Friday 16 November 2012

Thoughts on the RHI Domestic Consultation

The Next Big Thing?
Image: Viridian Solar
Yesterday the Solar Trade Association (STA) released its draft consultation response to the Renewable Heat Incentive domestic consultation to its membership for comment.

For anyone thinking of responding to the STA or directly to DECC, here are some things to mull over:
1.       Solar – grant or tariff

The consultation definitely leaves the door open on changing the support for solar thermal from a 7-year tariff to an upfront grant.  While the choice may seem blindingly obvious – customers would prefer a grant every time – it’s worth pausing to consider what might happen if solar thermal is treated separately to other technologies.
If solar is in a separate grant scheme, even if “branded” RHI, then it would be much, much easier for politicians to tinker with.  The recent history of solar grants (Clearskies and Low Carbon Building Programme) indicates that the temptation to continuously “improve” the system may be too great to ignore.  Even if you believe that the team setting up the RHI has the best of intentions (and I do), the nature of government is that there’ll be different people running it before too long.

For this reason, the STA is currently consulting on a hybrid – a combination of an upfront grant against cost of the cylinder upgrade and a solar thermal tariff for 7 years just like the rest of the RHI technologies.  There is a logic behind this, as the cylinder upgrade as part of a solar thermal installation results in energy savings that are not given credit in the RHI impact assessment, see my earlier blog article on the subject.

2.       Scope for Cost Reductions

The STA has estimated potential cost reductions of 35% if the solar thermal industry can achieve economies of scale (imagining a market of 150k installs/year, an increase of 5-fold from today's estimated 30k). 

The nature of solar thermal equipment is that much of the cost is fixed by the price of global commodities.  Unlike solar PV, where the main component cost is for a material that has no other bulk uses (silicon wafer),  these commodities are materials like aluminium, copper, and glass which have many other uses.  Changes in the solar market are unlikely to influence the price of these materials.

For this reason, the STA is proposing that the majority of cost reductions could come from efficiencies gained in installation rather than price reductions in materials.  It is easy to focus on the actual process of installation and to wonder whether this can be sufficiently squeezed, but that is to ignore other business efficiencies that would emerge as solar thermal graduates from cottage industry status.
Imagine a solar installation business that increases in turnover by 500% over a number of years.  Would it need 5x more people in the office, or would specialisation allow people to do business processes more efficiently?  Could it have staff which did nothing but surveying?  Would these people have to travel less distance between appointments?  How about marketing?  How much more effective would be each pound spent advertising the business when the potential market is so much larger?
Fundamentally, you have to ask the question, why should UK plc invest in solar thermal?  What’s the end goal?  Unless the RHI helps solar thermal unlock installations at lower cost so that it doesn’t need subsidy in future as energy prices increase then why bother?