The End of Solar?

Posted by Sally Barrett-Williams of The Carbon Catalysts Group

DECC is proposing to introduce further restrictions to the Feed-in Tariff arrangements for solar PV. Although the changes won’t become law until some time in the first quarter of 2012, they will be substantially effective from 12 December this year.

This is not, DECC insists, acting retrospectively. Perhaps, but it will be interesting to see what those seeking judicial review want to say.

There are three main changes to be made to the arrangements.


First the FIT payment for all levels of solar PV will be reduced, some by half - and some of the reductions made in August are to be further reduced.

Second the reduced FIT payments are to be further reduced for multi-installation schemes. Owners of multi installations will get only (around about) 80% of the new, reduced FIT payment for each scheme.

Third schemes on buildings or supplying electricity to buildings adjacent to them (e.g., field schemes sup-plying a farm) will receive a FIT payment of only 9pkWh unless the building itself satisfies some yet-to-be-determined energy efficiency criterion.

Is the government intent on ending solar PV? The price changes are aggregated and set out below.

Why DECC is doing this is well known - it has a budget and the take-up of solar has been so enthusiastic the budget is threatened.

DECC adds defiantly that solar costs have fallen and the reduced FIT payments are enough to provide a reasonable return on investment. Is that so?

An indication of the shakiness of this reasoning is DECC’s admission that it assumes 50% of electricity generated by all schemes (barring standalones) is exported. It now wonders if that is so. How can it not know and yet have a clear view about returns? Exports are a key component in calculating returns.

DECC also assumes that a return on investment of 4.5% will suffice. One wonders what it is meant to suffice for - and for whom. Is it meant to be the return to be expected by an investor on the open market? Surely not: funds demanding that low rate of return would have been inundated. Is it expected that those householders to which, DECC claims, this scheme is directed would - could - raise the funds to invest in these installations?

And if so where does the grounding for any such expectation come from?

DECC has got its figures horribly and messily wrong. It misunderstood the impact of the scheme, despite evidence of its operation across the continent. So it cut the FIT.

It then, if we are to believe it, forgot to deal with the extension rules, so rushed through further changes.

The new changes, DECC assures us, will put solar investment on a proper footing. If it had a grip on its figures we might believe it, however reluctantly. But if it is wrong? If it is as wrong as the industry claims, the end of solar is a real possibility.

(© Sally Barrett-Williams)

What Renewable Heat Incentive?

Posted by Sally Barrett-Williams of The Carbon Catalysts Group

The Renewable Heat Incentive has been put back again - and there appear to be two reasons it has happened.

The first reason is that when the scheme was notified to the European Commission – as it must be, it's a state aid and needs their prior approval – they looked at the figures for biomass and said they were too high. This was on the basis that a state aid can be approved by the Commission only and to the extent that it is necessary for some particular outcome.

The Commission has long held the view that biomass is a good thing because it's green and can be justified on environmental grounds. Even so, the payment to be made to an investor in a biomass power plant from public funds needs to be just that amount, and no more, needed to tip the balance between the scheme being done and the scheme not being done.

The Commission took the view that there was too much fat in the RHI scheme for biomass. They sent it back for amendment - and now DECC has to re-vamp the scheme with lower biomass figures and send it on its rounds through the Houses of Parliament for approval. DECC says that it can finish its scheme revamp and start the passage through Parliament by November 31.

There is a second reason why we should expect the RHI to be held up and which may well put paid to the November 31 deadline - the use of the public purse.

DECC is in a bit of a tight spot. It agreed with Treasury (recorded in the Framework Agreement) to keep its subsidies within a cap (different caps for different subsidies). But it is having a hard time keeping solar down to the agreed budget – and many believe it hasn't managed to do so. What went wrong is that DECC under-estimated massively the solar take-up.

Government can't afford any more mistakes of the same kind; and yet, the Commission, which ought to know a lot less than DECC about DECC’s figures, has pointed up one big over-pricing mistake for biomass.

What other mistakes are there in the data for the other technologies? And will take-up similarly far exceed expectations?

These must be serious questions for government. Their severity makes DECC’s November 31 plans seem blindly blithe.

Add into this mix one extra little factor that has, over the past ten days, gathered a bit of pace and a bit of currency. In his conference speech Osborne suggested that the 2020 re-newable energy targets were not sacrosanct. That wasn't new; he has argued this for some time, saying that the UK must have targets as part of a set of targets imposed on others at an appropriate level. It's the Osborne version of the level playing field.
New it wasn't – but it was the first time in public in that kind of forum it had been said. There was – predictably – a storm.

But Cameron has not contradicted Osborne and all the succeeding DECC pronouncements, both public and private, have fallen into line. It is now policy. What exactly that amounts to is not yet clear. Meanwhile, it's worth balancing energy policy - in all its facets - with rising consumer bills, because that is what the government is doing.

We will get an RHI at some point. We might even get it in this session of Parliament. But I wouldn't bet on it. Nor would I bet that it will be the same RHI that we have already seen.

What’s Happening to the FIT Scheme?

Posted by Sally Barrett-Williams of The Carbon Catalysts Group


1 April 2010: The FIT scheme comes into operation.

11 November 2010: Greg Barker announces that government objects to stand-alone solar. He insists government won’t act retrospectively.

March 2011: DECC announces that the tariff for PV solar schemes over 50kW will be slashed from 1 August. Again DECC says government won’t act retrospectively.

March/April 2011: Industry starts to look at the extension rules under the FIT Order. DECC is also looking at the extension rules - but does nothing about them, although it knows developers are planning to use them. The extension rules allow small schemes that expand within 12 months of being built to claim the same tariff rates available before expansion.

DECC dubs this the ‘loophole’ because it means schemes partly built before 1 August will get the old, higher, tariff when the schemes are fully built.

9 June: DECC confirms the reductions for the solar PV FIT tariff. Its press statement says the change won’t apply to schemes existing before 1 August. This is confirmation that existing schemes won’t be affected. It is confirmation that DECC will not act retrospectively.

At this point it knows developers are using the extension rules.

June: During this period there are reports of energy companies talking to senior DECC officials who say that DECC knows about the loophole but does not intend to close it.

14 July: Government in the House of Lords claims solar PV was never intended to be large scale. Lord Whitty objects, saying he was involved in the last government in the FIT scheme and it specifically wanted to encourage large-scale schemes.

20 July: An email goes to members of two trade associations saying DECC has told them to tell members the extension-rules loophole will be closed. There is no public statement from DECC. There is no announcement from DECC to companies that are not association members. No-one knows or is told when this change will happen.

22 July: DECC announces its intention to close the loophole “as soon as possible”. The DECC website refers to end October.

July sometime: The reference to end October disappears, although it remains on page 3 of DECC’s impact assessment [link]

2 August: Two trade associations email members quoting from emails with DECC lawyers. The quotes say many and conflicting things but in particular they say that ministers can introduce the change in any timescale they wish. They appear also to say that ministers can introduce the change in a manner they wish.

What we are being told by DECC officials is that this government can do what it wants and how it wants.
DECC no longer says it won’t act retrospectively - because it is acting retrospectively. It knew developers were using the extension rules and after they had committed funds said it would change the rules to undermine those projects accredited before 1 August.

That is pulling the plug on investment - and it is acting retrospectively.

(© Sally Barrett-Williams)

Can Government Keep the Fit Changes?

Posted by Sally Barrett-Williams of The Carbon Catalysts Group


There is a groundswell of hope that what happened in last week’s debate on solar PV in the House of Lords undermined government intention to change the Feed-in Tariff. The debate may be indicative – but the hope is premature.

In March government published a consultation which announced its intention to slash the Feed-in Tariff for solar PV by something like 70% as from 1 August. (In doing so it deviated from legislation that permits it to change the Tariff only once each year as from 1 April.) The consultation closed on 6 May.

It was then intended - undoubtedly after a period to allow government to take ‘full and proper account’ of responses made by consultees - to take the steps to enable the changes to take effect in law.

The changes themselves involve amending the Tariff table appended to the Electricity Supply Licences. (These Licences are a form of secondary legislation.)

Such changes may be made by one or other version of the negative resolution procedure. In this case, a draft of the proposed changes was laid before the House of Lords on 8 June and before the House of Commons on 9 June.

Each House then has 40 days (excluding any time Parliament is not sitting) to pass a resolution to reject the draft. If it doesn’t do so, consent will be assumed. All it will take is that one of the two Houses passes a negative resolution and the draft will fall by the wayside.

What happened in the House of Lords last week is that two motions of regret were tabled. The first referred to the dashing of legitimate expectations of solar businesses and the second to the negative impact the changes would have on the solar industry.

The Lords condemned the changes and Lord Whitty made very clear that the previous government had intended what this government has said is an unintended consequence of the scheme, namely, that the larger arrays, specifically those at 5MW, were to be most encouraged as being the most efficient.

Despite the Lords’ condemnation, the motions of regret were not passed: one was withdrawn, the other not moved.

The reason for the backtracking is purely constitutional: the House of Lords doesn’t vote against legislation that has been delegated to the executive, it leaves that to the House of Commons.

So what the House of Lords did, and all it did, was show its disapproval in clear terms and leave the matter to the Commons.

The Commons has not made much of a show. Ed Milliband has tabled an early day motion, calling for rejection of the changes. He has managed to attract 17 supporters—not a large number and not enough to defeat the government.

So what will happen? Lord Marland, speaking for the government, told the Lords that a number of directors and chief executives of renewables bodies had written to him to say that there were relatively few companies that would now be affected by a change in the decision of the government, that re-opening the decision would “cause lasting, and we believe irreparable, damage”, adding "We would urge you to oppose any attempts to overturn the Government's decision".

So while the Lords fume and stamp their feet, the renewables industry is fighting against itself and the House of Commons is lamely flailing. The only question seems to be when the changes will take effect. It currently seems likely that mid-autumn is the earliest.

(© Sally Barrett-Williams)

Funding Renewables

Posted by Sally Barrett-Williams of The Carbon Catalysts Group

The joint problems of an impending energy gap and a demanding renewable energy target are resolved by investment. Government intends to facilitate that investment via a scheme ambitiously entitled Electricity Market Reform (EMR).

 Investments in renewables fell in 2010; following government tinkering with the feed-in tariff they surely fell this year, too. Nuclear power is something that will happen a decade away; it won’t deal with the energy gap. Carbon capture and storage is still only nascent technology. Coal plant is being squeezed out of the picture in the short term. In that context, reform of the electricity market to attract funding of renewable generation is urgent.

 EMR doesn’t achieve that. It doesn’t aim to reform the market, it aims only to adjust it. Nor does it provide any single measure that the finance or energy markets support. The most consistently repeated criticism, of all the measures in question, is that they introduce regulatory risk. It may be added that they also don’t achieve their purpose.

 The recent report of the Energy and Climate Change Select Committee on EMR is an impressive piece of work. It takes account of and reports a large range of views, incorporates them and draws conclusions involving them. Its main conclusions – those of its large array of witnesses - are pretty damning. There are four ‘pillars’ of EMR. Not one passes muster.

 Too-Narrow Subsidy The government’s preferred subsidy for low-carbon energy, a feed-in tariff with an associated contract for difference, will work for nuclear plant. But it won’t work for wind, or storage, or CCS, or small generators. Government needs to admit that this is an option for nuclear power and that something different is needed for other low-carbon generation.

Wrong Carbon Price Support CPS is to come into effect in 2013 – yet will have no impact on investment until 2018 so, until then, it is merely an energy tax and contributes nothing to resolution of the investment problem. After then, despite its cost, its usefulness will be limited since the cost of carbon is only a relatively small part of the price of electricity, too little to affect peaking plant and with not much effect on most other plant. Added to which the changeability of tax bands means that it’s politically risky. It’s at the wrong level at the wrong time and involves regulatory risk.

Pointless Emissions Performance Emission limits for coal plant are proposed by EMR. Since coal plant is already subject to stringent obligations, it’s hard to see what difference an EPS can make. And since it appears to allow for change, it creates fundamental uncertainty about government policy. The proposal is “pointless” and “half-baked”.

Premature Capacity Mechanism This proposal is vague. It is also premature since it won’t be needed until about 2020 when there is sufficient wind to create intermittency. And it is unclear that the intermittency issues cannot be dealt with by modifying the balancing mechanism, using interconnectors, energy efficiency, smart meters/grids, storage, demand-side management, etc.

 So we have a possible energy policy that is wrong, pointless, half-baked, beside the point – and which, the ECC report makes clear, fails to address a significant number of important issues. How are we to deal with that? How are developers to raise funds and financiers to fund projects? Go to the Energy & Utility Forum conference Funding Renewables on 16th June sponsored by us and find out (http://www.fundingrenewables.co.uk/)

(© Sally Barrett-Williams) 

Where's the Incentive in the Renewable Heat Incentive?

Posted by Sally Barrett-Williams of The Carbon Catalysts Group

The Renewable Heat Incentive (RHI) has just been published. It is almost a year late, will come into effect 16 months later than planned and gives every sign of being an interim arrangement with substantial work being left until next year.

The RHI is the method by which Government has chosen to ensure delivery of 73TWh of renewable heat by 2020. This heat target is 12% of the overall renewable energy target. It is a seven-fold increase on 2009 (it was then 1.6%) and is a huge increase.

Phase 1 of the RHI (this year) only applies to non-domestic heat installations. In Phase 2 (next year onward) domestic heat installations will be included and, perhaps, other fuels and technologies. The ‘perhaps’ is the clue to why there are two phases: many questions remain unanswered. Will Government support landfill gas? Yes; when it’s worked out how to do it. Will it support solar thermal beyond 200KW? Perhaps, if after analysis the overall costs aren’t too high. Will it support air-source heat pumps? Perhaps, if testing shows them to be value for money. And so on and so on.

At heart it seems these questions are about cost. In its September report, the Committee on Climate Change noted the Government’s target of 12% heat as part of the overall 2020 target and, suggesting the costs were too high, that a drawback might be appropriate. Government rejects the drawback (it repeats the original 12% target) but shows all the signs of paring down any excess to least cost.

In general terms the RHI is intended to work in the same way as the Feed-in Tariff and the differences between this year and next lie in additions to what has already been established:

• a subsidy is paid per unit of renewable heat ‘generated’ against a published tariff;
• the tariff endures for 20 years with an annual RPI uplift;
• the regulator approves an installation and confirms its output, so enabling payment to be made on a quarterly basis (with the difference that payments are made to owners and not via suppliers or agents).

So far, the FIT has been successful. If the RHI is to deliver against its own targets, it needs to be as successful as the FIT before Government decided to limit its most successful parts.

Will it deliver? In principle the view seems to be that it will, surely, if the tariffs are set at the right level. But the RHI scheme is thin. Tariff levels are to be kept to the minimum and will provide compensation only for the additional costs of a technology over, primarily, gas heating and not for the full cost of equipment or fuel. The scheme thus incentivises small-scale decisions: where a heat installation was already due to be replaced, the RHI will incentivise its replacement by a renewable technology. What it won’t do is provide a reason for replacing an installation that is perfectly adequate save for its technology.

The RHI also runs foul of another investment hurdle - regulatory certainty. If there is any chance that what has happened to the FIT scheme will happen to the RHI scheme, investment will be hesitant, at best. Yet intervention and chop and change is built into the model. In addition to reviews every four years, which are to be expected, there is to be provision for ‘early’ reviews and degression, i.e., intervention by Government to set tariff levels lower if there is a greater take-up than expected.

The RHI, then, is a scheme without attractive incentives and with regulatory risk. Wouldn’t one expect Government to expect it to fail?

(© Sally Barrett-Williams)

EMR Capacity Mechanism

Posted by Rick Hemmings of The Carbon Catalysts Group

Fundamental reform of the electricity-market has four separate parts – carbon price support, feed-in tariff, emissions performance standard and a capacity mechanism. We will be producing information about each of them over the following weeks, but we begin with a presentation on one of them, the capacity mechanism - click here.

(© Rick Hemmings)