Why PV’s will hinder rather than help any further “Kyoto” agreements
While the renewables industry, and in particular the PV crowd, are still smarting over the governments’ decision to halve their subsides overnight, back in December, the wider global issues of what to do when Kyoto expires at the end of the year have hardly been talked about. But what that fiasco1 did, to my mind, was to illustrate just how difficult any further agreement will be.
First, let’s look at what paying 1302 times more for something than it is actually worth has achieved. For a start a massive growth in the rate of PV installations; anyone with a roof and/or a good credit record could look forward to a 6-8% return on investment, and 10-12% if they were a higher rate tax payer. It was a no brainer. Those on low incomes or living in flats needs not apply, but I don’t want to talk about the regressive nature of the scheme here. Beyond this there is the legitimate claim that the scheme has brought down installation costs, which was the aim all along, a laudable achievement and some justification to cut the FiT early. But before we all get too carried away with this success and the current ‘cheapness’ of PV’s I would like to take a step back and examine what has actually delivered these price reductions.
As far as I’m aware there was no significant PV manufacturing going on the UK in 2009 and there isn’t now. All the jobs created have been in sales, marketing and installation. Whilst not wishing to denigrate the work of these people (well maybe marketing) these are hardly leading edge technology jobs that are going to lift us out of recession. Because PV cells are imported, the PV FiT has served to worsen our balance of trade deficit unlike wind and hydro where there is home manufacturing. A 50% reduction in the price of a green technology is still good news, but this reduction might not be quite as it seems. For a start, back in the days when PVs were funded by the Low Carbon Buildings Programme prices were inflated. The question ‘How much does a system cost? was often answered by ‘How big is the grant?’. Prices have reduced quite dramatically, but is the 43p kWh subsidy responsible? I think not. Since 2009 global PV production has nearly tripled to 50GWp3 of which the UK accounted for 0.8 GWp4 (of consumption). It is the massive increase in the global production of PVs, and the economies of scale such an expansion delivers, that has brought about the price reductions seen, not the FiT.5
Interestingly, almost all of this expansion has been in the manufacture of crystalline cells. Yet five or so years ago all the interest was in thin film technology with its inherent low energy of manufacture and therefore low costs, so what happened? Well, in a word, China. One of the reasons why PV’s, especially the more efficient crystalline type, have always been so expensive is the large amount of energy (i.e. electric furnace use) required to heat Silicon to 1000ºC and hold it there long enough to grow suitable crystals. But China has cheap energy as well as cheap labour so it’s the ideal place to mass produce PV’s and that’s exactly what has happened. The problem here of course is where China is getting all this cheap energy from – for the most part brown coal or mega dams.
This brings me back to my point that PVs are a good example (not to mention an ironic one) why an inclusive binding Kyoto replacement will be almost impossible to achieve. A product that is championed in the UK as a cornerstone of our carbon reduction strategy is only possible at anything like a sensible cost so long as the Chinese don’t have to account for all the CO2 they emit on our behalf making the products we need to demonstrate our commitment to the environment.
1. What the government should have done was to remove the index linking and make any income taxable. Over the 25 year term that would have ‘saved’ as much money as the cut to 21p but preserved the easy to sell 43p rate. In fact a better scheme all round would have been a top-up subsidy whereby any electricity price below say 25p was topped up so as the price of electricity rises and the income from that increases the amount given out falls but that’s another story.
2. 43p paid per kWh of electricity generated means about 80p is spent to save each kg of CO2. The current internationally traded price of a kg of CO2 (i.e. under EU ETS is 0.6p). This is the price at which industry considers it is worth spending money to save carbon. True this figure is probably too low but……..
5. After 30 years of waiting it has to be said.