Memorandum submitted by Solarcentury on
behalf of the UK Photovoltaic Manufacturing Association
SUMMARY
1. The UK is barely scratching the surface
of the immense potential of solar Photovoltaic (PV), a proven,
robust, tried and tested technology. Last year, Belgium installed
10 times as much solar PV as the UK, with Germany installing 250
times the UK total. The Government's proposals in both the Renewable
Energy Strategy and feed-in tariff consultation will do nothing
to help the UK to "catch up" with Germany, Japan and
other leading solar PV nations.
2. "Catching up" with Germany
and Japan in terms of solar PV deployment used to be Government
policy in the period up to 2002. In 2001, the then Energy Minister
Peter Hain MP said "This Government is serious about solar
energy. I want to see thousands, rising to tens of thousands of
roofs covered by solar panels every year over the next ten year,
rivaling the large programmes in Germany and Japan."
3. But last year, Germany installed 1,500
MWp of PV. The UK installed around 6MWp or 0.4% of the German
total. In the eight years since the 2001 General Election, the
sector has seen a series of stop start and under-funded grant
programmes and perhaps more importantly, no proper or coherent
strategy in place to help enable the industry to realise it's
potential in the UK. This is surprising given the scale of the
2020 challenge and the significant contribution that solar PV
can make towards delivering the renewable energy target and beyond.
4. Absolute resource potential for solar
PV in the UK is 460 TWh per annum for building mounted PV ie more
than current total UK electricity demand, of which 140 TWh per
annum is optimally orientated towards the south. Ground mounted
PV would add to these figures further. But to date, this massive
potential has been routinely overlooked by policy makers.
5. Solar PV is literally the forgotten technology
of the Renewable Energy Strategy and the Government's feed-in
tariff proposals are designed to restrict uptake of the technology
to no more than a half% of all UK electricity by 2020 or around
2 TWh. But the Government's own consultants have calculated that
setting the forthcoming feed-in tariffs to deliver a return on
investment of 10% ie consistent with European best practice, would
deliver 14 TWh from solar PV by 2020. The European PV Industry
Association (EPIA) calculates that the right feed-in tariff and
regulatory regime in the UK would deliver over 20 TWh or around
5% of UK electricity by 2020.
6. The Federation of Master Builders, Electrical
Contractors Association and National Federation of Roofing Contractors
have jointly called for an increase of at least 10p in the proposed
solar PV tariffs. Such a modest addition, increasing the return
on investment for solar PV from <1%-4% under the current proposals
to 3%-7% post tax at current proposals plus 10p would deliver
30,000 construction sector jobs and 400,000 domestic PV installations
alone by 2014. The additional cost of this increase to domestic
FIT levy payers by 2014 would be approximately £2.50 per
annum, less than a penny per day.
7. We believe that this is a small investment
to make to drive rapid uptake of the technology, to unlock third
party funding for housing association and other public sector
projects, to allow the banks to provide specialist low interest
solar packages for householders and to deliver significant construction
sector employment all within four years.
THE POTENTIAL
OF SOLAR
PV MANUFACTURING IN
THE UK
8. Assuming an effective feed-in tariff
from April 2010, the UK is potentially an extremely attractive
market for both manufacturing and project investment. We do not
share the widely held view in Government that the UK has already
"missed the boat" as far as solar PV manufacturing is
concerned.
9. The UK already has the beginnings of
a serious UK manufacturing base. Sharp for example has it's European
manufacturing headquarters in Wrexham employing up to 600 staff,
Solarcentury's own solar PV tiles and slates are made at the Sony
Pencoed plant near Bridgend, and there are further PV manufacturing
centres in south Wales and County Durham. "Upstream,"
PV Crystalox Solar PLC based in Oxfordshire, are global leaders
in solar ingot manufacturing.
10. In total, the solar PV sector currently
employs around one in ten staff working in the entire renewables
sector. But the UK has to date barely scratched the surface of
the enormous investment and employment opportunities of this technology.
RENEWABLE ENERGY
STRATEGY AND
SOLAR PV
11. The Renewable Energy Strategy approaches
Solar PV almost entirely in the context of domestic micro-generation.
We are told that the 2020 target means that the UK needs significant
contributions from all proven renewable energy technologies.
But for solar PV, that welcome starting point is not reflected
in the Renewable Energy Strategy. Solar PV is the only main renewable
energy technology not mentioned in the department's indicative
mix of renewables by 2020, and there is a generally dismissive
approach to the technology throughout both the main strategy document
itself and the supporting papers.
12. This approach does not appear to be
based on any proper consideration of the technology in the UK
context, nor indeed on any detailed research into its potential.
The UK for example, is at the forefront of developing new building
integrated PV solutions such as solar tiles, slates and glass
laminates, which we are now exporting very successfully into Continental
markets. Solar PV, uniquely of all the renewable energy technologies,
is also a building material in its own right. As such it has an
important value adding role to play in urban Britain, in engaging
individuals and communities in the fight against climate change,
and in driving many tens of thousands of jobs in the solar PV
manufacturing and services, but crucially also in the mainstream
construction sector.
13. Instead, the original RES consultation
supporting documents deliberately excluded any consideration
of the technology including the three detailed studies by Sinclair
Knight Merz and Douglas Westwood. The study of "quantification
of constraints on the growth of UK renewable energy generating
capacity" for example, considered no less than 14 renewable
energy technologies including technologies still in their experimental
infancy in the UK such as tidal stream, and other "onsite"
technologies such as small wind, but bizarrely overlooked PV altogether.
14. This is surprising given the scale of
the 2020 challenge, the need for contributions from all renewable
energy technologies, and the very rapid growth forecast for solar
PV throughout the rest of Europe over this timeframe. The Douglas
Westwood report into Supply chain constraints for the RES simply
asserts that:
"Whilst solar PV is a small UK contributor,
Europe-wide potential is high and growth is fast spurred by improving
technology and reducing costs."
Given such "high" Europe-wide potential,
there is no discussion at all as to why solar PV is considered
to be a "small UK contributor."
LEVEL PLAYING
FIELD POLICIES
DRIVE DEMAND
FOR SOLAR
PV
15. The exclusion of any proper consideration
of solar PV in the RES is also surprising given the evidence of
the Government's own policies to date. The Low Carbon Buildings
Programme Phase 2 for example has demonstrated that solar PV is
very clearly the technology of choice for schools, housing associations
and other community scale installations accounting for over 60%
of committed projects and over 70% of completed projects to date.
16. "Level playing field" policies
such as the Merton planning rule typically requiring a 10% carbon
reduction from onsite renewables "where feasible," have
also demonstrated the practicability and popularity of the technology
in larger scale commercial and public sector developments in urban
settings.
17. Even the Code for Sustainable Homes
level 3, which is often assumed to have no bearing on onsite renewable
energy technologies is delivering PV uptake particularly in flat
developments in the social housing sector. Opponents of the Government's
zero carbon homes policy have routinely expressed alarm at what
they perceive to be the "high cost" of achieving high
carbon compliance levels through onsite renewable energy technologies.
But our practical commercial experience suggests to the contrary
that at lower levels of the Code the most cost effective solution
is often a combination of energy efficiency measures and a small
solar PV installation rather than simply energy efficiency measures
themselves.
18. This commercial experience was reinforced
by the independent modelling carried out for the DCLG Zero Carbon
Homes consultation in 2008 which suggests that at Code levels
3 and 4, a combination of best practice energy efficiency measures
and solar PV is a cheaper way of delivering carbon emission reductions
than relying for example on advanced energy efficiency measures
alone. And that is achieved using an assumption of 0.43 kg CO2
saved per kWh of PV generation in the "long term" not
the current building regulations PV CO2 factor which
is 0.568 kg CO2 saved per kWh.
19. We welcome the Government's decision
that from 2016 a minimum standard of carbon compliance of 70%
should be achieved through a combination of energy efficiency,
onsite Low and Zero Carbon energy supply technologies and directly
connected heat and that "allowable solutions," including
offsite renewable energy generation, will only be used for dealing
with the residual emissions once those carbon compliance standards
have been achieved.
20. Solar PV is a universally applicable
technology in the UK's urban areas which can be rolled out quickly,
and which, uniquely of all of the renewable energy technologies
can deliver a very rapid increase in UK construction employment
within the lifetime of the next Parliament. Integrated products
have the additional advantage of providing an aesthetically appealing,
secure and silent built environment solution and enormous employment
opportunities in the "conventional" building sector.
SOLAR PV AND
THE GOVERNMENT'S
PROPOSED FEED-IN
TARIFF SCHEME
21. The Government's feed-in tariff scheme
to be introduced in April 2010 has the potential to drive a significant
uptake in solar PV and other "small-scale" renewable
electricity technologies. The UK PV Manufacturers Association
submission to DECC "2020 A UK Vision for UK PV," emphasised
that an effective tariff had the potential to deliver over 100,000
UK solar PV jobs by 2020 and a significant solar PV contribution
of 21 TWh per annum to the UK 2020 renewable energy target ie.
more than the proposed Severn Barrage and to a quicker timescale.
But a significant solar PV contribution can only be delivered
if the tariff returns on investment are set high enough to encourage
third party investors into the UK market.
22. The Government's proposed scheme includes
no premium at all for job rich building integrated solar PV (BIPV).
If this oversight is confirmed in the final scheme, it would mean
the UK, almost uniquely of all successful European tariff regimes,
having no specific encouragement for a sector which has massive
UK export potential, as well as a major role to play in delivering
customer acceptable renewable energy solutions in the built environment
eg house builders and housing associations opting for the aesthetic
and user friendly appeal of integrated solar PV roofing products.
23. We are very concerned that the Government
has not brought forward a Feed-in tariff scheme to maximise the
potential contribution from the entire small-scale renewable electricity
<5MWp sector to the 2020 target. Solar PV in particular has
been singled out for particularly harsh treatment. For PV, the
investment rate of return at the 26p level for large commercial
installations is less than 1%.
24. There is scant explanation in the Government's
consultation document as to why the Government chose to limit
the scope of its "small-scale renewable electricity"
ambition to no more than 2% of UK electricity by 2020. The Government's
alternative scenario of delivering 3.5% of UK electricity is dismissed,
almost out of hand. But even 3.5% of UK electricity or around
14 TWh is still 11 TWh below the contribution that could be delivered
on the basis of a FIT regime with 10% ROI levels across all technologies
by 2020, and less than a quarter of the 60 TWh "technical
potential" from solar PV alone identified by the Government's
own consultants in the Impact Assessment.
25. Ministers have said publicly that they
would be delighted if the FIT scheme delivers more than 2% of
UK electricity by 2020 and the 2% number is not an upper limit
cap. The problem with this approach is that the tariff levels
proposed from 2010 clearly reflect the very modest 2% target for
the overall scheme and have been calculated to ensure that growth
in demand for solar PV and other small-scale technologies is restricted
to this level. So for example, the proposed PV tariffs are set
deliberately to discourage investors in large-scale >100-5MW
commercial projects and to ensure that uptake is restricted to
owner occupiers only.
26. The projected contribution from PV by
2020 is just 0.5% of all UK electricity, with most of this uptake
modelled to take place post 2014 ie. after the Government's first
review of the FIT scheme set for 2013 at which tariff rates may
be cut further. This is barely 10% of the 21TWh that the European
PV Industry Association (EPIA) has projected could be delivered
in the UK by 2020 under its SET for 2020 plan. EPIA project that
solar PV alone could deliver 5% of UK electricity by 2020 with
the right FIT and regulatory framework.
27. The main explanation for the low projected
contribution from PV by 2020 relates to the Government's treatment
of rates of return for the technology. The Feed-in tariff Consultation
Document Impact Assessment makes it clear that the starting point
for the Government's preferred "lead scenario" was an
8% ROI ie.
Impact Assessment para 26: "The approach
taken uses the 8% ROI scenario as a starting point, with adjustments
then being made to ease administration of the tariffs, reflect
technology-specific risk and ease of deployment and ensure consistency
with existing tariff mechanisms (the RO)."
28. It is unclear from the consultation
document whether the 8% ROI "target" is pre or post
tax. We think that 8% ROI is probably a sensible target if it's
a real post-tax rate of return (but the Government should recognise
that it is by no means a generous one). The European PV Industry
Association for example, argues that investment rates of return
of 8-12% are needed to ensure "sustainable growth" through
a feed-in tariff scheme. Anything less than 8% risks market "standstill,
while anything above 12% can lead to "unsustainable growth."
29. The potential of the new FIT policy
to deliver a far greater contribution than the target 6 TWh in
this consultation is recognised in the Impact Assessment with
a 10% ROI across all technologies capable of delivering 25 TWh
by 2020 including 14 TWh from PV alone.
30. For solar PV however, the proposed tariff
rates and structure will deliver at most, just over 2 TWh per
annum by 2020, with the bulk of that growth coming post 2014.
The helpful consultation document starting point of trying to
deliver an 8% ROI is then undermined by a deliberate cutting of
the PV tariff rates on the grounds that it is a "tried and
tested technology" and easy to deploy ie.
Impact Assessment para 27: "The key difference
between tariff levels in the lead and 8% scenario is that PV tariffs
have been reduced to reflect the fact that PV is easier to deploy
than other technologies (eg it has permitted development rights
at the domestic scale) and carries less risk for the investor
given that it is a tried and tested technology."
31. We are struggling to understand the
logic of this argument and the very severe cuts to the proposed
PV tariff rates which flow from it (ie about 10p/kWh on the generation
tariff or the equivalent of 30,000 skilled solar PV UK services
and installation jobs to 2014). There is no attempt to actually
quantify the value to a potential household PV customer of eg
having domestic permitted development rights, or what percentage
precisely is taken off the PV ROI on the grounds that it is a
"tried and tested technology." The Government's current
"finger in the air" ROI reductions penalise unfairly
consumers opting for PV and needs to be rethought.
32. As a result, UK PV Manufacturers Association
modelling (which we believe mirrors that of the DECC consultants
and which we are happy to share with the committee) indicates
a modest increase in uptake in 2010 on the 8 MWp or so we forecast
for the UK in 2009, but crucially for us, zero interest from commercial
investors. That is confirmed in discussions with real investors
post publication of the con doc. It is important that the final
scheme recognises that the cost of capital in UK has traditionally
been much higher than the Euro zone, and will continue to be unless
we join Euro. So UK FIT payment rates must reflect the UK interest
rates premium rather than the current assumption that the target
ROI that is relevant in eg Germany can be assumed to be applicable
in the UK. This is essential if DECC wants to design a scheme
to encourage third party funders to get involved.
33. PV industry modelling suggests that
adding just 10p to the starting tariff numbers from April 2010
(ie increasing them from the proposed 26-36.5p per unit to 36-46.5p
per unit) and doing nothing else to the proposed scheme would
deliver well over 12 TWh per annum by the same date, more than
six times the Government's target. Crucially, adding 10p to the
starting tariff numbers would achieve rapid take-up of the technology
in the early years of the tariff scheme delivering:
— 30,000 UK skilled solar power jobs by
2014;
— over 400,000 new solar photovoltaic installations
on homes by 2014;
— additional investment in UK solar PV
manufacturing building on established centres in Wrexham, South
Wales and County Durham;
— new private sector financial packages
for the domestic sector removing the need for Government grants
or other public sector subsidy to address capital costs; and
— far greater uptake of solar power by
housing associations and public sector organisations.
34. 10p is a very modest ask. Even a 10p
increase for non domestic PV would still not deliver the Government's
target 5-8% return on investment for the scheme for non domestic
installations, nor interest commercial investors in large-scale
PV projects, and is well short of the potential 21 TWh per annum
feed-in tariff contribution from PV or 5% of UK electricity demand
identified by the European PV Industry Association earlier this
year. We are not asking for "special treatment" for
PV. An additional 10p on the proposed solar PV tariffs simply
moves the ROI numbers for PV closer to the 5-8% range promoted
by Ministers since publication of the consultation document, but
for large-scale projects is still below the lower end "target"
of 5%.
35. By contrast, Alan Simpson MP (Secretary
of State Ed Miliband's Parliamentary adviser on feed-in tariffs)
has called publicly for tariffs to be set to deliver 12% returns
across all technologies, precisely because the UK renewable
energy sector is so far beyond the rest of Europe and the urgency
of getting on with delivering the 2020 target. According to the
Government's own consultants, for solar PV, a fixed tariff
delivering a 12% return on investment would need to be set at
78.5p per unit for domestic installations (or approximately 70p
under a premium tariff) and 57p per unit for large-scale installations.
It is vital that the Government reconsiders the current low generation
tariffs proposed for solar PV if it is serious about its publicly
stated 5-8% return on investment target, and we hope that the
committee will endorse that view.
Our 13 partners in UK PV Manufacturing Association,
all of whom have endorsed this submission are as follows:
Southern Electric Contracting
October 2009
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