The government's rush to cut a subsidy for people who generate solar electicity on their roofs was clumsily handled and may have fatally damaged a growing industry which had the potential to provide tens of thousands of jobs, says a new report by MPs on two influential select committees.
By giving both consumers and companies just a few weeks' notice that they intended to halve solar "feed-in tariffs" (FiTs) from 43.3p to 21p paid per kWh of energy generated, they have created uncertainty among investors and undermined public confidence in energy policy, said the MPs.
"There is no question that solar subsidies needed to be urgently reduced, but the government has handled this clumsily. Ministers should have spotted the solar gold rush much earlier. That way subsidy levels could have been reduced in a more orderly way without delivering such a shock to the industry," said Tim Yeo, chair of the energy and climate change committee.
In addition, plans to require homes to meet a C-rated energy efficiency standard before they can receive subsidies will limit access to wealthier households and could have a "fatal impact" on the industry, the MPs warn. Eighty six per cent of homes would need to be better insulated before they could qualify for the scheme under the government's proposals – increasing up-front costs for homeowners by between £5,600 and £14,000, even before the panels are purchased, they said.
Joan Walley, chair of the environmental audit committee said: "It doesn't make economic sense to let the sun go down on the solar industry in the UK. As well as helping to cut carbon emissions, every panel that is installed brings in VAT for the government and every company that benefits from the support is keeping people in work. The government is right to encourage people to focus on saving energy before fitting solar panels, but these proposals will stop nine out of 10 installations from going ahead, which will have a devastating effect on hundreds of solar companies and small building firms installing these panels across the country."
Rising energy bills and the falling cost of solar panels made the original subsidy rates so attractive that tens of thousands of households, companies and community groups have rushed to install photo-voltaic (PV) systems since the scheme was introduced last year. The government had evidence that solar panel prices were falling significantly as early as March 2011, but ministers did not act to stem rocketing levels of small scale solar installations until the end of October.
According to the MPs, the consultation then announced by the government was based on an inadequate impact assessment and unfairly set a 12 December deadline for changes to come into effect before the close of the consultation on 23 December. The scale and pace of the changes proposed was a shock for the solar industry and the suddenness of their introduction has damaged investor confidence across the whole energy sector, the MPs said.
The government has proposed an even lower tariff (80% of the new rate) for generators who have more than one solar system registered for FiTs, in recognition of the economics of scale such aggregated schemes can achieve. This, said the MPs, will have an adverse impact on community solar projects.
"This could have a disproportionate impact on disadvantaged and poorer communities for whom such schemes are a good way of accessing the benefits of renewable energy and reducing electricity costs. The social housing sector and community owned schemes are going to be particularly hard hit by the reduced tariffs being brought in by the government retrospectively," said the MPs.
Separately, on Wednesday, government plans to cut incentive payments for householders who install solar panels were ruled "legally flawed" by a high court judge. The ruling opens the door for a judicial review that could force the government to delay its plans, potentially allowing thousands more people to claim the higher subsidy.
The judgment on Wednesday comes after a challenge by Friends of the Earth and two solar companies who argued that the government's decision to cut the feed-in tariff – from 43.3p to 21p per kWh of energy generated – with only a few weeks' notice was premature and unlawful, and had led to unfinished or planned projects being abandoned.
Many thousands of individuals, farmers, councils and community groups had applied to install solar PV to take advantage of the generous subsidy which had been set deliberately high to encourage people to invest, when the scheme was launched in April 2010.
But the government announced in October that it would cut the subsidy with effect from 12 December. This was 11 days before the consultation ended.
The judgment, made by Mr Justice Mitting after a two-day court hearing, was hailed as a major victory by green campaigners and the solar industry, after firms warned that the scale and pace of the proposed cuts would have a crippling effect on the sector resulting in thousands of job losses.
Mitting said the minister was proposing to make an unlawful decision.
Friends of the Earth's executive director, Andy Atkins, said: "These botched and illegal plans have cast a huge shadow over the solar industry, jeopardising thousands of jobs. We hope this ruling will prevent ministers rushing through damaging changes to clean energy subsidies – giving solar firms a much-needed confidence boost.
Lawyers for the Department of Energy and Climate Change immediately moved to apply for permission to appeal the judge's ruling.
The MPs' report and court ruling follows the decision by BP to close its solar division, blaming the "commoditisation" of the sector. It emerged this week that Mike Petrucci, chief executive of BP Solar, wrote to his remaining 100 staff last week to say that "the continuing global economic challenges have significantly impacted the solar industry, making it difficult to sustain long-term returns for the company."
• This article's headline and structure were amended on 22 December
Comments
22 December 2011 6:39AM
So the government has weild the axe before thinking through the consequences.... where have i heard that one before??
22 December 2011 7:17AM
This comment was removed by a moderator because it didn't abide by our community standards. Replies may also be deleted. For more detail see our FAQs.
22 December 2011 7:55AM
We only have a solar 'installation' industry. and many of its claims for generation are doubtful There is no solar industry in the UK, like all other manufacturing its now mostly done in China. Perhaps the subsidy should be limited to EU produced products.
Any industry completely dependent on state subsidies should expect to have to adapt to fickle politicians whims.
22 December 2011 8:11AM
This scheme always seems to have a fair number of defenders on CiF, but I'd invite those who consider themselves on the political left to think about where the money comes from to pay these subsidies: increased energy costs.
Now while I imagine that the rich tend to use a bit more energy than the poor, it won't vary that much. Energy is a basic necessity. If this was a tax, you would consider it massively regressive. It is only a whisker away from a poll tax.
22 December 2011 8:16AM
If we all have our own solar panels, wind turnbines and biomass generators we won't need the Cartel of power companies
Won't that be good.
Or is it the aim of the coalition to ensure we cannot be free of these cartels?
22 December 2011 8:20AM
Maybe people in small towns can club together to build their own electricity grids, fit solar panels and wind turbines in every household.
No cartels - cheap energy for all - why be a slave to the national grid
22 December 2011 8:21AM
So Solar systems are now 30% cheaper. A 2kW system should therefore cost aroundg £7K., and at the lower tarrif would produce about £400 / year income which is a return of just under 6%. If you include the savings made by the reduction in electric bills the net "income" is nearer £640/ year or close on 9% TAX FREE & INDEX LINKED!
Still not bad considering the best return by investing money in the bank/ building society is around 3% gross.
My figures are based on the returns from my system which has now been installed for nearly one year. Its the best investment I have ever made.
22 December 2011 8:26AM
wow its depressing how many people jump in to comment on these stories with such an obvious lack of understanding of the history and backiground.
I used to jump in and try and explain but its becoming depressing
22 December 2011 8:30AM
Time to remove the massive subsidies paid to fossil fuels and nuclear as well as lessening the solar feed in tariff cut.
It's well known that most energy price increases have come from a rise in the price of oil and gas.
22 December 2011 8:33AM
yes to that
22 December 2011 8:39AM
People need to get real. The world resources are running out. We have a duty to future generations to conserve these valuable resources as much as possible.
The micro generation of electricity by solar power on a large scale means that
we will be able to help achieve this. The more we reduce our dependance on fossil and nuclear fuels the better, and Solar power is an efficient, non polluting way of achieving this with little impact on our environment
22 December 2011 8:46AM
if we have one market receiving one subsidy and another market receiving a different subsidy all we have is a distorted market place.
yet most of the angry people on CIF are complaining that renewables need to stand on their own 2 feet without subsidy. when the sudsidy to the fossil fuel industry is 6 times higher than renewables it kind of puts things into perspective
22 December 2011 8:48AM
@ScottishLady
...
...Presumably you yourself have your own solar panels,wind turbine & biomass geneators and have no need of gas/electricity providers? Sounds very interesting! Please could you give me a regular update as to how you get on with own private energy provision?
22 December 2011 8:53AM
But it's hardly a blip on the energy generation map, yet costs are soaring. Could it not be the increasing costs of fossil fuels that are making our bills higher, such as coal being at a record price, up by 30% on last year?
Perhaps the critics of solar and renewables on CIF could give us examples of fledgling energy technology that has never needed government subsidisation and intervention, especially earlier in its history. The fossil fuel industry has certainly enjoyed much taxpayer subsidies in its time.
Perhaps they could also point out to us how external hidden costs of up to $435 billion a year to clean up after coal in the USA are not borne by the US taxpayers?
Oh, and it seems that those US states with the most installed wind and solar power saw the least increase in electricity price between 2005-2010.
22 December 2011 8:55AM
It seems to work.
German Village Produces 321% More Energy Than It Needs!
"The small agricultural village in the state of Bavaria is generating an impressive $5.7 million in annual revenue from renewable energy."
22 December 2011 8:59AM
Sadly, GaryKG, your calculations are fatally flawed. The £7k+ is a sunk cost, not a capital deposit sitting in a bank account that you can get back whenever you like. Even if you could sell the PV panels - which I doubt - you are not likely to get back the installation costs. So your return of £640 pa has to recover both the sunk capital (£7k+) and the opportunity cost (lost interest on that capital). With the income your quote, it will be at least 10 years before you even recover your investment cost, let alone generate any return. In year 11 you will make your first profit - £40! Assuming, of course, you've had no maintenance or repair costs in the first 10 years which, given the lifespan of inverters, seems optimistic.
Put it this way - by your reasoning, you'd be happy to spend £7k+ today on a worthless painting, provided I gave you £640 pa. Deal?
If you and others made this 'investment' on the basis of such a flawed calculation provided by the vendors, I can see another massive example of mis-selling looming on the horizon .....
22 December 2011 9:03AM
Paid for by poorer electricity consumers, who neither have the ability or finance to join the rentier class!
22 December 2011 9:21AM
But the installation can add to the value of your property, and a home that can save on the energy bills will sell faster, especially in light of the wild fluctuations in the traditional energy markets and their ever increasing raw fuel costs.
A study was made of a San Diego residential development where half of the 257 homes had PV installed. The homes with solar panels sold within a year of going on the market, which was about 2 years faster than expected. In addition, the solar homes sold for $100,000-$200,000 more than their listing price.
LINK to the study. (PDF)
22 December 2011 9:22AM
The problem with writing untruths is that the facts so easily show you up.
Sharp's European module factory is in Wrexham (not Shanghai) and was due for further expansion .
Not to forget Romag who's products are:
Any state subsidy that is fickle will be self defeating by increasing market uncertainty, business risk and therefore higher investment overheads.
22 December 2011 9:32AM
But aren't the external and hidden costs of cleanup and healthcare for the aftermath of utilising the fossil fuel industry a form of stealth tax?
22 December 2011 9:42AM
Not if they are openly paid for out of general taxation. Its the enforced non-transparent cross-subsidisation of one group of consumers by another that makes it stealthy and allows people to claim 'taxpayers, aren't involved'. The ultimate aim might be worthy, but preying on poorer consumers to subsidise wealthier ones, whilst hiding the cost, is hardly something we should look for in a transparent democracy.
22 December 2011 9:43AM
But also benefiting tenants of housing associations and councils who fit them to their housing stock. Sadly, my own borough council , Waverley, has had to cut back its own programme to <35% of the planned number of council houses. As a tax payer I am not happy with the planning by my council being wasted.
An innovative co-op scheme to add PV (and energy saving + education resources) to local schools has also had to stop taking investment.
Ill-informed, unbalanced, simplistic statements do not contribute to a meaningful discussion.
22 December 2011 9:46AM
Seems to me that solar panels are a silicon technology. We know what happens to silicon technologies: the stuff gets cheaper and more efficient.
So investing - no, spending - now on huge expensive panels is money down the drain as next generation technology will quickly supersede it.
22 December 2011 9:46AM
With respect, what happens in sunny San Diego is irrelevant to the UK property market and you are merely stating an hypothesis. I am not aware of any evidence that PV-equipped properties are selling faster or at a premium in the UK market. In fact, I see neighbouring houses with and without PV installations on the market at the same asking prices - which implies that the vendor is writing-off the cost of the PV installation. Until contrary data are presented, I suggest investors would be best advised to consider the purchase and installation costs as sunk capital.
22 December 2011 9:48AM
An amazingly incompetent performance by the government - destroying jobs. If they had kept the original date for the reduction in subsidy (April) it would have made no difference. As for the cost to electricity consumers, the target of 3 pounds per year by 2020 is hardly significant in the context of rising mains electricity and gas prices. And now appealing the decision is going to mean further uncertainty. This is effecting thousands of real people in the industry with families and mortgages. And ithey were making a real contribution to the economy.
22 December 2011 9:51AM
I was talking about how the money is raised, rather than the fact that subsidies exist at all. Tax payer subsidies are one thing - they come out of general taxation. This is funded by what is basically a ring-fenced poll tax on all energy consumers; not something I would expect your typical Guardian reader to support.
I remember the cries of rage on CiF when VAT was raised; simply because VAT is apparently slightly more regressive than income tax. VAT is a progressive's wet dream compared to this.
22 December 2011 9:54AM
Thanks for the correction. There are always exceptions to any generalisation. I wish both the companies well, but would recommend they try to build into their business plans quite a lot of resilience to sudden unexpected policy changes. Also the price of PV is dropping because the Chinese are flooding the market, how that can be countered is difficult to see. BP have just dropped out of Solar because of the commoditisation of the product (read Chinese costs).
22 December 2011 9:55AM
"increasing up-front costs for homeowners by between £5,600 and £14,000, even before the panels are purchased, they said"
And who in their right mind would do that because, by the time it was booked and the work completed and re-surveyed the government may easily have moved the goal posts with no notice yet again.
If you cannot trust your government ...
22 December 2011 9:59AM
Can I have a subsidy too?
I'd like a Ferrari, and if the government subsidises me, I get to supply my transport needs. It employs lots of people in another country (Italy instead of China), as well as people here servicing the car.
Here's how it should work. All bus users will pay a higher ticket prices. I suggest an extra 4 quid on a quid ticket. That way lots of people like me get to have a Ferrari, and the world is a better place.
After all, its worked for FIT, it will work with Ferraris too.
22 December 2011 10:02AM
It's just like the banks.
They balls up so they ask the government to pay for the mess.
The green industries are the same. They can't compete so they go to the government and get them to do the dirty work.
It's called rent seeking.
Lets axe the whole lot, let them compete.
If the Greens want green power, they can buy the PV cells and use them. They might not like the real cost, but its free power isn't it - not.
22 December 2011 10:08AM
I am afraid that some exceptions to the generality do not make a case, nor does calling me ill-informed.
It would be difficult to unravel the subsidy streams in the particular cases you mention. My point is that generally these and other 'green' subsidies are paid for through a stealth transfer from other electricity consumers, including social housing tenants. They are stealthy and unfair.
If the Government wishes to subsidise any particular activity it should be through general taxation and be completely open to scrutiny. However, they wish to hide the real tax burden we all struggle under.
BTW my main home heating is carbon neutral and not subsidised by other consumers. Electricity is more of a problem!
22 December 2011 10:09AM
JBowers is right. The externalities of fossil fuel use are neither fully, nor transparently, accounted for. Both affect the poor more than the rich who are more able to adapt or choose to live in less blighted locations. Renewable subsidies are far more transparent and explicit.
It is disingenuous to point to the relatively minor (direct) affects of renewable policies whilst turning a blind eye to the far higher effects of fossil fuel price rises and volatility. Over the next 10 years the renewable policies will incrementally reduce exposure to these fossil fuel prices rises and volatility.
Well that is an oxymoron! General taxation is not hypothecated so, by definition, what you pay for is not what you get. What is needed with the FiT is for our utility bills to clearly show how much of what we are charged is due to fossil fuel costs and how much is due to environmental policies (FiT, energy saving measures, ROCs etc). How transparent are the big 6 being on this?
22 December 2011 10:11AM
Why do people think the government has the interests of the proleterate at heart. A few years ago Goldman Sachs decided they were going to invest in solar energy and the current scheme was probably set up with them in mind. They and other large businesses are now safely set up and raking it in and so all us plebs who dragged our heels or couldn't afford the high installation costs are being shut out; it wasn't meant for us. As for those posters who complain of the subsidies being passed on through higher energy costs, well again the big rises in energy costs have more to do with unregulated speculation by the likes of the above company.
22 December 2011 10:12AM
That sounds awfully like an admission from yourself that solar FITs are a stealth tax.
For the record I think you're right about the externalities of fossil fuel (and hydro, nuclear, wind etc).
That still however doesn't stop solar FITs from essentially being a stealth tax. And a generally very unpleasant one at that, which on the whole diverts money from the poor to the rich via their electricity bills, or, in cases where the poor are too poor, simply causes them to suffer without a basic commodity.
I'd get solar panels myself, but couldn't live with the fact I'd be doing it for purely selfish purposes which will generate little or no benefit for the environment.
22 December 2011 10:16AM
Earlier this month Germany celebrated its 1 millionth PV installation, with installed base of solar PV expected to reach 22 GW this year.
(For comparison: German peak electricity demand 85GW, UK 60 GW).
22 December 2011 10:21AM
Which I was careful not to do, if you read what I actually wrrote. Still, if you think the cap fits (FiTs?)...
Already addressed the 'stealthy' comment.
Unfair is a matter of perspective. The perspective of a Waverley council tenant? From the perspective of the polluter pays principle it is entirely fair. It could be argued (not my me!) that the subsidised fitting of loft and cavity wall insulation is 'unfair' because it is targeted at the less well off in society.
22 December 2011 10:43AM
Could someone with knowledge now relate this to the carbon tax.
As I understood the purpose of the tax was to redirect funds from cabon hungry industries to those less so.
Does anyone have the projections for the revenue generate by carbon tax set against the cost of FiT over the given timescale for the subsidy?
What impact does this now have on the carbon tax revenue, are there plans to use it for something else, reduce it now that it will not be ploughed back into renewables or increase carbon tax so that these sorts of schemes can be funded properly?
22 December 2011 10:47AM
"Greenest government ever" my arse.............
22 December 2011 10:50AM
jleicester
22 December 2011 07:17AM
Solar panel subsidies are a scam and a massive waste of money for the tax payer - very lucrative for those with plenty land to utilize though! Almost as bad as wind farms.
What absolute tosh. Bit of propaganda there jleicester ? The reason this idiotic coalition wanted to halve the subsidy was to ensure the electric companies carry on making a fortune at our expense. Get your facts straight.
22 December 2011 10:55AM
Hmm. Now if only they'd been that perceptive when the subsidies were set and realized that anyone with half a brain was going to leap on the "solar gold rush". I thought Britain used to be a nation of shopkeepers? Bankrupt shopkeepers obviously turn to politics.
22 December 2011 11:06AM
Cavity wall insulation plus upgraded loft insulation should cost a few hundred, so where do these figures come from?
22 December 2011 11:17AM
Want solar power?
Can't afford the panels?
Get a company in that can do it for you.
OH! I for got to tell you that they will reap the rewards for twenty five years!
You never get to read about that but that is how they operate.......
22 December 2011 11:21AM
Which I was careful not to do
I wondered if that would be your response! Can I count that as a bite! You language is slippery enough for you to be a politician!
As to 'unfair', all electricity consumers pay the 'tax' and its not related to their ability to pay. The tariffs are weighted against the smaller consumer in favour of the larger. It all sounds pretty regressive to me and fits my definition of unfair taxation.
Viewing all these policies solely from the perspective of the Waverley Council Tenant, might not be a sound approach.
Can I have a go at the social tariffs now? The reduced tariffs are similarly raised by levies on all consumers and administered by the utility companies without much scrutiny or transparency. They are also a disgrace and such subsidies to those in need should be administered by Government through money raised through taxation.
22 December 2011 11:33AM
I'm struggling to see why this should damage the market.
There is a global demand for solar PV that is growing rapidly and will continue to do so regardless of UK FiT structure. UK firms that want to profit from this market will need to compete against both national and international competitors so what's to stop them making their money by selling to the rest of the world? Unless they're pricing is fundamentally uncompetitive of course.
I can see that installation businesses could be hit but that hardly matters in the long term because:
1. You're not going to get a Chinese installer to work on your house in the UK
2. It's hardly a capital or R&D intensive business so it's easy to build up again when the market for solar PV picks up as prices naturally fall.
22 December 2011 11:41AM
'C
Wouldn't that be more simply stated as ...
22 December 2011 11:45AM
Citation needed.
22 December 2011 11:49AM
It seems like you have more of an ideological beef than a practical economic one. The PV investors are selling back to the natiional grid, and their initial investment helps to reduce the future prices of such installations. Why shoudn't they get something back at the outset? It's not as if they'll be getting the same rate in future, but the poorer consumers will find installation far more affordable, especially in light of new tech developments in PV such as a recent discovery that can increase the efficiency of PV by 50-100% with little added cost, solar plants being able to produce energy in the dark, and even new solar furnace technology that will further reduce prices?
Even if San Diego were a poor example, that doesn't get around the headway that Germany has made where we can see one rural location making millions in profit, and even if the FITS were reduced drastically, will probably break even at the very worst.
What we also see worldwide is the renewable energy sector paying its staff more than their fossil fuel energy sector counterparts. This in turn is beneficial to an economy. What is not beneficial to the economy is missing the boat in the manufacturing sector and leaving other nations to reap the benefits. For example, Bangladesh is set to corner the international off-grid market worth billions, and even for solar powered irrigation -- an offshoot of Bangladesh's own highly successful renewables programmes that are ahead of schedule and have even more aggressive deadlines for powering more off-grid locations over the coming few years.
But there is no way that the massive increases of fossil fuels that currently power most of our energy needs are not the heaviest contributor to fuel poverty, and claims of renewables being the main culprit are completely unfounded.
22 December 2011 11:54AM
Life's hard, but at least it puts us in a better position to reduce fuel pverty in future, instead of being held by the testicles of the most volatile and increasingly expensive energy fuel source sectors.
How many windpower and solar conflicts have there been? How much in real cost have we spent on the last decade's oil conflicts?
22 December 2011 11:55AM
You need to be rather naive to think that this is an example of an autonomous grid.
This setup is entirley dependent upon a large national (largely fossil-fuelled powered) grid subsidising small renewable generators.
It requires large enrgy companies to purchase the renewable energy at an infalted rate (because no consumer would pay the rate demanded by the FiT - whereas large energy companies are legally forced to buy it).
It also requires a national grid through which to export suplus electricity, because most homes in northern europe do not use much electricity during the day when solar is generated.
And it requires a national grid to supply (much cheaper) electricity at times when the local renewables are not generating.
22 December 2011 12:03PM
But putting more back into the grid than they use. Hardly a bunch of pariahs.