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04 May 2011 04:05:02

Think again if you think UK solar is dead

The UK Government's announcement of an early review of the FIT last week sent many banks, investment houses, solar companies and entrepreneurs running for the hills but, if you look at the underlying information and the facts, is there really cause for widespread panic?

The facts
• The UK Feed-in Tariff is paid for by the major energy companies, not by the government.
• Major energy companies have an agreement with the government that they will recover FITs through energy bills to all customers by increasing the price slightly
• The headline inflation rate of 4% announced yesterday is driven in part by recent energy price rises along with fuel
• This is a "review" not a final policy change

The analysis
• Changing the FIT does not impact on government spending and, therefore, is not related to reducing the government deficit.
• The large energy companies have been noticeable in their absence in commenting on FIT review. Traditionally, energy companies have been used either as a provider of tax (additional special tax levies) or as a tax collector, for example the Climate Change Levy applied to all non-domestic energy bills and now FIT recovery. The energy industry dislikes this position allied to which if they can reduce the FIT paid out, but maintain the recovered amount from all customers, they stand to benefit commercially.
• In addition, the energy companies have large customers who are considering investing in solar PV, for example Sainsbury's (50kW+), Kings Cross Station, so have a stake in the success of these customers. Whilst the Government is encouraging the public sector like Cornwall County Council (with large scale ground-based schemes up to 5MW output, the current maximum to qualify for FITs) to invest in
renewables. Without this investment the Government may well fail to meet its renewable targets as early as 2020.

• The Government, in setting energy regulations, has traditionally consulted with the industry and wider
stakeholders and in fact it did so with the introduction of the FIT. The energy companies are well versed and practised in regulation and therefore will undoubtedly already have been lobbying hard for this review (and one might even dare to suggest promoted it). It therefore comes as no surprise that the Government has been dropping hints to the wider market as early as the energy ministers comments in
the Energy Debate a couple of months ago as a means of prompting wider views. It is also not so strange that it is doing this almost as an agent provocateur, which is one of its often used tactics (look at The Code for Sustainable Homes – Zero Carbon Homes).

The possible outcomes
• The energy companies need to support investment in renewables, as long as they can recover the cost (or a bit more).
• The Government cannot disincentivise renewable energy investment and knows the large commercial organisations and public sector buildings will contribute significantly to its targets.
• The Government will want an easy to implement solution and not prejudice its introduction in June of a Renewable Heat Incentive (RHI) – although it intends funding the £860m itself?
• The Government will reduce the maximum size of a solar PV installation from 5MW to 200kW to 300kW. However, they might make some special exemptions on brownfield sites, where there is economic benefit to the community. This enables most commercial and public sector roofs to benefit from FITs, but rules out the pure large scale generation.

• Of course, one might argue as a result of this the responsibility for generation (5MW and above) from renewables therefore falls back again almost entirely on the major energy companies. In this scenario they would probably favour large scale such as wind, as that plays to their strengths of
engineering and implementation of complex generating solutions, which many new entrants and small scale investors would not even contemplate.

• The impact of a review is unlikely to affect more than 5% of solar PV opportunities and with a market growth forecast at £500m p.a. by 2014 (which was estimated by EPA before ground-mounted large solar PV arrays were considered) from its current £10m p.a., there is massive opportunity in the UK

Final word
While I agree Huhne's statement last week increased the uncertainty within the market, it's vital to not lose sight of that fact that we need to prepare ourselves for a review of and not the end of large PV arrays.

The PV and renewables industry needs to start immediate action – lobby the government collectively and aggressively to counter what the big utilities have been doing!

The final word—If I was a betting man (I am), I would put money (I have) on the fact the government will make something circa 250kW the upper limit and will put a silver bullet through ground-mounted solar.

About Capital Green and the author
Capital Green Talent specialises in renewable energy and cleantech executive search and recruiting. Three consultants headed by Regan George specialise in solar recruitment across Europe and Asia. If you would like more information about their solar recruiting solutions, this article, or anything else, please don't hesitate to contact us.

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