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


Supplementary memorandum submitted by Solarcentury and UK PV Manufacturers Association

Dear Committee members,

  Thank you for inviting us to give evidence last week and for the opportunity to set out our thoughts on the future of the solar PV sector in the UK.

  As the committee knows, we have a number of serious concerns relating to the Government's starting assumptions on the potential of solar PV to contribute to 2020 targets. In finalising the report, we hope that the committee will take into consideration the following important points:

1.  PV R&D AND MANUFACTURING

  Mr Whitehead asked us about R&D. We reject totally the Carbon Trust's view that policy makers must wait for a breakthrough in PV R&D before it can be taken seriously as an important technology in the UK. It is on this basis that the Trust has argued in its evidence to the committee that solar PV cannot make a contribution to the 2020 target.

  This argument was first developed by the Trust in the 2003-04 Renewables Innovation review, a document which undermined the Government's 2001 and 2003 White paper commitments to a ten year solar PV programme to catch up with our major competitors, and did enormous damage to the relationship between the then DTI and the PV industry.

  But while the Carbon Trust and others have spent at least the last six years urging Ministers to wait for an as yet undefined PV technological breakthrough and to a very uncertain timescale, other countries have simply got on with putting in place effective policy mechanisms to drive forward a range of technologies including "current generation" solar PV.

  The "let's wait and see" approach appears to be based in part on the mistaken view that the UK has already "missed the boat" as far as conventional solar PV manufacturing is concerned. But the UK already has a serious UK PV manufacturing base, despite the tiny size of the current domestic market. To date, this has been based on serving growing feed-in tariff markets in the rest of Europe with 99% of product from the UKs two largest PV manufacturing plants being exported to FIT markets.

  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. The Sharp plant at Wrexham is the biggest single employer of small scale renewable electricity manufacturing jobs in the country. "Upstream," PV Crystalox Solar PLC based in Oxfordshire, are global leaders in solar ingot manufacturing.

  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, and this important starting base is barely even acknowledged in conventional Government thinking, with for example the Low Carbon Industrial Strategy bafflingly silent on solar PV and UK manufacturing.

2.  PROPOSED FEED-IN TARIFF SCHEME

  Mr Turner asked us about the proposed rates. We are very encouraged by the Government's proposal to design a feed-in tariff "to achieve a level of public engagement that will engender widespread behavioural change." In our view, this won't come from simply supporting remote large-scale renewable electricity developments alone. So it's essential that that policy goal is reflected in the final details and tariff rates of the scheme.

  We are of course aware of the great fear within Whitehall around elements of the media accusing Government of introducing a new stealth tax. But we think that these concerns are massively overstated. The reality is that the proposed UK FIT scheme is projected to add £6 per year to domestic household bills for all small-scale renewable electricity technologies by 2015. But of course this does not mean that overall bills will actually rise by that amount, because of the net effect of the Government's wider package of measures.

  The Low Carbon Transition Plan projects that the overall impact of the Government's policies (including FITs) will reduce annual household bills by £5 per year in 2015 and £7 per year in 2020.

  We do think that the £6 per year per household levy payment on the basis of the proposed tariff levels for all small-scale renewable electricity technologies up to 5MW is an over-estimate. The Government has based all of its cost assumptions on a prediction that the price of fossil fuels will be moderate. So the price of oil for example is assumed to stay at $70-80 per barrel for the entire period 2010-2020 and with the retail price of electricity rising to no more than 16p by 2020. This is an extremely optimistic forecast. The price of oil is already at $80 in what remains a very deep global recession. Clearly, the higher the cost of the fossil-fuelled alternatives, the lower the cost of the feed-in tariff scheme to 2020 and beyond, a fact which is acknowledged in the feed-in tariff proposal supporting documents.

3.  LIKELY COSTS OF PV ELEMENT OF FEED-IN TARIFF TO 2013 IE THE GOVERNMENT'S FIRST PLANNED REVIEW OF THE SCHEME

  Using the Government's own modeling assumptions including eg a maximum year on year market growth rate of 70%, we project a total cumulative installation rate for PV in the UK from 2010 of around 150 MWp to end 2013 at the rates proposed. The total cumulative installed capacity of solar PV to date is 28 MWp.

  We think it is important for the committee to focus on the period to 2013, because that is when the Government proposes to review all feed-in tariff rates, potentially cutting them still further if they think the market is overheating or there is political pressure to cut the costs of the scheme.

  The cost of 150 MWp of PV to all FIT levy payers over four years to 2013 would be £77 million, adding less than 40p to domestic levy payer annual electricity bills in 2013.

  150 MWp is what was delivered in year 4 of the first German feed-in tariff scheme in 2003.

  Cumulative installations in the first four years of the German scheme from 2000 were 350 MWp. So measured against even that historic 2000-2003 German performance, the proposed UK scheme from 2010 is an extremely modest one.

4. IMPROVEMENTS TO THE FEED-IN TARIFF SCHEME

  Mr Challen suggested that if departmental officials were present at the session they would argue that PV is already receiving the "highest" level of support. There are two answers to this. First, the rates proposed for PV systems >10 kWp are 2.5p and 4.5p/kWh lower than that proposed for domestic micro wind, by far the most generous wind tariff anywhere in the World.

  More importantly, the Government has emphasised repeatedly that it is trying to establish a level playing field of tariff levels delivering a 5-8% ROI for each individual technology. But the ROIs for PV all fall below that 5-8% "target." For PV, the investment rate of return at the 26p level for large commercial installations for example is actually less than 1%.

  It is also worth emphasising that even a 5-8% ROI is very modest when measured against successful European tariff schemes. The Government's own Impact Assessment spells out that "an 8% ROI is assumed to be insufficient incentive for utilities and developers."

  The Quantative Analysis of the design of feed-in tariffs published by DECC emphasises the point. It says that utilities, ESCOs and developers have post tax hurdle rates for solar PV of between 8 and 12%. PV is not unique in this respect. The post tax hurdle range for all renewable electricity technologies is 8-14%.

  So right from the start, the Government is choosing deliberately to exclude commercial investors from the scheme, with inevitable consequences in terms of the projected TWh contribution to the 2020 target.

  We are very concerned therefore 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. 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 TWh per year from FIT small-scale renewables, including 14 TWh from PV, is more than 6% of our electricity needs and more than the 24 TWh combined output in 2008 of the 5 British Energy nuclear power stations facing decommissioning between now and 2018 ie.

Dungeness B— 6.4 TWh

Hartlepool—4.6 TWh

Heysham 1—3.7 TWh

Hinkley Point B—5.3 TWh

Hunterston B—4 TWh

  So we do not understand why the Government is choosing to be so timid in its proposals for the scheme. When Jeremy was interviewed on Radio 4 alongside Lord Hunt on the day the feed-in tariff proposals were published, the Minister said that he would be delighted if the FIT scheme delivered more than 2% of UK electricity by 2020 and that the 2% number was not an upper limit cap.

  That was a very welcome statement which we have subsequently discussed privately. But 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.

  We hope that the committee will be able to explore this issue (which impacts on all Feed-in tariff technologies not simply solar PV) in detail with the Secretary of State at a subsequent oral evidence session.

  In closing, we would like to repeat our offers of a briefing for committee members on the sophisticated feed-in tariff model we have developed and shared with DECC officials, and a visit to a UK PV manufacturing facility.

  Please also let us know if you require any further information or input.

November 2009






 
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