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The View | Subsidy cuts don't spell the end for solar

Solar future

Greens lambasted prime minister David Cameron for slashing solar subsidies after he hailed the breakthrough agreement on global carbon emissions signed at the COP 21 climate negotiations in Paris last December. 

Renewable energy is a political battleground, and surrounded by a complex subsidy landscape whose purpose has been poorly communicated. Recent cuts in subsidies have attracted the inevitable press accusations that the government is anti-green. But will the subsidy reduction really kibosh the development of solar?

What’s really happening here?

Firstly, why subsidise renewable energy? There are two arguments: to support the high costs of developing and deploying new technologies (although the same arguments are rarely deployed in other markets such as mobile); and to correct a market failure around the societal and environmental value of avoiding greenhouse gas emissions. The subsidy comes from electricity consumers, so everyone (including the poor) pays for them through their bills.

It’s important to set the subsidies high enough to trigger development and deployment, but not so high as either to over-reward the industry or over-burden poor consumers.

Globally, solar PV costs have been falling dramatically as manufacturing has scaled up (notably in China), and government has reacted to this by a series of step-downs in the tariff.

If the tariff is stepped down too far or too soon the result is a period when new installations are uneconomic. This creates discontinuity in orders for the installer market, although continuing manufacturing cost reductions resulting from technical advances and efficiencies of increased production scale will cause the situation to recover over time. The fact is the transition is painful and impacts confidence, but is unavoidable: it’s almost impossible to get the balance between subsidy, market costs and customer revenue exactly right.

Politics is hard to avoid and things get even more complicated when one looks at the whole electricity system. Solar energy makes a contribution by being a locally applied technology that could reduce electrical losses and create consumer engagement, if combined with other technologies such as storage and the smart home increase resilience. However solar generation in the UK is hard to predict because of our weather and it is supplied during the day when demand is lowest. Existing generators have to contend with continually varying loads, which bring operating challenges and impose system reinforcement requirements, all of which incur costs.

In the longer term we can expect to see much more integration of solar into the home, and quite possibly major changes to the home energy ecosystem through electric vehicles, more use of electricity in heating and other, as-yet unidentified, disruptive technologies.

The possibilities are hard to predict. It would be foolish to bet against an ever growing role for solar, which will survive the latest subsidy cuts as it has done previous step-downs.

What we do need is an open and honest discussion of all its costs and benefits. And this is another topic where engineers need to engage with the world outside engineering.

  • Simon Harrison is group strategic development manager for Mott MacDonald

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