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Grants and incentives - good or bad?

February 1, 2017

In the 15 years I have been working in renewable energy an awful lot has happened in the UK renewables industry. In 2001 I was looking for something to add a little bit more meaning to my life and I was hearing a lot about renewable energy amongst my friends, but the industry as it stood then was in it's infancy.


I started working for a company called Southern Solar - it was a great place to work with only about 5 employees. First I was part time, then full time - the company grew pretty quickly in the first 4 years after a slow start. I used to go and do surveys and sales work as well as installing - our payback prediction had a disclaimer at the bottom of the Solar PV payback sheet - "Please note - systems may take in excess of 50 years to recoup your financial outlay". As you can imagine we didn't sell many PV systems in 2003.


Then there came a domestic grant scheme  called Clear Skies - £500 for PV systems and £400 for solar thermal. Unfortunately a PV system then typically cost around £15,000 - 20,000 for a domestic installation. It probably increased sales of PV by about 500% - 500% of hardly any. We probably only installed about 3 systems the year before so it wasn't going to make the company expand quickly - Solar thermal was the bread and butter work.


Next came a commercial incentive called the Low Carbon Building Framework, and here is where it gets more interesting - because now only bigger businesses had the administrative and financial clout to get involved in the scheme as installers. Companies on the framework were vetted, needed bigger public liability insurances, and the places were limited. About 6 major players got involved, one of them British Gas - who of course had practically no experience at actually installing renewable energy at all, but never mind. In typically inventive ways these companies managed to turn over a lot more work they they could manage themselves by allowing people to sub-contract under their "umbrella" - using existing networks of smaller companies to feed in leads and do the actual work, with the companies at the top creaming off a healthy margin for doing very little. The incentive was a 50% cash grant, but over time this changed and as the pot was used up the controls became tighter and the grants smaller - but one other definite effect it had was a distortion of equipment prices.


Without a doubt, PV panels sold on the scheme were more expensive than they needed to be, but there was a fat cat at the top eating the cream so as long as the cat was fed  and the grant was worth more to apply for than buying the installation on the free market then the jobs kept pouring in and everyone was happy. I can't lie - I was blind to the negative effects this scheme had because I was just pleased that in the branch of Southern Solar I had set up, we were actually able to install a system bigger than 4kW every once in a while - it was EXCITING! We got to interact with major building contractors (that was definitely not always fun) and expand our horizons, doing technically more complex projects and learning new skills.


And then came...


The FEED IN TARIFF and not long after that the RENEWABLE HEAT INCENTIVE...  After a tentative 2 or 3 months whilst everyone digested the sales quotes, and worked out what the implications were, the market suddenly exploded - or did it? Well yes of course it did for PV and biomass, but not for all technologies. Solar thermal and heat pump sales absolutely plummeted to practically zero for various reasons, but partly because they were not incentivised as well. Again I would say the tariff scheme kept installation costs for some periods artificially high, though you cannot deny that the overall trend was for them to rocket down - This was a mix of macro and micro economic realities interacting. Across the world equipment production ramped up, as many countries enacted incentive schemes of one sort or another and the general demand exploded - who remembers the Chinese government "dumping" low cost solar panels on the market? At the same time "premium" equipment was able to be sold for artificially high prices as the tariff supported sales that might not normally have gone ahead. One company I worked for put quotes out near a digression period that were a reasonable deal for the customer given the tariff - but when the digression period was legally challenged and then put back, they then refused to honour the low price quote and increased the price - because they could. There was such a major rush on to install systems that people were desperate and would pay above the odds just to get the favourable tariff rate.


So what's my point, are the incentives good or bad?


Well on the plus side we have massively increased our production of electricity generated from solar and wind. We have brought renewables into the awareness of the public right? People can access renewables more easily surely? 


I wish we could definitively answer yes to all of those questions... yes we are producing more electricity and heat from renewables, But really, how many people have invested money in renewable energy? And were they the people who needed help because energy costs were a struggle? I think we all know the answer to that, what with the downfall of the Green Deal and it's lack of a replacement scheme. In reality the incentives have largely helped people who had access to cash or cheap finance, "free solar" companies that have bought and sold systems as assets, large multinational corporations, estate and land owners, farmers and middle class homeowners. Now don't get me wrong - there is no reason why anyone shouldn't have access to incentives that encourage more sustainable energy - however installation take up could have been so much higher and more equitable if the incentives had been managed differently, But that is a blog post for another day... 


So in short I agree with the idea of incentives for renewables - especially when you bear in mind that staggeringly fossil fuels are incentivised across the world MANY times MORE  than renewables, but in the UK too. If you don't want to read the reports referenced in the first article, the takeaway is that the IMF believes around $1.9trillion are given to subsidising fossil fuels across the world, and that may be an underestimate. In the UK the figure is around £6billion.


But the RHI tariff scheme design has been shockingly abused and continues to be so... and it has lead to some perverse outcomes. In future blog posts I will look into some of the other issues raised here in more detail ... I'll be covering subjects such as:


Were the tariff schemes incentivising the right technologies?

What is the case for "free" solar or heat?

Problems the incentive schemes have created

The best technologies for your house...

Biomass - how does it stack up in emissions terms? And how do we work it out?

How can we improve the tariff schemes?


Toodle pip!


UK becomes only G7 country to increase fossil fuel subsidies ...


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