STA Blogs: Government must work with industry to avoid a hard “FexiT”

  • Chris Hewett, Chief Executive of the STA

  • .
    There was a buzz at our recent celebration of 40 Years of UK solar at City Hall, one of great optimism for the market, tempered with fear that policymakers will struggle to keep up. In fact today’s Government publication of a Call for Evidence on the future of small scale low carbon generation by the government makes it very clear solar is exiting from the Feed-in-Tariff (FiT), with a clear deadline of April 2019. But there is no clear direction on what happens next, leaving the industry & investors facing huge uncertainty. A cliff edge indeed. Sounds familiar? Is solar facing its own hard FexiT?

The Feed-in-Tariff and Renewables Obligation were hugely successful policies. Last year 3.6% of UK electricity came from solar (half as much as coal), last week it was over 10% and there have been many days this summer where the proportion has been above 25% in the middle of the day. At the same time costs have plummeted.

Of course it’s been a very difficult few years in the industry as government support has been withdrawn at a rapid rate; the commercial rooftop market has been operating virtually without subsidy since 2016 and the three-year exclusion of solar from the UK’s clean power auctions reveals politics trumping economics. However, the stars are aligning across Europe for a mature solar industry that is less at the mercy of political whims. For the UK industry this cannot come fast enough – indeed we have been working with the Greater London Authority and Scotland Government, and with local councils to demonstrate our reduced dependence on Westminster. Three-quarters of all new homes built in Scotland will now have solar and local authorities across the UK are building their own subsidy-free solar farms and running bulk buying schemes to help local residents get access to high quality, affordable clean power.

The solar and energy storage industries stand on the brink of a new era in the UK but policy uncertainty risks undermining this potential. That is the key message that we will be putting out in our response to BEIS’ call for evidence, keeping an eye very much on the Treasury, which holds the reins on nearly all the key policy measures. When solar was expanding faster than government predicted, HMT took steps to slow down the consequential increase in subsidy spending, namely reducing capital allowance to a mere 8% (below general plant and machinery) and making changes to the Climate Change Levy. Business rate treatment of commercial solar installations is particularly perverse, with marginal tax rates of 50% for any company wanting to put PV on their roof. Now there are no subsidies, these tax anomalies must be removed to allow fair competition.

We now have hard evidence of the damage the business rates hike on solar has done to major investors in the commercial rooftop market – something that was never factored into the FIT revaluation in 2016 and which has also hurt community energy and public sector schemes. Solar farms also need fair access to clean power auctions, a call that appears to be on repeat play across Westminster coming now from the National Infrastructure Commission as well as the Committee on Climate Change.

It is also vitally important that decentralised energy is able to operate on a level playing field with centralised power. Too often this is overlooked and that is surprising today, given the prevailing smart energy narrative with its focus on distributed power. This means ensuring smaller generators are treated fairly within a period of profound system and regulatory change. In practice it means safeguarding the fair price for surplus electricity exported to the grid, which is now backed up by new EU legislation. The government is now clear it will remove this safeguard from April 2019, with only hints of a replacement mechanism as yet undefined. Unfortunately the consultations published today run ahead of where we are. As BEIS concedes, there is no route to market yet for small scale renewables. We also have deep concerns about the interface with smart metering which does not yet work. So there is no basis for removing export payments or even deeming. Surely government won’t allow new solar householders to effectively subsidise the electricity retail industry?

It means ensuring that future changes to network charges recognise the system benefits that solar can deliver, not just their costs. More is expected from Ofgem on this front later in the month. Smart solar homes are ready to play – Government needs to do more to expedite the creation of local markets for their valuable flexibility services.

But there is another playing field to level too. Solar is now becoming very affordable for consumers with a modest amount of spare capital. High quality systems are available for around £5,000 and even less where local authorities are running bulk buy schemes (something the STA strongly promotes). Many are installing solar alongside battery storage, EVs and energy home management systems that can save even more money. It is incredibly important to encourage these pioneering investors, but we must also make sure that solar remains accessible to lower income households, including those insocial housing. Government must take great care to ensure that they too can realise the tremendous additional bill savings of smart energy, by opening up fuel poverty programmes to onsite generation. That is why we want to see the zero-interest loans available in Scotland for solar & energy storage rolled out across the UK. The Welsh Government has also used its Development Bank to encourage green mortgages.

With the global solar market this year estimated to pass the 100GW mark for the first time, and our own carbon budgets straying off track, the UK cannot afford to hold this technology back. If government were to remove some key uncertainties, the economic, environmental and social benefits for the UK could be huge

Painfully late and vague though it is, the BEIS call for evidence provides the opportunity for policymakers to catch up. But industry needs and wants to work urgently now with government to avoid a ‘hard Fexit’