Select committee panel warns of European-style solar downturn, questions LCF use

An Energy and Climate Change select committee panel has warned that the UK faces the same kind of solar downturn witnessed in Spain and Italy if the government follows through on prospective cuts to solar.

The panel, which included STA chief executive Paul Barwell, Lightsource CEO Nick Boyle and NextEnergy Capital MD Abid Kazim, also discussed the use of the Levy Control Framework after committee chairman Angus MacNeil asked if the LCF was “the biggest state secret” in the country.

This morning’s hearing formed part of the committee’s ongoing inquiry into investor confidence in the UK and began with MPs probing the panel on the domestic solar market and its future prospects given the looming feed-in tariff consultation outcome, which MacNeil described as “imminent”.

Kazim accused the government of “cutting its nose to spite its face” if it was to follow through on the prospective cuts, but also suggested that the associated deployment caps would be “bigger killers” than the tariffs themselves. This would, Kazim said, create more uncertainty over deployment by allowing the situation wherein an installer would not be able to connect a longstanding project if a quarterly cap had already been breached.

In a wide-ranging evidence session the EU minimum import price was also raised with several questions posed by MPs aiming to shed more light onto the mechanism and the impact it has on the cost of installations.

Barwell revealed that since its introduction, the MIP had added more than £600 million to the cost of the 6GW of solar installed in the UK in that time and asserted that it “absolutely” amounted to the market protection of European manufacturers rather than an anti-dumping duty. Kazim meanwhile concluded that the costs of the MIP would ultimately be handed down onto consumers.

Central to the discussion was the impact the government’s policy decisions had already had, and stood to have, on investor certainty. Kazim argued that the political risk associated with policy decisions undertaken by DECC ultimately added an extra 2% onto the cost of finance, again costs which would ultimately handed down to consumers.

The panel was questioned on whether or not there were any other markets that had gone through the same upheaval, and what the impacts were. Kazim said Spain and Italy represented good examples as markets that received sizeable cuts to subsidy which resulted in a substantial slowdown in PV deployment as well as increases in equity costs – Kazim said equity costs in both Spain and Italy reached 14-16% due to their “disturbances”, around double that of those on offer in the UK.

But it was the concept of the Levy Control Framework which provoked the most debate given its purported overspend and how that has been held responsible for the raft of cuts. Barwell noted that the STA’s own freedom of information requests for greater clarity on LCF expenditure had been dismissed for asking “manifestly unreasonable questions” and said there was a growing need for DECC to explain itself on the matter.

Boyle too said his company’s questions on the LCF bad been rebuffed by DECC, prompting MacNeil to question whether its expenditure amounted to “the biggest state secret in the UK”.

Kazim meanwhile questioned how the LCF had come to be used by HM Treasury as a budget despite that not being the intention when it was first introduced. As the framework only takes into account gross expenditure on levies and not net expenditure – meaning that it does not take into account how renewables deployment drives down wholesale electricity prices as per the Merit Order Effect, as referenced by both Good Energy and Ed Davey in the past – and was therefore not an appropriate means of capping subsidy support.

LCF expenditure remains shrouded in mystery and last month energy minister Andrea Leadsom suggested that its overspend could not be attributed to any one technology due to its nature. This however did not prevent EDF from attempting to pin the blame on small-scale solar at a previous hearing.