27 October 2011
Check Against Delivery
Five years ago I wrote Power to the People. A pamphlet urging a radical shift to a far more decentralised local energy economy.
A shift away from the dominance of a few energy giants towards a diverse, innovation rich energy sector. A new vision of energy generation that empowers homes, businesses and communities.
Since then, all that I have seen and all that I have learned, first as an Opposition spokesman and now as a Minister in Government, has reinforced my strongly held belief that the successful energy models of the 21st Century will be far more decentralised, local and flexible.
Decentralised energy drives innovation. Decentralised energy fosters a wide range of low carbon technologies. Successful decentralised energy economies promote choice and competition.
Power to the people, I called my pamphlet in Opposition. Power to the people we are determined to deliver in Government.
But my determination to drive this new cleaner, greener model of consumer empowering energy generation has to be seen in the wider context of the Coalition’s wider green agenda. We are determined not just to drive down carbon emissions but to build a successful, thriving, prosperous low carbon economy.
Last year, the Prime Minister pledged that this historic Coalition would be the “greenest Government ever”.
16 months on, I am here today to tell you that the Coalition will deliver on that pledge. Judge us on our record.
- £3 billion for the new Green Investment Bank
- Royal Assent for the Energy Act that will unleash the Green Deal, a World first programme to drive the biggest housing retrofit scheme since the Second World War
- £860 million in the Spending Review for FITs
- £860 million for the world’s first RHI
- £4.6 billion for science and research programmes, including key support for low carbon technologies
- £1 billion for the World’s most ambitious Carbon Capture and Storage programme
- Our radical proposals for Electricity Market Reform will open up the market to new players, new technologies and make Britain the Saudi Arabia of off-shore wind
- And in Whitehall we not only committed to the 10/10 campaign, we slashed our own emissions by 13.8% in 12 months
This Government is walking the walk.
And since that election, we’ve made a start at rebalancing the architecture of Britain’s electricity supply, bringing power to the people and allowing them to generate their own electricity on their homes, their schools, their work places.
Over 100,000 homes now generate some of their energy from their own renewable power stations. And to date solar has been by far the most popular technology with consumers. It’s easy to see why: it’s simple, accessible, reliable and fits discreetly into homes and communities.
But this is just the start. I’m personally committed to ensuring that your industry can prosper in the longer term, sustaining green jobs at a critical time for our economy, jobs that people can build a career on. Jobs that can help drive the recovery and show that Britain can lead the way in low carbon innovation and small scale renewables.
This room holds representatives from the whole UK supply chain. From manufacturers to inverter companies, from installers to retailers and financiers, all of you employing people and all of you helping to drive out the message that decentralised energy is available, affordable and easily obtained.
Solar PV has delivered by far the most installations through FITs so far, and I hope that the other technologies can learn from the incredible growth your part of the industry has seen. I am a strong advocate of solar in the right locations but I also want to see a strong spread of UK renewable technologies benefiting from the FIT.
But let’s not kid ourselves. Much of the growth in PV has been as much about consumers accessing the Government backed tariff as accessing the technology. High net worth individuals chasing returns which are now easily reaching double figures at a time when interest rates for savers have collapsed to an historic low. That can’t be right. And I know responsible voices in the industry have been worried about this for some time.
NEW ECONOMIC REALITY
So, however convinced we may be of the long term potential of this exciting technology, we have to face up to the economic reality that ever other sector of the economy is challenged by.
The Green Economy does not exist in a bubble. Yet the subsidised returns we have seen on solar PV investments – funded from consumer energy bills – are unsustainable at a time when National Savings have pulled their index linked bonds, interest on savings accounts has plummeted and the stock market has dropped.
And of course, we will all be watching our energy bills this winter. This is the new reality, and it is in this light that we must consider the future for this industry. We have seen boom and bust in solar right across Europe. We have to make sure that UK solar has a steadier, clearer, sustainable growth path, that justifies the subsidy from all consumers, demonstrates clear value for money versus other low carbon forms of generation and can show a clear path to grid parity.
I know that that Solar PV is a transformative technology, easy to understand, quick to install and completely reliable. But critically, PV costs have plunged since the tariff levels were set, down by as much as 70% in 2 years according to Bloomberg. At rates like that, this sector should demonstrate clearly and openly that it is passing on these exciting and dramatic price reductions to consumers. So the tariff levels need to reflect these new prices. By using these incredible cost reductions, the most dramatic of any energy generating technology, you can build a compelling case for grid parity, not as a concept but as a reality. I believe solar is already well on the way to that destination.
But there is a delicate balancing act to perform to avoid boom and bust, as shown by the bubbles in countries like Italy, Spain and France, fuelled by over generous feed in tariffs.
The Coalition inherited a slow, unresponsive and misinformed scheme but I still believe passionately that Feed-in tariffs are essential.
GERMANY AND DEGRESSION
Around the world, many look to Germany as the birthplace of feed-in tariffs. Germany got many aspects of their FITs scheme right – I know that and you all know that. That is why I want our FIT to take the best learning from Germany and apply it to the UK. I have been there myself to talk to senior Ministers and industry practitioners. But they will also tell you their system is not perfect and many worry about the embedded cost of the FIT system.
We will consult later in the year on how we respond to market changes and assess PV costs and take up on a regular basis, and revise our tariffs accordingly. Industry is critical to this process. We want to work with you to agree the future path of tariff reduction, take politics out of the sector and deliver what I believe the industry needs and what the last Administration’s scheme failed to deliver: T.L.C. not tender loving care but transparency, longevity and certainty.
We fought hard and won a good settlement of over £860m in the spending review to subsidise small scale FITs, an extraordinary achievement as we grapple with the deficit and consumers struggle with rising energy bills.
The challenge now is to use that public investment to obtain the widest possible deployment. I don’t want a tariff that gives bumper returns to a lucky few but a tariff that incentivises sensible deployment, in the right place, on the right buildings in the greatest numbers.
We have got to make the FIT more intelligent, more nimble, more dynamic and responsive to market development and crucially, better value for money. But I can’t do that on my own. I need your help.
The FITs Scheme has to live within the budget, so while I welcome the fantastic success of the scheme, with over 100,000 installations representing more than 305 MW of installed capacity you don’t have to be a Nobel prize winning economist to realise that solar is burning through the budget at an unsustainable rate.
So we will be launching a consultation very shortly that focuses on addressing the budgetary problem. I believe that Solar PV can have a strong and vibrant future in the UK, and making changes are vital if we are to ensure a lasting FITs scheme to support that future. We have inherited a scheme in the UK that wasn’t fit for purpose, so now we must do the same in order to preserve it.
Yes, the decisions we need to take are tough. I know that many of your businesses depend on the FITs levels for your success, at least in the short term. But we cannot escape reality: this is a different world to the one in which FITs were launched. In particular we must provide value for money to bill payers. I cannot preside over a scheme which allows a solar panel installation in some of the least sunny locations in Britain to generate returns of more than 12%.
Being sensible with tariffs means there will be more money to go round, to spread more widely and thus allow more people to benefit. In the long term this should mean more customers for your companies, not fewer. It should also mean more interest in your products and the solutions you provide and that are on show here today and more opportunities for diversification.
The 100,000 FITs installations we have today are only the start.
Lower tariffs would mean uptake with FITs support could continue to grow in a sustainable way, and the microgen sector can be the engine of a green economic recovery. The future of solar PV in the UK needs to be one based not on subsidy but on sound underlying economics.
We also need more transparency. You need to know how much money there is and what has been installed to date. The public needs access to the best information to make informed decisions about all Microgeneration. The scheme needs to be intelligent and responsive to changes without the need for stop start reviews, we owe you that much.
We will look at streamlining the scheme to make sure it works for industry and consumers with the minimum of bureaucracy. We want a system in place to provide the longer term certainty investors are seeking.
And we will make sure that the interests of bill-payers are protected by making sure the scheme is not open to abuse.
I am also keen that we should establish FITs as part of a whole-house approach which prioritises energy efficiency and supports the right low-carbon heat and electricity technologies, so the consultation will look at how we can use the scheme more smartly to drive this holistic approach.
Many thought I should not have reduced the tariffs of large scale PV installations this summer. But politics, particularly in tough economic times, is about clear priorities. I am even clearer now that we did the right thing. As much as 150 MW of large-scale generation was able to install at the old high rates.
Had I not acted when I did, the run on the budget could have been disastrous. There would be even less money for households, schools and communities and instead of amending the tariffs today, I could have been closing the Scheme.
BUSINESS OPPORTUNITIES (GREEN DEAL AND FITS)
I am also clear that there needs to be much greater coherence right across the green agenda. The Green Deal and energy efficiency measures, Feed in Tariffs for Microgeneration and the RHI need to work much more effectively together, and so must the industry.
The wider context is also vital in deciding what we do next with FITs. Fuel bills are only going in one direction. You are all energy users, and I’m sure the recent hikes in bills will affect your family this winter. Our top priority must be to help drive energy savings to help keep bills down. And the new Green Deal will a key part of delivering these savings.
The Green Deal will be the biggest home improvement plan since the second world war, helping to insulate people against rising energy prices and creating homes which are warmer and cheaper to run. We all need to become more efficient, our houses, schools and offices.
To help deliver the most cost-effective building carbon savings, the Green Deal and the Feed in Tariff must be brought together as a coherent package for consumers.
So, I can announce today that we will be bringing forward proposals to ensure that all new domestic PV sites from April 2012 must meet minimum energy efficiency standards.
It cannot be right to encourage consumers to rush to install what are still expensive electricity generating systems in their homes before they have thoroughly explored all of the sensible options for reducing their energy consumption first.
Frankly, such a standard should have been a pre-requisite for accessing the FIT subsidy from day one. And I know many in the industry saw this from the outset. So I will be working closely with you, through the Comprehensive Review, to put this in place.
The consultation will also ask how we might do the same for business premises and non domestic sites in the future.
No more PV subsidy for energy inefficient buildings.
But this is not a brake on your businesses but a new green business opportunity. This will encourage companies like yours to diversify into new sectors and join the transformation of the energy efficiency market with the same gusto as you have microgeneration. We will be consulting on the detail of those standards to make sure we get them absolutely right, because we recognise the need to keep the policy simple, cost effective and deliverable.
I also want to say a few words about solar thermal and the host of exciting heat technologies that will be supported by the world’s first Government programme to support renewable heat: the RHI. The fact is the UK is leading the world in renewable heat, completing the picture.
The domestic pre-cursor to the RHI, the Renewable Heat Premium Payment, was launched this Summer and has already allocated thousands of vouchers to cut the price of a solar thermal system. Following a short delay from Brussels I am pleased to announce that the full RHI is all set to launch next month.
As part of the new effort to drive a whole-house approach, solar thermal will have an important role to play alongside PV and other innovative technologies. I am keen to see a much greater integration of solar thermal and PV offerings in the marketplace – providing consumers with the best advice and the right technologies for their situation.
In addition, following a recent competition for social landlords, I will shortly be announcing support for 34 renewable heat projects from social housing providers, to the tune of more than £4m – an increase of 33% on the original budget set aside for this competition.
However, unlike FITs the take up under the RHPP is marginally slower than expected, particularly for solar thermal, and I would urge you all to embrace this scheme which is due to finish at the end of March next year.
There are opportunities for smart, agile companies to take advantage of a brand new market, creating green jobs and helping to drive forward the growth this country needs.
So in conclusion, this conference, the biggest PV event in the country, is testament to the entrepreneurship that this industry has shown, I am determined that together we will forge a sustainable future for Solar PV in the UK.
To do that we have to navigate our way through a challenging time for the industry, staying within budget and showing the critics and sceptics that solar can deliver good value for money.
Let me be absolutely clear, I haven’t come here to kill the tariff scheme, I want to fix it, enhance it and put the whole industry on a sustainable, credible economic path to a bright and exciting future.