The FITs Debate

I've been holding off writing about the recent FITs consultation (apart from my one-liner a few days ago) but can resist the temptation no longer.

Whilst it was to be expected that FITs would come down in April - and it had been well signalled that this would be the case - DECC is in danger of shooting itself in the foot over the contents of its proposal.

Firstly, the "qualifying date". This just seems to be a rather nasty piece of proposed legislation. Now, I have to confess a personal interest here. I was planning an installation in the new year. Suddenly here is a proposed cut-off date before the end of the consultation period (thus adding to uncertainty) and suddenly imposed on an otherwise well defined timetable. This really is government acting without thinking about the reputational consequences if nothing else. But, as I said, I do have a particular beef.

Secondly, the consultation quotes a wide range of apparent installation cost reductions. It is no secret that the costs of PV have come down - but not by the upper end of DECC's range. They seem to have muddled installed cost with raw equipment cost. And there is no discussion of cheap, unproven Far East imports vs quality products. Surely they'd want to avoid people scrabbling to put up shoddy installations just to try to get an apparent reasonable return?

Which brings me to my third point. The consultation states that the proposed new FIT should provide a return of about 4.5% for homeowners installing <4kWp systems. All other bands would appear to be pitched at a 5% return. Why kick poor old Joe Public harder than anyone else? And much seems to be made in accompanying blurb about comparisons with savings accounts, cash ISAs, bonds etc. This, I believe, is an inappropriate comparison for at least 2 reasons. Firstly, the risks are different. High street savings accounts, although not risk free (FSCS not withstanding) are certainly lower risk than a PV installation (technical risk, weather risk, installation risk etc.). Furthermore there is a huge difference in liquidity. Investing in a highly liquid financial product like a cash ISA is very different to installing a piece of kit like a PV system. How could I monetise the latter? Presumably either by entering a forward contract for my output (at a lousy rate of return if current rent-a-roof schemes are anything to go by) or by selling my home! Both issues justify expectations of much better than high street returns.

A fourth problem is the possible linkage with EPC rating. A couple of options are proposed but neither really takes into account the fact that EPCs are primarily about space and water heating whereas heat from electricity use is often secondary. OK there will be spill from one's washing machine, tumble dryer or whatever but that's hardly a big contributor to space heating. Furthermore, much of the power generated will not be used in the host premises anyway. And there is an important trade-off to be considered for hard-to-treat homes. Many householders in solid-walled properties will not contemplate the enormous hassle that is likely to be involved with insulation measures whereas they just might be willing to put up with a bit of scaffolding and mucking about on the roof and in the loft. Is the trade-off not a price worth paying for just a little bit more greening of the UK's electricity supply?

There - gripes off chest at last.