CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1605-i

House of commons

oral EVIDENCE

TAKEN BEFORE THE

Energy & Climate Change and Environmental AUdit CommitteeS

Solar power feed-in tariffs

Tuesday 29 November 2011

Daniel Green, Howard Johns, Peter Capener and Jeremy Leggett

Gregory Barker MP, Moira Wallace OBE and Simon Virley

Evidence heard in Public Questions 1 - 146

USE OF THE TRANSCRIPT

1.	This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
2.	The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Energy & Climate Change and Environmental Audit Committee

on Tuesday 29 November 2011

Members present:

Tim Yeo (Chair)

Peter Aldous

Martin Caton

Katy Clark

Barry Gardiner

Zac Goldsmith

Simon Kirby

Mark Lazarowicz

Dr Phillip Lee

Caroline Lucas

Sheryll Murray

Caroline Nokes

Albert Owen

John Robertson

Laura Sandys

Sir Robert Smith

Mr Mark Spencer

Joan Walley

Dr Alan Whitehead

Simon Wright

________________

Examination of Witnesses

Witnesses: Daniel Green, Chief Executive Officer, HomeSun, Howard Johns, Chairman, Solar Trade Association, Peter Capener, Chair, Bath and West Community Energy, and Jeremy Leggett, Chairman, Solarcentury, gave evidence.

Q1 Chair: Good afternoon and welcome to this joint meeting between the Environmental Audit Committee and the Energy and Climate Change Committee. We have quite a lot of ground we want to cover, and you have probably quite a lot you want to say to us, so if you are agreeable we will skip any kind of formal introductions. We know who you are and who you represent and I think you know who we are. This is a subject which has generated a great deal of heat in the last few weeks and rather less light. I wonder if I could ask each of you, to begin with, whether, in your view, the rates of feed-in tariffs that were operating until now were sustainable?

Howard Johns: Perhaps to kick off, Howard Johns, Chairman of the Solar Trade Association. We asked for rates. It was suggested that rates could be brought down six months ago, an assertion that Chris Huhne in the recent debate denied. We are happy for it to be brought down, but not in a knee-jerk way. We are after a sustainable industry that protects the 30,000 jobs that have been created, many of them in the last six months.1

Q2 Chair: Anybody else want to comment?

Daniel Green: Daniel Green here from HomeSun. Howard is absolutely right. I personally spoke to Chris Huhne myself, and we went into DECC ourselves in June and July and made proposals. This is one of the very few technologies where the industry itself asks for the subsidy to be cut. It is not a dream. Our aspiration and our business plans were based on not requiring any subsidy at all in four or five years’ time, which obviously is the ideal investment for a Government-where they can invest in an industry, see it grow, gradually remove the subsidy and then the industry can stand on its own two feet.

Jeremy Leggett: Jeremy Leggett, Solarcentury. Absolutely, our prices have come down 30% to 40%. Of course, we knew that there was a cut coming, hopefully of roughly the same sort of size, but, as the Committee must know, there are more than 40 Governments that have chosen the feed-in tariff as the market enablement process of choice around the world. Many of them have been doing it for a lot longer than us, of course; Germany for more than 10 years. So the lessons are there as to how effective this has been in creating one of the fastest growing industries in the world, and we have been playing catch-up with it here in the UK.

For me, the lessons are clear. You derogate the tariff down where it works; you do it smoothly; you do it, crucially, on a timetable that gives investors confidence. This is the thing that I think we are most puzzled about. Why have we been ambushed with this very rapid cut? It is the sort of thing you would do if you wanted to actively kill an industry. I think the Director General of the CBI made the most telling point on this the other day in a speech when he said, "It’s not about the thousands of jobs that we’re needlessly losing, for no net saving to the economy, because we know now that the tax and the VAT on the products is way higher than any saving". We may argue about the prices and have differences with DECC on that, but there is no net saving being made to UK plc or the British economy. Therefore, why has this been done so precipitately, in a way that maims an industry, kills many companies, creates thousands of job losses in core themes of supposed concern to the Government? You know, the big society-we will be hearing from the local communities that were gearing up to do this-and green industrial revolution as a way of countervailing the job losses that are happening because of this.

Q3 Chair: We are going a bit wide of the question here. The question was, were the rates sustainable? I think the answer is no, they were not. Is that what you are trying to say?

Jeremy Leggett: We knew they were going to come down, if that is what you are going to say, yes, but the 50% cut is excessive. The real killer, the bottom line, is the speed with which this has been done.

Q4 Chair: Okay. We will come back to that in a moment. Mr Johns, you said some months ago you were asking for-

Howard Johns: Six months ago, we published a report, A Revolution for Solar in the UK, talking about when we will get to grid parity. With the right support we would get there in the next four to five years, that is subsidy-free within the next four to five years. In that report, at the very start of it, we said, "We recommend you bring tariff rates down 25% now, because prices have fallen".2

Q5 Chair: So the period of delay before there was any reduction is a period in which the industry might be argued to have made excess profits through the benefit of the feed-in tariff?

Howard Johns: Unlikely when you are a growing small business. 3,000 new companies have been set up in the last 18 months. I think excess profits are highly unlikely in this scenario.3

Chair: I was just trying to tease out what your answer meant. If you said, "Six months ago there should have been a cut of 25% in the tariff," does that not imply-

Q6 Joan Walley: Chair, could I just come in and say, isn’t this the point that you were making about the phased increase and the upfront information in order that you could plan for that?

Howard Johns: Very much so. This is the third review this year for this technology and we are faced with a fourth one about to be published. I mean, how anyone can run a business in that environment and invest in that environment is simply ludicrous.

Q7 Sir Robert Smith: In your report, when did you want the cut of 25% to start?

Howard Johns: We said it could happen immediately.4

Q8 Sir Robert Smith: Not phased?

Howard Johns: But obviously we are not facing a cut of 25%. We are facing a cut in two weeks’ time of 52%, along with a whole load of other measures.

Q9 Sir Robert Smith: But you think you could have sustained that 25% cut six months ago?

Howard Johns: Yes.

Q10 Chair: Did you want to come in, Peter?

Peter Capener: I do not have much to add on that point, other than saying, yes, the current rates are unsustainable, but the speed and depth with which the cut has been made undermines huge numbers of community projects. The question is, are the proposed rates sustainable in terms of the community model that we and many others are looking at? The answer is no to that, too.

Daniel Green: Chairman, I think that the Government wants to suggest that they are operating a "Do nothing, then panic" policy and I think perhaps, when you see the Minister later, you will see that they will say they did nothing and now they would like to panic. We, as an industry, have been working or trying to work with the Department, trying to get a phased landing so that we can plan to hit the budget. Unfortunately, whatever we presented hasn’t taken place. As you know, investment likes, and any business likes some clarity and certainty, and the one thing that it doesn’t like is shocks. Now it has had no certainty and a shock. For a short while profits have grown, but now that businesses have to close-that, perhaps, was not in any of our business plans.

Q11 Caroline Lucas: The Government argues that through the current consultation it has acted fast to ensure that solar does not consume the entire budget for the feed-in tariff scheme. You have argued eloquently that you made the case six months ago to the Government that they should have seen this coming. If they hadn’t heard you or if they hadn’t seen that report, should they still have known that the take-up of solar was happening far faster than they had expected to see?

Howard Johns: There was a spreadsheet that went in, from what we understand, to the budget-setting process, that was never seen by anyone in industry, that forecast delivery of PV over this Budget period. No one ever saw it. It was completely and utterly unrealistic and yet we ended up with a Budget set on that basis. So we are in a position of being beholden to a Budget that was never, ever discussed, as it were, and relates to something that was completely unrealistic when you consider what has happened in solar markets around the world.

Q12 Caroline Lucas: When was that spreadsheet around?

Howard Johns: Apparently around the time of the spending review, just prior to that.5

Q13 Caroline Lucas: How engaged do you say the Government has been in general, and DECC in particular, with the solar industry? I mean, are you in close contact with one another? Would they know what was happening in your industry?

Howard Johns: Well, there have been two ministerial round table meetings. The first one was around the fast-track review, when we were ushered into a room and told, "Go into groups, because you have 15 minutes to work out what we do. Do we kill off field scale or do we kill the whole industry?" Literally, there have been two meetings with the Ministers. The STA has written and requested meetings with Chris Huhne and we have not had one.

Daniel Green: We as an industry have solutions for the Government and we have solutions for them to absolutely hit their budget. On visibility, we have been all prepared to talk at length and to look at ways in which any sort of haziness can be removed. Bear in mind that the Government itself runs the register for the certification and so it is their own database that can see the MCS certification. Therefore, they should have firstly engaged with industry to find ways for more clarity and, secondly, it is their own database that they are looking at. So in answer to your question, I think there is a lot that could have been done and should be done going forward in terms of making sure that the budget hits the runway.

Q14 John Robertson: You have maybe answered this, but some clarification for me. Am I right in assuming here that six months ago the price had been reduced by roughly 25%? Is that correct? Okay, could you tell me, six months on, how much of it has been reduced by today’s date?

Daniel Green: We think that a 30% cut-you see, there are two elements-

Q15 John Robertson: No, hang on a second. I understand what you want. What you would like is one thing, but on what the actual figures are, I want to know exactly how much there has been a reduction in your costs to date.

Howard Johns: First, it depends what sector you are working in, it depends what your business model is. If you are a community group, it is going to be slightly different to if you are someone who is running a PV-for-free scheme, and it is different if you are just selling straight systems.

Q16 John Robertson: But would it be fair to say it would be a lot less or a lot more than the 25%?

Howard Johns: Well, it is certainly not 55%, put it that way.

John Robertson: Okay. No, no, I appreciate that. I mean, I am trying to be sympathetic towards you, but I think that it is important that we get the right answers.

Howard Johns: I think-

Q17 John Robertson: Hang on a second. You approached the Government six months ago and told them, "Look, you will need to reduce your subsidy". Is that right?

Howard Johns: We went to them and said, "Look, here is the path for grid parity for PV in the UK. If we have a one gigawatt market a year, it is 2014-15 potentially and, to get there, we think you can reduce the rates of the tariff at this point, and the market will cope with it."6

Q18 John Robertson: Okay. You have been back subsequently to tell them, you haven’t done anything yet?

Howard Johns: As we haven’t even been granted a meeting, it is unlikely that we would be able to get that message across.7

Q19 John Robertson: So you have asked for meetings but the Government has refused to give you them?

Howard Johns: We have not had a meeting with Chris Huhne, correct.

John Robertson: That is not what I asked.

Howard Johns: These things have been handled with officials.8

Q20 John Robertson: Have you requested a meeting?

Daniel Green: Sorry, John, in answer to your question, the answer is yes, HomeSun at least have met regularly with the Government and have put in proposals to remain within the cap and have a phased degression, and that is why we-I can’t talk for everybody, but ourselves-have been most shocked by what has happened. Everything that we have suggested has been ignored.

Q21 John Robertson: Okay. One short question. The 25% six months, did you pass it on to the consumer?

Howard Johns: Of course, yes. To clarify a point, we have written to the Minister requesting meetings. We have had meetings with Greg Barker, and the 25% was in our formal response to the consultation document-the consultation earlier in the year, the first one. So we have fed this back in to Government on a number of different levels.

Q22 John Robertson: Yes. I may be wrong, but you have been making 25% extra profit for six months, is that right?

Howard Johns: No, because the market has moved on. Prices have come down across the board.

Daniel Green: Sorry, can I just take this question? Just very simply, what happens is this, one invests in an industry. We as a company-

John Robertson: No, no, I appreciate that.

Daniel Green: -have invested £23 million. That money is obviously at risk. Our company, the way that we operate, gives it to the consumer for nothing. So it is not a question of making it less than nothing, and we invest because we know that, over the cycle, between when we start our business plan and April, which is when the tariff comes down, there will be a period at the beginning where it will not be viable, but there will be a period at the end where it potentially could be viable, and that is a balance. Then in April, we would expect the tariff to be reset again, and the business has clarity. In this case, what has happened is that we have made our investment. We have taken the Government and the Coalition’s promises all the way down the line. I would like to read you a quote from Greg Barker, who I know you are seeing shortly. This was during the week of 14 February in a written response to a parliamentary question and he says, "The Government fully supports rent-a-roof models, third-party ownership, financial packages especially in the context of opening up the benefits of this to those living in social housing." That is why we have been particularly shocked that Chris Huhne said, the day after the announcement of the review, in Parliament, to the Select Committee, that, "The people that were benefiting, which we do not like, were the rent-a-roof schemes, which were going to the fuel-poor households and giving them the electricity".

Jeremy Leggett: Could I respond quickly from a different type of solar company’s perspective? I suspect the undercurrent of your question is this notion that there has been a gold rush; that people have been profiteering. My own company, Solarcentury, has been operating in the British market for 12 years now. In only two of those years have we been profitable. We have invested £28 million in total, mostly in this country, as a result of which we manufacture in South Wales, we have employed a large number of young people to work in this industry, and the accounts, including from the first six months of the feed-in tariff, you can see in Companies House, sir.

If you ask our investors whether they are pleased with that progress, I will tell you the answer would not be positive. Somehow it feels very strange to be sitting here as though we are committing some sort of almost crime in seeking profitability. Let me tell the Committee an illustration of how shocked and amazed I feel about this. To be fair to the Government, they have had more contact, at least from where I’m sitting, than the previous Government did. I have had personal conversations with Ministers-I can’t speak for others-so they have been open to this and I had thought they were supportive.

I went to a breakfast in No. 10 with the Prime Minister and the Chancellor with 18 other founders of fast-growing SMEs where we were told, and I paraphrase but paraphrase accurately and fairly, "People like you are the flipside of austerity. We need you to succeed and employ people so that we can countervail the job losses that are happening". I was able to talk about the feed-in tariff and the effectiveness of the feed-in tariff then with the Prime Minister and the Chancellor. So imagine our shock.

I went on the trade delegation to India with eight Ministers and 28 captains of industry-or rather 27 captains of industry and me-and there I saw the Government exposed to how keen the Indians are to catch up with the Chinese on solar. This is going to be a vast market. There are big stakes for UK plc, and now they have launched what can only be interpreted as a lethal attack, for whatever combination of reasons, on the underpinnings of this embryonic British industry, creating thousands of jobs, as they have in the 18 months, many of which are now going to have to be lost.

Q23 Chair: Well, accepting all that, nevertheless the rate of growth of installations has been explosive in the last 18 months, hasn’t it?

Jeremy Leggett: Sir, this year, if we had completed what the Government said in their forecast of what would happen had the tariff remained in place, the British solar market would have been smaller than Belgium’s last year. The notion that this is a gold rush and we are racing ahead of the rest of the world is the stuff of the Daily Mail.

Chair: I think just arithmetically, an industry where the number of installations doubles in three months is experiencing exceptional rates of growth.

Q24 Barry Gardiner: Mr Leggett, you have very eloquently outlined the impact of regulatory uncertainty on your industry. Perhaps some of your colleagues might wish to say something about the impact that that will have on investor confidence in the future, as far as you see it.

Jeremy Leggett: I had lunch with one of the few investors in this area yesterday. I had probably better not say who-I don’t have his permission so to do-but this is someone who has invested many, many millions in renewables and wants to continue, with one of the major banks in this country. He echoed what the Director General of the CBI said. He is an active investor, not just in solar but in wind and biomass and everything else, and he knows what we have to do with the £200 billion that we have to invest in electricity infrastructure, whatever we do. I am sure this can be checked out. I will write to him and ask if he minds having his opinion on record. He says, "This isn’t about solar. This isn’t about renewables. This is undermining the confidence of the investment community to invest the £200 billion that we need to keep the lights on in this country".

Q25 Barry Gardiner: Yes, I absolutely accept that argument. What I want to now try and elicit from you is this. In the period since the announcement was made that the Government were moving the goalposts to 12 December, have the number of requests for installation, as it were, to beat that deadline exceeded the profile that you had of installations? Have they gone down or have they stayed the same?

Daniel Green: Could I take that question? It reminds me a little-

Barry Gardiner: With you, Mr Green, is it not the case that because you are in a particular sector, which is what the Chairman I think referred to as the rent-a-roof-

Daniel Green: Yes.

Barry Gardiner: -It might be different for the rest of them?

Jeremy Leggett: It has gone down for all of us, but-

Daniel Green: Yes. The example that I would give is that Concorde wasn’t viable for quite a while and in the end it was shut down, but the last flight was completely overbooked and one could then, if one wanted to, extrapolate and say, "Well, if the last flight was overbooked, perhaps it will be overbooked ongoing for ever." In our case, what has happened is twofold. In our case-I mean the whole industry-in order to get the prices which the Chairman referred to, one has to order panels from the far east. They take at least 35 days to deliver. The ordering cycle is 12 weeks. So suddenly we are given six weeks to try and deal with our commitments that we have made. That is part one.

Part two is the consumer themselves. The consumer themselves had a plan to be installed over a long period of time, when it suited them. Not everybody would like to be installed, for example, in December. It is a whole day usually and lots of scaffolds and those things. Therefore, suddenly everybody was forced into a very small window. What was particularly depressing, I suppose, to hear and surprising-and I am sure you will hear it again when the Minister comes to speak to you-is that then that will be extrapolated to give you the number of £80 and £300-

Q26 Barry Gardiner: Mr Green, I want to short-circuit you, because I am conscious there are many others on the Committee, but I take the point, and it is not a trick question. What I was trying to elicit from you was what I think you have just said, that a lot of people then tried to cram into a very small space and in fact, therefore, you had to not only use whatever stockpiles you had, but you had to order much more and then install it.

Daniel Green: We believe that, yes.

Q27 Barry Gardiner: Can I, therefore, ask you the question I want to ask you?

Daniel Green: Yes.

Barry Gardiner: Do you believe then that the loss in investor confidence has been worth the saving that has been achieved over whether they had extended the period to the original date in April, rather than rushing it forward? Given that people have tried to compress their orders into this smaller space of time, the projected saving that was accounted for by the department has probably not been achieved, has it?

Howard Johns: The projected saving was only £10 million anyway. Let us get it right, it wasn’t-

Barry Gardiner: Absolutely.

Daniel Green: I have a letter here, for example, from one of the-again, echoing what Jeremy said, unfortunately it has "confidential" written all over it, but from one of the-

Chair: We will keep it to ourselves then.

Daniel Green: Okay, lovely. It is from one of the largest renewables investing companies and was sent to me on 9 November, shortly after the Government made their announcement about their consultation. I will read it to you. It says, "Our valuation reflects a change in the regulatory landscape for renewable technologies in the UK. Following the FiTS review announced on 31 October, even in respect of installed assets, nervousness in the lending markets-" I won’t bore you with the detail, but basically it represents a 5% extra cost in capital. The £200 billion which Jeremy referred to, that would be a £10 billion extra cost to the UK purse to hit its renewable obligation targets, which we are legally bound to.

The "own goal" which was referred to by the CBI is therefore as follows. The cost of capital has gone up. That is going to come out of our pockets. We have lost the revenue. This is £1.1 billion over four years of revenue, of NI, of VAT, of tax. That has been lost. We have lost an industry that we of course in the UK, as you know, would have been very shortly-it is a nascent industry, but we would have been leaders in the world, and we have lost all of this for 60 pence, 80 pence. So the question is this. Were we saving the 80 pence? The answer is, if I refer you to the Sunday Times, which many of you will have seen, that there has been no guarantee from the Department that that 80 pence is going to come back to anybody. Rather, their profits will continue to rise. You have lost everything on the other side of the balance sheet, but you have gained nothing on this side of the balance sheet. A huge own goal.

Q28 Chair: We need to move on, so I won’t ask for a verbal answer to this question, but you have made some statements just in the last minute that I think do need some scrutiny. You say that costs have risen by 5%. That means something that was going to cost 5% a year is going to cost 10% a year in future; you said 5% of the £200 billion. So I would like you to just write to us and explain how you support that figure.

Daniel Green: 5% cost of capital, sorry.

Chair: Yes, okay, but are you saying 5% per annum?

Daniel Green: The cost of us being able to borrow money has risen by 5%, to the extent that-

Chair: Per annum?

Daniel Green: -financial institutions would even want to now be involved in our sector.

Q29 Chair: So investors are saying they would previously have invested with a 5% return and they now require a 10% return?

Daniel Green: Correct, either a premium or no investment at all.

Chair: I just want to close that point off. The second point was you referred to the nascent industry. Perhaps you could also write and tell us how many of the jobs supported by the industry so far were located in the UK and how many were outside.

Q30 Zac Goldsmith: Just very, very quickly, I am just interested in knowing what timetable you had envisaged. So six months ago, you were calling for 25% cut. I think Jeremy or maybe Daniel has said already that you would have expected it to come down to the 21p or thereabouts at some point in the future. So that is a number that you are familiar with and comfortable with. When would the next cut have been and roughly when would the 21p have been met? When would you have expected that?

Daniel Green: Our plan, Zac, was always that whatever change was to be made was to be made in April. There is a precedent for a fast-track review. Bear in mind that we, the industry, have been made lots of promises, but at least we knew if there was to be a fast-track review and the Coalition did the reserve the right to do that, that there was a precedent for it, which happened previously in large-scale solar.

Q31 Zac Goldsmith: I think we would benefit from an explanation or I certainly would. If you think the industry would have been sustainable at that level in April, which is only four months later than what the Government is proposing, how can that four-month time shortening be as catastrophic as all of you I think are saying it would be? It is just hard to reconcile the two.

Daniel Green: I shall answer one piece of the question, perhaps. Rather than the quantum of the amount of pence, I will just explain the catastrophe, and that is this. When you have, for example, £10 million worth of panels on the water that now won’t arrive in time to be installed, I still have commitments that I have to make. Quite rightly, people have made commitments and signed contracts and we have to deliver on that.

Q32 Zac Goldsmith: But are you saying that you would not have placed those orders for those panels had you known that it would be 21p and, if that is the case, then how is the industry going to be sustainable through April, because you are going to be working on the same thing.

Daniel Green: I will just finish that one question. The way that the order cycle works is in quarters. So what happens is that you buy panels at a price in a quarter. Everybody had planned that the panels will come in over the last quarter of the year to be installed over the last quarter of the year and for the next quarter of the year. Then, by the time April comes, there is then another degression of price that one would expect and one can anticipate. Bear in mind that, had the consultation been a proper consultation, we would have known about that well before April and, therefore, one can plan with the supplier and with other costs to gradually manage your business in accordance with that.

Howard Johns: There is two other points that haven’t been mentioned here. Bringing something in on 12 December, when this thing is still open to consultation, means that no business can trade in this sector because we will effectively be mis-selling. We can’t sell our product because we don’t know what tariff rate people are going to be getting. That is the first show-stopper. According to the Government’s own scheme that we all have to sign up to, we should be giving people a fair indication of the rates of return they are making. We can’t do that, because it is a consultation. So that is one of the reasons why this is catastrophic.

The second one is the energy performance certificate criteria that they brought in. If we go ahead with that, according to DECC’s own figures, the market will reduce to 8% of what it is this year. This isn’t sustainable growth. This is destruction of the industry because only one in 10 homes currently have an EPC level 3.

Q33 Zac Goldsmith: I think that is an issue which is going to be covered in some depth later.

Howard Johns: I am aware we have 20 minutes left and I wanted to make sure that you understand that. Personally, I feel we need a body that works with industry and Government to set the rates. We shouldn’t be negotiating this sort of stuff in a Select Committee hearing. We need something independent that looks at the costs and comes up with a sensible plan here; not, "Oh, do you think you can survive?", or the cat and mouse game that we have had of the last reviews. We need an independent body that is working to make this thing work; that does not bring in knee-jerk changes like this.

Q34 Sir Robert Smith: On the timing and the consequences for people, what is the normal practice in the industry in terms of-what worries me is constituents who have paid a deposit on the understanding of one return and then, if they are not installed by 12 December because the panels haven’t arrived or there is just too much of a queue to get them installed, they will be on the new terms. Does the industry hold them to that? What kind of contracts do people tend to be signing when they make-

Howard Johns: It depends on the type of client, basically, but there are lots and lots of legal wranglings going on between solar companies and suppliers right now over this very issue; hundreds of them across the UK, both in domestic and commercial, social housing. Let us face it, we believe there is 100,000 social homes that won’t have PV in the next year because of this change. Now, all of those contracts are under scrutiny, in legal challenges and that sort of stuff. So it is a huge, huge issue.

Q35 Sir Robert Smith: But for the individual householder who has forked out their own-

Howard Johns: There could well be some lost deposits. It depends on the wording of the individual contracts.

Q36 Katy Clark: I would like to come in on this issue about proposals as they will affect community groups. You say that it is about 100,000-that is your estimate-of how many homes that will be affected-

Howard Johns: Social homes, yes.

Katy Clark: Social homes that will be affected in the next year. Do you have figures about the overall impact that this is likely to have on community organisations of all types?

Peter Capener: The Community and Climate Action Alliance did a very brief survey, because they did not have a great deal of time, and within a couple of days they had nearly 200 responses from community groups. Nearly 90% of those were planning on doing projects over the next 12 months and over 80% of them felt that the projects would collapse with the sort of level of cuts that are under discussion here-so a huge impact-and bear in mind that was a snapshot survey. It is difficult to tell the total scale of the community sector, which I think would go far beyond that.

I think the devastation for those community projects is huge. It goes beyond just the solar panels themselves and the capacity that we are talking about losing. We are undermining the whole community thrust behind coming together and collaborating. It is a bit like saying to you and your constituencies, "You have spent two years with all your people going out and door-knocking and building up support", and then maybe six weeks before the general election saying, "Oh, well, we’re going to move the general election to six months’ time". You are then faced with having to bring all your workers back up to speed again, generate the enthusiasm, the commitment, after they have been let down once. That is what we are facing at a community level.

The task of reinvigorating communities after being undermined in that way is huge and should not be underestimated. It goes beyond just the kW capacity on the ground, which in itself is significant. Because if you get those community projects started you then have the opportunity to build the Green Deal on top of community enterprise that is able to take up energy efficiency measures and, renewable heat incentive projects. You take away one foundation for that and all these other projects that could add on value get lost. The behavioural change benefits that can be seen to be generated as a result of having solar systems on schools or community buildings, you lose.

So I think the community dimension needs to be costed in or quantified or valued in a way that goes beyond the pure financial analysis that the Government has done around the impact on the feed-in tariff. An economic analysis should be taking in far more than just the sorts of things that the Government has looked at within its current analysis, I would suggest.

Q37 Katy Clark: Do you think the 100,000 figure for homes is that a figure that you all buy in to?

Howard Johns: Yes, that’s social housing.

Jeremy Leggett: Yes. We could get you the very latest social housing figure. Just to add to that, you have just heard a sense of what is happening in the communities with the big community projects. It is a classic embryonic big society shot down, but it is also our fuel poverty and I would urge the Panel to talk to the Social Housing Association. Our industry has gone, within a few years, from talking to these folk-in my own experience, the most difficult sell in the world where they say, "This is very expensive; why on earth would we do it"-to now we have clients doing repeat business, or we did, with thousands of roofs and in some cases saying, "This is our single biggest tool in the fight against fuel poverty".

It has gone that far now and the reason is because they know what is coming from EDF and all the others in the Big 6 and the inevitability of their soaring conventional electricity costs. They know what is happening to the fundamental cost structure in our industry and they know what that means for taking out a hedge against price inflation for their fuel-poor customers.

Daniel Green: In our business we deal with the private home owners who are on low income. The average household has around about £1,680 of savings. To go out and spend £10,000 on solar panels is not possible but, to be honest, they are the people who probably most need the free energy. So the rent-a-roof model, which the Chairman mentioned, that we are involved in, we receive the feed-in tariff and so we take the benefit of the very long-term and they receive the free energy. What the Government has done as part of its consultation is introduce something called an aggregator tariff which, first of all, is lower and cuts through social projects but also cuts through private projects as well.

Howard Johns: As well as community projects.

Daniel Green: Also communities. A group went in, in the last couple of days, and presented to DECC to show them that their modelling was not correct and the costs were greater because when they work out their 4% they are saying that with the energy and the feed-in tariff you get your 4%. In our case, we only get the feed-in tariff. So in some way the rest of the costs are basically the same. It should be at least parity on the 21p. What they said is they kind of accept that the modelling is wrong but it is a political decision and needs to be discussed with the Minister. We, as an industry, do not know what that means.

Peter Capener: Can I just add another point around the community side? There has been some discussion around investor and our investors, to a large extent, are local people. They are investing in our community enterprise, in Bath and West Community Energy. We have a share offer open at the moment. We were lucky enough to be able to install, hopefully, 350 kilowatts before the deadline, but another 400 kilowatts is seriously questioned because we won’t be able to install it before the deadline. We will be able to attract some finance in the order of around £400,000 to £500,000 from local investors through our share offer that is currently open. We were very lucky. Most of the other community enterprises that we are aware of-Brighton, Lewes, Gloucester-have had to cancel their share offers because they weren’t able to fit in within the timescale. Their prospective investors are going to seriously think twice about investing in a start-up in a very uncertain regulatory framework.

I think the investment, on a community point of view, is questionable now from that local point of view. That was a very exciting element of creating a new market for investing in renewable energy, from local people investing in local projects, generating that front-of-mind awareness of renewable energy that had so many other spin-off benefits. That is now under threat. So I think this call for clarity, whatever that clarity is, is pressing at a community level, both from the consumer perspective in terms of when we start talking to schools-we need to know what the offer is to the school and community buildings-and also to the potential investors, our members. We need that clarity and need it fairly soon.

Q38 Katy Clark: As far as I am aware, the Government has not done the work on the impact of the proposed changes on community groups. So if you are able to give us anything after today that details the number of schemes that have been cancelled or are likely to be cancelled that would be appreciated. The Government’s consultation document speaks of a second stage of the consultation later in the year that will address how to deal with the community schemes. Do you think that community schemes will be able to mark time while they wait these proposals from the Government?

Howard Johns: From my experience of social housing, most of the projects have been cancelled at this point. So effectively this policy or this change in policy is just simply denying the poor access to this technology.

Peter Capener: In terms of the community projects, the community enterprises marking time, in theory there is that possibility. But, as I have just outlined previously, you are in the position of having to re-energise communities that got enthused about a project and then, in most cases, were let down. So we have a real challenge ahead of us to get that body of enthusiasm back up again. In terms of the projects, we are effectively having to say, "We are not going to be doing anything for three or four months". In the situation that we are in now, the value of solar PV was that it was a quick win, relatively, as far as renewable energy is concerned. As a community enterprise we are looking at wind, we are looking at hydro, we are looking at renewable heat and we are looking at energy efficient, but the value of solar PV was that it was a quick win. It could build profile, build awareness in our local communities and get people bought in to something that had real value at a local level. The opportunity could now be taken away. So marking time could have serious impact on the viability of those community projects.

Daniel Green: I think that is an excellent point about marking time. Our company is a solar business. I have explained a little bit about how it works. You have heard today that no business can continue in all honesty with the customers until DECC come out with its appraisal of its consultation perhaps the end of January. Your point about hibernation is correct. From our point of view, on top of that we have this energy efficiency level criteria, which effectively brings the universe available to 9%.

Nobody is going to pay £6,000 to £7,000 extra to get potentially 4% in 18 years’ time. In the Government’s own assessment, which I think you have, it talks about the efficiency measure being a break on installation. The second thing is we also have the aggregator tariff, which I referred to earlier, that we understand DECC now agree the modelling is incorrect and, at this stage, are not prepared to make a change. From our perspective, to retain all of 1,000 people, directly or indirectly, and sit quietly with those on our books until, let us say, February, then to find out at the end of February that it is not long viable, is not possible for us.

This industry has some fantastic people. We have a young guy, 22 years old, called Stephen. He says he has a brother and sister all at home. All of them are unemployed, based in Wembley. He came out of unemployment and was the first person from his family to get a job for quite a while, certainly the first job that he has had. With us, he has performed fantastically. He now has four people who work underneath him and he has a lot of pride and is giving, he feels, a lot back. He is trying to make savings to own his own flat and leave his family house.

In the next few days I am left with the job of making Stephen redundant and many more like him. He has that long walk before Christmas back to his home and has to look his family in the eyes again. This is exactly the sort of person that I know the Chancellor is trying to put roughly £2,300 into getting work for in the £1 billion scheme that I understand was just announced. From our perspective, this is hundreds of people, real people, who are going to lose their jobs before Christmas.

I might say, finally, there are thousands of people who will lose their jobs here. Unlike what the Minister will tell you, I am sure, when he meets you, as he has told us, these were unsustainable jobs, these were not. We were building a bridge to the Green Deal. You can’t hang the Green Deal up in Tescos. The Green Deal needs to be explained to people. It is complicated and you need the people like Stephen to be involved in that business. All they have done is created a pier and we are all falling off the edge of it, only to be renewed in a year’s time when they are going to-

Chair : I think we have that point and we have very little time left. I have a lot of colleagues who want to get in. I want to stay on jobs for a bit.

Q39 Zac Goldsmith: We are going to have the Minister here shortly and a lot of this is going to come down to money and I just would be interested, one more time for clarity’s sake, what do you believe would be the additional cost of sticking to the April deadline? How much extra will that cost consumers on an accumulated basis?

Daniel Green: That is 80 pence on people’s bills to 2020. It is not my figures. It is the figures in the impact-

Q40 Zac Goldsmith: Eighty pence per year until 2020 in addition to the-

Daniel Green: That is correct. It is 0.06% of their energy bill.

Q41 Zac Goldsmith: Can you analyse for us, very briefly, the £80 figure that the Government is quoting?

Daniel Green: Yes. What they have done is they have multiplied out the last few weeks of installations, which I gave my Concorde example, and they have put that against the "do nothing".

Howard Johns: That is to run the scheme forward as it was originally designed.9

Q42 Zac Goldsmith: But are they saying £80 a year? Is that what the Government is saying, as compared with your 80p per year?

Daniel Green: Of their 80p.

Q43 Zac Goldsmith: So they are out by a factor of 100 as compared with your figures?

Howard Johns: Their impact assessment says-

Zac Goldsmith: Is that correct?

Howard Johns: The "do nothing scenario" says £26 not £80. Now, no one is proposing that they do nothing. "Do nothing", according to their definition, means leaving the tariffs as they are until 2013 and degressing them 9% per annum until 2020. That means we end up with a tariff rate of 21p in 2020. No one is proposing that.

Q44 Zac Goldsmith: I just want to get this point because we are going to finish this session in a second. How is it possible that you can be out by-even at that reduced figure, it is still 30 times more expensive than what-

Howard Johns: These are not our figures. These are the figures from the impact assessment.

Daniel Green: Zac, this is what I think is colloquially known as a "spin" and basically-

Zac Goldsmith: That’s one hell of a spin.

Daniel Green: It is not only one hell of a spin but I think it is, in some ways, when you take the examples and look at the industry that is being built, immoral. The question that you will be left with, as we are left with, is, why is this happening?

Q45 Zac Goldsmith: I am going to interrupt you. I wasn’t asking for polemic. I would like the Joint Committee to know is it possible for us to work out, as a matter of certainty, where that figure should be? Where is it between your 80 pence and the £27 that the Government is quoting? Does that data exist in a way that we can be confident as a Committee that we know where that figure should be?

Joan Walley: Chair, if I can just come in there. Could you also suggest who could provide some verification of that figure on which so much rests?

Howard Johns: It is in the Government’s own document here.

Daniel Green: Can I quote table 17, "Domestic impact on domestic bills". This is their impact assessment that came out with their consultation. Option 2, which is the energy efficient requirement, that is £2.60. Option 2 is where it doesn’t go to April. It gets cut off on 12 December. Option 3 is £3.30, which is where it does run until April. The difference between £2.60 and £3.30 is 70 pence. We are saying 80 pence is probably a bit more-

Q46 Mark Lazarowicz: On that point, I also want to draw attention to the Register of Members’ Interests. I am involved in a community energy group that encourages a move to solar PV. It is not a pecuniary interest, of course. It would also be useful to know not just what you expect will happen next year for solar but also your trajectory over a number of years, how you see the phasing of the support for solar, and also what you would see happening in other renewables. I think you accepted there was a case for shifting from solar to other renewable energy. So, again, we are not asking you to give us the figures now but if you could submit a clear statement of how you see the trajectory of support for solar in the future.

Howard Johns: The recent analysis we have just done is to have a market of the size that it is this year moving forward to 2020, so a 700 megawatt market which-grid parity will arrive in 2015-17, would cost about £5.50.10

Q47 Mark Lazarowicz: I would like documentation so we could look at it.

Howard Johns: That is fine, but it would cost about £5.50 on bills by 2020, not £26 even.11

Peter Capener: Could I just make a couple of brief points about what could be done to improve the situation for communities in terms of moving forward. Clearly there is the community benefit tariff that is the subject for the next review, but beyond that I think if the Government was able to underwrite loans to community enterprises in the way that Mr Osborne has been talking about underwriting to small businesses, that would make a huge difference. What we are talking about is the cost of capital for community enterprises who, in fact, want to move away from grant dependency.

What we want to do is create a financially sustainable community-owned business but, in order to do that, we have to get the cost of capital down significantly. Underwriting loans to enable slightly cheaper cost to capital would mean, on the input side, the cost burden was lower; therefore, it would be easier to run the community projects. The aggregation point has been made before, but I think, from a community perspective, this has no logic whatsoever. You’re talking about two, three, four projects and slapping a 20% cut on them. Any logic there was for aggregation-and obviously we have heard the logic for that-is questionable anyway, but any logic for aggregation cannot kick in at two projects, three projects, four projects or even 10 projects. To cut community tariffs at that rate for those sorts of schemes makes no economic sense at all.

In terms of the EIS point, in terms of creating a climate or an environment where cost of capital can be providing tax breaks, ensuring tax breaks continue for investment in community enterprises, is again another very valuable opportunity. So it is not looking for handouts. It is trying to create a market in which community enterprises can operate on a level playing field.

Daniel Green: Chairman, could I ask just one question? I understand you are seeing Treasury at some point in this process.

Chair: On Thursday.

Daniel Green: I just wonder, Chairman, whether it would be possible to ask them whether they modelled the impact of the loss of revenue from the job losses from this industry. Again on the Treasury, I would just finally like to add I spoke to the Chief Secretary of the Treasury and I explained that the feed-in tariff is part of the levy-funded cap. The feed-in tariff is a relatively small part there. The renewable obligations is much bigger. The renewable obligations is under-spent. The feed-in tariff is slightly under-spent. I asked, "Is it possible to move some money around within the levy-funded cap; that is not break the cap but just to move some money around?" He said, "Absolutely. Somebody from DECC should just come and see me". I wonder whether you would ask whether anybody from DECC did go and see the Treasury and what response they got.

Chair: I think we will ask the questions and you can answer them, I think might be a better way of doing it. Laura, I would just like to go on to the questions of jobs, if we may.

Q48 Laura Sandys: I understand the passion that you have for the industry sector but there was bandied around, when the shock of the consultation came out, that there were 25,000 jobs involved in this industry and they were all going to be lost was the message that came out. Firstly, it is quite difficult to assess which jobs are directly in the solar sector or who are in some ways suppliers to the solar sector and it would be interesting to get that breakdown. I would also like to know what you had as projections of growth in jobs over the next couple of years.

I know that Mr Green was saying that very unfortunately he is going to be making people redundant. Can we get some understanding of what the impact will be on the sector? The problem that I have is we are talking about the difference between December and April and the sector is saying that it is going to make thousands of people redundant because of that period. In April you have already admitted that you would be adopting a new business model because of a different feed-in tariff. So were you going to make some of these people redundant anyway?

Daniel Green: Could I answer the first question?

Howard Johns: No, I am going to take this one. We did a survey of our members, both the REA and the STA. This is where the 20,000 jobs figure comes from. Prior to the feed-in tariffs introduction there were about 3,000 to 5,000 people working in the sector. So in the last 18 months 20,000 jobs have been created. Now, it is not so much to do with the rates. Again, you have missed the point about EPCs perhaps, that if they bring in the full package of this measure-if they bring in the energy performance criteria we will not be able to sell this stuff anymore because only one in 10 homes will be eligible for have it. That is what will cause the sector to reduce, according to DECC’s own figures, to 8% of what it is this year. That is what would cause the jobs losses.12

Q49 Laura Sandys: You would say that, from a jobs perspective, the EPC has a much bigger impact than the feed-in tariff?

Howard Johns: It is all bundled together in this proposal. That is the whole point.

Q50 Laura Sandys: I understand, but if we disaggregate the proposal-

Howard Johns: If we disaggregate the impact would be a lot less, definitely.

Q51 Laura Sandys: If I may say, Chair, I think it would be quite useful for the Committee to have an understanding of the jobs that you think are associated with the introduction of the EPC measure and-

Howard Johns: All 20,000 are at risk because of that measure, basically; because of the introduction of that.

Q52 Laura Sandys: Do you say that the industry is just going to totally close?

Howard Johns: Probably quite likely, yes.

Daniel Green: This year we will do 120,000 installations. The Government are predicting 30,000 next year, if that. That is obviously a three-quarters-

Howard Johns: They are predicting that we go from 500 megawatts down to 10 next year if this goes ahead. So the chance of keeping a fraction of those people employed-

Q53 Laura Sandys: If there were two issues that you were looking at, you would say the EPC had a greater impact on jobs than the change in feed-in tariff-

Howard Johns: Yes.

Laura Sandys: -and that your business modelling without the EPC, which would have changed the feed-in tariff in April-so our four or five month differential-you would have been looking at job losses in April as a result of that or not?

Howard Johns: No, not at all.

Daniel Green: It is a very good question, I think.

Q54 Laura Sandys: All of the job losses are related to the EPC? You might not be taking on new jobs.

Daniel Green: There are three points. Basically, the EPC-Howard is absolutely right-is simply just cutting the universe for solar down to a microcosm. The second thing is the aggregator tariff means that this is now only available for the very wealthy and I am sure that is not what this was intended for. They are not the people who particularly will be affected by energy bills.

With regard to April, April has two problems. Given time, and not much time-we are very entrepreneurial in the UK-we can adjust our business models, but given no time it is very difficult. Worse than that, given a hiatus-as Howard pointed out, from 12 April we literally have to cease until some unknown with everybody sitting on our books-with the other two measures that I mentioned, makes things impossible. In answer to your question, which I thought was an excellent question, the 21p is difficult but doable. The other criteria are impossible.

Jeremy Leggett: If I could make a point on the jobs as well. The latest figure, just to get it out there, the DBIS figure that we have, is 39,000 jobs. So it is higher than 25,000.

Q55 Laura Sandys: We would like to have a common view on this.

Jeremy Leggett: We can follow up afterwards. But, please, I would appeal to the Committee not to view this as a kind of minimal cost-cutting exercise and it is okay if there is some fraction of the industry left; you know, 10%, 20%. I do not know what it is going to be. What we have lost in Britain as a result of this, if it goes through as intended, is a wonderful success story in a desert, where there are very, very few. However many jobs have been created, it is tens of thousands in an 18-month period. These are good, green jobs in exactly the area that the Prime Minister said initially were going to be used-the green industrial revolution in Britain-to countervail the job losses from austerity, creating revenues for the Treasury, taxes, all the rest of it. Massively countervail losses on the tariff.

Daniel Green: The public have voted with their feet, basically, that this is the most popular measure in the last 20 years in energy efficiency, in micro-generation. This is what the public want. That is why it is successful.

Q56 Laura Sandys: It is very incentivised to be successful, too.

Daniel Green: But not long. If you have scale you could get your costs down.

Peter Capener: Can I just make a point on the jobs? Also, a lot of the jobs are in small SMEs, people who have diversified from electricians into taking on solar PV. These are exactly the sort of people that you are wanting to see diversify to build the low carbon economy and the sort of diversification, again, that is going to be required in insulation. If, again, we are going to undermine that in one area, how confident are small businesses going to be to diversify again around a Government scheme like the Green Deal when it is going to be threatened in previous cases?

Q57 Chair: What proportion of the panels installed this year were manufactured in the UK?

Jeremy Leggett: This is a point that we would caution people-

Chair: I don’t want a caution. Is it 10%, 90%?

Jeremy Leggett: We’re coming from a long way behind. I see the drift your question.

Chair: It is a factual question. There is no drift to it. I just want to know.

Jeremy Leggett: It is small. It is very small and the reason for that is we’re playing catch-up.

Q58 Chair: So the huge numbers of jobs that have been created at the expense of British electricity consumers are being created outside the UK? Is that a good use of-

Jeremy Leggett: No, because most of the jobs are downstream. Most of the jobs are in the area where our companies work and if we are giving a fair head of steam and allowed to try and play catch-up with the Germans, the Japanese and Chinese in the way that the Indians are intending to do, as we saw in that trade mission to India, then we will have a chance to have a vertically integrated-none of this is rocket science-value chain in this country. It would be massively in our energy security interests, if you believe some of the things that have-

Howard Johns: 80% of the value of these projects stays locally.13

Daniel Green: Chairman, I’m not sure if you have had a chance to go to or to see one of these factories in operation. There are very, very few people who work there. They are most incredibly automated. I mean they are literally state of the art. Not because of cheap workforce, just rather huge investment. As the Panel has pointed out, the majority of people absolutely are the installers, the electricians, the people who monitor and maintain, the people who work in the offices, the legal work and so on.

Jeremy Leggett: Also, the designers and manufacturers of British secondary products.

Daniel Green: Correct.

Jeremy Leggett: My own products, for which my company won the Queen’s Award for Industry this year, are designed in Britain and designed in Britain. They are secondary products. They are roof tiles, roofing slates and the rest. None of this would have happened without some market enablement behind this industry. That is the kind of thing we would have been building on if the feed-in tariff had kept in place and not been shot down because some of the Big 6 have argued that that is what they want to see happen.

Chair: We are a bit over time-just two final questions.

Q59 Dr Lee: Just to be clear, these fantastic state-of-the-art factories that have been built in China have been based upon producing a product that has been subsidised by the western taxpayer-

Daniel Green: No, a lot of the subsidy has come from the Chinese Government and the thing to note-

Dr Lee: -because they knew that there was a market-

Howard Johns: China has a feed-in tariff itself.

Dr Lee: -that was being provided by a tax subsidy in this country and elsewhere.

Daniel Green: No, let us get it right. Germany had a feed-in tariff for 10 years. If anyone is going to claim the lion’s share of building this market it has to be Germany.

Q60 Dr Lee: Yes, after an outlay of €6 billion they are getting a 9.5% return on their panels. I am not so sure the German’s are feeling particularly grateful.

Daniel Green: We are piggy-backing on the Germans. The Germans had 10 to 15 years of feed-in tariff. You are right; they started a long time ago. They built a huge industry. We are coming in right at the end, getting these fantastic price discounts; allowing us, in five years’ time, to not require a subsidy at all. It is fantastic. I totally agree with you. It is fantastic for the British people that we are now benefiting from, if you like, their investment and what is going-

Q61 Dr Lee: Yes, but we have created a manufacturing plant in China-

Daniel Green: We haven’t.

Dr Lee: -with British taxpayers’ money.

Daniel Green: No, we haven’t. We are-

Q62 Dr Lee: You shake your head. Where has the subsidy gone, sir?

Jeremy Leggett: The subsidies are going to build you and us a viable British industry with clean, green jobs. Exactly what you are going to need to countervail all the millions that are being made unemployed as a result of-

Q63 Dr Lee: Yes, but it is installing product that is being produced elsewhere.

Jeremy Leggett: At the moment. If you imagine the trajectory and how investors, had they any confidence left in UK PLC, would have viewed this, then we could have exactly expected to see population of the whole value chain across Britain, arguably, or at least in western Europe and, in terms of that particular investment-

Q64 Dr Lee: I can understand the concept of there being value in an installation industry of solar panels in Britain but the reality is, if I am sitting with my accounts in front of me and I am thinking, "Right, where am I going to put taxpayers’ money to develop a manufacturing base in this country"-something we desperately need-I am not going to put it in solar, am I?

Howard Johns: We have two manufacturers in the UK already, one of which is Sharp in Wrexham and it employs something like 500 people.14

Daniel Green: Solar installation, certainly on the private scale, it used to be almost 70% was the panels and, therefore, the point that you raise is very, very relevant. In other words, of the whole cost 70% was going on that part of the installation. Now it is around about 40% and falling and, therefore, the panels as a part of the whole installation cost are becoming more of a fraction. Therefore, any contribution that we in Britain are now making is just going on British people and British companies.

I take you back to the point that we raised first, which I know the Chairman mentioned in terms of asking the Treasury. The overall balance sheet that you talked about, the money coming in from all the PAYE, the taxes and so on-forget the panels from China-far out-sees the whole feed-in tariff; which, by the way, we are not sure if we are ever going to get back from the energy companies anyway.

Q65 Dr Lee: The boarder picture of this is we are trying to reduce our carbon footprint. That is why you guys are in business. I am just suggesting to you that if I was going to subsidise anything, I would subsidise people using energy less not subsidising a generation of energy by products imported from China.

Jeremy Leggett: That is the single most important thing you would do, yes. Energy efficiency is vitally important, but you can’t play golf with one club in your bag. You need to have a green economy.

Q66 Dr Lee: If you are going to draw the golfing analogy, I would rather just use the best club I have.

Jeremy Leggett: But you would never get around in par, sir.

Dr Lee: If I only have one club I am going to use energy efficiency.

Q67 John Robertson: Going back to earlier on when you talked about customers, which would be my constituents, and they are the ones I am representing here, these people, you said, might face legal action against them for breaking a contract. Have you taken legal action to find out if what the Government is legal concerned with the consultation, knowing what has happened in other consultations particularly to do with energy in the past?

Jeremy Leggett: Yes, with reluctance we have. I believe there are three separate cases and the advice is that there are grounds to be concerned that the Government has not been consistent with its own legislation. So it is all in the hands of the lawyers at the moment.

Q68 Albert Owen: Am I summarising what you said about the rates of tariffs correctly, that they are not sustainable at the current level but that six months ago you went to see Government and you proposed a 25% reduction in April of next year that would make it sustainable and that the subsidy-there were different answers-would only be required for a further four to five years at that rate, sliding down?

Howard Johns: We went to them and put a picture in front of them about reaching grid parity by 2017 if we had a gigawatt market in the UK where, yes, we reduced the subsidy by 25% at that point, not in April next year.

Q69 Albert Owen: At this point now?

Howard Johns: Well, in May it was.

Q70 Albert Owen: Okay, fine. That is a slight disagreement. If it went down to 25% it would be sustainable-

Howard Johns: Not "to 25%", "by 25%".

Albert Owen: By 25%, it would be sustainable for four to five years, then the industry would stand on its-

Daniel Green: 25%, by the way, is sort of mid-30s-

Q71 Albert Owen: No, I just want the second part to be complete as well. But in four to five years’ time it would not require a subsidy, in your opinion?

Howard Johns: Yes, obviously with further degressions along the way.15

Daniel Green: You need scale for that. Once you have scale you can deliver greater savings.

Albert Owen: I am clear now. I was not clear earlier on.

Chair: There is lots more we could have talked about, obviously. I expect there are other things you want to say and there were certainly other questions that my colleagues wanted to ask, but we have had the Minister waiting outside for 20 minutes now. So I think, in fairness now to courtesy, we had better call this a day. Thank you very much indeed for coming in.

Examination of Witnesses

Witnesses: Gregory Barker MP, Minister of State for Climate Change, Moira Wallace OBE, Permanent Secretary, and Simon Virley, Director General for Energy & Infrastructure, Department of Energy and Climate Change, gave evidence.

Q72 Chair: Good afternoon, and our apologies for keeping you. You will not be surprised to know that the previous witnesses had a few things that they wanted to say to us but, of course, we are looking forward to what you are going to say as well. Could I ask, just generally, whether you would say the Government’s handling of feed-in tariffs for the solar sector during 2011 has been conducted in an orderly and rational way?

Gregory Barker: I think the way in which we have had to institute an emergency review of the solar sector, particularly in the second half of the year, has been regrettable but we were left with no choice if we were going to protect the budget and the long-term interests of the industry and the consumer. I think it is regrettable that the previous Government didn’t construct the feed-in tariff scheme in a way that learnt from the experience in Germany and other countries, where there is a lot of learning on good and bad feed-tariff schemes, and left us with very few levers by which to control the scheme. Given the extraordinary surge that had, that was unanticipated and I think is only predictable with the benefit of hindsight to that degree, we have handled a very difficult situation to the best of our abilities. But it is, by no means, perfect and I realise that this will be very difficult for a lot of people in the industry, trying to cope with the consequences of an early review.

Q73 Chair: What effect do you think that is going to have on the attitudes of investors in future, the amount of trust they place Government policies and the risk that they may get changed, in this case, at very, very short notice?

Gregory Barker: I think you have to see this, Mr Yeo, in the broader international context. Because we have stepped in when we have, we are preserving the budget. The worst possible thing that we could have done would be to have closed our eyes to what was happening in the sector, allowed the budget to be exhausted and then had to close the scheme. We know, from the experience of the last Government when Government Departments have opened schemes and then had to close them completely, that that has a shattering effect.

I think what, in the long-term, investors expect from the Government is ability to manage the budget of any given project over the lifetime of that project correctly and any smart investor will recognise that what we have done is stepped in to ensure the integrity of the budget, not just for solar PV but also for the other range of technologies that benefit from the feed-in tariff. This is not just a solar PV scheme. It is true that over 90% of the scheme to date has gone towards that technology but it is there to promote a range of technologies, a range of distributed energy solutions. I want the scheme to run the whole course and believe, because of the actions that we have taken, that will happen and we certainly do not have to take anything that could be deemed retrospective.

Q74 Chair: One of our previous witnesses said that six months ago he came into the Department and suggested a cut, I think, of 25 or 30% in the tariffs then being paid for solar. Why didn’t the Ministers of the Department grasp that offer eagerly and say, "Yes, thank you very much"?

Gregory Barker: Could you be more specific, Mr Yeo?

Chair: Howard Johns told us about an hour ago that he had come and talked to-who did he say he talked to? He presented a paper to DECC which suggested I think it was a 25 or 30% cut in the then prevailing level of-

Gregory Barker: Indeed. Is he STA, Mr Johns, or REA? It is STA. Mr Johns did indeed suggest a 25% cut and I will read, if I may, from the specific document that he handed to DECC. This was in response to my then proposed reduction in the large-scale feed-in tariff, "We, therefore, suggest that to qualify for transition arrangement projects which apply for planning permission before 1 August and commission before the end of calendar 2011 should receive current rates. If they commission after 31 December but before 1 April 2012, their tariff is reduced by the suggested 25% if they have not commissioned by 1 April." Effectively what Mr Johns was suggesting was a 25% reduction across the board, in large-scale and smaller-scale, to kick in from the end of this financial year. It would be quite wrong to suggest-and I am sure he will recall because it is in paper-that they suggested an immediate 25% cut. Also, he was suggesting a smaller cut, only 25%, in the large-scale project. Had we heeded Mr Johns’ advice, the result would have been that we would still be carrying on not just for smaller-scale projects at the current time but for the very large-scale field solar and large arrays as well at the old rates. I have no doubt that if we had heeded Mr Johns’ advice the scheme would be bust and the action we would be taking at the end of the financial year would be to close it.

Q75 Chair: That is very helpful. His comments will, of course, be on the record. Is it possible for the Committee to have sight of that document?

Gregory Barker: Absolutely. Rather than just quote selectively, I will ensure that you have the whole document.

Chair: That would be extremely helpful.

Q76 Zac Goldsmith: This may precede the Minister, so it might be relevant for Moira Wallace. I am interested in why this package was signed off without any plan for degression despite the fact that DECC predicted an annual 10% reduction in the unit costs, I believe, of the panels.

Moira Wallace: It is not the case that it was signed off without a plan for degression. The plan was for a degression after a period of two years and indeed the impact assessment that you’ve been discussing, the "do nothing" option, is to allow that planned degression to take place. The Department consulted on a proposal that started degression after one year and it received a very large number of representations from the industry saying that that was not enough and that a period of two years was required to allow the industry to find its feet. So we are now in the second of those two years. In order to constrain the cost of the scheme what we did was deferred degression-so that there was a two-year degression holiday-and made the degression steeper than we had originally proposed. In retrospect, where I think we went wrong is that we didn’t have a more flexible scheme of degression. It didn’t allow us to act faster and it didn’t allow us to respond to costs falling faster than anybody predicted and we have been caught out like some other countries. It is fair to say that Germany had a more flexible system. I think I am right in saying that they were just instituting over the time we were developing our proposals, but what I am trying to say is we did have degression and we did listen to representations that said, "Please give us longer before you start cutting the rates".

Q77 Zac Goldsmith: You just mentioned Germany. They had years of experience, obviously, on us. Did DECC send anyone out to Germany to study their scheme and learn the lessons that they could have provided?

Moira Wallace: I believe we did. I don’t know if we learnt enough and that is obviously one of the things we are looking at as we try and learn the lessons, but I do want to get across that the Department tried very hard to listen to the representations we received in the consultation, which started in the summer of 2009, and we received far more representations saying, "Give the industry longer, increase the rates, more of a time period before you start reducing them". We did try and listen to that and maybe we made a mistake.

Q78 Zac Goldsmith: Just back to the plan for degression, is that printed anywhere? Is that a matter of public record?

Moira Wallace: Yes. I think it is in legislation.

Q79 Zac Goldsmith: When the scheme was established, the original agreed plan of degression, that is published somewhere?

Simon Virley: Yes, it is, in terms of the then Government’s response to the consultation that announced that we would have a two-year holiday on degression and then have a 9% year-on-year degression thereafter.

Q80 Zac Goldsmith: I know I am going slightly off, but at the time of the birth of this scheme the mood music surrounding it was that there was there was real conflict in the Department and even within the Government. Where do you believe the opposition to the feed-in tariff was at the time?

Moira Wallace: It was the Government’s policy to have a feed-in tariff. That was a decision made within weeks of the formation of the Department; so that would have been in the autumn of 2008.

Q81 Zac Goldsmith: This was enthusiastically taken up by DECC at the time?

Moira Wallace: Yes. It was a very clear steer for Ministers and, having had a position where the Government had opposed it and had been subject to very strong pressure in the House, the Government changed its position and officials moved to establish a scheme, consulted on it in the summer of 2009 and produced the final document we’re referring to in February 2010.

Q82 Zac Goldsmith: I have just one more question. When did the Department first become aware that take-up of the scheme was greatly exceeding expectations and what was the panic moment?

Moira Wallace: September. We received monthly information from Ofgem, who managed the scheme for us, and in September when we saw the figures for the latest number of registrations on the database they were a lot higher than the month before. The first thing we did was investigate that because we had seen a similar seasonal peak that had then fallen back in 2010. So that was what started the ball rolling for us and there was a certain amount of investigation to understand was this seasonal; was it going to be replicated in September. In fact, what we discovered was it was worse than we thought. There was quite a lot in the pipeline that we had not known about.

Zac Goldsmith: Chair, I don’t know whether I am stepping on somebody’s toes. I would be interested in looking at this huge discrepancy in the estimations of the costs but I don’t know whether that is something that somebody else is going to be picking up on.

Chair: Certainly, by all means.

Q83 Zac Goldsmith: We were trying to get to the bottom of what the cost would be to consumers were you to stick to the April deadline and the figure that we had-I think there was a consensus on the panels-was that it was about 80 pence. The additional cost was about 80 pence per bill per year. 60 pence? Call it 60, 70 or 80 pence. That compares to a DECC figure somewhere in the region, we are told, around £27. Is that correct or could you take us through those figures?

Gregory Barker: With your permission, Mr Yeo, to help the Committee, we have brought along two graphs that illustrate the nature of the spike in demand. I will pass one that way and one that way.16

Moira Wallace: Shall I just talk through the graph? Sorry, this is a little bit Blue Peter-ish; so I do ask you to forgive it, but just so people can see what we are talking about. This is what we’re just passing around. So this is a graph of how deployment has accelerated and, just so as not to spoil it for people behind me, it is graph that goes on the vertical. That is causing us some difficulty because any estimate we make is rapidly being overtaken by events. Just to start with what is in the impact assessment, the impact assessment made a judgment about the difference between two unknowable numbers.

Unknowable number 1 is, what would the take-up be between our issuing that consultation document with a six-week period for action, and what would have happened if we had allowed a longer period, which would obviously have given more latitude for people to finish what they are engaged but we believe would also have allowed more latitude for new people who weren’t on the scene to decide, "I would like to get involved in this. I hadn’t thought of it but it’s my last opportunity". At that point we made an estimate that this would add 80p to the average household bill.

Q84 John Robertson: Chair, can I interrupt here? This graph here is obviously rubbish because, going by the shape of the graph, if it continued the way it was it would be four to five times that within the space of about a week. Obviously it is not correct and it is inaccurate.

Gregory Barker: With respect, that is what happened in Spain, and that is what has happened elsewhere, and that is why these schemes went completely bankrupt.

Q85 John Robertson: Minister, you will have to appreciate that if this was correct then you and I would not be having this discussion because everybody who has been short-changed with what you are doing would have received everything in time and well before December, going by this graph.

Moira Wallace: That is not the case.

John Robertson: Of course it’s not the case. Everybody knows it’s not the case, but the graph is in error.

Chair: Let the witness answer the question.

Moira Wallace: We are now on several different tracks. Shall I just try and follow the 80p through for you? Would you like me to do that or would you like me to talk about the graph?

Joan Walley: Can you say whether or not this relates to Spain?

Q86 Chair: We just have a query about this graph. This graph is a factual representation of the number of installations in the UK each week?

Moira Wallace: Per week. We decided to stabilise the-

Q87 Albert Owen: Is that applications or actions?

Chair: Installations.

Moira Wallace: Installations that have happened.

Q88 Albert Owen: Not applications, as you said before?

Moira Wallace: I am so sorry-it is installations that have happened.

Chair: You have clarified that point now.

Moira Wallace: At the time of the impact assessment, which is some weeks ago now and it is a fast-moving position, our estimate of the difference between these two unknowable numbers, in terms of impact on a household bill, was it would be an extra 80p in 2014-15, if we delayed action, on top of the cost of our proposal, which was £2.60 or £2.80 in that year. In terms of how that grosses up to other numbers, first of all you need to recognise that it is not only households who pay for this. Industrial users pay for this. Order of magnitude, for every pound that you and I pay on our domestic bill to cover the cost of feed-in tariffs a medium-sized business pays £3,000 on their bill and an energy-intensive user pays £30,000.

There are there are different figures for people with different levels of electricity use, but in terms of how that grosses up, the difference in a full year’s budget-so next year’s subsidy for these extra installations this year-on the figures in our impact assessment, the difference we calculated, a few weeks ago, would be £60-70 million a year. By waiting we would pay £60-70 million a year and we would pay it for 25 years. So we have £1.5 billion there because this subsidy is not all paid in one year. It is a 25-year right to subsidy, which is why the lifetime costs of this scheme are rather large.

In fact, because of the very rapid deployment shown on this graph, already our guess of how much would be done by 12 December, the first unknowable number, looks implausibly low and we will never know what would have been done by April if we had allowed the scheme to stay open until April and we can probably argue about this for the rest of our lives. Ministers’ concern was that there was clear scope for lots of other people who-never have thought of this, never been involved, were not in any way on the glide path to do this-would have had time to join in this, which would have been great for them but would have seen the costs escalate. In support of that view I need to tell you that before our consultation document was issued in October we saw a very high rate of deployment, which suggested this is not just people booking their seat on the last flight of Concorde but we were seeing very strong deployment and there was lots of reason to suppose that would continue.

The figures, I think, we are confusing this with, that the Secretary of State has quoted, are the figures if we had done nothing; so if we had not reduced or had not proposed to reduce the 43p tariff, as we are proposing to reduce it, to 21p but had just introduced the planned degression I was telling you about a few minutes ago. The cost of that in our impact assessment-again it is an unknowable number because it depends on what happens. What we said in that was that we expected the costs in 2020 on a central gross scenario to be £26 a year if we had not taken the dramatic action we had even in April. If we had made small cuts of, I think, 9%. If there had been a higher growth rate that would have been £55 and the figure that you’re quoting, the higher that the Secretary of State mentioned, is taking our estimate of, "What if we had done nothing and stuck to the previous degression", and adding into that the higher starting point that we already know about because we have seen it and it has happened. I think that is the difference. I realise it is rather complicated.

Gregory Barker: Basically this is a moving feast in that the estimates of the bill impacts are continually being revised upwards. I think it is fair to say that DECC has consistently under-estimated the potential demand in the system, both in the near term and in history. Obviously when you are dealing with impact documents you invariably take prudent assessments and cautious forecasts, but the sort of forecasts that I would be comfortable with are at the higher range of the official estimates and they currently now suggest that if we did the "do nothing" scenario, that is do nothing until April, that would add up to £80, potentially more, to every single electricity bill by 2020. It is quite true to look at the current year is meaningless, not least because a lot of the people coming on to the system now will only be claiming for a few months. So it is the long-term impact that you need to look at because of the nature of the scheme.

Q89 Caroline Lucas: On that point, if I might, would you not agree though that citing those "do nothing" scenarios is completely disingenuous because no one was ever suggesting doing nothing. So you are able to pluck out these very high figures from the ether and scare people silly with them, but in actual fact there was never any intention to do nothing at all.

Gregory Barker: Absolutely not. No, the industry consensus was "do nothing until April". It is quite disingenuous to suggest it is not the case. There are numerous, I would probably go so far as to say hundreds, of consultation replies that we are receiving that are suggesting that we do nothing until April. That is a matter of record and you will be very welcome to share in the consultation receipts that we have when they are published.

Q90 Barry Gardiner: Sorry, you are mixing up two sets of "do nothing" scenarios. Your Secretary of State talked about a "do nothing" scenario into the future-that is do nothing at all, not just up until April-and that was the one that was quantified by Ms Wallace as costing up to £1 billion. You’re now talking about a "do nothing" scenario up to April. This is just confusion. All you are trying to do is to confuse this Committee. Let’s get back down to the detail. We have a clear figure that has been given to us by the industry that talks about a 60p increase in costs through the four-month switch that you have perpetrated. In the response that you gave to this Committee-

Gregory Barker: Over what timeline, Mr Gardiner? Be clear what timeline we are talking. This is a 25-year scheme.

Barry Gardiner: We’re talking about the question that I asked the Secretary of State when he came before the DECC Committee just a couple of weeks ago, to which he responded in his letter.

Gregory Barker: Sorry, just so we can give you a clear answer, what timeline are we talking about? Are we talking about the cost of the next few months or are we talking about the proper cost, which is the proper-

Barry Gardiner: The timeline given by Mr Virley at the session when the Secretary of State was sat where you’re now sat was by the end of this Parliament. You should read the minutes, Minister.

Q91 Chair: Is this what we are asking, just picking up your answer, that if nothing was done until April, which you have told us a lot of the consultation responses are recommending, what would that cost be or is that different from a "do nothing" further out into the future?

Moira Wallace: Can I clarify this because there are distinct figures. If we were to stick to the old planned degression path and degress only by 9%, then that is the source of the highest figures we are quoting and there are different assumptions. But, as the letter that Mr Gardiner is quoting makes very clear, our assessment of the cost of not acting in December and instead waiting to make this change until April, depends on very, very uncertain predictions. They are certainly the numbers I quoted you some time ago and I am very happy to set them out in a note so that we can all get them straight. Those are very significant costs.

Q92 Barry Gardiner: Sorry, Ms Wallace. You were asked to set them out in a note last time. What you did was you provided this letter, which is four paragraphs of sheer confusion; one of which talks about central uptake scenarios, one of which talks about higher uptake scenarios and one that accepts that installation rates are running much higher than forecast. You say that, in that light, the reference date will be substantially higher than originally estimated. What you have done is you have taken one middle scenario up to April. You have taken other different scenarios.

If you come back to what you and Mr Virley said last time, Mr Virley answered the question by saying, "It is correct to say that by the end of this Parliament the effect on household bills of the scheme would have been of the order of £6 per household bills". The question that I asked was the difference between doing it now and doing it in April and that was the answer that Mr Virley gave. It is on the record. Now, that does not conform with what the industry themselves have told us. If you disagree with those figures, please can you provide us with a note that sets out precisely why the industry is wrong and you are right?

Moira Wallace: We are very happy to do that but the figures I have just quoted are completely consistent with the letter that the Secretary of State sent you yesterday.

Barry Gardiner: But they are different baselines. You talk about a central uptake scenario. You talk about a higher uptake scenario.

Chair: Allow the witness a chance to answer the question.

Moira Wallace: I think you are assuming we are trying to mislead you and what we are trying-

Barry Gardiner: That is not hard.

Moira Wallace: I know that. What we are trying to explain and history demonstrates, whether any of us likes it or not, that this is very hard to forecast. What I am telling you-and it stands on the record because I told it to you five minutes ago-is that already deployment is different from what we assumed it to be in the impact assessment and in the consultation document that we published at the end of October. We are saying that, therefore, there is an uncertainty, all of it on the upside, as to whether the impact on household bills, which is only one of the bills affected, will be 80p, 70p, £1 or considerably more. We believe it will be considerably more and I am sure that the outturn on installations will demonstrate that that is right.

Q93 Barry Gardiner: You say that it is hard to forecast and yet you have provided this Committee today with a graph that takes advantage of the fact that people have rushed now to beat this deadline, which means that the graph goes vertical in the latter part of it-

Moira Wallace: Yes, indeed it does.

Barry Gardiner: -when you know full well that the reason for that is your own precipitated action in bringing the deadline forward.

Gregory Barker: Mr Gardiner, you are quite capable of looking at the graph. We agree that the sharpest rise is at the point at which the review was announced, but if you look at the other graph here you will see-this is the marvellous forecast that was prepared by the previous Secretary of State, now the leader of the Opposition, which was heroically wrong; which did not forecast any deployment of large-scale solar at all until 2014.

Q94 Barry Gardiner: You have a degression in April 2012. You are comparing totally different things yet again.

Gregory Barker: This is the graph that shows the-this is the projection and that was the projection on which the Chancellor based his levy-control framework. That is consistent with the April-

Q95 Barry Gardiner: He won’t be the first Chancellor that has his predictions wrong, will he? Let’s be honest.

Gregory Barker: Maybe we will consult him next time.

Q96 Chair: That is widening the issue a little bit. Can I just ask for one point of clarification?

Gregory Barker: Sorry, Mr Yeo, it’s a very important point, if I may just make that. You can see that basically from August this year suddenly we began to go substantially above trend. That figure then grew substantially more than that in September and it grew even more strongly in October. We did not announce the review until October but I don’t think any Member of your Committee could possibly say that growth had not become completely out of sync with forecast, upon which the budget was based, by the end of October.

Barry Gardiner: 60 pence.

Gregory Barker: That is what I am saying. I think if you look at the veracity of these figures it is absolutely right.

Q97 Chair: On this point about this graph, the one with the almost vertical line there, are these installations?

Gregory Barker: Yes.

Moira Wallace: Yes.

Q98 Chair: Now, I think I saw something in the preparation for this that said there was a lead time before an installation takes place of several weeks. Is that correct?

Gregory Barker: Lead time from what, Mr Yeo?

Chair: Well, from the moment at which a householder says, "I am definitely going ahead with the scheme" and when it gets installed.

Gregory Barker: Yes, absolutely.

Q99 Chair: Four weeks? Five weeks?

Gregory Barker: It varies on the provider obviously. Some are much quicker. It depends whether or not you need planning permission or whether or not it’s a standalone scheme. It would vary but, Simon, you-

Simon Virley: It does vary on the individual circumstances. This data you have in front of you is from the Microgeneration Certification Scheme, which is when the installation has happened.

Q100 Chair: There reason I ask that is this goes up to 20 November, I think. The date at the bottom there. That was, I think, three weeks after the announcement of the change. So, in fact, most of that increase in the right-hand end of this graph was due to decisions made by householders before even the change was announced. Is that correct?

Gregory Barker: Yes. If you want to understand the information we based our decision to call a review on I would draw your attention not to this, which is the most recent graph, but to this one, which basically goes up to the point at which the review was called, the bar chart. You can see the very, very substantial growth, particularly in September and October.

Q101 Sheryll Murray: I would just like to ask a couple of questions on behalf of the Member for Romsey who had to leave, I am sorry. The first thing was, Minister, could you tell us what advice civil servants gave you about the budgetary constraints and at what point did they make you aware that there was a problem? Was there a delay in you knowing that there was a problem?

Gregory Barker: Are we talking about the first review last or the problem that we had last year with the larger scale, the second review?

Sheryll Murray: I think the small-scale one.

Gregory Barker: The smaller scale. Well, I think we all became aware over the summer period as the August figures came through. We switched over the summer to a better system of informing. It was a fault of the scheme as originally established that we were reliant on Ofgem information, which was typically up to three months out of date. The scheme was improved over the summer so that we then received better information from the MCS.

Moira Wallace: I can tell you we informed you in the second week of September, I think it was, which was when we got the data. We informed Ministers instantly. They asked a number of questions, including since it looked as if there had been a very strong seasonal summer pattern the year before. That was the first thing we investigated. But we told you pretty much instantly.

Q102 Sheryll Murray: Can I also ask, was it the same for the large-scale scheme and also when did you inform the Treasury?

Gregory Barker: With the large-scale scheme I think it is fair to say that Ministers were just as on top of it as the Department because there was a lot of anecdotal evidence on large-scale. The thing about the large-scale schemes, they have a much longer gestation period because inevitably they require planning permission and other approvals. The Department was only working off information as and when they connected and what I was getting was information and intelligence from the market of people who were largely anecdotally but nevertheless saying, "Do you appreciate how much money is going into these large schemes, albeit very few of them have yet come to fruition?" So it was a lot of that sort of anecdotal, informal intelligence that began to raise alarm bells significantly before formal registrations began to click in. Sorry, what was the second part of the question?

Q103 Sheryll Murray: Did you first inform the Treasury?

Gregory Barker: We have an ongoing dialogue with the Treasury. The Treasury gave us the budget. We won a very good settlement in the tightest spending round since the war. I called the industry together after the spending round to tell them that we had managed to capture all of the funding required for the previous Government’s projection of the growth in feed-in tariffs deployment. The only request from the Treasury was that we try and reduce costs by 10% in the final year of the spending round, which was very modest. I have to say the industry broadly welcomed that.

I put it to the industry at DECC, a large number of stakeholders, that this did change the dynamics of the scheme; that for the first time we were bringing proper budgetary controls; we were placing a limit on the amount that could be put on consumers’ bills and that this budget framework was a very real framework. It was not just notional. We would have to live within that. We discussed the ideas for a capacity mechanism sooner rather than later, but the industry weren’t keen on specific capacity triggers and they recommended that we leave that for the comprehensive review that would be designed to coincide with April 2012.

Q104 Dr Whitehead: In the submission that you made to this inquiry you set out a revised FiTS budget for future tax and spend over the period 2011-12, 2014-15-

Moira Wallace: Yes.

Dr Whitehead: –which takes account of those people who might have gone for RO, might have gone for FiTS and you have re-allocated the funds slightly in order to accommodate that. Is that right?

Moira Wallace: Yes.

Gregory Barker: Yes, that’s correct.

Q105 Dr Whitehead: That total, I think, comes to just over £1 billion over the period, 2014-15?

Gregory Barker: Correct.

Q106 Dr Whitehead: In table 14 of the impact assessment which, I think, Minister, you signed off on 2 November-so it is a pretty recent impact assessment, isn’t it?

Gregory Barker: Yes, although I would hazard already out of date given the speed at which the industry is travelling currently.

Q107 Dr Whitehead: How out of date do you think it was?

Gregory Barker: Well, it is several weeks out of date because that impact assessment is obviously signed off on the 14th of-

Q108 Dr Whitehead: The impact assessment of 2 November?

Gregory Barker: 2 November. It is obviously based on historic data, at that point.

Q109 Dr Whitehead: Would you have been up to date at that point?

Gregory Barker: No, by definition it wouldn’t be based on information that had been collated that morning.

Q110 Dr Whitehead: So you signed off something you had no confidence in?

Gregory Barker: No, I don’t think I said that. I said that it was based on the most up to date information available, which was not to say that that represents an accurate snapshot of the industry on 2 November. It represents a snapshot based on the most available gathered data at that time, which is rather different from-

Q111 Dr Whitehead: That’s what impact assessments are supposed to do, aren’t they; provide the most accurate information you can get?

Gregory Barker: Available, yes. Available. We can’t gather information that-

Q112 Dr Whitehead: Stuff that isn’t available is mystical, isn’t it?

Gregory Barker: Sorry, what point are you trying to make?

Q113 Dr Whitehead: Impact assessments, as far as I understand, try and give you indeed the most up to date information available.

Gregory Barker: That what it endeavoured to do.

Q114 Dr Whitehead: Table 14 of this impact assessment sets out the spend. Should the lower tariffs come in on 1 April and not 12 December, a total spend over the period of £950 million. Is that right?

Moira Wallace: I think that is roughly right, yes.

Q115 Dr Whitehead: So on the basis of your revised levy spending envelope, that is £100 million below that total. Is that right?

Gregory Barker: I don’t think we’re quite comparing apples with apples. What I can tell you is currently we are already anticipating, in real time-not on historic data gathered in October, but I can tell you the real time now-all of our information indicates that we are already going to be requiring some degree of flexibility between the FiTS budget and RO budget.

Q116 Dr Whitehead: Indeed, and indeed over the period you have received, according to the Treasury agreement, a 20% headroom to adjust budgets within, haven’t you?

Gregory Barker: Yes.

Q117 Dr Whitehead: So the best available information, the available apple as opposed to the possible apple, compared with the actual apple that you have submitted to us appears to be below that spend line over the period up to 2015. Would that be a reasonable conclusion?

Simon Virley: This table relates to solar PV only in the impact assessment, not all technologies.

Dr Whitehead: Yes.

Simon Virley: So there will be spend on other technologies not captured-

Q118 Dr Whitehead: So there would be an even lower spend on solar PV then, wouldn’t there?

Simon Virley: No. The point is that the FiTs budget-

Moira Wallace: The spend will be higher.

Gregory Barker: The cost of the other technologies that are supported by the feed-in tariff should be added to the numbers in that table to get the total draw down from the FiTs budget/RO.

Q119 Dr Whitehead: As a general proposition, if you submit a budget line, revised, which comes to £1 billion and in the Treasury agreement you have a 20% headroom in order to deal with that budget over the period and the impact assessment is assessing what that spend would be over the period and comes to less than that total, would you agree that it does appear that going with a 1 April eligibility date, as the impact assessment suggests, would not be ruinous as far as the overall budgets are concerned?

Gregory Barker: One thing I am absolutely sure, Dr Whitehead, is that shifting the eligibility date to 1 April would be absolutely catastrophic and all of the-

Q120 Dr Whitehead: Forgive me, but this is not what the impact assessment says, nor do your revised figures say that.

Gregory Barker: That is not what it said at the beginning of the month. Since then, we have had the benefit of more data from MCS and it is coming on a daily basis. This is what I’m trying to get across to the Committee. Since then, I have learned of numerous schemes that have had to be cancelled as a result of the review. Some of them are very, very large schemes indeed, not just domestic schemes, but very large schemes run by Social Housing; new funds that were planned to be deployed before April and schemes that are sort of rent-a-roof schemes. The level of demand that was out there was absolutely mind-blowing.

There is absolutely no way that this scheme could have coped with the volume of demand out there, only some of which is captured in that rather alarming graphic. If you are asking me what I take from this, my only regret is that we didn’t do this earlier. Had we had a better system and been better informed, we should have degressed earlier. The notion that we should have degressed later is absolutely bonkers.

Q121 Dr Whitehead: Forgive me, but my understanding of how policy decisions are made is that they are based, among other things, on impact assessments rather than anecdotes.

Gregory Barker: Dr Whitehead, you must understand that that impact assessment is only as good as the information it was based on at that particular date in time. Since that-

Dr Whitehead: But you signed it off.

Q122 Barry Gardiner: That is what you based your decision on.

Gregory Barker: No, it is not what I based my decision on. The impact assessment is the best estimate. You think, dear Mr Gardiner, that we base our decision only on our historic impact assessment and not on a political decision based on a whole range of other indicators, based on what colleagues tell us, based on market information-

Q123 Barry Gardiner: But it is not about what happened in history. It is about the impact of the policy that you are considering.

Gregory Barker: The impact assessment is a very reliable, so far as you can be, economic document. It is an extremely important tool of policy, but it is not the only tool available to you, particularly when you are having to take decisions that are based on factors that are changing every single day. The impact assessment was basically out of date the moment it was printed, because we are dealing with a very dynamic situation. More and more information is coming in every single day. Had you published the impact assessment a month before, it would have said something different. Had you published the impact assessment a month later, it would have said something different.

Q124 Dr Whitehead: Yes, and that is why you have an impact assessment.

Gregory Barker: Had you published it a week later, it would have said something different. The impact assessment gives you an as accurate as possible a picture of what was happening at that particular point in time. If you are not dealing with a very dynamic situation, that can be extremely helpful; but when you are dealing with a situation where you have an industry that is seeing an unprecedented level of growth, you have to take a whole range of factors into account in formulating policy, not least the evidence that has been presented by colleagues.

Q125 Chair : This very point was presciently anticipated, when your officials appeared before my Committee a year ago, by Laura Sandys when she asked a question about whether you were going to be reviewing the feed-in tariffs. This was in November last year, "When might that be? What sort of criteria would you use?" The answer from Mr Virley was this: "FiTs will be reviewed in 2012 with any changes taking effect from April 2013, unless there is a higher than expected take-up in advance of that. So we are going to be publishing details about what we are calling a ‘trigger mechanism’ so that, if we have a very rapid take-up way above our expectations, then we will pull forward that review." Can you tell me whether you made that trigger mechanism, and, if so, was it published?

Simon Virley: No. As the Minister indicated earlier, we had strong pushback from the industry about the trigger mechanism towards the end of last year, so that wasn’t taken forward in that form. Indeed, concern then focused on large-scale solar, the so-called solar farms, which we then brought forward the review of the large-scale tariffs. That was the way that the policy evolved post that hearing that you refer to there.

Q126 Chair : What were the objections of the industry to bringing forward a trigger mechanism?

Simon Virley: A range of issues: about its design, about its timing, about whether the industry was sufficiently robust at this stage. This was November last year. We had a number of meetings and a number of consultations with the industry at that point about bringing forward such a mechanism and it was deemed that that wasn’t the right way forward at that time; but that the main issue we had to address was the issue of large-scale solar, the issue of solar farms, which then meant that we accelerated the cuts that have now taken effect.

Gregory Barker: However, we did announce that it was our intention to introduce such a mechanism and I announced earlier in the year my intention to consult on the creation of a new model that would be much more predictable, more scientific, that would learn the lessons from Germany and would have such a capacity-related element to it. We expect to publish that shortly.

Q127 Dr Whitehead: I have just a minor point relating to your understanding of the composition of what was in the budget over the period. Did you understand that the export tariff element of the overall tariff, as it has originally stood, was inside the levy cap mechanism or outside the levy cap mechanism?

Simon Virley: It is outside. The export tariff is outside because the export tariff is set at a rate that is below the electricity price and, therefore, not deemed to be the additional costs of subsiding solar PV.

Q128 Dr Whitehead: Have you done any work on what the actual benefits of the export tariff is, deemed, to the electricity industry?

Gregory Barker: I think it is fair to say that it is higher than 3p, and one of the things-

Dr Whitehead: It is double, in fact, is it not?

Gregory Barker: It could be double. There are some that even say it is higher than double. It is one of the factors that I am looking at as a range of ways in which-I am discussing informally with industry participants the number of ideas of how we can support the solar industry in the longer-term without drawing on consumers’ bills unnecessarily. The idea that we could look at the potential for raising the export tariff is an interesting one and one that I am actively exploring.

Q129 Dr Whitehead: When you did your revised budget, did you deduct the deemed benefit to the export tariff from those totals or did you include them within the totals?

Simon Virley: The export tariff, as I said, is outside the budget totals. So it is not normally considered part of the levy control framework totals that you were referring to earlier.

Dr Whitehead: Did you put them in the revised budget or outside the revised budget, then?

Simon Virley: They are outside.

Q130 Dr Whitehead: They always have been, with the original agreement with Treasury?

Simon Virley: Yes. That has always been the position in terms of the export tariff.

Q131 Dr Whitehead: So why were the original figures deemed to be 43p, in that case?

Simon Virley: The original decision about 43p was taken back in 2009 on the basis of what was considered to be an appropriate rate of return in order to get to-

Q132 Dr Whitehead: No. I mean, why, in your budget calculations originally and in the impact assessment document are the figures always shown as 43.3p and not as 41.3p, which they would have been if indeed the export-deemed tariff would be seen as outside the levy mechanism? Is that a mistake or is that deliberate?

Simon Virley: The point remains that the export tariff is considered to be outside, for the reason I have given.

Q133 Dr Whitehead: I am asking you a different question, forgive me, which is, were they calculated as inside the overall levy mechanism? If they were not, why were the figures for the levy mechanism shown as 43.3p?

Simon Virley: The 43.3p was deemed to be the right rate at that time to get-

Q134 Dr Whitehead: Yes, but it included the export tariff.

Moira Wallace: I wonder if there is a shorthand in the impact assessment that is confusing us here, but I think we had better just look at it and check that it is, as we say, outside the budget.

Q135 Dr Whitehead: Is it possible to write to me on that-

Moira Wallace: Yes.

Dr Whitehead: -because the 43.3p appears to include the deemed export tariff.

Simon Virley: No. The 43.3p is just the generation tariff and the export tariff is separate and additional to that.

Q136 Joan Walley: Just as far as this impact assessment is concerned, it is obviously done hand in hand with the Treasury; but if you are going to look at the whole impact of everything that is happening, surely there should be some accounting for the other costs of this? For example, the previous witnesses talked about the numbers of jobs lost. They talked about the amount of money that was lost to the revenue. What I would like to know is how this impact assessment gets constructed and what the specification is for how these figures are costed in terms of then you have the decision as to how or whether to go ahead with the different tariffs or not. It is the greenest Government ever. We keep on being told this.

Simon Virley: The critical assumption underlying the impact assessment is to look at the rate of return we think is necessary to ensure continued deployment of this industry and make sure we have a viable solar industry going forward. As you will see, the rate of return that underpins the impact assessment is effectively a 4.5-5% real rate of return, post-tax, for 25 years. We consider that to be a healthy rate of return, and it should provide for a viable industry over the medium term. In terms of the impacts on jobs, of course there will be some impacts on the solar industry but we have to, as the impact assessment says-

Q137 Joan Walley: Is the impact on jobs costed into the impact assessment?

Simon Virley: I was going on to say that, as you think about the impact on jobs, you can’t just think about the impact on the solar industry. You have to think about the impact for the whole economy and the point that the impact assessment makes is that there will be lower bills as a result of this, lower energy bills for households and industry, that then feed through into economic activity elsewhere. So we have to make a judgement about the cost-effectiveness of different policies and obviously this is trying to improve that.

Q138 Joan Walley: In that case, I would like to ask the Minister, if I may, Mr Barker, in terms of the Cabinet Committee and the cost-cutting agenda-you know this agenda, as the former member of the Environmental Audit Select Committee, better than anyone around this table-where there is an issue where it is not just about one aspect of the economics of it but it is about the wider cost-cutting agenda, has this whole debate been discussed in detail in terms of what the impact assessment should be? Has that been discussed in detail at Cabinet?

Gregory Barker: I am not a member of Cabinet, I am afraid, but I do see Cabinet papers.

Joan Walley: No, but you are a Secretary of State.

Gregory Barker: I do not believe that the nature of what constitutes an impact assessment has been discussed, although I would be prepared to stand corrected on that.

Q139 Joan Walley: If you were still a member of this Committee or the Environmental Audit Select Committee, rather than speaking to us now as a Minister, would you have hoped that this cost-cutting aspect of it would at least have been addressed by the Secretary State in order that the picture could have been looked at in the round?

Gregory Barker: It wasn’t discussed at Cabinet, I believe, in such a way. Obviously there has been communication around Whitehall through the usual way, through colleagues writing to each other and officials discussing, so we have had discussions with BIS, for example, and other Departments have made their views known.

Joan Walley: I think it might be very helpful, in the interests of transparency, if our Committee could have sight of that correspondence.

Q140 Albert Owen: Yes, this is a very important point, Minister. You said in an earlier response to Sheryll Murray that you have ongoing dialogue with Treasury. Although you are not a member of the Cabinet, are you aware of an impact study done on jobs and on revenue, as Mr Virley said, of VAT? Has that been taken into consideration in any of the discussions that you had with Treasury? Cynics like myself think that this is Treasury-led.

Gregory Barker: There obviously is a wider issue, but we haven’t been engaged on a day-to-day basis with Treasury. The key issue-

Albert Owen: Not day-to-day basis. We are talking about an industry that feels-you are impacting on the industry. There are jobs in that industry and VAT receipts-

Gregory Barker: Of course there are jobs, but they are highly subsidised jobs. Our key mission from the Treasury is to manage our budget for the duration of the spending review period.

Q141 Albert Owen: So there is no cost-cutting with the Treasury with the extra revenue that it could get?

Gregory Barker: I don’t think the Chancellor is going to unpick the spending review in response to-

Q142 Albert Owen: So that is a no, then? This was not taken into consideration?

Gregory Barker: No, I am not saying it wasn’t taken into consideration. I am saying that our overarching mission from the Treasury is to manage the budget, but we do look at the whole, wider green economy, absolutely.

Q143 Chair : There are several other questions I know colleagues wanted to ask, but I appreciate that by the time we finish voting it will be past your deadline. One of the questions I was going to ask was how much of the £446 million allocation, the revised figure, has been spent already? Perhaps we could put those questions in writing, and two or three others.

Gregory Barker: Absolutely. Could I just conclude, Mr Yeo, by saying I am a strong supporter of the solar industry, and we have to manage it, through a difficult period, within the constraints of a budget? But I am pleased at the way in which my officials are working constructively with the industry, and we are looking for solutions to sustain the industry in way that doesn’t put unsustainable burdens on consumer bills.

Joan Walley: I think we just have one final question before we have to bring it to a close, Chairman.

Q144 Caroline Lucas: We haven’t had a chance yet to talk about the linkage between the reduction of the tariffs and the Green Deal, and the energy efficiency component of the Green Deal. According to your own impact assessment, that means that we could be looking at a reduction in take-up of about 92%. It is phenomenal. Why has that linkage been made? What assessment was made of the impact that that would have?

Gregory Barker: The linkage is only a proposal in the consultation. I think there are huge opportunities for the solar industry to join up more coherently with the whole Green Deal effort and the massive push that there is going to be there for the greening of our housing stock, but-

Caroline Lucas: But why is that the major requirement-

Gregory Barker: I am talking to the industry, but as a principle it is absolutely right that we should link energy efficiency with subsidy for renewable energy.

Q145 Caroline Lucas: But why just with solar? Why not with a whole range of other things? Why are we looking at one part of the-

Gregory Barker: We are looking at the wider piece, but it is a consultation and we are talking to industry.

Q146 Caroline Lucas: Do I read that as a suggestion that you may be very open to the proposals to address that?

Gregory Barker: Certainly. Absolutely. We haven’t closed our minds on any of this.

Chair : We have lost our quorum. Thank you very much indeed for your time this afternoon.