A leading British Solar Installation Company says that while the drop in the Feed-In-Tariff will hurt some solar companies in the UK, the cut means a more sustainable base for the industry.
The UK government announced on the 31st October that they’d cut the solar Feed-In-Tariff by just over 50%, cutting the subsidies available to domestic and small business installations from 43p/kW·h to 21p/kW·h. While this cut was largely expected and follows similar announcements across Europe, solar investors are right to be concerned. As a result of the cut in the tariff, Ernst & Young booted the UK from fifth to sixth place in their latest Country Attractiveness report, a report they produce for investors in renewable energy. (The UK remains fourth in EY’s wind index, but has dropped 3 places to 22nd place in the solar rankings).
There are those who are protesting the cuts, both through a twitter campaign #cutdontkill and in person – Opposition MPs Ed Milliband and Caroline Flint are leading the charge. Solar Century’s Jeremy Leggett is vociferous in his opposition and Friends of the Earth is threatening to sue the government over the cuts.
But – perhaps surprisingly – not all solar businesses are joining the ranks of those clamouring to keep the FIT at the higher rate. Clean Energy Intel spoke with Ploughcroft Solar’s CEO Chris Hopkins. Ploughcroft has had a bumper year thanks to the boost of the Feed-In-Tariff and an appearance on the BBC’s Dragon’s Den – a reality TV show where entrepreneurs pitch their ideas to Investors. Ploughcroft tripled its turnover – going from selling £500,000/month to £1.5million /month.
Even without the assistance of the BBC, other companies in the UK solar industry have enjoyed 18 golden months. Hopkins says, “A year and a half ago when the Feed-In-Tariff was brought in, it cost us £2 per Watt of energy and two days to install a solar PV system. Today, we can install a system in a day, and material costs have halved to just £1 per Watt a day.” And while costs have shrunk, “the FIT and rising electricity costs have ensured that demand has risen.”
The UK government’s latest consultation paper on the FIT concurs, saying “we estimate that the installed costs of a typical domestic solar PV project (size 2.6kW) are now around £9,000, having been around £13,000 at the time the scheme was launched. As well as the falling costs of solar PV, the increased returns available from solar PV have also been driven by a 13% increase in retail electricity prices since April 2010.”
The graph below shows the growth in PV installations in the UK since the inception of the FIT. Smaller PV systems are tracked by the Microgeneration Certification Scheme (MCS) database while the Central FIT Register (CFR) tracks larger schemes. Clean Energy Intel readers might notice the similarity in the demand curve between the UK and the US, as noted in our article on the 11 November: Solar’s Positive News: Capacity Plans Are Finally Adjusting.
Hopkins points out that when the FIT was introduced, the government clearly indicated that their intention was to give the consumer a Return on Investment of 5%, and that they’d review the effect of the FIT. “At the moment, customers are getting a Return on Investment of approximately 15-16%. It has to be brought to a level which is sustainable, which allows the money in the pot to last longer. I’m now selling systems which I’ll install in January at the new FIT rate. “I’ll sell a 4kW system at £10,000. This will give back £700-800 in FIT/year and reduce the electricity rate by £150/year. Plus the customer gets an export tariff of around £50. The combined benefit gives the customer a Return of Investment of around 9%, which is still higher than the target of 5%.” He’s still selling 20 systems a month at the new price and doesn’t expect this to drop off any time soon.
He doesn’t have a great deal of time for those companies complaining about the drop in the FIT. “If you built your business on a customer ROI of 16%, when the government only promised 5%, whose fault is that? If I were purely driven by greed, then yes I’d be in favor of keeping the FIT where it is. But the new level is more sustainable, and makes the FIT last so that more people can benefit from it.”
But if the ROI stays at this level could the government cut again? While Hopkins demurs on this point, in the current economic climate some are preparing for another eventual cut in the FIT to bring consumer ROI closer to the 5% target. Hopkins remains extremely positive about solar in the UK – while he’ll be cutting the temporary staff he took on in the last few months to benefit from the massive take-up of solar thanks to the FIT, he feels confident the more robust companies in the UK will survive.