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Memorandum submitted by Solar Century
on behalf of the
Summary 1/ The UK is
barely scratching the surface of the immense potential of solar Photovolatic (PV),
a proven, robust, tried and tested technology.
Last year,
2/ "Catching
up" with
3/ But last year,
4/ Absolute resource potential for solar PV in the UK is 460 TWh per annum for building mounted PV ie more than current total UK electricity demand, of which 140 TWh per annum is optimally orientated towards the south. Ground mounted PV would add to these figures further. But to date, this massive potential has been routinely overlooked by policy makers.
5/ Solar PV
is literally the forgotten technology of the Renewable Energy Strategy and the
Government's feed-in tariff proposals are designed to restrict uptake of the
technology to no more than a half per cent of all UK electricity by 2020 or
around 2 TWh. But the Government's own
consultants have calculated that setting the forthcoming feed-in tariffs to
deliver a return on investment of 10% ie consistent with European best
practice, would deliver 14 TWh from solar PV by 2020. The European PV Industry Association (EPIA)
calculates that the right feed-in tariff and regulatory regime in the
6/ The Federation of Master Builders, Electrical Contractors Association and National Federation of Roofing Contractors have jointly called for an increase of at least 10p in the proposed solar PV tariffs. Such a modest addition, increasing the return on investment for solar PV from <1%-4% under the current proposals to 3%-7% post tax at current proposals plus 10p would deliver 30,000 construction sector jobs and 400,000 domestic PV installations alone by 2014. The additional cost of this increase to domestic FIT levy payers by 2014 would be approximately £2.50 per annum, less than a penny per day.
7/ We believe that this is a small investment to make to drive rapid uptake of the technology, to unlock third party funding for housing association and other public sector projects, to allow the banks to provide specialist low interest solar packages for householders and to deliver significant construction sector employment all within 4 years.
The potential of solar PV manufacturing in the UK 8/ Assuming an effective feed-in
tariff from April 2010, the 9/ The 10/ In total, the solar PV sector
currently employs around one in ten staff working in the entire renewables
sector. But the
Renewable Energy Strategy and Solar PV 11/ The Renewable Energy Strategy
approaches Solar PV almost entirely in the context of domestic
micro-generation. We are told that the
2020 target means that the 12/ This approach does not appear
to be based on any proper consideration of the technology in the 13/ Instead, the original RES consultation supporting documents deliberately excluded any consideration of the technology including the three detailed studies by Sinclair Knight Merz and Douglas Westwood. The study of "quantification of constraints on the growth of UK renewable energy generating capacity" for example, considered no less than 14 renewable energy technologies including technologies still in their experimental infancy in the UK such as tidal stream, and other "onsite" technologies such as small wind, but bizarrely overlooked PV altogether. 14/ This is surprising given the scale of the 2020 challenge, the need for contributions from all renewable energy technologies, and the very rapid growth forecast for solar PV throughout the rest of Europe over this timeframe. The Douglas Westwood report into Supply chain constraints for the RES simply asserts that: "Whilst solar PV is a small Given such "high"
Europe-wide potential, there is no discussion at all as to why solar PV is considered
to be a "small Level playing field policies drive demand for Solar PV 15/ The exclusion of any proper consideration of solar PV in the RES is also surprising given the evidence of the Government's own policies to date. The Low Carbon Buildings Programme Phase 2 for example has demonstrated that solar PV is very clearly the technology of choice for schools, housing associations and other community scale installations accounting for over 60% of committed projects and over 70% of completed projects to date. 16/ "Level playing field" policies such as the Merton planning rule typically requiring a 10% carbon reduction from onsite renewables "where feasible," have also demonstrated the practicability and popularity of the technology in larger scale commercial and public sector developments in urban settings. 17/ Even the Code for Sustainable Homes level 3, which is often assumed to have no bearing on onsite renewable energy technologies is delivering PV uptake particularly in flat developments in the social housing sector. Opponents of the Government's zero carbon homes policy have routinely expressed alarm at what they perceive to be the "high cost" of achieving high carbon compliance levels through onsite renewable energy technologies. But our practical commercial experience suggests to the contrary that at lower levels of the Code the most cost effective solution is often a combination of energy efficiency measures and a small solar PV installation rather than simply energy efficiency measures themselves.
18/ This commercial experience was reinforced by the independent modelling carried out for the DCLG Zero Carbon Homes consultation in 2008 which suggests that at Code levels 3 and 4, a combination of best practice energy efficiency measures and solar PV is a cheaper way of delivering carbon emission reductions than relying for example on advanced energy efficiency measures alone. And that is achieved using an assumption of 0.43 kg CO2 saved per kWh of PV generation in the "long term" not the current building regulations PV CO2 factor which is 0.568 kg CO2 saved per kWh.
19/ We welcome the Government's decision that from 2016 a minimum standard of carbon compliance of 70% should be achieved through a combination of energy efficiency, onsite Low and Zero Carbon energy supply technologies and directly connected heat and that "allowable solutions," including offsite renewable energy generation, will only be used for dealing with the residual emissions once those carbon compliance standards have been achieved. 20/ Solar PV is a universally applicable technology in the UK's urban areas which can be rolled out quickly, and which, uniquely of all of the renewable energy technologies can deliver a very rapid increase in UK construction employment within the lifetime of the next Parliament. Integrated products have the additional advantage of providing an aesthetically appealing, secure and silent built environment solution and enormous employment opportunities in the "conventional" building sector
Solar PV and the Government's proposed Feed-in tariff scheme . 21/
The Government's feed-in tariff scheme
to be introduced in April 2010 has the potential to drive a significant uptake
in solar PV and other "small-scale" renewable electricity technologies. The UK PV Manufacturers Association
submission to DECC '2020 A UK Vision for UK PV,' emphasised that an effective tariff had the potential to
deliver over 100,000 UK solar PV jobs
by 2020 and a significant solar PV contribution of 21 TWh per annum to the UK
2020 renewable energy target ie. more than the proposed Severn Barrage and to a
quicker timescale. But a significant
solar PV contribution can only be delivered if the tariff returns on investment
are set high enough to encourage third party investors into the
22/ The Government's proposed scheme includes no premium at all for job rich building integrated solar PV (BIPV). If this oversight is confirmed in the final scheme, it would mean the UK, almost uniquely of all successful European tariff regimes, having no specific encouragement for a sector which has massive UK export potential, as well as a major role to play in delivering customer acceptable renewable energy solutions in the built environment eg house builders and housing associations opting for the aesthetic and user friendly appeal of integrated solar PV roofing products.
23/ We are very concerned that the Government has not brought forward a Feed-in tariff scheme to maximise the potential contribution from the entire small-scale renewable electricity <5MWp sector to the 2020 target. Solar PV in particular has been singled out for particularly harsh treatment. For PV, the investment rate of return at the 26p level for large commercial installations is less than 1%.
24/ There is scant explanation in the Government's
consultation document as to why the Government chose to limit the scope of its
"small-scale renewable electricity" ambition to no more than 2% of UK
electricity by 2020. The Government's alternative scenario of delivering
3.5% of
25/ Ministers have said publicly that they would be
delighted if the FIT scheme delivers more than 2% of
26/ The projected contribution from PV by 2020 is just
0.5% of all
27/ The main explanation for the low projected contribution from PV by 2020 relates to the Government's treatment of rates of return for the technology. The Feed-in tariff Consultation Document Impact Assessment makes it clear that the starting point for the Government's preferred "lead scenario" was an 8% ROI ie.
Impact Assessment para 26: "The approach taken uses the 8% ROI scenario as a starting point, with adjustments then being made to ease administration of the tariffs, reflect technology-specific risk and ease of deployment and ensure consistency with existing tariff mechanisms (the RO)."
28/ It is unclear from the consultation document whether the 8% ROI "target" is pre or post tax. We think that 8% ROI is probably a sensible target if it's a real post-tax rate of return (but the Government should recognise that it is by no means a generous one). The European PV Industry Association for example, argues that investment rates of return of 8-12% are needed to ensure "sustainable growth" through a feed-in tariff scheme. Anything less than 8% risks market "standstill, while anything above 12% can lead to "unsustainable growth."
29/ The potential of the new FIT policy to deliver a far greater contribution than the target 6 TWh in this consultation is recognised in the Impact Assessment with a 10% ROI across all technologies capable of delivering 25 TWh by 2020 including 14 TWh from PV alone.
30/ For solar PV however, the proposed tariff rates and structure will deliver at most, just over 2 TWh per annum by 2020, with the bulk of that growth coming post 2014. The helpful consultation document starting point of trying to deliver an 8% ROI is then undermined by a deliberate cutting of the PV tariff rates on the grounds that it is a "tried and tested technology" and easy to deploy ie.
Impact Assessment para 27: "The key difference between tariff levels in the lead and 8% scenario is that PV tariffs have been reduced to reflect the fact that PV is easier to deploy than other technologies (eg it has permitted development rights at the domestic scale) and carries less risk for the investor given that it is a tried and tested technology."
31/ We are struggling to understand the logic of this argument and the very severe cuts to the proposed PV tariff rates which flow from it (ie about 10p/kWh on the generation tariff or the equivalent of 30,000 skilled solar PV UK services and installation jobs to 2014). There is no attempt to actually quantify the value to a potential household PV customer of eg having domestic permitted development rights, or what percentage precisely is taken off the PV ROI on the grounds that it is a "tried and tested technology." The Government's current "finger in the air" ROI reductions penalise unfairly consumers opting for PV and needs to be rethought.
32/ As a result, UK PV Manufacturers
Association modelling (which we believe mirrors that of the DECC
consultants and which we are happy to share with the committee) indicates a
modest increase in uptake in 2010 on the 8 MWp or so we forecast for the
UK in 2009, but crucially for us, zero interest from commercial
investors. That is confirmed in discussions with real investors
post publication of the con doc. It is important that the final scheme
recognises that the cost of capital in
33/ PV industry modelling suggests that adding just 10p to the starting tariff numbers from April 2010 (ie increasing them from the proposed 26-36.5p per unit to 36-46.5p per unit) and doing nothing else to the proposed scheme would deliver well over 12 TWh per annum by the same date, more than six times the Government's target. Crucially, adding 10p to the starting tariff numbers would achieve rapid take-up of the technology in the early years of the tariff scheme delivering:
*
30,000 * over 400,000 new solar photovoltaic installations on homes by 2014 * additional investment in UK solar PV manufacturing building on established centres in Wrexham, South Wales and County Durham. * new private sector financial packages for the domestic sector removing the need for Government grants or other public sector subsidy to address capital costs * far greater uptake of solar power by housing associations and public sector organisations
34/ 10p is a very modest ask. Even a 10p increase for non domestic PV would still not deliver the Government's target 5-8% return on investment for the scheme for non domestic installations, nor interest commercial investors in large-scale PV projects, and is well short of the potential 21 TWh per annum feed-in tariff contribution from PV or 5% of UK electricity demand identified by the European PV Industry Association earlier this year. We are not asking for "special treatment" for PV. An additional 10p on the proposed solar PV tariffs simply moves the ROI numbers for PV closer to the 5-8% range promoted by Ministers since publication of the consultation document, but for large-scale projects is still below the lower end "target" of 5%.
35/ By contrast, Alan Simpson MP (Secretary of State Ed Miliband's Parliamentary adviser on feed-in tariffs) has called publicly for tariffs to be set to deliver 12% returns across all technologies, precisely because the UK renewable energy sector is so far beyond the rest of Europe and the urgency of getting on with delivering the 2020 target. According to the Government's own consultants, for solar PV, a fixed tariff delivering a 12% return on investment would need to be set at 78.5p per unit for domestic installations (or approximately 70p under a premium tariff) and 57p per unit for large-scale installations. It is vital that the Government reconsiders the current low generation tariffs proposed for solar PV if it is serious about its publicly stated 5-8% return on investment target, and we hope that the committee will endorse that view.
October 2009
Our 13 partners in UK PV Manufacturing Association, all of whom have endorsed this submission are as follows:
Sharp Romag Ltd Southern Electric Contracting Schott Yingli Mark Group IT Power Ardenham Energy Chelsfield Solar Northern Solar Natural Watt Solarsense Energi PLC
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