Public Sector Energy Editorial 7 September 2015
An analysis of the local authority energy market and the latest developments around the UK.
Policy & Strategy
August is normally a good time to take holidays in local government, as the market quietens down considerably as other officers and members do likewise. But this year has been a very different story. This has been driven by a General Election in May, which delivered a majority government with a manifesto for change. And it has got on with it fast.
Unfortunately, most of the news coming out of the Government since its election has been bad, so far as the green agenda is concerned. Last month has not been any different. In summary, we have seen the consultation on the removal of ROCs for solar PV schemes under 5 MW, which was released on 24 July 2015 and is available here:
On the same day, the Government published a paper on the removal of pre accreditation on Feed in Tariffs (FITS) and that is available here:
Finally, this was followed by a further consultation on the review of FIT rates across all technologies. This was published on 27 August and is available here:
I regret to say that there is very little comfort in any of these papers. However, I am not in the ‘doom and gloom’ camp, as I explain further below.
But we do have a problem in the UK at the moment. We know that the Government favours nuclear power, believes gas to be the default energy and is also encouraged by tales from the United States about the prospects for fracking.
But the EU and national targets are not going away and are not going to be met unless the pace of development in renewable energy continues to grow. Instead, the Government seems to be slowing the pace and effectively shutting off some technologies from the funding they need to flourish. It will be interesting to see how this pans out in the latter part of this Parliament – which takes us up to the key 2020 deadline – and whether there is a need nearer that time to turn the taps of renewables back on, so to speak, in order to make those targets.
It is also possible that the bad news has not yet stopped. Whilst 10 green policies have now been cut by the new Government, there is a call for evidence leading up to the Comprehensive Spending Review in November. The Consultation Paper from HM Treasury is here:
The obvious candidate for further harsh treatment is the RHI, which is due to end in its current form in 2016. The uncertainty on this situation has all but brought development to a halt in the interim.
So where does this leave us? Well, it is clear that the Conservative administration is going to be no friend of renewable energy for the next five years and we are going to have to fight our corner.
Criticism has already been heaped on the Government from all quarters in relation to the changes so far, but this has been to no avail. Green groups have written to the Prime Minister expressing concern over the Government’s policies on the green agenda, but this is unlikely to change the direction of travel from a Government with an outright majority in Parliament:
There is one very practical issue associated with the proposed changes – and that is activity in the next six months, leading up to March 2016. This has been the problem with renewables over the whole of the past five year, with a ‘boom and bust’ culture created in the market by Government policy. This is set to continue with Solar Power Portal reporting that a surge in applications for solar farms has preceded the changes to ROCs and FITs. These are all going to be built before the next deadline:
And all this at a time when public attitudes to renewable energy continue to be very strong. The latest DECC tracker report was published last month showing that 78% of people in the UK support renewable energy, with support for fracking at an all time low:
We need to avoid the green agenda becoming a political football, with tussles between left and right about who supports what. The green agenda most importantly of all occupies the centre ground in politics and that is the way it has to stay.
It is at times like this that Jeremy Leggett, a well-known campaigner for renewables and against the major fossil fuel companies, and who has been slowly publishing his latest work – Winning the Carbon War – springs to mind. His latest instalment of that work is now available online. There have been times when Jeremy’s rhetoric seems a little over dramatic. But when we see events like the past month – and in the light of the actual facts about the costs of renewables (on which see this the news item from RegenSW this week) - perhaps it is not so:
Liam Stoker of Solar Power Portal also makes the point that all of the recent bad news announcements have been published by the Government over past weeks have all been leaked by DECC in advance to the national press, so that comments have appeared in print and on news channels before the industry has been presented with the proposals. It is felt that this is very disrespectful of the industry:
But on to the positive! Renewable energy will continue to grow and is doing in world markets. Even areas that are looking bleak at the moment will come back and flourish in due course.
A good example is provided by solar PV. The financial incentives from the Government to build solar farms are all but ending next year. However, it will not be long before such projects are possible without such subsidy at all, as costs of solar PV continue to fall.
It is also the case that the policy developments are re -igniting the debate about how to make renewables pay. It seems that the Conservative Government (largely under the control of Chancellor George Osborne) does not favour a mechanism where payments are made for many years. If this system were to be abandoned, there are other ways that renewables can be funded, such as tax breaks, or grants for construction costs. Gage Williams makes some suggestions:
“Households could be encouraged to switch from fossil fuels to renewables by making these tax deductible. This could be restricted, if necessary, to 20% less the 5% VAT that is currently payable on energy installations. This one off tax break would be far less expensive than DECC’s proposal to continue with, albeit much reduced, FITs that are guaranteed for 20 years and RPI (soon to be CPI?) linked.
“Removing the FITs from renewable technologies would allow renewables machinery to be placed on the Enhanced Capital Allowances list whereby a business can claim corporation tax relief immediately on the full amount paid for the equipment. At the same time, as a double incentive, machinery and equipment that uses fossil fuels could be removed from the ECA list demonstrating that the Government has not entirely lost the green plot. Solar and, if there are good local wind-speeds, wind are already cheaper than the domestic and business retail prices for electricity. Adoption of RE will cut energy costs and thereby help improve profitability – something which other departments at Whitehall seem to wish to achieve.”
There have been too many different articles and news reports over the past month to include them all here but I have mentioned a selection below.
The place to start is the unstoppable movement of solar PV towards grid parity. Here, there is good evidence that this is not more than a couple of years away. See for example the KPMG report published by the REA – ‘UK Solar beyond subsidy: the transition’. Available from REA publications:
The REA has also published a note on the price of solar panels and China’s revaluation of its currency. This demonstrates that solar panels within the EU are now 25% more expensive than elsewhere in the world, due to Minimum Import Pricing (MIP) which was introduced by the EU but which is due to end at Christmas. This is, of course, a negative but shows that prices may well drop a further 20%– 25% in the New Year just from this change:
This raises an interesting point, which is at what point can local authorities make projects pay without any Government subsidy? We are not far away from that point and local authorities should be planning for that day now, by introducing ‘medium term’ strategies. APSE Energy will be publishing a paper on this shortly.
In the meantime, for focus has very much been on the proposed cuts to FITs and ROCs and the removal of pre accreditation. There was lots of press coverage of the FIT cuts, such as in the Guardian on 27 August:
The Scottish Solar Trade Association has strongly criticised the Government for its proposals on solar PV, calling them ‘unnecessary, unjustifiable, unmanageable and ultimately destructive’. Strong stuff:
And the fall out is already starting. For example, as Jamie Hailstone pointed out in the news, Entu is to close its solar UK division following the announcements:
I am also aware that some public sector deals have collapsed, simply on the strength of the announcements, where funders have pulled out.
But there are positive views too. Here Solar Power Portal quotes a Scottish installation firm, which believes that the social housing market may be given concessions: http://www.solarpowerportal.co.uk/news/campbell_kennedy_positive_despite_scale_of_proposed_fit_cuts
There are numerous calls to write to your MP, engage support on social media etc. Here, Ollie from solarcompared.co.uk provides an infographic to help things along.He says:
“The industry is reeling from the recent proposals put forward by Amber Rudd and the DECC. What is being proposed is way to heavy, and we need to do anything we can to ensure a fair reduction is put in to place.
“I have put together a infographic to help raise awareness, and promote the petition to government to reconsider these extreme measures.
“As part of the industry your being sent this ahead of other non industry press, so please share it with your social media following and on your site. Hopefully we'll push this enough to force a backlash, and keep the industry alive until a point where subsidy isn't required.”
Looking around local government, there is still plenty happening. The APSE collaboration now has 15 authorities that want to build out solar farms before the end of March 2016. Whether they can do so will to an extent depend on the announcements due on the various proposals.
There is much activity aside from this. As an example, Barnsley MBC is an authority that has been looking at solar PV and Edie.net reports on the largest community rooftop solar scheme in the UK. The Council will facilitate this scheme, whilst not investing in it directly itself. This is the type of scheme that is being suggested to DECC as justifying a concession on the cutting of FITs. However, there is currently no indication that this will be the case:
And Doncaster MBC nearby also has a scheme to deploy thousands of solar panels on rooftops in its area. The Council is looking to include up to 6,000 council houses in the scheme and is hoping to complete this work by January next year to beat the proposed reductions in FIT rates:
Other local authorities are pursuing solar farm development, such as West Sussex County Council. In the recent update on Your Energy Sussex programme it said:
“I’m pleased to report that we are starting to see our hard work deliver results on a number of projects. Work is really gathering pace on our first solar farm development at Tangmere. The 29-acre site adjacent to Tangmere Airfield has been cleared and surveyed for construction to begin. The permanent perimeter fence is complete and, during August, we will start to build the framework that will support the solar panels. The panels themselves will begin to arrive on site towards the end of August and construction will continue during September. We expect the solar farm to be built and operational in October. “
The Navitus Bay offshore wind farm proposal continues to cause controversy, with the rumour that a Government announcement on this is imminent. In the meantime, the two sides battle it out over whether the claimed jobs and growth forecast that it is said will accompany the development is accurate or not.
DECC has published a research and analysis paper on the assessment of the operation of biomass boilers using solid fuels:
Chatsworth House in Derbyshire is to get a new hydropower scheme, which was given the go ahead by planners last month:
Wave & Tidal Power
The Maritime Journal reports on a project of which I was unaware, namely the UK’s first estuary tidal barrage project across the river Wyre in Lancashire. A relatively inexpensive project at £200m, it will still have an installed capacity of 90MW:
Energy Efficiency and Buildings
Before the break, I reported on the Government dropping the zero carbon homes and buildings policy. This has been heavily criticised from all directions.
On energy efficiency, there will now be a seven-month hiatus in energy efficiency policy, according to Peter Bonfield, Chief Executive of BRE, who is leading a review of energy efficiency policy commissioned by the Government. He does not intend to report before March next year. EcoBuild Sustainability News reports:
Green Deal & ECO
Eco Build Sustainability news reports that more retrofit measures were installed through Green Deal finance plans than ever before in the month before the Green Deal was axed, according to official figures:
And the industry has reacted furiously to the ditching of the Green Deal rather predictably. As EcoBuild Sustainability News reports, the Government has told industry leaders it is aiming to get a new framework of energy efficiency policies in place as soon as the autumn, but this is undermined by the review going on at the moment that does not see movement before next Spring:
DECC has published an analysis of the work of the Heat Networks Delivery Unit, which it established in 2013 to help alleviate problems for local authorities developing heat networks in their areas. The evaluation commenced in August 2014 and will be completed by the end of March 2016. It asks some fundamental questions, such as ‘has HNDU helped?’ The report, by CAG Consultants, in association with Narec Distributed Energy (NDE), presents the findings and conclusion from the first wave of evaluation research (September 2014 to end of March 2015):
Finance & Legal
As mentioned in the policy section above, the latest news all concerns financial incentives, including FITs, ROCs and CFDs (Contracts for Difference).
FITs and ROCs are mentioned above but there is not good news on CFDs either. In my work as a consultant, the aim is to give the local authority clients options. One option for those considering a solar farm, for example, is to avoid FITs and ROCs entirely and go for a CfD arrangement. This way, the 5 MW solar farm limit does not apply either.
But there are uncertainties here too. Following the successful inaugural auction of CFDs last year, the Government has not followed through on its plan for annual auctions to allocate CFD funds. As Solar Power Portal discovered:
“At an energy and climate change select committee hearing last month, Rudd confirmed that the second CfD allocation round had been postponed indefinitely and said she could not comment on whether or not there would be future rounds as DECC and the Treasury look to resolve a £1.5 billion overspend in the Levy Control Framework.”
So the same excuse is being rolled out here too.
As if the proposed changes for financial incentives for electricity generation were not enough, heat is not faring much better. It is also mentioned above that the Renewable Heat Incentive finishes in 2016 and there is considerable uncertainty about future funding. Of course, there is considerably more renewable electricity than heat and with a 12% EU target to meet, I am not sure the Government can afford to decimate the heat market with huge cuts in RHI payments. But we will see …
In the meantime, the Government has announced further degressions in RHI payments from 1 October 2015. These are reproduced in this week’s news and include a 10% reduction in the domestic biomass area.
I have also mentioned that the bad news may not be over. This is because the Government traditionally holds a Spending Review in the late Autumn and has issued a consultation on the review this year, which will be in November. It is felt that more announcements about the green agenda will be made as part of that process:
This will be a particularly key consultation on the Government's spending over the next parliamentary period, which will determine the size of the budget for the Renewable Heat Incentive (RHI). The Spending Review outcomes will be published on the 25 November.
Two solar farms are to go ahead under the Development Order passed by Swindon Borough Council to promote more solar PV deployment in its area. Solar Power Portal reports that both of the projects are being developed as split-ownership projects, which offer local communities the opportunity to invest in the sites, and both sites have secured pre-accreditation under the feed-in tariff.
The Council’s own energy company, Public Power Solutions, will develop the site and it is now launching a mini-tender for the sites’ procurement process:
On a more negative note, the following story illustrates what happens when the process does not go right. This is a blog about a solar farm in Wiltshire, which was successfully legally challenged by a local neighbour. The planning consent was quashed and so the 54-acre site currently has no valid planning permission:
Electric Vehicles & Transport
In the United States ‘drive electric week’ is reported by Green Car Reports. The event started as a way of improving awareness of EVs but now has more than 170 events in 165 cities as part of its programme for 2015, which will be held September 12 to 20:
And those waiting for a Tesla vehicle that they can afford (including me) should be encouraged by the news that there is a new model on the way, smaller than the current S model and half the price. But still with a 200 mile range …
Scotland introduces new incentive to go electric, this time in the form of an interest free loan:
And in England and Wales, the office of low emission vehicles has confirmed that it will extend the current plug-in grant offered to electric vehicles out to February 2016 at a minimum. Next Energy News reports:
Fossil Fuels & Nuclear
The Government continues to publish its data on the carbon capture and storage projects that are on going in Peterhead and White Rose:
And fracking remains in the news also, with the granting of new licences for drilling by DECC across the UK. The Guardian reports that this situation is due to get worse, as the Government threatens to step in if councils do not fast track fracking applications:
As Jamie Hailstone reports in this week’s news, Community Energy Fortnight 2015 is to be held 5-20 September this year and will involved a whole range of events around the country:
And the Big 60 Million project operated by Belectric continues to move forwards strongly. As noted by Jamie Hailstone in the news recently, it has now had three of its solar bond offers certified under the global Climate Bond Initiative (CBI) standard:
And finally …..
We will all be changing where we go on holiday due to climate change, with Southern Europe being the biggest loser and as weather patterns change for the worse: