Scathing Commons' report blasts Government over Feed-in Tariff cuts

by Search Gate staff. Published Thu 22 Dec 2017 00:01, Last updated: 2017-12-22
MPs attack Government over Feed-in Tariffs

A damning new report by MPs on two influential select committees has criticised the Government's handling of cuts to the Feed-in Tariff scheme and described the “fatal impact” the plans have had on the UK solar industry.

The report, released today, says the Government is undermining confidence in energy policy and hurting the UK solar industry by rushing through panicked changes to Feed-in Tariffs (FiTs) without adequate notice to consumers and installers alike.

The MPs urge the Government to allow those who had already made a contractual financial commitment to install solar panels before October 31 to receive the existing tariffs.

And the report also reveals that according to the latest DECC figures the additional cost to energy bill payers of extending the current 43.3p/kWh to the original April 1 deadline date would be between £1 and £2.

Tim Yeo MP, chairman of the Energy and Climate Change Committee (ECC), said: “There is no question that solar subsidies needed to be urgently reduced, but the Government has handled this clumsily.

“Ministers should have spotted the solar gold rush much earlier. That way subsidy levels could have been reduced in a more orderly way without delivering such a shock to the industry.”

Plans to require homes to meet a ‘C’ rated energy efficiency standard before they can receive solar FiTs will limit access to wealthier households and could have a ‘fatal impact’ on the industry, the MPs warn.

Eighty six per cent of homes would need to be better insulated before they could qualify for the scheme under the Government’s proposals – increasing up-front costs for homeowners by £5,600 to £14,000, even before the panels are purchased.

Joan Walley MP, Chair of the Environmental Audit Committee (EAC) added: “It doesn’t make economic sense to let the sun go down on the solar industry in the UK. As well as helping to cut carbon emissions, every panel that is installed brings in VAT for the Government and every company that benefits from the support is keeping people in work.”

“The Government is right to encourage people to focus on saving energy before fitting solar panels, but these proposals will require most households to spend thousands of pounds on extra insulation before they even purchase the panels.”

“This will stop nine out of ten installations from going ahead, which will have a devastating effect on hundreds of solar companies and small building firms installing these panels across the country.”

The report described how rising energy bills and the falling cost of solar panels made the original FiT rates so attractive that tens of thousands of households, companies and community groups have installed photo-voltaic (PV) systems since the scheme was introduced last year.

According to the committee members, the Government had evidence that solar panel prices were falling significantly as early as March 2017, but Ministers did not act to stem rocketing levels of small scale solar installations until the end of October.

The MPs said the consultation then announced by the Government was “rushed”. It was based on an inadequate impact assessment and unfairly set a 12 December deadline for changes to come into effect (reducing the FiTs for small scale solar from 43.3p to 21p) before the close of the consultation on 23 December. The scale and pace of the changes proposed was a shock for the solar industry and the suddenness of their introduction has damaged investor confidence across the whole energy sector.

Tim Yeo MP concluded: “The consequence of the rushed, eleventh-hour consultation will be uncertainty among investors in all kinds of renewable energy, which will inevitably push up the cost of capital.

“This is an extremely unfortunate outcome, because right now we need unprecedented levels of investment to replace ageing power stations and reduce emissions. The Government should build predictability into its energy policies and then stick to it. There should always have been a review mechanism for FITs that responded to falling costs .”

“In Germany and France they have regular, incremental reviews and long lead times before changes are made.”

The Government has proposed an even lower tariff (80 per cent of the new rate) for generators who have more than one solar system registered for FiTs, in recognition of the economics of scale such aggregated schemes can achieve.

This will reduce the viability of ‘rent a roof’ business models and will also have an adverse impact on community solar projects, which depend more acutely on the tariff income to finance installations. This could have a disproportionate impact on disadvantaged and poorer communities for whom such schemes are a good way of accessing the benefits of renewable energy and reducing electricity costs.

Joan Walley MP added: “The social housing sector and community owned schemes are going to be particularly hard hit by the reduced tariffs being brought in by the Government retrospectively.

“All over the UK councils, community groups and social housing trusts are having to cancel projects at the last minute.”

The suddenness of these changes means that some households have been forced to cancel planned solar panels and face losing their deposits. Others may have arranged loans on the basis that the interest could be covered from the current level of the tariff income. Many local authority and community renewable energy schemes have also been cancelled.

In response to the committees' report, a DECC statement, said: “The Government welcomes the joint EAC/ECC report and will give its findings and recommendations careful consideration. We appreciate the uncertainty faced because of the changes we have proposed to the feed in tariff scheme but we believe solar projects will still be an attractive investment.

“We stand by the need for the proposed changes in order to protect the budget which is funded by consumers through their energy bills. We will consider all responses to the consultation on FITs for solar PV carefully and will announce the outcome early in the new year.”

And industry leaders have lined up to support the report's findings.

Jeremy Leggett, chairman of Solarcentury, said: "When DECC dropped its bombshell on 31st October, we said that the shock announcement was unfair, retrospective and damaging to investment in PV and other renewables.

“It's very pleasing to see that the select committees have voiced similar concerns, adding considerable political pressure on the Government to ensure that such a shambles is never repeated in the future."

And respected expert Professor Stephen Frankel, of the Wadebridge Renewable Energy Network, added: “This report shows how the government's case for crashing the solar industry does not stand up to even its own analysis.

“The Select Committee has pointed to the need for some stability in the sector if any investor confidence is to be restored, and highlights the particular role of community schemes. Let us hope that there will be some red faces as a result of the incompetence that is revealed here, leading to a more constructive approach to nurturing micro-generation from now on.”

David Hunt of Eco-Environments, said: “It is very positive that the report recognises both the devastating effect that the EPC Grade C criteria effect would have on the industry, suggesting 92% reduction of solar FIT applications, and also clearly states that there is no logic to the government's wanting to link energy efficiency to electricity generation.”

And Cathy Debenham of advisory website, said of today's report: “We welcome the thorough analysis of the feed-in tariff process and proposals in the consultation from the Energy and Climate Change and Environmental Audit Committees.

“We have been calling for DECC to uncap the FITs budget, extend the reference date for the introduction of the new tariff, set up a generous community tariff and drop the requirement for buildings to reach EPC (energy performance certificate) level of C to qualify for FITS.

“We are delighted that these are all issues addressed by the committees and hope that DECC will take them on board. Given that DECC did not do a sufficient appraisal before including the feed-in tariffs in its spending review and capping the FITs budget, we trust that they will revisit that decision and make more money available for this popular technology which is rapidly falling in price.

“The report describes the proposal to limit access to the feed-in tariff to the less than 10 per cent of households that meet the highest energy efficiency standards as ‘fatal’. It would be thoroughly inequitable. We hope that DECC will act on the recommendation and remove the requirement – it is important that a tax payer funded incentive is available to all, not just the wealthiest.

“One of the great benefits of the feed-in tariff is the way it has enabled community groups to form and raise finance for local renewable energy schemes, which has multiple benefits of getting people interested in energy, giving them ownership of local energy schemes, and getting solar panels and wind turbines onto community buildings.

“This was threatened by the proposed lower rates, and particularly by the multi-installation rates. We hope that DECC will act on the recommendation to ‘design a community tariff immediately that takes into account the wider impacts on community groups’.”

The 16 conclusions and recommendations of the joint-committees' report in full are:

* DECC set up the solar FiTs scheme without a mechanism to review and adjust degression rates in an orderly and timely way. It urgently needs to develop a system which allows for more regular and predictable review.

* Although the proposed cut to the Feed-in Tariff was announced by Ministers on 31 October, two days before the impact assessment was signed off, due to the continuing increase in take up-rates since it was published, calculations in the Impact Assessment are already out of date. Consequently, the effect on the total spending cap is uncertain and has not been made publicly available so that it could be properly scrutinised. When publishing its conclusions from its consultation exercise, the Government should also publish an up to date assessment of the impact of the proposals on the overall budget for solar FiTs, differentiating between the costs under the two options for change considered in the consultation.

* We urge DECC and BIS to collaborate on how to create an environment conducive to a domestic manufacturing sector as part of the FiTs scheme.

* To facilitate the investment in renewables that the country needs, investors need to have confidence in a stable and predictable commercial environment for those investments. The scale and pace of the changes now proposed was a ‘shock’ for the industry and the suddenness of their introduction has damaged investor confidence across the whole energy sector. This damage would not have occurred if the Government had recognised the unsustainable rate of the expansion of solar installations at an earlier date, something which ought to have been identified by Ministers and officials sooner than it appears to have been. The analysis of the impact on jobs in the Impact Assessment is also seriously inadequate.

* The Government must require electricity suppliers to provide annual returns on how much they have added to annual energy bills to recover the costs of Feed-in Tariffs from customers, and it should collate and publish this information annually, possibly as part of the Annual Energy Statement process.

* It is regrettable that the Government did not consider other reference dates between December 2017 and April 2015, the costs of which DECC has now quantified. We urge the Department to consider these alternatives.

* The use of a reference date for new installations to qualify for the existing tariffs that precedes the end of the consultation smacks of retrospective regulation, which undermines confidence in the Government’s management of other energy policies. Some households are cancelling their planned solar panels and face losing their deposits. Others may have arranged loans on the basis that the interest could be covered from the current level of the tariff income. This is unfair. The Government should allow those who can prove that they had already made a contractual financial commitment to install solar panels before the 31 October start of the consultation process to receive the existing tariffs.

* The impact on community schemes of the proposed changes will generally be greater than for individual homeowners, and could undermine the finances needed to support the other environmental activities of such groups. The lower ‘aggregator’ tariff, if not tempered for the particular circumstances of community and social housing projects, will affect them greatly. As with reducing the viability of ‘rent acroof’ schemes, which have allowed participation by those without access to finance, the likely adverse impact of the proposals on community schemes will disproportionately be felt by disadvantaged and poorer communities. The Government has made a commitment to embed sustainable development in policy making, but the proposed changes to solar FiTs suggest that its social justice pillar is not being given sufficient weight. We recommend that DECC designs a ‘community tariff’ immediately that takes into account the wider impacts on community groups, including lost capacity which could be built on to ensure other Government policies such as the Green Deal are effective.

* The Government believes that boosting energy efficiency is part of the rationale for providing a level of subsidy for solar energy in excess of what the Renewable Energy Roadmap otherwise considered to be cost effective. But it has not demonstrated the logic of linking technologies used to generate electricity in homes to energy efficiency, which focuses on reducing heating and hot water costs, nor whether in practice solar PV contributes to greater energy efficiency. The Government has failed to make the case for why it is proposing to set a pre-qualifying absolute standard of energy efficiency to this technology, instead of all technologies.

* The choice of energy efficiency requirement option by the Government could have a fatal impact on the take-up of the scheme after 2015. Access to FiTs should not be closed-off by the need to improve take-up of Green Deal measures. Requiring the ‘C’ rated EPC energy efficiency standard could limit access to wealthier households. The Government must consider alternative energy efficiency options and publish alternative impact assessments. These options might include (a) offering a range of tariff levels based on energy efficiency; (b) linking eligibility to a specific improvement in efficiency rather than an absolute standard; and (c) linking eligibility to the completion of certain Green Deal measures.

* It appears that only in September did DECC realise that a take-up of solar PV Feed in Tariffs exceeded expectations to a degree that went beyond a summer surge pattern seen the previous year. The Department had evidence that solar panel prices were falling significantly as early as March 2017, and it should have acted sooner to reduce unsustainable rates of solar Feed-in Tariffs. Also, the Government’s method for monitoring take-up on the scheme was clearly deficient and only after a year of the scheme’s operation did DECC identify a critical time-lag in the information it was using. Prompter action would have given the Department greater flexibility in deciding at which point tariffs should be amended, and by how much.

* DECC’s failure to identify the need to control FiTs commitments until too late means that the Government now has to rush to amend the scheme. It is disappointing that a year after DECC floated a ‘trigger mechanism’ for addressing rising take-up of FiTs, it has not materialised. The current panicky response to the upsurge in solar installations in 2017 might not have been needed if DECC had actually developed such a trigger mechanism.

* We consider that a further and better analysis of how an increased export tariff might contribute to a future Feed-in Tariff scheme without affecting the levy-funded spending cap would be beneficial for the establishment of a stable support regime.

* We would welcome publication by DECC of accurate estimates of all elements of expenditure under the terms of the cap, and an the introduction of a running public estimation of how the terms of the cap might be adhered to on a year-by-year basis. Furthermore, DECC should make the case that the Treasury should consider spending on FITs over a four-year budgetary period in this instance. It is unacceptable that DECC was not able to share estimates for FITs spending with the
Committees that could be compared with the revised FITs budgets. It is even more unacceptable that we should subsequently learn from other sources that DECC did hold this information. This raises the question, in light of evidence received from the Treasury, of whether the Treasury had been informed about these figures at all.

* DECC is not considering the cost control mechanism for Feed-in Tariffs at the same time as setting new tariff rates for solar panels because of the “urgency” of the need to make the proposed changes. This approach may result in further revisions to solar tariff rates. Such tinkering undermines confidence in the tariffs, and runs contrary to the Minister’s ambition to provide transparency, longevity and certainty for energy policy. The Government should ensure that it develops a cost control mechanism which minimises the possibility of further sudden reviews of the tariff rates simply in order to keep the scheme within budget.

* In future, there should be much more regular and predictable adjustment of Feed-in Tariffs, based on a transparent assessment of cost changes, signalled well in advance. This should be based on timely data collection to allow a more considered appraisal of possible tariff changes to be implemented after adequate notice has been given. DECC needs to resurrect its plans for developing a trigger mechanism to respond to unforeseen surges in take-up.

* There is a fundamental conflict between the Government aims of, on the one hand, encouraging the deployment of solar PV to contribute to emissions reductions and, on the other hand, steering the deployment of renewables technologies in a way that is most cost effective through the spending cap framework. This means that it is unable to present a clear message about the case for solar PV.

* The Government’s decision to include Feed-in Tariffs within its spending framework should have been preceded by a thorough environmental appraisal, to assess the potential consequences for renewable energy generation, for the then fledgling solar industry and for consumers, who need consistent policy from Government to engender long-term low-carbon behaviour change. The introduction of the spending cap has brought scrutiny to bear on the scheme’s impact on the economy. It is not clear, however, how the Treasury can decide the limits of the scheme’s affordability for energy consumers or the wider economy because it has produced no analysis on

* The Government’s decision may also be pre-emptive. The Office for National Statistics is due to classify levy-funded schemes after considering the outcome of decisions at a European level. The Government should set out how a decision by the ONS not to classify Feed-in Tariffs within public spending would impact on the case for its proposed FiTs changes, and whether this would allow a loosening of the overall levy-spending cap.

* It appears that the Impact Assessment was produced and subsequently used to justify a policy decision that had already been made. A retrospective snapshot Impact Assessment cannot take the place of systematic, timely data gathering which should have alerted DECC to this problem much earlier. If Government takes consultation seriously it needs inputs that are well-founded on the latest information available to it. The Government must consider how the impact assessment process can continue to be relevant and timely in informing consultations, as well as decision-making, in fast-changing situations like that surrounding the solar FiTs market.

* When the Government publishes its response to the current consultation, it should also publish a full analysis of the impact on (a) jobs, (b) future investment in renewables, (c) tax receipts, (d) energy efficiency, and (e) wider economic impacts.

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Comments about Scathing Commons' report blasts Government over Feed-in Tariff cuts

If upwards of 10,000 in our industry have lost jobs over this fiasco I think it is only right that 1 or 2 overpaid civil servants go too.
Martin Smith, Bucks around 2 years ago
I work as a business Manager within the solar industry - looks like some sense being seen at last - will be intersting to see final outcome
John Eley, Ipswich around 2 years ago
agreed, but you cant have a pantomime horse with two back ends, or can you !! i think we've just seen it !!
jerry, somerset around 2 years ago
Bye, bye Greg and soon to be followed by Chris."Clumsy" is a polite (political) way of saying you got it very wrong now resign.
Mike Johns-Turner, South West around 2 years ago
DECC and The Treasury. Hmm. I'm thinking pantomime horse when it comes to solar PV policy.
Sally Forth, London around 2 years ago

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