HC 1605 Energy and Climate Change and Environmental Audit CommitteesWritten evidence submitted by the Association for the Conservation of Energy
Introduction
The Association for the Conservation of Energy was formed in 1981 by major companies active within the energy conservation industry, in order to encourage a positive national awareness of the needs for and benefits of energy conservation, to help establish a sensible and consistent national policy and programme, and to increase investment in all appropriate energy-saving measures. We welcome this opportunity to submit our views on Budget 2011 and green taxation.
Summary
1. ACE firmly agrees that the rate of the PV feed in tariff should be reduced in line with the reductions in the upfront cost of installing the technology.
2. However, the speed with and degree to which the proposals cut the support is plainly irresponsible. The proposed cuts of over 50% for most domestic size installations are too significant to be responsibly introduced in one stage. Combined with the idiotically short timelines and retrospective application the proposed reductions are the embodiment of bad policy making process.
3. ACE cannot state strongly enough that the proposed application of the new tariffs to installations with an eligibility date of 12 December, before the consultation is over let alone allowing for consideration of the responses, is completely unacceptable. ACE calls on Government to adopt the alternative proposal investigated in the Impact Assessment for this consultation of introducing the new tariffs for installations from April 2012, as always anticipated. This date gives a short but not unreasonable amount of notice to the industry, investors and households.
4. One of the main purposes of the FIT was to create a market for renewable electricity technologies or further develop embryonic markets (such as for PV). The extreme and retrospective changes currently proposed will have the effect of immediately stalling investment, killing the burgeoning market developed over the previous 18 months and most importantly destroying industry confidence in this and other government schemes on which basis it is expected to invest.
5. Government has been seeking to build investor confidence around the Green Deal proposals: it acknowledges that this is a complicated and difficult exercise. Irresponsible changes like those proposed for the PV FIT provide no confidence to the sustainable energy market in the sincerity of Government’s aims for energy efficiency and sustainable energy proliferation.
6. What the consultation does include are some excellent ideas which we would not like to lose. ACE firmly agrees with the proposal that eligibility for the tariff should be contingent on a minimum energy efficiency requirement being met.
7. To further enhance the compatibility between the government renewable energy and energy efficiency programmes and make the process of refurbishment more seamless for business owners, ACE have on a number of occasions (eg Access for All, http://tinyurl.com/65yrzwj) called for renewable energy technologies to be financeable through Green Deal Finance and for the tariff payments to be included in the “savings” side of the equation.
Response
The evidence presented concerns the third evidence bullet point for the inquiry: the way in which the Government has managed the Solar PV Feed-in Tariff, the impact this has had to date, including the management of the Consultation.
1. ACE firmly agrees that the rate of the PV feed in tariff should be reduced in line with the reductions in the upfront cost of installing the technology. This is essential to avoid providing unnecessarily high returns, achieving poor value for money and placing a greater than necessary burden on energy bills. However, the speed with and degree to which the proposals cut the support is plainly irresponsible.
2. The proposed cuts of over 50% for most domestic size installations are too significant to be responsibly introduced in one stage. The consultation document confirms that the cost of installing PV has fallen by 30%, however no evidence has been provided to justify the reduction in the tariff beyond 30% to the proposed new levels. Combined with the idiotically short timelines and retrospective application the proposed reductions are the embodiment of bad policy making process. Furthermore, ACE is shocked that rate cuts have been considered in isolation only, with no consideration of other options for limiting FIT expenditure, such as capping the number of supported installed capacity for a given financial year, or doing so in combination with rate cuts.
3. One of the main purposes of the FIT was to create a market for renewable electricity technologies or further develop embryonic markets (such as for PV). The tariff levels were originally set to deliver an attractive enough return to encourage investment, with pre-announced degression rates to allow long-term investment certainty. The extreme and retrospective changes currently proposed will have the effect of immediately stalling investment, killing the burgeoning market developed over the previous 18 months and most importantly destroying industry confidence in this and other government schemes on which basis it is expected to invest.
4. Government has been seeking to build investor confidence around the Green Deal proposals: it acknowledges that this is a complicated and difficult exercise. The success of the Green Deal will rely on a number of supply chain players making considerable investments to raise finance, adjust business models and create additional capacity. Irresponsible changes like those proposed for the PV FIT provide no confidence to the sustainable energy market in the sincerity of Government’s aims for energy efficiency and sustainable energy proliferation. The proposals in the PV FIT consultation document have already been sufficient to significantly knock the confidence of the energy efficiency industry. If the changes are implemented, this confidence may be lost entirely impacting heavily on the success of Government’s flagship policy the Green Deal.
5. ACE would also like to point out that tariff rates for new build are proposed to be cut by a lesser degree than those for refurbishment. Lower tariff rates for new build were introduced at the start of the scheme to reflect the lower barriers to installing PV on new buildings. The cost of scaffolding is an obvious and quantifiable saving for new build and hassle to occupant householders is a less quantifiable but nevertheless real barrier for installations in the existing stock. No justification is given as to why or how these considerable barriers and costs, real enough 18 months ago to justify a tariff differential, have been discounted or removed.
6. The proposed reduction of the tariff for installations on new build by only 44% compared to the reduction of 52% for the same sized installation on an existing home amounts to yet another subsidy to the house building industry at the cost of the taxpayer or energy consumer. Unless Government can provide convincing evidence to prove that the many and various financial and non-financial barriers experienced in installing PV on existing buildings in comparison to new buildings have been overcome, the tariff differential introduced to reflect these must be maintained.
7. ACE cannot state strongly enough that the proposed application of the new tariffs to installations with an eligibility date of 12 December, before the consultation is over let alone allowing for consideration of the responses, is completely unacceptable. It reflects not only irresponsible policy making but makes a mockery of the public consultation process.
8. The failure to present in the main consultation document the second, and more sensible, option explored in the Impact Assessment of the new tariff introduction date of April 2012 misleads consultation respondents by selectively presenting the available information and analysis.
9. Whatever the concerns about spending on the FIT scheme, the possible breach of the parameters set for it and the need to make the savings set out in the Comprehensive Spending Review, these concerns must never come as a priority above the legal and rational implementation of Government’s responsibilities in its policy making.
10. The impact of the proposed retrospective tariff introduction date of 12 December is already arresting much investment. Large schemes planned by local authorities and social housing providers that have only been half delivered are being stopped, breaking trust and destroying confidence, let alone wasting significant planning and preparation investment. This is creating chaotic conditions in the industry, likely resulting in job losses at a time of recession and when Government has announced key plans to deliver “Green Growth”.
11. ACE calls on Government to adopt the alternative proposal investigated in the Impact Assessment for this consultation of introducing the new tariffs for installations from April 2012, as always anticipated. This date gives a short but not unreasonable amount of notice to the industry, investors and households.
12. What the consultation does include are some excellent ideas which we would not like to lose. ACE firmly agrees with the proposal that eligibility for the tariff should be contingent on a minimum energy efficiency requirement being met. ACE called for a minimum energy efficiency requirement to be introduced when the FIT was first consulted on in October 2009 (http://tinyurl.com/7zzot3t). The reasons we gave in that consultation response were many. The principle that households should not be rewarded for energy generation if they have not first made attempts to rationalise their energy use is central. The utilisation of the “trigger point” of property improvements, the introduction of the “whole house” or “whole building” perspective rather than single technology thinking, and the increased return on investment if energy saving measures are included in the ROI calculation continue to be valid justifications.
13. The conditionality requirement should apply to both domestic and non-domestic buildings. This is in order to avoid a distortion in the FIT market to over-favour non-domestic buildings if no requirement, or a lower requirement, is placed on them. The FIT conditionality requirement also provides a key opportunity to reach the SME market with an incentive to take part in energy efficiency improvements and in the Green Deal. The SME market is one which has to date not been influenced by existing carbon saving programmes like the CCAs or the CRC.
14. ACE strongly supports the second conditionality option – all measures financeable under the Green Deal (with available ECO subsidy).
15. The clear benefit of this option is to bring more closely together the incentives for renewable energy and the mechanism through which energy efficiency improvements can be financed into a package that makes more sense to building owners and occupants.
16. A key strength of the Green Deal is the finance provision that allows energy efficiency improvements to be made at no upfront costs. Clearly, an energy efficiency conditionality requirement based on those measures that are financeable through the Green Deal removes the cost barrier to uptake. This non-standardised energy efficiency requirement does not introduce the same differences between burden levels that would be introduced by a fixed point standard (e.g. EPC band).
17. A significant benefit of this option would be to drive activity through the Green Deal in its early stages. Although the energy efficiency measures identified would not necessarily have to be financed through Green Deal finance, the profile of the Green Deal would be raised with those households investigating and taking up a FIT installation.
18. To further enhance the compatibility between the government renewable energy and energy efficiency programmes and make the process of refurbishment more seamless for business owners, ACE have on a number of occasions (eg Access for All, http://tinyurl.com/65yrzwj) called for renewable energy technologies to be financeable through Green Deal Finance and for the tariff payments to be included in the “savings” side of the equation. Through this alignment, the increase in the savings produced by the tariff payment could allow more ambitious packages (incorporating solid wall insulation in particular) to be installed under the Golden Rule which require less ECO subsidy. In addition, in allowing the up-front cost of the renewable technology to be removed, the tariff level paid could be lowered to reflect the reduced barrier to investment. ACE believes that this proposal is even more relevant in the light of the conditionality requirement proposed under our favoured option 2.
19. This option clearly relies on information on what Green Deal financeable measures are suitable for a building. This information is to be introduced on the new format EPC, available in April 2012. Investors wanting to take up the PV FIT will need to have information on the relevant energy efficiency measures before they can make an informed investment decision. Therefore, both the new tariff level and the conditionality requirements must be introduced at the same time, and at a time when the necessary investment information is available – with the introduction of the new format EPC in April 2012.
20. As non-domestic buildings are equally eligible for Green Deal Finance ACE would recommend the same energy efficiency conditionality option for this sector.
22 November 2011