Why we want the judicial review to back the FiT reduction for schemes over 50kW (part 2)

Last week we commented on how the clamour of heavily funded solar PV speculators to reverse the Government review of FiT's wasn't good for the renewable culture we need to nurture in the UK.  Today we are concentrating on the economic impacts of large scale, grid connected solar farms if they are rewarded with the original feed in tariff rates as the complainants would have it.

So to set the scene: The UK is still suffering from the effects of the credit crunch and subsequent economic recession. Unemployment is high (although recent figures suggest a significant reversal, much of that has been attributed to part time workers), as is inflation, the banks are not lending, interest rates have been at historically low levels since March 2009 and the construction industry has taken a nosedive at a time where housing stocks are low.

The FiT review is designed to discourage 'solar fields'

The Coalition Government are charged with reversing these trends, and must do everything in their power to do so for the good of the country. One of the growth sectors they have identified is the renewable/green market, since we as a country have made a legal commitment to reduce carbon output in the Copenhagen Agreement.  The UK has signed up to ambitious targets to reduce our carbon impact by half against 1990 levels, so it would seem that investment in the 'green' economy is the only solution. As a means of raising funds necessary to help make this staggering change in our culture, the omni-profitable utility companies have been hit with a carbon levy, or 'green tax'.  It was decreed by the last Government that this fund be re-distributed (via the feed in tariff) to those who generate their own electricity; simultaneously penalising polluters and rewarding those who turn to renewable sources of energy.  2 birds, 1 stone.

In the UK there are a number of FiT qualified installations available but, much like in Germany, the overwhelming favourite, accounting for about 95% of our FiT payments, is solar PV.  Solar PV installations come in many shapes and sizes but the recent FiT review has sought to discourage large scale installations on a purely financial level - and therefore make smaller systems more attractive to those who wish to invest in this vital sector of Britain's modern economy.

When thinking about the economic impact of the choice between smaller scale installations and 'solar fields', the simple economic principle to consider is economies of scale.  This principle is universally accepted by economists, politicians, butchers, bakers and candlestick makers alike.  The simple premise is that in the creation of any product, the more you produce the cheaper the cost per unit and the greater profit per unit you are able to make (up to a point where you maximise the marginal returns). When you apply that theory to the solar PV part of the UK feed in tariff scheme, the larger a solar PV project the cheaper the unit cost of supply and installation. However, due to the fixed value of payments the most attractive marginal return is set too high and the subsequent drain on the carbon levy pot of funds is perceived as too great by the current Government.  The simple fact of the matter is that the last Government set the fixed prices too high and created a market where large value speculators can use economies of scale to make disproportionate profits.  We would argue that at this juncture - where tradesmen are out of work, where students are selecting further education purely because they fear unemployment - it is the grass roots of business that need the shot in the arm, to create the wealth of tomorrow.    

The Government would prefer you pop a few panels on your house,
and so would the economy!

Consider now the ineconomy of smaller scale production where labour represents a higher proportion of the input and proportionally greater management time and greater effort per unit is required, not to mention the design nuances of small scale bespoke projects.  This means added costs, but luckily, in the instance of the FiT scheme, the unit price (set by the  Government) is also proportionally higher.  So smaller scale MCS installations require great input from local sources; or in other words - they provide more jobs.  The income generated from the scheme then goes to the people who own the small scale installation, who are far more likely to be the kind of  'normal' folk who have been affected deeply by the recession.  The scheme now turns into something that does not provide benefit only to the wealthy but also provides employment and secure income to those who are deeply concerned that today's pension market may never fulfil their requirements. In economic terms the review has reduced the marginal return for all those installations above 50kW and shifted the highest marginal returns to those installations below 50kW - making smaller installations, and smaller installers, a more attractive prospect.

In summary, we believe that if the judicial review finds in favour of the conglomerate of suppliers, installers and others it will mean more money for the rich and less for the poor; but should the Government's decision be supported it will mean that government intervention has been for the greater good, bringing more jobs, income and tariff benefits to the people who need it.