House of Commons Energy and Climate Change and Environmental Audit Committees Solar Power Feed–in Tariffs Ninth Report of Session 2010–12 of the Energy and Climate Change Committee and Tenth Report of Session 2010–12 of the Environmental Audit Committees Volume I: Report, together with formal minutes, oral and written evidence Additional written evidence is contained in Volume II, and will be available on the Committee websites at www.parliament.uk/eacom and www.parliament.uk/eccom Ordered by the House of Commons to be printed 14 December 2011 HC 1605 Published on 22 December 2011 by authority of the House of Commons London: The Stationery Office Limited £15.50 The Energy and Climate Change Committee The Energy and Climate Change Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department of Energy and Climate Change and associated public bodies. Current membership Mr Tim Yeo MP (Conservative, South Suffolk) (Chair) Dan Byles MP (Conservative, North Warwickshire) Barry Gardiner MP (Labour, Brent North) Ian Lavery MP (Labour, Wansbeck) Dr Phillip Lee MP (Conservative, Bracknell) Albert Owen MP (Labour, Ynys Môn) Christopher Pincher MP (Conservative, Tamworth) John Robertson MP (Labour, Glasgow North West) Laura Sandys MP (Conservative, South Thanet) Sir Robert Smith MP (Liberal Democrat, West Aberdeenshire and Kincardine) Dr Alan Whitehead MP (Labour, Southampton Test) The following members were also members of the committee during the parliament: Gemma Doyle MP (Labour/Co-operative, West Dunbartonshire) Tom Greatrex MP (Labour, Rutherglen and Hamilton West) Environmental Audit Committee The Environmental Audit Committee is appointed by the House of Commons to consider to what extent the policies and programmes of government departments and non-departmental public bodies contribute to environmental protection and sustainable development; to audit their performance against such targets as may be set for them by Her Majesty’s Ministers; and to report thereon to the House. Current membership Joan Walley MP (Labour, Stoke-on-Trent North) (Chair) Peter Aldous MP (Conservative, Waveney) Richard Benyon MP (Conservative, Newbury) [ex-officio] Neil Carmichael MP (Conservative, Stroud) Martin Caton MP (Labour, Gower) Katy Clark MP (Labour, North Ayrshire and Arran) Zac Goldsmith MP (Conservative, Richmond Park) Mark Lazarowicz MP (Labour/Co-operative, Edinburgh North and Leith) Caroline Lucas MP (Green, Brighton Pavilion) Ian Murray MP (Labour, Edinburgh South) Sheryll Murray MP (Conservative, South East Cornwall) Caroline Nokes MP (Conservative, Romsey and Southampton North) Mr Mark Spencer MP (Conservative, Sherwood) Paul Uppal MP (Conservative, Wolverhampton South West) Dr Alan Whitehead MP (Labour, Southampton Test) Simon Wright MP (Liberal Democrat, Norwich South) The following members were also members of the committee during the parliament: Simon Kirby MP (Brighton, Kemp Town) Powers The constitution and powers are set out in House of Commons Standing Orders, principally in SO No 152 and 152A. These are available on the internet via www.parliament.uk. Publications The Reports and evidence of the Committees are published by The Stationery Office by Order of the House. All publications of the Committees (including press notices) are on the internet at www.parliament.uk/eacom and www.parliament.uk/eccom. A list of Reports of the Committees in the present Parliament is at the back of this volume. The Reports of the Committees, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in a printed volume. Committee staff The current staff of the Energy and Climate Change Committee are Sarah Hartwell-Naguib (Clerk), Richard Benwell (Second Clerk), Dr Michael H. O’Brien (Committee Specialist), Jenny Bird (Committee Specialist), Francene Graham (Senior Committee Assistant), Jonathan Olivier Wright (Committee Assistant) and Nick Davies (Media Officer). The current staff of the Environmental Audit Committee are Simon Fiander (Clerk), Edward White (Second Clerk), Lee Nicholson (Committee Specialist), Andrew Wallace (Senior Committee Assistant), Jill Herring (Committee Assistant), Edward Bolton (Committee Support Assistant) and Nicholas Davies (Media Officer). Contacts All correspondence to the Energy and Climate Change Committee should be addressed to the Clerk of the Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 2569; the Committee’s email address is [email protected] All correspondence to the Environmental Audit Committee should be addressed to the Clerk of the Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 6150; the Committee’s email address is [email protected] Solar Power Feed-in Tariffs 1 Contents Report Page 1 Introduction 3 Background 3 Our inquiry 4 2 The proposed changes to the solar PV feed-in tariffs 5 The ‘comprehensive review’ 5 Impact on bill payers 10 The impact on prospective FiTs customers 13 The impact on community schemes 14 Energy efficiency 16 3 The management of the review 20 Spotting the problem 20 The need for better cost control 22 The status of the spending cap mechanism 26 Coordination between departments 28 The utility of the impact assessment 28 Conclusions and recommendations 30 Formal Minutes 34 Witnesses 37 List of printed written evidence 37 List of additional written evidence 37 List of Reports from the Committee during the current Parliament 40 List of Reports from the Committee during the current Parliament 41 Solar Power Feed-in Tariffs 3 1 Introduction Background 1. Under the Climate Change Act 2008, the UK has a target of reducing greenhouse gas emissions by 34% by 2020 compared with 1990 levels. The Government’s strategy for meeting that target was recently updated in the Carbon Plan. It also has a target of 15% renewable energy by 2020, to assist in delivering that commitment. The Government’s Renewable Energy Roadmap set out its assessment of the technologies required to help the UK meet that renewable target. Although solar photo-voltaic (PV) is not one of the eight technologies listed in the Roadmap with “the greatest potential” to help meet that target cost-effectively,1 it is nevertheless identified as providing an important contribution. The Government considers that subsidy for renewable energy technologies above a 9p/kWh marginal cost benchmark needs to be justified on non-financial grounds. In the case of solar PV Feed in Tariffs (FiTs), where the majority of tariffs are in excess of this subsidy benchmark, this justification is provided by the fact that the scheme’s aims include a contribution to wider low-carbon goals including allowing individuals an opportunity to engage in the drive for more renewable energy. 2. There is room for debate, therefore, about the role that solar PV should play in the future, to meet our carbon and renewables commitments in the most cost-effective way, particularly at a time of economic difficulty. In this inquiry, however, we have focussed our examination on the reasons and justification for proposed changes in solar PV FiTs announced in October 2011. 3. Feed-in Tariffs (FiTs) were introduced on 1 April 2010, under the Energy Act 2008.2 They provide a payment for the electricity generated from installed renewable energy technology, and a further payment is made for any electricity generated but not used and ‘exported’ to the grid. They provide a guaranteed indexed-linked income for the life of the contract (20 years, or 25 years for solar PV). The amount paid depends on the scale and type of generation: Wind, solar PV, hydro, anaerobic digestion and micro-combined heat and power are all eligible for FiTs. FiTs work alongside the Renewables Obligation, which supports the deployment of large-scale renewable energy generation. Feed-in Tariffs for large-scale renewables are proposed as part of the Electricity Market Reform process. 4. FiTs are not funded by general taxation. Instead, energy companies pay out the tariffs, and recover the cost through their customers’ energy bills. In October 2010 the Spending Review introduced for the first time a budgetary cap for FiTs and other policies funded through consumer energy bills. This levy-funded spending cap reflected the original projections of expenditure on the tariffs, less a further £40 million reduction (about 10%) in 2014-15. 1 DECC, UK Renewable Energy Roadmap, July 2011. This states that the eight technologies (offshore wind, onshore wind, biomass electricity, marine, biomass heat, ground source and air course heat pumps, renewable transport) are capable of delivering more than 90% of the renewable energy needed to meet the 2020 target in a cost-effective and sustainable way. Solar PV, along with hydropower and deep geothermal heat and power are expected to provide the remaining 10%. 2 Energy Act 2008, Sections 41 and 43. 4 Solar Power Feed-in Tariffs 5. In February 2011, the Government announced a comprehensive review of the FiTs in order to deliver these savings.3 The Government gave ‘fast-track’ consideration in early Summer 2011 to tariffs for larger-than-domestic installations (between 50kW and 5MW) and stand-alone solar PV projects (which would be reduced) and anaerobic digestion projects (which would be increased). 6. On 31 October 2011 the Government announced that the comprehensive review would be organised into two phases, and launched a consultation on Phase 1 which would focus on smaller scale solar PV. The consultation document from the Department of Energy and Climate Change (DECC) set out the Government’s grounds for possible changes to the smaller-scale solar PV FiTs scheme, including an unsustainably rapid increase in the rate of solar installations, a 30% reduction in installations costs (with more reductions likely), rising electricity prices and, consequently, a rate of return from the scheme much higher than the 5% return envisaged at the outset.4 The consultation stated that given these developments, the Government “considers that it is imperative that ..