Through studying the UK solar industry in the wake of announcements of cutbacks in the solar feed-in tariff, IMS Research has concluded that the future looks very uncertain, if not bleak. Recent news that the government is set to reduce the aforementioned tariffs has been bemoaned by members of the UK solar industry and has been reflected in the findings from IMS. The feed-in tariff offers fixed, premium rates for units of energy both generated and fed back into the grid by renewable energy generators and is essential in off-setting the obvious costs in installing solar pv panels.

The government and in particular the Department of Energy and Climate Change (DECC) has made it clear that they would like to stifle investment in large scale ‘solar farms’ and instead concentrate on household roof-mounted solar projects. This, IMS believe will destroy the potential for industrial scale solar projects in the UK, something which they suggest will be the downfall of the industry in this country. Certainly, where feed-in tariffs have proved successful elsewhere, larger scale projects have proved extremely effective in helping to create competition and bring costs down over a longer term.

IMS Research has stated that,

“Effectively making solar energy uneconomic for commercial organisations demonstrates the Government’s lack of commitment to renewable sources. It also has an implication for the management of public buildings, such as hospitals and schools, for whom solar power will no longer be financially viable. Limiting solar power to small-scale installations means the sector will simply never take off, other than creating a niche industry. And while countries such as Japan, Italy, Germany, China and the U.S. have said that they will be giving greater financial support to solar power and already have substantial solar PV capacity in place, the UK government has taken the opposite approach, making it clear that nuclear energy is definitely part of the plan for power generation in the UK.”

At a time where job cuts appear daily in national newspapers and politicians expound the notion of a return of a British manufacturing sector, the reduction of solar feed-in tariffs for industrial scale projects is unsurprisingly being met by criticism. It will be hoped that the government does not retract tariffs any more than it has done, otherwise UK solar may just not survive infancy.

After the long wait we finally know for sure the amount to be paid to producers of solar electricity under the clean energy cash back scheme. The result of a consultation process lasting 6 months, the initial outlook for solar energy in the UK is positive.

In comparison with the provisional figures released last year, there has been an across the board increase in the generation tariff paid per kWh for all sizes of installations. The table below shows the feed in tariff as they stand now;

There some important new features of the arrangement;

–         The export tariff (the amount paid when energy is fed into the grid) is reduced to 3p/kWh. This will increase the motivation for generators to use the energy for themselves since retail electricity prices are normally significantly more than 3p/kWh.

–         The lifetime of the FIT is 25 years. This is in line with other feed in tariffs around Europe and increases the attractiveness of solar (compared with 20 years) as it increases the security of the investment.

–         The feed in tariffs are linked to inflation. This means payments will increase over time in absolute terms. This is something that we had been campaigning for as ‘inflation risk’ is a significant worry that we have encountered in prospective solar producers.

–         The feed in tariffs can be legally assigned to any party. This allows room for innovative leasing models that are popular in Europe and the US where the either a third party leases roof space or a home owner leases the solar panels system.

Our initial calculations show that this level of tariff should result in 7-8% annual returns for homeowners retrofitting PV systems under 4kW. This means solar will compete with the best investment funds out there for investors pounds.

For Solarfeedintariff.co.uk this announcement represents a positive move by the government. It shows that during the consultation process it has listened to voices in the solar industry (hopefully including ours) and taken note of what is happening in the rest of Europe. Germany has shown that microgeneration, in particular solar PV generation can contribute very significant amounts of the nation’s energy and that a feed-in-tariff is the best way to encourage this growth.

Claims that have recently been made in the press that solar panels are merely ‘eco-bling,’ exhibit complete ignorance of what is happening in the rest of the world. Unfortunately this is a common attitude in the UK, the last major European economy to implement a feed-in-tariff. Hopefully, now with the tariff announced, this will change. We fully expect strong growth in the UK solar industry. This is a good day for Britain and our hopes of achieving our emissions targets.

Stay tuned for more updates.

The end of the British government’s consultancy period on the introduction of a feed-in tariff (FIT) system, to be called the Clean Energy Cash Back System when introduced in April 2010 finished last week, sparking debate on the viability of the proposed system.

The Renewable Energy Association (REA) has raised doubts as to the potential effectiveness of the Cash Back System. The proposed system, essentially a feed-in tariff, works by offering fixed, premium rates for renewable energy fed-in to the grid by small scale (sub 5mW) energy producers, and bought by the utility companies who are obliged by the legislation to purchase the units of energy over a set number of years.

With the key purpose of the tariffs to attract investment in young renewable industries through incentivisation, the REA has expressed doubts about whether the rate offered by the government for clean energy will prove sufficient to spark sufficient investment.

Indeed, while supporters of the scheme have stated that 5% of the UK’s energy could be generated by renewable means by 2020, the UK government has set the meager target of 2% by 2020 triggering worries that the rate will not be high enough to demonstrate attractive returns for those wishing to invest in the new industries.

Speaking on behalf of the REA Leonie Greene stated,

“From the industry’s perspective the scheme is well designed, but the proposed tariff levels are set too low and applied inconsistently across technologies.”

Where feed-in tariffs have been introduced elsewhere, they have proved to be extremely effective mechanisms for generating huge interest in green energy. However, successes have been based upon generous, yet well balanced schemes and this will be a key factor in either the success or failure of the UK renewable industry.

Dave Timms, campaigner for Friends of the Earth expressed his own concerns,

“The Clean Energy Cash Back scheme has huge potential, but it will fail to make an impact unless the government dramatically improves the amount that will be paid to businesses, households and communities that generate renewable electricity.”

The British government’s commitment to green energy despite the political rhetoric has traditionally been written off as cynical pandering to the green lobby. Certainly, even with the creation of the impressively titled Department of Energy and Climate Change (DECC) under the leadership of Ed Milliband which was sniffed at as a mere spin operation, few took the government’s will to tackle climate change seriously. When the Energy Act was passed through parliament in November 2008 the wheels were set in motion for the introduction of the much hyped ‘feed-in tariff’ or FIT as it is often been abbreviated.

Those within the industry were all well aware that similar tariff mechanisms elsewhere have provoked massive investment in solar sectors which previously hadn’t been on the green energy map. The ‘We Support Solar’ campaign was created as a mouth-piece for industry members and environmentalists alike to voice the message that solar power is the most viable means of generating clean, affordable energy in the future but that this viability hinged on the introduction of a comprehensive and generous tariff rate. This last part was the main concern for campaigners who worried that the government would introduce legislation which would neither attract investment, nor render the industry economically viable. Fortunately, with the DECC’s announcement of the Clean Energy Cash Back legislation (essentially a FIT) it now appears that the UK will have a bright, solar future.

 A feed-in tariff is a mechanism whereby the government sets a law which guarantees a fixed, premium rate paid for electricity generated by renewable means. Traditionally, the benefits of solar electricity have been far outweighed by the cost of solar kits, installation and maintenance, something which has deterred investment and kept solar power as a low level, cottage industry in the UK. What the tariff does is off-set the obvious costs involved in the installation of solar plant by offering investors generous financial incentives for installing solar kit. The traditional energy companies in the UK will be obliged to purchase the solar energy at a price above market rates, the cost of this being spread over the consumers.

Even before the Clean Energy Cash Back announcement, the benefits to potential solar investors in the UK were being expounded. At the end of 2008 consultants, Ernst & Young reported that the UK had moved up to fifth place in a list of countries in an index entitled, Renewable Energy Country Attractiveness. Citing the impending introduction of the feed-in tariff and the relatively low value of Pound Sterling, the Ernst & Young report stated the UK’s rise in the index would continue as investors eventually cottoned-on to legislation changes designed to incentivise investors. It was therefore no surprise that heading the list was Germany whose own tariff legislation has often been held up as the example of how to create interest in unchartered territory for many investors.

Confidence in the future of the solar industry has certainly never been higher within the financial sector. The global financial crisis has highlighted the importance to many the need to diversify their investments and also seek viable alternatives to petro-chemical investment. In March 2009, the fund manager of Swisscanto, Pascal Schuler announced that oil and natural gas in particular would become unviable as investments within the next 20 years. Talking specifically about his green investment fund, Schular asserted that,

“Water, solar and wind energy are areas where we invest in the long-term, as there is an over-average growth potential when financing kicks off again. Banks will prefer them when they start lending.” Going on to add, “We will continue to invest in this segment but focus on companies which have a strong balance sheet and are able to survive this crisis”.

 A brief look at Google will show that there is now a real buzz around similar investments in the UK solar industry. Websites such as solarinvestment.co.uk are highlighting the excitement which currently exists in the young British solar industry, the future of which looks brighter than ever. However, confidence in the solar industry is not limited to those simply within the industry. Consultants and analysts are all putting across the message that solar installations are the most effective ways to offer consistent, high yields in tumultuous times for global financial markets. One such exponent of the solar sector is investment guru, Jim Mellon who has added his weight to the solar revolution. Mellon, has demonstrated his belief in the prospects for a solar energy future by investing in mining company ‘Emerging Metals’ which focuses specifically on metals required for the manufacture of components used in photovoltaic technology. Listed in the Times Rich List with a net worth of £500m, the financier who predicted the financial crash stated,

“Solar is genuinely clean, it ticks all sorts of zeitgeist boxes. Within five years, solar power will be as cheap as oil and gas without the subsidy. It will be bigger than the internet in five years”

Of course, whether the solar industry will be bigger than the internet in the UK over the next half decade is open to debate. What is now becoming clear however is that the UK solar sector will have everything in place come 2010 to help the sector become competitive with industries in Spain, Germany, China, California and a number of other places.

In order to make the UK competitive with other PV behemoths around the world, British Prime Minister Gordon Brown has made it clear that he wants to establish a ‘Green New Deal’ making reference to the economic plan introduced by F.D. Roosevelt during the Depression to revitalise the US economy. In a statement, Brown said that moving the UK from a carbon to a green economy would not only help meet climate change targets, but also provide jobs in new industries which would be starting up. In a report released by Brown in March 2009, the figures stated that moving to a green economy would create up to 400,000 new jobs in the next eight years with an estimated 1.3 million people being involved in the UK solar sector by 2017. Gordon Brown, on a visit to Washington to meet Barack Obama declared,

“We know that the more we are able to co-ordinate these measures internationally, the more confidence and certainty we will build and the more investment we will be able to bring forward. That’s why I want to create a global ‘green new deal’ that will pave the way for a low-carbon recovery and to help us build tomorrow’s green economy today”.

With government backing, the UK is now in a strong position to build a solar sector which will be capable of emulating PV industries in Germany and Spain. In April 2010, the Clean Energy Cash Back (feed-in tariff system) will be introduced and the subsequent months will see a frenzy of activity both in the media and from investors as people attempt to join the industry in its infancy. 2010 will be a make or break year but it is now looking highly likely that as the economy goes out of recession and in to growth, the solar industry will reap the benefits of being both politically fashionable and financially attractive.