Why field solar might need Michael Gove

I know, it’s rooftop solar, but it is Michael Gove...

I know, it’s rooftop solar, but it is Michael Gove…

The solar trade world is rightly up in arms about the latest lurch in solar PV funding policy from DECC. This time it is set to tip field solar deployment off a cliff. Policy lurches are always a bad idea in the development of new forms of energy production, where the need to have a calm and measured forward regime for development, investment and deployment is central to the prospects of a technology gaining sustainable momentum. And solar in the UK has suffered more than most from a lack of such certainty but it has (just about) been possible to excuse changes in feed in tariff, or limits to eligibility as constituting a response to the escalating competitiveness of newer solar installations. However, this latest change in policy, on any reckoning, just looks plain daft.

Firstly, it rips up an assumed eligibility and timeline for medium sized PV to access Renewable Obligation support, and makes what must be a virtue of medium scale PV – namely that it can be deployed over a far faster time scale than many of its comparators – an assumed drawback of. All those people who started to bed down lines of investment, and development BECAUSE it now is investable and relatively quick in maturing must now, presumably turn their attention to less clear investment planning.

Secondly, the claimed plan of a transition from field solar to medium sized rooftops when existing funding for rooftop deployment has barely been touched doesn’t bear scrutiny for more than a few nano-seconds. Field solar stands or falls already by local planning decisions, and indeed, part of its development drive derives from the ability it offers local energy providers to proceed with community level generation, with planning and local reward working together. If you want to shoot community energy through the head, this is not a bad way to start, but more of that shortly. It is frankly not likely that community schemes will be able to easily source the roofs of ASDA distribution centres as an alternative to free standing schemes – this may be why medium size roof solar is not taking off.

Thirdly, I write at a time when there is a national debate emerging about what capacity we will need for electricity generation over the next few years.  Pulling the plug on nailed on capacity that can be deployed at speed, and not at some undefined, distant period in the future like much of the proposed capacity increases seem to pencilled in for, looks to be just plain perverse. We are, after all, (according to the DECC RO closure impact assessment) looking at likely forward new capacity of up to SIX GIGAWATTS by 2017. Even when we take account of differential capacity margins between solar and, say…gas, this amount of capacity represents the equivalent availability of at least a couple of gas fired power stations.

But of course, this decision/consultation is not about energy logic. It is (as the consultation document and the impact assessment makes clear) about the increasing probability that larger scale solar, and solar as a whole, is proving to be a success. This means it is now eminently capable of contributing far more to the nation’s capacity requirement than envisaged even a few years ago, and particularly at the time DECC signed up to the infamous, and I am afraid, soon to be unworkable, Levy Control Framework. Breaching the bounds of this framework, regardless of energy logic, is now to be the starting and finishing point for all renewable energy policy, it seems. Except, of course, that when the Levy Control Framework was agreed with the Treasury, it was done so on the basis that there should be a 20% ‘leeway’ for spending as the framework rolled forward. It now appears, this leeway is gone and that the tightest interpretation of the framework is the ‘central case’.

And in case there is any doubt about the centrality now of this new logic, we need look no further than the other consultation launched by DECC on the same day, on a very good scheme to raise the ceiling for the eligibility of community-based projects for FiTS from 5MW to 10MW. That is community wind, PV, hydro and anaerobic digestion.  Really welcome, one might think; medium size community schemes, now eligible for FITs. Much more user-friendly and likely to drive greater renewable deployment…

Ah sorry have to stop you there – look at the impact assessment for this consultation.

Here is, transposed in its entirety and with no editing by me, the content of the box on the impact assessment headed ‘what are the policy objectives and the intended effects?’

‘The objective is to increase deployment of 5-10mw community onshore wind, solar PV, hydro and anaerobic digestion. There is, however, no new funding available to support any additional net renewable electricity generation that might come forward between 2015 and 2020 as a result of the proposed policy change. Affordability will therefore be an important consideration before deciding whether or not we could proceed with implementing the proposal’.

And all this in a week when over in another department, a Secretary of State has just, with impunity, apparently switched £400 million from one budget heading to support the budget of his pet Free School project which, he explains, has to be treated this way because it is ‘demand led’.

Hmmmm…Michael Gove for Energy Secretary anyone?

Solar PV: the blue chinned men with baseball bats have it…

The bizarre behaviour of DECC in presiding over not one but two damaging and unnecessary policy lurches on solar within three months has left many in the industry confused, hurt, let down, out of pocket, sacked in some instances, regretting they ever believed what they heard about solar PV and feed-in tariffs among many others reactions. I think it is the damage to any future investment in renewables based on feed-in tariff type programmes that is the worst long-term casualty of these strange events, over and above the shorter-term meltdown in the solar PV industry, just as the presence of solar in the arsenal of domestic and small scale renewables was really becoming felt.

I’ve been doing my best to support those affected by all this in Parliament over the last week: the speaker agreed to an Urgent Question last Monday on the day of the announcement, which I took part in, I managed to quiz Energy Secretary Chris Huhne about the infamous ‘capping agreement’ that includes FITs on Tuesday last, and I used a rare spot at Prime Minister’s questions to ask that the PM intervenes personally to sort the mess out. I suppose I would have been very surprised if he had agreed to do so, which he did not, of course.

As events unfolded, my conviction that much of this was predicated on Treasury strong-arm tactics on DECC following became stronger. I set out what looked to be the most likely scenario for this extraordinary behaviour in a piece for Building Magazine later in the week (here). In that piece, I asked whether any rational department would really have conducted themselves in this way, and concluded that, once DECC had signed up for the ‘cap’ apparently almost sight unseen as Chris Huhne confirmed to me, then a ‘car crash’ on FITs looked to be almost inevitable. It certainly does look like DECC have had its feet held to the fire on the agreement to cut immediately any expenditure above what has been agreed as the ‘budget’ for FITs this year.

But it didn’t have to be like this, even with the agreement signed – because it appears to say that DECC is responsible for balancing its budget overall in the spending round, and has instead been tipped into pulling the rug from underneath this year’s expenditure, even though a review and alteration of tariff arrangements in April of next year was always on the cards, and had been anticipated and factored in by the PV industry.

And that alternative possibility has been underlined now that the impact assessment for the FITS changes has been released by DECC (pdf).  What it shows, among other things, is that cutting tariffs now rather than degressing them in an orderly fashion saves just 60p per year per household in each year of the spending review, but more importantly, if this had been done, then the additional spend would have brought the overall FIT outlay up to £920 million by 2015, less than 20% above the agreement budget over the period of £867 million: – 20% being the point at which ‘the acceptable headroom’ in the ‘total cap’ would be breached. In other words, as the agreement states, DECC could have adjusted its totals over the period within the overall cap and kept to within the cap ‘budget’ for the period.

But that looks like it wasn’t enough: and we know the rest. It looks like the metaphorical large blue chinned guys with baseball bats have threatened DECC into doing the dirty on Solar PV on their behalf.

Feed In Tariffs: A Tragedy in Three Acts

No happy ending here...

The last acts of two long running energy sagas were played out in the second week of the ‘early return’ to Parliament that gives way to the conference recess. If we had to characterise them as plays, the big one, the Energy Bill, could be designated as an action play possibly giving way to comedy.  The smaller one, the Feed in Tariff / PV Solar Fiasco, could clearly be put down as a tragedy.  More on the action play later.  For now, the tragedy.

The ‘Fiasco of Feed in Tariffs’ or FFIT for short, keen readers of former posts  will recall, came about because of a seeming panic reaction by DECC to the success of the Feed in Tariff for solar. Not only have there been huge numbers of installations (some 60,000 so far since FIT came into being), but some people were building VERY BIG solar installations. These are very much more cost-effective than home roof micro-installations, and are lauded as playing a possible substantial role in future UK renewable deployment in the DECC ‘renewable energy roadmap.’  But never mind.  Right now, what they and indeed the overall success of FITs do is to create a possible future budget problem for financial planning that generally assumes things will not work very well, and hence will undershoot allocated resources, rather than the other way round.

But, some feeble voices might point out, the possibility of course correction, or indeed changes to the tariff levels to achieve the balancing of just these sort of issues was allowed for in the original scheme, which always was due to be reviewed in 2013.  And anyway, they might add, FITs would pay for itself through the levy arrangement that underpinned it. It wouldn’t need public funds. Industry and investors knew this, and had factored it in. The difference was the sudden lurch in February into an interim review which, as will be known by those who follow these things, has proved quite disastrous for installation of relatively small sized solar PV: community centres, churches and so on.  All a far cry from the alleged claim that it was all about the emergence of huge and scary ‘solar farms’ of perhaps 5megawatt capacity.

The last act of all this was played out in Committee Room 11 of the Commons at an unseasonable hour of the morning on Thursday. Labour had ‘prayed against’ the instrument that implements the panic change: it made no difference to the validity of the change itself, but at least gave an opportunity for it all to be aired in the Commons and not stuck away in a ministerial order (see here for the debate).  Some good points were made and scored, but it didn’t really shed much more light on the central question of: “why?”  Or more exactly: “why then?”

My take on it is this. Treasury came up with its plans to introduce a cap on energy levies around the turn of the year, to be introduced in the March budget. This included in the cap Renewables Obligation, Feed in Tariff and Warm Homes discount, all of which were deemed by Treasury to be ‘imputed tax and spend’ even though, as levies, they cost the taxpayer nothing.  DECC was taken by surprise about this, because only one of these levies had ever been pronounced upon as definite “imputed tax and spend” by the Office for National Statistics, the body that is supposed to do this job. Treasury itself decided that FITs and the Warm Homes Discount should be designated and told DECC so.  The ‘cap’ is for the duration of the spending cycle but also is limited annually. Next year this will be just over £3bn overall, £170 million of which will be FITs. It was not possible for the direction of take up of FITs to be accommodated within this new cap, and if DECC had waited until 2013 to revise its tariff level, spending would be way out of line with the new rules. So it had to act by “lurch,” which is what it did. It then had to declare that the reason for the lurch was not a “cap,” since this officially didn’t exist, and would not be announced until the budget.  Hence all the stuff about a flood of huge new applications etc etc.

The continuing problem for DECC now is though, that even after all this damage has been done, spending on FITs will still exceed the new cap. Take-up on small domestic installations continues to flourish. It is quite possible that, even on the new rules, the cap will be overshot by perhaps 30-40%. What does DECC do then? Will we see another lurch, this time against small domestic installations? Or will they either “borrow” against future cap limits (meaning that there will be a far steeper cut in tariffs post 2013) or eat into Renewable Obligation budgets (which they can do because there is room for some movement within the cap.) If they do that, then it could have implications for the Renewables Banding Review.  A big dilemma. A space to be watched, I’m sure.