We’ve all been very busy for the last 2 weeks. We’re going to be very busy for the next 4 weeks. After that? Who knows.
Too much to say. Too little time, and too confused to be honest.
So what’s going on?
Any homeowner who has been thinking of Solar PV has gone for it!
Every installer is flat out (bittersweet swans and songs come to mind)
The distributor’s have run out of panels, inverters, mounting kit and others odds and sods. There systems (computer and human) are breaking down, unable to cope with the demand, confusion and chaos.
We all followed the governments plans for PV – a schema of ‘degression’ – showing how the FiT rate for new applicants (not for those who had already installed) would drop each year. This showed how in April 2012 the rate would drop from 41.3p (index-link had already raised to 43.3p in the interim) to 37.8p. Follow the <4kw PV Retrofit row on the table below to see how we were told it would drop – on 31 March 2019 it would drop to 21.9p and below the year after in 2020. Seemed to make sense and be well thought out.
So what has happenned?
UK entrepreneurs got busy. There has been a huge growth in registered installers over the last 18 months. Registered installers? What are they? Well, the government in its wisdom set up the MCS certification scheme to protect homeowners from cowboy builders and the like. Unfortunately the spec wasn’t great – ISO 9000 across your whole start-up business, while the inspectors have little understanding of what really makes a good install. So, £000s of upfront commitment – but still we came, spurred on by the government’s detailed 10 year degression rates and the UK’s obvious desire to climb up the renewable energy ladder (from ’2nd to last’ place!).
This has been the single biggest factor to drive down the price of installs. Competition – loads of it. For the last 9 months, we haven’t quoted for a job without at least 3 other quotes going head-to-head with us. 3 has been easy. Many opportunities have seen us up against 8 or more competing quotes. Not just a ‘back of a fag packet’ quote you understand. Full MCS qualifying survey, quotation, proposal, projections, Ts&Cs, Cancellation form. Maybe 2 physical visits (luckily none for us, but for most…) and 3-4 hours of paperwork. Then maybe re-quoting 2 or 3 times as you are told that to stay in the game you need to get cheaper, and the quotes are passed from one supplier to the next. Think about it. Let’s say 6 competing companies for each opportunity. Maybe 50% actually decide to go ahead? So an average strike rate of 1 in 12. Cost of sale? Quite high really….
So we all cut our prices. Again and again. For each job. I think most installers have been running below cost for the last 9 months or so. In other words, the £1500 or so of gross margin that may appear to exist on an average job, will really have been eaten up all too easily in all the failed sales opportunities.
And the equipment price drops as well of course. Well not significant until about 6 months ago, when large influxes of Chinese panels has forced all panel manufacturers to drop their prices a few times. So how much down? Well maybe about 10-20%. What about the halfing of the price of wholesale panels in China as heralded by the press? By the time a 50% price drop has been moved round the world, the end-user price drop is more like 15%. Thats just the reality.
We have experienced an average 4kWp system drop from about £14k down as low as £9.5k – but only where Chinese panels are used on a bungalow…with curvy pantiles…and no roof obstructions… So significant drops, but largely fueled by hyper-competition, not hyper-demand.
My view is that the market has not been sustainable for quite a while now. I think prices have been set to rise (or at least not drop further) in the near future, as some installers decide that the hassle just isn’t worth it for low margins. Maybe a correct price for a 4kWp system would have settled at around £11,000 to £14,000, dependent on roof structure and choice of panels. So cheaper than when the government set the FiT rates – but not as low as some may believe (albeit many of the press still seem to quote £12,500 for a 2.5 kWp system!).
So, the price has dropped a significant amount. Volume of installs is high (twice expected? don’t have these stats? do they exist?). It seems fair enough to bring forward the ‘degression’ rate – i.e. to maybe jump a few years. We expected 20-30% reduction in April 2012.
But the reality has been a shock. Not what we expected at all, seeming to be counter to common sense. Credibility and trust destroyed. The industry back on its heels. With a massive ‘energy gap’ still forecast as the highly inefficient centralized power-generating industry fails to rise to the challenge (or be fit-for-purpose).
Are we planning to give up – 21p too low?
No, of course not!
We are well placed, with a model that can deal with difficult times. The extreme competition makes the market unpleasant – we should be back now to homeowners interested more in their environmental impact, with plans to use as much of their own power as possible. Much will depend on how our industry responds. Will many stop? Will prices go even lower? I’m not sure, but maybe over 6 months it will stabilize so that good quality installers can make a decent living.
Maybe the 21p will rise again? If the PV growth stalls and the economy improves (if ever!), it may.
But it does seem to have been the most dreadful knee-jerk reaction – opportunistic perhaps. I can’t help feeling that a combination of the economy, pressure from the electricity companies (for all sorts of reasons), and stories about ‘cowboy’ installations, have just made it too easy for the Conservative administration. Get out. Everyone will understand, the market was out-of–control, wasn’t it?
But surely they should have allowed time for the industry to adapt. Surely the period to April, before a cut to 32p, and then down to 21p over another 2 years would have been significant and effective in slowing demand, while not crushing the industry completely?
Miles Brignall’s Guardian article in the Saturday 12th Nov edition seems to be well balanced – with even most comments at the bottom being sympathetic and aghast – with little of the venom sometimes directed at the PV industry. He does make one very good and significant point: the energy saving measures that will be required by April 2012 to even qualify for the 21p.
I quote directly:
Perhaps the biggest change, and the one that has attracted the least publicity, is the plan to make the payment of Fits dependent on other energy efficiency measures. Ministers have indicated they want only homes that have an energy performance certificate rating of C or better, ruling out many homes, as it will be prohibitively expensive. Most pre-1919 homes require the installation of some or all of the following measures: loft insulation, cavity wall insulation, heating controls, hot water cylinder insulation, replacement boiler and solid wall insulation – at a typical cost of £5,600.
Critics say that for the hardest-to-heat houses, solar PV is a practical way of reducing carbon emissions, and probably much less disruptive than solid wall insulation.
This is concerning.
Why some may ask? Of course houses should stop energy pouring out of doors, windows and roofs before being subsidized to install PV?
No.
We need to do it all. As fast as possible. Generate your own. Use less. This is the future. Not the sad and out-dated world of the big 6 and their powerful lobby.
How could the Conservatives have been turned over so easily?
Back to the future.
Patrick,
I enjoyed your post and like many others are just as frustrated as you. To be as balanced as possible to be fair to the Con/Lib coalition the cuts will hopefully drive out the cowboys and those in it just for the money. I say should because they didn’t do a very good job with many of the other industries that were highly “cowboyised” such as much of the home services industry and injury claims are a couple that spring to mind.
I really don’t see how they expect most householders to reach a ‘C’ energy rating when most people have no idea about energy efficiency or have the funds to make these changes. I have nearly 500mm of loft insulation, cavity wall insulation, double glazing and in a 60′s semi still far off reaching a ‘C’ rating.
I have been a proponent of renewable technologies since visiting the Centre for Alternative Technologies in the early 90′s. I am a Green Party member and even have costly LED light bulbs fitted. I am however in the minority.
When the government announced its plans with the FIT scheme I thought great, change at last I watched and waited but even though the scheme had launched the government were being a little shy in actually telling people the scheme existed, no-one I knew had even heard of FIT’s. It was at that point I thought I’d give the government a much needed hand in publicising the scheme by setting up a site about it.
Fast forward to today an a quick poll of the public suggests that everyone seems to think that the FIT scheme is actually dead rather than just cut. The public are interpreting the message that solar is not longer being subsidised.
I think the problem in the UK is that we do not plan ahead. For example the houses being built now are more energy efficient than those built in the 1900′s but are not being built with the future in mind. Houses can last a lifetime, will new homes be fit for purpose in 10, 20 or 50 years time. It is a lot more expensive to retrofit than it is to build it in from the start.
There just doesn’t seem to be an cohesive plan, or as they like to say, joined up thinking.
Allan
Hi Patrick,
I thought I would allow a short time before posting a comment. I hoped that I might have cooled down by now ! Not a chance ! Your quotes, correspondence, advice, survey, preparation, organization and installation were absolutely superb. The end result has exceeded all expectations. My power supplier have now completed their administrative duties and the FIT tariff is fixed for the next 25 years. The whole procedure was impressively orchestrated. I appreciate the amount of effort and planning that it took to make such an event look straightforward !
I was absolutely horrified when the so called green ‘government’ moved the goalposts at such short notice. Such short term decisions will come back to haunt them at the election box. I would not have considered installing PV panels at the new proposed rate.
I hope that you can continue with your excellent installations,
Alwyn