The subsidy cuts and the pea under the thimble
Dec 19, 2015
Bishop Hill in Energy: solar

This is a guest post by Phillip Bratby.

Readers will no doubt have seen the apoplexy of Roger Harrabin and others in the media about the cuts in subsidies for rooftop solar power announced by Amber Rudd on 17th December (DECC press release here).  Cuts of 64% (Telegraph, BBC) or 65% (Guardian, Independent, FT) were reported.  The new subsidies (the Feed-in-Tariff scheme which consists of a generation tariff plus an export tariff) were given following a consultation, which had supposedly been proposing cuts of 87%.

However, examination of the facts shows that the above figures are incorrect.  All the relevant data are in the consultation document and in the Government response to the consultation.  The existing generation tariff for small rooftop schemes (<4kW) for January 2016 is 12.47p/kWh, the proposed consultation generation tariff was 1.63p/kWh and the final generation tariff (after the consultation) will be 4.39p/kWh.  From these figures it can be seen that proposed reduction in generation tariff was (1-1.63/12.47)×100 = 87% and the final reduction in generation tariff is (1-4.39/12.47)×100=64.8%.  However the generation tariff is only part of the subsidy, because there is also the export tariff.  This is given by Ofgem as 4.85p/kWh and is unchanged following the consultation (quote from Government response to the consultation "Government does not propose introducing changes to the FITs scheme in relation to the export tariff").  Thus the true reduction in subsidy if all the electricity is exported is (1 - (4.39+4.85)/12.47+4.85)x100 = 46.7%.

In fact, the reduction in subsidies would, in reality, be even less, because for every kWh (unit) of electricity that the owner uses, rather than exports, he will only be paid the generation tariff but would consume one fewer unit for which he would have had to pay his supplier about 14.05p (Energy Saving Trust figure).  Thus his generation and use of 1kWh would save him 4.39+14.05 = 18.44p compared to the current figure of 12.47+14.05 = 26.52p.  Thus the reduction is (1-18.44/26.52)×100 = 30%.

So none of the media outlets has fully examined the issue of the Feed-in-Tariff subsidy and the changes and none has given the true picture, which is a reduction of between 30% and 47%, not 64% or 65%.

Also it should be noted that there are subsidies all the way up to solar farms of 5MW.  These have also been cut and the tariff bands have been simplified.  There is no mention of these in the media.  One wonders why?

Furthermore there have been cuts to the subsidies for wind and hydro.  There is no mention of these in the media.  One wonders why?

Roger Harrabin gave Friends of the Earth free rein to give out the lies "It's outrageous that the government continues to hand out billions of pounds in subsidies every year to climate-wrecking fossil fuels".  The Government is quite clear in the consultation response that "There are a wide range of definitions of what constitutes a fossil fuel subsidy. The UK, like the EU and the IEA, excludes tax treatment from its definition of what is meant by a fossil fuel subsidy, using international market price as a benchmark. The UK therefore has no fossil fuel subsidies".  Obviously Friends of the Earth did not read the consultation document before commenting to the BBC.  One can reasonably assume that none of the correspondents read the consultation document or understood it.  This comes as no surprise!

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