Solar Feed In Tariff Website

China provides perhaps the best example of a genuine solar revolution. In recent years China, and in particular the capital Beijing, have become synonymous with heavy air pollution with carbon emissions a natural result of being the largest manufacturing base in the world. The Olympic Games held in Beijing in 2008 highlighted to the world the problems that China is having with pollution in urban areas where population density and heavy road traffic has contributed to a situation where on some days visibility is severely reduced.

The televised images of the Beijing skyline obscured by a murky cloud of smog offered a grim reminder of the contamination which is of course an inevitable by-product of a rapidly industrialising economy. However, China has embraced the concept of renewable energy with a massive shift towards solar energy. Legislation introduced by the Chinese government has been designed to spark investment in renewable energies and has so far, proved to be successful.

As the largest manufacturer of photovoltaic (PV) components, China has been a market leader in developing new products for markets elsewhere. Certainly, the Spanish market which experienced its own boom following the introduction of a feed-in tariff in 2007 relied massively on Chinese PV imports with the market experiencing a glut of Chinese produced PV plant when the Spanish industry went through its downturn and failed to install the solar plant which had been ordered. However, in a bid to alleviate some pollution problems and help meet climate change targets, the Chinese government has recently sought to increase the number of solar installations within the country.

In order to do this the government introduced a feed-in tariff system. Essentially, the feed-in tariff (FIT) was designed to attract investment in the new solar industry by offering financial incentives to investors. The FIT mechanism operates on the basis that the law guarantees a fixed, premium rate for units of electricity fed-in to the grid by solar energy generators. The utility companies are obliged by the legislation to purchase the solar electricity at above market prices, the costs of which are passed on to the consumers. In China this mechanism which has been successful in areas such as Germany, Spain and California has also proved successful in China. In July 2009, the New York Times ran with the headline, “Green Power Takes Root in China” heralding the arrival of the Chinese PV market on the world stage.

The arrival of the Chinese PV industry has come in the form of a national renewable energy law which decrees that utilities must generate 8 per cent of their energy by renewable means by 2020. The fact that this 8 percent figure does not include hydroelectric power adds to the importance which the Chinese are now placing on green energy. The growing awareness of the lack of long-term sustainability in traditional coal energy sources has prompted the Chinese government to take action to maintain China has a major industrial power well in to the future. There has also been somewhat of a frenzy among private companies seeing the opportunities that will undoubtedly present themselves in the Chinese renewable industry, with a growing activity particularly in sectors such as wind and photovoltaic technology which will inevitably boom in China in the near future.

The New York Times was keen to use this Chinese government action to make comparisons with the comparatively weak efforts being made in Washington to spur the renewable sector in the United States. Indeed, in the United Kingdom, with the recent feed-in tariff legislation, members of the green energy industry will be hopeful that government action in the UK will have the same effect it has had on the Chinese market.

The New York Times asserted its almost neurotic view of Chinese renewable growth compared to that of the US by warning,

“You won’t just be buying your toys from China, you’ll be buying your energy future from China.”

China has a target in place to produce 8000 megawatts of energy by wind energy by 2010 which they are set to smash. If China continues apace to move towards green energy, they will surely shame efforts currently being made in the West to develop their own sustainable renewable industries.

Spain gives perhaps the best case example of how a strong feed-in tariff system can either make or break the solar industry in which it is introduced. The Spanish feed-in tariff (FIT) was designed as a mechanism for incentivising investment in solar installations and was introduced in 2007. Traditionally, the high cost of solar plant and installation deterred investors who identified that despite the high levels of solar radiation across the Iberian Peninsular, yields would be minimal at best simply due to high initial outlays.

The FIT is a system which guarantees fixed, premium rates for solar producers who feed electricity in to the national grid. The high rate paid for each unit of electricity is met by the utility companies who in turn spread that cost over their customers. Therefore, in Spain with the introduction of the tariff system in 2007 with the rate of 0.44 euros offered for units of energy fed-in to the grid by solar producers the interest generated in the Spanish photovoltaic (PV) market was overwhelming. Indeed, combined with extensive coverage from the Spanish media along with Zapatero’s PSOE government’s commitment of making Spain the leading producer of solar energy in Europe by 2020, there was a phenomenal boom in the PV sector with the number of solar installations rising dramatically.

The UK government and in particular the Department of Energy and Climate Change (DECC) since passing the Energy Act in 2008 have been moving towards a similar tariff system and in June 2009 announced that they would introduce a Clean Energy Cash Back system in the first quarter of 2010. In order to do so, they have undertaken a meticulous consultancy process in order to ensure that the mechanism which is introduced does exactly what it is intended to do i.e. make the UK solar industry strong and viable in the long term by attracting investment in the young sector. Spain certainly offers an example of how to attract investment in the short term. However, the Spanish example also offers stark examples of how not to set up a tariff system for long term industry health. The essential problem with the feed-in tariff which was established in Spain was that it was unable to cope with market fluctuations which arose as a result of the initial success of the tariff.

A recent report by the New York Times highlighted the failings of the Spanish solar legislation. Problems stemmed from the fact that politicians expected a steady stream of investment over a period of years. However, the massive interest which was generated in the fledgling industry encouraged a wave of investment in the first few months. The massive take up of solar installations was unexpected and caused the Spanish government to reduce solar incentives by 30 per cent without warning. Because the Spanish feed-in tariff failed to be market responsive, many investors who had already ordered deliveries of solar product from China, were left in the situation that they had no market in which to install it. With regards to the Spanish legislation, Julie Blunden of SunPower Corp was quoted in the New York Times,

“The most important lesson, which everyone has learned, is that if you’re going to establish a feed-in tariff, you need to figure out how to make it market-responsive.”

This will be the key lesson for the British government, how to introduce legislation which encourages growth in the new solar industry without setting a tariff level which is too high. In Spain, the government’s level of 0.44 euros was artificially high and therefore created the problem of an influx of investment which the government could not manage. Therefore, when the PSOE government reduced incentives by 30 per cent with many investors having already ordered large quantities of solar plant from manufacturing bases in China, the proverbial rug was pulled right from under them. Talking specifically about the legislation changes which had the detrimental effects on the Spanish PV market Santiago Seage, the CEO of Abengoa Solar SA commented on the situation saying,

“What’s important for the regulation of solar is stability. Unfortunately, up to now, we have had too many changes and if the context changes, you can make mistakes in business decisions.”

Spain has already experienced a dramatic reduction in photovoltaic installation in 2009 with 375MW compared to 2008 installations of 2,500MW. Spain will now fail to live up to its ambitions of becoming the European Union’s leading renewable energy producer by 2020 essentially because Zapatero’s government has neglected the tariff scheme across the country. The introduction of a 500MW project cap along with the withdrawal of essential subsidies has seen the solar industry stagnate and since the new year, decline. Members of the solar industry in the UK will therefore be hoping that the British government emulates the example of Germany rather than Spain in the way that they choose to roll out the much talked about feed-in tariff next year.