It is unfair to suggest solar firms are greedily lobbying for excessive subsidies, they want sustainable support - and this is not it
Of all the many iniquities heaped upon the solar industry as a result of yesterday's shambolic proposals to slash the level of support is the suggestion by some supporters of the government's action that the solar sector is greedily clinging to excessive and unfair rates of return that are driving up energy bills for all.
Those supporting the government have accused the industry of campaigning to support 43p/kWh feed-in tariff rates that will deliver excessive returns of anywhere between 10 and 15 per cent depending on the location. Climate Minister Greg Barker has been at it himself, arguing the sector should not be given a "blank cheque" and warning of "massive" increases in energy bills if the feed-in tariff scheme is allowed to continue to grow at "unsustainable" rates.
This cannot be said loudly, clearly, or often enough: no one is arguing with the government on this point.
Of all the many angry, depressed, and frustrated solar firms we have spoken to over the last few days, not one has suggested the rates should be retained at their current 43p/kWh level. Not one disagrees that reforms are urgently required to ensure the feed-in tariff scheme remains affordable. And not one thinks rates of return of over 10 per cent are in anyway reasonable.
In fact, a number of solar firms even called on the government to hold this review earlier this summer to try bring the recent rush of installations under control, while others submitted proposals to the government saying they wanted cuts to incentives of around 25 per cent. Many within the industry are now arguing that all they ever wanted to see is a return to the scheme's original goal of delivering returns of five to eight per cent, the rates at which initial investments were made in good faith, rather than the 4.5 per cent to five per cent now being proposed. Does that strike you as the behaviour of a "greedy" industry?
The solar industry does not want to be reliant on unsustainable subsidies and does not want to see the feed-in tariff scheme add large sums to the cost of energy bills - even if the £26 extra a year on bills by 2020 that DECC estimates could result from solar support if changes are not made is a fraction of the £170 increase most homes have experienced in the past year as a result of our reliance on gas imports.
The industry want a "sustainable and stable" industry just as much as the government claims it wants to develop a support scheme that ends "boom and bust". All of which makes ministerial suggestions that solar firms are greedily lobbying for over generous subsidies even harder to take.
Do not believe the government's protestations that this scenario is all the fault of the previous administration (although Labour must take some share of the blame) leaving it with "no option" but to impose such swift and devastating cuts. A compromise was, and still is, available.
It should have been possible to map out some form of middle way that minimised any over spend from the feed-in tariff scheme, while protecting the bulk of the 25,000 jobs already created and allowing the sector to continue its recent momentum albeit at a reduced pace. This compromise should have been all the more possible when you consider some within the industry have been predicting this problem would arise for over six months. Admittedly, the recent boom in demand may well have been so great that some job cuts and retrenching was necessary, the sector might still have been angry at seeing its prospects drastically diminished. But there had to be a better way to handle any reforms than the knee jerk, apparently consultation-defying, proposals we saw yesterday.
So many aspects of the consultation are open to criticism that we will limit ourselves to highlighting just three.
Firstly, and from a legal perspective most importantly, the timing.
This government prides itself on being pro-business and understanding the needs and requirements of businesses. If that was the case it would know that you cannot ask firms to fundamentally change their business models within six weeks, just as you can't order goods to be imported from China or Germany and have them installed on customers' roofs within a month and a half. Hundreds of firms are going to be left with stranded assets as a result of the breakneck speed of the review and the assertion that changes will come into effect from December 12 - a remarkable 11 days ahead of the scheduled close of the consultation on December 23.
The government insists this apparent pre-empting of the results of the consultation is necessary to stop the major gold rush that would result if the cuts did not come into effect in April. You can just about understand its reasoning, but for the sake of a few weeks more grace for the solar industry it has pretty much invited solar firms to take legal action. The solar industry might not get rich anytime soon, but the lawyers will.
Secondly, the scale of the proposed cuts to incentives, particularly for free solar and social housing projects.
The government has said the new proposed rate of return of 4.5 per cent to five per cent is more appropriate as interest rates and other returns on investment are now so low that 4.5 per cent will still be attractive. Again this is fair enough, but it assumes you are lucky enough to have around £10,000 sitting around to invest. If you do not, 4.5 per cent returns are not enough to attract the finance schemes that made free solar or social housing schemes possible. If one legitimate criticism of the feed-in tariff scheme before was that it took money from the energy bills of poorer households and handed a subsidy to wealthy upper middle class property owners these changes only make that criticism more justified.
Returning the rates of return to the five to eight per cent level that was originally envisaged would have taken some heat out of the market, allowed some free solar projects to continue, and provided a pretty water tight protection against any legal challenge from the solar industry.
Thirdly, and perhaps most significantly for the UK economy as a whole, the message that the timing and nature of this review sends could represent a devastating blow to the wider low carbon economy.
Will the government really be able to encourage investors to support the renewable heat incentive, the Green Deal and the feed-in tariff scheme going forward when a growing sector built on a flagship policy that had cross-party support has been cut off at the knees with just six weeks' notice? How can it expect renewable energy firms to grow when it still has not set out the long promised proposals for developing a regression curve that provides stability and ensures the feed-in tariff stays within its spending cap?
The government says it cannot afford feed-in tariffs unless that are drastically cut, but can its wider low carbon agenda afford to have these chronically mishandled reforms overshadowing everything else it tries to do?
The big question for the sector now is what next? Well, regardless of its protestations, the government does have options.
Unfortunately, the best options are neither physically or politically possible. It can neither turn back time and launch this review months ago, as some wise heads within the solar industry had been calling for it to do. Nor can it convince the Treasury to raise the spending cap, although it is worth noting yet again that the Treasury did manage to find £250m so that Eric Pickles could wage a fatuous war on weekly bin collections.
However, there are some less worse options.
The government could start by admitting the plan to implement changes to the feed-in tariffs before the consultation has ended is so legally dubious that it will immediately revoke this decision and ensure the earliest the changes can come into effect is December 24.
It could then revise the scale of the cuts so the new tariffs still deliver returns of five to eight per cent as originally promised, and instead of offering some vague plan for a possible new tariff for "community" projects make it clear that community or social housing projects will indeed have their own level of support set at a level that does make a modest number of such installations possible each year.
It could also provide an absolute guarantee that this fiasco will not be repeated by immediately announcing a clear and stable regression mechanism that pulls the tariffs down to five per cent average rates of return each time the cost of solar panels drops to a level where people are generating average returns of over eight per cent.
The government obviously fears that while these slightly more modest cuts would still result in job losses and a contraction of demand they would not take sufficient heat out of the market to ensure that it remains within the spending cap.
That is a legitimate concern, but think of the benefits you would get from this more measured approach. You'd limit redundancies across the solar industry, you'd reduce the likelihood of legal action, you'd provide greater investor certainty, and you'd deliver a formal mechanism to stop the scheme over-heating again.
You'd also delay the difficult decision on whether further measures were required to stop the scheme over-spending until 2012 or 2013. By that point solar firms would have had a lot longer to prepare, and, if the economy does show some signs of recovery, the case for finding additional funding to raise the cap might be easier to make.
If you wanted to be really cheeky you could even legitimately introduce energy efficiency standards for buildings putting in feed-in tariff installations that are so tight that they would take the heat out of the market by putting an additional barrier in the way of such projects. It would not be ideal for the solar industry, but they could not complain that they had not had plenty of notice and you would also give them an incentive to start offering Green Deal energy efficiency services.
This compromise would be far from perfect given the urgent need to decarbonise the UK's economy and stimulate investment in job-creating green industries. But it has to be better than Ministers' current approach of blaming the solar industry's success for its own demise at the same time as insisting their hands are tied.
UPDATE: In the above post I suggest the proposed changes to be feed-in tariff levels should be delayed until the end of the consultation on December 23rd. However, having spoken to several solar firms there is a belief that while this would be preferable December 23 would still leave many firms with orders they can not fulfill, stock they have already ordered that they cannot sell on, and huge financial liabilities from cancelled projects.
The general consensus seems to be that sticking to the original timeline of making the changes from April next year would be preferable and would have only a minute impact on energy bills. But splitting the difference and making any changes in late January or early February would give firms the optimum chance to clear their order books and prepare for the changes without facing millions of pounds in liabilities that could have potentially catastrophic consequences for their businesses.
The cost of this modet delay would be minimal and it would be likely to save thousands of jobs and limit the number of bankruptcies, although sadly many firms will still go to the wall due to the extreme size of the proposed cuts to incentives.
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