You Just Couldn’t Make This Up

Government Interventions in the Market for Domestic Scale Renewable Heat, and how to make it all better

Less incredible?

Imagine you work in government and you've been asked to really slow down the development and growth of a new industry. How would you go about it?

How about just outlawing it? You could pass a law that makes it illegal.  Bit too obvious for your tastes?  Perhaps not clever enough?  Yes, you're right.  It could get messy, people might protest, take you to court, that kind of thing.  

OK then, how about about this?  Why not announce a scheme that is going to actually pay a subsidy to people who buy the products this industry produces, but that its going to start in 12 months' time.  Anyone thinking of buying will wait for this scheme to start,  so no one will buy anything this year. 

Then, just before you were going to launch it - delay it for another year. 

Then do the same again. And again. Genius!   

Hmm, what if people spot that the delays will damage the industry, and moan about that?

Easy - just announce that anyone buying the products from now on will be able to get the payments once the scheme launches, (subject to qualifying criteria), so there's no reason to wait.  Then keep those qualifying criteria secret because you "haven't decided what they should be".

The great thing about this plan is that you can even claim that you're helping the industry as sales fall and businesses go to the wall. 

Why stop there?  Why not start a wildly generous subsidy scheme for similar products that people could buy instead.  MWA HA HA

Does this sound crazy? Unbelievable?  Like you couldn't make it up?

Stranger than Fiction

Unfortunately, this is exactly what the Department of Energy and Climate Change (DECC) has done to the UK's market for domestic-scale renewable heat. 

Filsol, Solartwin, Genersys, Sundwell...

As the roll-call of UK renewable heating companies that have got into difficulty continues to grow, the domestic Renewable Heat Incentive (RHI), originally announced in 2010 and due to start in April 2011 has been delayed again and again, most recently being put back from summer 2013 to spring 2014. 

Installation companies have largely given up on promoting the "forthcoming" RHI as they are embarrassed to have to field calls from customers who bought low-carbon heating systems on the back of previous government announcements. One well-known Bristol based solar installer quipped to the solarblogger recently that you could put "RHI starting next year" on your website and you never have to update it. 

Renewable heating companies used to moan about how DECC, the government body charged with encouraging the transition to a low-carbon economy, increasing energy independence and protecting the environment, was too focused on decarbonising electricity, and was neglecting the task of decarbonising energy used for heating.  

Maybe they'll be more careful what they wish for in future.  

Unlike some of his more cynical colleagues, the solarblogger doesn't see conspiracy here, just a well-meaning, but ultimately extremely damaging intervention in the market.

Government urgently needs to make a strong statement to the market and consumers that it truly is behind renewable heat, and that the industry is not just the butt of some cruel joke with a particularly long and drawn out punch line...

How to Fix This

A good start would be to increase the Renewable Heat Premium Payment (RHPP).  This is a stop-gap grant scheme, that was to run from  April 2011 for one year. It's now about to start its third year, running to spring 2014. 

The recent consultation on the domestic RHI proposed that anyone applying for the RHI who was already in receipt of an RHPP would get the RHI payments less what they'd already been paid.   

Perfect!  If government really is serious about introducing the domestic RHI they could announce a doubling of the RHPP right now and at no net cost.

A solar heating installation would qualify for £600 grant, air source heat pump £1,700, a biomass boiler £1,900 and a ground source heat pump £2,500.

The next thing that is needed is that the announcement of RHI tariffs in summer 2013 must be complete and unambiguous.  It must not only confirm tariff levels, but also qualification requirements, and the deeming methodology.  With this is in place, consumers will be able to install with absolute confidence.

The industry would at last have something to cheer, and we could launch the domestic RHI next spring with a vibrant, growing renewable heating sector. 

You may also be interested in the following posts:

The Domestic RHI for Solar
Let's Get Down to Brass Tacks

Lessons from the Sustainable Building Regulations in Scotland

What can the Scottish teach the rest of us about Sustainable Building?

Everyone knows that the UK is not building enough new homes.

The reason, evident to all, is that the banks are only approving mortgages for those who will deposit the eternal soul of their first born child into a sub-prime structured casino-investment accumulator on the 2.30 at Newmarket.  ("A dead-cert mate, can't lose").  Oh, and the small matter of a 20% deposit too. 

In a near-perfect example of having your cake and eating it, government exhorts banks to lend more (to get the economy moving), while at the same time regulating that they should increase their reserves (ready for the next banking crash).

It may be obvious to everyone that developers won't build houses if people can't get a mortgage with which to buy them, but the UK government has been insisting that the real problem is "red tape".  

As house builders unveil spectacular improvements in profitability, government continues to work to reduce the cost of regulation, arguing that this will increase the supply of new homes.  In fact the main effect is of course to make more profitable the houses which would have been built anyway.

It is only recently that initiatives have been announced to try to unfreeze the mortgage market, with programmes such as Newbuy starting to have a real effect on demand for new homes.

So, since this Greenest Government Ever came in, we’ve seen it systematically water down regulations intended to ensure that new homes are built to high environmental standards:

• a dilution of the definition of what constitutes a ‘Zero Carbon Home’,
• cancelling a planned increase in the environmental standards for new social housing
• delays to new Building Regulations that would have tightened up on energy efficiency
• a Housing Standards Review to “simplify the mass of rules imposed on house builders.” 

This last initiative, under the banner of "the bonfire of the red tape", is (among other things) examining a practice where local authorities require developers in their region to achieve energy performance standards in new buildings that exceed the current Building Regulations.  For example some local authorities require a certain level of the Code for Sustainable Homes (CSH) or a percentage of the energy used in the buildings to be provided from renewable energy technologies.

Developers dislike these local requirements, because means they have to customize house designs for each area in which they operate.  There is a lack of consistency between Local Authorities, each of which have dreamt up their own requirements – 10% renewable energy, 10% CO₂ emissions reduction, CSH level 4 and so on.

It’s worth at this point reflecting on the fact that the Building Regulations are not some sort of gold standard of quality.  They represent a minimum requirement, a baseline, an adequate product.  There’s nothing wrong with local authorities choosing to require higher levels of sustainable construction and energy efficiency in their area.

This government has repeatedly spoken about the importance local people deciding how they want to run things in their area.  Can a compromise be found which allows local decision making while at the same time simplifying things for developers?

Well, as it happens, you don’t have to look very far for the answer.  North of the border, the Scottish government seems to have pulled it off.

Scotland's Miles Better

The Scottish Building Regulations 2011 introduced a new section – Section 7, Sustainability. 

New homes in Scotland are categorised from Bronze Sustainability to Platinum Sustainability, moving from current building regulations at Bronze and adding tougher and tougher requirements for energy use and a host of other measures such as water consumption, sound proofing, and the provision of space for a home office, recycling bins and wheelchair or baby buggy.  The table above shows how the standards develop for the energy requirements.

The energy requirements display an encouragingly sensible focus on lowering the demand for heat (which must be generated locally) in preference to generating low carbon electricity (which can be done anywhere).  

This system “encourages consistency between planning authorities that use supplementary guidance to promote higher measures of sustainable construction in their area.”  By creating a set of clear national benchmarks, local areas can choose what they want, but from a limited menu, greatly simplifying things for developers.  By linking the standards to the Building Regulations, they are given primacy.

Westminster shouldn’t be too proud to adopt this ready-made solution to the problem of how to give choice to local areas without the proliferation of similar, but slightly different standards.

The EU Chinese PV Anti-dumping Investigation

What you Need to Know

News this week that imports of Chinese solar PV into Europe is subject to registration has brought the investigation into Chinese alleged anti-competitive practices back into the spotlight. How might it affect the solar industry in Europe?

What is Dumping?

Dumping sounds bad, doesn’t it?  Like a bloke in a battered truck is going to pull up outside your house and lob a couple of used tyres, a tatty old pram and a carrier bag full of dog poo into your front garden.

Plenty more where this came from

In international trade, dumping is defined as charging a lower price in an export market than is charged in the home country of the producer.  It is seen as an anti-competitive strategy aimed at driving competitors in the export market out of business in an attempt to create a monopoly.

Governments are allowed under international trade rules to protect their domestic producers against such predatory pricing.  To do so they must prove that the pricing is below “normal value” and that the practice is causing damage to the domestic industry in the importing country.

The Chinese Problem

China poses a special problem for proving that the products are being sold below normal value.  Neither the USA nor the EU considers China to be a market economy.  The price for a product in China is therefore not accepted as a fair market value.

The investigators may chose to determine the normal value of the product by looking at the price in a third country.

 

What Happened to Chinese Solar PV in the US?

In November 2012 the International Trade Commission (ITC) of the USA upheld the ruling of the Department of Commerce that Chinese exporters of solar photovoltaic cells and panels were both receiving subsidy from the Chinese government and dumping their products into the US at below normal value.  The subsidy was assessed to be around 15% and the dumping margin around 25%.  The ITC concluded that this had damaged the business of US-based solar manufacturers.

The USA  moved to apply import duties of around 32% onto solar PV from China.

The news was not all bad for Chinese exporters though, because a loophole was left open – solar panels made in China from solar cells manufactured in other countries are exempt from the duty.  Many Chinese panel manufacturers have simply moved cell production outside of China.

 

What’s Happening in the EU?

 

The process in the EU is similar to the US, but with one difference.  In addition to finding that products have been dumped into EU markets at below normal value, and that EU industry has been harmed, the Commission also assesses whether the imposition of duties would be against the wider interests of the EU.

The investigation was launched in September 2012, and will report preliminary findings by June 2013 and conclusions by December 2013.  A provisional level of duty can be applied to imports in the period between June and December. 

In the meantime, from March, all imports of Chinese PV must be registered.  This allows the EU to apply duty retrospectively to solar PV imports between this date and the date of the preliminary findings.  This so-called "retro-active duty" is only allowed only if there is a further substantial rise in imports –  a rush to import before the imposition of any duties.

So what’s the Most Likely Outcome?

 

It seems likely that when faced with the same evidence as was presented in the USA, the European Commission will reach the same conclusion, that Chinese PV manufacturers have been receiving state subsidies such as preferential lending terms, tax exemption, and cheap materials, power and land.  This support has allowed them to dump solar panels into Europe at below cost.

 

The second test would be whether the Chinese exports had damaged the European industry.  Prosun, the group bringing the action against Chinese exporters lists 34 European solar PV manufacturers that have become insolvent since 2010, 25 of which closed in 2012.  My guess is that there will be no question that Chinese competition has damaged European manufacturers.

 

The final test is whether the imposition of import duties would be against the interest of the European Union, and this is where it gets interesting.  There’s no question that lower prices for PV modules is of benefit to customers, and is also allowing member states to meet their renewable energy targets at lower cost - at least in the short term.  Solar trade bodies and installation companies fear that more expensive solar PV panels will result in a loss of demand for their services and are dead set against anti dumping tariffs.  They have organized around a group called the Alliance for Affordable Solar Energy.

Their argument is persuasive – so what if the Chinese want to subsidize European solar installations – why not let them?  A clue to the thinking at the European Commission is on a fact sheet that has been published on the case:

“Potentially unfair trade in solar panels does not help the environment: a market that faces dumped imports will drive local producers out of business and could discourage EU producers from developing cutting edge technologies in the renewable energy sector. As well as the very significant loss of jobs, dumping and other unfair trade practices can ultimately lead to less competition and eventually price increases. We do not know yet if that is the case here, but that's what the investigation is designed to find out.”

I’m not a betting man, but if you forced me to come off the fence, I’d probably guess that the price of solar PV in the European Union is set to rise.  What do you think?

 

 

Specifying Solar for New Build Houses

or how solar panels can be the 'pillow chocolate' of the house-building industry

Yes Please

I don' t know who it was that came up with the brainwave that the last thing you want before turning off the lights and going to sleep in a hotel is a chocolate, but they didn't share my dentist's views on oral hygiene.  Despite this the hospitality industry seems to have adopted a standardised procedure that involves a crack-team abseiling into your room while you're out at dinner and depositing unasked for confectionary on your pillow.  How do you know if you're in a top hotel?  The chocolate tastes the same, but the wrapping paper is branded with the hotel logo.

The solarblogger has recently returned from a walking holiday, involving a stay in a few hotels.  One of these stood head and shoulders above the others, and not least for their take on the complimentary chocolate. 

Upon checking into the room, we found a small basket of fruit and a dish of four selection box chocolates waiting for us. This hotel had actually given us a "free gift" we valued - something we might want to eat at a time of our choosing that afternoon or evening.   This is what marketing folk call a “moment of joy” a small touch that has an effect on the customer far beyond its cost.

I can confirm that they tasted as good as they looked.   (The solarblogger does the hard work so you don’t have to).

A Box is for Ticking

Building regulations and local planning requirements are putting energy performance of new homes in the spotlight.  At the same time, forward-thinking housing developers are catching on to the idea that their customers are keen to reduce ballooning energy bills and that solar panels are becoming an attractive feature that adds value to a property.

The question for a developer is whether they wish to delight their customers.

The trick, just like in the example of the chocolates, is giving your customer something that they actually want and value – something they might buy for themselves.

Some developers will struggle to leave behind a mind-set ingrained over many years.  It’s a mind-set that sees energy efficiency measures on homes as just another box to be ticked to meet regulations.  Forward thinking developers have escaped this trap and are seizing the opportunity to give their customer something of real value.

Yes Please
Read more about this development here

How to Delight your Customers with Solar

The average size of a PV system chosen by people retrofitting their homes is calculated by the Energy Saving Trust to be 3.5kWp, or around 14 panels.

A compliance-led developer will choose to install only the number of solar panels to just scrape over the bar required by regulation.  Solar PV installations of 1, 2 or 3 panels are not uncommon.  No sane person would spend their own money on installing such a small system, which might only deliver 200 kWh per year of energy savings, or 5% of electricity used in the average home.

Here’s my simple three-step plan for a solar system that adds value to a new-build property:

1.  Install at least 1.5kWp (10 sq m) of solar PV per house – a system of meaningful size that would give real value to the customer – delivering about 30% of average electricity use.

or

2.  Install a solar thermal system (3-4 sq m typically), to deliver 60%-70% of hot water used.  This will normally allow the property to meet regulations, and you’re giving the customer a system they might choose to buy for themselves.  Locate it so as to leave space on the roof for the householder to add a solar PV system later.

or

3.  Install a solar thermal system as standard, and sell customers buying off plan the option to complete their solar roof with additional PV panels.

Oh, and while you’re at it you might want to give some thought to the impact on the kerb-appeal of the property – see this article: “The Best Looking Solar Panels You’ve Never Seen”