Low carbon technologies in a green economy - Energy and Climate Change Contents

Memorandum submitted by Solarcentury on behalf of the UK Photovoltaic Manufacturing Association


  1.  The UK is barely scratching the surface of the immense potential of solar Photovoltaic (PV), a proven, robust, tried and tested technology. Last year, Belgium installed 10 times as much solar PV as the UK, with Germany installing 250 times the UK total. The Government's proposals in both the Renewable Energy Strategy and feed-in tariff consultation will do nothing to help the UK to "catch up" with Germany, Japan and other leading solar PV nations.

  2.  "Catching up" with Germany and Japan in terms of solar PV deployment used to be Government policy in the period up to 2002. In 2001, the then Energy Minister Peter Hain MP said "This Government is serious about solar energy. I want to see thousands, rising to tens of thousands of roofs covered by solar panels every year over the next ten year, rivaling the large programmes in Germany and Japan."

  3.  But last year, Germany installed 1,500 MWp of PV. The UK installed around 6MWp or 0.4% of the German total. In the eight years since the 2001 General Election, the sector has seen a series of stop start and under-funded grant programmes and perhaps more importantly, no proper or coherent strategy in place to help enable the industry to realise it's potential in the UK. This is surprising given the scale of the 2020 challenge and the significant contribution that solar PV can make towards delivering the renewable energy target and beyond.

  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% 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 UK would deliver over 20 TWh or around 5% of UK electricity by 2020.

  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 four years.


  8.  Assuming an effective feed-in tariff from April 2010, the UK is potentially an extremely attractive market for both manufacturing and project investment. We do not share the widely held view in Government that the UK has already "missed the boat" as far as solar PV manufacturing is concerned.

  9.  The UK already has the beginnings of a serious UK manufacturing base. Sharp for example has it's European manufacturing headquarters in Wrexham employing up to 600 staff, Solarcentury's own solar PV tiles and slates are made at the Sony Pencoed plant near Bridgend, and there are further PV manufacturing centres in south Wales and County Durham. "Upstream," PV Crystalox Solar PLC based in Oxfordshire, are global leaders in solar ingot manufacturing.

  10.  In total, the solar PV sector currently employs around one in ten staff working in the entire renewables sector. But the UK has to date barely scratched the surface of the enormous investment and employment opportunities of this technology.


  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 UK needs significant contributions from all proven renewable energy technologies. But for solar PV, that welcome starting point is not reflected in the Renewable Energy Strategy. Solar PV is the only main renewable energy technology not mentioned in the department's indicative mix of renewables by 2020, and there is a generally dismissive approach to the technology throughout both the main strategy document itself and the supporting papers.

  12.  This approach does not appear to be based on any proper consideration of the technology in the UK context, nor indeed on any detailed research into its potential. The UK for example, is at the forefront of developing new building integrated PV solutions such as solar tiles, slates and glass laminates, which we are now exporting very successfully into Continental markets. Solar PV, uniquely of all the renewable energy technologies, is also a building material in its own right. As such it has an important value adding role to play in urban Britain, in engaging individuals and communities in the fight against climate change, and in driving many tens of thousands of jobs in the solar PV manufacturing and services, but crucially also in the mainstream construction sector.

  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 UK contributor, Europe-wide potential is high and growth is fast spurred by improving technology and reducing costs."

    Given such "high" Europe-wide potential, there is no discussion at all as to why solar PV is considered to be a "small UK contributor."


  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.


  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 UK market.

  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 UK electricity is dismissed, almost out of hand. But even 3.5% of UK electricity or around 14 TWh is still 11 TWh below the contribution that could be delivered on the basis of a FIT regime with 10% ROI levels across all technologies by 2020, and less than a quarter of the 60 TWh "technical potential" from solar PV alone identified by the Government's own consultants in the Impact Assessment.

  25.  Ministers have said publicly that they would be delighted if the FIT scheme delivers more than 2% of UK electricity by 2020 and the 2% number is not an upper limit cap. The problem with this approach is that the tariff levels proposed from 2010 clearly reflect the very modest 2% target for the overall scheme and have been calculated to ensure that growth in demand for solar PV and other small-scale technologies is restricted to this level. So for example, the proposed PV tariffs are set deliberately to discourage investors in large-scale >100-5MW commercial projects and to ensure that uptake is restricted to owner occupiers only.

  26.  The projected contribution from PV by 2020 is just 0.5% of all UK electricity, with most of this uptake modelled to take place post 2014 ie. after the Government's first review of the FIT scheme set for 2013 at which tariff rates may be cut further. This is barely 10% of the 21TWh that the European PV Industry Association (EPIA) has projected could be delivered in the UK by 2020 under its SET for 2020 plan. EPIA project that solar PV alone could deliver 5% of UK electricity by 2020 with the right FIT and regulatory framework.

  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 UK has traditionally been much higher than the Euro zone, and will continue to be unless we join Euro. So UK FIT payment rates must reflect the UK interest rates premium rather than the current assumption that the target ROI that is relevant in eg Germany can be assumed to be applicable in the UK. This is essential if DECC wants to design a scheme to encourage third party funders to get involved.

  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 UK skilled solar power jobs by 2014;

    — 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; and

    — 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.

  Our 13 partners in UK PV Manufacturing Association, all of whom have endorsed this submission are as follows:

    Sharp UK

    Romag Ltd

    Southern Electric Contracting

    Schott UK


    Mark Group

    IT Power

    Ardenham Energy

    Chelsfield Solar

    Northern Solar

    Natural Watt


    Energi PLC

October 2009

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