Attendees at the Solar Praxis UK conference (May 12-13 in London) got a harsh dose of reality, with experts questioning the UK’s FiT policy changes and the future for renewable energy here.
by Paula Mints, Navigant Consulting
May 16, 2011 – Attendees at the Solar Praxis UK conference (May 12-13 in London) got a harsh dose of reality during the opening sessions. The regal Grand Connaught Rooms in London was well attended at over 200 people, all looking for ways to turn recent industry bad news into future opportunities.
According to first-day speakers, finding opportunities may prove difficult. Here are the facts: the UK’s FiT shot out of the gate like an over-eager race horse, rapidly running into a government unprepared for fast growth and fearful of the market overheating. In response, the government recently cut the FiT rates significantly, while also designating systems >50kWp as large solar farms. Speaker Craig Jackson from South Yorkshire Housing Association succinctly explained with a picture of a 58kWp system on the roof of a homeless shelter: “this is not a solar farm.”
Alan Whitehead, chairman of PRASEG (Parliamentary Renewable and Sustainable Energy Group) and an MP, opened the conference with a clear and unambiguous statement about the UK government’s ambiguous support of PV and solar thermal technologies. In the early 2000s there was no UK policy support for solar, but a white paper in 2003 deemed solar PV possibly economically viable after 2020, and solar thermal marginal but mature. (It also favored large-scale over small-scale PV using a system similar to solar renewable trading certificates.) In 2005 the Energy Saving Trust disagreed with that 2003 white paper and began to think in terms of medium- and long-term (out to 2050) solar potential. This healthy rethinking of priorities was expanded in 2007 with the Climate Change and Sustainable Energy Act, which tackled specifics such as retrofitting also broaching the potential of PV as a significant electricity generator. There was more positive momentum in 2008 with the Code for Sustainable homes which included a goal of carbon neutrality in new buildings by 2016, followed by the renewable energy white paper in 2009, and Energy Act, that called for 5% energy generation by RE technologies (electricity and heat) by 2020.
So, when the UK FiT was implemented on April 1 2010, there was every reason to expect a successful and sustainable market. And in fact, 68MWp was installed (with much more in the queue) within months. But less than a year after the successful launch of the UK’s first FiT, the government underwent an emergency review, and to discourage domination of the tariff by utility-scale solar farms enacted significant cuts for systems >50kWp. This rapid turnaround has: a) introduced instability into the tariff market, b) investor insecurity, and c) left many fledgling solar businesses with worthless sales pipelines. The tariff will be revisited in 2012.
In the UK the FiT is defined as a tax forgone, so even if it is a levee it is still a tax. The FiT has also been included in an overall government spending limitation with a cap on the amount to be spent on it. Finally — as if this rapid and inexplicable turnaround is not enough to give the UK solar industry heart palpitations — the recent Climate Change White Paper reversed recent advances and retreated to the viewpoint held in the 2003 white paper, reasserting concerns that PV will not prove economically viable, and making this case based on a favorable forecast of natural gas prices.
In what was either an object lesson or bad timing, Whitehead was followed by Tobias Rothacher, German Trade and Investment (GTAI), whose concise overview of the history of the German PV incentive program illustrated exactly what can be accomplished with government commitment to renewables. During his presentation, Rothacher noted that Germany expects that renewable energy technologies will eventually be the major contributor to the country’s GDP. Germany’s FiT support does not come from the government budget, permitting is very easy (basically, one paper), cutting down on external costs. Some highlights from his presentation are as follows [updated 5/18 on revised energy, employment, and capacity numbers from Rothacher — ed.]:
- In 2010, ~17% of Germany’s energy came from renewable sources.
- Currently, ~107,800 people are employed in PV (~367,400 in renewable energy overall).
- Germany has shut eight of its oldest nuclear facilities (from a total of 17) and may accelerate building of natural gas.
- Germany will accelerate building of renewables, particularly offshore wind.
- Though there is no extra support of PV expected, there are no new limitations (over and above the degressions).
- The target of 51GWp by 2020 is firm.
- Cumulative PV capacity in Germany as of 2010 was ~17.2GWp, with 7.4GWp installed in 2010.
- Growth is still strong despite the degressions.
- In 2010, of the 249,845 installations, 35% were for systems <30kWp, 23% from systems 30-100kWp, and 19% >1MWp.
FiT changes show UK’s PV commitment…or lack of
The first official session of the conference (“PV and Solar Thermal, what are the opportunities now?”) brought together industry experts to discuss opportunities in the UK despite the changed FiT. Despite 2010 being a record year globally for solar, the experts agreed that the UK’s FiT changes made it extremely difficult to do business going forward.
Regulatory certainty is key to a healthy market, and the UK government has badly managed expectations in this regard, said Dave Sowden from the Micropower Council. Basically, if there is a subsidy the market will gravitate to it — and the reverse is also true, as the FiT for PV roofs killed the market for solar thermal, he noted. He accused the government of not doing its homework in setting up the FiT, and the models developed to forecast market behavior misforecasted the response, so the 50kWp limit “came out of the blue” knocking out many projects including schools. The UK needs to learn from Germany before the next FiT review, he asserted.
Philip Wolfe from Ownergy suggested that there was potential for the PV FiT and the solar thermal RHI to be transformative — unfortunately, before the FiT was a year old it was cut by 70%, which completely undermined investor confidence (a theme Sowden echoed). PV is likely to be the future primary energy source globally simply because of the universal availability of the resource, but the UK government just does not get solar and it is likely to miss the boat — “two-thirds of my business is large-scale solar and it has been cut off at the knees,” he said. For young persons starting out in the business, his advice is to emigrate.
Initially, the UK FiT was “a dream come true,” but in less than a year “we are back to the start-and-stop incentive paradigm,” said Howard Johns from the Solar Trade Association. The solar industry in the UK needs to present a unified force, he admonished — basically the government set up a scheme to encourage investment, and then slammed the door in the face of that investment. Judging by the Climate Change study, it is clear that the government does not think RE is viable, he said.
Jan Sisson from juwi Renewable Energies (a new subsidiary of the Germany firm) noted that when he first came to the UK he was focused on installations on agricultural lands. With the FiT changes, “we are rushing to get things installed before the deadline,” and will “try and wait it out.”
Nigel Cotton from the European Solar Thermal Industry Federation (ESTIF) pointed out how for solar thermal, small-scale is low-hanging fruit and the RHI (UK solar thermal incentive) is large-scale. This will be problematic, though, since incentive instability is more problematic.
Anxiety, adjustments for UK FiT
Day two of the Solar Praxis Solar Summit auspiciously fell on Friday the 13th. Attendees and speakers alike continued to address changes in the FiT along with the August 1 deadline for large systems to receive the old tariff, and most system integrators expressed anxiety over vanished pipelines along with the logistic nightmare of completing installations in the remaining three months. With the FiT changes coming so rapidly after program inception there has been little time to adjust, leaving the UK PV industry scrambling to develop new action plans.
In the morning session (“Designing through to Installation”), attempts to reset expectations continued. Several points were made about the importance of load determination, particularly in areas with significant snow, and (in this windy country) the importance of taking wind loads under serious consideration. During the second presentation on city-scale PV projects, Matthew Rhodes from Encraft offered three messages to attendees:
- Despite the depressing news there is still work in the UK;
- Distributed generation PV (on buildings) is different in terms of building considerations than large field installations; and
- Large projects are doable, but, these projects must be thought of in a different way.
Social housing in the UK is essentially affordable housing, low-rent housing that receives government subsidy. PV for social housing in the UK has significant potential — one of Encraft’s social housing projects takes up 705 blocks, with the potential of 2.1MWp of PV — so these significant projects potentially fall under the large project designation that is currently causing consternation. A potential workaround would be to treat each system as separate and distinct, thus creating many smaller projects that are eligible for the FiT.
When working with smaller projects the focus must be on reducing costs wherever possible. Rhodes pointed out that he is working with approximately 20 social landlords and every project is different. One significant challenge to PV on social housing is getting buy-in from the people living in the units. The consequences for not doing so include vandalism.
Shifting the discussion to large-scale roof arrays, Kerry Burns from Solar Sense. Talked about why architects must work with the PV industry to understand how solar should be deployed before designing systems that may not be appropriate in terms of cost and electricity generation. (The need for panels to face south is little understood in the UK, for example.) There also are various concerns that come with installing on barns, he explained, e.g. the structural integrity of the barn and the dangers of installing at extreme heights. Rodents enjoy eating system cables, a major cause of system failure on farm buildings, he added.
An afternoon session on bankability brought home the point that banks, and investors, will want their money back, along with several questions from the attendees about regulatory risk. According to banker Verena Kempe, WestLB, when governments change the rules it inserts new risk and affects all markets. In terms of the once-reliable FiT, several countries have inserted unexpected risk into what was thought to be a relatively stable investment.
The UK Solar Summit was held during time of significant uncertainty and upheaval and newness of the UK tariff changes — so answers to serious questions were simply not forthcoming: What will we do now? How do we continue doing business? And is this the last change until 2012, and what happens then? Attendees and presenters alike will continue to struggle with the implications for this new market. Nevertheless, it is an absolute necessity to continue working publically through the changes to the FiT, so that methods of survival can be developed and put into practice to get the industry through to the official 2012 review.