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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