With the UK still struggling out of recession and with little good coming of the much heralded Copenhagen climate change summit, brighter news has presented itself in the recent report that the UK has over achieved on its carbon emission reduction targets.

Set by the Conservative government back in 1990, the original reduction target was to be 34% by 2020, however, recent findings suggest that this reduction will now be something nearer 36%, with a number of factors helping to reduce carbon emissions across the UK. The report, carried out by the Committee on Climate Change (CCC) and released in October is already sparking debate as to whether the government is doing enough to fight climate change through carbon reduction policies.

Government action

While the government has announced that it will not go ahead with the construction of any coal power stations employing carbon capture and storage, many believe that not enough is being done to bring about a wholesale change in the way Britain produces its energy.

However, despite surging ahead with non-renewable energy programs, it would be difficult to argue that ministers in Westminster have turned a blind eye to the potential of green energy. Indeed, the Department of Energy and Climate Change (DECC) has already overseen the devlopment of some of the largest off-shore wind farms in Europe.

The Clean Energy Cash Back Scheme (essentially a feed-in tariff) similarly represents a commitment to reduce carbon emissions through legislation. The DECC is already publishing papers on the future landscape of the UK power infrastructure with a grid capable of connecting various micro-generation sites across the country.

The recession factor

With the world financial crisis manifesting itself in the UK in the form of a protracted recession, this has of course had an effect on energy use with the population using less energy and therefore generating less carbon. Critics of the reports findings have highlighted that some of the carbon reduction percentiles can be accounted for by the economy and any imminent up-turn could similarly skew the figures.

In response to such assertions, Ed Milliband, minister for the DECC stated that,

“The recession will not deflect the Government’s efforts to cut emissions and move to a low carbon economy. We must redouble our efforts at home and internationally.”

‘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.

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.”

Following up on Gordon Brown’s ‘Green New Deal’ pledge, the government has announced that it will oversee a complete upgrade of British housing in order to make homes greener. The targets set last month outline the government’s objectives to completely overhaul the way homes are constructed and also to upgrade all existing houses by 2030.

The ambitious targets of reducing the carbon footprint of homes across the UK will represent a massive overhaul not just of the way homes are built and invested in, but also of the mindset of homeowners and construction companies who will demand tangible benefits from any outlaying of money. While wall insulation is of course the best way of reducing heat loss through external walls, the government will seek to introduce a series of economic measures designed to make investment in all household green technologies a viable option.

Currently, one proposal is to offer low interest loans to homeowners and landlords to spur investment in property refurbishment in order to make homes greener. This option would be an effective way of reducing the heating efficiency of homes and enable the installation of smart meters which will be essential in the future as a way of monitoring energy usage and will be essential to manage feed-in tariffs (FIT).

Feed-in tariffs could prove to be an extremely effective way for the UK government to make homes across the UK greener. The tariffs, when introduced in 2010 will offer long-term contracts to those investing in renewable energy technology in their homes. The idea is to offer premium, fixed rates for energy fed- in to the national grid by small (under 5mW), renewable energy producers. The plan is that the tariffs will spark investment in technologies such as photovoltaic (PV) which will enable households to greatly reduce their carbon footprint by installing solar technology. The principle of the tariff is to incentivise investors by offsetting the obvious costs of investing in green plant and guaranteeing a yield on the investment of a long-term period.

Speaking on behalf of the housing association Peabody, Stephen Howlett commented on feed-in tariffs stating,

“Ensuring greater use of renewable energy through feed-in tariffs and the renewable heat incentive could offer real opportunities for us to create a package of carbon-reduction measures, based on financial models we have been working on for some time”.