environmentalresearchweb blog

« Winners announced for ERL competition | Main | Spanish fuel taxes and urban sprawl »

Fighting for FiTs

PV solar had boomed in Germany, with more than 14 GW being installed so far, but there have been some gloomy predictions about the fate of the German Feed-In Tariff, and PV solar in particular, with support levels falling from a high of 43.01 €cents per kilowatt hour for small solar power plants at the end of 2009, to 28.74 €cents at the beginning of 2011. In addition, PV plants on arable land had been eliminated from the support programme all together.

It’s the same elsewhere.

Similar issues emerged in France. The French government talked about a ‘speculative bubble’ and has imposed a three-month halt to new PV installations over 3 kW, while legislators worked on new tariffs for larger PV installations, which were expected to include rules providing caps on development and lowering feed-in tariffs for solar PV projects. The government also played the China card. ‘Most panels installed in France were made in China with a highly questionable carbon footprint,’ Environment Minister Nathalie Kosciusko-Morizet said, whereas the policy must “create jobs in France, not subsidise Chinese industry.’

To some extent what we have seen are the results of success- PV has got cheaper, so it needs less subsidy. But success has also led to problems. As more people signed up to the FiT the cost to (other) consumers rose- only by a tiny amount true, much less that other fuel price rises, but enough to provide those hostile to FiTs with a case for them to be throttled back.

Tariff cuts and capacity caps have also been imposed in the Feed In Tariff for PV in Spain via a Royal Decree, and were retroactive i.e retrospective for existing projects, which led to major protests by people whose jobs were threatened, with protestors from all over Spain wielding PV panels. One said: ‘The Government is bowing to the pressures of major energy companies and is misleading citizens into believing that the tariff deficit is a problem created by renewables.’

The Spanish Association of Renewable Energy Producers said: ‘It appears Parliament has given itself over to the electric utilities to do away with the solar PV sector in this country.’ Congress approved the Decree by 175 to 12, but with many abstentions. There are likely to be a lot of legal disputes as thousands of PV array owners are hit.

You might see all of this as a failure of nerve – the whole idea of FiTS is that, by building a market they force the price down. This has actually already occurred. According to the German Solar Industry Association (BSW), system prices have fallen by 45% in the last four years. But you have to stick with the process, even if it seems to be pricey initially. Some however say that PV was just too expensive initially to be suited to this approach – it loads consumer up too much. Actually in Germany the extra amounted to approximately 2 €cents per kilowatt hour in 2010, although it was set to rise to 3.53 €cents in 2011.

Figures like this were disputed, but the German solar industry association (BSW-Solar) eventually agreed to a compromise under which feed-in-tariffs will be reduced according to the amount of solar electricity installed annually, with a sliding scale of reductions based on capacity predictions. For example, if the calculated solar PV market capacity for 2011 year was over 3.5 GW, tariffs would be reduced by 3%; if the projected capacity was 7.5 GW, tariffs would be reduced by 15%. As previously planned, funding will also be cut by a further 9% at the turn of the year 2012. Renewable Energy Focus commented: ‘This new step is seen as an earlier than planned reduction, following warnings against the artificial stimulation of the solar market.’

There will be a review of the EEG (the German Renewable Energy Sources Act) in 2012 which will presumably play a decisive role in the future of PV in Germany.

So what does this means for the UK? The UK’s ‘Clean Energy Payback’ FiT for micropower projects, including PV, is so small (it’s expected to yield just 2% of electricity by 2020) it is hardly likely to have a noticeable impact on consumer prices, but the government aims to cut support for PV in 2013, leading to a £40m saving in 2014/15 (10%), ‘unless higher than expected deployment requires an early review’. And if need be, access to the FiT might be limited for large solar farms on greenfield sites before the review, which was scheduled for 2012, but has now brought forward to this year, because of ‘growing evidence that large scale solar farms could soak up money intended to help homes, communities and small businesses generate their own electricity’. So far around 40 MW of PV has been installed under the scheme, out of about 77 MW in all – tiny by comparison with Germany and Spain, but much more than before.

So what next? Given the global recession, extra costs to consumers were obviously politically difficult, even if in fact they were much smaller than other energy price hikes. But the cuts do mean that the growth of PV, and the reduction in price that the FiT system would then yield longer term, will be slowed. And it may get worse.

In addition to the proposed £40m cut for PV, the UK government is trying to limit the problem of short-term consumer costs in its proposed new Electricity Market Reforms by adopting a variant of the FiT which has a strong market element and possibly also contract auction/tenders to keep prices down. That’s not really a FiT at all- it’s more like the old Non Fossil Fuel Obligation, which saw many successful tenders but few actual projects, since companies often bid at unrealistically low prices. It also includes nuclear as well as Carbon Capture of Storage projects, with opponents worrying that, there will therefore be less support available for renewables.

Opponents argue that it makes no sense to lump nuclear, CCS and renewables all in the same category and try to support them in a ‘one scheme fits all’ approach. They are all at different stages of development, for example nuclear has had 40 years plus of funding (and arguably shouldn’t get any more), some renewable are now well established, but some still need help, whereas, a few pilot projects apart, CCS is still mainly unproven.

Worse still, in addition to the £40m cut and the new ‘fast track’ review of tariffs for PV projects over 50 kW, the government has now indicated it will also look at reducing support for on-land wind projects in ‘unsuitable’ lower wind-speed areas. It’s hard not to see all this as panic measures to cut costs by hitting renewables, while continuing to support nuclear and CCS.

Posted by Dave Elliott on February 12, 2011 12:02 PM | Permalink