Feed-in frenzy

In 2009 the last government introduced "feed-in tariffs" – based on a German model – to boost domestic uptake of solar PV. They were quite controversial from the start – with passionate support from the green lobby but some dissenters – even Guardian columnist George Monbiot who pointed out last year that the very generous tariffs represented a substantial transfer from capital rich electricity consumers who could afford to install solar PV and poor customers – who provided the cross-subsidy. What was interesting was the impact assessment – which showed that the government chose an option with a negative net present value (ie cost to the economy) of £ 8.7bn and a massive implied cost of carbon of £ 460t/CO2. Roll forward two years. Things have changed. Rates of return elsewhere in the economy have plummeted. The costs of solar PV have fallen. The tariffs which were supposed to offer a 5% tax free return (not many other investments are offering that) are now much higher. And there is now such demand (for what is being marketed as the best savings product on the market) that the element of public spending is in danger of being exhausted in one year rather than over the CSR period. So the government instituted a review and is now proposing to halve the feed-in tariff – to stretch the budget further to get more solar for the same money. The government may not have done this smartly. The change is due to take effect before the consultation ends – which suggests this may be one of the more meaningless consultations. The change of direction may be being implemented too quickly and catch out some people who had legitimately started to spend money in the expectation that they would be able to benefit from the high current rate. But neither of these points should detract from the more fundamental point: in an area of policy innovation it makes sense for government to be able to react swiftly to feedback – as we proposed in our report Making Policy Better – to make adjustments to protect the taxpayer – and not be pilloried for it.  If we can achieve the same results at less cost, that should be welcomed rather than denounced. Of course, the burden should now be on government to see what happens in relation to its new tariffs, assuming it is still willing to bear the very significant continuing resource cost – and be prepared to act again – in either direction, to meet its objectives. But there is a downside for people who invested in solar production capacity on the assumption that the bonanza would go on forever. That underlines two things. First, policies which offer such a poor return should be questioned more intensively before they are implemented, because they are inherently unsustainable. And second that, even from government, offers that look too good to be true are unlikely to last.