Feed-in Tariffs review: let’s subsidise what works

The Government has announced a review of the Feed-in Tariff subsidies (FITs) for solar photovoltaic installations.

Energy Minister Chris Huhne is worried that large PV 'farms' of over 50kWp will soak up most of the budget for FITs. The Government said it would cut the amount it would spend on FITs up to 2014-15 by 10% to £360 million in the November Spending Review.

The industry is crying 'foul'. It complains that other technologies are allowed up to 5MW per installation and that no solar farms greater than 1MW are in planning. It accuses the Government of attacking jobs in the very green tech sector it says is going to bring growth to the UK economy.

But it's worth asking: what are the subsidies for? Here are a few possible answers:

1. Huhne talks of making renewable technology seem normal by being visible on lots of roofs.

2. It's said that households with the modules become more conscious of green issues and energy efficiency.

3. By increasing demand, the price of modules is supposed to come down over time.

4. It creates jobs in an emerging sector.

5. It cuts carbon emissions.

But do these stand up to scrutiny and represent value for money?

FITs are a fantastic success, particularly for PV, in stimulating demand for renewable energy among the public. There are now over 21,000 schemes of all technologies registered.

Up to the end of December, when there were 16,384 installations, PV had the vast majority with 15,236 - over 15 times more than wind in second place with 977 with hydro lagging at 154.

Are these large PV schemes? No. By the end of last year there was only one over the 50kW size, at 55kW. The vast majority were under 4kW with the average at 2.6kW. Most of these will be receiving the full tariff value of 41.3p per unit.

On the other hand almost all the hydro and wind installations were over 4kW, many over 10kW. Most of these will be receiving only 26.7p per unit.

By contrast, if PV farms were to register for the Renewables Obligation subsidy - an older, different subsidy for larger schemes - they would receive payments of around 8p/kWh plus export payments of 5p/kWh (though this is to be reviewed).

So PV receives almost twice as much under FITs as wind and other technologies. You can see why it is so popular. But is it value for money?

Let's remember that the installed capacity of PV doesn't equate to what will be generated: this depends on the location - the amount of sunshine.

Solar module manufacturers quote figures for the “peak power” of their products. These are what they would generate if one kilowatt per square metre of the sun’s energy were to fall on them.

But for most of England and Wales, the summer insolation is a fraction of that figure. London gets 198W and Edinburgh 172W in July. In December, the figures are 22 and 13 respectively - a lot less - and that’s when you need more power.

By contrast, wind and hydro ratings are significantly closer to what you actually get out of the plant.

So if you're looking for saving the most carbon per £, these technologies are a better choice for support.

But let's remember also who pays for the subsidies. The money comes off a levy on everyone's electricity bills. This means we all help pay the income of those who can afford to install the solar modules.

Since those on low incomes pay a disproportionate amount of their income on fuel, they are essentially subsidising the better-off.

On that basis the Government is right to prevent this subsidy going to large landowners and companies seeking to install solar farms.

Instead, it should support installations by such groups as housing associations like the Peabody Trust, who are putting PVs on the roofs of social housing.

(However it is cheaper to build larger installations than smaller ones – because savings on overheads and systems mean costs are reduced per kW. So these would make financial sense if the cash came instead from investors.)

In America this week, Energy Secretary Steven Chu announced that he wants to spend $27 million to cut the cost of installed solar power by 75 percent to about 6 cents per kilowatt hour in order to let the US compete with China's takeover of the solar market.

Fine for them - the southern states are where solar power works brilliantly. By contrast, even in the UK's southernmost counties, the financial paybacks are 30-50 years - all costs included.

What the UK is rich in are wind and ocean resources. If it wants to generate future jobs and save carbon, with renewable technologies that can work domestically and be exported throughout the world, it should focus its limited resources on these.