Solar Plan C

Simon Bullock

24 June 2011

Economics expert Robert Skidelsky wrote this week that Britain's economic recovery needs a "plan C". He argued that the UK economy is likely to stagnate and Mr Osborne's most likely candidate for a plan B - another dose of quantitative easing - is unlikely to work "if the public is not in a spending mood".

He argues instead for a National Investment Bank for infrastructure projects and that "the Chancellor already possesses the necessary instrument in the green bank, but with a meagre capitalisation of £3 billion and no borrowing power it cannot do any good over the period of the cuts". This part of a Plan C should be done now - bring the Bank's borrowing powers forward, not delay to 2016.

Another element of Plan C would be to encourage new industry to grow. But the Government's recent Feed-in-Tariff review has pushed us firmly in the wrong direction - by slashing tariffs it has put a brick wall in front of the rapidly growing UK solar industry.

Recent research by Ernst and Young shows the folly in this. Solar's costs are falling very rapidly. A scaled-up UK industry would bring costs down further, but this won't happen if the current subsidies are cut so drastically. Solar is predicted not to need any subsidy within a decade  - unlike the nuclear industry which continues to need it after 50 years. 

In this situation, a decent feed-in-tariff now (say at 25 per cent less than 2010 rates, to reflect falling costs, and falling by 10 per cent every year after that so there's no subsidy beyond 2020) will get the industry growing fast, bring costs down, and at minimal costs to consumers - at less than £10 a year total. By comparison, the difference in household energy bills between low and high fossil fuel prices is £600. Green policies are peanuts compared with the effects of high global oil prices on our bills.

With the super-low feed-in-tariffs the Government has announced, our UK solar industry will not start to kick off properly til 2017 or so; we'll be almost 2 decades behind the Germans by then. Or with decent tariffs, the industry will kick off in 2011. The German solar industry employs hundreds of thousands of people. A growing solar industry can be a crucial part of a Plan C. We need the jobs and investment and new businesses now.

It is not too late for the Government to change its feed-in-tariff plans. Greg Barker has indicated the Government may have underestimated solar's potential and David Cameron said this week: ""being strong means recognising that you didn't get everything right in the first place - it's not strength or leadership to be living in fear of being criticised for changing your mind. I don't make any apology for listening to people and wanting to change things. The weak thing to do is to plough on and say 'I can't possibly change'"

So go on - let's have a u-turn on solar: it's the strong thing to do.