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February 2012: Barker Was Right – Solar Power is not the Klondyke

Late last year The Observer reported that “An extraordinary alliance of countryside campaigners, wildlife groups and green activists has launched a savage onslaught on the government, accusing it of showing "stunning disregard" for the environment.” Reacting to what they saw as an environmentally regressive Autumn Statement, campaigners from across the spectrum accused the government of reneging on the green agenda. Citing “sudden cuts to solar subsidies” and “ill-conceived planning reforms”, leaders of RSPB, CPRE, Greenpeace and FoE accused the government of “an out-of-date approach that casts regulation and the environment as enemies to growth”.

On the latter point, the green movement may well be right. But on the specific question of subsidies for solar, the argument that has been overlooked is the question of exactly how solar photovoltaics contribute to the UK’s broader environmental, social and industrial imperatives. Indeed in several hours of debate on solar Feed in Tariffs in the House of Commons on 23rd November the topic of green industrial recovery hardly arose at all.

Clearly DECC Minister Greg Barker upset many people with his announcement of an early reduction to the amount of money the government will subsidise energy produced by small scale solar photovoltaic installations (from 43.3p to 21p per kWh). Many critical responses came from the business sector. John Cridland, director general of the CBI described the announcement as "the latest in a string of government own goals".

Sainsburys CEO Justin King angrily attacked the move, accusing Secretary of State Chris Huhne of being “disingenuous” on BBC’s Question Time. King said the Government had “stopped in its tracks a massive investment in photovoltaic energy in our country. " And according to Daniel Green CEO of solar installers HomeSun “only the super wealthy with an eco-conscience will be able to wait now for a breakeven of 14 years on a solar investment".

Much of the anxiety expressed by the business community arose because of the abrupt nature of the announcement, and in particular the fact that it came before the deadline for official consultation had been reached. The response of the government has been to argue that the uptake of solar installations was accelerating out of control, the policy was in danger of adding up to £80 to 2020 household energy bills, that in any case the new tariff matches that of Germany, and that people can still make a respectable return of 4.5% on investment after tax.

The Government has also argued that the developing ‘bubble’ was in danger of making the industry unsustainable, and that a reasonable reduction in solar FITs now stands a better chance of deploying £900m subsidies effectively over the next 4 years than the current ‘boom and bust’ alternative.

However, in my view, there are even more powerful arguments for reining in solar FITs for the parallel policy imperatives of climate change, social justice and industrial recovery. On all three points, it may be argued that subsidies for solar photovoltaics are at best a distraction, at worst a poor use of Treasury money that would be better deployed elsewhere.

According to DECC, just 0.5 per cent of renewable generation comes from solar photovoltaics. However 97% of small scale FIT recipients have been solar, with less than 1% combined for micro-CHP, hydro-electricity and anaerobic digestion combined. Yet these community scale non-solar renewable technologies hold far more promise for the long term.

And so even before we consider the more obvious climate change and social benefits of investments in energy efficiency, we must seriously question the wisdom of spending as much as £8bn over the next 20-25 years on subsidies for solar when the industry is – and will remain – a tiny fraction of the renewables story. Particularly when, as George Monbiot has argued, the subsidy actually represents a significant transfer of wealth from the rich from the poor.

When it comes to jobs and industrial recovery, again the solar industry is an interesting but not critical (or especially efficient) use of Treasury money. BIS estimates that around 39,000 jobs may be dependent on the solar industry, and according to Chris Huhne approximately 8-14,000 may be directly employed (including 500 in the Sharp factory in Wrexham). Of course these jobs are important and should be maintained.

But it is spurious to pretend that the UK can or should compete with Germany on solar (250,000 employed and half the world’s installed capacity), still less with China, the US or Korea who are really driving down the costs of solar products. These are the countries that will derive future competitive advantage just as Denmark did with wind energy through similarly judicious investments.

A better, and more differentiated model for the UK may be Canada. Ontario set aggressive solar FITs in order to attract $billions of inward investment and thereby create regional industrial competitive advantage. But Nova Scotia provides no subsidies for solar (which is irrelevant to that Province) and instead has set the world’s first FITs for marine energy in order to help develop the global market place for tidal energy. The Nova Scotia policy is backed by promises of $500m investment in ocean energy commercialisation by the Federal Government.

It remains to be seen whether the UK government will similarly bite the bullet and switch future Treasury subsidies from solar to marine energy, where the UK could still achieve global competitive advantage and where the installed capacity and number of real manufacturing and service jobs would completely dwarf those available from solar photovoltaics.

At time of writing: Professor David Wheeler, Pro Vice-Chancellor (Sustainability) and Dean of Plymouth Business School