Will feed in tariffs deliver for us?
Posted by Matthew Rhodes on 27 March 2009 at 7:38 am
I spent most of yesterday at a conference about feed in tariffs, the new incentive mechanism proposed for renewable energy technologies from next April (2010) to replace the existing grant regime. It was organised by the Renewable Energy Association (REA)
It is encouraging to see the government beginning to think big about microgeneration and renewable energy, and to see them thinking about supporting customers, not suppliers. However, it was rather depressing to see the lack of urgency and strategic vision in their approach.
A lot of good work has been done by many people to propose different tariff structures that will be simple to operate and fair. The basic idea is that instead of up-front grants people who buy renewables will be paid for the power (or heat) they generate, based on fixed prices per kWh which they know up front. This could be up to 40p per unit compared to the 10p or so we all pay and get now. This means that when making the decision to buy we will all be able to predict payback with confidence. This will in turn enable financial services providers to offer loans and other products that could take away the up front costs of microgeneration technologies altogether.
For example, instead of the current situation where I might pay £10,000 for a renewable system, and expect a variable and unpredictable income to recoup my investment based on changing energy prices, with feed in tariffs I could potentially buy a system using a loan. The repayments would be made from predictable income for the first five years (say) and after this the cash just comes straight to me.
This system has worked well in Germany and Spain. The tariffs are funded by a levy on all energy bills (except for those on the poorest households) and typically add 0.1p or less to the cost of a unit of electricity or gas. In Germany this approach is credited with creating 120,000 jobs and a market worth over £7 billion a year.
The problem with the UK approach is that it may be too little, too late. We lack the strategic vision of our competitors, who have already used the technique to seize global leadership in solar photovoltaic (PV) markets, for example - so this option is no longer available. In contrast, our civil service’s obsession with consultation and their lack of technical confidence means we face a two year period of uncertainty across the industry while no one knows what the incentive structures will be. This delays decision-making at every level, which will destroy small companies very easily.
At a time of global economic crisis and opportunity for renewables, when competitor nations are investing billions in renewables as the route out of recession, this kind of hesitation is fatal. We need a strategic vision that will give us a leadership position somewhere, and the opportunity to inspire people. Instead we set on the road to an industry and economy that is at best a poor relation to the US, Germans and Japanese, mimicking their approaches 10 years later and feeding a few crumbs to our last entrepreneurs and engineers.
I sometimes almost feel we would be better off if the government simply said that they had nothing to contribute to renewables or the creation of a low carbon economy, and walked away. At least then we would know we had to fend for ourselves and we could all apply our imaginations to just getting on with it. As it is, we spend time educating Whitehall and confronting customers who quite reasonably put off decisions until they understand what their income will be!
Photo by Jonathan Gill
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