Last Friday (24^th September) news broke on the Coalition government’s decision to back down on their promise of retroactively granting the feed-in tariff to 6000 ‘pioneers’ who installed PV before the feed-in tariff was announced.  This is undoubtedly unfair since those pioneers were responsible for keeping some semblance of a UK PV industry alive in recent years whilst the industry was booming elsewhere in Europe.  In light of the government’s austerity measures however, I do not consider it an outrage that these few people are denied the FiT.  Early adopters of renewable energy are unlikely to be in the lowest paid income bracket and at a time when many public sector workers face redundancy the government can argue that they have more pressing issues to deal with.

What is concerning however, are unconfirmed reports that the government is thinking of changing of lowering the feed-in tariff before April 2012.  This would be extremely unwise.  Feed-in tariffs are a success because they offer investors (whether banks or families) some foresight as to how much they stand to make. Solar panels are very much a long-term investment, and feed-in tariffs work because you can predict how much you will earn in year 25 of the investment as well as in year 1. Therefore, by changing the planned feed-in tariff degression schedule at short notice, investors lose confidence very quickly. How can a homeowner plan to have a PV installation when the feed-in tariff could be lowered in a month? How can a PV installation company forecast its installation schedule and hire someone if the feed-in tariff is to be changed next month?

Feed-in tariffs are designed to be significantly reduced every year – that’s to reflect decreases in the installed cost of PV systems and ensure that investment returns remain broadly consistent. Everyone knows that the feed-in tariff in the UK is due for its first degression in April 2012, but suddenly changing that schedule will disrupt innumerable business plans and threaten jobs. The feed-in tariff is designed to be decreased, I have absolutely no problem with that, in fact it probably didn’t need to be as high as it is to start with. The problem is only with unscheduled decreases as these cause havoc with the industry.  The UK already has an extraordinarily tiny PV industry in comparison with other major European countries.  By threatening to deviate from the planned degression schedule only 4 months into the scheme threatens to de-rail the beginnings of an industry that could employ tens of thousands of people in the UK.  Already this year the number of installations has dramatically increased as a result of the feed-in tariffs. However, the UK is forecast only to install around 15MW this year. This pales in comparison to Germany’s expected 8GW – its a factor of 500 difference!!

It is possible to build in flexibility into a feed-in tariff policy that controls market growth without causing surprises. In Germany, the annual feed-in tariff degression is now tied to the market size in the previous year. That means if the market is over a certain size then the degression will be more than normal, and if the market is smaller than targeted the decrease for next year will be less.  The UK government have not said anything about their intentions for April 2012. They would be well advised to start thinking about it now, rather than waiting until the last minute as they did before the feed-in tariff was introduced.  Using the German model, feed-in tariff policy could be set until the next general election, this would stand the UK in good stead.

No-one wants a boom-and-bust industry. The UK government should take measures now to reassure the industry that it is following an organised and planned strategy.  Rumours of sudden changes, whether real or imagined, could do more damage than many realise.

Announcements on earlier this month that the Spanish government was to reduce spending in another sector of the Spanish economy would hardly have made for happy reading on the pages of El Pais and El Mundo. Nevertheless the news was that huge spending cut backs would be made on solar energy with tariffs designed to attract uptake with reductions of up to 45 per cent.

Draft proposals from the Ministry of Industry announced that spending cuts would reflect those seen on feed-in tariffs in Germany and Italy where the tightening of purse strings has necessitated the removal of what are seen as non-essential expenses.

Indeed, Spain will be reducing tariff payments for roof-based systems by up to 25 per cent but for large ground based solar installations a much more eye watering 45 per cent, news not likely to impress installers or investors.

Feed-in tariffs work by offering producers of renewable energy fixed, premium rates for the energy they both use and feed back into the grid. The energy firms are obliged by legislation to purchase the renewable energy at the premium rates the costs of which are spread across Spanish energy consumers. The Spanish government has therefore been able to justify cut backs explaining that they are a means of controlling rising Spanish Energy Bills.

The problems of course is that while consumers may make some savings on their monthly electricity bills, cut backs at this period could cause serious long term harm to an area of the Spanish economy which has been booming over the last decade.

With news this week that growth of the UK solar market has finally over taken that of Spain, it highlights once again the essentiality of tariff mechanisms as a way of creating long term attractiveness for investors in the face of struggling economies.

With the British government currently assessing the details of the feed-in tariff which is to be introduced in 2010, they will undoubtedly heed the example of Spain and the way in which the government there failed to live up to the initial expectations of the tariff. Spain, despite having one of the strongest photovoltaic sectors in the world, failed to capitalize on the successes of the solar industry there by changing the way PV investment was subsidized, something which has led to a steep decline in photovoltaic investment and installation in that country.

In conjunction with the global financial crisis which has taken a particularly strong hold of the Spanish economy, the reduction in solar investment has contributed to a culling of jobs and cutbacks in PV manufacturing in Spain, something which will see a surplus of PV plant being exported to growing solar sectors elsewhere in the world.

Industry insiders in the UK have put pressure on the government and lobbied the Department of Energy and Climate Change by expressing the importance of a feed-in tariff which stimulates sector growth by offering incentives and security to investors. It is generally accepted that a tariff rate of at least 20p per unit of electricity fed-in to the national grid by small scale energy suppliers would be sufficient in part to kick-start the solar industry in the UK following its inauguration in 2010.

Certainly, elsewhere where comprehensive feed-in tariff legislation has been introduced there have been marked successes in the uptake of photovoltaic technology and job creation in renewable industries. In Germany for example, the feed-in tariff legislation has proved to be consistent and generous in the provisions offered to those wishing to invest in the German green sector. Indeed, the German tariff model is often held up as an example of how to incentivise investment and build public awareness.

Spain is expected to experience 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 largely because the 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 follows 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.

A Global Solar Report card, designed by lobby group Green Cross International to evaluate government action on solar policy has awarded the UK government a D-minus this week. Based on an assessment of the world’s sixteen largest economies, the report aims to provide a stark indication of where various governments stand with regards to their respective solar policies.

Despite the UK governments recent action on solar policy in the form of last year’s Energy Act and the setting of provisions for the introduction of feed-in tariffs in 2010, the report criticized the UK, stating that it lagged behind rival states in terms of current initiatives in place to incentivize the growth of the solar industry in the UK. With this deficiency in mind, the report offered the British government the D-minus grade along with an assessment that the solar industry in the UK remained,

“A very small market with no significant support for growth at this time”.

The Global Solar Report Card highlighted the fact that subsidies for carbon energy still outweigh those offered to renewable energy producers and that this will have to change if there is to be a large-scale revolution in the way energy is produced in the UK. The report, based on three main criteria, the scale of government incentives and legislation, the kWh of solar plant installed and campaigns designed to change behavioural patterns among the population was damning of the UK government’s failure to plug gaps in solar funding.

Although it is expected that 2010 will see the introduction of a coherent feed-in tariff, until then the government is doing little, particularly in comparison to other large economies to kick-start the solar industry with legislation. The solar feed-in tariff, thought to be the most effective means of stimulating investment in the solar industry has been highly successful in those places where they have been introduced with generous incentives for investors.

Germany topped the report card with an A-grade, an accolade based on the German government’s strong action with regards to setting up provisions for the industry and initiating a revolution in the behavioural changes of investors who now see Germany as a secure, high yield prospect for building their green portfolio. This obvious correlation between solar industry success and the implementation of solar feed-in tariffs will hopefully not be lost on the Department of Energy and Climate Change, currently going through a consultancy process on the best way to set up tariff legislation.

The number of lobby groups lending their support to the solar industry has grown exponentially over the last year with the We Support Solar Campaign acting as a focal point for members of the UK solar industry. Those within the industry will have some sympathy with the Global Solar report card’s findings and will see the absolute necessity for a strong feed-in tariff to breathe life in to the solar sector up to, and beyond 2010. The report went on to state that,

“Latest estimates by the International Energy Agency show renewable sources account for only $10bn (£7bn) of the $250bn-$300bn allocated to annual energy subsidies worldwide. If we are to deal with the current crises and the ones just around the corner, then every dollar, euro, or yen is going to have to work smarter and harder.”