HC 1605 Energy and Climate Change and Environmental Audit CommitteesWritten evidence submitted by Lark Energy
1. Lark Energy is part of the Larkfleet Group, a privately owned construction and development company based in the East Midlands. The group builds private and social housing developments ranging from 30 units to over 1,000. It has a national reputation for being at the forefront of sustainability initiatives in the sector.
2. Lark Energy was established in March 2010 to help diversify the business at a time of difficult economic conditions in the housing and construction markets. The company builds on the Group’s expertise in energy efficiency and renewable energy technologies and focuses on delivering renewable energy projects for the Group’s own development sites and for external clients and customers. It is involved in solar PV at all scales from individual residential installations through commercial roofs to solar farms.
3. This year Lark Energy has installed 11 MWp of PV, including two of the UK’s largest solar farms (near Grantham and Newark), and a large number of commercial roof top projects.
4. We are currently working day and night to install a further 1.5 MWp of roof top and ground-mounted projects before 12 December.
5. As a result of the government’s announcement we have lost over £10 million of orders, predominantly housing association projects designed to address fuel poverty.
6. We are not opposed to reductions in FIT levels to reflect reductions in installation costs. Indeed, at the time of the fast track review on large scale solar, we urged the government to make less drastic cuts in the rates for large scale solar whilst at the same time reducing rates for other sizes of installation to a more sustainable level. We told the minister and DECC officials that the industry would face another cliff face before the end of the year if free domestic installations in particular were not brought under control.
7. Instead, the new FIT levels were announced after weeks of uncertainty in the market and were far more draconian then anyone had forecast. No serious engagement has taken place with industry in the intervening months. Even worse, a completely impractical, and possibly unlawful, implementation date was announced to take affect two weeks before the end of the consultation.
8. One of the government’s justifications for the six week notice of changes was that this period allows most installations already ordered to be completed. Whilst this may be the case for small, straightforward domestic installations, it is completely unrealistic for commercial or multi-roof installations which require planning permission, permission from the District Network Operator (DNO) for connection to the grid, structural surveys and ordering of long lead time components. In essence, the government’s announcement amounts to retrospective action on such projects, given that three months is the usual time from order to delivery.
9. We are also extremely concerned about the health and safety impacts of the deadline with worsening weather and shortening days, there are almost certainly going to be accidents as companies race to complete installations.
10. Furthermore, the government claimed that the supply chain should be able to cope with demand brought about by such changes. Again, this is completely misleading – many components were reserved by the largest companies and supplies of top tier panels and inverters quickly dried up. Mounting rails for roof installations have been even more difficult to obtain.
11. The regulatory impact assessment accompanying the consultation document is an extremely shoddy piece of work. There is no real analysis of the different options and very limited justification for the preferred choice.
12. It is worth noting, however, some of the implications of the FIT changes as modelled in the assessment:
DECC estimate that installations will reduce by 95% as a result of the proposal.
The current cost of FiTs to energy bill payers is £1.40 per year. If the government does nothing and continues to adjust the FIT downwards by 9% each April, the addition to energy payer’s bills would reach £25.80/annum by 2020.
Leaving the changes until April when they were widely expected would add less than £1 to the average annual energy bill.
No attempt is made to model the impact of the proposal on jobs, although bizarrely it indicates jobs growth despite the 95% reduction in work.
No account is taken of the loss to the exchequer of PAYE tax or consequential state support costs if the measure results in redundancies.
No account is taken of the electricity savings made by the 100,000 PV installations, the impact on fuel poverty of installations on social housing stock or the impact on CO2 emissions.
No account is taken of the substantial sums of money spent by housing associations, local government and community groups which will be lost through aborted projects.
13. We were also hit hard by both the fast track review earlier this year, through which we lost a considerable sum of money on abandoned projects, and again when the extensions provision was curtailed in October.
14. As a result of all of these short-notice government actions we have had to reduce our full-time staff and have had to scale back on sub-contracting opportunities. This is very disappointing coming as it does when the construction industry and housebuilding are already at an all-time low in terms of activity.
15. The Feed-In Tariffs were not designed to be financially capped – it is a price-based policy funded through the energy companies. It is clearly not public spending. No justification has ever been provided for the sudden change in the nature of FIT funding. Germany FIT programme, which has developed the largest PV market in the world, is funded through an energy levy entirely separated from public spending.
16. Indeed when the FIT was launched, one of the most important selling points to potential customers was that it was not linked to government expenditure and therefore would not be subject to arbitrary caps, limits or cuts. The decision of many customers to install renewable energy and the decision of many companies to enter the renewable industry were predicated on this perceived policy stability.
17. The arbitrary FIT cap introduced by the Treasury following the comprehensive spending review in 2010 represented a complete reversal of the principles of the FIT. The cap was arbitrarily based on forecasts of FIT uptake contained in a previously unpublished consultant’s report. The report was commissioned by DECC for the original FIT regulatory impact assessment.
18. The consultant’s report contained forecasts of annual uptake of PV installations against various scenarios. It forecast that there would be no non-domestic installations before 2013. As the report was never published, its hopelessly inaccurate forecasts could not be challenged by industry at the time. Instead the government took these forecasts, cut them by 10% and announced the FIT would be capped at those levels, despite their complete inaccuracy and with no consultation.
19. Indeed, the report included the following caveat “it should be noted that the data provided in this spreadsheet are projections based upon a number of underlying assumptions that in reality are uncertain – actual uptake could turn out to be different, depending on how the market responds to the tariffs. Projections in the first few years of the scheme will be particularly uncertain as it is difficult to predict uptake rates under a new subsidy scheme.”
20. For the government to claim that “hot” money and overseas speculators dominate the market is also pejorative in the extreme. There are some 4,000 UK-based companies, mostly SMEs, that have entered the market to deliver renewable energy projects, employing over 25,000 new staff and using a UK supply chain.
21. To infer that large scale deployment of solar is a “threat” to an arbitrary FIT budget is also unfortunate. Those companies that entered the market were under the impression that they were contributing to the government’s renewable energy targets rather than posing a threat to anyone. It is perverse that the government is happy for investors to make money in any energy market other than solar.
22. As a result of the two fast-track reviews, there has been a significant loss of investor confidence in solar and other renewable energy technologies. The proposed new tariffs provide an IRR which is below the cost of capital and has resulted in most investors pulling out of the market.
23. Over £1bn of investment will have been lost with the following consequences:
Thousands of high-skilled UK jobs lost – the solar industry in the UK has created highly skilled jobs in design, planning, engineering, installation, operation and maintenance.
Significant tax incomes lost to the UK economy – PAYE and corporation tax – it is clear that the tax take from the sector far exceeds the arbitrary budget cap.
Large number of community-scale, housing association and local authority “Big Society” schemes axed.
Millions of pounds of investment by housing associations and local authorities wasted following project cancellations.
Slim likelihood of government reaching its renewables targets.
24. The tariffs should be set as before to achieve equivalent returns for all maturing technologies. As PV costs have now come down from the levels at which the tariffs were first set, this would provide scope for some sensible reduction which should be discussed well in advance with industry and investors.
25. DECC needs to engage with industry and needs to have a solar advocate in the department to counter the very strong pro-nuclear and fossil fuel bias of the department.
26. It would also seem folly to base critical policy decisions which significantly affect a large number of businesses on hearsay and limited market studies. Surely evidence should come before policy.
27. What is clear is that solar conveys the following benefits which will be lost if the government pursues the current fast track proposals:
Solar PV provides reliable low carbon power directly at the point of use. Even in low-light conditions this technology is 100% reliable.
PV reduces the requirement for fossil-fuel derived electricity on the grid in high demand daylight hours, reducing carbon emissions and also preventing the need for additional spinning reserve capacity.
Solar PV is one of the fastest-to-deploy renewable energy technologies which in conjunction with energy efficiency has the potential to contribute significantly to our energy security.
The public are overwhelmingly supportive of PV on both roofs and land.
Local government and community groups have enthusiastically seized the opportunity to develop PV schemes of all sizes.
Housing associations are developing large scale PV schemes for their housing stock to help alleviate fuel poverty.
Local authorities had been putting PV at the heart of their plans to sell green energy to their local communities.
A large number of companies had been making plans to install roof top PV to reduce their grid energy consumption.
Research from Germany has suggested that 30-50 jobs are created for each MW of PV installed. This generates income tax, national insurance and corporation tax income for the government which is likely to largely offset the costs of the FIT scheme.
Evidence from Germany suggests that large scale installation of PV is reducing daytime wholesale energy costs with PV now generating up to 20% of such energy supply in peak daytime summer months.
23 November 2011