‘Where should we put solar panels anyway?’ This is a question I’m often asked and to which I always reply, ‘everywhere!’ Glibness aside, what the question is usually getting at is to do with market segmentation. There are many different types of photovoltaic (PV) installations. One of the remarkable aspects of solar technology is just how scalable it is. Solar panels are used in both pocket calculators and in giant solar farms covering hundreds of hectares. The economics of each application are very different however and it is important too understand which applications represent the largest markets.

As I’ll discuss the, UK feed in tariff is designed to strongly influence the type of solar installations built in the UK, but what kind of solar installations are best and what should we expect in the UK?

Let’s look at what’s going on in other countries around the world. In Germany, the world’s biggest solar market by far this year, grid-connected solar systems are defined in three categories; residential, commercial and utility scale. Residential scale is the smallest type of installation and refers to all installations less than 10kW (~60m2) typically found on private houses. Commercial scale refers to installations between 10kW and 100kW (600m2) typically found on the roof of a factory, office or warehouse. Utility scale refers to all installations above 100kW and these are typically ground-based installations on fields (also known as solar farms) and can cover hundreds of hectares.

These three types of installation are quite different from each other in terms of price and the technology used. Which type of installations are the most popular? Figures published by the Bundesnetzagentur (the German grid regulator) state that the market in 2009 is divided into 17% in the residential scale, 17% in utility scale and 66% in commercial scale. This means that because residential installations are smaller, there are many more of them in number than utility scale installations.

Large plants are cheaper due to economies of scale, however the planning process can be long and complex, and it can be difficult to find banks willing to loan money for such projects. Rooftop plants on the other hand have a much easier time getting planning permission, and often are fully funded by the owner, so don’t require a loan. This explains why commercial scale rooftop plants dominate the market.

In the US, rooftop installations also dominate, and there is an additional reason why. In the US there is no feed-in-tariff, rather a complex array of grants that vary from state to state (California has the best).

Solar installations generate money by selling electricity to the energy utility at the regular unsubsidized rate. This means if you generate energy at the place where you use it, you get the same price of electricity that you would have to buy it at, the retail price. On the other hand, if you have a utility scale power plant, this requires the utility to distribute the energy for you and you only get the price that other types of power stations get, the wholesale price. Since wholesale electricity prices are roughly half that of retail electricity prices, its much better to have a solar installation in the same place as where you use it, i.e. on your roof.

So what does this mean for the UK? Well, as we are led to believe from the governments initial announcement, the UK feed-in-tariff will be strongly weighted towards smaller installations. This means that the larger your installation the less you will be paid for the electricity it generates. This cutoff is quite severe, with the rate dropping from 36p to 31p per kWh for installations over 4kW, to 28p for installations over 10kW and down to 26p for installations bigger than 100kW.

The argument behind this is so that all installation deliver an equal return on investment. This implies that the government assumes the cost of energy from a solar installation is 14% lower for a 5kW installation than for a 4kW installation.

Where does this assumption come from? Data from Germany suggests that this is not the case and the 14% drop does not exist. Cost of energy does fall with increasing scale but by how much is unclear and changes constantly with prices of various technologies.

I can understand if the government wants to ban solar farms (although having visited several under construction in Germany last month I think it’s a real shame that we don’t have a single solar farm in the UK, even just from an educational standpoint) but the current FiT structure does something else. It restricts the most effective type of photovoltaic installation, namely commercial scale rooftops.

Germany’s flat feed-in-tariff structure and the US’ grant scheme both allow the market to evolve naturally. If large rooftop installations make the most sense economically then why not let this segment grow fastest? Trying to engineer a feed-in-tariff so that everything grows at the same speed will inevitably slow growth overall.

Let’s hope changes are made while there’s still a chance.

As a follow up to the recent article on inverters, I thought it would be a good idea to warn you that if you wanted to buy an inverter in time for Christmas I’m afraid you’re out of luck. As result of the huge demand for residential PV systems Germany described on this site below, it is virtually impossible to find an inverter of any size or manufacturer in the whole of Europe at the moment.

The big manufacturers; SMA, Fronius, Mastervolt and the like are all completely sold out and are unclear when their next shipments can be made. Wholesellers are operating on a first come first serve basis and taking orders three months in advance. This means that if you were thinking of installing a PV system in the next few months but haven’t ordered your equipment yet you’d better get a move on. We’ve even heard reports of SMA shipping inverters to German customers without LCD displays in efforts to meet demand. (apparently the displays will be delivered in a few months time when they can be clipped on).

I guess the shortage is a good sign that the solar industry is alive and kicking. However if the feed-in-tariff is announced in the UK soon and it turns out to be a good one, there’s going to be a lot of frustrated people out there unable get involved for the lack of an inverter.

Following on from the various criticisms of the government’s recently announced Clean Energy Cash Back System, comes the announcement of the closure of phase two of the Low Carbon Building Program for solar installations in the UK.

The news is a blow to the industry as it will leave a crucial funding gap until the feed-in tariff comes into operation in April 2010. The move which has been made because of what the government calls ‘unprecedented demand’ seems to have become a victim of its own success.

Initially the government had earmarked £18 million of grants for solar PV installations for public sector buildings such as schools, hospitals and housing installations however it is feared that this cessation of the grant system will kill the solar PV industry in its tracks with the Clean Energy Cash back system still months away.

It is generally believed by industry insiders that the gap left by the closure of the low carbon program comes at an extremely bad time especially with regards to the general economic climate and Britain’s desire to become a real global player in solar PV. Speaking as general manager of UK solar firm, Sharp Solar, Andrew Lee commented that,

“The government’s decision to close the Low Carbon Building Programme Phase 2 is one that threatens to kill the UKs PV industry. At a time when the UK should be building-up interest and support ahead of the introduction of a UK Feed in Tariff next year, the decision to end the LCBP grant procedure because of too much demand is just another unnecessary hiatus in support.

adding,

“PV continues to be overlooked as the government conducts a stop start approach to adopting renewable energy. While we understand that PV technology is part of a wider renewable mix – if every building in the UK had a solar panel on its roof, there would be no need for any other energy source.”

The Department of Energy and Climate Change (DECC) has come under the fiercest criticism since the dual release of the Clean Energy tariff details and now the low carbon program closure news. Some industry observers have commented that the DECC’s hand is being forced by a strong anti-solar lobby currently operating within Westminster and that this news is a hiatus possibly designed to appease the lobby headed by the utility companies.

Defending criticism of the government, a spokesman for the DECC stated,

“It’s very encouraging that there’s been an unprecedented demand for this technology but we have to be fair to all renewable technologies. We’ve put £18 million into the solar PV ‘pot’ since April which is more than the industry asked us for, so it’s really an unprecedented demand. FITs that come in next April will provide future incentive for solar PV projects.”

Many people have been asking us when the government will finally announce the size of the UK feed-in-tariff which is a fair question since it’s supposed to come into force next April after all. Unfortunately we’re not able to give a definitive answer, and nor are any of the people we’ve spoken to about it.

The ‘We Support Solar’ campaign has done well to generate publicity around the feed-in-tariff. Now the government has mentioned 36.5 pence per kilowatt hour as a provisional figure, asking for an increase on that of just 10p is a strong argument. Whether the government sees it that way is yet to be known however. Alan Simpson, one of the most active and vocal MPs on the subject believes that the delay in feed-in-tariff decision may be a tactical decision by Labour. For example, an announcement on the feed-in-tariff could be used to boost popularity at a key moment – perhaps even during next week’s summit in Copenhagen.

Alternatively, if both the Tories and Labour believe the feed-in-tariff to be a votes winner, there could well be a bidding war taking place behind closed doors between the two parties right now. Neither party would want to be seen as stingier than the other when it comes to creating green electricity and green jobs. This is pure speculation of course, but if it were true it would be great thing for the UK renewables industry.

The opposite could also be true however. With many households already stretched by their energy bills, the government could be looking to reduce the cost of implementing a feed-in-tariff. It is hard to see them going below the already announced 36.5 pence (it would be better to scrap the whole feed-in-tariff together), but they could be waiting for a moment when the newspapers are distracted by another issue to announce the feed-in-tariff plans.

Hopefully in the near future I’ll be able to write a reaction to a government announcement. Until then though, if you haven’t already written to your local MP asking what they personally have done to support the UK feed-in-tariff then go do it, now!