Transition Bath’s Response to the UK Government’s DECC consultation to Solar PV Feed-in-tariffs

1. We would like to state our concern that this is not really a consultation if it follows the pattern of the recent FIT pre-accreditation consultation where despite 99.3% of consultees (2356 out of 2372) rejecting the proposed changes, DECC decided to ignore them and go ahead anyway
2. We object to the piece-meal approach of the consultations. Why for example was the pre-accreditation consultation run separately from this one? We feel they should have been combined into a single consultation and not split.
3. We generally feel that this review is very short-termist and symptomatic of government policy in general. It would have been better for a more strategic review to have taken place immediately preceding this consultation into the impacts in the next 10 years of
   1. solar PV reaching grid parity and beyond
   2. emerging cheap battery storage technology and its impact on supply and peak demand
   3. capacity constraints within the national grid, particularly in the South West
   4. how renewables fit into the energy-mix for electricity generation going forward
   5. how to better manage an industry going forward and how to avoid a boom and bust renewable economy driven by inept government management

Once an understanding of the potential long-term future of the industry is determined then this consultation could be more rationally discussed from a macro-economic perspective; in our opinion just focussing on managing the LCF in isolation is not a viable way of carrying out government policy

1. We object to a lack of assessment of the impact on employment in this analysis, we assume it was deliberate to avoid contentious news headlines? Stating that DECC is unable to determine how many are employed is a very weak excuse for not doing any assessment at all. We feel that in the absence of concrete employment statistics an economic assessment of job losses in ‘low, medium and high’ scenarios of perhaps 10,000, 20,000 and 40,000 should have been included in the impact analysis. It seems DECC is very able to include jobs estimates for a new industry like Hydraulic Fracturing but unable to do the same for an existing industry like renewables, the latter of which we would have thought would have significantly easier?
2. We are concerned about the impact of the proposed 87% to 100% reduction in FITs has on the wider industry and the likely harm this might do to the long-term future of the renewable industry both in terms of jobs and long-term investor confidence, neither of which are addressed in DECC’s analysis
3. DECC have a very poor record in managing FITS, with significant peaks and troughs of installation in the immediate vicinity of digression dates – this is of DECC’s own making, but it appears the renewables industry will pay the price for this mismanagement with a likely catastrophic contraction in deployment and employment
4. The proposed 87% reduction in FITs – i.e. to almost nothing, essentially voids the purpose of many of the questions in this consultation – the details of the FIT framework are irrelevant if there are no FITs
5. We feel the most likely scenario is that there will be a rush to install prior to Jan 1 2016, which will use up the LCF, option 3 will come into effect and the FIT scheme will be closed. Post Jan 1 2016 it is likely further small scale installations of renewables will stop completely until perhaps 2020 when solar PV reaches grid parity; thus solar PV in particular will be funded only by export tariffs and some savings on import – no detailed discussion of this most likely scenario appears in the consultation documentation. Will export tariffs be maintained in the absence of FITs? Will the market, with the advent of Smart Metering move to a more auction based scenario for solar electricity, and what will the impact of cheap battery technology have on this?
6. The impact analysis and determination of proposed FIT levels is narrowly based on the assumption of a hurdle rate or expected rate of return of 4%, as being the minimum acceptable to investors. As far as we know no successful local community share offer has achieved full funding with less than 5% return, and more typically 7% return has been required. The PB report fails to detail why investors might be interested in investing at 4% given the risks of the investment which are largely down to uncertainty of government policy. Our expectation is that at a 4% return community energy schemes will funded and therefore not built. Why does DECC think 4% rate of return acceptable for solar PV but 13.5% acceptable for nuclear power at Hinkley – it appears nuclear power enjoys significant favour over solar PV?
7. 4% return is also probably too low for domestic installations, given as the PB report suggests, domestic consumers typically use ‘years payback’ as a more relevant benchmark. 4% equates to perhaps a 20 year payback which is likely to deter the majority of home owners. We feel rather than using a baseline of 4% of sub 10 kWp solar installations, a payback based metric of around 12 years should have been used which would have implied a significantly higher return
8. We feel that this change will have a particularly bad impact on the Community Energy Sector, which benefits local communities via inward investment, and is only likely to benefit the largely foreign owned big 6 energy suppliers.
9. As a result of the more strategic review we requested above, we feel that the amount of money allocated to the LCF should have been reviewed and potentially revised upwards in line with a long term strategy for the renewables industry and in particular to manage the industry from now until grid parity in about 2020. A higher LCF, along with higher expected investment returns would have allowed for continued, perhaps lower level investment in renewables and employment in the sector, rather than cutting it off completely. We don’t think that the LCF for 2020 should have been fixed based on a determination in 2010, the purpose of a strategic periodic review should be to examine all aspects of the FIT framework. Given FITs only have a small impact on consumer’s electricity bills (£6/year), and that the sector employs large numbers of people we feel increasing the LCF should have been examined as an option.

In conclusion:

vi. we feel that this consultation has been badly organised, and should have been preceded by a more strategic review

vii. it is likely to lead to a rush of installations prior to 1 Jan 2016, and then the suspension immediately afterwards of the FIT program as the LCF runs out

viii. the industry is likely to then go into a long period of significant recession until at least 2020, and DECC’s mismanagement of the FIT process is likely to spook investor confidence for many years to come increasing cost of capital which would represent poor value for UK plc

ix. to avoid this, a more strategic approach to the industry must be implemented, which because of past uptake of FITs being above previous projections, we can only conclude that LCF caps should be raised

x. we feel the major beneficiaries of the proposed changes will be the largely foreign-owned big 6 energy companies and it will be to the particular detriment of thriving local community owned energy companies

In answer to the 1^st consultation question, we disagree with DECC’s proposal for all the reasons given above, and in particular we feel the 4% investor return/hurdle rate is too low, a more strategic review should have taken place with the potential to raise the LCF cap.

1. With more advanced smart metering, beyond what is currently being offered today, but probably within a 10 year horizon, supply and demand will be better matched by a combination of renewables and battery based storage, and time of day charging/metering
2. Without a wider discussion of the impact of battery based storage systems, which is likely to be very disruptive to the industry with the potential for many consumers to exist largely off grid once the monetised lifecycle costs of batteries drop below wholesale electricity costs. There is not one mention of batteries in the main consultation document which we feel is a significant oversight.
3. Time of day metering, and charging will have a very significant impact on the future landscape of export tariffs

We think without this more strategic thinking the export tariff should not be tinkered with and should be dealt with outside of this short-termist consultation, or as we suggested in answer to question 1, this more strategic analysis of the wider implications of renewables and battery storage should have been dealt with prior to this consultation even taking place.

1. We feel that the current proposed Smart Meter’s won’t be sophisticated enough for future battery based dynamic supply and demand systems and so any forced installation would probably need to be replaced within 5 years
2. An economic impact assessment of impact of Smart Meters on existing generators’ income should take place beforehand
3. Smart meters don’t work for everyone, some of our members who live in rural areas have no mobile phone coverage – which might make it difficult to install functional meters
4. Good Energy who supply electricity to many of our volunteers and are dominant FIT consumers in this sector don’t have a Smart Meter roll-out program

1. We feel that the current proposed Smart Meter’s won’t be sophisticated enough for future battery based dynamic supply and demand systems and so any forced installation would probably need to be replaced within 5 years
2. An economic impact assessment of impact of Smart Meters on existing generators’ income should take place beforehand
3. Smart meters don’t work for everyone, some of our members who live in rural areas have no mobile phone coverage – which might make it difficult to install functional meters
4. Good Energy who supply electricity to many of our volunteers and are dominant FIT consumers in this sector don’t have a Smart Meter roll-out program

Having said all that, given we feel that because of the high take up of installations prior to 1 Jan 2016, and that the FIT scheme will as a result be closed we are not sure this change in criteria will be relevant?

Having said all that, given we feel that because of the high take up of installations prior to 1 Jan 2016, and that the FIT scheme will as a result be closed we are not sure this change in criteria will be relevant?”