This week the economist published an article criticising the German feed-in-tariff. The article wasn’t totally atrocious and it highlighted some of the current issues facing the German solar market. However it did leave out some key points that would have changed the articles’s conclusion. Being a fan of both the Economist and the feed-in-tariff I had to respond.

In addition, although I didn’t mention it in my response as I hate nit-picking, the author made a factual error by implying that the solar panel’s made by First Solar incorporate silicon. Since the key differentiator of the world’s largest solar manufacturer is that they don’t use silicon, this error raises doubts about the author’s level of expertise or research.

You can read the article using this link and my reply is shown below.

http://www.economist.com/businessfinance/displaystory.cfm?story_id=15213817

My response:

Sir,

Whilst your article makes some valid comments, it misses two key points.

Firstly, according to the Bundesnetzagentur (Germany’s grid regulator), large utility-scale photovoltaic installations accounted for fewer than 20% of the solar market in Germany in 2009. The rest of the market is made up from smaller rooftop systems. This is not the case for wind energy (since their performance decreases disproportionately with size). This means photovoltaic installations compete for the retail electricity price rather than the wholesale electricity price. Since retail prices can be four times greater than wholesale ones, solar energy has an easier cost target than wind energy.

The second point is that the cost of energy from photovoltaic systems is predicted to decrease at a faster rate than the energy from wind turbines. The basic components that make up a wind turbine have been costed-out for far longer than those making up a solar installation. According to the European Photovoltaic Industry Association, economies of scale and technological innovation will bring solar energy to cost competitiveness with regular grid prices by the middle of this decade, including in cloudy Germany. This means the end of subsidies is well-within sight.

It is clear that the German solar market became overheated in 2009, and in fact many within the industry have themselves called for the feed-in-tariff to be reduced faster than originally planned. However considering the above factors, alongside the fact that many of the world’s leading solar companies are German as a result of subsidy, Germany’s pioneering feed-in-tariff should be considered a resounding success.

If I had a pound for every time I’d heard that comment I’d be a rich man. That’s not to say it’s a dumb question though, it’s a perfectly reasonable question – it’s clearly sunnier in the south of Spain than in Blackpool. The question is by how much and does it matter?

At any given moment its not easy to predict how it’s going to be, but over the course of the year, the overall sunniness level can be accurately measured and predicted. This value is called the irradiation and can be defined as the amount of energy hitting a 1 square metre area pointed towards the sun over a whole year. In the south of England, according to the European Commission’s Joint Research Center, we get 1100 – 1200 kWh of irradiation per year (a kilowatt hour, kWh, is a typical unit of energy). In Devon and Cornwall you get between 1200-1300 kWh per year and in the North of England and Scotland its 1000-1000 kWh. In contrast, Barcelona gets 1700-1800 kWh of irradiation per year and in the very south of Spain and Italy it can get up to over 2000 kWh per year. So comparing London to Barcelona that’s 50% more irradiation for the Catalonians, which is significant but doesn’t mean we should give up hope for solar energy in the UK.

There are some other factors to consider here; irradiation doesn’t correspond exactly to the amount of solar energy you get out of a PV system. The best solar panels on the market today are only around 18% efficient under good conditions. At high temperatures for example, solar panels become less efficient. If the temperature of the solar panels increases by 20oC, they will only produce around 90% of the energy they would at room temperature. This means that on a clear but cold day in London, solar panels could produce more energy than a hot and sunny day in Spain.

Another factor is the difference between clear days and cloudy days. In the UK we get a lot of cloudy weather which blocks the sun and leads to ‘diffuse’ sunlight (meaning from all directions) rather than ‘direct’ sunlight. The four sunniest months of the year in the UK (May-August) deliver 5 times as much solar energy as the four winter months of the year (Nov-Feb). Solar panels can still turn diffuse light into electricity though, and there is evidence to suggest that some types of solar panels are better at collecting it that others. This means we may be able to improve the difference between London and Barcelona by using different technologies.

Despite these factors though, solar panels in Spain will of course still produce more energy than solar panels in the UK, which makes energy from solar cheaper in Spain than over here. But in some ways what happens in Spain is irrelevant, the question that really matters is whether solar energy makes sense or not in the UK.

I would say it does. With the feed-in-tariff, installing solar panels in the UK instantly becomes a highly profitable exercise yielding significantly better returns than most savings accounts (discussed in a previous article). Much of Germany, where over half the world’s solar panels were installed in 2009, is on the same latitude as the UK (northern Germany is in-line with Newcastle). So if it works over there, it should work over here.
The second point is that prices of solar energy systems are falling and electricity prices are due to rise, leading to so called ‘grid parity’ – the point at which solar electricity costs the same as regular electricity and can flourish without government support.

Because Spain is sunnier, grid parity is expected to happen there sooner than here (some claim it may have already happened in certain cases). Several predictions indicate however (in particular those from the EPIA – European Photovoltaic Industry Association), that we can expect grid parity in the UK as early as 2013 or 2014. In just a few years solar energy will be competing on real terms with retail electricity prices, hardly a waste of time in my opinion.

So the next time someone greets you with incredulity at the prospect of using solar panels in the UK, you at least have some numbers to back yourself up…

Solarfeedintariff.co.uk, the group of solar energy specialists dedicated to green issues and leading exponents of solar energy has announced that it will be offering a solar installation quotation service via its website.

To request a quote CLICK HERE

The service will help both businesses and homeowners navigate the often complex world of green investments by offering advice as to the best solar packages available.

With a broad range of experience in the solar photovoltaic sector, solarfeedintariff.co.uk is aware that many investors in solar panels are put off by the all too confusing array of products and technology available in the market.

Solarfeedintariff.co.uk will seek to eradicate any confusion and clarify doubts by offering the right product to customers depending on their needs.

Ian Spencer, Managing Director of Solarfeedintariff.co.uk stated that,

“Ever since the website was launched, we have had enquiries requesting quotes for Solar Installation, especially with the Feed In Tariff (FIT) due to be launched in April. WE are now delighted we can offer this services, using one of the leading Solar Installation firms in the UK”

With great opportunities available to reduce energy costs and of course, help slow the process of global warming solarfeedintariff.co.uk will be rolling out a service which will help both households and businesses save money, also taking advantage of the UK government’s Clean Energy Cash Back System, designed to incentivise investments in green energy through cash rewards.

With a vast array of products on the market, often from far away manufacturing bases in the far east, it can often be difficult for first time solar panel purchasers to discern the good companies from the… not so good and to calculate whether attractive looking offers are actually as great value as they first appear.

With a sharp eye on the market and with a passion for promoting solar installation in the UK, Solarfeedintariff.co.uk is keen to make the whole process of solar panel purchase and installation as smooth as possible, offering peace of mind to customers and promoting customer friendly, ethical companies.

Ian Spencer added,

“We expect the demand for Solar Installation quotes to rapidly rise the nearer we get to April and the dramatically increase on the Feed In Tariff is more widely recognised and known about. Therefore, we are pleased to be able to offer this service now for all of our site visitors”

To request a quote CLICK HERE

‘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.