Be Eco Friendly

When the Government introduced “Feed in Tariffs” (or FIT’s) to encourage people and businesses to install micro-generation of renewable energy equipment they were fixed for a period of 2 years. The idea behind FIT’s is a sound one: new technologies take time to move through an adoption curve but not all of them make it (who remembers Betamax?). Governments can affect the likelihood of success of desirable technologies by encouraging people to adopt them earlier than “the market” might otherwise deliver. In the case of FIT’s a surcharge on existing electricity users (where most is generated from fossil fuel) is used to give a premium to people who invest their own capital in micro-generating equipment. This premium serves to make the return on investment seem better and so kick-starts the market. Once the new market in renewable technologies gathers pace and size, economies of scale start to become apparent, driving down prices and the government can reduce the size of the incentive.

The difficult task for the government is trying to work out a balance between how big the incentive should be and how long it should run for to attract the “right” amount of investment. Too big an incentive and the market develops too quickly for the infrastructure to serve it properly, run the incentive too long and the opposition accused you of “market distortion” (don’t forget though that the way we account for economic activity is the biggest market distortion of all, which is why ordinary activity is destroying the future).

The trouble with the concept of “right” amounts of investment is that it is a political moving feast and, it appears, one that the government can’t really decide what it wants. The first problem came just a few months into the implementation of the new regime when it became apparent that large investors saw the potential returns on investment as being attractive. A rash of large scale projects were mooted, potentially covering the farmlands of Devon and Cornwall with PV panels.  Ooops! That wasn’t what we intended said the government and promptly cut the size of payment available to large scale schemes. Now, with the review date of April 2012 in sight they have published a “consultation” for future levels of support and, it appears that they think the FIT’s have been too successful as they have prompted 100,000 installations. So, the proposal is to cut the rate for domestic systems by just over half! And, in a nasty move that only a politician would be able to justify, systems that have not been installed by 12^th December 2011 will only get the current support level until the 31^st March 2012 and then they, too will fall to the new rate. Quite how that squares with the original support rates being guaranteed for 2 years is beyond me.

Any government action that undermines confidence is, in my view, a bad one. Putting in solar panels is not cheap; about on a par with buying a new family car. However, whereas with the car you know what you are getting, with the solar panels there is more uncertainty. Will they really generate the amount of electricity they say they will? Will people object to how my house looks with them on? Will they really last 25 years? What will happen if a move house? These are all the kind of issues that the payment is helping to overcome. Maybe the 100,000 installs are enough and the market now has enough momentum but as that represents less than 0.5% of the available roofs, I am pretty dubious.

If you had been thinking about installing a solar system then you really need to get your skates on if you want to benefit at the original rate. Although the actual installation only needs a few days, the process of finding and selecting an installer plus, possibly, completing site preparation work means that it will be a pinch to get a system installed and registered before December 12^th. Have a look at the Solar Trade Association or Good Energy for help in find suppliers. You can also express your views on the changes to the FIT’s by visiting the Department of Energy & Climate Change website.