This review of the Solar PV Installation industry was written by myself (Simon Hamblett) shortly after it was announced that the Feed InTariff Rates would be reduced to 21 pence per KW/h in a timeframe which was substantially altered from that which was originally scheduled by the government. Following on from this article i will be publishing another with details of how the industry has been affected by this radical change in policy and finally details of the patent application which i have pending. This application outlines a potential solution of how best to alter the structure of the energy industry in such a way as to create a platform for competition and a realistic opportunity for regular families and individuals to benefit from investing in Renewable Energy.
It seems ironic to me that the 31st of October 2011 after months of planning, deliberation and money invested on training for a new career in the Renewable Energy Industry I finally sat down to focus on looking for my first position working in the industry.
Yes I’d been sold on the concept. A government backed initiative in its origins (“The feed in tariff!”) to save the world from the global impact of CO2 pollution, global warming, a strong policy enabling Britain to catch up with it’s European counterparts and on an international scale to give Britain a firm foundation for making good those targets set by the Kyoto agreement.
Understanding the current state of our stagflation impacted economy and an unstable to say the least coalition government I truly felt after reviewing the progressive and responsible staggered reduction of the feed in tariff over the next few years that the Solar PV industry (my primary focus initially) would be a safe and reliable investment. Not the case unfortunately if we see things play out as the energy companies would ideally like. Instead we have recently seen the media systematically destroy the very fabric of the environmental and informed economic argument by outlining a simple one dimensional story, “Energy company customers without renewable energy generating technology in place (such as Solar PV) are in fact paying the investment returns of those that have by way of the feed in tariff”
However, rather than simply taking this story on face value should we not consider promoting the real economic and political agenda which needs little more than a basic understanding of economics and how big business seeks to control political policy through its use of the media in order to grasp its origins and ultimate conclusions. This is far from a new story but never has there been a better showcase to outline the corruption and lengths people in positions of power and authority will go to in order to perpetuate their standing.
Energy companies and their shareholders have a vested interest in maintaining the current status quo over the energy prices and profit margins. This is a simple fact (would any shareholder of a major energy company cast a supporting vote for a board of directors that didn’t ensure their investment returns were performing well and secured sustainable profits into the future? NO) and it doesn’t take a rocket scientist to work out that Ofgem the regulatory body has failed in its capacity to achieve a truly competitive energy marketplace. If it had we wouldn’t keep seeing the constant levels of price rises we see every year.
The reality is, we’re dealing with the truest form of an oligopoly know to the planet which makes regulation virtually impossible and if there’s a single person currently reading this article who actually believes that the senior executives of these very same energy companies don’t communicate with each other at board level in order to set price levels in a self serving interest both for financial benefits and to maintain the organisational power structure within the industry then you need to stop and think for a moment.
Who does it really benefit to strangle the forward march of a realistic competitor to the current energy companies and who are the people who can currently make a stance and turn the marketplace into a truly competitive industry?
Please hold that thought as the economic and political roadmap that follows will answer this very question whilst at the same time justifying why this whole rational to cut the feed in tariff from it’s previously planned reductions to a revised level of 21p/Kwh by the 12th of December 2011 has been enacted by the current Conservative government majority.
The original tariffs were put in place in order to protect a fledgling industry, to give it time to develop for the greater good of all and specifically to encourage those people who could afford to make a capital investment to do so based on the rational and widely taught product life cycle theory that over time this investment would result in technology cost reductions and ultimately access to this technology by the greater part of society. Lets just take the computer industry and the flat screen TV market as two prime examples (how many homes in the UK are without these today regardless of household income?) and lets for one moment presuppose that the manufacturing giants are on the verge of developing production models which could allow the same targets to be achieved without any support of a feed in tariff but just requiring access to an electricity grid in order to support the characteristics of Solar PV’s very nature of power generation.
The answer is simple as far as the energy companies are concerned, it needs to be stopped or the very nature and profitability of their business model will have to change forever!
When the feed in tariff was enacted by the previous Labour government a continued uncertainty still existed as to whether the technology companies could deliver a realistic alternative to fossil fuels and little attention was really given to the industry by the energy bosses as a serious competitor. In addition to this any negative PR directed at the Renewables sector at the time would simply have done nothing more than confirm the generally held opinion that the only inerest these giant organisations held was to continue their pursuit of profits at the cost of the depletion of our fossil fuel reserves with little regard for trying to solve our well documented ecological problems.
However, what we have witnessed since then and withstanding the current economic environment is a rapid growth and a potential explosion in the industry backed up by recent installations exhibiting returns of between 10-15%, primarily due to the improvements in the underlying technology and reductions in unit costs brought about by mass production and economies of scale. Caused most significantly by the very nature of a truly competitive solar PV energy market created by the vast array of solar panel manufacturers and installers competing with each other.
This investment return potential has increased at a rate that neither the government nor the energy companies themselves could have foreseen, as a result of which, linked to the fact that the political landscape has changed radically since the feed in tariff was enacted the energy executives decided the time was right to make their move to undermine the industry. Utilising a sophisticated PR strategy, manipulating the press and media in an anti Feed In Tariff campaign in order to destroy the protection it was designed to give the industry at it’s inception. Their campaign has been so swift and effective in its timing and magnitude through its use of the media that it has effectively managed to influence the opinion of the growing financially marginalised households in the UK, by highlighting the feed in tariff as the root cause of much of their energy price rises.
The reality which truly needs to be highlighted is that there is no serious justifiable accounting and profit related rational at this point to support this and that the real cost per household is only a couple of pounds per year. In fact the very same energy produced by Solar PV in domestic installations is bought at 3p/KWh from the microgenerator and sold to those who elect to purchase it for a premium as quoted by eon of 27.657p/kWh for the first 225 kWh per quarter followed by 13.598p/kWh thereafter.
Without doubt this massive anti renewable marketing campaign has specifically highlighted this technology as a them and us political weapon. Them who can afford it and them who cannot and whom are being marginalised by the increased cost of their bills due to the rebates paid out by the energy companies required by the feed in tariffs.
What they have failed to publicly market is exactly the additional cost per household in order to put it into perspective and that this small contribution in the short term will ultimately lead to the freedom of the masses (in what may well be a far shorter time frame than we anticipated) from price fixing through complex influences of controlling supply in an energy marketplace characterised by inelastic demand (a characteristic of economic supply and demand theory where the amount people consume is changed very little in relation to the increase in it’s price) in the long term.
In fact to go just one step further as renewable technology rolls out, the energy companies will be forced to re-evaluate their own pricing structure and become more competitive by reducing prices and therefore benefiting everyone.
Solar technology whilst advanced in it’s scientific design is little more complicated than fixing a radiator to a wall and I would go as far as saying that anyone with a normal adult brain can be easily trained to work in small teams to do so. The most significant aspect to this whole debate is the absolute movement of labour away from supporting the continued existence of the energy companies in their present form to an industry which we are now 100% sure can grow, survive and be competitive. Indeed many people have already made the jump, me included.
I would love to have faith on an economic and socio-political level to believe that there has been foresight enough by the present government to arrange for the energy company executives along with the solar pv manufacturing companies to sit down around a table with those in power to assess if the industry can indeed withstand a cut of this magnitude in such a short time-frame. However, more importantly were the original reductions and continued phasing out of the feed in tariff not specifically put in place in order for companies and individuals to effectively plan business strategy for their payback on investment through future forecast cash flows. Unfortunately,without doubt there are many new companies out there which will be forced to adjust their cost structure accordingly and redundancies are likely.
However, in a political domain currently characterised by the need for cheap support and votes the government in its capacity has failed to rally and publicise the true long term impact and go against the tide of the financial might of the energy companies but use the path of least resistance for their own cheap gains in votes.
The anti Feed In Tariff campaign has been so effective in it’s implementation through the PR mechanism that the reaction by the government can only be viewed as rolling with the media tide in the quest for winning these votes from the very marginalised households that the original policy was intended to help liberate from fuel poverty in the first place.
It is my opinion that the reaction within the industry will be one of a sustained approach to achieving reductions in capital costs and performance improvements of panels and inverters by the manufacturers in line with feed in tariff reductions, thus making access to the technology more affordable. However, it does have to be highlighted that there does exist a price level at which the equipment will simply not fall below based on production cost factors and demand driven by the commercial installation sector which through its operational efficiency is now not far from achieving grid price parity with non renewable sources.
When this point is reached which is probably not that far away, coupled with the continued feed in tariff reductions, unless the system capacity output itself is capable of making a significant reduction on the amount of electricity bought by the household from their existing supplier then the installation will simply prove to be nothing more than a small scale financial investment decision within a false economy where this return will simply be compensated for by another round of price rises by the energy companies.
It remains to be seen where the cut off point finally materialises as to the minimum domestic system size which will need to be installed in order to act as an effective protection measure against continued energy price inflation. However, unless we see massive efficiency improvements of domestic appliances i would suggest that ultimately when the feed in tariff reaches its minimum level over the next few years anything less than a 3.68 Kw grid tied domestic system (which is the maximum permittable by the distribution network operators) should recieve careful consideration as to it’s economic and functional viability.
Written By Simon Hamblett ( firstname.lastname@example.org )
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