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Feed-in Tariffs Scheme

Volume 545: debated on Thursday 24 May 2012

Today is an important day for the UK solar sector. On 9 February, I published a consultation setting out proposals to ensure the future of the feed-in tariffs scheme for solar PV. These wide-ranging reforms will make it a bigger scheme, providing better value to consumers and more certainty to both industry and government. Today, I am announcing the Government’s final decisions on those proposals and explaining how we are working in partnership with the industry to make the feed-in tariffs scheme just one part of an even bigger plan to ensure a strong framework for the ambitious roll-out of low-cost, high-impact solar installations across the UK.

In recent weeks, we have received a lot of helpful input from a wide range of stakeholders, including businesses and consumers, who have entered into really constructive engagement with the Government in a spirit of genuine partnership and a determination on all sides to get the proposals right. I believe that the resulting improvements and reforms to the FITs scheme will now put it on a predictable and sustainable long-term footing for householders, communities, business and the UK solar industry, so that industry and consumers alike can face the future with real confidence.

We have listened carefully to what industry has shared with us. Our reforms and assumptions have been informed by further independent expert analysis of both the technology and installation costs, which remain on an encouraging cost path; and we have been monitoring closely the very latest trends in deployment. As a result of that careful listening, we have decided that the continuing cost reductions in PV technology and installation justify further changes in tariffs, but that, to help the sector through the period of transition, the changes should be made on 1 August, rather than 1 July as we had originally proposed.

On 1 August, we will raise the export tariff for new solar PV installations from 3.2p to 4.5p better to reflect the real value of solar electricity exported to the grid. Generation tariffs will continue to be uprated in line with the retail prices index, following strong support from consumers and industry. To bring PV into line with the tariffs applied to other feed-in tariff technologies, the lifetime for which tariffs are paid to new installations from 1 August will be reduced from 25 years to 20. However, that change has been taken into account when setting generation tariffs, so that the overall rate of return is not affected.

We set out in our document a range of options for reducing tariffs further. but, having listened carefully to the sector, I am announcing today that the generation tariffs for nearly all installations will be at or above the highest of the options we consulted on in February. The exception is the smallest domestic installations rate, for which we had proposed a range of tariffs from 13.6p to 16.5p, and for which we have decided on a tariff of 16p. The new tariff reflects the particularly strong performance of the industry in bringing down costs in that crucial part of the sector.

The tariff for multiple installations will now be set at 90% of the individual tariffs, up from 80%. Those tariffs are designed to give a return on investment of more than 6% for most typical, well sited installations, and up to 8% for larger bands. The mechanism for setting future tariffs that I am publishing today is slightly different from the one we proposed in February. In particular, it should smooth out deployment more evenly and provide greater budgetary control and predictability for investors.

TLC is what I have always set out to provide: transparency, longevity and certainty. I believe that that is exactly what our new framework will deliver. As we go forward, predictable and transparent tariff changes might be made every three months, at the beginning of November, February, May and August. The amount of the tariff cut, if any, will be announced at least two months in advance and—crucially—it will depend not on a political judgment, as it did in the old system introduced by the previous Government, but on uptake in the previous three months; so if uptake in May to July is very low, we will announce before the end of August that there will be no tariff cut in November. The default reduction, if deployment is within the published thresholds, will be 3.5%. If uptake is higher than that, the cut will be increased.

All the changes are designed to set a clear, predictable framework within which the solar industry can flourish, but we need to go beyond that to unblock any barriers to the development of solar PV in the UK and to continue the drive towards widespread cost-effective deployment. That is why the Department of Energy and Climate Change is developing, in partnership with the industry, an enterprise strategy for solar, reflecting the serious and significant future that solar PV now has in the UK energy economy, and helping to realise the coalition’s vision of a far more radically decentralised energy sector than we inherited. As part of that, I expect solar to feature prominently in the renewable energy road map when we update it later in the year.

More is needed, however. The huge strides made so far in bringing solar manufacturing costs down need now to be repeated in the installation end of the business. That is why I have now set up a PV cost reduction taskforce, involving leaders from the solar industry, and will be working proactively with it on the challenge of bringing down the installation costs of UK solar PV. We will also continue our regular dialogue with the PV manufacturers’ group, which played a key role in helping us to understand the cost drivers and trends in this dynamic industry, and with our FITs PV round table group, which I will meet again early next week. Those groups will play a vital role in helping us to monitor developments in the solar industry and to support future decision making, ensuring that UK solar can reach its cost-effective potential. In addition, we will continue to invest in science and innovation. The work of Research Councils UK supports early stage solar PV development, with a commitment to spend about £40 million on researching solar technologies between now and 2014.

Finally, I welcome a particularly encouraging sign of new leadership and confidence in the UK solar industry: the proposals to establish a national solar centre. That exciting and far-reaching plan to set up a national solar centre in Cornwall is being developed by Cornwall council and the Building Research Establishment. That is great news for the south-west and further evidence of the solar industry’s coming of age.

The solar sector has come through a difficult period of adjustment but now, thanks to our major reforms and the coalition’s continuing support, it can face the future with genuine confidence.

I thank the Minister for his statement. Unfortunately his office sent the statement and the 39-page consultation response document just over half an hour ago, so I have not been able to study it in detail. I was, however, able to get details of what was in the statement from someone at Friends at the Earth, who had been briefed by his Department before I received a copy. Perhaps the Minister can share with us why that was possible.

The chaotic manner in which the statement came about tells its own story about the Government’s approach to feed-in tariffs. No one disputes the need to bring down the FIT level in an orderly fashion, but the Government’s chaotic mismanagement of that process threatens a growing industry and undermines investment across the entire low-carbon sector. This debacle, a mess created by this Minister, began more than eight months ago and has so far cost the Department more than £80,000 in legal fees.

Once again, the Government are sneaking out changes to feed-in tariffs on the day before a recess. They did it in February and they have done it again today. The Minister threw a lot of smoke and mirrors about why he is moving the July deadline, but the truth is that he is changing the deadline not because he wants to but because he has to. Will he confirm that the Government have missed the deadline by which they were legally required to provide notice to Parliament for the next round of cuts to have come into force by 1 July? Is not his incompetence the real reason he has been forced to come to the House today?

On the detail of his statement, will the Minister tell us whether, despite the changes announced today, the number of installations will still drop by a third this year? I welcome the announcement that tariffs will continue to be linked to the retail prices index, but what estimate has he made of the effect on take-up of the reduction from 25 to 20-year payments? If take-up remains low, what measures will he introduce to boost demand to meet his ambition of 22 GW by 2020?

The Minister says he wishes to set up a PV cost reduction taskforce. What mechanisms will he put in place to ensure that a cut in the cost of installation does not lead to an increase in rogue solar installers? If demand does exceed the deployment level set by his Department, what will be the additional cut to the tariff above the 3.5% he has announced today? He says that he listens to the industry, but if he really listened he would not have dragged it through the courts, trying to impose devastating cuts that went too far and too fast. He lost that battle. This entire process has been a long list of blunders by the Minister and his Department. Will he now agree to independent oversight of the feed-in tariff to prevent future mishandling of the scheme?

In February, the Minister said that his cuts would

“deliver for far more people”—[Official Report, 9 February 2012; Vol. 540, c. 473.]

and more than under Labour, but the number of installations has collapsed since his last cuts came into force in April. He said that his Government would deliver 22 GW of solar power by 2020, but at the current rate of installation that target will be missed by more than 100 years. He also said that he would put the industry on a sustainable footing, but a devastated 6,000 people have lost their job as a direct result of his actions last summer.

The Government’s rushed changes to feed-in tariffs go too far and too fast, hitting squeezed families who are trying to protect themselves from soaring energy bills and paralysing an entire industry. Instead of supporting businesses, he put thousands of jobs at risk and left the sector living on its nerves. Today was a chance to end the uncertainty and lay out a clear path to 2020, but the Minister has failed to set out his plan to deliver his 22 GW by 2020. He said that he wants to deliver TLC—I have noted the phrase transparency, longevity and certainty on a number of occasions—but all we got today was more of the same: more chaos, more confusion and more cuts.

I am very sorry that the Labour party is stuck in this rut of doom-mongering, carping and sapping the confidence of the industry. Everyone I have spoken to, right across the board, wants to re-inject a sense of confidence and energy into this vital sector, but rather than rally around the sector Labour Members are determined to sap confidence even more and send chaotic messages to people who are trying to make a living—all for short-term, petty political gain. Rather than look at the long term, they are just playing politics.

As for sneaking out an announcement on the last day before recess, it may be that this is a half-day, slacker’s shift for Opposition Members, but for coalition Members it is a full working day. Obviously, the hon. Lady sees today as part of the holidays, but I assure her that we are at work.

Let me be absolutely clear: we have not moved the date by one or two days, or one or two weeks. If that was what we wanted to do, we could have done it, but we wanted to send a very clear message to the industry that we are listening. We have moved the date from 1 July to 1 August in a very planned, deliberate and thoughtful way, and I think the industry will be glad of that change. The bottom line is that had we wanted to meet the 1 July deadline, we would have had to lay the measures sooner, but we did not want to meet the deadline of 1 July. The deadline is now to have the measures in place to allow the cuts to take place on 1 August. I thought that even the Opposition would have been capable of working that out.

The hon. Lady asked about ambitions for installation. Continuing to build deployment is key for a sustainable UK industry. I can tell her what our impact assessment will say and what the coalition’s clear ambition and expectation is. Under the totally unfit-for-purpose scheme produced by the current Leader of the Opposition as one of his last acts in government, about 250,000 solar panels would have been put on to roofs. I can say to the hon. Lady that, thanks to our reforms, there will be more than 1 million solar panels on British homes by the next general election. I am really proud of that. Delivery will be far more cost-effective than it would have been under Labour’s scheme, and unlike that scheme ours will be delivered on a long-term basis, free from political interference, and it will be much more transparent, sustainable and predictable.

On the 2020 ambition, the hon. Lady is absolutely right that solar is a transformational technology. Developments around the world now lead us to be confident that we can deliver on a very high ambition, and mine is 22 GW by the end of the decade—but that depends absolutely on our driving down costs. How and where we do that and the point at which we do it will be critical. That is why I am determined to work more closely with the industry.

My hon. Friend will know that one of consumers’ biggest concerns is the size of their household energy bills. Can he say what impact his scheme will have on the average household bill, compared with the previous scheme?

Absolutely. Had we proceeded with Labour’s scheme, at least £61 would have been added to hard-pressed consumers’ bills. Under our proposals, because we are taking advantage of the rapidly falling costs and passing those on to consumers up and down the country, we anticipate that just £9 will be added to consumers’ bills.

Feed-in tariffs are a means of ensuring that investors’ risk relating to future prices is resolved. The Minister has talked about listening to the industry and about long-term certainty. Will he speak to his fellow Minister of State at the Department of Energy and Climate Change, the hon. Member for Wealden (Charles Hendry), who is responsible for energy policy, to make it clear that the proposals on feed-in tariffs published earlier this week in the draft Energy Bill do not address any of the other four risks that investors in the industry face when looking at long-term renewables? In particular, investors are not satisfied that they do anything to address construction risks. If they do not, there will be no new build and the lights will go out.

The lights would have gone out if Labour had still been in office, that is absolutely clear. I am not here to answer questions on electricity market reform and I would be ruled out of order if I did, but I can tell the hon. Gentleman that he is absolutely wrong. Our proposals on EMR and the introduction of a feed-in tariff to replace the renewables obligation will bring greater certainty and investment, and will ensure that the lights do not go off under this coalition Government.

I warmly welcome my hon. Friend’s statement and the move away from the rigid system whose legacy was tremendous uncertainty in the industry. I welcome also the excellent news for Cornwall about the national solar centre. On the need for certainty in the industry, his statement presupposes that a cut in the tariff might be considered every quarter. Of course, we do not know what will happen commercially, but can he reassure the House that there might be occasions, albeit perhaps very rarely, when that tariff might need to go up as well?

Large-scale deployment of solar will be achieved only if costs come down, but I can assure my hon. Friend that the way in which the new mechanism works means that if deployment suffers because the tariff clearly is not generous enough, that will be reflected in the figures that inform the cut. If deployment undershoots, there will be no cut in the following quarter—or, indeed, the quarter after that if it is still undershooting. My expectation is that industry costs will continue to fall in the short to medium term, although perhaps not at the staggering rate that we saw last year and in the first quarter of this year. We certainly look forward to some very exciting times in which the industry not only becomes cost-competitive with all the other major renewables, but actually reaches grid parity within this decade.

Carillion Energy, which is headquartered in my constituency, is undoubtedly keen to benefit from the Minister’s TLC, but I wonder whether he truly comprehends the devastating impact that the recent chaos and U-turns have had in Newcastle, with people afraid for their jobs, small companies going bust and large companies unable to plan. Many have sought to focus on the green deal to create new jobs. Can the Minister guarantee that the green deal will meet its targets and so incentivise the move to a low-carbon economy and the creation of the jobs that go with it?

I can indeed. I can also say that, within the past few days, I have met the chief executive of Carillion, who was very confident and positive about both the green deal and the way we propose to take forward the wider green agenda.

I thank my hon. Friend for the statement. It shows that we are incentivising companies to cut costs and that we no longer have an unaffordable scheme that simply allows people to get rich from a financial investment. The typical rate of return of 6% shows that people can do the right thing and still get a small reward.

My hon. Friend is, once again, absolutely right. We have taken the scheme from one that was for the lucky few who were able to afford high-cost installations to one that helps to encourage reductions in the cost of solar installation, and offers a sensible reward for people to do the right thing through well sited installations. It has gone from being a scheme for the few to a scheme for the many.

When we were in government, the hon. Gentleman was always boasting that he would go further and faster, but actually he fell at the first hurdle. He talks about the gloom and doom among the Opposition, but we are simply representing the people who have lost their jobs, the companies that have gone to the wall and those who have had to take legal cases against the Government. Will the Minister tell me his view on the future of the social housing sector, given the information from the National Housing Federation that he received in the consultation?

Yes. I think the right hon. Lady will find there a strong welcome from social housing for the proposals we have set out. We are increasing the level of aggregated tariff from 80% to 90%. As the costs come down, it becomes affordable for all consumers to support the roll-out of solar PV on social housing and other mixed-tenure low-income homes. The scheme can now be rolled out at real scale, unlike the cottage-industry, not-fit-for-purpose scheme that we inherited from Labour.

For PV businesses in East Hampshire, what message does today’s announcement give in terms of investment predictability and the sustainability of the sector? What are its growth prospects compared with what was envisaged by the former Energy and Climate Change Secretary, who now leads the Opposition?

The growth prospects are very strong. There is now real visibility, not just for the next few months or until the next political review. Industry and investors alike can plan for the long term with real confidence, because there is no end date on the scheme. There is no sell-by date for the formula we have established; it is an enduring, long-term scheme—certainly much better than the appalling car crash of a scheme that we inherited from Labour. People can invest with certainty and the predictability of reasonable, sensible returns.

Everyone, including the industry, accepts that the cost of PV is coming down. The PV scheme has been one of the most successful at getting home owners involved in renewables. Does the Minister not think it is sending the wrong signal to choose the smallest domestic installations as the only ones where he has not gone for the highest possible tariff under his new options?

The hon. Gentleman should understand that I am not using consumers’ money—that is what it is: subsidy that comes directly from consumers and consumer bills—to send signals or to play politics. The tariff needs to reflect the genuine underlying costs of installing solar. That was totally missing from the scheme we inherited; it is now at the core of the new tariff framework. As a result of the particularly strong falls in the costs of smaller systems, we are able to set a tariff that accurately reflects, as far as we can, the return of around 6% that we think is sensible and makes it attractive for people with the right roof to install solar.

Will the Minister confirm that even after today’s changes, solar will be the most heavily subsidised form of low-carbon electricity generation? When will it reach the same cost status as other forms of low-carbon generation, and when could it reach grid parity?

It is not the most highly subsidised form, although it is one of them. It is certainly true that, per unit of electricity generated, the domestic rate of 16.5p is still substantially more than the rate given to onshore, or indeed offshore, wind, for example. The really exciting thing is the speed at which we anticipate the costs continuing to fall. Using a crystal ball, particularly in the Chamber of the House of Commons, is never a very good idea, but I think that industry experts are increasingly saying that we can reach grid parity by the end of the decade, and many others say that it could come a lot sooner. That is why I am determined that, unlike under the previous Government, when it was treated as a cottage industry for anoraks, solar will be a major part of our energy strategy.

The fact is that Britain is years if not decades behind Germany across the whole field of renewables in general, and solar in particular. That is down to the baleful influence of the six big energy companies, which have had a hold over successive Ministers, successive Governments and, above all, officials in the Department of Energy and Climate Change. When will the Minister tell his officials to look at Germany and imitate here what the Germans do?

It is extraordinary that the hon. Gentleman has managed to blame officials in my Department, the big six energy companies and practically everybody else he could think of, apart from the people who ran the country for 13 years and the last Labour Energy Secretary, who is now Leader of the Opposition. I will tell him why we were third from the bottom of the renewables league table and why we inherited a disastrous position on the solar scheme. It is entirely due to the incompetence, mismanagement and laziness of the last Government.

Clearly, I welcome the Government’s decision to invest in Cornwall and to support development there. The pathway that has been set out for the feed-in tariff will give a measure of security to those who are looking to invest in the technology. I urge the Minister to be cautious when listening both to the Opposition, who had to be dragged kicking and screaming to the feed-in tariff, and to those who point to the impact on bill payers, when the rising costs of fuel and other technologies will add to their bills too. It will not just be feed-in tariffs. Would the Minister or one of his colleagues be prepared to meet me and someone who has recently developed a large scheme in my constituency, to talk about the issues they face and their ideas for supporting the Government’s work in the future?

My hon. Friend is absolutely right to point out that the shadow Energy Secretary voted in the House against feed-in tariff schemes. This opportunistic conversion to the merits of feed-in tariffs is pretty shameless.

I should be delighted to meet my hon. Friend. I am keen to meet stakeholders who contribute to new ideas that contribute to driving forward the deployment of an exciting technology.

What would the Minister say to Revolution Power, an award-winning green power company in my constituency? It has had to lay off a third of its work force. The Minister refers to them as anoraks, but I would refer to them as hard-working people who are now on the dole because of the incompetence of the Government on this issue over the past year. The company foresees a short-term rush of orders for solar panels over a few weeks, but is worried about its long-term integrity and its ability to go forward because the goal posts are being moved all the time.

Let me be absolutely clear: I most certainly was not referring to workers in the industry as anoraks; I was saying that was the mindset of Ministers in the previous Government, who set up a woefully inadequate feed-in tariff scheme that we have had to pick up, repair and reform. If the hon. Gentleman looks at our proposals, he will see that, as a result of our reforms, they are transparent and that there will be far less political interference and far fewer political judgments. The scheme we have announced will provide a basis for getting the solar industry, including Revolution Power, back on a firm footing, allowing it to grow predictably and strongly in the future.

By replacing the incredibly short-sighted system introduced by the Labour Government, does the Minister agree that TLC, which I warmly welcome in all Departments, will lead to much more innovation, much more development of technology and refinement of solar power manufacturing and installation processes, thereby lowering the price for everybody concerned?

Absolutely. We looked carefully at the lessons from Germany when putting the scheme together—it is a great shame the previous Government did not do that. We have tried to make the scheme as predictable as possible to inject that vital element of TLC. As a result, I anticipate that the cost of capital will come down in due course, which will free up more spending for innovation and research. The Government obviously have a part to play in that, but this is an incredibly innovation-rich sector and I expect that we in the UK will now thrive.