Time to draw the curtain on solar feed-in tariff farce

4 Jan, 2012

Today's appeal threatens yet more confusion - it is time for the government to admit its mistakes and deliver the clarity the industry craves...

Where did it all go wrong?

Three months ago the solar industry was a shining success story in a UK renewables sector enjoying a period of unprecedented expansion. Three months on and a series of misjudgements and miscalculations means the sector has been thrown into a crippling period of limbo with several more months of costly confusion in the offing.

Today the government will attempt to bring the crisis to some sort of resolution by appealing against last month's court ruling that the decision to effectively impose cuts to feed-in tariffs before the end of the consultation period was "retrospective" and "unlawful".

But the chances of any real clarity being delivered as a result of the appeal hearing look remote. When issuing his ruling Judge Mitting offered a clear warning to the government that there was little chance an appeal would prove successful. Moreover, if the appeal is successful all we'll get is a return to the controversial plan to slash incentives for new installations completed after December 12, which according to many in the industry will lead to a significant contraction of the sector. In contrast, if the appeal is rejected we'll simply get a continuation of the current confusion over tariff levels with no clear indication on when cuts to feed-in tariffs will come into effect. Meanwhile, the entire renewables sector awaits the publication of a wider consultation on the feed-in tariff mechanism that was expected in 2011 but is still yet to appear.

So where did it all go wrong? Only by understanding the causes of this fiasco can government and industry map out a solution to the current crisis and take steps to ensure the green economy is never again faced with such crippling policy confusion.

The answer is as complicated as the legal case itself, with a number of different decisions by business leaders and ministers past and present all having to take a share of the blame.

To understand the roots of this crisis we need to go right back to the development and the launch of the feed-in tariff scheme in April 2010.

It may be politically convenient for coalition ministers to blame their Labour predecessors for passing on a scheme that was fatally flawed, just as it is more than a little hypocritical for Lib Dem and Conservative ministers to attack a scheme they fully supported at the time of its launch. But accusations that Labour leader Ed Miliband failed to recognise the fundamental weaknesses in the scheme during his final days as Energy and Climate Change Secretary are valid nonetheless.

The failure to include a regression mechanism from the start of the scheme that would automatically reduce the rate of incentives as the cost of solar panels fell was a grave error, particularly given there was already evidence from other feed-in tariff schemes in Europe that such regression arrangements were required to stop solar sectors over-heating. This failure, coupled with underestimates for rates of solar deployment, made the current crisis significantly more likely.

However, this fundamental fault in the scheme's foundations did not make an embarrassing government appearance in the High Court inevitable.

The coalition has had over 18 months and plenty of opportunities to correct the weaknesses in the scheme and has instead turned an easily corrected flaw in the feed-in tariff's design into a crisis that threatens to obliterate the industry.

The first opportunity to put the scheme on a firmer footing came with the Treasury's decision to cap feed-in tariff spending, a move that may have angered the industry but was understandable given mounting concerns over energy bills. It was at this point that someone should have realised that as soon as you impose a budget cap on a scheme you need a clear plan on what you are going to do if it looks like you are going to exceed that budget. No such plan was put in place, paving the way to the current crisis.

A second opportunity to avoid disaster came last spring when the government launched a consultation proposing deep cuts to incentives for solar farms in response to initial fears that the scheme was over-heating and could exceed its budget. But in fixating on the inevitable howls of outrage from solar farm developers and the legitimate criticism of ministers' targeting of mid-sized as well as large solar farms, DECC failed to realise that a similar boom in the small scale solar market could also threaten the scheme's budget.

It is also at this point that the solar sector has to take its share of the blame for the current situation. While a few insightful voices did indeed warn during the spring and summer that early cuts to all feed-in tariffs would be necessary to keep the scheme within budget, others continued to argue for the continuation of incentives that were offering excessive returns. Lobbyists for the solar industry complain legitimately that they do not get the access to ministers enjoyed by the Big Six energy companies, but a more united and co-ordinated lobbying effort could have helped ensure that necessary cuts to incentives were phased in more effectively over time.

However, while climate minister Greg Barker has complained that there was only a handful of firms calling for early cuts to feed-in tariff incentives it is ultimately the responsibility of ministers to make the right calls at the right time. Instead, prevaricating through the summer and autumn allowed the solar boom to gather pace, boxing the government into a corner that it was always going to struggle to get out of.

And then, upon finally realising that urgent action needed to be taken to stop the feed-in tariff scheme exceeding its budget, this long-running series of strategic errors was compounded by tactical missteps that made the government's defeat in the High Court all but inevitable. It is hard to imagine how the government got itself into a position where it thought that effectively imposing cuts to incentives before the end of the consultation proposing those self-same cuts was legally enforceable.

In retrospect, proposals to bring cuts into effect from mid-January, coupled with a genuine effort to get the solar industry onside and ensure people understood the need to stop the scheme over-heating, and a quiet word with the Treasury suggesting some of the £250m earmarked for Eric Pickles bin collection crusade might be needed to relax the feed-in tariff spending cap, would have proved a much more effective course of action.

So if that is where it all went wrong, where do we go from here?

There is a very real risk that if the right decisions are not taken at this point catastrophe could be piled on crisis for the solar industry.

If the government wins its appeal we will see a short term contraction of the market, coupled with very real fears that as solar panel prices continue to fall globally we could end up with a repeat of the current fiasco as the feed-in tariff scheme again approaches its spending cap.

If the government loses its appeal we will effectively see a continuation of the 43p per kWh rate until mid-February at the earliest. This extension of the higher rate will increase the likelihood that the scheme will approach its spending cap, cranking up pressure on the government to impose still deeper cuts to incentives at a later date.

Everything now depends on the number of installations that have been completed at the higher rate. Was the government right to predict that delaying the cuts to incentives until after the consultation was completed would risk the entire budget being burned through, or have ministers been guilty of scaremongering as the industry has claimed? The next batch of figures on installations will make fascinating reading, but it is not beyond the realms of possibility that ministers angry over the court case and concerned about the scheme's budget could end up imposing even deeper cuts that kill off the industry once and for all.

Instead, the conclusion of the appeal hearing should represent the point at which the curtain comes down on this farce.

If the government is serious about delivering a successful UK solar industry and a confident renewables sector it needs to end the show with an immediate mea culpa detailing its mistakes, a commitment to not repeat them, and, most importantly, a detailed clarification on how incentives will be cut going forward. If that means more money has to be found in the short term to stop the scheme breaching its budget then that is the price ministers have to pay for their failure to act sooner.

Ministers need to do now what they should have done in October: commit to cut incentives from February while also detailing how further cuts will be imposed at short notice if the market overheats again.

For its part, the solar industry also needs to declare a truce (some of the attacks on Barker in particular have been unnecessary and counter-productive), commit to working with the government to develop a more sustainable incentive mechanism, and work harder to present a united front capable of making the case that solar technologies will be able to operate without incentives in just a few years' time.

Only then will this rather sorry farce deliver a happy ending.

Sourced from Business Green