This document is the response from Rob Veck, GreenHomeDiary.com, professional Project Manager, and a Superhome owner that has achieved an 80% reduction on household emissions to meet the Kyoto target. This could not have been achieved without the installation of PV and Solar Hot water.
A copy of this document has been sent to Winchester Action on Climate Change for their consideration, amendment and inclusion of their comments.
We should be aiming:-
- To encourage capital & manufacturing cost reductions to make PV more affordable for a greater proportion of householders / businesses.
- To generate Green Jobs.
- At an equitable distribution of FIT.
- Ultimately achieve parity with power generated for the grid.
- To contribute towards government carbon target.
- Make best use of the FiT funds.
This could be achieved by:-
- A capped and tiered FIT that is linked to capital price performance to ensure a good ROI of 5% to 8% and 10 to 12 year payback period.
- Lowering the cap on a regular (quarterly?) basis to “encourage” reductions in capital and manufacturing costs.
A capped and tiered FiT would also help sustain the funds for a longer period, and contribute towards the 10% saving required by 2015.
We assert that the tariff for multi-installation should be increased for non-profit community based schemes that enable community members (who are unable to install PV) to invest in their community scheme to the benefit of other community members and fuel poverty.
We are concerned about the impact of the sudden change to the feed-in-tariff and previous changes & delays (e.g Renewable Heat Incentive) on the future credibility of the Green Deal putting at risk the adoption by consumers, and participation by businesses. This change appears to be large without taking into consideration the impact on the market, and specifically jobs – there is no business assessment of either of these critical points in the draft impact document. The date for the lower tariff before the closure date for this consultation lowers the credibility of the overall process.
|1||Do you agree or disagree with the proposed new tariffs for solar PV? Give reasons to support your answer.|
|Disagree – in parts.
Discussions with PV installers and local groups indicate customers would not proceed with the amended tariff rates. Installers predict a collapse of the market which would have an impact on jobs and the industry in general.
However, the situation is not as clear as it could be. Panel prices have dropped, and the FIT mechanism is encouraging profiteering at the expense of the consumer and detriment of bleeding dry the monies set aside for the FIT.
The impact to jobs is happing at a national level – see Carillion takes £20m hit on FITs lay-offs. However, this may be more to the economic climate as compared to the effect of the FIT.
Page 3 of document 3364 quotes “5% for well located installations” for the intended ROI for PV – however, the launch of FITs quoted 5 -8% and has been well establish as such since April 2010. Additionally the Minister has also quoted 5 to 8% criteria. The document is not as transparent as it should be on this point.
An alternative mechanism for providing an equitable return on investment that meets the Minister’s criteria & market expectations can be achieved by capping the FiT to a specific capital cost / performance price point, reducing the FiT as the Capital cost / performance reduces, and reducing the cap on a regular (quarterly?) basis. This achieves the vision outlined above :-
1. More inefficient / costly panels will have a lower ROI and longer payback period. This encourages customers to look for better cost performance panels, which in combination of a regularly reduced price performance cap, will apply market pressure to encourage manufacturers to reduce costs and invest in improvements to increase panel efficiency.
The issue about the lack of research was raised by George Monbiot – he suggested that the monies provided for the FiT could have been better spent through research to improve the efficiency of panels. Such improvements are slow in coming (PVT for example has a much higher efficiency rate as a result of the water cooling technology incorporated into the panels.) In the author’s opinion, a gradual reduction of the FiT linked to cost performance softens the impact on the market and, with sufficient communication from the government, should send a message to manufactures that cost reductions are required.
2. Tiered FiT based on capital price performance provides a more equitable distribution of FiT monies which is more socially acceptable and “better value for money” i.e. cheaper panels generating the same amount of power should still only result in a 5 to 8% ROI and 10 to 12 year payback. This avoids accusations of a system that encourages profiteering and takes into account dynamic market changes.
Such an approach reduces the risk of exhausting FiT funding earlier than expected.
3. Additionally, tiered FiT as previous described encourages consumers to shop for lower priced systems (taking into account reliability and long term performance), and aids competition encouraging manufacturers to achieve better price performance. (note, panels from China benefit from their fixed exchange rate – no easy answer to that one, unfortunately)
4. Capping the FiT to a specific capital price performance point would require installers to be more transparent about their pricing. Prices above the Capped FiT would not achieve the ROI and Payback period. We have already seen evidence of customers being ripped off with panels priced significantly higher than the real price. Better transparency should help reduce excessive profiteering from cowboy installers.
5. The consultation document raises the issue of “value for money” which is assumed to be the additional levy applied to householder bills to support the FiT. In order to test “value for money” we have contacted a local electricity supplier, Utilita (and one query outstanding from British Gas). Their calculation resulted in £0.72p ex Vat per customer per year which is excellent value for money.
A detailed description of the calculation used for a tiered approach to FiT is in appendix A.
|2||Do you agree or disagree with the proposal of applying the new tariffs to all new solar PV installations with an eligibility date that is on or after a reference date that comes before the legal implementation of those tariffs? Give reasons to support your answer.|
This impacts customers who have paid a deposit, and installers where the deposit has been used as a down payment to secure the capital equipment. This is a high risk that this deposit is non-refundable in these circumstances even through the original assessment was based on current FiT payments. It may also impact the installer who may have ordered and paid for equipment up front.
|3||Do you agree or disagree with the proposed reference date of 12 December 2011? Give reasons to support your answer.|
Proposals and agreements that have been based a reference date of April 2012 – the original date for changing the FiT, may force contract issues.
A date earlier than the close date for the consultation brings into question the credibility of the consultation process.
|4||Do you agree or disagree with the proposal to introduce new multi-installation tariff rates for all new solar PV installations that meet the definition set out above and have an eligibility date of on or after 1 April 2012? Give reasons to support your answer.|
|Disagree (and agree – see below)
If the policy is to only attract householders, then the tiered scheme as described in #1 would need to be lowered for multi-installations.
HOWEVER this then excludes the possibility of a Non Profit Community Interest Company providing an investment vehicle for community members that are unable to install PV on their property. i.e. A CIC that raises funds from community members could install PV on households that are appropriately orientated and also suffering from fuel poverty. The benefits of a community based scheme of this type are:-
We think community based schemes encouraging householders, and non-profit organisations should be excluded from the multi-installation tariff rates. In fact, to encourage schemes of this type (where economies of scale can be achieved through bulk buying), the graduated tariff as described in appendix A should be increased to obtain a higher than 7.6% return on investment.
An additional requirement of a community based scheme would require investors to sign up to a EPC C rating..
For schemes that are not community based we agree with this proposal.
|5||Do you agree or disagree with the proposed multi-installation tariff rates? Give reasons to support your answer.|
|6||Do you agree or disagree with the proposal that for solar PV attached to a building, eligibility for the standard tariffs proposed in chapter 2 should be contingent on a minimum energy efficiency requirement being met? Do you have views on whether such a requirement should apply in relation to all buildings or just to dwellings or non-domestic buildings? Give reasons to support your answer.|
A full assessment should be done (as required by the Green Deal, which should include all measures needed to meet the 80% 2050 target) and a subset of measures identified from the assessment such that a minimum energy efficiency level is met and does not include the energy saved from PV. Addition of PV then exceeds the minimum applied to building.
This should be applied to dwellings and non-domestic buildings – we need to meet the UK statutory carbon targets. However, there are exceptions such as farm buildings where measures may not be applicable, in which case, another building should be identified upon which measures can be applied and subsequently implemented.
|7||Which of our two lead options for the energy efficiency requirement – requiring a building to achieve a specified EPC rating, or requiring the installation of all measures that are identified on an EPC as potentially financeable under the Green Deal – do you prefer for (1) dwellings, and (2) non-domestic buildings? Give reasons to support your answer.|
A full assessment should be done (as required by the Green Deal, which should include all measures needed to meet the 80% 2050 target), and those measures identified & potentially financeable under the Green Deal to be implemented within 1 year from the installation of the PV, UNLESS it makes sense to install some of the measures before the PV is installed. In this case, the customer may need to take out a loan. If these measures are installed before the Green Deal, then the customer should have the option of subsequently financing them from the Green Deal and pay off the loan used to implement the early changes.
Applicable to both dwellings and non-domestic buildings with exceptions (see 6).
|8||Under the first option for the energy efficiency requirement, do you agree or disagree with the proposal that the EPC rating required to be achieved should be level C or above? Give reasons to support your answer.|
|DO NOT KNOW
Will a level C achieve our carbon targets? Someone more knowledgeable needs to determine the correct level required in order to meet UK’s legal binding targets and long term 2050 target. I doubt a level C will meet those targets (assuming good behaviour change).
|9||Do you agree or disagree with the proposal that, for a transitional period only, all solar PV installations attached to a building should initially qualify for the standard tariff, and their continued eligibility for that tariff should be conditional on the building to which the PV installation is attached achieving the energy efficiency requirement within a specified period? Give reasons to support your answer.|
PV installations should be conditional on energy efficiency changes within a given period.
|10||Do you agree or disagree that this transitional arrangement should apply to installations with an eligibility date on or before 31 March 2013, and that the specified period should be 12 months from the installation’s eligibility date? Give reasons to support your answer.|
|11||Can you identify any other issues, besides those discussed in this chapter, in relation to the implementation of an energy efficiency requirement for (1) dwellings, and (2) non-domestic buildings?|
Trust is a difficult thing to build and easily lost. Events such as Hips, the revised tariff on >50KW PV systems, and now this potentially puts the credibility of RHI and the Green Deal at risk.
Solar PV Payback Calculation
The diagram above shows the possible return on a £11,750 installation with estimated output of 3434 kWh per year. The calculation takes into account the diminishing efficiency of the array (see Solar PV Payback Calculations). This starting point is based on a recently installed system.
The table below shows estimates as to what the FiT should be in order to 7.6% return. The payback period ranges between 13.85 to 10 years.
- Base Case – the (unlikely) situation where there is no inflation, no energy costs inflation, and 50% of energy produced is exported.
- Expected Case – over 25 years, the situation where inflation is assumed to be 3% and energy costs will continue to rise at 4%.
- Extreme Case – over 25 years, the situation where inflation is assumed to be 4% and energy costs will continue to rise by 8.5%.
- Net Present Value – assumes that an equivalent investment (say, in a savings account) is 3% which equates to 2.4% after 20% tax.
|BASE CASE||EXPECT CASE||EXTREME CASE|
|Capital Cost||Fit||1st Year Return||20% Tax payer||NPV||Payback Period (years)||NPV||Payback Period (years)||NPV||Payback Period (years)|