So, the government released their proposed Feed-in Tariff documentation and now you, the UK public, have a chance to feed-back and help improve the legislation before October 15th 2009.
The Proposed UK Feed-in Tariff - Key features
- Any household or business who generates renewable electricity qualifies
- Home owners with solar PV could make 36.5p for every unit they generate
- PLUS 5p for every unit they export to the grid
- The tariff is planned to last for 25 years
- Includes up to 5 Megawatt installations
- The legislation starts in April 2010, but systems installed now still qualify
That looks OK - what’s the downside?
There are several elements of the governments proposal which do not seem perfect and since this is a now or never opportunity for them to get it right once and for all we consider this a great chance for them to respond to the following:
* Delivering an investment rate of return of 5-8%
This is one of the government’s main ideas behind the FIT which, if it worked, would hopefully stimulate the market into immediate action.
The problem with the current plan is that the amount of money the FIT pays out decreases by 7% year on year. e.g. If you sign up in year 2 you get 7% less for 25 years than if you had signed up in year one, if you sign up in year three you get 7% less for 25 years than if you had signed up in year two… and so on.
This mechanism is know as the ‘degression’ rate of the tariff, which in Italy is only 2%. Combine the high degression rate with the fact that the UK FIT will be starting in a recession and it will simply NOT deliver a rate of return of 5-8%.
Our modelling shows that these tariffs will achieve only a 4% return for homeowners, and even less than this for commercial customers and investors on an IRR basis over twenty five years.
* How did 59p become 36.5p?
Another important point is that the Government’s own starting point in its “lead scenario” Impact Assessment FIT model was an 8% return on investment, the equivalent of a 59p/kWh fixed tariff payment for domestic PV.
Now, in their proposal the highest rate for renewably produced electricity is 36.5p - so how do they still expect the FIT to deliver the same amount of new jobs and solar installations and return on investment?
* What about BIPV?
One of the main criticisms of FITs we hear, from people who know ALL about them - like the Germans who have had this kind of mechanism for years, is that the money allocated to ‘building a strong national economy with thousands of green jobs’ can end up getting spent on foreign PV panels. This is significant concern, since the idea is not to create thousands of new jobs in Chinese factories but to stimulate investment in the UK. One obvious way to do this is to add a premium for Building Integrated Photovoltaics (BIPV) many of which are already designed and manufactured in the UK but which also require more skilled UK installers.
The other criticism we hear from Germany is that people are fed up of ‘blue roofs’! But the majority of BIPV is designed to ‘blend in’ with the natural colour of a roof avoiding any concerns about ‘unsightly solar PV’.
* What about the changing market?
We are also extremely concerned about the proposed lack of index linking for either the generation or export tariffs. If markets continue to leap around as they have done recently and electricty prices rise as expected what will that mean for the FIT? It would be a crying shame to spend all this time working on a FIT for it to become ’still born’ through lack of proper linking to the market, which it is elsewhere in Europe. It doesn’t make sense to fix the price for twenty years when we expect such dramatic inflation in electricity prices.
* What about TAX?
Another major concern is the continued uncertainty around the future tax treatment of tariff income. Will we have to show it on our TAX returns? That alone might be enough to put thousands of people off - and kill the entire FIT idea before it has begun!
* What about big commercial systems?
The proposal does not do enough to open up the possibility of large systems on the roofs of distribution centres, airports, retail spaces, etc. At present the proposed 26p/kWh for installations over 100kWp is very low and hardly enough to get these big systems up and running. This is a HUGE area of the economy and one that is essential to deploying solar fast, to help achieve economies of scale and bring down the price of PV. The UK could install four times as much solar over the next four years with a more attractive rate for large systems.
If you would like to see a new and vibrant UK industry built from a clear and well planned FIT please make your voice heard. This is a once only opportunity for the UK government to do something remarkable for solar and make a real difference in the fight against climate change. The race is on, we do not have much time left to avoid ‘runaway warming’ and this legislation is possibly the most significant in that respect.
WRITE TO YOUR MP and ask for the five key points above to be taken into consideration as part of the consultation.
YOUR VOICE MATTERS - ACT NOW
Thanks
The We Support Solar Team