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Heating contractor EAGA are piloting a solar scheme across council homes in Welwyn Hatfield Council in a project designed to add hundreds of solar photovoltaic panels to households. In a scheme similar to carbon reduction programs happening all across the UK, the Hertfordshire scheme will utilise the feed-in tariff in order to save money and of course, reduce carbon emissions.

The feed-in tariff works by offering fixed, premium rates for units of energy generated by small scale renewable energy projects exactly like the one piloted in Hertfordshire. The EAGA scheme will seek to save each household money on fuel bills because of the obvious savings on electricity. As well as the financial rewards to the scheme, the solar photovoltaic installations will save around 1200kg of CO2 a year per household.

Across the 25 year life time of the scheme this equates to 30 tonnes, a sizeable amount which if replicated elsewhere would certainly contribute significantly to UK carbon reductions. Suitability for the solar scheme will obviously depend on such factors as aspect and roof size, however a large number of council schemes across the UK will inevitably cotton onto the EAGA project and seek to make carbon reductions and indeed generate revenue through the feed-in tariff.

Councillor Roger Trigg said with regards to the Welwyn project,

“We are proud to start the New Year with such a positive and innovative scheme, which will mean real savings in our tenants’ energy bills and their overall carbon footprint. We recognise how important it is for our tenants to manage the cost of keeping their homes warm and comfortable. Our homes have already been recognized as some of the most thermally efficient in the UK, and this strengthens our commitment to energy efficiency even further.”

While there is currently a focus on government spending cutbacks, such council schemes indicate how renewable energy, twinned with the feed-in tariff can be a real, viable means of both reducing carbon emissions, saving money and ultimately, helping to boost industry and create much needed jobs.

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.

Following their announcement that they would be giving away free solar installations to households across the UK, it is perhaps unsurprising that energy firm, Homesun have received an unprecedented level of inquiries.

The offer will include both a technical survey to ensure that the property is suitable for solar panel installation and of course the actual installation, taking away the initial start up costs which often act as a deterrent to potential renewable installers.

100,000 systems will be given away to homeowners with south-facing roofs meeting the requirements of the survey, allowing them to enjoy all of the benefits of a solar panel system without having to outlay all of the initial costs associated with solar technology.

Solar panels could save homeowners up to 40 per cent on their electricity bills with estimates that a typical 3 bedroom semi could save up to £250 a year, with the added benefit that homes with solar panels installed fetch a higher price on the market than comparative properties without. A spokeswoman for Homesun commented,

“There’s real excitement about what we are doing. This just goes to show the latent demand for solar amongst the British public, they just needed to find a way to access it. Solar now makes perfect sense. I am proud HomeSun is leading the charge to take solar mainstream.”

Homesun have already announced that since the release of their offer, they have received 7,000 calls and have had 10,000 people log onto the Homesun website. Talking about the unprecedented level of interest, Chief Executive of Homesun David Green said,

“The phones have been absolutely mental and it’s put huge pressure on our website. We were not anticipating such enormous demand. It’s clear that for the first time, we have allowed renewable energy for residents to break through.”

Homesun’s offer has been made possible by the introduction of feed-in tariffs, government legislation introduced in April 2010 devised to increase the take up of renewable energy generation. The tariff works by offering premium, guaranteed rates for both the energy used and the units of energy fed-into the national grid from the renewable systems.

Homesun will therefore be able to recoup their initial investment and subsequently make a healthy profit on each installation. Homeowners will be given the opportunity to buy the tariff contracts from Homesun in the future but it is more likely that most will simply opt to make savings on their bills.

With offers such as Homesun’s making an impact in the media and the building of consciousness about the feed-in tariff, it is very likely that before long the market will be jam packed by suppliers offering very similar solutions