In a recent blog post, Craig Morris talked about how the Spanish and Italian wind and solar markets have recently collapsed. Today, he turns his attention to the UK, where the future also looks bleak. And he says renewable energy campaigners should demand “fair payment” and reject the term “subsidy.”
In my last post, I talked about how solar and wind collapsed in Spain and Italy when these two energy sources collectively approached around a quarter of power supply – but I also stated that this level is not an automatic barrier.
For political reasons, the UK seems poised to phase out policy support for wind and solar at a lower level. Based on DECC’s figures (PDF), wind (offshore and onshore) and solar together made up just under 12 percent of power supply in 2014. Solar came in at just above one percent; wind power just above 10. Overall, renewable electricity grew by more than four percentage points from 14.9 percent of supply in 2013 to 19.2 percent in 2014. Some of this growth came from pellets co-fired at the Drax coal plant.
2015 is not over yet, but we do know that wind power production was up by around 60 percent in the second quarter, and solar continues to be built massively across the country. The country started the year with just under five gigawatts of PV, but it added 2.53 GW in the first quarter of 2015 alone. New installations fell in Q2 to 0.25 GW, but the sudden downturn was mainly the result of the fiscal year ending on March 31. Overall, the share of wind and solar will approach 15 percent of total power supply by the end of fiscal year 15/16. And the government wants to slow down that growth as it becomes painful for the conventional sector.
At the end of August, the government proposed a whopping 87 percent cut in feed-in tariffs for small PV, which could take effect as soon as next January. Likewise, the Renewables Obligation for onshore wind farms are to expire on 1 April 2016.
How have the two sectors responded? With charges that the policy changes will destroy these fledgling industries. In the process, the press and renewable energy spokespeople in the UK are making a terrible mistake – by using the word “subsidy.” Defending “subsidies” is a fool’s errand. Point out instead that the word itself is wrong. What we want is fair payment.
The UK has public healthcare: the National Health Service (NHS). The NHS specifies prices for medicine and healthcare services. These fixed prices are designed to allow pharmaceutical companies and healthcare providers to make a reasonable profit without gouging patients (“customers”). The prices paid to companies are not thought of as subsidies, however. In contrast, the price of medication, especially for low-income households, is subsidized.
Transfer this comparison to the energy sector: providers of healthcare products and services are now power providers, including investors in community wind, biomass and small solar. This group receives fair payment. (Subsidized) patients are now (subsidized) power consumers. The prices power providers need for a reasonable return on their investment are not subsidies any more than NHS payments to healthcare providers are. You are simply paying what these products cost. In contrast, if you want to use tax money to lower the power bills of low-income homes, fine – those are actual subsidies (welfare payments).
In the recent elections, the British Conservatives pledged to “halt the spread of subsidised onshore wind farms.” They are now after solar. Renewable energy campaigners who adopt the term “subsidy” for what is actually fair payment have already lost the argument. “I keep hearing that we are subsidy junkies, it’s not true,” UK Solar Trade Association’s (STA) Leonie Greene told the Guardian. But instead of responding as any labor union director would – “We demand fair payment!” – Greene meekly promises, “The industry wants to be off subsidies as soon as possible.”
The need for fair payment will never go away. The right-leaning Policy Exchange think tank likes onshore wind because it could be “subsidy-free” when it becomes as cheap as gas generation around 2020. Don’t believe it: the power sector will then hit you with system integration prices. Gas turbines can respond to spot market signals; wind turbines respond to the weather. Wind and solar will therefore always need fair payment.
We hear the same discussion in the US: the “value of solar” is greater than retail rates. Yeah, because you have less than one percent PV. By 10 percent, that value has plummeted. So reject the term “subsidy” and demand fair payment today. You will thank me tomorrow!