The first day of August, which we have all been talking about since early March, is finally here. Marking the beginning of new, lower feed-in tariff rates for all photovoltaic installations over 50kW, today signifies the end of the UK’s solar industry as we know it.
The Fast-Track Feed-in Tariff review was launched by Government earlier this year in a bid to put a stop to what policy-makers saw as big greedy investors taking advantage of something that wasn’t designed for them. Slashing the incentive rates by up to 70% for PV systems over 50kW, they certainly achieved what they set out to do – and a lot more besides.
Energy Minister Greg Barker justified the proposed cuts by saying, “In these financially challenging times, it is even more important that we get the balance of the scheme right. The projections for take up of FiTs published by the previous Government failed to anticipate any large or small-scale non-domestic solar PV installations until 2013.
“These projections have clearly proved to be flawed. Current market indications are that a rapid increase in the number of larger solar installations entering the scheme could distort funding for smaller and domestic-scale installations as well as other technologies.
“We must act now to ensure that the scheme continues to deliver and we are able to achieve both our Spending Review commitment to improving the efficiency of the scheme, which will deliver £40million of savings (around 10%) in 2014/15, as well as ensuring that the benefits of a faster fall in technology costs are shared as widely as possible rather than captured in higher returns for a small number of individual investors.”
Many met this review with extreme contempt, angry that Government was not only applying the brakes to foreign investment opportunists, but also to community-backed schemes including planned installations on schools, churches, hospitals and council buildings.
Soon after the Consultation for the Fast-Track Review was opened, industry associations including the Renewable Energy Association (REA), Solar Trade Association (STA) and green campaign groups such as Friends of the Earth put their heads together to come up with a way to stop the review in its tracks, and to educate Government on why it was such a bad idea to cut the renewable industry in the UK down in its prime. And so the Our Solar Future Campaign was born.
Many others, including Government Ministers and industry veterans around the world were also outspoken about Government’s decision, expressing their sheer horror that it was even legal for policy to be altered by such an amount when hundreds of thousands of pounds of investment could be lost as a result – with no compensation option available.
The evident backlash formed as part of this campaigning caused Government to change its story somewhat. While it had for months been claiming that the reason for the cuts were down to fat cat investors taking the FiT payments away from poor Joe Average, it was now saying that solar had become a victim of its own success, and that because module prices had declined so much, the subsidy rate was too high.
And Government was right. Module prices had come down and the FiT rates were too high. So why were they just cutting the rate for large-scale plants? Why not making cuts across the board in order to create a level playing field and the potential for growth at all levels?
Government’s reasoning is still unclear.
Following a report compiled by the STA, which claimed that this inadequate support from the UK Government was clipping the wings of its fledgling solar industry, Climate Change Minister Greg Barker dramatically changed his tune:
“Historically, the Department of Energy and Climate Change has underestimated the contribution that solar can make,” Barker said. “But solar is now going through an extraordinary stage of development… it's capable of scaling up and competing with the big boys. It's not just for enthusiasts. It has potential to be a significant source of energy.
“While I wouldn't necessarily concur with all the specific recommendations of the [STA] report, there is one clear message that I do agree with: that solar has far more potential than has previously been thought.”
These rather unexpected comments, which allowed some hope for the solar industry, came just one day before the DECC revealed the new tariff rates after spending 31 days consulting – yet, unfortunately, they were as low as expected. In fact, it seemed the Department took one month to do nothing.
Ray Noble, PV Specialist said, “This was not a Consultation! No changes were made at all to the Government proposal as set out for Consultation. The problem that needed to be addressed is that the Government made a huge mistake in the CSR budget, allowing for only for single domestic installations, and they hoped and prayed that the Consultation would come up with a way to dig them out of the hole, which was an impossible task.
“As a result the tariffs that the Government have set are too low, in a deliberate attempt to kill off the growth in the industry.”
Move on or move out
After the devastating effect of this revelation had set in, half the industry picked itself up and ploughed ahead with plans before the full effect of the review took effect, while others decided the UK’s solar market was a lost cause, and walked away.
Just one month later, the first large-scale plant was installed, grid-connected and began generating 1,500 solar panels' worth of renewable energy.
In the months leading up to today, more than 10 parks were to be connected to the grid as well as countless large-scale rooftop installations. With the majority of the successful project developers installing up to 5MW of capacity, the completion of such ground-breaking plants was viewed as a real victory for the UK solar industry.
Just one example of this success came in the form of Octopus Investments, which successfully funded the installation of 11 large-scale solar projects throughout the UK ahead of the August 1 fast-track feed-in tariff deadline. The investment company completed 30MW of projects in partnership with Lightsource Renewable Energy, which was responsible for developing each of the sites.
Paul Latham at the investment company said, “We have been able to deliver these sites with finance from VCT and EIS funds which have attracted many-small scale investors. When the deadline for FiT qualification was brought forward, it posed some significant challenges and there was a lot of gloom amongst funders and developers.”
Sadly, it was not good news for all involved. Many who had received planning permission and had already laid out hundreds of thousands in investment costs were not lucky enough to beat Government’s tight deadline, as time simply did not allow. Back then, it seemed that all had been lost.
“Whilst some investment companies withdrew, we held our nerve. Our approach was to look at what could be built within the timescale to qualify for the scheme,” continued Latham.
A minor reprieve
What many of these developers didn’t know was that DECC had been keeping a feed-in tariff policy loophole under its hat.
The apparent escape clause, which DECC had been aware of for some time, was uncovered mid-July and provided UK project developers with the opportunity to by-pass the effects of the fast-track feed-in tariff review. In fact, some had already begun to take advantage of it.
Under sections 15 and 16 of the ‘Feed-in Tariffs (Specified Maximum Capacity and Functions) Order 2010’ document, developers were in fact able to install a system over the microgeneration amount (50kW) before the August 1 deadline (thereby receiving the higher FiT rate) and then install an extended capacity within 12 months. Importantly, this extended amount would also benefit from the higher rate.
DECC were by this point fighting to close the loophole in a bid to prevent further dipping into the FiT pot. A Consultation was opened a week later, confirming Government’s intentions to close the loophole by mid-September this year, and again slam the shutters down on projects over 50kW.
So what now?
In the wake of the very real effect the Fast Track Review has had on the UK’s solar industry, the renewable associations are making one last-ditch attempt to rescue larger solar installations, by campaigning for support under the Renewable Obligation (RO).
This week, the RO Banding review is expected to be published and, among others, the STA is hoping it can be used instead of FiTs to fill the gap and secure major UK solar opportunities. The RO Banding Review will set out the support levels that the Coalition Government plans to offer to different renewable power technologies under the 2013 Renewables Obligation Order.
This really does represent the last chance for the Coalition Government to support solar this Parliament.
Currently, solar is given two Renewable Obligation Certificates (ROCs) of support, which is insufficient. However, with the FiT scheme now only viable below 50kW, sufficient support under the RO is crucial if solar ambitions are to increase under the Coalition Government.
Recent studies suggest, given exceptional solar module price reductions, larger-scale projects require a short period of extra RO support between three to four ROCs to secure major UK manufacturing opportunities and ensure the technology can thrive on two ROCs per megawatt hour by the end of this Parliament.
The RO is not ideal for solar as, unlike the FiT, this complex mechanism is designed for energy industry professionals. Nevertheless, it now appears to be the only hope the schools, hospitals, communities and SMEs to benefit from solar and keep this sector of the industry going over the next few years.
Howard Johns, Chairman of the Solar Trade Association says: “This is the Government's last chance to get the UK's commercial solar industry back on track without committing any extra resources – at a time when investor confidence is at an all time low. Let's hope they see sense and use it.”
In the meantime, while this tale of disaster hopelessness has been played out, the UK’s residential solar industry has been swelling at a gluttonous rate. To date, the UK installation figures total *149MW – a whopping 139MW of this is made up of residential projects.
This is an outstanding figure, but really only serves to prove industry’s point: if Government does not wake up and realise that a level playing field needs to be created by altering policy at all levels, then the UK solar industry is heading towards a boom and bust scenario – with or without large-scale solar.
*Note: Ofgem's latest figures do not yet reflect the recently-installed large-scale solar parks.