income generation and a substantial contribution to the medium term financial strategy.
Whereas Cornwall Council would have made a 20% return on its solar farm before, now that return would only be 5%. But that is 5% in a very tight financial climate, where money on deposit is earning a fraction of that, and with resulting jobs, carbon emission benefits and our own supply of renewable energy to offer energy security.
Solar PV has been popular because it is easy to arrange and manage and fits with the buildings profile of the public sector. But there are other avenues of the green agenda that are still available (such as wind power, biomass, heating and the like) that can still make the financial contributions that are needed. Solar will continue to play a part in green strategies, but probably at a different level for the next few years.
So I return to my central theme that there is much to be positive about in relation to the green agenda and its integration with the corporate agenda of every local authority. There has never been a better time to consider how can we make the most of the incentives that are still available.
Stephen Cirell is an independent consultant on renewable energy and low carbon projects. Stephencirell@me.com
