19th December 2018
In this STA Blog, Léonie Greene of the Solar Trade Association highlights the impact ending the export tariff will have on industry and calls on Government to urgently produce a solution.
Yesterday’s announcement on the closure of the export tariff is more than disappointing. The decision ignores the vast majority of responses to BEIS’s consultation, together with the evidence provided as to why a careful approach is badly needed. It also ignored new EU laws designed to protect the rights of prosumers. It ignores our letter to the Minister now signed by over 350 stakeholders. Perhaps most disturbingly, there are no signs yet that the recent warning from the Intergovernmental Panel on Climate Change to Governments to actively avoid ‘a lack of regulatory or policy commitment’ have been heeded. The report, which warns that we only have 12 years to avoid breaching 1.5oC of warming and catastrophic climate change, identified the bulk of the heavy lifting for climate change mitigation will be done by renewables.
It’s a painful experience not only for the industry, but for the many people and organisations who understand the frankly desperate need to act on climate change and for whom solar is the most accessible and loved of clean energy generation technologies.
Knowing the opposing position the UK Government took earlier this year in the EU talks on Article 21 of the Renewable Energy Directive (recast), which covers the new rights and protections for prosumers, we were concerned that the barriers to market solutions & the vulnerability of small producers in the system were not appreciated here. And so it has proved to be. We’ve spent much of the last six months engaging with suppliers, storage providers and others seeking to understand those barriers. Coming out of these discussions and an industry roundtable, with the expert input of Nigel Cornwall at Pixie Energy, several hybrid solutions have been developed that we are happy to work with. You can read our simplified summary of that solution here. Pixie Energy’s more technical paper on options can be read here.
There are real reasons why the market hasn’t come forward with offers for small power providers. In a nutshell, it needs to be cheap and easy to bring small volumes of power to market for aggregation. That is not the case yet due to unresolved issues around smart metering, data access including from third parties like aggregators, the cost and timescale implications of raising a second export MPAN to enter power into settlement, as well as nebulous admin fees. Market-wide half-hourly export settlement remains years off, meaning the potentially higher prices smart homes could capture from timely export cannot yet be captured – market responsiveness needs to go both ways! And despite some worthwhile initiatives, the local flexibility markets we all want to see do not yet exist; meaning the full value of smart homes cannot yet be monetised.
The reason that PPA offers exist only for larger installations is quite simply that currently the economics of exporting larger volumes of power outweigh these costs & complexities, which have not yet been tackled or streamlined for smaller sites.
In short, the Government is trying to make new solar homes run on smart energy and market tracks that barely exist yet. So it is not surprising that too many existing solar homes seeking to install smart meters (potentially unaware Ofgem is enforcing metered export on the back of this) are not having a good experience putting responsible suppliers sometimes in an awkward position. Our view is that a bit of time and care should be taken to get it right, to ensure that households have a positive experience of engagement with the smart energy system, which is inherently complex. After all, we need their participation if society is to realise system savings of potentially billions of pounds from domestic flexibility alone.
It’s great to have a vision – and there is strong consensus in the industry about the smart system we are trying to achieve – but a vision must be realised. We are some years away from a smart energy system yet, with plenty of potential spanners nudging at the works. Uncertainty over network charging reforms risks further impeding smart homes and energy supplier engagement. And suppliers themselves are under real pressure, given the energy price cap and rocketing wholesale prices. Not to mention Brexit.
Maintaining the current export tariff, even just to bridge the policy gap, has been prematurely and sadly ruled out. So we now urgently need to see a proposal from Government. Energy Minister Claire Perry’s previous statement to the Commons that ‘it would be wrong to have power provided to the grid for free’ needs to translate, not only into some payment, but fair payment, along the lines we propose. After all, the export tariff is not a subsidy – it is a method for overcoming a fundamental market failure, to ensure payment for an inherently valuable commodity. All generators, even those spilling out of their contracted obligations receive a payment for their power. And indeed, this System Sell Price they receive is the price the Government previously identified as the appropriate proxy for the export tariff. In fact, the SSP has been slightly higher than the export price on average in 2018 (at 5.4p/kWh), while the wholesale price has averaged nearer 6p/kWh this year.
Let’s also be clear that the volumes of power we are talking about from new solar homes are tiny. Even under our most wildly optimistic scenario, you are talking about only 0.01% of UK power coming from new solar homes next year. And yet this market is so crucial to public engagement and the development of a smart energy system, not least with 70% of battery storage sales linked to solar. So it seems a great shame for Government to choose to dance – and clumsily – on the head of such an important pin.
Meanwhile in Europe, the new Article 21 of the Renewable Energy Directive is meant to guard against exactly the experience new prosumers risk having here. The outlook for the nascent smart energy sector across Europe looks rosy, given such strong legal protections, on top of ongoing support for solar through various FITs, net metering, tax breaks and clean power auctions. In the USA, many states conduct Value of Solar analyses that often conclude even net metering is good value when looked at from a system perspective. So we are in danger of not valuing in practice here the decentralised, smart system and empowered consumers so often valued in words.
And those working in the solar sector feel particularly undervalued. The policy hole Government has created means businesses that install solar on homes and SMEs are left in disarray. Even our largest members are left struggling to plan ahead, so you can imagine what it is like for the smallest. Typical member feedback includes:
‘A policy gap means uncertainty. Consumers will fear this uncertainty & the threat of further market decline is very real’
‘If projects no longer require MCS certification a degradation of quality of new installs could be observed’
And indeed, we have a real concern that a ‘policy-to-come’ scenario opens up opportunities for mis-selling making MCS quality assurance requirements more important than ever. The Government should with any policy decision place the consumer at the heart of it, yet MCS and the future of industry standards weren’t covered by the Government in either the consultation or their consultation response, despite referencing it being a concern for respondents.
So what can people and communities seeking to go solar do today? Firstly, we want to see as many local authority collective purchase schemes as possible to help build volumes and achieve lowest cost installations while safeguarding quality. This approach is now proven and we need it to gather pace to overcome the lack of supportive solar policy from Westminster. The great majority of the financial value of solar today comes from avoiding importing grid electricity, so the more homes self-consume, the better the economics. There are several ways to do this apart from behaviour change, including diverting power to heat hot water cylinders in homes that have them, trickle charging EVs and of course battery storage. We also strongly urge people to continue to ensure their systems are MCS certified – sacrificing quality really is a false economy.
But there is no substitute for treating people fairly within the system. If we want people to act on climate change and to engage in an efficient, smart energy system, with all the carbon and cost savings that promises, then they must be treated fairly and encouraged to participate positively with a transforming system. It is very late, but not too late, for Government to do the right thing. And fast please!
- Léonie Greene is Director of Advocacy and New Markets. She was previously Head of External Affairs at the Renewable Energy Association between 2007 and 2013. Before that she was Political Adviser at Greenpeace, initiating their Decentralised Energy campaign. She also worked for the Deputy Mayor of London on Sustainable Development and the conception of the London Climate Change Agency.