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Posts tagged with: green policy

As a customer, its important to understand the process by which solar panels get from manufacturers to end users to ensure you’re getting a good deal.  In general, most solar panel manufacturers are big companies who produce in very large quantities. This means they generally prefer to sell to only a few large distributors in high volumes rather than have lots of smaller customers. This makes their sales process easier since managing many customers is very small time-consuming and costly.  The large distributors then sell to either smaller distributors or to installation companies.  The distributors aim to provide all the necessary components for installers, allowing them to buy in small quantities and providing technical support.

Examples of well known solar distributors in the UK are Dulas, Segen, Solar Century and Waxman.  Because the UK solar industry is so small and so new however, these UK wholesalers are very small compared to their European counterparts in Germany, Spain and France.  One of the biggest solar distributors in Germany, IBC Solar, will sell 500MW of solar equipment this year.  This compares to a total expected UK market size this year of 60MW! So IBC Solar sells nearly 10 times the total UK market, and is just one company!

Unsurprisingly, since the UK is now seen as an interesting emerging market in the solar industry, many of these large European distributors are moving over here.  I spoke to one last week that is investing 200 thousand pounds this year to set up a warehouse and employ a 5 person team to address the UK market. This is good news for UK installers because they will now have access to pricing that was only previously available to their counterparts in mainland Europe.  The UK wholesalers on the other hand may struggle to compete with such large competitors.

Competition is coming from all sides however, and there are now solar panel manufacturers who are moving downstream and becoming more like wholesalers. It is now possible for smaller installers to buy directly from a few of the European manufacturers, thereby bypassing the wholesalers and their margins.  To withstand this competition the big European wholesalers are trying to gain advantage by developing an array of advanced support services for wholesalers to win them over.  This includes things like credit lines, training and design software.

It is unclear whether these features will suffice since there is also competition from the big in-house installers.  In the US there is a very large installation firm called SolarCity which is going head to head with the wholesalers for marketshare, but does all installations using its own in-house team.  This has advantages in-terms of pricing and quality of service – there are no middlemen and they can guarantee the end to end service – the drawback is that growth is capital intensive and slow.

The market is evolving so rapidly it remains to be seen which business model will win out in the long run, what is clear is that there will be a lot of movement in the market – all of which is good for customers since it means prices will fall and customer service will improve.  So when choosing a solar panel system, try to find out where the installer buys their solar panels from, not just who the manufacturer is.  This will help you tell if you are getting a good deal or not.

The comprehensive spending review of October 20th could have spelt a disaster for the UK solar industry if they had instantaneously cut the feed-in tariff.  Thankfully no such cut was made and the industry can continue on as before, at least for now.  All feed-in tariffs are designed be decreased on a regular basis.  This is so that the return on investment from a given renewable energy technology stays the same over time.  The great thing about feed-in tariffs is that they decrease and decrease until they reach the same value as retail electricity prices, at which point you’re at grid parity and you don’t need the feed-in tariff anymore.  Its hard to predict exactly when this will happen but in the case of UK solar PV, costs decrease very rapidly and I think that in 5 years time grid parity will be very close.

Currently the UK feed-in tariff is not set to be reviewed until April 2012, with changes possibly not coming in until 2013.  In most feed-in tariff markets, the tariff decreases annually, so not changing our feed-in tariff for two whole years is too long in my opinion.  The feed-in tariff at today’s PV prices provides a fantastic return on investment. 9-12% annual return for 25 years beats nearly everything you could get in an ISA or other savings product.  In two years time, with another two years of cost reduction, the investment return could be significantly higher than it is now.  Frankly, as someone who works in the solar industry, I say that this would be a bad thing.  What the industry needs to see is steady year on year growth, not a boom and bust.  The tariff is fine where it is for now, but soon it needs to be decreased to ensure the returns don’t get too high.  The returns are high enough to trigger major growth in the industry, if they are too high then we will see more and more people pile into the market in a way that is unsustainable.  The tariff would then have to be cut very significantly to control the market, which would lead to a massive drop-off.

It is very important that the industry has visibility on what will happen to feed-in tariffs so businesses can plan ahead.  To solve this Germany have announced what will happen to the feed-in tariff based on the results of the previous year. That means that if the market reaches a certain size, the egression the following year will be larger and vice-versa. The details of this are published so that everyone can see what the degression rates could be – we need this level of visibility in the UK.

Another big problem with feed-in tariffs is that they cause a surge of installations in the run-up to a feed-in tariff degression – which is not particularly healthy.  What would be best is to decrease the feed-in tariff little and often, so there are no sudden jolts to the industry.  Italy has just introduced quarterly feed-in tariff degression i.e. decreasing the feed-in tariff every 3 months instead of once a year.  I think this is a great idea.  As long as the degression each quarter is small and planned ahead, the industry will be able to continue to grow steadily without the need for big every year or every two years.  France on the other hand are considering an annual cap to the PV market.  This is absolutely terrible for the industry as it limits everybody’s growth and will cause redundancies across the industry in France if it goes ahead.

So now we are back on our feet in the UK, lets think about how to create a stable solar industry going forward by decreasing the FiT in a sensible way.  It could be that we follow the Italians lead on this one.

The Chinese National Energy Administration has announced via the state run newspaper China Daily that they will be seeking to produce around 15 per cent of all the country’s energy by renewable means within the next 10 years.

China, despite being criticised for its heavily industrialised, polluting economy and images of Beijing obscured by dense smog during the 2008 Olympic Games, the government is taking proactive steps towards reducing carbon emissions with measures that would shame certain other attendees of the Copenhagen climate summit.

With the growing realisation of the fallibility on basing the huge Chinese economy on fossil fuel imports which could become untenable within the next 25 years, the Beijing government is planning to spend billions of dollars in investing in solar and wind farm sites in addition to research projects which could keep China at the cutting edge of green energy generation.

Renewable energy generation grew by 1 per cent in China in the last 12 months with the government hopeful that figures will grow from the present 9.9 per cent to 15 per cent by 2020. The Chinese government is keen to diversify its economy as well as its means of energy generation with the dual purpose of slowing the effects of climate change and making the economy more robust in the face of any potential fuel crises which could arise in the near future.

In spite of passing legislation designed to have an immediate impact on renewable energy uptake such as the feed-in tariff, a mechanism to incentivise investment in green technologies, government spokesman Zhang Guobao is realistic about the timescales involved in such projects. Speaking to China Daily, Zhang commented that,

“Power projects take a long time to be up and running, and we are basically allowing five years to complete them although it is a 10-year program, otherwise, the facilities cannot be put into use by 2020.”

Zhang added, “It appears that some local governments approved energy-guzzling projects during economic crisis so only by fully implementing our energy saving regulations can we realize economic growth with less energy consumption.”

The West Wales Eco Centre have teamed up with The Environmental Network for Pembrokeshire (TENP) to organize an international feed-in tariff which is set to be the first of its kind held in the UK. The conference, to be held in Llandissilio, Pembrokeshire on the 21st of May will highlight the key features of the UK government’s upcoming feed-in tariff legislation which will be implemented in 2010.

Specifically, the conference will demonstrate the practical implications for the new feed-in tariff legislation for small scale, renewable energy suppliers in Wales. The principle behind feed-in tariffs is that they attract investment in green technologies by offering incentives designed to offset the obvious additional costs involved in generating electricity by renewable means. Small scale renewable energy suppliers would therefore be offered fixed contracts with a guaranteed premium rate for units of energy fed-in to the national grid. The higher rate paid for these units of energy would be met by the large energy companies, a system which has been extremely successful elsewhere, particularly in Germany.

With the obvious benefits to investors in mind, the conference to be held at the Nant y Ffin Hotel will address the commercial advantages to those thinking about investing in renewable energy in West Wales and will demonstrate the advantages that the new policy will give to green projects across the country. The free event will be sure to attract interest from those still unsure about the new legislation and also investors planning to invest in the West Wales area.

The West Wales Eco Centre and TENP are planning to draw examples where similar feed-in tariff legislation has proved fruitful worldwide. In Germany, the success of renewable energy and in particular solar energy has been largely attributed the coherent tariff policy implemented there in order to attract investment. There will therefore be a presentation by Josef Pesch of Juwi Holding AG on the subject of the German experience of implementing feed-in tariffs. In order to clarify government policy, John Moriarty from the Department of Energy and Climate Change will address the conference on the development of the UK tariff legislation. From a practical and logistical point of view, Hugo House of Generation Marketing, Good Energy will talk about the implications of feed-in tariffs for the electricity industry and Gordon James, Director of Friends of the Earth Cymru will highlight the need for a decentralized grid in managing the flow of energy being fed-in to the grid.

The conference marks a major landmark in renewable energy in the UK and will highlight the tangible benefits and provide valuable information for an industry which is still in its infancy in this country. For more information visit www.tenp.org.uk