Uncharted Territory

February 16, 2011

Quick, FIT Farmers!

I once asked a careers adviser about the possibilities of becoming a journalist. I was told it was a difficult profession to get into. Clearly the reasons for that have nothing to do with competence to actually do the job.

Following my post back in October pointing out that the feed-in tariff (FIT) subsidy for large installations is so generous that there’s no longer an incentive to use sunlight to grow food, or, as the Guardian put it on Monday 7th Feb, “[a]fter a Guardian report on Sunday” – that would be 6th Feb – DECC have decided to bring forward their review of the scheme.

So anyone planning to take advantage of the current tariffs better move fast. But make sure you understand because the papers seem to labour under one or two misconceptions.

For example, yesterday the Independent wrote that:

“…including projects of more than 50 megawatts (MW) in the review will catch out community solar schemes from schools, hospitals and housing associations, as well as truly large-scale farm installations.”

That should have read 50kW, and soon did after the error was pointed out. The point is that the schemes being subsidised by FITs will generate relatively piffling amounts of energy.

As the predictable farce continues, it’s becoming less and less clear to me what the rationale for the FIT scheme actually is, at least for solar PV. The fundamental problem is that government made the a priori assumption that microgeneration is economically efficient. Wrong, wrong, wrong. FIT farms are much more efficient than sticking solar panels on people’s roofs. As ever, scale economies are critical.

So we keep hearing statements accusing farmers of taking up a subsidy which was “intended for” even smaller-scale producers (I say “even smaller-scale” because what’s really needed is industrial-scale production of solar electricity in the Sahara). It’s a no-brainer what DECC will actually do: they’ll reduce the FIT rates for larger installations and/or reduce the size limit for which FITs apply and/or allocate different pots of subsidy for different size schemes – fortunately Osborne has capped the amount that can be committed (from our future electricity bills). Basically they’ll defend the micro micro-generators. But why?

If the future isn’t microgeneration, why would we want to subsidise it? Why not do the reverse of what the government is about to do and allow relatively large-scale solar PV installations to use the subsidy? Surely that would achieve the objective of building up scale economies (that term again – what mental contortions to recognise one form of scale economy and not another in the same initiative!) for the supply of solar panels in the UK?

There’s misconception about another aspect of the scheme, too, extending even to a picture caption serving as the subtitle to a Guardian article supposedly answering all your solar PV FIT questions. They write that:

“Homeowners can make money from their solar panels by selling the energy produced to electricity companies”

More wrongness, journos!

You make most of the money – 41.3p/kWh – by generating the electricity. That’s what you’ll get a meter for on day one.

In fact, the last thing you want to do is sell it to your electricity company! For that you only get an additional 3p/kWh. Last time I looked I was paying around 12p/kWh for electricity and 5p/kWh for gas. So what you want to do is use the solar PV generated electricity yourself rather than buying electricity or even gas. Arrange to use the electricity during the day (perhaps by using storage heaters) or even store it in a bank of batteries to cook in the evening.

There’s a wrinkle that favours the home microgenerator even more. Until smart meters roll out it will be assumed that you export half the electricity you produce and use the rest. So anything over half you use is totally free!

As I expected was inevitable all along, we are now well into the realm of perverse incentives. If you’re a home microgenerator the opportunity cost of your own electricity is only at most 3p/kWh. So you might be able to afford to use it up when you wouldn’t have previously spent the money buying electricity. Air-conditioning springs to mind.

It seems the 3p/kWh export tariff has been set at the price electricity distributors normally pay suppliers. But that seems a bit daft, since they (or we) are subsidising generation of the same electricity. Clearly, the export tariff should be approximately the same as the consumer price for electricity and the generation tariff somewhat lower than it is now to compensate.

It might be worth pointing out that with the scheme as it is, electricity consumers should favour larger-scale solar PV installations – FIT farms – since they have no choice but to export their electricity at 3p/kWh (on top of a lower generation tariff of as low as 29.3p/kWh compared to the domestic tariff of 41.3p/kWh).

It’s obvious why home microgenerators would support FITs. It’s not so obvious why electricity consumers would be so enthusiastic. From the detached point of view of decarbonising the UK’s electricity supply, it seems to me there’s a problem looming a decade or two down the line. Current policies should deliver the 15% renewables by 2020 the UK is commited to, though not much will be solar PV, by the way – offshore wind will dominate. But sometime after 2020 we’ll need to start getting domestic consumers to switch from gas central heating and cooking to electricity. At present, the gas price is a fraction of that for electricity. The gap can only widen, especially as we add expensive renewables to the supply. Better start thinking now, I suggest, how we’re going to manage – politically – to tax domestic gas at around the level we do petrol.

And best to think too about how to keep the domestic electricity price down. Generous FITs are probably not the way. And a much larger proportion of onshore wind at about half the cost of offshore might be a good idea as well.

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5 Comments »

  1. Spot on! Would like to make some noise by disagreeing with this article but can’t find much to disagree on. I suppose one gripe is that I don’t think it should be the government’s objective to keep the electricity price unrealistically low. It should be moderate and stable and high enough to encourage massive investment.

    Comment by Stephen Stretton — February 20, 2011 @ 10:56 am

    • Anyway, I don’t think that (that we should keep wholesale electricity prices low) is what you are saying.

      I am going to try to persuade anyone I can to take advantage of the free money before it is taken away.

      Comment by Stephen Stretton — February 20, 2011 @ 11:02 am

      • Thanks for the endorsement!

        You’re right, I’m not saying we should try to keep electricity prices low, but we shouldn’t let them inflate unnecessarily either. Otherwise, as I suggest in my penultimate paragraph, it’s going to be more difficult to get people to switch away from fossil fuels such as gas to the decarbonised electricity. When I say more difficult I mean the carbon price (however effected) will have to be higher than otherwise, which will cause more problems (such as “fuel poverty”) and create more resistance from powerful interest groups (e.g. pensioners on fixed incomes trying to heat their homes).

        Comment by Tim Joslin — February 20, 2011 @ 2:02 pm

  2. Tim,
    You may remember me from a long time back – I have recently been advised of our common interest and have enjoyed reading your posts. I have just been playing with the DECC energy calculator at http://www.decc.gov.uk/en/content/cms/what_we_do/lc_uk/2050/2050.aspx and solar power does not seem to make much difference in the big scheme of things. I would be interested to know your thoughts on this calculator, what choices you would make and any doubts you have about the assumptions in the underlying excel model.
    Regards,
    Tony

    Comment by Tony Firkins — February 26, 2011 @ 6:29 pm

    • Tony,
      I’ll have to get round to looking at DECC’s calculator. I’ve only had a go with its Heath Robinson predecessor, as described in my previous post on the Energy Game, which also includes some opinion. This stuff is all loosely based on David MacKay’s book, Sustainable Energy Without the Hot Air, which is well worth a read, btw. David is an advisor at DECC.
      All the best.

      Comment by Tim Joslin — March 3, 2011 @ 1:15 pm


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