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Solar news: 6 October 2010. Will Big Spending Review (20 Oct) Slash Solar Subsidies?

Filed under: Latest News

Microgeneration strategy, Renewable energy and power, Solar panels, PV photovoltaics, Solar thermal hot water heating, UK comprehensive spending review 20 October 2010, Environmental and market impact potential.

Should you be interested in some “finger in the wind” thoughts about UK’s forthcoming comprehensive spending review (SCR), this news briefing may interest you. It looks as the potential impact of the forthcoming CSR on the renewable industry and in particular on solar technologies, both solar heating and solar electricity.

Could solar electric feed in tariffs for new PV installations be axed on 20 October?

Consumers interested in green energy may be wondering: What opportunities (and potential threats) face people like us who are interested in domestic energy saving and microgeneration? Is slash and burn on the agenda? Will the review promote any energy saving solar incentives or subsidies at all? Will “big sticks” such as fund-raising carbon taxes be used against energy wasters instead? The Comprehensive Spending Review may be the very place to address strategic questions. There are certainly plenty of inherited anomalies and illogical things to fix. This is just a personal perspective, but I hope is of interest – and fun to read.

I have condensed the current speculation down into five main issues to look out for:

  • 17.5% VAT on dirty domestic fuel – to drive general energy market rebalancing.
  • Social benefits and “fuel poverty” alleviation – to offset its ill effects.
  • A new carbon tax – gradually increased over time.
  • Support for DIY energy saving measures – via VAT reduction to 5%.
  • Specific microgeneration market rebalancing – will the PV feed in tariff survive intact?

That’s the summary. Now for a brief discussion on each lookout issue.

Look out for 1/ 17.5% VAT on dirty domestic fuel as part of a general energy market rebalancing.

Putting the VAT rate up on domestic non-renewable fuel (electricity, gas, oil, coal etc) up from 5% to 17.5% (and again to 20% in January 2011) looks like an intellectual no-brainer – because it taxes consumption and pollution. It raises taxes. It ends what is in effect an anti-environmental tax rebate for energy consumption. How can any country’s green ambitions be taken seriously when energy is taxed less than, say DIY solar heating (see below)? VAT at 17.5% would helt to solve so many counter-rigging market incentives and move consumers in favour of more energy saving and green energy. With this VAT change, your electricity bill, for example, might carry 5% VAT on any green electricity which you bought and 17.% on the rest.

  • Political toxicity rating? – Awful. 5% fuel VAT is an EU-sanctioned social measure.
  • Abstract logicality? – Excellent. Obvious. The polluter pays – at last.
  • Renewables industry attractiveness? – Gorgeous (but almost nobody dares to will admit it).
  • Social progressiveness? – Awful if fuel poverty is not addressed comprehensively. But then it could be OK.

Look out for 2/ Social benefits and “fuel poverty” alleviation.

How is fuel poverty defined? When over 10% of household income is used to energy bills. This definition   “catches” a significant number of retired people whose homes are detached or hard to heat, for example.

So if huge chunks of funds were raised by taxing conventional fuel at 17.5% instead of 5%, what could be done with the extra funds? What if say a third of it was squirreled away to help to balance the nation’s books? And another third used to incentivise green energy and energy efficiency? And another third used to tackle fuel poverty by increasing social measures such as pensions, benefits and winter fuel payments – at a rate which was beyond the rate of inflation.

  • Political toxicity rating? Depends on the sums. Could even be popular.
  • Abstract logicality? – Makes sense if deployed as as a simultaneous painkiller for a dirty fuel VAT rise.
  • Renewables industry attractiveness? – Neutral.
  • Social progressiveness? – Yes. More Liberal than Conservative.

Look out for 3/ A carbon tax, (or a “dirty” fuels tax) gradually increased over time.

The idea of this shift in policy is to tax the carbon content of fuels in proportion to the energy they release. So coal, which is almost pure carbon, gets taxed most, oil middling and gas a bit less again. (I suppose if the super-rich were to buy diamonds with the intention to show off that they could burn them as a fuel – this purchase would also be subject to a carbon tax!)

  • Political toxicity rating? Simple and market, based so yummy for some. Nuclear would be exempted and the fact that Nuclear is exempt and already being subsidised would means that some would call for nuclear to be penalised too because it is so dirty. (40% of all the funds which are given to the Department of Energy and Climate Change being spent on cleanup for this fuel.)   But a carbon tax is not really the best for the national energy security wonks. After all, UK has have lots of coal, so why tax it highest?, they will argue, particularly given that for strategic reasons we want to wean ourselves off imported gas, whis not so carbon-intense. Taxing gas much less than coal will frustrate this strategic national objective.
  • Abstract logicality? Excellent and environmentally cogent. A potentially way of reducing carbon emissions cost-effectively (setting aside the strategic national coal/gas dilemma).
  • Renewables industry attractiveness? OK – if not used as an excuse to remove most green energy incentives!
  • Social progressiveness? – Potentially as awful as a stand alone VAT increase. Again, this requires significant and parallel fuel poverty alleviation.

Look out for 4/ Support for low cost and DIY energy saving measures via VAT reduction to 5%.

Over the past decade hundreds of campaigning Solartwin customers have signed petitions and written to their MP’s protesting about UK’s barmy tax disincentives against doing energy saving more cheaply – yourself. Blamed on Europe, this VAT anomaly persists: where DIY solar heating and DIY home insulation materials attract three and a half times more tax (17.5%) than the tax on the horrid fuels (5%) which they are installed to save. Will this review suggest that it is time, not just to level this playing field, but to tilt it the other way instead, in favour of green investment. Yes, how about 5% (or even 0% VAT) on energy saving DIY goods but 17.% VAT rising to 20% next year on energy consumption? How about making certain simple DIY solar installations, like Solartwin, grant eligivble, instead of reserving grants for identical but professionally installed systems only and thereby excluding DIY.

  • Political toxicity rating? 5% VAT on DIY green stuff would be a low cost, populist change.
  • Abstract logicality? Yes, simple common sense.
  • Renewables industry attractiveness? Microgeneration installer-led cartels would revile it as a breach of their monopoly rights.
  • Social progressiveness? Positive. It supports and incentivises those who do it themselves.

Look out for 5/ Specific microgeneration market rebalancing.

Government bungling means that the microgeneration market is in a mess. The British government even seems to be breaking competition law. How? By massively unbalancing the market – by subsidising renewable electricity (such as photovoltaics) but not renewable heat (such as solar water heating) for most consumers. Europe gave the UK approval under competition rules for the Feed in Tariff for electrical generators on a specific written undertaking that these subsidies would happen “in conjunction with a large increase in the use of renewable heat“. Is this actually happening? No. Soon after introducing some of the most generous (thank you!) solar electric subsidies in the world, they also axed grants for solar heating. So while today solar water heating has a return on investment which has fallen to low as 2%, solar electric (PV) installations (which we install all over UK right now) are booming – because they offer around 6-8% tax free income for 25 years. So the solar market is extremely unbalanced. Interest in solar heating (rather than solar electric) panels is in decline according to the Solar Trade Association. How will this promised “large increase” in renewable heat be delivered in time of economic austerity? A level playing field is needed. So the worst happen? Will solar electric feed in tariffs for new PV installations be ended on 20 October? We hope not and we have signed a letter expressing our concerns.

On another issue of imbalance, tf renewable heat is to be supported more then government needs to address the very rule books which define what is eligible for subsidy and what is not. One issue is that business users of Solartwin are not eligible for tax breaks because old fashioned component efficiency rules for “enhanced Capital Allowances” do not support the installation of superior low and of zero carbon solar water heating systems, such as ours, into businesses. (The ECA rules specify, in effect, single glazed panels so in fact our doubled glazed ones (which lose less heat when heat is actually needed) are overlooked. Another issue is plumbing safety. Even though actual level of risk increase is hotly debated at present, it is clear that the UK government is flouting Health and Safety Executive Guidance on Legionella safety by exempting tens of thousands of state subsidised renewable energy systems from UK health and safety guidance by their promotion of “twin coil solar cylinders” ahead of much safer hot water storage methods. Many green energy consumers are currently not even being asked for their consent to what may be substantially higher Legionella risks.

  • Political toxicity rating? Hot potatoes – which will not cool down. Safety improvements and all moves towards incentivising zero carbon solar are being systematically vetoed by the solar heating industry. Under UK law, the current feed in tariffs are in place until April 2013. If government cuts or even abolish feed in Tariffs then investor confidence in the UK renewables sector will collapse because they will have set aside some primary legislation and this precedent will deter investors from investing in UK in any sector, not just renewables. Why should Solartwin, for example, sign a lease on a larger office, or recruit new people, or an installer sign up to a new van if the present market is so unbalanced and its future is so uncertain?
  • Abstract logicality? Logical and urgent. Safety needs tightening up. Making carbon savings need to be the bottom line, not some neglected side effect of inefficient subsidy.
  • Renewables industry attractiveness? If twin coil cylinders are excluded from approval and subsidy some installers will groan, but others, such as us (we have not installed any of these for years) will cheer.
  • Social progressiveness? Yes: a rebalanced solar market means wider choice, improved safety and cost-effective carbon savings.

I do hope that these thoughts are interesting. Some potential solar PV customers are getting the jitters and want to get moving in case they miss the boat. They are asking us whether the government is planning to cut PV feed in tariffs on 20 October and they want a safety net. In the hope that people who hold existing uncompleted contracts to install PV will have these honoured by the Government, some people are choosing to order PV installations before 20 October in conjunction with an option to cancel if after 20 October should the government backtracks on its PV subsidy commitments to them.

I just wish we had more clarity! Sunny regards from Barry.


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