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Solar Costs Are Dropping Much Faster Than Expected

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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Dark Days Ahead For UK’s Solar Industry

Solar Panel

Solar power in Britain has been comfortably subsidized for years now, allowing it grow substantially in a short amount of time. Last year, the subsidies stopped. Now, the government plans to enact further change with a new tax policy.

44,000 solar rooftop panels, previously exempt from business taxes, will now face a wall of expenses as the government finally takes its share of profits. This does not bode well for the UK’s solar industry, which seems to be extremely sensitive to governmental policy changes – when subsidies were cut last year, the industry lost 12,000 jobs and growth fell 85 percent.

The solar industry, of course, is outraged by the direction the government is moving. Many are claiming these taxes will undermine all the progress the government has sought after for so long in the renewable energy sphere.

The plans released by the Treasury aren’t just antagonizing lobbyists, however. The Environmental Audit Committee (EAC), part of the British government, announced its own distaste for the new tax increases, citing that the plan prioritizes reducing power bills for individuals as opposed to environmental concerns. The attacks levied by the EAC may not hold, however – the Treasury is supposed to deal with cost saving efforts, not environmental policy.

The tax hikes, some exceeding 800 percent, are affecting public education, as many public schools utilize photovoltaic solar panels. These are issues that register with individuals more than “environmental concerns.” It is hard to care about global warming when your child’s education is at risk. This brings into focus an even larger question: can countries like the UK and the U.S. continue their renewable energy efforts without the support of their people? Related: Why Carl Icahn and Valero Are Pushing For Biofuels Changes in Washington

These developments could also provide insight into how much government interaction in the market is enough. Clearly, some is necessary to allow green, renewable energy companies to grow sufficiently. But too much government involvement renders the services too costly for average consumers in the first place. The Climate Change Act of 2008, for instance, will cost the average UK household nearly $14,000 by 2021. That cost is incurred as the result of one single bill.

According to estimates from the UK Department of Energy and Climate Change, the ending of solar subsidies saves the government anywhere from $57 million to $142 million by 2021. But these cuts are overwhelmingly insignificant given the projected growth of total green energy subsidies, which are estimated to increase from $2.8 billion to $10.8 billion by 2021. $10.8 billion is more than 10 percent of the UK’s 2016 budget deficit ($92 billion) – this is no insignificant amount of money.

And the cost concerns of the Treasury are not unfounded. The UK pays 54 percent more for electricity than Americans do. The Conservative Party has been boasting for years that green energy subsidies will be cut with the aim being protecting consumers. It seems the time has come.

Roughly 7 percent of British energy bills are the result of green energy subsidies, which regularly end up costing more than anticipated. Individual households are being hurt by these moves, with polling data showing that household budgets are making cuts in areas like food consumption to afford their energy bills. But the problems are more than merely residential. International companies are threatening to leave the UK due to the astonishingly high prices of electricity. These policies are putting the UK job market and economy in danger.

By Michael McDonald of Oilprice.com

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Leave a comment
  • Mchentrp on March 16 2017 said:
    Any business plan that relies on government subsidies for success is a bad plan.
  • Captain Chaos on March 16 2017 said:
    So "alternative energy" falls flat when people have to play by the same rules and pay the same costs as others. I'm wearing my surprised face. Super cereal.
  • D Pratt on March 17 2017 said:
    1. Solar has not been “comfortably” subsidised, having been subject to rapid and drastic cuts leaving it in a boom and bust cycle.
    2. FiT payments continue just at a reduced rate and the ROC scheme that supports ground-mounted solar farms ends on 31 March 2017. So the subsidies did not stop last year.
    3. “…further change with a new tax policy” – this is a revaluation of the business rates scheme carried out by the Valuation Office Agency, an independent body of government under the auspices of HMRC, every five years.
    4. 44,000 solar installations, not solar panels
    5. Business rates are payable to councils which will “takes[their] share of the profits”, not central government as suggested.
    6. “these taxes will undermine all the progress” / “distaste for the new tax increases” – Again, not a tax.
    7. Solar ranks as one of the most strongly and consistently supported generation technologies according to the UK government’s own surveys, far higher than nuclear and fracking. Better question would be can countries like the UK continue to cut renewable energy efforts without the support of their people?
    8. The UK government and its climate watchdog the Committee on Climate Change (CCC) estimate the Climate Change Act will cost the average UK household £100 in 2020 and £200 in 2030 but largely offset by increased energy efficiency measures.
    9. Typical UK household energy bills are £115 less per year in 2016 than in 2008 while carbon emissions have fallen by 28%. Increasing policy costs will be offset by energy efficiency (saved around £290 per year since 2008), reduced energy demand and efficiencies in the UK energy system.
    10. Business energy costs are due to higher UK wholesale and network costs while energy intensive companies receive their money back for cash spent on climate policy.
    11. The UK low-carbon economy already makes up 2-3% of GDP and employs hundreds of thousands of people. Its direct contribution to the economy is the same as the oil, gas and coal extraction sectors put together (as stated by the CCC).
  • Bill Simpson on March 28 2017 said:
    That far north, you would think wind would be the way to go, along with nuclear. Solar might be OK during the summer, but during the winter you freeze, since it is dark too long.

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