Feed In Tariff budget for 2012-13 already £110 million over budget

[GavinA]

I posted this on the green building forum yesterday and it seems to have been picked up by a few of the solar news types, so I probably ought to post it on here as well before someone else does.....

But anyway, over Christmas I spent some time working through the figures DECC had released for the number of MCS registered solar PV installations up to 18th Dec, combined with the number of above 50KWp installations that were actually registered for FITs - figures only released monthly, so probably an underestimate.

Briefly, the total amount of PV installed / registered up to that point was 829.6MWp.

In 2012-13 this will result in FIT payments being owed of around £270.3 million just from the PV already installed to date, from a total FIT budget for the year of £161 million.

It doesn't take a genius to work out that this means the FIT budget for next year has already been blown by around £110 million just based on the existing solar PV installations alone, never mind any solar PV installed between now and then, or any of the other technologies.

This means that all DECCs attempts to put the genie back into the bottle and get the FIT budget back below it's spending limits are completely pointless, and doomed to failure before they even attempt it.

IMO this means that DECC and our industry representatives need to start acting like competent professionals, sit down with both the industry and the treasury and agree a common way forward with serious increases in the budget probably in exchange for must faster and more regular reductions in the FIT rate being paid per KWh. In this way we could end up with the situation where the industry can still grow, can deliver increasing economies of scale, and the cost per unit can be rapidly driven down towards parity with at least the subsidy rates for offshore wind far in advance of the timescales originally predicted.

Option B is for the treasury to step in unilaterally to pull the plug / slash the rates in an attempt simply to reign in spending on the scheme without any concern about the consequences.

Full details of the analysis are on our website at www.leeds-solar.co.uk/blog - I presume it's ok to post a link?

[rondurrans]

Gavin is 800 kWh/kWp per year the standard used by the DECC when calculating forecast expenditure? Clearly if this is lower than the actual when averaged out throughout the UK then the expenditure could be more.  

[martin]

No problem with the link at all - you're a well established and respected member of the forum!

[M]

Gavin, any idea which bright spark thought it would be a good idea to display a tax to the public. It may have initially sounded sensible, but has surely backfired. The media like to point out nonesense little stuff and ignore the rest.

If people get so worked up about this much money going into FITs, imagine what they'd be like if they got to individually see their other taxes.

'Why should I pay for education, I don't have kids.'
'Why should I pay for transport, I don't drive.'
'Defence, health, industry, arts, welfare, etc etc.'

We all pay for stuff we don't use or appreciate, but that's life in a fairly sane and fairly socialist country.

The green and renewables movement has become quite large in Britain, all over the world in fact, and yet people are getting so pi55y over a few quid. It's getting quite tiresome.

Most other subsidies are hidden under one sheet of paper, or one simple mouse click, and the public never bother to look. Why display this one so blatantly.

Mart.

[billt]

Because education, transport, defence etc are generally recognised to be to the benefit of all.

PV benefits the installation industry and those who can afford an installation and claim the FITs.

There is no perceptible or measurable benefit to society as a whole.

[rondurrans]

"PV benefits the installation industry and those who can afford an installation and claim the FITs"......and offsets CO2 (albeit not a massive amount!)

[mikey9]

Sorry,
PV (FITS) benefit me paying back the (£12K) additional mortgage we took out to pay for them 18 months ago - to support the industry getting set up - etc......because we believed in it - and still do believe - if we can we will do our bit.

So a bit less about just the profiteers perleeesse.

M

[GavinA]

Because education, transport, defence etc are generally recognised to be to the benefit of all.

PV benefits the installation industry and those who can afford an installation and claim the FITs.

There is no perceptible or measurable benefit to society as a whole.

the point of FITs is to support the development of a low carbon electricity generation industry, and in so doing to drive prices down through economies of scale (both nationally, and as a part of the global economies of scale) to the point where it can be at least cost competitive with other low carbon technologies.

In doing this FITs should assist in ensuring long term security of supply through a diversity of sources, reduce our dependence on imported fossil fuel energy (and in so doing reduce our economic exposure to almost certain ongoing rapid price rises, and rapidly rising balance of trade deficits), and reduce the impact of climate change on the world economy.

In addition to this it can be a major economic stimulus that took around £2.4 billion of savings out of peoples bank accounts and injected it directly into the economy, creating tens of thousands of jobs directly, and supporting hundreds of thousands of related jobs. It will also generate far higher total annual tax receipts for the first few years of the scheme than the total annual FIT payments for the scheme, so should have a significant net benefit to government finances, particularly in a time of massive unemployment levels (tax receipts in place of benefit payments = double benefit to government finances).

So I don't really agree with your statement, although if FITs did get scrapped, or slashed to the point where it destroyed the industry, then it would be true as all the other benefits would be lost and we'd essentially have weasel peed several billion quid up the wall.

[Ted]

I did Tweet your link yesterday so hopefully generated a bit of interest.

My attempt at a similar analysis is here: http://www.caerdelyn.co.uk/blogg/happy-new-year.html

[M]

Because education, transport, defence etc are generally recognised to be to the benefit of all.

PV benefits the installation industry and those who can afford an installation and claim the FITs.

There is no perceptible or measurable benefit to society as a whole.

How is the introduction of an additional clean, renewable and potentially financially viable energy source, not a measurable benefit to society as a whole?

Martyn.

[rondurrans]

'Opportunity Cost' - could or should our money have been/will be spent in this way? Would more wind turbines, R & D into tidal technology, etc be more beneficial, in the long run, for society as a whole?

[M]

'Opportunity Cost' - could or should our money have been/will be spent in this way? Would more wind turbines, R & D into tidal technology, etc be more beneficial, in the long run, for society as a whole?

Good point.

Can I suggest a different angle however. If commercial PV is / becomes viable, then it would be reasonable to expect (or even require) Tesco's, McDonalds etc to spend £m's on reducing their energy consumption. Whereas requiring them to hand over those millions for alternative energy generation may be harder.

Only my opinion, but I feel PV approaches the task from the other end, negative demand rather than positive supply. A useful tool to have, but whether the gains are greater than the alternatives I can't say. But I would strongly disagree that there are no such gains (not that you said that of course, just saying).

Mart.

[Ivan]

Firstly, there is no 'budget' for PV. I have asked my Conservative MP about this, and although there are some vague documents stating aims, no official budget has been set. He kindly wrote to the Climate Change Minister, Greg  on my behalf requesting that budgets be set in future, so that the industry can keep on top of things and anticipate the next knee-jerk reaction, but the response was a typical government letter which pointlessly avoided commenting on the suggestion, but comment that various reviews published 'at the end of the year' would considering [amongst other things]...greater transparency'.

Secondly, as the FITs are funded directly from energy supply companies who pass the cost on to consumers, I can't see how it concerns the treasury who receive and spend tax revenue.

I'm not sure what the average cost of electricity is in the UK. I've shopped around, and the best price I can find is about 17.5p/kWh. (admittedly, I don't buy any of the lower price units, as my consumption is well below the cut-off point). I'm assuming the prices vary from about 17p to 26p for non-standing charge electricity supplies. The new proposal 21p+3.1pexport=24.1p/unit is very close to energy cost, which means the government is setting FITs payments very close to the end-user price...

So let's assume you have a 4kW system producing 850units/kWp/a = (3400 x 21p)+(3400/2 x 3.1p)= £714 + £52.7. If you export 50%, then this gets sold on to your neighbours at £425 (playing devil's advocate at 25p/kWh). So the actual 'cost' to the energy company is £714+52.7-£425=£341.7 per year. Actually, with a 4kW system you'll export more than this - we export 70%, which would reduce the power company's cost by a further £149, meaning that a 4kW system exporting 70% of the power would cost them £193/year - really not very much at all.

At this price, 50% of the country could have solar power before the bills would be doubled. Even if this happened, electricity cost would be fixed to inflation, and by the time half of the population have solar power (many decades), it would help to permanently link energy costs to today's prices. Compare this to fossil fuel costs which have risen by 18% last year alone.

[rondurrans]

Ted where does the 'notional' budget come from within the DECC documentation? 

[Ted]

It's basically from last year's Comprehensive Spending Review when DECC promised to reduce the FiTs costs in 2014/15 by £40 million.

There is a document which details HM Treasury control of DECC 'levy-funded' budgets.  http://hm-treasury.gov.uk/d/control_framework_decc250311.pdf

If you mean the often quoted figure of £867 million then I think that was first introduced in one of DECC's FiTs consultation documents earlier last year (haven't time at the moment to dig it out).