Contracts for Difference

One step forwards, two steps back? The strange case of Tory solar policy

The Conservative Party has had an on-off love affair with the solar industry ever since the heady days of David Cameron’s Quality of Life Commission. Professionally, I was happy to serve on the Commission. It helped to create the right political conditions for the launch of the feed-in tariff in 2010 and cemented Conservative support for it – something that had seemed impossible when we started debating the policy. In the intervening period, there have been a series of policy highs and lows. Too often it’s been a case of one step forwards, two steps back.

Right now, the real danger is that solar will be overlooked in the forthcoming Clean Growth Plan. There appears to be a mood afoot in Government that the job is done, that a so-called (actually non-existent) solar ‘target’ of 12 gigawatts by 2020 has already been met, and that there is little industrial value in UK solar. News this week that one solar farm has been developed ’subsidy-free’ for the first time in the UK has also led inevitably to a rather complacent response from Ministers. Yes, a solar and storage scheme developed on an existing solar farm site does offer a tantalising glimpse of a sustainable subsidy-free solar future into the 2020s and beyond. But one swallow does not make a summer, and it’s clear that very few such pathfinder projects can be developed subsidy-free in the foreseeable future.

In the context of what has happened to our sector since the 2015 general election, the Government would be unwise therefore to draw conclusions prematurely about the current health of the UK industry. Since 2015, employment in the sector has fallen by at least two thirds from a high point of well over 30,000. Large-scale solar deployment has stalled (notwithstanding isolated exceptions that nevertheless prove this rule), and the revised feed-in tariff has seen a dramatic year-on-year drop in rooftop installations. In 2015, there were 155,000 new domestic installations that year receiving the feed-in tariff. In the first six months of this year, the number was less than 5,000. It is undeniable that the sector suffered unnecessarily as a result of knee-jerk policy making in the aftermath of the 2015 election where solar was wrongly and public blamed for the LCF overspend. 

Ministers are keen to describe UK solar as a success story, and so it is. But what we need now from the Government is certainty and partnership for the future, rather than basking in past successes. The fact is, as the recent REN21 report showed, positive policies are still vital to the solar industry internationally. It is ironic that Solarcentury, a stalwart of the UK sector since the late 1990s, is now exporting successfully our UK solar expertise literally all around the world, while the UK domestic market remains in downturn.  

We need Ministers to build on the successes of the past, not assume that it is ‘job done’. Part of that will involve a change in mind-set in Whitehall – a previous Minister confirmed there are no solar champions in the Department of Business, Energy and Industrial Strategy (BEIS), which is quite extraordinary given the importance of this technology. In a recent Parliamentary written answer to a question about solar redundancies, BEIS Minister Richard Harrington MP said that: “many of those who work in solar are also skilled in other building trades, and will move between these with changes in demand.” It’s hard to imagine such a dismissive answer to questions about employment levels in other low-carbon economy technology success stories.  

For at least two years, the industry trade body the Solar Trade Association (STA) has been calling for a package of measures to ensure that solar can access a level regulatory and policy playing field. This includes action to reduce the burden of business rates on solar rooftop installations and to reduce the rate of VAT on solar storage. Charging people 20% VAT for batteries retrofitted to existing solar installations runs completely counter to the Government’s narrative about the importance of storage and the leading role that the UK can play in that emerging market. We are hopeful for action on this front in the forthcoming Budget.

The lack of a level playing field can also be seen in other policy areas. In particular, it is a nonsense that one of the cheapest renewable technologies, and the most popular, remains locked out of the Government’s competitive auction process for Contracts for Difference (CfDs). This is the mechanism that has seen a halving of the support level required for deploying new offshore wind from 2022. Quite rightly, this has been hailed as a potential game changer in the context of the eye-watering £92.50 strike price at 2012 prices needed for new nuclear. But solar inexplicably has been caught up in the fallout from the Conservative Party’s opposition to, and manifesto commitment to end support for, onshore wind. The reality is that solar could also deploy today at prices approaching half those required for Hinkley Point C. Yet we remain locked out of the scheme in a bizarre rejection of market forces. Including cheaper solar again in the CfD process would help to re-energise the UK market and help to put further downward pressure on solar and other technology costs and benefit bill-payers. It’s such an obvious policy move that it’s hard to understand what is holding Ministers back.

Finally, and inevitably, Brexit remains a destabilising factor in terms of solar industry investment in the UK. For our own part, Solarcentury is active all over continental Europe where markets are recovering nicely and we will have to make a decision in early 2018 on key issues such as headquartering and other contingency planning. In the meantime, Brexit does actually open up the prospect of helpful policy changes, including the possibility of scrapping VAT altogether for solar and other energy efficiency measures, and an end to the red tape of the EU’s unwelcome minimum import price for solar modules. Both issues add unnecessarily to solar costs in the UK. 

After a damaging two years of policy changes, there is now an opportunity for positive action leading to a renewed period of stability and certainty for investment in our industry. The solar industry success story deserves better than another policy round of one step forwards, two steps back.

Seb Berry is the Director of Corporate Communication at Solarcentury and Vice Chair of the Solar Trade Association

The views expressed in the article are those of the author, not necessarily those of Bright Blue

Wind keeps powering on

Wind power reached a significant milestone last week. For the first time ever, onshore and offshore wind together generated 10 GW of electricity in the UK, three times the power expected from Hinkley Point C nuclear power station, and around 23% of the country’s demand at the time. Of course this was a particularly windy day: the usual figure is just over 9% of the mix. But it demonstrates that the grid can successfully integrate large amounts of wind power.

Offshore wind continues to grow in strength

Last week also saw Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, travel up to Hull to open the new Siemens factory. Siemens has invested £310 million in a new plant that will manufacture the blades for offshore wind turbines. Almost 800 new jobs have been created, with the majority filled by local Hull residents. This kind of investment in the domestic supply chain for renewables is what the forthcoming industrial strategy will seek to encourage.

The offshore wind sector is set to continue its expansion: last month, the Government released further details of the next two auctions for new offshore wind in the early 2020s. Although the Government has set ambitious cost-reduction targets, projects commissioned in other European countries, such as the Netherlands and Denmark, have had impressively low prices. So there is every reason to be confident the UK industry can meet the challenge.

Onshore wind faces turbulence

The situation for onshore wind is much less optimistic. The Conservative Party manifesto for the 2015 general election contained a pledge “to halt the spread of subsidised onshore wind farms”, by ending “any new public subsidy for them” and ensuring “local people have the final say on windfarm applications”. These commitments were swiftly met following the election through the Energy Act 2016 and revised planning guidance to local authorities.

Yet this technology has potential to contribute to meeting the UK’s energy needs. Earlier this month, the Department for Business, Energy and Industrial Strategy (BEIS) published updated cost estimates for the different generation technologies. For projects commissioning in 2020, onshore wind is forecast to be the cheapest way to make electricity. Their models predict that, including the carbon price, onshore wind projects will generate electricity for £63 per MWh, while highly efficient combined cycle gas turbines (CCGTs) – the next cheapest technology – will produce power for £66 per MWh.

Currently, long-term contracts (Contracts for Difference), which guarantee a fixed revenue stream for developers of new energy infrastructure, are only being awarded to nuclear and offshore wind. Onshore wind, despite being much cheaper, is not eligible to bid. Consumers’ energy bills are starting to rise again, largely due to rising wholesale costs from a weaker pound. But the annual cost of supporting renewables, which is added to consumer bills, is forecast to increase significantly in this parliament, from £5.2 billion this year to £8.4 billion by 2020/21. Excluding onshore wind will cause the subsidy bill to increase more than is necessary, as contracts for new capacity will instead be awarded to more expensive technologies.

The future for onshore wind

Given the political discourse around them, it is surprising that polling shows broad public support for onshore wind farms, even in rural areas. ComRes data from October 2016 shows 73% of the British public support onshore wind. In rural areas, where people are more likely to directly experience turbines, they enjoy 65% approval. Further research is required into what Conservatives in particular think about onshore wind, and whether they object more to the subsidy element or their own potential proximity to turbines. Bright Blue will shortly be publishing new polling, conducted by Populus, to try to answers these questions.

Some have proposed ‘community energy’ schemes to overcome local opposition to new developments. These involve local residents either receiving some payment from the developers in return for their consent, or taking a stake in the project themselves. Renewables company Good Energy has proposed building a new onshore wind farm in Cornwall, which would be co-financed by local residents. This would be the first onshore wind farm constructed without government subsidy. They hope the community financing for the project will demonstrate to the planning committee that it enjoys local support.

Technological innovations could also improve onshore wind’s prospects. For instance, Shell, EON, and Schlumberger have recently invested in a new high-altitude kite technology that generates electricity from the wind. The firm developing this idea is based in Essex. The technology is expected to have much lower capital costs by dispensing with the expensive towers and blades used by conventional wind farms. Two kites pull in opposite directions to create a rotating motion while tethered to a turbine on the ground to produce electricity.


There is a strong case that onshore wind should no longer receive subsidy: it is a mature technology that has had an opportunity to become cost-competitive. However, as we argued in Green and responsible conservatism, it is important to distinguish between a subsidy and a long-term contract. A project is only subsidised when the total lifetime payments it receives under the long-term contract exceed those received by other conventional generators.

No new, capital-intensive energy infrastructure can be built in the UK without a long-term, government-backed contract. Even new gas plants will only be built if they can secure a 15-year contract through the Capacity Market mechanism, which is the Government’s policy for guaranteeing security of supply. Allowing onshore wind to compete for fixed contracts against other technologies could help keep down consumer bills. And this could be done without subsidy and without removing control over planning decisions from local communities.

Sam Hall is a researcher at Bright Blue