Monthly Archives: December 2011

Worth watching

A small item tucked away in today’s EAC/ECC solar report is worth keeping an eye on, as it may cause some major realignment of DECC policy in the future.

81. The Office for National Statistics (ONS) is yet to decide whether for National Accounts purposes the Feed-in Tariffs are deemed to be imputed ‘tax and spend’ and therefore included within the public finances. ONS is awaiting the results of a more general decision on the treatment of levy-funded subsidy schemes at the European Union level that would allow ONS to classify such schemes. In the absence of such a decision, DECC told us that:

Ministers took the view that they needed to make a judgment about where they thought that classification was likely to come out … based on information from decisions that the ONS has already made and its description of the factors that it takes into account in determining whether something counts as tax and spending.

EAC/ECC committee report rips DECC to shreds

The joint Environmental Audit and Energy and Climate Change Select Committee have today released their report of their investigation into the UK solar power Feed-in Tariff scheme and its administration by DECC.

It rips into DECC on their failings across most aspects of their handling of the system in general and the latest consultation process in particular.

Here are the committee’s conclusions (with my highlights)

The proposed changes to the solar PV feed-in tariffs

1. DECC set up the solar FiTs scheme without a mechanism to review and adjust degression rates in an orderly and timely way. It urgently needs to develop a system which allows for more regular and predictable review. (Paragraph 16)

2. Although the proposed cut to the Feed-in Tariff was announced by Ministers on 31 October, two days before the impact assessment was signed off, due to the continuing increase in take up-rates since it was published, calculations in the Impact Assessment are already out of date. Consequently, the effect on the total spending cap is uncertain and has not been made publicly available so that it could be properly scrutinised. When publishing its conclusions from its consultation exercise, the Government should also publish an up to date assessment of the impact of the proposals on the overall budget for solar FiTs, differentiating between the costs under the two options for change considered in the consultation. (Paragraph 21)

3. We urge DECC and BIS to collaborate on how to create an environment conducive to a domestic manufacturing sector as part of the FiTs scheme. (Paragraph 26)

4. To facilitate the investment in renewables that the country needs, investors need to have confidence in a stable and predictable commercial environment for those investments. The scale and pace of the changes now proposed was a ‘shock’ for the industry and the suddenness of their introduction has damaged investor confidence across the whole energy sector. This damage would not have occurred if the Government had recognised the unsustainable rate of the expansion of solar installations at an earlier date, something which ought to have been identified by Ministers and officials sooner than it appears to have been. The analysis of the impact on jobs in the Impact Assessment is also seriously inadequate. (Paragraph 28)

5. The Government must require electricity suppliers to provide annual returns on how much they have added to annual energy bills to recover the costs of Feed-in Tariffs from customers, and it should collate and publish this information annually, possibly as part of the Annual Energy Statement process. (Paragraph 29)

6. It is regrettable that the Government did not consider other reference dates between December 2011 and April 2012, the costs of which DECC has now quantified. We urge the Department to consider these alternatives. (Paragraph 32)

7. The use of a reference date for new installations to qualify for the existing tariffs that precedes the end of the consultation smacks of retrospective regulation, which undermines confidence in the Government’s management of other energy policies. Some households are cancelling their planned solar panels and face losing their deposits. Others may have arranged loans on the basis that the interest could be covered from the current level of the tariff income. This is unfair. The Government should allow those who can prove that they had already made a contractual financial commitment to install solar panels before the 31 October start of the consultation process to receive the existing tariffs. (Paragraph 39)

8. The impact on community schemes of the proposed changes will generally be greater than for individual homeowners, and could undermine the finances needed to support the other environmental activities of such groups. The lower ‘aggregator’ tariff, if not tempered for the particular circumstances of community and social housing projects, will affect them greatly. As with reducing the viability of ‘rent a roof’ schemes, which have allowed participation by those without access to finance, the likely adverse impact of the proposals on community schemes will disproportionately be felt by disadvantaged and poorer communities. The Government has made a commitment to embed sustainable development in policy making, but the proposed changes to solar FiTs suggest that its social justice pillar is not being given sufficient weight. We recommend that DECC designs a ‘community tariff’ immediately that takes into account the wider impacts on community groups, including lost capacity which could be built on to ensure other Government policies such as the Green Deal are effective. (Paragraph 46)

9. The Government believes that boosting energy efficiency is part of the rationale for providing a level of subsidy for solar energy in excess of what the Renewable Energy Roadmap otherwise considered to be cost effective. But it has not demonstrated the logic of linking technologies used to generate electricity in homes to energy efficiency, which focuses on reducing heating and hot water costs, nor whether in practice solar PV contributes to greater energy efficiency. The Government has failed to make the case for why it is proposing to set a pre-qualifying absolute standard of energy efficiency to this technology, instead of all technologies. (Paragraph 56)

10. The choice of energy efficiency requirement option by the Government could have a fatal impact on the take-up of the scheme after 2012. Access to FiTs should not be closed-off by the need to improve take-up of Green Deal measures. Requiring the ‘C’ rated EPC energy efficiency standard could limit access to wealthier households. The Government must consider alternative energy efficiency options and publish alternative impact assessments. These options might include (a) offering a range of tariff levels based on energy efficiency; (b) linking eligibility to a specific improvement in efficiency rather than an absolute standard; and (c) linking eligibility to the completion of certain Green Deal measures. (Paragraph 57)

The management of the review

11. It appears that only in September did DECC realise that a take-up of solar PV Feed-in Tariffs exceeded expectations to a degree that went beyond a summer surge pattern seen the previous year. The Department had evidence that solar panel prices were falling significantly as early as March 2011, and it should have acted sooner to reduce unsustainable rates of solar Feed-in Tariffs. Also, the Government’s method for monitoring take-up on the scheme was clearly deficient and only after a year of the scheme’s operation did DECC identify a critical time-lag in the information it was using. Prompter action would have given the Department greater flexibility in deciding at which point tariffs should be amended, and by how much. (Paragraph 64)

12. DECC’s failure to identify the need to control FiTs commitments until too late means that the Government now has to rush to amend the scheme. It is disappointing that a year after DECC floated a ‘trigger mechanism’ for addressing rising take-up of FiTs, it has not materialised. The current panicky response to the upsurge in solar installations in 2011 might not have been needed if DECC had actually developed such a trigger mechanism. (Paragraph 67)

13. We consider that a further and better analysis of how an increased export tariff might contribute to a future Feed-in Tariff scheme without affecting the levy-funded spending cap would be beneficial for the establishment of a stable support regime. (Paragraph 71)

14. We would welcome publication by DECC of accurate estimates of all elements of expenditure under the terms of the cap, and an the introduction of a running public estimation of how the terms of the cap might be adhered to on a year-by-year basis. Furthermore, DECC should make the case that the Treasury should consider spending on FITs over a four-year budgetary period in this instance. It is unacceptable that DECC was not able to share estimates for FITs spending with the Committees that could be compared with the revised FITs budgets. It is even more unacceptable that we should subsequently learn from other sources that DECC did hold this information. This raises the question, in light of evidence received from the Treasury, of whether the Treasury had been informed about these figures at all. (Paragraph 74)

15. DECC is not considering the cost control mechanism for Feed-in Tariffs at the same time as setting new tariff rates for solar panels because of the “urgency” of the need to make the proposed changes. This approach may result in further revisions to solar tariff rates. Such tinkering undermines confidence in the tariffs, and runs contrary to the Minister’s ambition to provide transparency, longevity and certainty for energy policy. The Government should ensure that it develops a cost control mechanism which minimises the possibility of further sudden reviews of the tariff rates simply in order to keep the scheme within budget. (Paragraph 75)

16. In future, there should be much more regular and predictable adjustment of Feed-in Tariffs, based on a transparent assessment of cost changes, signalled well in advance. This should be based on timely data collection to allow a more considered appraisal of possible tariff changes to be implemented after adequate notice has been given. DECC needs to resurrect its plans for developing a trigger mechanism to respond to unforeseen surges in take-up. (Paragraph 76)

17. There is a fundamental conflict between the Government aims of, on the one hand, encouraging the deployment of solar PV to contribute to emissions reductions and, on the other hand, steering the deployment of renewables technologies in a way that is most cost effective through the spending cap framework. This means that it is unable to present a clear message about the case for solar PV. (Paragraph 82)

18. The Government’s decision to include Feed-in Tariffs within its spending framework should have been preceded by a thorough environmental appraisal, to assess the potential consequences for renewable energy generation, for the then fledgling solar industry and for consumers, who need consistent policy from Government to engender long-term low-carbon behaviour change. The introduction of the spending cap has brought scrutiny to bear on the scheme’s impact on the economy. It is not clear, however, how the Treasury can decide the limits of the scheme’s affordability for energy consumers or the wider economy because it has produced no analysis on this. (Paragraph 83)

19. The Government’s decision may also be pre-emptive. The Office for National Statistics is due to classify levy-funded schemes after considering the outcome of decisions at a European level. The Government should set out how a decision by the ONS not to classify Feed-in Tariffs within public spending would impact on the case for its proposed FiTs changes, and whether this would allow a loosening of the overall levy-spending cap. (Paragraph 84)

20. It appears that the Impact Assessment was produced and subsequently used to justify a policy decision that had already been made. A retrospective snapshot Impact Assessment cannot take the place of systematic, timely data gathering which should have alerted DECC to this problem much earlier. If Government takes consultation seriously it needs inputs that are well-founded on the latest information available to it. The Government must consider how the impact assessment process can continue to be relevant and timely in informing consultations, as well as decision-making, in fast-changing situations like that surrounding the solar FiTs market. (Paragraph 88)

21. When the Government publishes its response to the current consultation, it should also publish a full analysis of the impact on (a) jobs, (b) future investment in renewables, (c) tax receipts, (d) energy efficiency, and (e) wider economic impacts. (Paragraph 89)

PV installation statistics

DECC have just released the latest statistics showing the number of sub-50kW PV systems installed over the recent weeks since the latest consultation was announced. Here’s a summary:

Sunday, October 30, 2011 5,297
Sunday, November 06, 2011 6,883
Sunday, November 13, 2011 9,577
Sunday, November 20, 2011 13,267
Sunday, November 27, 2011 16,978
Sunday, December 04, 2011 25,562
Sunday, December 11, 2011 29,842

There are now more than 228,000 systems totaling over 750MW of small PV in the UK.

FiTs update from STA and REA

The following statement was released by the STA and REA today.

STA and REA individuals attended a meeting at DECC and produced the following bullet points from the meeting. We realise these will not give absolute clarity, given that we were in a consultation, but we felt we should share them with the membership. They have been checked by DECC officials and they are happy that this note be distributed.

The Minister’s overriding concern is that there is to be life for the industry beyond 1st April 2012.

- For the Phase 2 consultation DECC is having to think more creatively.
- There will be a consultation in early January setting out a proposed degression methodology – this will cover tariff degression and timescales.
- DECC is hoping to report on the outcome of the priority decisions from the Phase 1 consultation before the end of January. It will definitely be published by 8th February.
- There is an “ambitious trajectory to get to 2 ROCS/MWh for solar”.
- To “lift solar PV out of the ‘nice to have’ category that needs additional subsidy”we “need to get there ASAP”
- The aim is to “deploy at scale and sustainably at a level comparable to mainstream renewables”.

High level update in Phase 1

In January, as part of the Phase II consultation, DECC will announce a “cost control mechanism” which might kick in quickly after 1st April 2012.
DECC will also put out a statement clarifying the certainty of 21p as the minimum tariff for householders between now and 1st April 2012.

Cost control mechanisms

DECC have considered 4 options

1. Gradual degression, on pre-planned timescale
2. German-style degression, with % reductions linked to the capacity installed
3. Frequent reviews
4. Rationing or quotas

DECC does not intend to do number 4. This felt not logical for a demand-led policy.
Need to give industry the predictability and build it in to the mechanism.
The outcome is likely to be a combination of 1, 2 and 3 above.

Baseline degression could be in the region of 10% every six months, which would get down to 11.1p by 1st April 2015 for 4kWh, and to 9p or below (i.e. 2 ROCs) by 2013 for larger schemes and by 2014 for smaller schemes.

But if deployment rates go up then it could trigger the next step sooner – with 3 months’ notice.

Other points made by DECC officials at the meeting

Their starting point is the ambition set out by Ed Miliband (which delivers a cumulative 833 MW of PV capacity by 2015).
This will be reviewed taking into account progress to date and the impact on consumers.
The steeper the tariff degression, the better the argument/case for solar.
A review of the export tariff will be part of the final package.
Distributed generation strategy is looking at how solar can play a role.
They will look again at community level schemes within the degression model to be set out and will consult on what a community scheme really is and what is a legitimate expectation for such schemes.
Open to suggestions for a secondee from the industry to work with DECC, however there is no budget to go with this (so likely industry would have to fund?).
DECC is looking to issue guidance to local authorities on the Green Deal in the revised Home Energy Conservation Act.

Energy efficiency

Genuinely listening on how the link with energy efficiency should be handled, so send in your comments to the consultation.
They are looking for constructive, helpful arguments as to how energy efficiency could be factored in (provided this does not threaten the budget too much – i.e. there is a recognition that the slowing of demand due to energy efficiency requirements is helpful – but it should not be too severe)
There is going to be no join up, financially, between the Green Deal and FITs.

Where is the truth?

On Tuesday Greg Barker appeared in front of the joint EAC and ECC House of Commons Committee and brandished ‘hockey stick’ graphs showing that PV installations had rocketed in August, September and October this year thereby giving him no choice but to implement the emergency FiTs review for PV systems.

DECC have today published data that lists the number of domestic solar installations registered with MCS (for PV systems up to 50kW).

Here is the graph for 0-50kW PV showing number of installations by date.

Whilst there is an ongoing increase in numbers the graph clearly does not match the startling ‘hockey stick’ version that Barker showed to the Committee members. The rapid rise in numbers only accelerates to the ‘near vertical’ after the consultation announcement at the end of October.

Update: here is a snap of the graph presented at the joint EAC/ECC Committee meeting.