UK Solar PV FIT cuts questions & answers.

(News last updated 11 December 2011)

Here’s our take on the solar PV panel FIT subsidy cuts: DECC waved a bothersome red flag. Britain’s leading solar bulls left the pack, impaling us all on DECC’s waiting sword.

Q1 Has the original solar PV FIT funding pot run out? Yes. There is supposed to be no money left in the budget.

Q2 What happens now? Presumably government raids another green energy pot. My guess is the RHI or somewhere else. They have to keep paying until the review is done.

Solar news UPDATES 10 Jan 2012: Well, there you go! It has just been revealed that nearly £200M of more money has secretly been found by raiding another pot, thus increasing their original budget by about 75%. Further update of 11 Jan 2011. Confusion reigns because DECC now say this is a technical adjustment and NOT new money. What is going on?

Q3 Is the Government still stuck in the courts? Yes, we know this much anyway. Government has very deliberately chosen to do this.

Q4 Why? Choose your answer:

• The Environmental Taliban [The Minister’s words!] dragged them there.
• To save our Dear Minister’s oh-so-pretty face.
• To buy time. [At what price? For what purpose?]
• To carefully explore all the interesting new legal ramifications. [Apparently the issues affect, more generally, the way that government runs its various consultations.]
• Because it’s all started so we will just ram on and on and on.
• To teach a stupid whingeing industry who’s boss.
• In order to become a new Twitter Trend.
• Courts are fun. Courts are centrally heated. They do fancy dress. We love fun!
• None of these. All of these. Something else. Don’t be cheeky. I just don’t care aaarghhh.

Q5 Have FoE action given the Government a bloody nose? Well,  yes, I suppose so, but only tricklingly. And at a price. All this legal headbanging is causing life-threatening haemorrhaging blood-torrents from the solar industry’s noses. Pass the clean bandage, luv.

Q6 Is this a spectator sport? Ooooh yeeees! Whooooopeeee! The fossilbods and nuclearites are smirking, jeering and grinning with unrestrained glee. Lawyers are coining it. As for the mere taxpayer, er… Shuttup.

[Wallet warning. Naked solar sales pitch follows. Stand back. Be sceptical.]

Q7 Is this a good time to buy solar? And which kind of solar? Probably yes, for both kinds, in the same kind of way that the January sales are a great time to buy Xmas cards.

1/ For solar PV we now have 21p confirmed by government and the legally adjudicated possibility of much more until 31 March. By these figures , on the basis of past law, we are talking about a tariff that your installation attaches to and which then stays with it, index-linked for 25 years. If the court case is won in favour of 43p (ie finds against Government) then PV installation prices will certainly soar immediately, because the speculators will all dive in again. What do we mean by speculators? Just that. During part of the 6 week bubble from 1 Nov to 12 Dec 0211 we ended up paying 50% to 100% more than our normal prices for some supplies such as PV modules. At one point we even paid 2.5 times the normal prices for a while because someone had bought up the lion’s share of UK’s solar roof mounting kits. We actually installed at a loss for a time, and then we had no choice but to put our prices up. This time we know that we will have to hike them so immediately if 43.3p is announced. In addition, there is another reason to act now, from 1 April it looks as if many people have to invest in £5k or so in of “Energy Performance Certificate – Level C’ home energy performance upgrades, as a condition of getting state funding. According to Government 85% of homes currently do not reach this standard. But again, this is part of the cuts consultation, the legality of which is under dispute. The point is that PV prices are low right now and they are likely to rise.

2/ For solar thermal water heating, again, it seems like a good time to buy because if you wait until after 1 April you will lose your £300 RHIP subsidy, because this end at that date.

[End of sales pitch, back to the general warbling, burbling and wailing…]

And finally (except that this is all far from final). Repeat after me: “Our Dear Minister is not, repeat not, a lawbreaker. The Great British Department of Energy and Climate Change is strategic, competent and oh-so wise. Our Hallowed Department of Business Innovation and Skills knows all there is to know about sustainable business. Repeat this enough times, eat a few nutmegs and you will trulytrulytruly believe it. Look into my eyes…

Now for the solar PV FIT cut facts.

Thanks to REA and MPC for much of this info, which was originally provided in a much more measured and understated format. Below is an edited paste-in of some of their recent analyses, with ye wondrous highlights in bold! [And our snide / sarky comments in square brackets just for fun].

Certainty over 21p tariff. DECC now says this should help to reduce the uncertainty: The PV tariff rate (<4kW domestic installations) will not fall below 21p for installations if the eligibility date is 12th Dec 2011 to 31st March 2012. [That’s the only joy got promptly out of the way, now for the detailed fog-analysis.]

DECC officials have shed some light [haha solar gedditt] on the FITs Judicial Review appeal process and the potential impact on the industry.

Judicial Review. DECC lodged their appeal on 4th January.  DECC expect to get an appeal hearing with 3 Judges. The permission hearing will be next Friday, the 13th [haha!] and will be followed by the full hearing, if permitted, the same day.  The findings won’t be announced until the following week, REA say by Friday 20th January at the latest. So DECC [and we] hope that by 30 January all will be clear [as mud], but there are no guarantees of the timing as the process could result in a further appeal to the Supreme Court [or beyond] by whichever side loses.

Once the result of the Appeal is known and if DECC win they intend to publish their response to the consultation on or around the 30th Jan (they can’t do it before) along with the Phase 2 FIT Comprehensive review.  However, DECC made clear that the proposals in the Phase 2 consultation depend on what the result of the Judicial Review is and the amount of PV that has been installed since 12th December.  Unfortunately REA are unable to get reassurance that other technologies will definitely not be affected.

If DECC lose they may appeal to the Supreme Court, a process for which it is difficult to forecast a timescale.  REA’s understanding is this is something of a test case around the consultation process on secondary legislation which has far wider implications across the whole of Government and which therefore means there will be much wider considerations for Government in choosing to pursue this beyond the solar issue. This could mean that even if DECC wanted to drop the case, concern over the rulings impact on other Government policy may prevent them from doing so. [the quagmire thickens]

Letter to Chris Huhne. REA Chief Executive Gaynor Hartnell has written to Secretary of State Chris Huhne requesting an urgent meeting and seeking reassurances that the legal dispute will not be allowed to affect the future of the FIT scheme, for all technologies.  REA have press released this today.  The REA letter to the Sec of State makes clear REA are not in any way involved in the legal actions. [Unlike several of its members. Some other members were angry about the JR action.]
However if DECC’s Appeal is lost it will be vital to secure wide political support for an increased budget.  REA have made clear to Friends of the Earth and a wide range of other stakeholders that their actions have raised the stakes, creating opportunities but also risks and threats, so it now essential to have more support and resources to safeguard the FIT industries.
Market bias. REA are well aware of the needs of other FIT technologies, as well as implications for the RO budget and have publicly criticised DECC for failing to prevent pot-depletion by one favoured technology.  [We asked the very same question much earlier: about 18 months ago. We even asked Europe’s competition people to look at the matter of one technology pointlessly smashing up the renewables market. We showed them that the UK solar thermal market had collapsed to about 20% because of the FITS orgy. Nothing happened. Dozy idiots.] REA has suggested pulling FITs into general taxation to help resolve these concerns, where Treasury revenues appear to exceed scheme costs. [And they now do, for the avoidance of doubt.]

The Judicial Review has raised the stakes, [repetition] since a return to 43p kWh tariff could see another rapid rise in deployment [ie bubble and period of speculation where people buy up containers of PVs and kits and at every European port sell them on at 2.5 times normal prices. We got well screwed by some these guys between 1 Nov and 12 Dec, but that’s just the joy of capitalism.] DECC is not ruling out any follow-on legal options, should it lose the appeal.

Empty pot for the future too. Whilst Minister Greg Barker is keen to see the scheme continue for solar, in an interview with Business Green yesterday he confirmed REA’s internal analysis that the budget had been exceeded for 2011/12 and REA believe this will also be the case for 2012/13. Therefore reducing the tariff for all PV systems installed post 1st April 2012 to 9p kWh (equivalent to 2ROCs) remains a possibility. [Catastrophic.] DECC Officials were keen to stress that 9p is not their preferred outcome, [naturally, who  wouldn’t apart from a fossilbod or nuclearite] and that all options remain under consideration.  However, REA are worried, as they understand DECC came very close to setting 9p 2 months ago, but this was fought off by the Minister.

Is the cliff now is closer and higher? Looks like it. The unfolding legal process may have implications as to whether this 9p outcome might be avoided or become inevitable. Are we lemmings?

21p is OK. So far the majority of solar companies believe setting a reference date before the end of the consultation was deplorable, but that 21p works OK.  Key concerns are to focus on the long term future of the industry and on balance.

So, the sequence of events up until now has been as follows:

Ø  12th December 2011: eligibility date after which consultation proposes new installations should revert to 21p tariff on 1st April 2012
Ø  21st December 2011: Friends of the Earth, HomeSun and Solarcentury win their case against the Government’s proposed changes to the solar FITs
Ø  22nd December 2011: Joint EAC/ECC Select Committee Report into FITs is published, criticising management of the scheme and the recent consultation process
Ø  23rd December 2011: Deadline for responses to consultation on Phase 1 of the Comprehensive FITs Review
Ø  4th January 2012: DECC announces that they have lodged grounds of appeal with the Court of Appeal
Ø  6th January 2012: Date for DECC’s application for permission to appeal announced.

The ruling: Mr Justice Mitting ruled that the 12th December reference date for the proposed cuts to the FIT, occurring two weeks before the consultation officially ended on 23rd December, would be illegal.

DECC’s response: DECC has sought permission to appeal the decision. The request for permission to appeal focuses on the underlying principle of the ruling that the proposed approach to implementing new tariffs for solar PV is inconsistent with the FIT scheme’s statutory purpose of encouraging small-scale low-carbon electricity generation and accuses the Judge of ignoring the needs of other FIT-eligible technology groups.

What will happen now? DECC must now wait to hear whether they have been granted permission for an appeal. It has been announced today that the application for permission and, if permission is granted, the appeal itself will both take place on Friday 13th January. In the meantime, the industry is left in limbo as a result of the delay to a decision, unsure which tariffs will become effective when. There are a number of possible outcomes from this point onwards:

• If DECC is refused permission to appeal: 43p tariff remains in place for all registered installations until the Parliamentary process has concluded  (expected to be 1st April, but could be earlier)
• If DECC is granted permission to appeal but subsequently loses. A hearing takes place (up until which a final decision is still pending) after which 43p tariff is confirmed for all registered installations until the Parliamentary process has concluded (see above)
• If DECC is granted permission to appeal and wins. A hearing takes place and we return to the existing situation where a consultation process is ongoing and Government is considering responses.

[There are many other scenarios as well as these three.]

To recap, a few likely diary dates:

Ø  13th January 2012: DECC appeal permission hearing, which will be followed by the full hearing, if permitted, the same day.  The findings won’t be announced until the following week.

Ø  31st January 2012 (approx): If DECC wins its case, it intends to publish its response to the consultation on or around the January 31 – which is the earliest date it can do so – along with the Phase 2 [ie domestic] Comprehensive review.  However, the proposals in the Phase 2 consultation are likely to depend on what the result of the Judicial Review is and the amount of PV that has been installed since December 12 [because this amount affects what is left in the funding pot or more realistically how overspent it may become]. In the event that DECC loses its appeal it may turn to the Supreme Court.  It is unclear at present what the implications of this might be.

Ø  1st April 2012. 1/ Solar PV FIT might fall well below 21p, to as low as 9p, if so, then constraining the solar PV market to well heeled, deep green, ethical customers only. The originally Proposed Home Energy Performance conditions of EPC level C may add a further £5000 or so to the typical investment per home, thus reducing takeup even further, but of course this requirement will also improve household savings for those who can afford it. 2/ And the solar thermal RHPP £300 grant ends on this date. This is why people are buying solar now: some choosing both solar thermal and solar PV. Time is running out…

Wider implications. Following the October 31st announcement, the number of solar PV installations grew by up to 50% per week, reaching nearly 30,000 installations in the last week leading up to the 12th December deadline. If the Government does not win an appeal, a renewed period of tariffs at 43.3.p/kWh is inevitable. The exact length of this window will depend on DECC’s legal advice following conclusion of the court case. However, even with a relatively short window, a renewed bubble of demand would appear possible. This could impact on the fixed budget (saving which DECC has stated is the basis for its intervention), with further implications for the FiT scheme as a whole beyond 1st April 2012. This is speculative however, and we must await the decision of the Court on DECC’s request for permission to appeal following the Court’s return on Friday 13th January.

More on the numbers of PV installations fitted during the 2011 solar PV “Gold Rush” (dates are week ending dates).

• 30 October: 5,296
• 06 November: 6,884
• 13 November: 9,577
• 20 November: 13,266
• 27 November: 16,978
• 04 December: 25,564
• 11 December: 29,880

[Silent message.] Whatever the outcome from this point onwards, the Government will have been sent a clear message regarding the management of the scheme and the approach to this recent consultation in particular. [What message? That they have cocked up? That our Dear Leaders are wilfully misunderstood sweetypies?]  The industry as a whole hopes that policy makers will think carefully before adopting a similar approach to policy intervention in the future. [Full marks for diplomacy and expert tactical application of the reverse understatement / intensity rule that only a true GritBrit can really understand. Luvvitt]

Hoping this analysis was fun. Sunny fog-free regards, Barry.