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Clean Power FoE to sue UK government over solar power subsidies FiT cut

Published on November 7th, 2011 | by Zachary Shahan

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UK Government May Get Sued over Solar Power Subsidy Change

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November 7th, 2011 by Zachary Shahan 

FoE to sue UK government over solar power subsidies FiT cut

Solar power subsidies are being cut in half in the UK. The change, which is supposed to solar panel installations completed after December 12, has outraged consumers and solar energy advocates. It also makes government policies in the UK a little less than trustworthy. At least one organization is now getting ready to sue the UK government over the changes.

“Friends of the Earth has warned that it may start legal action against the government by the end of this week unless plans are scrapped to cut the level of subsidies paid to homeowners installing solar panels,” the UK’s Guardian reports.

“The environmental charity says this cut-off point – two weeks before consultation ends – is unlawful and will lead to unfinished or planned projects being abandoned.”

Specific details of the FiT cut are as follows:

Properties which retrofit solar panels with an installed capacity of up to 4 kW will see rates slashed from 43.3 pence per kilowatt-hour (kWh) to 21.0 pence, while tariffs for installations between 4-10 kW and 10-50 kW will see a 53-55 pct reduction.

Projects starting on or after December 12, will receive current tariffs until April 1, 2012 but new tariffs will apply from then, the government said.

It certainly isn’t helpful to efforts to supposedly cut greenhouse gas emissions, and the policy changed has happened extremely fast, been “fast-tracked” by the conservative government. It is also projected to cost the country tens of thousands of jobs.

Schools, small businesses, community centers, housing complexes, and more will be affected by the decision. And, well, the UK solar industry is expected to be “killed stone dead,” as some have put it:

“Such deep cuts would kill the UK solar industry stone dead,” said Howard Johns, of the solar industry’s Cut Don’t Kill campaign and also the managing director of Southern Solar. “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.”

….Decc admitted that there had been three times more solar installations than it predicted since the scheme began on April 2010, during which time it said the cost of an average home installation had fallen by at least 30%. It said the proposed cuts would reduce the estimated cost of the solar Fit scheme in 2014-15 by three-quarters, to £250m a year, adding about £3 a year to electricity bills.

Cancellation of solar power orders started coming within hours of the FiT cut.

Image via afsart

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About the Author

spends most of his time here on CleanTechnica as the director/chief editor. Otherwise, he's probably enthusiastically fulfilling his duties as the director/editor of Solar Love, EV Obsession, Planetsave, or Bikocity. Zach is recognized globally as a solar energy, electric car, and wind energy expert. If you would like him to speak at a related conference or event, connect with him via social media. You can connect with Zach on any popular social networking site you like. Links to all of his main social media profiles are on ZacharyShahan.com.


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  • http://www.solardirectsavings.co.uk Feed In Tariff Solar Panels

    We have of course been anticipating a review of the FIT but the 50% proposal is more than anyone in the industry would want. However, what has really knocked us for six is the news that the cut will be introduced in December rather than the April 2012 deadline we have all been working towards. We are giving our customers as much good news as we can.

    It’s important to remember that fossil fuel prices are only ever going to go up (not down) and so people will continue to save on their bills. The real challenge for SDS now and for all of us working in the industry is to ensure we get as many systems installed and certified before the 12 December deadline. This is not inconceivable but with demand already high, a cut in the number of daytime hours to work in and the sudden spike in demand, we are really going to have our work cut out.

    http://www.solardirectsavings.co.uk/

    • Anonymous

      Thanks. Reediculous. I saw it was earlier than expected but didn’t realize it was that much earlier!

    • Freealex1

      @ FIT Solar Panels…

      Keep up the good work! From everyone I speak to in the UK PV industry, the timing – even more than the level of cuts – is the proverbial kick in the £$&*”!

      One thing I would clarify / caution against is saying that fossil fuel prices will only ever go up. Disclosure, I’m an EX-fossil fuel guy / oil trader. Left the oil business to work in clean-tech as that is where my passion is.

      However, fossil fuel prices go up and down – as we saw with oil from $50 to $147 to $39 to $100 all in 2 years. Agree completely that the long-term trend is likely to be ‘up’ for oil due to peak oil (or at least stagnation of ‘easy oil’), natgas prices can also drop as has been seen in the US due to shale gas (from $10/MCF down to $4/MCF over the last few years). Low natgas prices are actually slowing down roll-out of renewables (and nuclear and CCS pilots). Obviously, a HUGE amount of problems with shale gas, and those problems will be magnified in Britain if / when serious extraction starts here.

      But as gas prices here are linked to oil, the potential change drop in price should they ‘de-link’ due to increased production from shale or other, is significant.

      Again, that may be a short/medium term thing. But to avoid being caught-out, I would suggest slightly more hedged statements: ‘Fossil fuels are finite, and the long term trend is for prices to increase, not decrease’ or ‘Volatility in fossil fuel prices’ or the like.

      So

  • Freealex1

    I would suggest some analysis to ‘add some value’ to this story.

    The government claims that the current FITs are too generous, guaranteeing double-digit returns for investors ‘at the cost of general rate payers’. The solar industry claims that these proposed cuts will ‘kill’ the solar PV industry in the UK, and costs many thousand jobs.

    So the real questions that need to be answered for this debate to have much meaning include, but certainly not limited to:
    1. What does solar PV cost to install (per kWp) in each of these size categories, in the UK?
    – Paid for with cash
    – Paid for with financing / borrowing
    2. What do these scenarios translate to in terms of £/kWh?
    3. What level of return on capital would the previous FITs guarantee?
    4. What level of return on capital would the proposed FITs guarantee?
    5. What is an ‘acceptable rate of return’ for investors?

    I don’t know the answers to these, but they are not that hard to calculate after doing a bit of digging. My suspicion is that the government is being too hasty in how much and fast it implements these cuts, but also that the solar PV industry is also ‘talking their book’. But without the above analysis, this is simply a ‘he said / she said’ discussion.

    • Freealex1

      Following on from this, I just saw an add for PV, fully installed, for £9,999 for 4 kWp, or approximately £2,500 / kWp. I won’t state the company, as I don’t want to plug any specific company.

      The stated FIT in the add (the new gov’t level) would be £0.21/kWh.

      So, I did a quick back-of-the-envelope. Please feel free to correct my maths as I’m doing this whilst eating lunch:
      – Capital expenditure of £9,999
      – 3,504 kWh per annum = 4kWp x capacity factor (conservatively assumed 10%) x 8,760 hours per year
      – Annual revenue of £735 = 3,504 kWh x £0.21/kWh
      – Return on capital 7.36% = £735 / £9,999 (it would be over 15% at the current FIT rate)

      That’s obviously very simplistic, and again, please do correct my maths if wrong. But if they are correct, a guaranteed 25-year return of 7.36% ‘ain’t bad’! And frankly, +15% guaranteed returns with base rates at 0.50% is too high.

      So as per my previous note, what do people consider to be an acceptable return on capital for such a scheme?

      And what levels of return are needed for the solar PV industry to be viable? The oil and gas sector chases returns on capital employed of 15-25% (obviously huge), but electric utilities are used to much lower returns…And as we are talking about electricity generation (and not liquid fuels), the latter is probably a fair comparison.

      • Anonymous

        You raise some good points. Let me add one more factor.

        Consider that it might take a better return on investment to get a new technology going from a dead start. Even 8% might not be enough to create an ample number of early adopters.

        It will take enough customers to encourage an installation industry, even a small one. Potential installers will have to feel there is enough potential business for them to get the education they will need to be installers. And at first the supply chain will not have been established. Wholesalers aren’t likely to buy a pallet of panels if they don’t think they will sell.

        I’m not feeling like a 7.35% return on investment is too high. It’s not that much higher than historical bond rates and far below historical stock returns. Stocks and bonds are known entities, solar is the new kid on the block. To get solar (or any other new technology) moving it might be necessary to create an unusually high payoff and then taper off as the technology matures.

        • Freealex1

          Hi Bob,

          Agreed that attractive returns have to come into play, but as I said, what is considered to be an attractive return? How long is a piece of string?

          Tesla is doing a lot of business, and still not turning a profit. Lots of other clean-tech companies are starting up and will struggle to make a profit for years. And they’re certainly not being guaranteed a +7% profit (that is also inflation-linked / proof), that is tax free for 25 years. So in reality, that’s not a fixed bond at ~7%, as I can’t invest in bonds and then not pay tax on my interest earnings…for high-rate payers, that’s more like 11.5% – again, linked to RPI!

          The company I mentioned above is advertising a 12% return at 21p/kWh, without much detail. Perhaps that’s what they mean?

          And those prices that I mentioned are for retail prices (4kWp). Of course, FITs drop with larger sizes, but I’d be curious to see how much lower costs go as well. Any thoughts?

          The ‘Cut, Don’t Kill’ campaign has actually agreed that the FIT needs to be cut, but thinks that new level should be £0.28/kWh ‘across the board’, presumably regardless of installation size.

          In our above example of 4kWp, for £10k, using a 10% (low) capacity factor, that’s giving a 9.81% return on capital (tax-free and linked to RPI). So I assume we can use that as a proxy for what levels they think are ‘sustainable’ for a business?

          My guess is that if the government guaranteed tax-free, RPI inflation-adjusted returns of 7-10% for 25 years, there would will still be a LOT of capital willing to go into that business – regardless what that business is. This is not ‘risk capital’ from VCs who need a massive pay-out. As you said, it’s essentially a clean-energy bond, with much better terms than any on the market at the moment…certainly better than anything a retail investor could hope to get.

          And much of what’s being installed are imported panels, so it’s not a question of needing to build factories for manufacture (necessarily), but costs for project developers. As energy businesses go, solar PV developers are not capital intense businesses due to quick installation times – a real strength of PV!

          In fact, in February of 2010, Ed Milliband (then head of DECC) said ‘A return of 9% – better than any bank can provide’, suggesting that at the time of the launch, those were the sorts of levels that were expected by the government. But as we all know, the installed price of PV has dropped, and it makes sense to drop the FIT going forward.

          Now, as I said in my initial note, I do think the timing of the price drop is absurd (not even long enough for some shipments already ordered to make it to the UK), and we can certainly debate just what is an acceptable return on capital, and how often the government should re-visit those levels and so forth.

          The real travesty in all of this isn’t necessarily that the FIT was dropped, nor even by how much it’s dropped it’s how and when they did it.

          If on day one, they said that they would cut the FITs in-line with price drops in PV every 18 months or whatever, then companies would be able to plan accordingly (or at least plan at all). The fact that many potential customers (and companies) are out of pocket because of planned projects that they now have to cancel, that’s absurd.

          Appreciate your and other’s thoughts…

          • Freealex1

            Oh, and forgot this last point…

            The UK demand for solar PV is NOT what is driving the global PV market, and certainly not the drops in pricing we’re seeing across the board. It’s helping, but more just ‘icing on the cake’ in comparison to Germany, Italy, Spain, France, US, and even China and India.

            Therefore, if the PV industry itself is correct in estimates of price drops to come in the coming 12-24 months, prices for PV should drop by roughly another 15-40%. So that £10k system would cost between £6,000 and £8,500, implying improved returns on capital of ~ 8.7 – 12.3% if the FIT stayed at 21p/kWh

            Of course, if / when that happens, I’d expect the government to drop the FIT, so back to square one re: what level of return is acceptable!

          • Anonymous

            The acceptable rate is likely only to be answered with empirical data. If the government sets a rate and installation rates soar then they might have set it too high. If installations stall, then the rate is too low.

            I would imagine that rates would need to be “too high” early on to get things moving. Plenty of extra sweetener to get reluctant people to “take a chance”. After some time of talking to your neighbor about how their solar system is working to reduce their utility bill you might not need as much incentive to install a system of your own.

          • Freealex1

            Bob, definitely agree. Germany is the obvious case-study for this. They started with very high FIT levels, but then again, the price of PV was also very, very high when they started. They’ve consistently reduced FITs over the last 5 years, and usually given quite a bit of notice to people that it was going to happen. Reductions have been on the order of 10-20% each time. The last I read (a few months out of date) they were waiting for confirmation of the FITs for 2012. The predicted range was something like £0.16-0.21/kWh, based on €/£ of 1.15. That may have changed now, though.

            Installations in Germany have obviously been enormous in comparison to everywhere else (multiple GWp / annum), and they are now up to something like +14GWp installed (again, from memory). In fact, it’s large enough to actually register in their total energy figures, which is saying something.

            That sort of level of installation is what is stimulating enormous scaling up of manufacturing, which is what is driving down price. And cynically, one could say that everyone else (UK, USA and others) are riding on the back of what Germany (and to an extent Spain, France, Italy, Czech Republic) have done to scale up demand.

            Also – to your point earlier about the need to build up a supply chain, as much for installation as for supply of panels – small-scale rooftop installations in Germany are priced at roughly the same (or less) than utility scale projects are in the US…if such news articles are to be believed. That implies that spurring that installation industry has tangible benefits across the whole value chain.

            In the UK, with the uptake of PV at 3x the level the government expected, it would appear that that level was indeed too high. I’ve actually worked with a lot of investors setting up solar PV funds before the first round of changes (reducing the size limit for projects) and before this round, and am also helping a school who’s interested in developing a solar project.

            A real challenge for the UK government is keeping levels at which the ‘solar leasing’ model works for investors / developers, as that allows individuals / organisations without extra capital or access to cheap capital to benefit – or at least have PV on their roof.

            There is also the issue that the UK restricts larger projects…if they did, I’m quite certain that utilities and other investors would happily invest in PV projects with a the aforementioned financial / tax conditions!

            All the best.

          • Anonymous

            I certainly can’t tell you what the appropriate return should be in order to get solar, or any other enterprise, up and going. Only hindsight can accurately answer that question.

            FiTs for solar are going to be difficult because the price of panels is dropping so rapidly. A rate that was only adequate a year ago could easily be a sweet deal this year. It seems that some plans make a fixed amount of subsidy available and when this is paid out/encumbered then that program expires and a new one devised. To keep solar subsidies from becoming extreme there needs to be some sort of downward ratcheting system.

            I suppose I’m not too concerned about subsidies for solar being set higher than necessary. We’re not talking huge amounts of money, nothing like building a new aircraft carrier. And higher subsidies/higher returns will mean accelerating the rate of installation. The quicker we can get fossil fuels off our grids and highways, the better for all. Think about the future cost of runaway global warming.

            —-

            (BTW, there are tax-free bonds. Municipal bonds are often federal and state tax-free. But they also tend to pay lower rates of return.)

    • Daniel

      Hi Freealex 1 and Bob, Nice information you are putting on this page, Actually I am looking these conversation to find my research topic for my dissertation,I am interested to write some effect of FIT policy on solar energy business, or on satisfaction of some consumer of solar energy for FIT, but I am not able to find some correct topic, can you Please guide me some important issues to have research on and method,I will be very greatfull to you. thanks, you please also send me copy of your reply on my personal email address. danielqasar@gmail.com

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