October 28, 2015

Time to Make the UK a ‘Solar Superpower’

The recent visit by Chinese President Xi Jinping has served as a timely reminder of Britain’s strong position as a destination for foreign trade and investment, with over £30 billion of deals agreed in the space of just a week.

Investors around the globe have long viewed the UK as a safe, stable home in which to grow their business.  The solar industry attracted some £4.5 billion worth of inward investment in 2014.  Solar accounted for half of new investment in UK renewables last year.

There is significant scope to increase the level of investment in solar even further and to build on the thousands of jobs already created across the UK. Solar is forecast to add some US$3.7 trillion in investment globally between 2015 and 2040. The UK could become a solar superpower in the not so distant future, bringing with it more skilled jobs, cheaper consumer energy bills and higher returns for the Treasury.

If this vision if ever to be achieved, the government must retain the UK’s status as a world leading destination for investment in renewables. But just as China, the USA, India, Japan and Germany are making massive investments in their renewable energy sectors, the UK government seems intent on stopping the impressive development of solar early.

Long-term certainty essential
A key driver of the growth of solar power has been the renewable energy policy framework and, in particular, the Renewables Obligation (RO). 

Repayments on solar investments typically take between nine and eleven years. The RO has given investors the time and space to construct a successful, thriving project and build a highly trained workforce around it. Of course, the industry fully recognises that subsidies are a facilitator of growth towards self-sufficiency, rather than a permanent feature, and as such are committed to working with the Government to achieve a zero subsidy sector. 

Encouraging further long-term investment into the industry will play a key role in the move to a subsidy-free solar sector. The government should continue to preserve and enhance the UK’s position as a credible and safe place for investment, not pulling the rug out from under the solar sector. It should be providing a consistent policy strategy and a stable regulatory regime for the renewable energy sector that is well supported by government rhetoric.

The government’s proposals; for early closure of the RO to solar projects under 5MW, the abolition of grandfathering for new investments and a further banding review fly in the opposite direction.

Grandfathering has enabled investors to accept lower hurdle rates for projects. Should grandfathering be removed for future projects, any asset (not just solar) with heavy upfront capital expenditures cannot be invested in – a hammer blow to UK industry as a whole.

Moreover, while the proposal for a grace period may support some investments, the use of grace periods based on an effective date that is the same as the publication date of the government’s proposals for RO, has a negative impact on investments earlier in the enterprise value chain. Moreover, a further banding review as proposed will threaten the financeability of remaining projects.

Jobs and families will suffer
It has become all too clear that DECC has not properly considered the potential impact of their proposed cuts to solar support on jobs in the solar sector. The industry has consistently warned of job losses of between 25,000 and 30,000 – equivalent to the much touted but as yet nascent nuclear energy investment. But the government has acknowledged they could not gauge the potential losses until after the feed-in tariff review consultation closes.

The government has said that they are slashing solar support to help consumers to save money on their power bills. But energy minister Andrea Leadsom has said that the proposals will lead to average annual household savings of just 80 pence by 2020!

And our own analysis shows that if the government goes through with its plans, more than 24 million households across the UK will ultimately pick up the bill, with increased taxes, industrial inflation and higher consumer prices and higher household energy bills, totalling up to £130 a year per household. Obviously, this is not the intent behind DECC’s proposals, but it is their likely consequence.

More businesses will go under
Ever since the government put its proposed changes to solar support on the table the solar industry has warned of their potential severe impact on investment, bills and jobs. With four high-profile solar business already ceasing to trade in light of these proposals, it appears these warnings are now coming true.

Now is the time for government to take positive action to enable the UK to continue its journey towards a ‘solar superpower’ – a subsidy free industry supporting thousands of jobs and playing its part in keeping energy bills down.

UK plc and hardworking families will be better off with a stable, transparent solar policy. If the government fails to recognise this, more solar businesses, jobs and investment will be lost. 

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