One step forwards, two steps back? The strange case of Tory solar policy

The Conservative Party has had an on-off love affair with the solar industry ever since the heady days of David Cameron’s Quality of Life Commission. Professionally, I was happy to serve on the Commission. It helped to create the right political conditions for the launch of the feed-in tariff in 2010 and cemented Conservative support for it – something that had seemed impossible when we started debating the policy. In the intervening period, there have been a series of policy highs and lows. Too often it’s been a case of one step forwards, two steps back.

Right now, the real danger is that solar will be overlooked in the forthcoming Clean Growth Plan. There appears to be a mood afoot in Government that the job is done, that a so-called (actually non-existent) solar ‘target’ of 12 gigawatts by 2020 has already been met, and that there is little industrial value in UK solar. News this week that one solar farm has been developed ’subsidy-free’ for the first time in the UK has also led inevitably to a rather complacent response from Ministers. Yes, a solar and storage scheme developed on an existing solar farm site does offer a tantalising glimpse of a sustainable subsidy-free solar future into the 2020s and beyond. But one swallow does not make a summer, and it’s clear that very few such pathfinder projects can be developed subsidy-free in the foreseeable future.

In the context of what has happened to our sector since the 2015 general election, the Government would be unwise therefore to draw conclusions prematurely about the current health of the UK industry. Since 2015, employment in the sector has fallen by at least two thirds from a high point of well over 30,000. Large-scale solar deployment has stalled (notwithstanding isolated exceptions that nevertheless prove this rule), and the revised feed-in tariff has seen a dramatic year-on-year drop in rooftop installations. In 2015, there were 155,000 new domestic installations that year receiving the feed-in tariff. In the first six months of this year, the number was less than 5,000. It is undeniable that the sector suffered unnecessarily as a result of knee-jerk policy making in the aftermath of the 2015 election where solar was wrongly and public blamed for the LCF overspend. 

Ministers are keen to describe UK solar as a success story, and so it is. But what we need now from the Government is certainty and partnership for the future, rather than basking in past successes. The fact is, as the recent REN21 report showed, positive policies are still vital to the solar industry internationally. It is ironic that Solarcentury, a stalwart of the UK sector since the late 1990s, is now exporting successfully our UK solar expertise literally all around the world, while the UK domestic market remains in downturn.  

We need Ministers to build on the successes of the past, not assume that it is ‘job done’. Part of that will involve a change in mind-set in Whitehall – a previous Minister confirmed there are no solar champions in the Department of Business, Energy and Industrial Strategy (BEIS), which is quite extraordinary given the importance of this technology. In a recent Parliamentary written answer to a question about solar redundancies, BEIS Minister Richard Harrington MP said that: “many of those who work in solar are also skilled in other building trades, and will move between these with changes in demand.” It’s hard to imagine such a dismissive answer to questions about employment levels in other low-carbon economy technology success stories.  

For at least two years, the industry trade body the Solar Trade Association (STA) has been calling for a package of measures to ensure that solar can access a level regulatory and policy playing field. This includes action to reduce the burden of business rates on solar rooftop installations and to reduce the rate of VAT on solar storage. Charging people 20% VAT for batteries retrofitted to existing solar installations runs completely counter to the Government’s narrative about the importance of storage and the leading role that the UK can play in that emerging market. We are hopeful for action on this front in the forthcoming Budget.

The lack of a level playing field can also be seen in other policy areas. In particular, it is a nonsense that one of the cheapest renewable technologies, and the most popular, remains locked out of the Government’s competitive auction process for Contracts for Difference (CfDs). This is the mechanism that has seen a halving of the support level required for deploying new offshore wind from 2022. Quite rightly, this has been hailed as a potential game changer in the context of the eye-watering £92.50 strike price at 2012 prices needed for new nuclear. But solar inexplicably has been caught up in the fallout from the Conservative Party’s opposition to, and manifesto commitment to end support for, onshore wind. The reality is that solar could also deploy today at prices approaching half those required for Hinkley Point C. Yet we remain locked out of the scheme in a bizarre rejection of market forces. Including cheaper solar again in the CfD process would help to re-energise the UK market and help to put further downward pressure on solar and other technology costs and benefit bill-payers. It’s such an obvious policy move that it’s hard to understand what is holding Ministers back.

Finally, and inevitably, Brexit remains a destabilising factor in terms of solar industry investment in the UK. For our own part, Solarcentury is active all over continental Europe where markets are recovering nicely and we will have to make a decision in early 2018 on key issues such as headquartering and other contingency planning. In the meantime, Brexit does actually open up the prospect of helpful policy changes, including the possibility of scrapping VAT altogether for solar and other energy efficiency measures, and an end to the red tape of the EU’s unwelcome minimum import price for solar modules. Both issues add unnecessarily to solar costs in the UK. 

After a damaging two years of policy changes, there is now an opportunity for positive action leading to a renewed period of stability and certainty for investment in our industry. The solar industry success story deserves better than another policy round of one step forwards, two steps back.

Seb Berry is the Director of Corporate Communication at Solarcentury and Vice Chair of the Solar Trade Association

The views expressed in the article are those of the author, not necessarily those of Bright Blue

Nuclear reactors: is big beautiful?

Nuclear power has long been a controversial source of energy. Detractors point to high infrastructure costs and difficulties associated with storing nuclear waste, amongst other concerns. Advocates, however, view it as a clean and reliable alternative, which the grid requires as the country steadily shifts away from coal and other fossil fuels which we have relied upon for decades.

But last week, the car giant Rolls-Royce released a report on small modular nuclear reactors (SMRs), outlining how they think the technology – first developed several decades ago to power submarines – could foreseeably bridge some of the differences in opinion between pro- and anti-nuclear voices, and usher in a “once in a lifetime opportunity” for Britain to be at the forefront of nuclear technology. Such bold claims, however, require scrutiny – given Rolls-Royce’s commercial interest in the technology’s adoption, and also the relatively untested nature of SMRs as part of the energy system.

Typically defined as nuclear reactors which can generate up to 300 megawatts of electrical power, and can be produced in a single factory on a repeated basis – i.e., ‘modularly’ – SMRs have been touted by their supporters as a way for the UK to tap a reliable source of energy, able to ensure the lights stay on when the sun isn’t shining or the wind isn’t blowing.

One of the main selling points of energy generated by SMRs – at least compared to conventional large-scale nuclear projects such as Hinkley Point C in Somerset – is cost. An economic fact true of most goods and services is that increased and repeated production has a tendency towards falling average unit costs – what economists would call economies of scale. For larger nuclear projects, which are effectively produced as ‘one offs’ every few decades or so, designers have been unable to exploit the potentially lucrative economies of scale because the actual technology involved typically changes to such a significant extent with each project. However, for SMRs, the opportunity to do so is theoretically much greater. Owing to the fact that a factory may fabricate many several SMRs, financial savings in materials and alike allow for a lower cost per reactor to be achieved, ultimately manifesting itself as a lower cost per unit of usable energy generated.

Others have highlighted the fact that financing SMRs could be more attractive to investors, relative to large-scale nuclear plants. Reasons for this are broadly twofold: on the one hand, capital expenditure costs will be lower given that the reactors will be much smaller – allowing a more diverse pool of investors to consider financing a project; on the other, the asset will begin generating dividends far sooner, because it can be built and operationalised more quickly, again, due to its smaller size. This could therefore mean that investors might agree to a lower strike price for their energy generated, given the fact they will not have to factor in more of a guarantee on their return on investment.

SMRs may not just make financial sense, but they could also play a vitally important role in expanding our nation’s ‘energy flexibility’, through helping to decentralise energy production. Decentralisation of energy can be advantageous for the environment because when energy is consumed close to where it is produced, transmission losses are minimised. Developments in other energy sources have already been heading in this decentralising direction for some time now – consider, for instance, solar photovoltaic panels atop people’s houses. Some have also suggested that because SMRs require less water for cooling than their larger cousins, they are more environmentally friendly in this respect, and could also help in bringing energy security to remote areas which may not be located close to seas or large rivers.

Nevertheless, questions do remain about SMRs. In this very blog, much of the financial case for them is based upon the theoretical assumption that economies of scale will be realised – and realised in sufficiently large proportions to warrant a revolution in the energy sector. Because the technology is so untested as a commercial source of electricity generation, estimates about how far costs will fall are difficult to accurately make at this stage.

Environmental NGOs have also criticised SMRs, largely on the basis that they are not strictly speaking a renewable form of energy generation – certainly, SMRs will still inevitably call for the intermittent disposal of spent nuclear fuel. Even if one is not inherently opposed to nuclear energy, it has been pointed out that nuclear waste is an area where large-scale plants have the upper hand over SMRs, because the latter would face a challenging coordination problem stemming from several nuclear sites all needing to dispose of individually lesser, but cumulatively equal, amounts of nuclear waste.  

Yet perhaps the foremost factor which could jeopardise the roll out of SMRs is the remarkable fall in the cost of certain forms of renewable energy, such as solar and wind power. Incidentally, these are technologies which have already very much felt the virtuous cycle of economies of scale themselves, as the costs of their parts have tumbled as they have become more and more widespread. Coupled with ongoing learning about how best to deploy renewables, and a fine tuning of the technology they utilise, wind and solar farms are now more efficient, and more cost-effective, than ever.

Indeed, in the aforementioned Rolls-Royce report, it is somewhat ambiguously claimed that they are “working towards” the medium-term target of £60 per megawatt hour of energy generated through SMRs. Initially, Rolls-Royce even concede that a figure of around £75 per megawatt hour is more likely. This would be noticeably more expensive than the £57.50 per megawatt hour of wind generated power, recently agreed to by two companies in the most recent Contracts for Difference auctions.

In 2015, the then Chancellor, George Osborne, signalled the Government’s ambition to explore new nuclear technologies – pledging £250 million into a nuclear research and development programme. Since then, it has launched a competition to invite engineers to submit their plans for the best value SMR design for the UK. As the nation continues its transition away from dirty and polluting fossil fuels, there is an ongoing debate about which technologies will power the UK forward. In theory, SMRs could have a number of potential benefits, relative to large-scale nuclear. But they also come with certain disadvantages, not least of which is their relatively untested nature.

Eamonn Ives is a Researcher at Bright Blue

Solar PV: why the UK needs to get involved in a global opportunity

The global market for solar photovoltaics (PV) is ‘one to watch’ for every financier, policymaker and energy professional. If you are looking for a technology that is going to boom over the next few decades, you’ve found it.

This is ‘the one’ that is going to transform the way we generate our energy – at home and overseas.

Why? Because ultimately a solar panel is not that dissimilar to a computer microchip. Both are semiconductors. Both have seen staggering falls in costs as manufacturing economies of scale increase. For computing hardware this is known as Moore’s law, for solar it is Swanson’s law. Costs drop astronomically and efficiency goes up as more and more of the stuff is made.

And that means solar is quickly becoming a mainstream electricity generation technology. Bloomberg New Energy Finance recently predicted that there will be $3.7trillion of investment in solar between now and 2040, much of it small-scale rooftops. That is a market worth getting in on.

The International Energy Agency is predicting that globally solar could be the largest source of electricity by 2050. India is aiming to install 100 GW of solar by 2022 – more than twice the amount needed to supply all of Britain's power needs.  China is moving faster still, and will have far exceeded 100 GW by 2020. Hillary Clinton is talking of installing a billion solar panels across the United States. From Chile to Morocco to Bangladesh, the solar revolution is accelerating fast.

According to the International Energy Agency, we could have 440 GW of solar PV capacity installed worldwide by 2020. At present the UK has a world-class solar design, installation and financing sector and could, with help from UKTI, be out there getting our share of that business. Some already are, with leading solar businesses Solarcentury and Lightsource examples of home grown solar companies already starting to set up shop abroad.

However, in order to reap the rewards of export markets you need a stable domestic market to build on, and sadly the situation here in the UK could not be worse. Cliff-edge cuts to the Feed-in Tariff, Renewables Obligation and (in effect) Contracts for Difference has led the market to crash by over 80% according STA analysis, with thousands of jobs and exportable skills disappearing as we speak.

By 2030 solar could be generating 13% of global electricity by 2030, according to a new report from the International Renewable Energy Agency. Some might say “ah but that’s just for southern climes in the global sun belt”. Not true. Solar works well in Britain – solar panels in London generate much of the power they would in Madrid. Cooler British temperatures prevent the panels from overheating, keeping them efficient. Solar uses daylight, not sunshine or heat, generating power even from just diffuse light on a cloudy day.

The cost of solar has come down by 70% over the last five years. The cost of a typical solar installation on a home has dropped from around £20,000 five years ago to £6,000 today. Not yet cheap enough for it to be attractive without government support, but that gives you an idea of how cheap a way of generating power this has become.

And as the cost of the actual modules falls through the floor, the rest of the cost of installing a solar PV system, such as the labour, scaffolding, mounting gear and the inverter that converts the power from DC to AC make up an increasing proportion of the total cost. That means it is more important than ever to support a stable domestic industry with a broad based supply chain that can work to reduce costs as installed volumes increase.

The prize is enormous – a market of $3.7 trillion. If the UK moves now we can still get a significant slice of that. But export markets and domestic markets are inextricably linked, and if we want our businesses to thrive abroad, we have to allow them to thrive at home first.

Paul Barwell is CEO of Solar Trade Association

The views expressed in this article are those of the author, not necessarily those of Bright Blue.

Why a democratic energy system for the UK is inevitable

Say what you like about renewable energy – and a vocal minority certainly like to – but the public love it. The latest quarterly research by the Department for Energy and Climate Change (DECC) found that over four-fifths (81%) of respondents support renewable energy. That only 19% backed shale gas provides some explanation of why ministers are doing all they can to bolster the nascent industry.

Energy is a basic right in the modern world: it is a national shame that one in ten UK households are in fuel poverty. And how focused the system is on decarbonisation is a major determinant of whether we meet our carbon targets and our share of the Paris commitment to keep temperature rises to no more than two degrees.

But there’s a dichotomy. It’s true that if you ask people whether they like solar, wind or tidal energy, they’ll happily say yes. It’s also true that most of us want to see climate action: 70% of DECC’s respondents said climate change was a concern. But away from the survey booths, most people simply don’t seem to have the kind of relationship with energy that turns their in-principle support to something more concrete. The daily expectation of energy is in practice little more than plugging an appliance into the wall, hitting the on-switch, trusting that it’ll work, then grudgingly paying a bill to one of six big energy companies that, the DECC research showed, we increasingly distrust.

There are two reasons people feel like this. First, our centralised energy system is disempowering and old-hat. It has underinvested for years. Retail companies are unpopular, with ScottishPower’s recent £18 million fine just the latest evidence of failing customer service; the public bristle at huge profits while millions struggle under mounting bills. Second, the majority have a passive relationship with our energy system; very few have a stake in the green economy. Energy isn’t a thing we do, it is something that is done for us. But things are changing.

In our 2015 report, Power Failure, the New Economics Foundation pointed to the exciting renaissance in locally-owned energy supply companies that are setting out to deliver either green energy, or cutting bills for the less well off, or both. Nottingham and Bristol City Councils have established their own fully licensed energy supply companies with social objectives, with Nottingham’s Robin Hood offering bill savings of £265 a year. With the London Mayoral election this week there have also been repeated calls for both main candidates to pledge to set up a similar scheme in the capital.

Increasingly we are likely to see cash-strapped councils turning to setting up energy companies as a way to bring in new income while also delivering decent, green outcomes for the people they serve. Mayors and local leaders don’t need to wait for government to navigate the minefield of the power of the big utilities and manufactured tabloid outrage about ‘green crap’. They can, and will, get on with it themselves.

The DECC poll also showed that three-quarters of the public agree that local communities should be given a financial stake in renewable energy developments. That would be a start: only a tiny, albeit influential, 5% of the public ‘oppose’ onshore wind farms, yet even that 5% might find their concerns diminishing if they could actively benefit from the development.

But there are ways to deepen that relationship still further, given a national framework that’s specifically designed to provoke widespread engagement with renewable energy.  Denmark’s “right to invest” principle requires developers to give communities first refusal on becoming equity stakeholders in the project – a far deeper relationship than the occasional ‘community benefit’ payment coming your way. And in Germany energy generated locally can easily be sold locally – technically possible in the UK but hugely costly due to the operation of our market and centralised grid – meaning you could get cut-price energy from the wind farm on the hill over there.

The dust is still settling on on DECC’s controversial cuts to solar subsidies, which led directly to a 75% drop off in installations. It does look like the government has tried to slow the pace of small-scale energy while devoting ever-greater political attention to getting new nuclear and shale gas off the ground. But the decentralised renewable energy genie is out of the bottle, and it’s a game-changer. By the end of this year all IKEA stores will be selling solar panels, which may soon find themselves plugged into thousands of Tesla’s home storage batteries, or similar. Anyone signing up becomes an owner of a small piece of the green economy; as does anyone investing a few pounds in a larger project via platforms such as Abundance; as does anyone who switches to a private or public energy company built around principles of social fairness and environmentally sustainable energy.  

Restoring public purpose and opening up new models of ownership in energy are two sides of the same coin. They are both enabled by the radically changing profile of energy technologies themselves: smaller-scale, renewable systems, with characteristics that naturally enable more local, more dispersed approaches. This is the way things are inevitably heading, as the IPPR argues: ever-more-attractive economics, breakthroughs in electricity storage, and smart grids.  

A quarter of Germany’s total energy mix is from renewables, of which half is owned by private citizens or community groups. The German ‘Energiewende’ – its nationally-mandated plan to deliver 60% of energy from renewables by 2050 – has democratisation at its core. Ninety two percent of the German public think renewable energy should continue to be expanded.

This is chicken and egg: the more people have a stake in the clean energy economy, the more support there will be for it, and vice versa.

The UK’s Energiewende is just as likely to be found in that combination of local, democratic energy and the disruptive characteristics of the technology itself.

David Powell is Associate Director for Environment at the New Economics Foundation (NEF). He tweets at @powellds.

The views expressed in this article are those of the author, not necessarily those of Bright Blue.