 By Allan Hainey, Renewable Energy Underwriter, NFU Mutual
Using the power of the sun to grow crops is the basis of agriculture, so it’s not surprising that farmers are proving keen to invest in renewable energy schemes like photovoltaic solar panel arrays and wind turbines.
Renewable energy bears other similarities to farming: a high initial investment is required to set up the business and it is likely to take several years for the returns to cover the initial expenditure. Success is also highly dependent on matching the characteristics of the location’s climate to the appropriate renewables installation.
State set guaranteed Feed-in Tariff (FiTs) payments – generous fixed payments for generation of electricity by renewable means – were the initial driver for a take-off in interest in this area.
From the introduction of FiTs in April 2010 there were 2,765 eligible installations in the first quarter, with 8,577 in the next quarter. The bulk of this growth was in the area of solar with this making up 97.6% of first quarter installations in 2010 and 91.2% of those in the second quarter.
As the growth in solar power in the UK coincided with technology improvements and reductions in the cost of panels demand increased beyond the expectations of the government.
In fact, the massive uptake of FiTs for solar schemes quickly outstripped planned funding for the scheme and in November 2010. The government announced a cap of £340m for FiTs payments in 2014 and 2015 and reduced payments for larger solar installations.
Cuts of over 70% to the largest solar developments were suddenly announced in June 2011, to take effect 2 months later. This didn’t curtail demand for FiTs installations during the third quarter after this change was announced – in fact, it more than double the second quarter with solar making up 97% of all total installations, and 83% of electrical generating capacity.
Further reductions in FiTs payments were announced in Oct 2011 with the intention of it coming into effect in December 2011. This resulted in successful legal action by supplier companies – which is currently being appealed by the government.
Regardless of the results of the appeal in February this year a new set of lower tariffs was introduced to come into effect from 1 April. Although guaranteed tariffs have been restricted and reduced for some schemes, new entrants still see attractive long-term prospects from renewables as fossil fuel prices continue rising.
There is still a great deal of uncertainty over the place of renewables in the UK energy mix, and over future governmental attitudes and incentives. We wait to see what the effect of the recent government changes to the FiTs scheme will have on the industry, though at present it doesn’t appear that the growth of this renewables trend has been damaged as badly as that of other countries.
In the Czech Republic and Spain for example changes to FiTs caused a sudden and dramatic collapse in renewables installations. The Czech Republic saw a 17 fold increase in solar installations between 2007 and 2009, with 400MW of capacity installed in 2009. By 2011 this had dropped to 10Mw as government support was removed. Spain saw a similar trend in 2009.
The growth in renewables has prompted changes in other businesses and industries too, while the attractive pre-December 2011 solar FiTs led to a huge growth in solar panel suppliers and installer. From just over 100 MCS approved installers in July 2009 by March 2011 there were 1,600, with a similar rise in unqualified and less reputable installers. Today there are over 4,600 qualified and approved installers.
Related areas also saw changes too, with an increase in demand for insurance protection for the whole range of renewable technologies. In response, a number of insurers now offer a range of material damage, loss of income and liability cover for common renewables. NFU Mutual launched its range in spring 2011, together with optional risk management surveys.
This is particularly important for large installations where consulting a specialist insurer and risk management provider on issues including positioning, construction and operation can help minimise risks.
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