Phase Two Consultation

[The Solar King]

I am sorry this is long but it is important. We all need to respond to the phase two consultation. Your voice need to be heard. I would welcome comments and criticism of my thoughts below.


The current post July phase two proposals are very bleak indeed. As an example the assumptions on costs see a 2kw retrofit system installed for £3063 falling to £2400 in 2013. This is clearly bonkers. Even with massive economies of scale, this is unrealistic. It takes no account of the nature of a typical installer business profile, the overheads of regulatory requirement, or how SMEs (especially small) are the engine of growth and recovery. Although this last point would not enter the thinking of DECC.


However one looks at the proposals, the bottom line is lack of budget, created through cock ups and deliberate maleficence of DECC towards renewable energy. The background to this is manifold but I'll try and stay on topic.


We need more money in the budget to survive. The biggest danger is that in identifying methods of creating funding, it is simply taken and used elsewhere or made into a 'saving'.


Export Tariff and FITs


There are proposals to review the export tariff. As present this is little more than symbolic. 3.1p/kwHr is nowhere near the value of exported energy. A figure of 9p has been mentioned.


One other point that has been mentioned is to prevent existing FITs participants gaining a windfall from increases in the export tariff. However, it would be possible to engineer a substitution of FITs payments for increased export payments for existing customers if there is some benefit for the customer.


In terms of increasing the FITs budget, every 1p/kwHr swapped from FITs to Export is 1p times the number of kwHrs currently paid out that could then be transferred into the budget for new installations. The available budget is increased whilst total expenditure is unchanged.


There would need to be a mechanism that created a guaranteed minimum price for exported units that is linked to the price charged by suppliers for energy. As prices increase, further substitution could be made to the point where subsidy/FITs is minimised, as a guaranteed minimum price for exported energy passes grid parity.


There is no reason why the same kind of principal could not be adopted on new installations as well. In this way, as energy prices increase at the inexorable rate that is likely to occur in the next few years, the level of subsidy for all installed systems would fall.


For most domestic installations the likely level of export is at least 70%. Due to the mis-match between production and consumption times, this is unlikely to alter much (even with the introduction of intelligent domestic control/switching systems). If FITs participants are given the opportunity to switch to a new system AND have their export metered (installation of meter at suitable low fixed price), this should provide sufficient incentive to change.


Due to the Court Case, this could not be imposed as it would be a retrospective action. However, giving the option or giving the option to opt out could overcome this.


The challenge is to keep the funds in FITs for as long as they are required. It could become a partially circulating fund. If this can be sold to DECC and politicians, it is maybe just possible to have a level of FIT that sustains the industry.


It should also be borne in mind that a FITs participant is currently able to sell export to who they please. Whilst not an issue now, in terms of windfalls, it could be in the future if nothing is done.


Measurement of required FIT level.


Currently the proposals provide no mechanism (and no transparent mechanism) to establish the level of FIT required as there is no empirical data on installation cost. The proposed FIT levels are driven by an artificial budgetary requirement, not a formula based on costs.


Collection of comprehensive installation costs is almost too easy. Every time a system is registered on the MCS database, the cost of installation should be given. This may be seen to be a two edge sword, but at least everyone would be arguing about fact, not opinion.

Maybe Ted M could put numbers on this from his extensive knowledge and background.

 

[solarcat]

Solar King, thank you for posting this reminder, it really is very important that we all take the time to submit our sensible response to the Phase 2 consultation. Seeing how few responses were received for the phase 1 consultation was absolutely shocking consider how all our businesses and livelihoods have been affected. Some will say "why waste my time, they won't listen anyways", but this is just not a good excuse not to even try. Now than the DECC recognised that FITs are not costing as much as they thought when the Phase 2 consultation was launched, our voice has a higher chance of being herd.
The industry is not ready for 13p in June and we need to ask for more in order to gradually build our path towards grid parity.

 

[moggy1968]

seems fair to me, let me see now, £600 scaffolding, £500 labour for a day, AC side, cable, isolators, conduit etc, lets call it £200. Lead for the roof, maybe £100 at the moment, but rising.
that leaves, let me see now err about £1000 for panels, inverter, DC isolators, cable, registration, sundry expenses, travel. Yeh that should be plenty!!!!!!!!!!!!!!!!
Oh, sorry, I forgot, the business is actually supposed to make a profit isn't it?

txxxxxs

 

[Gavin A]

The current post July phase two proposals are very bleak indeed. As an example the assumptions on costs see a 2kw retrofit system installed for £3063 falling to £2400 in 2013. This is clearly bonkers. Even with massive economies of scale, this is unrealistic.

Hi,

I don't understand where you get those figures from, and am pretty sure you've got mixed up as with the figures I've seen eg in this report are a mix of fixed costs per installation and costs per kWp.

From the medium cost scenario costs from that report, which I believe are the ones DECC are basing their decisions on.

Medium Cost Scenario - 2kWp

January 2012
£1,249 Fixed Cost per install
£2,542 Marginal Cost per kW x 2kW = £5084
£6,333 Total


End 2012 Estimate
£1,187 Fixed Cost per install
£1,907 Marginal Cost per kW x 2kW = £3814
£5001 Total


2013 estimate
£1,127 Fixed Cost per install
£1,621 Marginal Cost per kW x 2kW = £3242
£4369 Total


which may or may not prove realistic, but is a lot different to the figures you posted, unless I've missed something.

 

[Gavin A]

btw, is this thread not better in t'other forum?

Get the story straight away from prying eyes etc

 

[The Solar King]

Figures from Seb Berry at Solar Century. Assumptions being used by DECC.

 

[Gavin A]

Figures from Seb Berry at Solar Century

has he given the source anywhere?

the costs I've given are the costs given in the report linked to from the DECC site as being the report on which they've based their FIT cut proposals

In advance of the publication of the next stage of the FITs comprehensive review, the​

following report[filetypedf filesize: 208.5Kb]

has been completed to update the information used as the basis of the FITs Phase I consultation document in Oct 2011.​

There are also low cost and high cost scenarios, but neither of these come close to matching those figures either.

I'd suggest Seb Berry / Solar Century have got the wrong end of the stick here.

 

[The Solar King]

Will check this out tomorrow.

 

[Gavin A]

actually, tbf they seem to have several different ways of estimating costs in several different sections / documents, none of which really seem to match each other.

I'm going to have a go at reverse engineering their figures to see where they've got them from and try to work out what they all mean, and if they've done anything seriously wrong there when transferring them from one section to another.

AFAIK they ought to all be based on the evidence base they've used, flimsy though it is, and the stated methodology. A quick look seems to indicate that some of the figures don't match up as they should, which I'd think would be fairly serious if this is what they're basing the rest of it on.

 

[Gavin A]

right, I've worked through some spreadsheets, and now see where those figures come from. They're figures for the low cost scenario for the estimate from the end of 2012 and end of 2013.

I do have some major problems with these figures, the first one being that the base figure for the Jan 2012 installed price ought to match up with the actual lowest figure in the evidence from the survey they (Parsons Brinckerhoff) undertook, the prices of which are included at the end of the document I linked to earlier.

The figure produced from adding up the Fixed and Marginal cost elements for Jan 2012 for a 2kWp installation is £584, or 12% lower than the actual lowest price found within the survey.

The explanatory note says

The highest and lowest data points for each system size were grouped in the same way to provide the high and low case costs for each band.

So 2 figures ought to at least roughly match up, but they're miles out.

This is a major problem because this figure forms the starting point for all future figures for the low price scenario, and starting with a figure that is 12% below the lowest figure in their survey is obviously going to produce a scenario that is entirely unrealistic.

On top of this, they then assume with the low price scenario that this scenario, which starts from 12% below the lowest prices already possible, can then be reduced by 26.5% this year, 21.7% next year etc which is significantly greater reductions than either the medium or high price scenario.

IMO this is entirely the wrong way round, as the start point for these low prices is companies that had already slashed their prices to before they were surveyed in January. There is therefore a hell of a lot less left that can possibly be cut from those prices compared to the start point for the medium and high price scenarios, which are largely companies that hadn't really cut their prices at the point they were surveyed.

Basically what this results in is a situation where the lowest prices are supposed to keep dropping faster than the highest prices, so the gap between the lowest and the medium and high prices will grow significantly over the next 2 years according to this. I'd expect the exact opposite to happen, with the high and medium prices being forced down much faster than the current lowest prices.

What this basically amounts to then as others were correctly pointing out is that the low price scenario bears no relation to reality at all, and the prices it envisages are likely utterly impossible and amount to little more than really bad guesswork.

I'll tidy the spreadsheets up and post them up tomorrow.

 

[moggy1968]

are these installed prices or kit prices?

 

[TedM]

"(Price Brinkerhouse)" - that's Parsons Brinckerhoff - but you were close. Other than that I agree with you completely.

 

[Gavin A]

"(Price Brinkerhouse)" - that's Parsons Brinckerhoff - but you were close. Other than that I agree with you completely.

corrected, thanks.

 

[The Solar King]

Sorry, but all this is simply rearranging deckchairs on the Titanic.

Once Seb has got back to me I will let you know the basis of the figures given.

This doesn't alter the position one little bit.

I have run some figures through Pvsol Economic Efficiency Calculation. You will be aware this uses a model to generate a Net Present Value and Payback period.

These are the general criteria I use:
Inflation 3%
Fuel Price Inflation 8% (based on DECC data from 2000 to present)
Fuel cost 13.5p
Panel degradation 15%
Annual operating costs £50.00 (to allow for inverter replacement)
Average annual return on capital employed 4%.

The figure bandied about by the Government as an average return someone should achieve on their investment in PV is 5%. This means that at the break even date you have achieved this or a positive NPV at the end of the assessment period means you have exceeded it.

As I understand Pvsol compounds the payments in calculating the payback period. It is the equivalent of banking the FITs payments and the electricity savings and then earning the same rate of interest as is used for the rate of return on capital employed. This would mean that if you use 5% the payback period is compressed by this calculation. If you reckon 4% is a reasonable figure you would receive in bank interest it makes more sense to use this. Overall it doesn't make enough difference to matter in what I wish to show here.

The yield figure given in Pvsol is the internal rate of return and should not be confused with return on capital.

This uses a south facing unshaded property using climate data based on Sheffield to match SAP. This gives Approximately 1500kW Hrs a year.

This is a 2kW system based on a cost of £5000 inc VAT (there are people out there currently quoting less than this). Payments are FIT or proposed FIT plus 50% export (1.5p)

22.5p Break even at 16.2 Years
18.0p Break even at 20.1 Years
15.0p Break even at 23.6 Years

However, it is likely the tariff period will be reduced to 20 years:
18.0p Break even at 20.1 Years
15.0p Break even at 28.3 Years

If you use a more optimistic fuel price inflation figure, say 5% and a twenty year tariff period
18.0p Break even at 29.9 Years
15.0p Break even at 52.3 Years

Going back to Seb's figures of £3063.00 Lets add VAT and take £3216.00

20 Year Tariff, 8% fuel price inflation:
18.0p Break even at 12.7 Years
15.0p Break even at 15.1 Years

20 Year Tariff, 5% fuel price inflation:
18.0p Break even at 13.2 Years
15.0p Break even at 16.1 Years

No wonder this could be a figure DECC would choose to use.

The trouble is you can perm this any way you like. What I am attempting to show is on a system this size at real world prices 18p is not viable and 15p is a joke. Even on a 4kW system where the cost per kW is £2000.00, 18p is at best marginal and the payback too long for most consumers to consider attractive.

I have low overheads. I can make 21p work for a customer. With lower irradiance levels in Scotland and lower yields than the South of England I am at a 10% disadvantage. 18p would only work if the cost of equipment falls quite a bit further. Not likely in my opinion.

For many contributors to this forum, July is the end unless we can get change in the proposals from the Government.

Discussing the efficacy of figures is this way will not change the outcome. Its just mental masturbation: It may make you feel good but it won't produce anything. (of which I am also guilty by publishing the above).

Please take action.
Please respond to the Consultation. Let them know what it means to you and your business.
Please re-contact your MP and spell it out to them as well.

My original post is to highlight there are things that could be done. I was looking for opinions on my comments and on how we can go forward.


There could be a way forward but only if we take action.

P.S. This discussion should be in the public domain. The more this is seen the more chance there is of more people discussing and understanding the implications of the Government proposals both here and elsewhere. Search engines are a wonderful thing.

 

[TedM]

DECC don't take panel degradation into account, use 15.4p for electricity offset cost and include benefits up to year 35. Simple to get a better ROI if you skew the data like that.

 

[The Solar King]

Ted

It doesn't alter the outcome. The ROI calculation in PVsol uses the time value of money to produce an NPV using a DCF method. Householders understand the comparison with bank interest or bonds and even shares. In all cases, they have their capital (hopefully) intact at the end of the investment period. As stated unless they bank payments and savings in fuel cost the capital sum is liquidated as it has been taken as income and savings.

This doesn't effect whether or not the proposals in phase two are viable or not.

I am not going to join the orchestra on the Titanic and fiddle away as the ship sinks. I want to stay in this business. I want to provide customers with what they want. I want the Government to provide a framework that allows me to do so and prosper.

Whether or not DECC take panel degradation into account or not is likely to affect the outcome of the big picture. Where it may come into play is if we could get to a position of an agreed formula over digression based on factual information and not some consultants report cobbled together from meagre unsubstantiated data in less than two weeks.

All this means finding ways of putting more money in to the FITs budget.

 

[Gavin A]

Sorry, but all this is simply rearranging deckchairs on the Titanic.

No it's not.

If the government isn't basing the figures used in the consultation on the evidence it states it is using in the way that it states it is using it then this would make the consultation inherently flawed and could be used as evidence for a legal challenge if needed if the government relied on these figures to justify a bigger than acceptable FIT reduction.

Alternatively, if spotted and pointed out clearly enough at the consultation stage by enough people, it's possible the government will see sense and head off any court challenge by amending their rates accordingly.

Once Seb has got back to me I will let you know the basis of the figures given.

no need to do this on my behalf, I've eventually sussed them out.

They're figures for the low cost scenario for the estimate from the end of 2012 and end of 2013.

Basically what I'm saying is that if you're going to argue against the figures, it strengthens your case a lot if you know exactly how they're come up with the figures, and if there are signficant flaws in that methodology that you can point to as evidence of why their figures are unrealistic.

Otherwise they'll simply state that they've taken independent advice on the figures etc etc and ignore us all again (may still happen, but it makes it a lot riskier for them to do so).

 

[The Solar King]

Gavin

This is OK but largely semantics.

What are you going to do about it?

The whole point of what I am saying is we ALL need to to respond. Respond on the basis of whatever data you wish to use but please respond.
Understand that the only way we can move forward is with more money in the budget.
Current policy is likely to continually pull installations forward due to rushes to meet real or false deadlines making the possibility of a much lower FIT all the more likely.

Until I hear back neither of us know whether or not you have sussed it out as you make the assumption the figures I quoted originate from the document you have used and are being used in the manner you think they are being used. Semantics again. Without substantiation we are no better than DECC.

 

[The Solar King]

Gavin

Having spoken to Seb, you are right in your analysis. The problem is DECC are using the low cost scenario as the basis of their deliberations.

I have major problems with the use of ROI for domestic customers. In general they are not familiar with the concept. They need an understandable comparison with domestic savings products. 5% ROI is not the same as 5% bank interest. ROI is completely right for commercial installations.

In a written reply to a question in Parliament it was admitted that the Parsons Brinckerhoff document is based on data from only 11 companies. This makes it totally suspect from the point of view of statistical accuracy.

Without empirical data, we are stuffed if DECC continue to use this report.

My own analysis starting at the micro level suggests that a 4kW system needs Feed-In Tariff support for considerably less than 20 years if we can continue at 21p plus 1.5p export.

Going back to my original post, without collection of empirical data on which to base decision making this consultation will not provide a satisfactory outcome.

From an up to 4kW standpoint this is what I would want from this consultation:
Increase in Export tariff to 9p for new installations with Feed in tariff reduced pro-rata to retain 22.5p total
Feed In Tariff of 18p until April 2013
Reduction in Tariff period to 20 Years
Collection of cost data via registration of systems on MCS database.

Offer to existing FITs participants to swap FITs payments for export payments as set out in original post to free up additional budget.

Use of time between now and April 2013 to develop a stable and equitable FIts system based on empirical data. Use this time frame to develop a system that adequately supports larger systems, that can be attractive to investors to attract the necessary capital.

I haven't got the macro figures but am hopeful this would reduce the required budget sufficiently to allow the industry to move forward and meet Mr Barker's 22gW target.

Again, it is really important we all respond to this consultation and let our MPs know of the threat it poses to our jobs and the industry.

 

[moggy1968]

In order to be able to provide payments based on exports you need meters cabable of measuring export, which at present the vast majority of installations don't have.
Mr Barkers 22GW target wouldn't have been achieved even at 43.3p based on the number of installations completed so far so how this is expected to be achieved by making PV less attractive to customers is beyond me, oh, actually, I know, by supporting large scale solar installations provided by the big 6 energy companies which brings us back to

err

Barker isn't interested in Small Scale Energy Production
Barker is in the pockets of the big 6

The Government doesn't want SSEG and they aren't really interested in arguments to support SSEG. The only arguments they are interested in is ones that support the ending of SSEG and a move to centralised energy production. The fact that those arguments may be fundamentally flawed (or downright lies) is irrelevant to them.