FIT Cuts – An installers view
I recognise what the government are trying to do here and speedy action is necessary – it is the only way to actually save the industry!
The government had a budget of £860m for the feed in tariff. What exactly this represents is somewhat unclear as the FIT is levied on the bills of consumers and thus is not from a government budget. But in any case the number of installations is rising faster than we can financially sustain. Greg Barker, speaking recently at a Solar PV conference, stated that the 100,000 installations to date (with a capacity of 305 mW) represent an unsustainable level of growth. If one works on that amount of installed capacity we can guess that we are just short of £100m per annum in payments under the scheme – representing nominally less than 1/8 of the 11.5% of the total budget, 1 year into the 4 years of that budget (whatever that budget is!)
But if we double the installed capacity in the next 5 months the budget will surely be blown!
However 150 mW was blown on the large scale solar farms before they dealt with the blindingly obvious issue that was arising there – investors making phenomenal returns on the backs of the consumers or tax payers, and I commend the current administration for their swift actions to bring that to an end. But is that part of the 305 mW or in addition to – I am not sure! And in any case if these are levied across household bills by suppliers it is not really part of any central government budget! Will someone please explain!
What is true though is that we have a problem – we as an industry are growing far too quickly. It seems we had two alternatives – carry on unabated and end up with a 9p tariff in April (rumoured earlier in the week) when the budget is blown or act sooner and retain a reasonable 21p tariff as now seems to be the case.
Is PV Actually Good Value
We are based in Cambridge and Hitchin in Hertfordshire. We supply a mid range 16 panel 3.84 kWp system from Mage Solar for about £10,500. This has a 30 year warranty, and on a south facing, 30 degree tilt roof in Cambridge we expect that to exceed 3,589 kWh of usable electricity per annum. Given that the panels have a warranty that they will be producing 80% of that after 30 years we expect the system to produce over 97000 kWh in the next 30 years. Given an installation cost of £10,500 that works out at 10.8 p per kWh at today’s prices – less than the cost of purchasing electricity from almost any supplier and I fully expect that to fall to 9.8 p per kWh in the next 3 to 6 months.
The biggest hurdle at present is that production and consumption do not occur at the same time – again though I anticipate that inverters with built in batteries (which have been launched) will be widespread in the next few years allowing the owner to produce and store the electricity so that they would be able to consume all that they produce – meaning that in theory if someone was willing to spend the money upfront they would get a supply of most of their annual electricity locked in at a price that is less than they can buy it for from a supplier today – and that the cost is fixed and not going to rise at all in the next 30 years (unlike the bought in electricity). This makes me feel that YES – Solar PV IS RIGHT FOR THE UK CONSUMER but we are perhaps two to five years off being able to convince people to invest such a sum just yet. And right now who has enough money to basically bulk purchase all their electricity anyway.
The Market in Two (or 3)
There are two markets – the free solar (or “rent a roof” schemes) and those that are investing their hard earned cash to secure themselves a financial return and some degree of security from rising energy costs. Community schemes can come in either form – where an investor provides the cash it is “rent a roof” – where the community raises the money it comes into the latter category.
Why rent a roof must die
The problem as I see it is the rent a roof schemes and the movement of speculative money from solar farms to that sector by investors chasing the 12% returns. Yes I fully support the fuel poverty arguments (in that they help those that cannot afford the upfront cost) BUT it is not sustainable to lump the entire country (either via tax or our electricity bills) with a £15 plus annual feed in tariff levy so that the investors in these schemes make 10% to 15% annual return.
We would be better off actually having a straightforward fuel poverty tax that subsidised the prices for those on low incomes rather than paying investors huge sums for a lottery – if you are in social housing with free PV and are lucky then you are OK – but if you are not then your fuel costs are rising in part to subsidise the lucky ones. It is the sheer numbers of planned rent a roof/”community schemes” that have forced the government to act – and acting immediately (i.e. before the planned April revision) is the only way that they can act without straight forward discrimination against non-owner occupiers.
Is it sensible that the investor gets £1,200 per year guaranteed inflation linked to deliver a saving of £150 per year (at the very maximum) to a homeowner in fuel poverty? Any government policy that costs 8 or more times the beneficial outcome to society would be rightly condemned as lunacy
Even if we installed 150,000 free solar schemes between now and April, that would represent a very small proportion of the 3.8 million social renters (in 2008-2009) – less than 4%. The social sector represents 17.5% of the total number of households (21.5 m) so perhaps you could argue that they would be over-represented if the total number of installations hit 300,000 with 50% being “social” but with the costs being 8 or more times the benefits to the social housing occupier this represents terrible value!
The Self Investor
Our typical customer is usually over the age of 55 (we have a few in their 80’s). They are not primarily motivated to save the planet or investing for green issues – they are investing because they want to secure an income and protect themselves from rising prices. I am not contradicting myself in that – yes those that cannot afford to pay for the installation also need protection from rising fuel costs BUT they do not get the income (which is 100% of the subsidy – and 85% of the total financial benefit) – we could help them in other ways!
Our customers are sometimes “comfortable” – but just as likely to have bought their home under the right to buy schemes. They have some cash saved up – and many of the younger customers – those between 40 and 55 extend their mortgage to finance.
They are the lifeblood of the sector – it is those customers that are rightly rewarded for their investment and their friends and neighbours will be the customers of tomorrow. They will lead us to sustainable growth, a stable industry, and are at the vanguard of the falling prices that have been the true success story of the scheme.
There were no rent a roof schemes until the early adopters brought the prices down and when subsidies have fallen the investors will disappear leaving an overcrowded burst bubble that the industry will need to clear up.
The Future
Let’s look at the German model – the tariff at present is only just above the cost of electricity (in the UK post cut it will be 50% more) and they are installing far more systems than we are. One of my suppliers informs me that due to the upcoming tariff cut in Germany on the 31st of December they plan to halt production on the 1st of December due to the anticipated collapse in prices post the cut in the major market of the world.
We will have to adjust, cut prices and yes go through a lean period when the tariff is cut as it always was going to be. Our £10,500 4kW system today (which was £11,500 only 6 months ago) will be £9500 in January and, if we need to cut margins to survive, we will no doubt be £9000 soon after.
When the scheme came in the early adopters were offered 41.3p per kWh for an £18,000 system – if I give them a £9,000 system paying 21p what is the difference? Returns will be the same and we will survive.
I support the moves (painful as it will be in the short term – our anticipated bonanza is curtailed) but would ask for another month or two for the self investors to get things finalised and installed in an orderly fashion. Otherwise we look like a fledgling industry in disarray unable to support consumer demand and reliant on unstable subsidies.
But sticking at 43.3p until April is, I am afraid, unsustainable without limiting the number of installations, and only postponing the inevitable pain and perhaps making it worse unless the brakes can be applied in some other way. Yes the community and rent a roof schemes would alleviate fuel poverty to some degree for a few – a very few – but at a cost that is unaffordable and unwise to allow to unfold!
Solution – A Two Tier Market
The investors and their solar farms started the problems for the budgets and costs of the scheme – it was very short sighted of the previous administration not to have foreseen the rush to get phenomenal returns guaranteed and inflation proof in today’s economic climate. It is unfortunate that their move to the rent a roof market was not also foreseen but that is that. But please do not kill off a growing industry due to central authorities’ lack of foresight. The scheme has been phenomenally successful in the self invested market (with sustainable growth and a fair amount of still present consumer scepticism).
Sustainable employment comes from the self investors – we have created jobs in the construction sector at a time when they are badly needed and can grow the market properly in a sustainable manner. The rent a roof bubble is and always will be just that – a bubble. The thousands employed over the next six months on the rent a roof schemes will and always would have been out of work next may anyway.
What we truly need is a range of rates – one for the self invested (private homeowner, community organisation AND housing association investing its own capital and thus the charitable organisation reaping the rewards) getting one rate – the investors and their funds and fund managers being frozen out.
 
A simple solution – bar the granting of a licence to the income to anyone other than the owner (or previous owner) of the property on which the solar is installed. Or introduce the reduced rate with effect from the 8th of December for “licensed systems”. Implement that exclusion with immediate effect and allow our industry to grow in a sustainable way.
Peter McKeown
Cernunnos Homes
pete@cernunnos-homes.co.uk
07930 328238
