HC 1605 Energy and Climate Change and Environmental Audit CommitteesWritten evidence submitted by SSE
0.1. SSE (formerly Scottish and Southern Energy) welcomes the opportunity to respond to the Committees’ inquiry into the Feed-in-Tariffs for small scale solar PV.
0.2. SSE, the UK’s broadest based utility, is the largest generator of renewable electricity and the second largest generator of electricity in the UK. It is also involved in the transmission and distribution of electricity, in the storage and distribution of gas, and has interests in telecoms and water. In addition, SSE is also the second largest supplier of electricity and gas in the UK with over nine million customers. SSE is committed to an annual investment program of £1.5 to £1.7 billion for each of the next five years.
0.3. In reference to this inquiry, SSE has a significant interest in the solar PV market as our contracting business, SSE Contracting, is one of the country’s leading mechanical and electrical contractors and offers a range of renewable and low carbon energy solutions, including PV installations. SSE also has an interest in the solar PV supply chain, holding 12.3% of Solar Century through its ventures arm, SSE Ventures.
0.4. The key points included in this response are:
Speed and timing - The timing and speed of this review is a major concern to companies of all sizes in the industry. SSE believes that a more suitable eligibility date for the new tariffs rates would have been 1st April 2012. However, SSE would suggest that if there is a requirement for an earlier eligibility date then a January or February date would be more appropriate.
Policy certainty and investor confidence - The Feed-in-Tariff has been successful at providing increased uptake in micro-generation, particularly solar PV and led to the development of a significant solar PV market and subsequent jobs by providing certainty on investment. But the multiple reviews of the scheme has added significant costs on to business and damages investor confidence by creating policy uncertainty in the micro-generation market and wider energy policy, weakening the Government’s commitment to be the “greenest ever”.
Cost on bills - SSE is fully aware of the need to keep the costs of environmental and social policies levied on bills to a minimum, at a time of significant pressure on prices. SSE would recommend that the Government look at the possibility of recouping the costs of policies that have a wider benefit to decarbonisation and economic growth from general taxation which is means tested, as opposed to levies on bills, which are regressive and disproportionately impacts on those households in fuel poverty.
1. Impact to Date of Solar PV Feed in Tariffs and the State of the Solar Energy Market
1.1. The introduction of Feed-in-Tariffs for renewable micro-generation has created a significant increase in uptake and interest in microgeneration and solar PV in particular, with the competitive rates of return offered. This growth has created a large and rapidly growing market for solar PV, which employs a large number of skilled workers in the sector.
1.2. The recent proposals however, are likely to significantly stunt the solar PV market, particularly in the short term. Although, SSE agrees with DECC that the proposals to reduce the tariffs to originally intended rates of return, putting them in line with other technologies, will be beneficial in the long term.
1.3. SSE is concerned that the speed and timing of the reduction will cause damage to the solar PV industry in the short-term, particularly SMEs and create significant investor uncertainty in the medium to long term.
2. The Balance between Affordability and Delivering the Objectives of the Solar PV Feed in Tariffs, including Factors to Consider when Setting the Rate of Small-Scale Feed in Tariffs including Jobs Created, Emissions Reductions and Energy Saving Behavioural Change
2.1. Whilst it is clear there are further benefits to the installation of solar PV, SSE would like to see more research in this area. For instance, the current evidence for engaging wider energy saving behavioural changes is weak. It would be extremely useful if research could be conducted on both electricity and heat micro-generation to strengthen the evidence and to quantify the impacts so its value can be properly assessed in policy development.
2.2. We believe that if there is evidence that significant energy saving behavioural change results from solar PV installations, alongside the noted economic benefits, then a high level of support can be justified. However with limited budgets for such measures, funds must be distributed to the policy areas and technologies which deliver the most cost effective results.
3. 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
3.1. SSE would like to raise serious concerns over the speed of this review, the job losses that it will create, and in particular the resulted uncertainty this sends out across the entire policy framework, particularly with the upcoming Electricity Market Reform. This significant reduction in tariffs and proposal to introduce an eligibility date prior to the end of the consultation is likely to result in financial losses for investors, installers and end users. SSE is unsure as to why this decision comes shortly after the Government called an early review this summer of Feed-in-tariffs, which changed the tariffs for large scale solar PV and Anaerobic Digestion.
3.2. SSE understands the need to keep within allotted budgets to ensure the best deal for all electricity consumers, but believes that it would be better to adopt longer transitional periods to allow businesses to adapt and reduce policy uncertainty.
3.3. Therefore, on the timing of the eligibility date, SSE’s believes that a more suitable eligibility date for the new tariffs rates would have been 1 April 2012. However, SSE would suggest that if there is a requirement for an earlier eligibility date then a January or February date would be more appropriate. This is to allow for a notice period longer than six weeks to protect existing contracts, stop it falling inside the consultation period yet still benefitting from budget savings.
3.4. Additionally, it should be noted that the publication of the latest review to the Feed-in-Tariff has added a huge volume of additional work to the team that administers the Feed-in-Tariff. With regard to the latest proposals, SSE’s feed in tariff team have received nearly a 120% increase in incoming calls and 200% increase in application forms with no extra resource to cope with the increase due to the short notice of the announcement. SSE recommends that DECC reconsiders its review process to ensure that there is not a repeat situation where three amendment orders are published in a single year.
3.5. Despite this, SSE would like to acknowledge the Feed-in-Tariff team at DECC for assisting with queries and for producing useful documents to aid communication of these changes to customers.
4. Affordability of Solar Photovoltaic Energy versus Other Renewable Energy (given the Overall Levy-Funded Cap for Energy Bills) and the Impact of Feed in Tariffs on Energy Bills
4.1. Solar PV had become particularly attractive to investors due to its comparatively high rate of return compared with other technologies. For this reason SSE agrees with Government that the subsidy needed to be reduced, so that the rate of return should be equivalent with other cost-effective and scaleable renewable technologies.
4.2. Within all of this is must be remembered that these policies are levied onto consumer bills. Applying levies on bills is regressive, and has the effect of pushing vulnerable households into fuel poverty, at a time of significant pressure on prices given the rising costs of the components that comprise consumer bills.
4.3. SSE would recommend that given the benefit to decarbonisation, economic growth and jobs, that rather than levy subsidies onto bills, it may be beneficial to recoup the costs of these subsidies from general taxation, like the Government has committed to with the Renewable Heat Incentive. An interesting proposal could be to ensure the potential differential Feed-in-Tariff for community schemes be extended to social housing, and be paid directly from general taxation and thus allow those households who do not have the access to upfront capital to benefit from the scheme through community groups and social housing, whilst not having to put additional pressure on energy bills.
5. Experience of Similar Incentive Mechanisms for Renewables in Other Countries
5.1. SSE has no direct experience of similar mechanism in other countries, as SSE only operates in the UK and Irish markets.
24 November 2011