MSE News: Solar subsidies to be slashed under government plans

zeupater

digitaltoast wrote: »

Been out of the loop the last couple of weeks, found this thread having been emailed this link:

http://www.dailymail.co.uk/news/article-2055039/Is-sun-set-solar-power--leaked-document-reveals-government-planning-50-cuts-subsidies.html

Two things to remember.
1: It's in the Daily Mail. But...
~
... Sorry, solar PV industry, but the great big lumbering soviet-style iron horse of a gravy train has hit the buffers.

That's my 2p worth (but I'll get paid 43p for it, of course).

.... I'll pull my reply to this more relevant thread too then .....

zeupater wrote: »

Hi

I pretty much agree ..... I think that the industry will moan like anything for a while, then simply pull their socks up and become a little more efficient (there are still some taking 3 days to install a system !), and then reduce prices as required. Twelve months ago installed prices in Germany were around/lower than UK prices are today and the equipment prices have fallen considerably since, so there's plenty of fat in the system to cushion the industry against any claims of armageddon ....

Looks like the margins available as a result of the law of supply and demand will just be rebalanced towards the customer for a time whilst the supply side of the equation provides the necessary adjustments ..... all will be well for most in the long run, especially the providers of the funding for the FiT scheme, namely .... us

Z

Z

zeupater

magyar wrote: »

I'm sure it's not insurmountable - I suppose the question is whether the government should surmount it.

Ultimately, the R-a-R people are simply making money from the fact that there is sufficient cash on the table from the subsidies. Lowering the subsidies means that fewer people will get solar panels, but also costs the country less.

Hi

Just think of the R-A-R companies as entities which are just currently exploiting a loophole in legislation .... a little like making the most of poorly worded taxation rules, should the government surmount it .... of course they should, and further more, it should have been done well before now .....

I've always considered that responsibility and accountability go hand-in-hand, however, this relationship seems to pass those whom derive their power from the electorate as well as their respective departments .... wouldn't it just be interesting if the departmental budget holders had their budgets made directly accountable for departmental errors and legislation which is found to be drafted in a manner akin to swiss cheese ....

Z

magyar

But surely the point of a subsidy is to get the thing you want to happen, to happen. In this case the government has decided it wants solar power built, but it's not economic so it's subsidising it.

What the government did NOT do was want to give homeowners a stable 20-year 10% return on investment. That's the effect, not the cause. They just knew that's what they'd have to do to get people to invest.

It can't be sure whether Decc foresaw the idea of R-a-R, but either way what they now see is that at the current FIT level they get more uptake than they can afford to subsidise, hence they're just (possibly) reducing the level slightly.

jamesd

magyar wrote: »

What the government did NOT do was want to give homeowners a stable 20-year 10% return on investment. That's the effect, not the cause. They just knew that's what they'd have to do to get people to invest.

It's the cause, not the effect or purpose. An insufficient return on investment will cause the money to be used in other ways that generate a higher and/or less risky return on investment.

zeupater wrote: »

it seems that you are saying that regardless of cost you should be fitting the most efficient panels ?

Not regardless of cost. If you only get paid up to a generation cap, the cap incentivises using the lowest cost panels to hit the generation cap, regardless of their efficiency. Since roof area is a limited resource, that reduces the generation potential of the roof.

A cap based on panel area would encourage generation at whatever the cost-effective tradeoff between panel, installation and shared component prices and increased generation is.

zeupater wrote: »

In order to maximise generation from a limited area (roof) some will make the decision to pay a premium for more efficient panels which may currently give a 5% increase in efficiency from around 15% to somewhere currently around 20% for the most efficient panels which are openly available, however there is likely somewhere around a 20%+ price premium for doing so, which just make the cost/kWh generated higher over the system life.

Hard to tell what the market premium would be when the current scheme disincentivises using the more efficient panels, presumably reducing efficiency of scale for them.

You suggest a 20% higher purchase price to get a 33% increase in generation. That initially seems likely to be a good deal, depending on the cost of money and payments for generated power. It would also reduce the installation and shared component cost per kWh, compensating to some degree for the higher panel price.

zeupater wrote: »

Looking at developments in the pv industry, it's likely that lower efficiency, but far lower cost pv based on thin film technology will be the way the market develops .... it's highly likely that laminated rolls of low cost pv will be available which can be adhered to almost any surface thus removing the need for reliance on high efficiency.

Could be. There are some very interesting developments in that area that might shift the economics radically in the direction of very much lower purchase and installation costs vs higher generation efficiency. One more coating on a window might not add much cost to a new window installation, say.

zeupater

jamesd wrote: »

.... You suggest a 20% higher purchase price to get a 33% increase in generation. That initially seems likely to be a good deal, depending on the cost of money and payments for generated power. It would also reduce the installation and shared component cost per kWh, compensating to some degree for the higher panel price ....

No, this is incorrect .... the 20% higher price for a more efficient system would only achieve the same generation off a smaller area ..... to achieve a 33% increase in generation off more efficient panels, the system would likely cost around 20%+33% (compounded) more (minus a little for unchanged base costs such as scaffold etc ...), so a 33% increase in generation would cost around 60% more, not 20% ...

HTH
Z

magyar

jamesd wrote: »

It's the cause, not the effect or purpose. An insufficient return on investment will cause the money to be used in other ways that generate a higher and/or less risky return on investment.

OK, I think we're saying the same thing in a different way. What I mean is that the intention was to get solar energy built, and they created sufficient subsidy to ensure it did.

Since this is basically a zero-risk investment, a 10% unlevered return seems incredibly high.

grahamc2003

magyar wrote: »

OK, I think we're saying the same thing in a different way. What I mean is that the intention was to get solar energy built, and they created sufficient subsidy to ensure it did.

Since this is basically a zero-risk investment, a 10% unlevered return seems incredibly high.

Not sure how you rate this as zero risk (is anything?). The return is based on a promise from the current government who guarantee the increasing return for 25 years. I'd rate the risk as about the same as me getting the projected £250k maturity value for my £100pm endowment taken out almost 25 years ago. The last thing they told me is I'd may get £38k. (And I know the return wasn't guaranteed/gov sponsored/and the myriad of other differences, but I'd say the risk is similar in both cases in my assessment, i.e. I'd say there's a cat in hells chance of the scheme lasting 25 years (for existing benefactors), indexed linked, at such a high rate of return).

Also, the 10% return isn't the same as 10% interest rate (as I know you know, but just to be clear for those who may not). It's really a 10 year payback period - which itself, in business terms, is a long time (I think many businesses assess proposals on the payback time, and it used to be anything over 3 didn't get a look in ime).

Halving that, as the leak seems to indicate, to a 20 year payback will pretty well kill the scheme off for new customers imv (at least until the solar system's price can be halved again). nd that will be a good thing as the cash which would have been spent on the scheme is released for much better uses.

Interestingly, looking at the jobs aspect, is it the case that although many jobs may be lost, the almost three quaters of a billion, and rising, subsidy will carry on for another 24/25 years, with no jobs created and very few maintained?

zeupater

jamesd wrote: »

... Not regardless of cost. If you only get paid up to a generation cap, the cap incentivises using the lowest cost panels to hit the generation cap, regardless of their efficiency. Since roof area is a limited resource, that reduces the generation potential of the roof.

A cap based on panel area would encourage generation at whatever the cost-effective tradeoff between panel, installation and shared component prices and increased generation is.

Hard to tell what the market premium would be when the current scheme disincentivises using the more efficient panels, presumably reducing efficiency of scale for them ....

Hi

Isn't what you describe exactly what the current FiT banding achieves ? ..... The tariff reduces at a 4kWp cap, again at a 10kWp cap and if you can have over 10kWp you have a seriously large roof such as a barn, but other bands exist to accommodate larger scale systems.

Most households which are suitable for pv installation would struggle to accommodate much more than 2kWp and even most large 4/5 bedroom houses would only just take 4kWp, although E/W split systems would bring additional roof area into play for some ..... so there is an effective cap in place for most. In a situation where there is not quite enough space there is the option to install more efficient panels, however that is the point at which the cost-effective tradeoff you raise becomes relevant.

I am really struggling to understand why you believe that the current scheme 'disincentivises using the more efficient panels' as it doesn't .... if anyone wants to fit more efficient panels (ones which produce the same amount of electricity off a smaller footprint) then they are totally free to do so .... the only current disincentive really being relative cost. What the current system does do is provide a disincentive to install systems sized at over 4kWp just to maximise income, this being achieved by paying a lower tariff .... installations of between 4kWp and ~4.6kWp would actually cost more than a 4kWp system and receive a lower return, so there are not many installations in the 4kWp to 5kWp+ range at all, it's just not cost effective .... Another way of looking at it is that a 4kWp system would likely export around 70%+ of total generation anyway, so having a seriously large system in most circumstances is nothing to do with green, just greed.

HTH
Z

magyar

grahamc2003 wrote: »

Not sure how you rate this as zero risk (is anything?). The return is based on a promise from the current government who guarantee the increasing return for 25 years. I'd rate the risk as about the same as me getting the £250k maturity value for my £100pm endowment taken out almopst 25 years ago.

OK, again I agree - it's not ZERO risk, but not the same as endowment which relies on a rising market. The FIT is linked to RPI and so its much more secure in that respect.

There is a risk (which I would consider very small) of the government reneging on its promises, and some risk that you have more equipment failures than you expect.

But I would rate the risk as not significantly higher than putting the cash into the bank, and yet you get much higher return. I would estimate something closer to an overall 7% return is more reflective of the risk.

(That said, I still think it's wrong that even a 7% return would basically be being subsidised disproportionately by the poorest in society)

magyar

zeupater wrote: »

I am really struggling to understand why you believe that the current scheme 'disincentivises using the more efficient panels' as it doesn't

You are absolutely right.

@JamesD, what you're really incentivised to do is to get the most economically effective panels. What really matters is £/kWh produced per year.