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Small Scale Solar Cannot Exist Without Large Subsidies

September 1, 2015
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By Paul Homewood 

 

 

h/t Tim Channon 

 

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Govt proposals to cut solar subsidies were in the news last week:

 

The UK government says it plans to significantly reduce subsidies paid to small-scale green power installations.

Under the proposals, the amount of money paid to home owners and businesses producing electricity from roof-top solar and small wind turbines will be limited from January 2016.

Subsidy schemes could be closed to new entrants from the start of next year.

Ministers want to ensure that consumers who pay for the schemes through their bills get the best deal possible.

They admitted in July that spending on renewable energy schemes was set to be higher than expected.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/456630/FIT_Review_Con_Doc.pdf

 

To reemphasise, the proposed changes will only apply to new installations – the government is legally bound to honour contracts already agreed.

 

The need to readdress these subsidies becomes immediately apparent when the rapidly rising cost of renewables is revealed:

 

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https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/456630/FIT_Review_Con_Doc.pdf

 

The way these subsidies work is poorly understood, so a brief explanation follows.

 

 

Currently, as far as small scale solar is concerned, subsidies are paid via a Feed-In Tariff Scheme, or FIT.

DECC describe how this operates:

 

1. Overview

You can get payments from your energy supplier if you generate your own electricity, eg with solar panels or a wind turbine. This is called a ‘Feed-in Tariff’ (FIT).

How the scheme works

You’ll get a set amount for each unit (kilowatt hour or kWh) of electricity you generate – a ‘generation tariff’. The rates vary depending on:

  • the size of your system
  • what technology you install
  • when your system was installed

You need to use a certified installer.

You can get payments from your current energy supplier, or you can choose a different one from the list of registered suppliers.

Contact installer companies or an electricity supplier for more information.

The export tariff – selling surplus energy

As well as the generation tariff, you can also sell any extra units you don’t use back to your electricity supplier. This is called an ‘export tariff’.

You’ll get 4.77p per unit of electricity.

You can sell back half of the units of electricity you generate. You’ll need an export meter if your installation is above 30kW.

You’ll also save money on your electricity bills for the energy you do use.

https://www.gov.uk/feed-in-tariffs/overview

 

Currently the generation tariff stands at 12.88p/Kwh for installations up to 4KW, so any electricity exported back to the grid earns 17.65p/KWh. Both generation and export tariffs are paid to the generator by the energy supplier, and thereby passed onto all bill payers.

In comparison, I am paying 10.02p to my supplier, excluding standing charges, this year.

DECC now propose that the generation tariff be cut to 1.63p for all new installations, and that this should be phased out altogether by 2019 on the assumption that solar panel costs would continue to fall.

 

 

 

DECC have also published a study by the consultants, Parson Brinckerhoff, “Small Scale Generation Cost Update”, which gives some insight into the costs of solar generation. A quick look at these shows just why solar panel owners need such large subsidies.

 

For small solar operations, under 4KWh, which would be a typical household set up, the study finds:

 

1) Capital Cost of £1688/KW.

2) Annual operating costs of £32.70/KW – this is solely to cover replacement of the inverter, at a cost of £1000 every ten years.

3) Lifetime of 30 years.

4) Load factor of between 8.7% and 10.5%, depending on region.

 

Based on these assumptions, which seem highly optimistic, we come up with the following costs:

 

  Pence/KWh
Depreciation 6.4
Interest at 5% 9.6
Operating Costs 3.7
TOTAL 19.7

(Assumed loading of 10%)

 

The current FIT scheme pays out:

1) 17.65 pence for electricity exported to the grid

2) 12.88 pence for electricity generated and used. Added to the saving from not having to purchase electricity, at a market price of say 10 pence, the revenue received by the household is 22.88 pence.

 

I gather from the DECC calculator that about a quarter of electricity produced is exported, so this would give an average return of 21.57 pence/KWh. Even this figure would only offer a profit of less than 2 pence/KWh. Based on a 3KW installation, this would equate to about £50 pa.

 

 

The assumptions made by Parsons Brinckerhoff in any event look highly optimistic:

 

1) It is hard to believe that there would be no operating costs, other than the inverter. Surely, for instance, there would need to be regular cleaning, to maintain efficient operation?

2) The assumption of a 30-year life is also highly questionable, certainly at optimum output levels.

3) Although increasing electricity prices on future years could increase potential savings, it is also true that operating costs will also increase. Current borrowing costs are also at historically low levels, and these are likely to rise in future.

 

A reduction in operating life to 20 years, and an addition of £200 pa to operating costs to allow for cleaning/repairs, (based on a 3KW installation), would bump up costs to 30.5 pence/KWh.

 

  

Under the new government proposals, FIT would fall to :

 

1) 6.40 pence for export.

2) 1.63 pence for electricity generated and used. Including the saving from not needing to purchase power, this adds up to 11.63 pence.

This would yield an average revenue of 10.3 pence, way below the likely costs.

 

It is no wonder solar power companies have been so vociferous in attacking DECC’s plans. Based on these numbers, small scale solar is now a dead duck.

 

 

 

 

Sources

1) Parsons Brinckerhoff study.

https://econsultation.decc.gov.uk/office-for-renewable-energy-deployment-ored/fit-review-2015/supporting_documents/SmallScale%20Generation%20Costs%20Update.PDF

 

2) DECC proposals

https://www.gov.uk/government/consultations/consultation-on-a-review-of-the-feed-in-tariff-scheme

 

3) Current FIT scheme

https://www.gov.uk/feed-in-tariffs/overview

17 Comments
  1. John Palmer permalink
    September 1, 2015 12:51 pm

    Hi… can anyone advise as to whether these cuts to subsidies will also apply to small-scale hydro schemes?
    We are faced with and fighting a proposed scheme on our nearby river and the loss of most of the ‘profit’ (I’d call it a tax on everyone else) should kill it off – and save us a load of effort.

  2. September 1, 2015 1:04 pm

    I benefit greatly from solar, not from a feeble amount of PV electricity, not from pumping water onto the roof, but simply because the sun warms my home. My windows are unusually large, which often means a warm home in winter sunshine with no heating on.

    Solar PV only makes economic sense without massive subsidies for properties that are off-grid, such as a garden shed, or a mountain chalet, but forget about cooking or heating, for that you’ll need to burn gas, oil or wood.

  3. Joe Public permalink
    September 1, 2015 1:44 pm

    There should also be a premium charged to (domestic) solar (and wind) generators who draw power from the grid precisely at the times when solar & wind are contributing least.

    We’re all conditioned to pay extra for holidays, travel etc during times of peak demand; renewables’ user-generators should be treated accordingly.

  4. Joe Public permalink
    September 1, 2015 3:10 pm

    PH – “In comparison, I am paying 10.02p to my supplier, excluding standing charges, this year.” And that price you pay includes VAT @ 5% (for domestic users)

    https://www.gov.uk/vat-rates

  5. J Martin permalink
    September 1, 2015 8:26 pm

    Is the government legally bound to honour those contracts ? An act of parliament could cancel them. Also one government cannot bind the next as that would be unconstitutional. Hence the contracts are not set in stone and may be varied.

    • Dave Ward permalink
      September 1, 2015 9:21 pm

      We live in hope…

  6. Dave Ward permalink
    September 1, 2015 9:20 pm

    “Surely, for instance, there would need to be regular cleaning, to maintain efficient operation?”

    There should be., However when did you last see someone cleaning roof top solar panels? ‘Elf & Safety would make this a difficult job now, unless a particular roof was capable of being reached by very long poles with water fed brushes. It’s one thing to use this method for cleaning windows (much safer than climbing ladders), but those are vertical. A typical roof angle might push the operative beyond the property boundary in many cramped new build estates!

    A company bidding to build a MW scale ground mounted farm round these parts claimed in their blurb to wash them twice a year with a specially adapted Unimog. Whether they actually do is another matter…

    • September 1, 2015 10:10 pm

      Then there’s bird muck, which is corrosive. I presume this would not do the panels much good!

    • Nick Perrin permalink
      September 2, 2015 10:53 am

      Cleaning with water in thedaylight sounds a bit dangerous to me: unless you can isolate the installation down to panel level to make them safe. Ask a firman to fight a roof fire with solar panels in the daylight.

      • Nick Perrin permalink
        September 2, 2015 11:54 am

        Thinking again about water on panels – they are designed to cope with rain so if they are not damaged there should not be a hazard?

  7. September 2, 2015 6:15 am

    Most manufacturers of solar panels give a guarantee on the output, such as this:
    97% of nominal power during the first year.
    90% by year 11.
    80% by year 25.

    Homeowners won’t notice the effect until later years, because they don’t have a meter to measure the insolation. Obviously the degradation will be worse because of the build-up of grime and lack of cleaning. I only have to look at the dirt that builds up on my white UPVC wondow sills to know how bad it is – and I live in a clean rural environment, not an urban one.

    I recommend as many people as possible should do the consultation, agreeing with most of the proposals, but urging the Government to cut the subsidies harder and sooner.

  8. September 2, 2015 9:31 am

    ‘the government is legally bound to honour contracts already agreed’

    The contract is with the electricity company not the government, but the legally-bound bit is correct. Also, the subsidy payments are tax-free and index-linked re inflation.

    For small solar installations there’s an assumption of 50% usage of the solar output by the home owner (unless they have installed an optional but expensive usage meter), so payment is made for the other 50% – at quite a low rate though.

  9. Kon Dealer permalink
    September 2, 2015 12:57 pm

    That loud squealing you can hear is greenpigs being pulled off the subsidy teat.

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