Is the Feed-in-Tariff still fit for purpose?
The feed-in tariff has done a great job in helping to kick-start the UK’s solar PV industry. Before the scheme was introduced in April 2010, the UK market was 8MWp per year: we now have over 870,000 solar powered buildings with some 3.5GW of rooftop solar installed. What a great success!
But, the solar industry has been a victim of this success. The government has been taken by surprise by the popularity of solar and by the speed at which it can be deployed. The recent vandalism meted out by this Tory government intent on “cutting the green crap” – from large ground-mounted solar farms, to the private domestic market to the commercial rooftop sector (just where did Amber Rudd put Greg Barker’s rocket boosters?) – means we will have to think about life without subsidy a little earlier than expected.
For the last 5 years, the rationale for installing solar has been to maximize the revenue from a subsidy, and so the decision to install a rooftop solar system has been a financial one and not an energy one. This will have to change. With the current generation tariff for a 250kW system at 1.99p/kWh, and commercial retail electricity tariffs typically between 10p/kWh and 12p/kWh, the value of “displaced” electricity is a worth between 5 and 6 times more than the generation tariff: the revenues from the generation tariff will become increasingly irrelevant. In the future, rooftop solar systems will be sized to maximise on-site energy use rather than fitting as many panels as possible on a roof to maximise income from a subsidy.
Even today, a 250kW system installed for £900/kWp, on a building where 100% of the electricity is used on site, an IRR of 7% can be achieved with no feed-in-tariff; the same calculation for a 50kW system installed for £1000/kWp gives an IRR of 5.0%. Both calculations are based on conservative assumptions for yields, RPI and electricity price inflation as well as allowing for module degradation and O&M. In the light of this, perhaps it is time to reconsider the need for a generation tariff for larger systems?
So how about a different scenario?
Set the generation tariff to zero and remove the deployment caps for systems larger than 50kW. Remove the requirement for an EPC Level D and for a Certificate of Lawful Development from the Local Planning authority. Keep the export tariff at its current rate to provide compensation for sites where there is little consumption at weekends or during school holidays. And allow businesses to write off the capital value of the system against tax in the first year.
This would allow us to continue our journey towards subsidy free solar…and be free of the continued meddling and interference by politicians.
Now, I am not naïve enough to think it would be easy in the short term and there would be casualties along the way, but we would be free to run our businesses in a stable environment without continually having to look over our shoulders and await the next kicking from a government which completely fails to understand solar.
Jonathan Bates, Photon Energy's Managing Director, writes for Inside Clean Energy, July 2016.