Job losses are mounting, but there are steps still available to the industry and the government that could avert a full-blown disaster for UK renewables
Over the past two weeks I have spent four days at the Birmingham NEC, being denied sunshine while listening to various people talk about the grave state of the UK solar industry. At the Energy Hub for the UK Construction Week and Solar Energy UK (full disclosure, BusinessGreen was a media partner and I chaired panel discussions at both events), an understandably subdued atmosphere was in evidence as solar industry executives wrestled with optimism at the sector's exciting long-term prospects and genuine sadness at the recent job losses and bleak short- to medium-term outlook for the sector.
Let's start with the reasons for pessimism, if only because it'll be nice to end this blog post in search of an optimistic note.
The human impact of the government's decision to slash support for the solar sector is now being felt. Job losses are stacking up, every single one a sad blow to the individuals and families affected. Everyone in the industry is convinced significant numbers of further job losses will be confirmed in the coming months, the only question being whether companies shut up shop in a managed fashion or try to soldier on and eventually succumb to the weight of financial losses. There is surprise the predicted surge in new installations ahead of the government's planned cuts to subsidies has not yet materialised, but for whatever reason (have media reports left customers thinking the subsidies have already gone, or are solar firms too cash-strapped or disheartened to step up marketing activity?) demand has failed to spike significantly and companies are being forced to prepare for a contracting market.
Consequently, the sense of frustration, betrayal and resentment directed at the government across much of the industry is palpable. This anger is leavened somewhat by a recognition the Department of Energy and Climate Change (DECC) is in a difficult position with the Treasury pulling the strings, an understanding some pretty deep subsidy cuts are necessary and justified, and broad acceptance that greater control over clean energy subsidy spending should have been exerted sooner.
But even when those caveats are taken into account, many solar executives and investors remain angrily bemused at the almost wilfully cack-handed way the government has attempted to justify and manage its proposed reforms.
To give you just a sample of some of the questions I have heard asked in recent weeks: 'Why is the government talking about cost-effective decarbonisation while cutting support for one of the most cost-effective forms of power?' ‘Why won't the consultation on the subsidy cuts consider the impact on job losses and tax revenues?' 'Why did someone leak that tariffs would be cut 50 per cent when they were planning to cut them by over 80 per cent?' 'Why is the government still supporting technologies like nuclear, where costs are rising, and killing off a technology where costs are falling?' 'How can Amber Rudd say the industry is ready to stand on its own two feet, when well-run companies are going to the wall?'
The list goes on: 'Why is the government deliberately slowing renewables rollout when there is a real risk the UK will not meet its emissions and renewables targets?' 'How can they keep blaming the last government for this - didn't they have massive control over the last government?' 'Why is energy policy now being driven by Treasury officials who are so illiterate about modern energy technologies they buy into Daily Mail warnings about renewables' intermittency and outdated cost concerns?' And, most frequent of all, 'why do ministers keep saying this is all about protecting billpayers, when the impact on billpayers of a more balanced reform package would be significantly less than 11 pence a week in 2020?'
Satisfactory answers to pretty much all these questions have not been forthcoming.
Most pertinent of all though, several people made exactly the same point about the democratic deficit behind the government's attack on the solar sector. If the government wants to decarbonise using a centralised energy system based around continued support for nuclear, offshore wind, and carbon capture and storage, while the wider renewables sector is left to sink or swim, why did it not say that going into the election? Why did it not let people know these changes were coming? Why were ministers as late as this summer talking about nurturing a "solar revolution" and shifting the focus of the industry to large rooftop installations?
It may not command the same headlines, but the echo of the government's pre-election failure to mention it was planning to slash tax credits in a way that leaves many working families worse off - the human implications of which Amber Rudd was forced to confront on Question Time this week - is unmistakable.
Judging by some of their recent responses to this outpouring of grief, ministers appear a touch put out at the sense of betrayal being harboured by many within the solar industry. But how else are solar investors, executives and installers supposed to feel? You could argue they were foolish to develop business models based on subsidies that were going to get cut eventually. But they developed these businesses - and contributed to the UK's strategic decarbonisation and energy security goals, remember - at a time when Conservative ministers, in a government led by the same Conservative prime minister and chancellor we have now, were encouraging them to do so. Of course they feel betrayed, they have good reason to.
The problem is, this sense of injustice risks translating into a further deterioration of already shaky relations between the renewables industry and the government at a time when cool heads and polite debate are urgently required.
The BPVA's driving of a coach and horses through lobbying etiquette by allowing minutes of a fractious meeting with Amber Rudd to reach the public domain confirmed emotions are running high on both sides. Andrea Leadsom's recent tweets criticising campaigners in a manner totally unbecoming of a minister of state and then failing to back up her accusations with any evidence served to fuel fears antipathy towards green activists within parts of the Conservative Party could be clouding judgements. Equally, to accuse the government of having "blood on its hands" over the proposed subsidy changes, as one senior solar executive did last week, is as unhelpful as it is colourful.
The reason a civil and reasoned debate is urgently needed is that the solar industry, while facing a serious crisis, is not dead yet and there are things businesses and government could do to significantly soften the impact of the proposed cuts.
The panel discussions I chaired over the past two weeks saw solar investors and developers in agreement on two things. Firstly, the solar market will contract massively from next year, but it will continue to tick over. Some businesses and households that are as interested in environmental benefits as they are in financial subsidies will continue to deploy an attractive green technology. More importantly, well-located sites where the vast majority of the solar power generated is used on site will still be able to build a financial case for installing solar arrays, as the technology promises to undercut the cost of importing power from the grid. Additionally, investors will remain interested in refinancing existing solar assets that are performing well. The market will be on life support and lots of jobs will be lost, but it will not die.
Secondly, there is near universal agreement that the long-term prospects for solar remain as compelling as ever. The continued global reduction in solar technology costs coupled with the emergence of storage technologies mean the industry is within grasping distance of the point at which it can offer businesses and households a great value proposition without any subsidy.
Industry insiders agree that point will be deferred if the government slashes subsidies in a way that obliterates much of the installation sector, but it will still come, probably by the early 2020s. Many within the solar industry are well aware that at some point in 2019 Conservative ministers will probably point to a growing solar sector once again, and enquire as to what all the fuss was about back in the autumn of 2015.
The encouraging longer-term prospects for the industry, coupled with Amber Rudd's repeated assertion she wants to see the industry prosper, raises the question of what the government could yet do to minimise the disruption that is already being felt, while also minimising the impact on energy bills. There are options available.
The simplest, most effective, and yet most unlikely to be adopted option would be for the government to extend or relax the Levy Control Framework spending cap and free up a vanishingly small amount of extra cash to help the solar sector transition to a subsidy-free environment in a more gradual manner. The government's own impact assessment admits leaving the feed-in tariff system as it is would cost each household just £6 a year in 2020, which means a programme of more modest feed-in tariff cuts could minimise the contraction of the solar industry while costing households just a few pence a week. Some within the solar sector think as little as £1 a year could make the difference between a workable industry still transitioning towards being subsidy-free and an industry that is forced to spend two to three years laying people off and struggling to survive.
Ministers are very unlikely to embrace such a plan, not least because every clean energy technology would suddenly ask for its share of a relaxed LCF budget. Treasury orthodoxy will win out. But it should be possible for ministers in a government committed to tackling climate change and enhancing energy security to argue positively for billpayer-backed investment in a relatively low-cost technology that a large majority of the public support. After all, ministers look set to soon argue for high levels of subsidy to bring new nuclear, offshore wind, and carbon capture and storage projects to the UK.
An alternative plan that would keep the LCF budget intact is being put forward by former climate change minister Greg Barker, who argues making the earmarked £100m of funding available over a shorter period that would allow for slightly higher feed-in tariffs next year would increase the chances of the industry reaching grid parity this side of 2020. The government's impact assessment predicting next to no new installations from 2018 suggests ministers are already thinking along these lines. But an even tighter deadline for going subsidy-free could allow for less steep subsidy cuts that would give solar companies valuable time to bring down costs further.
Ray Noble of the National Solar Centre and the Renewable Energy Association recommends a different approach, noting that if you looked at how best to support the sector from this point with fresh eyes, no one would propose 20-year price support contracts, not when it is less than five years from delivering grid parity. The Autumn Spending Review will be eye-wateringly tight, but Noble argues that modest and time-limited capital grants or, more likely, tax breaks for solar and energy storage systems could make a huge different to the industry's prospects. There are plenty of things a savvy chancellor could do to build on the solar industry's success while still slashing subsidies, particularly when he is about to pocket a windfall from privatising the Green Investment Bank. He just has to want to do it.
And then there are the non-subsidy related steps a government that is serious about nurturing the renewables industry could take. Ending minimum import pricing on Chinese solar panels would throw the industry a significant lifeline, as would encouraging councils to use their new powers over business rates and their ability to introduce local building rules to create clean energy hubs. Similarly, if the cuts are to be pushed through as planned and thousands of jobs are lost, then it would be only fair to provide the kind of retraining packages routinely offered to other industries going through tough transitions.
This vibrant and strategically important industry has been left blind-sided, battered and bruised by an assault on clean energy policies that featured nowhere in the Conservative election manifesto or in the Party's pre-election rhetoric. But could still have an important role to play in the UK's future low-carbon energy mix and a combination of continued cost reduction from the industry and a handful of conciliatory policy moves from the government could make the crucial difference between a temporary solar industry crisis and a deeply damaging catastrophe for the sector.
The government has said its current proposals remain open to consultation, and the solar industry will be desperately hoping ministers listen to credible warnings about the impact its reforms will have before too many more jobs are lost.
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