Recent changes announced to the feed-in tariff were designed to encourage investment in smaller scale, household solar panel projects away from larger scale solar farms which were hoping to tap into the tariff mechanism on an industrial level. While commendable in theory, the reality is that householders and small scale investors simply can’t afford the steep upfront costs in installing solar equipment. While it is of course possible to generate long term revenue from solar projects by tapping into the solar feed-in tariff, photovoltaic solar installation can cost as much as £15,000, capital which most would find hard to raise. This is where critics believe that banks in refusing to lend to small businesses are crippling the solar industry in its infancy.

Already in the UK there have been over 31,000 solar installations amounting to 86MW with 81MW of these being domestic, roof mounted projects. For this reason, you would imagine that the solar industry in the UK has already shown potential lenders that there are returns to be made through investing in photovoltaic equipment especially when twinned with a government protected tariff mechanism like the one introduced last April. Lee Summers of Alumet Renewable Technology stated that,

“It would not be difficult for Government to instruct the state-subsidized banks to recognise its own feed-in-tariff scheme as suitable collateral.”

However, despite the clear evidence from abroad that there are indeed healthy yields to be taken from solar pv, the reluctance of the banks to lend is prohibiting a huge number of people to install solar panels. Summers went onto add that,

“For most homeowners they are unable to benefit from the 8 to 10% that the FiT guarantees to domestic generators because they don’t have the £12,000 or £15,000 they need to install the photovoltaic panels in the first place. Banks do not regard the Government’s 25 year index-linked, commitment as collateral for a loan. It is totally unfair that only the most ‘well-off’ individuals in a community can benefit from solar technology. The feed-in-tariffs are paid for by levies on every energy bill and so every home owner should have the opportunity to access the FiT.”

Engensa, a UK based solar company recently installed the UK’s first micro-converter system – a radical new technology that enables millions of otherwise unsuitable roofs to be used for solar PV by eliminating many of the problems associated with shading.

As thousands of families each month install solar PV systems, the crucial role of the inverter – the nerve centre of any system – is coming under increasing scrutiny.

A standard inverter has two distinct roles: the first is to convert the DC current produced by the panels into AC current that can be used in the home.  The second, crucially important, role is to manage the output of each of the panels and this is where traditional inverters can struggle.  The problems come about when even a small part of the installation is shaded by a tree or a nearby building.  Solar cells are essentially large semi-conductor diodes (similar to computer chips) which convert sunlight into electricity and are connected together to make a panel.  When even a single cell within a panel is shaded it limits the current that can flow in the whole system, because with a normal inverter the solar panels are connected in series.  This means that with a regular inverter the entire system performs to the standard of the weakest panel.

As the snows fell before Christmas, Engensa installed the UK’s first ever micro-converter – a radically different kind of solution manufactured by SolarEdge, an Israeli based leader in PV power optimization.

Instead of having a single inverter, the SolarEdge system is made up of multiple PowerBoxes, which sit under each solar panel and maximise the power of each individual panel and communicating this to a central inverter across the existing power lines.  In addition, PowerBoxes maintain a fixed DC string voltage, allowing optimal efficiency of the SolarEdge PV inverter at all times and enabling a significant increase in the amount of electricity generated over the lifetime of the system.

According to Dr. Toby Ferenczi, Engensa CTO, it is ‘the UK’s first of a kind installation with distributed power harvesting.  In plain English that means you get more energy output and greater PV monitoring capability compared with a conventional solar PV system because each panel is controlled separately.’  According to experts at Engensa, this new technology means that the impact of shadows falling on the panels is greatly reduced because only the output of the shaded panels are affected, rather than the whole system.  It also means you can install panels in different orientations giving much greater flexibility when designing the system.  A third benefit is that system owners have much greater insight into how their system is performing since it allows the output of each individual panel to be monitored in real-time, even from an iPhone.

‘SolarEdge’s product is a breakthrough that we have been waiting for,’ says Dr Ferenczi.    ‘Our focus, in the increasingly competitive solar market, is to provide our customers with the best technological innovations from around the world and as part of this commitment we are delighted to have installed the first SolarEdge system in the UK.’

Much hope was pinned on Copenhagen and Cancun as a way of highlighting the case for renewable energy and prompting large scale investment in green energy. Government’s globally assumed that private investment would pour in, helping to bring the big world economies closer to meeting climate change targets, win votes and of course revitalise struggling economies with a vibrant green energy industry. As it was subsequently found out, the world financial crisis was such that rather than see the universal growth of green energy, some sectors were forced to make drastic, indeed devastating cut backs.

The world recession has had a detrimental effect in certain areas of renewable energy. Certainly Spain, once a world leader in solar pv thanks to its feed-in tariff policy suffered greatly from cuts made to the tariff by Zapatero’s government in the face of a Spanish economy on the brink of collapse. However, according to the Director of the UK Carbon Trust Ben Sykes, the recession has not necessarily meant a downturn in all sectors,

“The big, exciting stuff that was going to come out of a very successful global conference didn’t happen, but you have steady growth in a number of technology areas”

The world of finance certainly recognises that despite cut backs in certain areas of renewable energy, other sectors including solar pv have continued to go from strength to strength in the UK. Ever since the introduction of the feed-in tariff in April 2010, investment in solar energy has rocketed with an impressive uptake in solar panels taking advantage of the healthy profits to be made. With regards to efficiencies, the head of HSBC’s climate change centre of excellence Nick Robins stated,

“The learning curve has accelerated during the crisis, particularly in solar.”

The UK solar feed-in tariff, legislation which guarantees fixed, premium rates for units of energy either consumed or fed back into the national grid is designed to incentivise investment in solar energy, traditionally expensive to set up. Already the uptake in solar on the back of the tariffs has exceeded expectations with over 10,000 panels installed so far. As was predicted, the uptake in solar along with the growing competition in the UK market has caused prices to fall a little bit closer to ‘grid parity’, the holy grail of renewable energy. According to energy expert Anthony Froggatt, Chinese manufacturing volumes have led to grid costs being the equivalent of nuclear in the US.

Unfortunately the solar industry is not a level playing field at present.  The Chinese government has provided some enormous loans to their top PV manufacturers (e.g. http://uk.reuters.com/article/idUKHKH00202420100414).  These manufacturers are using the money for incredibly rapid expansion so that they are fast outgrowing all of their European competitors.  Being bigger means they have greater efficiency, which means the large Chinese players now have even lower costs than their foreign competitors.  There are obviously cries from US and German manufacturers about violations of international trade laws etc and indeed the situation is particularly unfair seeing as it was the German FiT that created the Chinese manufacturers in the first place, but there is little chance of any legal recourse in the near term.  The situation has led German policy makers to think about protectionist policies for solar though (‘buy German’) and provided fuel for the anti-solar lobby.

All that aside, the top-tier Chinese solar manufacturers are now producing high quality modules with lower costs than anyone else.  They have had a lot of experience with due diligence from European banks and are now pro-active in respect to quality control and bankability.  They are also beginning to invest heavily in R&D which will close the already small technology gap with Japanese and European competition.  Chinese solar manufacturers are integrating vertically in the value chain in a big way.  This means that for example cell manufacturers are starting to make wafers, silicon and modules etc. This gives them greater ability to control quality and improves margin retention.  They are also expanding downstream and bulking up sales teams in Europe with Europeans. This reduces the ‘fear factor’ of working with Chinese companies and taking revenue away from European wholesalers.  The strength of the big Chinese players is evidently putting a strain on its competition. If one had to choose between German or Chinese manufacturers as the most likely to be around in 25 years it would almost certainly be the Chinese.

It should be noted that there a number of Chinese manufacturers that do not have such high standards and should be avoided.  Many people in the solar industry are not convinced that the UK’s Microgeneration Certification Scheme is effective at weeding out these poor manufactures judging from the companies which have gotten through.  There are also lots of counterfeit modules  on the market now (for example fake Trina Solar and ET Solar modules are widespread) so its important to find installers with good checking procedures.

So does the rise of the big Chinese solar manufacturers damage the UK and make the Feed-in tariffs pointless, seeing as it will support the continued growth of unbeatable foreign competition?  I would argue that the only way to create growth in our manufacturing industry is to develop a domestic end-user market.  For a long time the UK has precious little in terms of PV manufacturing capability, which means that the strength of Chinese companies has little impact on us.  If we were not buying from China, we would be buying from elsewhere.   As the UK market grows, more people become engaged in the industry and start to look at product innovation.  Already there are a number of UK companies developing solar products specific to the UK market as a direct result of the introduction of the Feed-in tariff.

Furthermore, module manufacturing makes up only a small portion of the solar value chain.  Installing roof-top PV is highly labour intensive, and the feed-in tariffs will create a huge number of jobs in the badly suffering building services industry.  The fact that there are good quality, cheap Chinese panels available allows solar PV to be more competitive as a renewable energy source.  Costs are expected to fall rapidly over the coming years (as they have already) meaning that in around 5-6 years time the cost of solar electricity will be at par with retail electricity prices, which means the FiTs won’t be needed anymore.

Another point is that the big Chinese PV manufacturers will start doing the last manufacturing step, module integration, close to their markets.  This is because you can air freight solar cells, but you have to ship finished solar panels because of the glass (regular glass factories normally only serve a radius of 100km).  By doing module integration close to their key markets, manufacturers won’t have working capital tied up for 4 weeks and will reduce the risk of damage in transport.  Sharp already do this with a module integration plant in Wrexham, and we may well start seeing the Chinese companies open manufacturing plants in Europe, even in the UK, over the next couple of years which would provide an interesting boost to UK industry.

Eventually the playing field will level out again – China will get more expensive and there will be space for newcomers with new technologies, but for now the Chinese players clearly have the upper hand.