Why Choose a Career in the Solar Industry?

Why should anyone take a job in the solar industry?  It may seem like a strange time to be talking about a skills shortage just after Feed in Tariffs have closed, government is yet to set out a clear route to market for exported electricity, and in the week that Ikea pulled its domestic solar offer in the UK.

But that's what I'm hearing from colleagues.

They talk of job adverts sitting open for months on end, difficulty getting electricians to take roles in solar and people moving out of solar divisions and back into regular M&E contracting or roofing.

The challenge, I believe, is one of perception - that solar is just a fad - lots of installations while the government paid for them, but all gone today, right?

Feed in Tariffs were cut, and cut again, and have now been taken away.  Solar farms once popped up like mushrooms and then years went by without ground being broken for a new one.  Taxes have been imposed on businesses with solar panels, higher electricity standing charges are proposed for people with solar on their homes.  Solar boom then bust, and bust and some more bust is the diet that the news media has fed the public.  Little wonder colleagues across the industry are saying that attracting talent right now is proving to be a challenge.

Our industry has driven forward at a pace that has regularly sent waves of panic through those government departments tasked with supporting the transition to a green economy.  Support scheme after support scheme that looked well-designed and rational when announced were quickly overtaken  by the relentless and rapid innovation of the solar sector.  As solar costs fell, financial returns rose, deployment volumes exploded and government support schemes ran out of money.  Spain, Italy, Germany, UK - the list of countries rapidly back-tracking on support schemes goes on.

Economies of scale, automation of manufacturing, ever-higher solar panel efficiency, new financing models, reduced risk for investors - all these have driven down the cost of solar and increased the financial attractiveness of the technology.  Crucially, this happened at a speed that governments were unable to respond to.  The result was often a knee-jerk approach to policy development.

Our industry has often, by necessity, been complicit in the tone of the media coverage, publicly regretting the reckless treatment of theindustry by our government, while at the same time talking up the long-term prospects.  Inevitably, press coverage focused on the negative messages.  Faced with cliff-edges created by government flip-flopping, what would you expect a solar installation business to do, apart from tell people to 'get in quick' before they take it away?  Regrettably, the industry's own marketing has also helped create the message that solar is only a 'fad'.

No more!  The era of solar as 'subsidy-junkie' is over.  A tipping point is already here.  In more and more applications, in more and more climatic zones, solar stands without need for grants or support schemes.  Every new innovation that drives down the cost of solar energy simply expands the number of applications where it pays for itself and grows demand for solar equipment, installation and maintenance services.  As demand grows, economies of scale increase, which drive down costs again and a virtuous circle is created.

In sunny climates solar already competes with all othersources of electricity generation at wholesale prices.  In less irradiated places like the UK solar-generated electricity is cheaper than retail electricity, particularly large scale solar applied to commercial buildings or as ground arrays with an energy supply agreement with a large consumer of electricity.

For new buildings reaching for ever higher energy efficiency standards and for low energy refits of existing buildings solar is a necessary demand-reduction measure, reducing electricity consumption from the grid.

Millions of new electric vehicles will achieve similar results for the cost of batteries.  These vehicles, each with a range that far exceeds most people's daily requirements, will store electricity generatedduring the day and release it at night, enabling ever-higher quantities of solar on the electricity grid.

As well as electrifying our transport, it is now widely accepted that the heating of our buildings must also be electrified.  In a move away from carbon-emitting gas and oil - we will be using either heat pumps or direct electric heating and high levels of thermal insulation to keep our buildings warm.  Demand for electricity will increase significantly - greater efficiency of appliances and gadgets will only offset the increase in their number.

So the future for solar is bright.  Anyone considering a career move into the solar industry should consider the following points:

1. They would be joining a growth industry with strong fundamentals, an industry that will support a long career. 
2. Work that provides meaning and clear social benefits is more and more important to everyone, but especially younger people setting out on their careers. The solar industry offers socially rewarding work, where you feel part of the solution rather than part of the problem in the fight against global climate change. 
3. Roles in the solar industry offer transferable skills such as project management, risk management, international supply chain development, electrical and structural design.
4. You will become more popular at parties!  When asked 'so, what do you do?' the solarblogger can attest that saying you work in the solar industry is a real conversation-starter, in stark contrast to the conversation-killer of a previous job in 'instrumentation for genetic analysis'....

So what do you think?  Are you finding it difficult to recruit?  If so, what do you think the industry could and should do about it?

The Smart Export Guarantee Scheme (SEG)

Why is central government continually surprised that when the big energy companies are asked to ‘do the right thing’, they instead do what is right for them?

Central government seems to love handing responsibility for delivering energy reduction targets over to the big energy suppliers.  The scheme names come and go -  CESP, CERT and ECO – but the common factor has been to require energy companies to invest in energy efficiency measures such as loft insulation, and cavity wall insulation for homes.

Pause for a moment to think about it.  You’re asking a business to do things to reduce demand for its own product – energy.   How surprised should be we be that that foot-dragging, missed targets and ineffective measures have been the result?

In 2014, many of the energy suppliers were fined for failing to meet their targets to install insulation. British Gas was fined £11million, a development which their PR department brazened-out as a charitable donation.  One is left wondering if the energy companies see these fines a small price to pay instead of helping people spend less on energy.

With the government's new proposals for a Smart Export Guarantee (SEG) are we again about the make the same mistake by asking the big energy companies to decide what the ‘market price’ for electricity exported by householders and businesses with solar panels?

Why we Need a Smart Export Guarantee

Many people in the solar industry that I speak to have pretty mixed feelings about the Feed in Tariff.  They recognize the transformative effect of 19 years of subsidy on the industry, helping it to achieve scale and cost-competitiveness with fossil energy.  At the same time, they regret the reckless way that the scheme has been managed.  Successive ministers at DECC and then BEIS have inflicted real pain on many good people who had invested their time, energy and money in solar businesses an effort to be part of the solution.

As a consequence, the industry is genuinely looking forward to a future where it no longer needs ‘help’ like that from government and the technology can stand on its own feet as a significant contributor (maybe the dominant contributor worldwide) to the clean energy revolution.

It remains crucially important for the sector that householders and businesses that invest in solar are able to sell generated solar energy that they cannot use themselves.  This makes possible efficient and cost-effective solar systems that minimize the cost of energy rather than being sized to just meet demands in the building at times of peak output.

So, as the Feed in Tariff (FIT) draws to a close on March 31st, government is consulting on a new scheme, the Smart Export Guarantee (SEG) – that requires larger energy suppliers to purchase excess solar energy from small generators at a fair market price.

There is much to welcome in the proposals for SEG

• the Microgeneration Certification Scheme is thrown a life-line as the only way to qualify,
• there is to be no requirement for the building to achieve a certain energy efficiency level (EPC), a requirement in FIT that excludes many older and listed properties
• installations that occur after the FIT closes but before the SEG is available will be able to join the SEG as soon as it opens
• export will be metered and not estimated (as in the FIT), rewarding people that install larger systems
• a central database of solar installations will be maintained beyond the FITs
• the high price for bought in electricity compared to the low value of exported will encourage the deployment of battery storage and electric vehicle charging (when compared with other arrangements, for example net metering)

Concerns About the Detail

However, there are two big concerns with the proposals as they currently stand:

1. Smart metering IT systems are not up to the job at present
2. The reliance on conflicted businesses to set a market price

Smart Metering Systems

At recent Solar Trade Association meetings we were astonished to hear that the SMETS1 smart meters that have so far been installed ‘go dumb’ as soon as you change supplier.  Although second generation SMETS2 smart meters fix this problem, the IT infrastructure that collects the data is not yet ready to a point where this data can be shared between an energy supplier and a separate company that you have signed your SEG deal with.

It would be just like government to say ‘well, we’ve done our bit’ as they launch a completely theoretical SEG scheme, which nobody can use in practice because the billing arrangements are not ready.

That’s why we need something - dare I call it a ‘backstop’ - that makes the SEG work from day one and creates an incentive for energy companies to sort out the IT, rather than having a strong incentive to drag their feet and take as long as possible to prevent the SEG ever happening.

A backstop could look a lot like the export tariff part of the current Feed in Tariff:

• A fixed value, for example £0.04 /kWh
• A deemed export 50% of generation 

This would create a strong incentive for the energy companies to pull out their fingers because they are likely to be over-paying for generation where they cannot meter it.

Setting  a Market Price

Electricity costs vary during the day as supply and demand varies.  The industry would be absolutely delighted if export was paid a fair market price at the time of export – that is a price set between a willing buyer and a willing seller.

The preferred option in the SEG consultation is to simply leave it to the energy suppliers to set the price, with the only control being that the price is higher than £0.00

My concern is that the proposed mechanism will not result in a fair market price, because the companies that are being relied upon have every incentive to keep the amount of solar installed as low as possible.  They are conflicted because every time a household or business installs solar it will buy less power from the energy suppliers.  Setting a higher price for exported energy would make solar a more appealing investment and harm the business models of the energy suppliers.

The energy companies do not meet the requirement of being a ‘willing buyer’ for the power and a fair market price will not result. There is a market failure and government cannot leave pricing the invisible hand of the market – except that it can, it just needs another way.

The ‘market’ already sets a price for electricity – and one that is free from the conflicts set above.  For example market exchange Nordpool publishes day ahead pricing for wholesale electricity on an hourly basis.  These prices could be better taken as the ‘market price’ for electricity between a willing buyer and a willing seller.  Energy companies should be required to purchase from microgenerators at the wholesale market price.

A Brief History of UK Energy Efficiency Policy

The track record of UK initiatives to encourage us to make our homes more energy efficient has been patchy to say the least.

 
The schemes come and go, but the results are depressingly consistent.

ECO

A range of government schemes have required the larger energy providers to invest in energy efficiency measures such as loft and cavity wall insulation for homes. The current version is the Energy Company Obligation (ECO), but before that we had CESP and CERT and others. This bizarre concept - making a business responsible for implementing measures that reduce demand for its own products - seems like putting a fox in charge of security improvements to the chicken coop. It is perhaps unsurprising then that foot-dragging, missed targets and ineffective measures have been the result.

In 2014, many of the energy suppliers were fined for failing to meet their targets to install insulation. British Gas was fined £11million, a development which their PR department brazenly promoted as a charitable donation.  One is left wondering if the energy companies considered these fines a small price to pay rather than helping people spend less on energy.

Measures installed under this scheme crashed by more than 80% after 2012 when a panicking George Osborne announced huge cuts following a Labour proposal to cap the prices people pay for energy.

Green Deal

Greg Barker's Green Deal scheme to 'transform the energy efficiency market' was in trouble almost from the start. Having told us that he'd struggle to sleep if the number of home improvements it financed was less than 10,000 in the first year, the actual number came in at 626.

In what now looks like a rather desperate effort, Greg managed to convince the Treasury to throw in a few hundred millions to the Green Deal Home Improvement Fund (GDHIF), to give a further cash-back grant to householders who installed energy efficiency measures. Most of this stop-start funding was spent on boiler replacements (and how many of these would have happened anyway as they reached end of life is open to debate). The scheme was ignominiously withdrawn after writing only a few thousand energy efficiency loans.

The offer to consumers was complicated and unappealing. The interest rate was a hefty 7%, which compares unfavourably with mortgage finance. Only measures that met the so-called 'Golden Rule' could be fully financed - where the estimated savings on energy bills were greater or the same as the repayments collected through your energy bills. What this all added up to was - go through all the hassle of having all this work done in your house and your energy bills will be about the same as they were before.

The Green Deal Finance Company is now in private hands, but it is still unclear how the new owners will address the fundamental shortcomings of the scheme.

Feed in Tariff and Renewable Heat Incentive

These schemes pay for renewable energy - power and heat where homes and businesses install technologies such as solar PV panels, solar thermal panels, heat pumps and wood chip burning stoves in their homes or businesses. The intention was that these would provide long-lasting and stable support for renewables after a series of start-stop grant schemes that had preceded them.

The Feed in Tariff (FIT) is due to close in 2019 after a tumultuous few years in which government struggled to keep up with rapid reductions in the cost of solar PV panels. As a result of the payments being fixed while the costs fell sharply, the financial returns from the scheme rose rapidly. Returns of 15-20% were not uncommon, payback periods as short as four or five years reported. As more and more people joined the party the budget ballooned. Cue panic in Whitehall, an over-correction on the tariff rates and a return to the boom-bust market from which the scheme was supposed to mark a departure.

The Renewable Heat Incentive (RHI) for heat generating renewables came in after the first FIT crisis, and as a result was designed with many more controls to stop a runaway deployment if the tariffs were set too high (with the notable exception of Northern Ireland where the executive for some reason removed the controls and blew the budget - the whole Northern Ireland budget!). In consequence, the RHI suffers from a paucity of ambition and has only resulted in a few tens of thousands of households replacing their heating systems with a low carbon technology (33,500 new domestic installations of solar thermal, heat pump and biomass boiler from April 2014 to November 2017)

MEES 

The Minimum Energy Efficiency Standard (MEES) applies in England and Wales and requires private landlords of both domestic and non-domestic properties to ensure that their properties meet a minimum level of energy efficiency.  Buildings that do not cannot be re-let after April 2018 and cannot be let at all after April 2020.

Unfortunately, as I revealed in an earlier blog, a landlord can apply for an exemption if they cannot do the required improvements without upfront costs, which relied on the Green Deal being available.  But this has now gone, leaving a loop-hole in the legislation so large you could drive an un-insulated house with broken windows through it.  Similar legislation being consulted upon in Scotland only deals with domestic properties, but sensibly places a limit on the maximum cost for a landlord.  So far, there's no apparent interest in fixing this mess at Westminster.

EESSH

The Energy Efficiency Standard for Social Housing (EESSH) is legislation in Scotland that requires social housing providers to ensure that their housing stock is all above a minimum energy efficiency level by the end of December 2020, with an intention to gradually ramp up the required levels over time.

EESSH looks like its already producing some significant investments in Scottish social housing.  It really does look like the one to watch, at least of all the schemes listed.

Is There Another Way?

What all these schemes have in common is that they deal piecemeal with the challenge of making our buildings more energy efficient. They imagine that the 'journey' to having an energy efficient home fit for the future is taken one small step after another. First insulate your cavity walls and loft. Then change your boiler to an efficient new one. Have some solar panels on that roof. Now replace your whole radiator system take out your efficient new boiler and fit a heat pump.

Many also rely on government spending, a fickle foundation upon which to base investments in housing stocks or to build long-term business plans (as those of us in the solar industry will attest).

With the demise of the Green Deal, and no sign of anything to replace it, there's a huge hole in the government's policy to meet forthcoming carbon budgets. This is not something that has gone unnoticed by the government's own Committee on Climate Change (CCC), which in its 2017 report gave government policy for residential energy efficiency a red light for able to pay households and an amber light for low income households.

It is into this gaping hole left by the UK government inaction and disinterest springs Energiesprong.  This is a concept that originates in the Netherlands that could totally revolutionise the way we approach domestic energy efficiency and it is the subject of my next blog.

Self-Consumption of Solar PV Generated Electricity

The Amount Customers can use Themselves now Matters More than Ever

When the UK Feed in Tariff (FIT) launched, people investing in solar were paid the equivalent of 48p/kWh in today’s money for solar energy they generated (irrespective of whether they used it themselves or exported to the grid).  With electricity savings worth around 15p/kWh and export paid at 4.8p/kWh in today’s money the only number that really mattered was how much energy you would generate with your solar panels. Fortunately, solar professionals have accurate tools to forecast the annual yield for a solar, even relatively simplistic approaches such as the MCS calculation get pretty close.

As solar costs have fallen since the start of the FIT, the generation tariff has fallen too.  Now the generation tariff is worth about a quarter of the starting value - 12.47p.  If the government presses ahead with its reckless cutbacks on the FIT, then the generation tariff would be only 1.63p for domestic customers.

As these changes have occurred, the economic basis for installation of solar panels has become more and more driven by the value of the energy savings the system produces.  With the generation tariff at only 1.63p, the energy savings dominate (see the graph below).

Most solar companies have been using a value of 50% to estimate the amount of energy generated by the solar that would be used in the property (and therefore offset energy bills), so called self-consumption.  The justification for doing so is that this is a ‘government figure’ because the amount the FIT pays for export has to be deemed rather than metered, and government set the value of export at 50%.  So logic says that if the export is 50%, then the self-consumption must be 50% too, right?

Wrong.

Just because the government says it is willing to pay the export tariff on 50% of the energy generated, this is not the same as saying that all houses will use 50%, irrespective of the size of the array and energy consumption patterns of the house during the day.

In the past, errors in the estimate of self-consumption have not really mattered to the presentation of the economics.  Right now they are starting to matter.  As the generation tariff is reduced further, they will really matter.

The industry is going to have to develop ways to more accurately assess and predict self-consumption.

So let’s start by having a look at a few examples of real homes with solar.  Thanks to RBeeSolar and 4Eco for allowing me access to anonymised data on their systems.

Each graph shows a full 24 hour period running from midnight to midnight, with mid-day in the centre.  The day is divided into 10 minute sections and the energy flows are shown in watt-hours per 10 minutes.


Blue is electricity pulled from the grid for consumption in the house.  Orange is energy consumed in the house and provided by the solar panels.  Yellow is energy that cannot be used in the house and that is therefore exported to the grid for others to use.  The electricity consumption of the house is the sum of the blue and the orange.

House One

House 1 has relatively low total annualised energy use 2,250 kWh per year.  This figure represents about three quarters of the electricity use of a typical UK home (often taken to be 3,100kWh/year).    The use pattern shows a small morning peak and a larger evening peak.  There is little use above the baseload during the daytime on week-days, but additional electricity use at weekends, indicating a household where occupants are out during the working week.

Data was only available for July, August and September for this house, but the self-consumption rate during this period was only 22%, with 78% of generated energy exported.  The solar system is not especially large at 2.5kWp.


House 1 Self Consumption: 22%

House 2

By contrast, house 2 shows a consistent pattern of electricity use during the working week and weekend, indicating a household that is occupied during daylight hours all week.    The base load is a little higher than for house 1, and there are regular peaks of electricity consumption throughout the day.  

The pattern of electricity use is similar in winter, perhaps with a higher evening consumption.  The graphs clearly illustrate how on a gloomy winter day (Thursday), most of the solar is used in the house, but that there are still sunny days in winter and plenty of export going on. 

Total electricity consumption over the year was 2664kWh, so still a little lower than typical (86%).  The solar system on this house is 4kWp.


House 2 Self Consumption: 24%

House 3

House three has an annual electricity demand of 5,030kWh, comfortably higher than the typical UK house.  It also has a use pattern that indicates people are at home during the working week. When coupled with a  4kWp solar system, this results in a higher self-consumption level, but still only 37%.

House 3 Self Consumption: 37%

Conclusions

The withdrawal of Feed in Tariffs (whether sudden or gradual) is the clear direction of travel.  The result of this trend is that self-consumption of solar electricity becomes the dominant economic justification for installing solar PV.  Any error in the predicted level of self-consumption will have a larger impact on the overall financial returns than has previously been the case.

Based on the small sample considered above, the industry-standard use of a value of 50% for self-consumption of solar generated electricity in domestic installations looks generous.  With increasing availability of monitoring equipment householders will be able to check the accuracy of figures that were used in the sales process. 

Products that divert excess solar electricity to water heating may have a role to play in increasing self-consumption, but the economic savings will depend on the replaced energy that would have been used to heat the water.  The government’s announced intention to retrospectively pay only metered export once smart meters are installed means that if the house has gas-heating, the value of the gas use avoided is similar to the income from exporting the electricity. 

Diversion of excess solar electricity to charge electric vehicles or to battery systems that can store energy for evening use will become more possible as the price point of these technologies continues to fall.  In the meantime it could be that the economic optimum moves away from the current goal of maximising subsidy yield (aiming for 4kWp or as much as will fit) and we begin to offer slightly smaller solar PV systems that produce less excess on sunny days and a higher proportion of self-consumption. 

This maturing market could involve the solar installer fitting monitoring equipment in the house for a short period before making a recommendation about a right-sized solar installation.  From my experience of looking through data on these houses and others, the good news is that people appear to be real creatures of habit.  One or two weeks' worth of monitoring should be enough to give a good indication of the timing of people's energy use.


The industry needs to do more work to understand the relationship between the proportion of self-consumption and the size of the solar installation relative to the size of the annual electricity demand.  It may be that predictive tools, or at least rules of thumb can be developed to allow solar installers to size the solar system to achieve a level of self-consumption knowing the annual energy use of the household.

The Dogs are Already Running

The Absurdities of the Feed in Tariff Review

The solarblogger has met  a number of officials from the Department of Energy and Climate Change (DECC) over the years and holds them in very high regard.  Make no mistake, these are smart people we’re dealing with.

Which makes the recent Feed in Tariff (FIT) review all the more perplexing.

Government is proposing to place a cap on the cost of any future deployment of solar under the FIT.  If events over the course of the consultation period indicate that this cap will be breached, government proposes to close the generation tariff to new entrants.

But at the same time it has created the perfect conditions for a ‘gold rush’ by announcing that the tariff payments will be cut by up to 87% infour months time. (January 2016)

A kind of self-fulfilling prophecy has been formed.

It doesn’t matter if industry provides evidence to support less draconian cuts to the proposed levels of the tariffs.  The cap has been set at such a low level that even a modest spike in solar installations during the consultation will ensure it is all spent.

They say the definition of madness is to repeat the same actions again and again and expect different results.  Well, back in 2011, DECC did almost exactly the same thing.  It announced a 50% stepped reduction in the FIT.  Installation rates exploded.  Within six weeks the industry was installing solar at a rate nearly 16 times higher than in the run up to the announcement.

The same thing has already started.   The dogs are already running.  And this time there’s four months for people to get their installations registered on the Feed in Tariff and claim the current payment levels.  Naturally, this is what the press has focused on, with headlines stressing that people need to get in now if they want to make money from solar panels.

If we rule out stupidity, and assume that the big brains at DECC are able learn from past experience, then there’s only one conclusion to draw.  DECC deliberately set things up for a gold rush, thereby creating an excuse to close the scheme entirely (or at least the generation tariff part, the export tariff appears to be slated to continue).

The most dismal part of this whole sorry episode is that under the guise of ‘controlling energy bills for hard working families’ the government has manufactured  conditions to ensure that the costs of the Feed in Tariff will be higher than ever, the country will get less solar installed, but at a far, far higher cost to those hard working families.

There was an alternative.  The Solar Trade Association, published  its Solar Independence Plan in the run up to the FIT review.  Clearly no-one at DECC read it.  It proposed a glide path to zero subsidy over the next four years by reducing the level of FIT payments to new entrants little and often.  This would have avoided the inevitable spike in installations that will now occur.  Because more of the installations would have occurred in the future (at low levels of Feed in Tariff) it would have ensured that the country got more for its money.

Government should act quickly to prevent the boom and bust and protect consumers from the higher energy bills this ill-considered proposal will inevitably produce.  The solar industry should demand the immediate withdrawal the consultation.  DECC should try again.


This article also appeared on the Solar Power Portal:
http://www.solarpowerportal.co.uk/guest_blog/the_dogs_are_already_running_3425

The Commercial Solar Rooftop Market - Fitting A Quart into a Pint Pot

The solarblogger examines the opportunities and challenges for PV on commercial rooftops.

Commercial Rooftop Solar was only 8% of the Market in 2014

It seems to be accepted wisdom that the commercial rooftop sector is set to be the next big thing in solar. In recent weeks companies more commonly associated with the solar farm sector such as Lightsource, Conergy and Lark have announced their intention to develop commercial rooftop divisions.

Indeed, there are good reasons to expect the commercial rooftop segment to take off.  As feed in tariff support has been gradually withdrawn, the savings on electricity bills become a greater and greater proportion of the financial justification for solar PV.  Unlike the domestic sector the daytime energy use in office buildings and factories is well matched to solar energy production.  

Unlike ground mounted solar farms, the aesthetics of solar on factory, warehouse and barn roofs isn’t the least bit controversial.  Even the most virulent strain of Daily Mail journalist couldn’t really complain about the ‘industrialisation’ of an industrial estate, could they?  Actually, don’t answer that question, but you get the point.

Commercial rooftops offer installations at a scale to drive low installation costs. Industrial estates often already have chunky electricity supplies.

This combination of scale, self-consumption, and relaxed attitude to aesthetics has created a real sweet spot for solar.  Commercial rooftop seems to be the sector that’s closest to a subsidy-free market. 

Despite this, mid-size commercial rooftops (which I've taken as >50kWp FIT non-standalone) represented only 8% of the PV capacity installed in 2014, far behind solar farms (assumed to be RO funded) with 64% and domestic scale FIT with 19% of the market. Given all this, it’s hardly surprising that many people have identified this sector as providing a real opportunity for growth.

The Challenges

For sure, the sector faces challenges.  Demanding hurdle rates or payback times are common for investment decisions in commercial businesses.  Making an offer that works for both a landlord and their tenants and the limitations of our creaky electricity grid could all be potential barriers to deployment.  

However, these challenges are as nothing compared to the emerging risk to the Feed in Tariff (FIT). 

The level of quarterly deployment that triggers a 3.5% degression to the FIT has been set at 50MWp for systems above 50kWp.  This band was recently split into standalone systems and systems supplying buildings.  The trigger level for systems supplying buildings has reduced to 32.5 MWp going forward, an annual deployment level of 130MWp.

The graph shows deployment for the combined segment, which has risen from 2012 to breach the degression trigger twice in the last four quarters.

The FIT depression cap has already been breached in 2 of the last 4 quarters

The companies piling into the commercial rooftop sector are refugees from a solar farm sector brutally cut back by the government.  In 2014 solar farms accounted for nearly two thirds of all solar PV installed in the UK.  1,100 MWp was installed in farms larger than 5MWp and a further 200MWp in farms smaller than 5MWp.  

In October 2014, the government shut down the RO subsidy scheme for solar farms larger than 5MWp, citing reasons of affordability due to the high levels of deployment.  The funds provided by city institutions to invest in solar farms quickly needed to find a new home.

Expect lots of 4.99MWp solar farm projects to immediately put pressure on the RO budget and don’t be surprised if these also lose RO support relatively quickly.

But imagine what the entry of these businesses could mean for the commercial rooftop sector.  It’s like Shane MacGowan, Gerard Depardieu and George Best crashing a genteel party where the host has already been struggling to keep the punch bowl topped up.

Lightsource alone has allocated £125m fund to the rooftop sector, perhaps 150MWp of anticipated deployment, and on its own sufficient to trigger a FIT tariff degression every quarter.  Without changes to its structure of the FIT, this sector could become victim of its own success.  The graph shows what would happen to the level of the FIT if deployment regularly exceeded the different degression bands.

If deployment exceeds 130MWp per quarter (a fraction of the hole left in solar farm deployment), the FIT for this tariff band could have reduced by 80% before the end of 2016, so called 'hyper-degression'.

Government promised to 'put rocket boosters' under the mid-scale commercial rooftop sector.  Industry has responded, but changes are urgently required to the Feed in Tariff structure to increase the degression limits for the >50kWp band.  If we can't get this fixed, then we risk yet another cycle of boom-bust for the industry.

Slow Burner - how will the Domestic RHI Take off?

How much can the first year of the Feed in Tariff tell us about uptake for the Domestic RHI

How it went for the Feed in Tariff

A number of people (including the solarblogger himself) tried to temper expectations for the domestic RHI with the argument that the Feed in Tariff (FIT) took a bit of time to get going. The logic goes that it takes time for the public to become aware, for installers to work out how to market it, and especially for housing associations to get organised. 

I thought I'd take a look at the numbers to check whether they supported this idea. 

I wanted to compare the take up of PV in domestic installations before and after the introduction of the FIT. There is a wealth of data available from the Department of Energy and Climate Change (DECC) on the levels of PV deployment  under the FIT, but much less for the years preceding it. I relied upon this report on the Low Carbon Building Programme (LCBP) to build a picture of deployment rates before the FIT. 

Under LCBP phase 1 (the domestic stream) there were 4,428 installations of PV. The average size was 2.18kWp, for a total capacity installed under the scheme of 9.7MWp. 

Since the report doesn't disclose the deployment in each period, I estimated PV deployment based on overall scheme expenditure.  I then combined this with FIT data for systems below 4kWp, most of which is likely to be domestic. 

The results are very interesting. 

When you look at the plot of the overall data, it sure does seem that all the action started in year two of the scheme. But this is a trick of exponential growth. Look at the lower plot, where I have shown the data only up to the end of year one. The first year was spectacular. 

The level of deployment grew from round 700 installations a quarter before the FIT to 11,000 a quarter at the end of the first year. Before the FIT subsidy, solar thermal systems were being installed at a rate around 10 times higher than solar PV. By the end of the first year, solar thermal had declined slightly, but solar PV installations outnumbered them by almost double. 

And so to the Domestic Renewable Heat Incentive

There are a number of reasons why the domestic Renewable Heat Incentive won't take off like the Feed in Tariff did. 

1.  The Feed in Tariff.  

When the FIT was launched it was the only show in town. The grant scheme for renewable heat was derisory by comparison. As the domestic RHI launches, people interested in investing in their homes to reduce energy bills have the choice of both FIT and (I suppose) the Green Deal. 

2.  Installation complexity. 

With the exception of solar thermal, all the domestic RHI technologies replace an existing heating system, rather than being an add-on. People will be more cautious about installing a new technology when they worry that the impact of it not working is a cold house and no hot water.

Renewable heating installations are generally more intrusive too. A heat pump may require the replacement of radiators to cope with lower heating temperatures, biomass boilers can require a lot of space. New products such as this one which simplifies the installation of solar thermal to levels approaching that for solar PV may help overcome this barrier, at least for solar thermal where there's always the backup heater. 

3. Off Grid Target Market

The domestic RHI tariff levels were intended to stimulate a market in the 20% of homes that are off the gas grid. For sure, the returns are better when heating with oil or electricity, but returns for solar thermal on gas can also be good, as this analysis has shown. 

4. World First

The UK feed in Tariff followed the implementation of similar schemes in other european countries. Businesses could see the rapid take up of markets that had resulted and anticipating a similar trajectory for the UK, were pumped and ready once the scheme launched. By contrast the RHI this a genuine worlds first. There's no equivalent to look at to predict uptake. The many, many false starts for the scheme also didn't help. Many installation companies I spoke to weren't even willing to spend time thinking about it until they were absolutely sure it had launched. 

5. The Feed in Tariff (again)

My final reason is perhaps the most important. The way the government managed the Feed in Tariff has led to the widespread belief that as soon as any renewable energy scheme is successful it will be ruthlessly hacked back. The shadow that the treatment of the FIT scheme casts is long and pervasive. 

For all this, the scheme offers a level of financial support beyond anything that renewable heating technologies have benefitted from before. My plea to the industry is to give it a while before judging the success or otherwise of the scheme. 

It may take time to take some time to warm up, but warm up it surely will.  

The Future of Energy Bills

Getting to an inflation rate for domestic energy

Electricity generating renewable energy technologies have been sold as financial investments as much as energy saving products since the Feed in Tariff was launched in the UK.  These financial returns can be very sensitive to assumptions about the future of electricity costs.

The Department of Energy and Climate Change (DECC) has revealed that its own modelling is based on an assumed of electricity cost inflation of 2.6% a year over and above general price inflation (this figure is called the real rate of inflation).  Responsible industry bodies such as the Solar Trade Association have used this rate of inflation for calculating the financial returns from solar photovoltaic systems.

In 2014 a range of renewable heat generating technologies such as heat pumps, wood pellet stoves and solar heating panels will benefit from a ‘Feed-in tariff for heat’ called the domestic Renewable Heat Incentive.  In presenting the financial case for these technologies, industry will need credible assumptions of future costs for domestic gas and heating oil as well as electricity.

Where has the 2.6% figure come from for electricity?  What are the equivalent values for heating oil and for gas?

The Past as a Guide to the Future

No one has a crystal ball to know about price rises in future, so it’s common to substitute a simpler question “What have energy price increases been in recent times?”

DECC publishes data collected by the Office for National Statistics in compiling the Consumer Prices Index (CPI).  The table below shows prices of various fuels for the most recently published data range that covers the fourteen years from 1998 to 2012.

source:  https://www.gov.uk/government/statistical-data-sets/monthly-domestic-energy-price-stastics

The chart at the top of the page shows the prices from the table rebased to set prices in 1998 to 100.

General inflation increased costs by 37% over the whole for the fourteen-year period.  It can be seen that all energy costs have risen by much more. Electricity has risen by 100% in the same time, gas by 195% and heating oil by 428%.

What can also be seen is that prices have not risen steadily.  Fuel oil prices in particular are volatile with prices falling back before rising steeply again.  Any measure of fuel inflation is therefore very sensitive to the choice of start and finish date of the period considered, a fact that can be used by those who want to present a biased picture.  For example choosing a period from 2000 to 2009 produces a real inflation rate of 4.7% a year for heating oil, whereas selecting 1998 to 2008 yields an eye-watering 14.3%.

If our goal is to assess an unbiased and justifiable inflation rate for industry to use to present financial to potential customers, then we need to make sure that we're not open to such criticism.  I calculated the real rate of inflation for each and every start and finish date possible in the data set. 

The chart below shows the resulting rates of real annual inflation plotted against the length of the period for domestic electricity prices. 

Predictably, the shorter the period considered the wider the range of results, which narrow as the period covered lengthens.  Also shown on the plot is the average for each period length (diamond shape).  The best fit line for the averages is a real rate of inflation of 2.8%, an identical figure to that used by DECC for forecasting future price changes of electricity.

The analysis was repeated to produce a real rate of inflation of 5.8% for gas and 8.5% for heating oil.

Based on this analysis of government statistics, the rate of energy price rises above inflation can be summarised as:

Fuel Type	Real Rate of Inflation
Electricity	2.6%
Gas	5.8%
Heating Oil	8.5%