F
flamefix
FIT payments - A cut too soon, a cut too Deep and consequences thereof:
Why a cut to FIT tariffs is necessary:
It is necessary because the FIT Tariff is there to encourage take up of Solar PV, offset the cost of investment by customers, the cost of training and equipping engineers and installers with skills, knowledge and the tools and equipment, marketing and start up costs, to provide incentive to establish a new industry, through a long term vehicle by which this investment and commitment would be repaid.
What is the correct level to CUT and the consequences?
Unfortunately the government threw the first spanner in the works by cutting early(http://www.decc.gov.uk/en/content/cms/m ... eview.aspx) the large scale FIT tariff for over 50kW, this severely crippled certain parts of the industry - the rights and wrongs of this can be debated elsewhere BUT the precedent was set.
DECC is now looking at possible EARLY CUTS to FIT prior to the planned April cut, and the depth of cuts could be severe.(BBC News - Social tenants to miss £120 solar savings)
This tariff was never set in stone but was expected to decline as the cost of equipment began to fall, reviewed annually, this allowed everyone involved to plan forward and have some certainty.
The original tariff was based on an install cost of £20-24,000 for 4kW it is now close to half that level (partly due to increased competition and lower profit margins but also falling component prices) to install the same depending on the make of product installed. Therefore we could expect a cut of 50% in the tariff through to 75% and this is the precedent(BBC News - UK solar panel subsidies slashed)
The level of these cuts will destroy the business model(http://www.telegraph.co.uk/finance/busi ... klash.html) of many firms and investors in the industry and radically alter the viability of Solar PV in the UK and more importantly affect consumer/ commercial investment in risk reward for spending precious capital for long term benefit.
The reason for the potential severity of the cut is twofold, take up is exceeding expectations, expectations brought about by CAPS on the FIT scheme introduced retrospectively by the new Government( Caps(http://www.guardian.co.uk/environment/2 ... ableenergy) which were never in the original scheme - Why did this happen? (quoted from Guardian) "Pressure from the Treasury to reduce all public spending is the most obvious answer, but according to some sources the situation was made worse by incompetence within Decc(http://www.guardian.co.uk/environment/2 ... iffs-solar), which would not comment on the 'why' beyond talking about the need to prevent excessive energy bill rises and reiterating that there had been no cap before October's spending review )" and because Costs have fallen considerably in the price of PV modules**.
This is a double edged sword however as costs of panels have fallen due primarily to the cost of modules from China. China has rapidly advanced in the past 3 years to become the largest producer of Solar panels, largely due to cost subsidies in the form of plant, manufacturing plant and loans from the Chinese government as well as home grown demand from domestic FIT. This results in subsidised production which is not the case for traditional companies in Japan, Europe and the USA and even the UK who produce/ assemble panels, although that is not to say subsidies are not available just not at the same level. Nor do subsidies work as in the case of Solyndra(http://www.sfexaminer.com/opinion/op-ed ... -subsidies)
I won't argue the rights and wrongs of subsidies(http://www.chinadialogue.net/article/sh ... le/en/4232), my understanding is the european /UK model is to subsidise the installation to drive demand and Chinese model is to subsidise the production, however it is clear who benefits from both subsidy approaches when operating in both markets, China.
Where the the costs of modules are low due to possible **price dumping(http://www.cleanbiz.asia/story/end-sola ... ve-tariffs) we need to be sure that FIT isn't reduced, through market manipulation of the true cost of sustainable and environmentally considered production(http://www.chinamining.org/News/2011-09 ... 49850.html) to the detriment of both consumer and producer(http://www.china.org.cn/opinion/2011-10 ... 570106.htm).
Currently cuts to the FIT, due to falling prices, will benefit only the producers of subsidised panels and the cheapest product. It will not help to build a renewables industry in the UK or Europe that is sustainable.
It kills off choice and innovation, product development and research and it will force consumers and installers to fit the cheapest product. If the FIT is to provide a return, it needs to be attractive enough that it is worthwhile for the individual/company to take their money from the bank and put it on the roof in the form of Solar PV.
Lets face it, we all want to be green/ CO2 neutral and the majority will do our part where we can a) afford to and b) the incentive is there.
There will always be those that refuse to participate and those that do so out of belief and conscience and pioneer an industry through belief, but for growth it needs the masses to take it up and FIT is the tool used to do that.
Take an example mid priced 4kW array on a simple south facing bungalow no issues installed today for a nominal £12,000 an average rate of yearly production of 3500kW = £1515.50/year
Current FIT results in an 8 year pay back
If the FIT is cut by 50% the return is 16 years
If the FIT is cut by 75% the return is then 31 years
The answer to a 50% - 75% cut is to FIT would be to fit the cheapest product available irrespective of anything else. Perhaps then 4kW is available at £9000
Current FIT pay back is 6 years.
50% of FIT = 12 years
75% of FIT = 23 years
An alternative proposal:
that the FIT tariff is cut by 25%
and
that the FIT tariff is paid at different tiers based on the investment return to the UK/EU
@100% FIT For product designed and built in the UK/EU
@75% of FIT For product assembled in the UK/EU or owned and designed by a UK/EU company but produced overseas or has substantial commitments in the UK/EU economy or wholly foreign domiciled that meets internationally agreed standards for Environmental and socially responsible production(http://www.prnewswire.com/news-releases ... 07014.html).
@30% of FIT For product designed, built or assembled or non UK/EU head quartered outside the EU
The information to support this can be gathered as part of the MCS approval process and based on the makeup/origin of the panels used and one of two other items, the inverter or the mounting system.
This could be considered protectionist but if the policy of the EU is to develop a European renewables industry as it is in the UK then because it is our taxed money ( FIT is funded by a Tax [called a levy] (http://www.decc.gov.uk/en/content/cms/e ... _levy.aspx) on all our energy bills ) then it should be for the benefit of promoting a renewables industry here UK/EU, not abroad, particularly if that industry is already subsidised elsewhere(http://uk.ibtimes.com/articles/20111011 ... sidies.htm). However if the FIT is fairly tiered then it should be neutral and create an even playing field.
FIT should be a development tool and how that tool is applied affects our renewables industry development and Consumer choice; it needs to be applied fairly. We need to be protective of this but not protectionist. Protectionism of this sort (http://www.nytimes.com/2011/10/21/busin ... olarenergy) will be unlikely to succeed but subsidies do have consequences (http://www.cleanbiz.asia/story/us-solar ... -subsidies) even if they were unintended.
By applying a tiered FIT scheme we allow price competition to continue to grow because, as prices continue to fall and energy prices rise the blurring of distinction between the fully funded FIT products and part funded FIT products should decrease together and FIT can fall fairly supporting and (protecting) all manufacturers and installers but most importantly CHOICE for the consumer.
Why a cut to FIT tariffs is necessary:
It is necessary because the FIT Tariff is there to encourage take up of Solar PV, offset the cost of investment by customers, the cost of training and equipping engineers and installers with skills, knowledge and the tools and equipment, marketing and start up costs, to provide incentive to establish a new industry, through a long term vehicle by which this investment and commitment would be repaid.
What is the correct level to CUT and the consequences?
Unfortunately the government threw the first spanner in the works by cutting early(http://www.decc.gov.uk/en/content/cms/m ... eview.aspx) the large scale FIT tariff for over 50kW, this severely crippled certain parts of the industry - the rights and wrongs of this can be debated elsewhere BUT the precedent was set.
DECC is now looking at possible EARLY CUTS to FIT prior to the planned April cut, and the depth of cuts could be severe.(BBC News - Social tenants to miss £120 solar savings)
This tariff was never set in stone but was expected to decline as the cost of equipment began to fall, reviewed annually, this allowed everyone involved to plan forward and have some certainty.
The original tariff was based on an install cost of £20-24,000 for 4kW it is now close to half that level (partly due to increased competition and lower profit margins but also falling component prices) to install the same depending on the make of product installed. Therefore we could expect a cut of 50% in the tariff through to 75% and this is the precedent(BBC News - UK solar panel subsidies slashed)
The level of these cuts will destroy the business model(http://www.telegraph.co.uk/finance/busi ... klash.html) of many firms and investors in the industry and radically alter the viability of Solar PV in the UK and more importantly affect consumer/ commercial investment in risk reward for spending precious capital for long term benefit.
The reason for the potential severity of the cut is twofold, take up is exceeding expectations, expectations brought about by CAPS on the FIT scheme introduced retrospectively by the new Government( Caps(http://www.guardian.co.uk/environment/2 ... ableenergy) which were never in the original scheme - Why did this happen? (quoted from Guardian) "Pressure from the Treasury to reduce all public spending is the most obvious answer, but according to some sources the situation was made worse by incompetence within Decc(http://www.guardian.co.uk/environment/2 ... iffs-solar), which would not comment on the 'why' beyond talking about the need to prevent excessive energy bill rises and reiterating that there had been no cap before October's spending review )" and because Costs have fallen considerably in the price of PV modules**.
This is a double edged sword however as costs of panels have fallen due primarily to the cost of modules from China. China has rapidly advanced in the past 3 years to become the largest producer of Solar panels, largely due to cost subsidies in the form of plant, manufacturing plant and loans from the Chinese government as well as home grown demand from domestic FIT. This results in subsidised production which is not the case for traditional companies in Japan, Europe and the USA and even the UK who produce/ assemble panels, although that is not to say subsidies are not available just not at the same level. Nor do subsidies work as in the case of Solyndra(http://www.sfexaminer.com/opinion/op-ed ... -subsidies)
I won't argue the rights and wrongs of subsidies(http://www.chinadialogue.net/article/sh ... le/en/4232), my understanding is the european /UK model is to subsidise the installation to drive demand and Chinese model is to subsidise the production, however it is clear who benefits from both subsidy approaches when operating in both markets, China.
Where the the costs of modules are low due to possible **price dumping(http://www.cleanbiz.asia/story/end-sola ... ve-tariffs) we need to be sure that FIT isn't reduced, through market manipulation of the true cost of sustainable and environmentally considered production(http://www.chinamining.org/News/2011-09 ... 49850.html) to the detriment of both consumer and producer(http://www.china.org.cn/opinion/2011-10 ... 570106.htm).
Currently cuts to the FIT, due to falling prices, will benefit only the producers of subsidised panels and the cheapest product. It will not help to build a renewables industry in the UK or Europe that is sustainable.
It kills off choice and innovation, product development and research and it will force consumers and installers to fit the cheapest product. If the FIT is to provide a return, it needs to be attractive enough that it is worthwhile for the individual/company to take their money from the bank and put it on the roof in the form of Solar PV.
Lets face it, we all want to be green/ CO2 neutral and the majority will do our part where we can a) afford to and b) the incentive is there.
There will always be those that refuse to participate and those that do so out of belief and conscience and pioneer an industry through belief, but for growth it needs the masses to take it up and FIT is the tool used to do that.
Take an example mid priced 4kW array on a simple south facing bungalow no issues installed today for a nominal £12,000 an average rate of yearly production of 3500kW = £1515.50/year
Current FIT results in an 8 year pay back
If the FIT is cut by 50% the return is 16 years
If the FIT is cut by 75% the return is then 31 years
The answer to a 50% - 75% cut is to FIT would be to fit the cheapest product available irrespective of anything else. Perhaps then 4kW is available at £9000
Current FIT pay back is 6 years.
50% of FIT = 12 years
75% of FIT = 23 years
An alternative proposal:
that the FIT tariff is cut by 25%
and
that the FIT tariff is paid at different tiers based on the investment return to the UK/EU
@100% FIT For product designed and built in the UK/EU
@75% of FIT For product assembled in the UK/EU or owned and designed by a UK/EU company but produced overseas or has substantial commitments in the UK/EU economy or wholly foreign domiciled that meets internationally agreed standards for Environmental and socially responsible production(http://www.prnewswire.com/news-releases ... 07014.html).
@30% of FIT For product designed, built or assembled or non UK/EU head quartered outside the EU
The information to support this can be gathered as part of the MCS approval process and based on the makeup/origin of the panels used and one of two other items, the inverter or the mounting system.
This could be considered protectionist but if the policy of the EU is to develop a European renewables industry as it is in the UK then because it is our taxed money ( FIT is funded by a Tax [called a levy] (http://www.decc.gov.uk/en/content/cms/e ... _levy.aspx) on all our energy bills ) then it should be for the benefit of promoting a renewables industry here UK/EU, not abroad, particularly if that industry is already subsidised elsewhere(http://uk.ibtimes.com/articles/20111011 ... sidies.htm). However if the FIT is fairly tiered then it should be neutral and create an even playing field.
FIT should be a development tool and how that tool is applied affects our renewables industry development and Consumer choice; it needs to be applied fairly. We need to be protective of this but not protectionist. Protectionism of this sort (http://www.nytimes.com/2011/10/21/busin ... olarenergy) will be unlikely to succeed but subsidies do have consequences (http://www.cleanbiz.asia/story/us-solar ... -subsidies) even if they were unintended.
By applying a tiered FIT scheme we allow price competition to continue to grow because, as prices continue to fall and energy prices rise the blurring of distinction between the fully funded FIT products and part funded FIT products should decrease together and FIT can fall fairly supporting and (protecting) all manufacturers and installers but most importantly CHOICE for the consumer.
