Thursday, December 1, 2011

Exit from pv?

Although it is confident that Germany can obtain 100% of its electricity from renewables by 2050, the German Advisory Council on the Environment (SRU) has called for a major slow down on solar PV, which it claims is too expensive and could slow the overall programme down. This at a time when Feed In Tariffs (FiTs) for PV are being savaged across the EU- including in Germany.

Germany has been a leader in PV, which has boomed dramatically under the Feed In Tariff system it pioneered. That was copied elsewhere and led to similar booms- initially in Spain, but also in France and Italy. And even finally in the UK. But the boom came at a price- increasing the cost pass-through to electricityconsumers bills. In theory, as PV boomed and the market built, prices should fall, with tariffs being progressively cut via the built in degression mechanism, so the extra cost to consumers should fall. But that process doesn’t seem to have worked well enough or quickly enough. The boom and the module price fall was too fast, leaving the tariffs too high. Given the recession, and sensitivity to consumer prices, governments have panicked and stepped in with extra cuts, or emergency capacity caps.

In the case of Spain, this was arguably done too harshly, resulting in a crash in the PV market. That left lots of PV modules unsold, so their price fell, stimulating faster uptake elsewhere, notably in Germany, until it too slapped on tariff cuts- most recently up to 15%. The UK, a latecomer to the party, has just imposed cuts of up to 72%. So a classic boom and bust scenario played out- further accelerated by the import of cheap Chinese PV modules. The down side reaction was also stimulated by hostility to PV and to FiTs from right wing free-marketeers and their allies in some of the large power utilities. The media dutifully relayed stories about vast extra costs being loaded up on consumers, as if PV and FiTs were the main reason why energy costs were rising, justfying the drastic cuts by the mostly right of centre governments - including the UK. All of this has shaken confidence in PV and the FiTs. It is in this context that we might see why SRU had recommended backing off from PV. Are they right?

SRUs retreat

You might see a strategic withdrawl from PV as being a wise thing in the current political and economic climate, so as to be better able to defend other renewables. But throwing PV out of the mix is an odd idea. Economically it’s almost certain to get very much cheaper, so if the FiT price degression system can be amended to take that on board more effectively, there should be fewer problems. After all the worst is now over- the initial high prices are falling. And SRU’s technical case against PV is not that strong- yes it doesn’t work at night and so you need grid backup/balancing, but PV can make a lot of sense for day time occupancy buildings, for summer air-conditioning and for topping up night time storage heaters during the day. More generally, although load factors are low, we are going to have to get used to balancing variable supplies, as we have more renewables on the grid. SRU may be right that PV will make it harder, but it’s a huge resource well suited to access via roof tops, easy to install and run-with no moving parts to go wrong. It may have been unwise to try to use FiTs to get its initial very high price down rapidly, but that doesn’t means the technology is rubbish. Or that FiTs are no use.

FiTs to go too?

SRU backs FiTs for offshore wind and other renewables, though it’s interesting that they also talk favourably of tendering mechanisms (e.g. for offshore wind farm grid links), and point to the UK Non Fossil Fuel Obligation. That’s very odd. NFFO was very ineffective at building renewable capacity- low bids were put in and accepted, but projects often couldn’t be delivered in practice. Why on earth repeat that? Though of course that’s what the UK government now wants to do- with, instead of a German style fixed price FiT, auctions linked to the proposed ‘Contracts for a Difference’ market-based system.

In part the sub text here is all about supporting nuclear, which is likely to do well under the CfD system, but it’s also being presented as a way to avoid the boom and bust syndrome that is allegedly associated with fixed price FiTs. Thus Tim Yeo, chair of the Energy and Climate Change Select Committee, talks of ‘an automatic mechanism for feed-in tariff strike prices to respond to changes in cost and thus avoid the problems seen recently with the solar PV feed-in tariffs.’

The German government is trying to do something similar with its FiT system, to keep PV on track. SGU says this won’t work, or at least that it won’t be enough, and wants to back off PV dramatically to avoid the problem. That certainly risks playing into the hands of those who are opposed to FiTs, PV and indeed, you could argue, renewable generally. But what’s the alternative? A seriously revised FiT system would also probably slow PV down. In the UK PV is mainly to be supported, not by the CfD, which is seen as being for the larger options (offshore wind, nuclear and CCS), but by the UK’s small FiT, the Clean Energy Cashback system- if that survives. PV may therefore be boxed up.

Wind better?

Standing back from the fray, it does all seem a little odd. The UK FiT cost consumers a massive £1.40 extra on their annual electricity bills, and even though DECC says this could rise to £26 by 2020, that’s still tiny. Their cuts would they say take it down to £3. Does this make sense? Isn’t it worth investing in this new technology? Or are there better uses for £26 per head per annum? Some say it was wrong to try to accelerate PV via the FiT, but that has teased out capital from those who could afford the investment cost. True, they then have been well rewarded by the FiTs, paid for by all the other consumers, and that can be provocative in a recession. Compared to the UK, that’s been less of an issue in Germany, where the uptake of PV has been so much wider across the population.

Even so, the ‘opportunity cost’ issue is still important. Would it be better to spend this money on, say, wind - since it’s cheaper? That begs the question of whether the money would be available- an attraction of PV is that individual consumers can buy it for their homes. Micro turbines apart, that’s not an option for wind. That said, the German FiTs main success has actually been in supporting wind, now at 27GW, compared to 19GW for PV. The German wind boom has been helped by the fact that, as in Denmark, many projects are locally owned, so spreading the benefits. There are also some solar co-ps, but SRU says the focus should now be more on wind. Is that the way to go?

* ‘Pathways towards a 100 % renewable electricity system’, SRU

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