Feed-in tariffs, false starts and headless chickens
The announcement of a feed-in tariff review indicates a confused policy environment that is difficult for sustainability professionals to navigate.
Last Monday's announcement of a fast-track review of the feed-in tariff (FIT) for solar power has sent waves of disruption across the sustainability sector. When it comes to micro-renewables the coalition government appears to have shaken off the manacles of calm and considered political leadership and is instead opting for something more akin to the headless chicken approach. The result is an unstable and confused policy environment that is increasingly difficult for the sustainability professional to navigate.
FIT is a subsidy for small-scale renewable electricity, whereby a generator of renewable electricity of up to 5MW capacity is guaranteed payment for every unit of energy generated and every unit sold to the grid. It was introduced in April 2010 with overwhelming cross-party support and immediately transformed the financial viability of small-scale renewable electricity, kick-starting growth across the renewable electricity sector. This was nowhere more evident than in the solar photovoltaic sector where the tariff, which was arguably set too high, kick-started a wave of investment and the emergence of new business models which have driven very high levels of uptake and created 17,000 new jobs in the process.
But ever since its introduction FIT has been beset by uncertainty. Rumours abounded that the comprehensive spending review could spell the end for FIT, or at least a drastic reduction in some of the tariff levels, which were supposed to be fixed until 2013. What emerged was an absolute cap on the amount of money available through FIT with a reduction in the cap to follow in 2013, or before if rates of deployment are higher than expected.
Since then the government has voiced concerns about the potential for very large-scale, field-based solar arrays to hoover up the majority of the FIT funding, creating wealth for investors and developers at the expense of homeowners and small businesses who could otherwise benefit. So far, so fair. This is a real concern that they were right to draw attention to, and action on field-based arrays was warranted.
What wasn't expected was Chris Huhne's statement that a full review of all FIT levels would commence immediately and be completed at the end of 2011, as well as a fast-track review of all large-scale solar installations. The problem is that large-scale has been defined as 50kW, which is the size of a medium-large commercial or community building installation. The prospects for all projects above 50kW, no matter at what stage of the development and planning process, are now in doubt.
While seemingly underpinned by good intentions, this announcement has been bungled by the government. Rather than neatly addressing the problem of field-based arrays they have dealt a shock to confidence across the whole solar sector.
As we move to a low-carbon, resource-efficient economy, confidence is critical and for this we need clear and decisive leadership.
Unfortunately, as a recent survey, by Ernst and Young of 520 UK-based firms and financiers found, confidence was already low. Following the comprehensive spending review, just 13% of respondents believed the coalition government would establish the conditions for success in the clean-tech sector in 2011, compared to 38% between August and October the previous year.
Last weeks' announcement will have done nothing to change this trend, and within days some solar investors revealed they were postponing plans for large-scale installations.
But often overlooked is how issues of confidence go wider than just investors, with entrepreneurs, business leaders and employees all taking risks by entering and operating in these markets.
And then of course there is the confidence of corporates and corporate sustainability professionals.
Many sustainability professionals have expended a lot of time and energy putting together plans for solar installations and getting the go-ahead they need from their boards only for them now to be put on hold. This has the potential to damage confidence across organisations and undermine the wider corporate case for investment in sustainability, as well as the internal reputation of the sustainability professional.
So how should sustainability professionals respond? Here are three suggestions:
- Consider the policy risks that exist around technologies. The risks of emerging clean technologies quickly becoming obsolete are well recognised and cause significant challenges. The policy risks that surround certain technologies are less so. Prepare by staying up to speed with emerging policy and political intelligence in order to identify potential risks.
- Engage with policy making. We must have clear and decisive leadership from government to build the confidence for growth and innovation that will give the UK a competitive advantage within the global low-carbon economy. Our businesses need this to maintain their edge on foreign competition. Sustainability professionals should find opportunities to press this case upon government.
- Finally, hold your nerve. The case for investments in resource efficiency remains compelling and resource efficiency will only rise up the corporate agenda. The FIT review creates a window of opportunity to re-engage in the innovative and strategic thinking across your operations that will push your company ahead of the competition.