Sunnier times ahead for solar energy as MPs back tariff boost for photovoltaic power

Ashley Seager

guardian.co.uk, Monday 15 June 2009 15.23 BST

British market could boom with introduction of guaranteed, above-market price for electricity fed into grid

Britain could become a booming market for solar power from next year when the UK introduces a support system used successfully by dozens of other countries.

Last week 240 MPs signed a parliamentary motion supporting the mass rollout of solar photovoltaic (PV) power. The support was the biggest of any such motion introduced in this parliament.

Colin Challen MP, who tabled the motion, said: "There is an enormous opportunity to drive forward this technology through the forthcoming feed-in tariffs."

Feed-in tariffs (FITs) work by paying a guaranteed, above-market price for any electricity fed into the grid for a period of 20-25 years. They have been designed to offer returns close to 10%, thereby reducing payback times for any household investing in a PV system to 10 years or less.

Similar tariffs have boosted solar power in the 50-odd countries that have introduced them in the past decade, in turn promoting production of PV panels and pushing down prices to the extent that PV will not need subsidies for much longer.

"FITs have been very effective at improving take-up," Kenichiro Wakisaka, senior manager at the Japanese electronics group and PV maker Sanyo, said at the recent Intersolar trade fair in Munich. " Japan has reintroduced one and the market there will double at least. The same will happen in the UK and we will increase our allocation to the UK market."

"We are very excited about this," said Clive Collison, head of Action South Facing, a solar system installer based in Hertfordshire. "We are now getting all sorts of inquiries from companies, local authorites and individuals. But nothing is guaranteed. We don't know the level it will be set at yet and the big energy companies are still lobbying against it."

Jerermy Leggett, chairman of the British solar group Solar Century, says the British market has tremendous potential but is also concerned that some officials at the Department for Energy and Climate Change may stall the introduction of the FIT at the behest of groups arguing that nuclear power is the answer.

"If so, UK plc will essentially have to sit and watch as other countries create jobs, tax income and energy security in one of the fastest-growing industries within the emerging green industrial revolution."

The British market, along with those of China , Japan and the United States , which have also recently announced plans for feed-in tariffs and other forms of support, offers a bright future for the solar industry. After several years of meteoric growth, it has been laid low this year by the credit crunch and a change to Spain 's feed-in tariff that has reduced demand in one of the world's fastest-growing markets.

The global financial crisis has hit the industry hard because its costs are high and it has had trouble accessing bank financing. This has forced companies to rein in production and cut their prices in a bid to maintain their growth.

At the same time the supply of silicon, from which PV panels are made, has finally caught up with, and overtaken, demand, giving another nudge down to prices – to the benefit of consumers.

"Prices to end-users are down about 16% this year," says Georg Salvamoser, head of the German solar industry association, BSW. "This is hard for firms' margins but it does move us an important step towards making solar energy cheaper."

He predicts that the number of projects installed in Germany – Europe 's biggest market – will grow this year, although more slowly than in recent years. "Last year we installed 1.5 gigawatts peak [GWp] of PV in Germany and this year I think there will be slightly more," he said.

That total is equivalent to the power produced from about two conventional coal or gas power stations. PV in Germany accounts for about 1% of total electricity production but the country hopes to boost that to 12% by 2020 and 25% by 2030.

Stefan Dietrich, spokesman for Q-Cells – the world's largest producer of silicon PV cells – said prices had tumbled 20% this year. "Things have changed a lot. It's a buyer's market right now. But in the short term that is good because it will help the industry reach grid parity."

"Grid parity" – the point at which PV electricity is as cheap as that coming from conventional power stations – is the PV industry's holy grail. It depends on how sunny a country is and the cost of its electricity.

Dietrich thinks Italy will be the first country in Europe to hit grid parity – possibly as soon as next year. Other candidates are Hawaii and California , where grid electricity is expensive. Many other countries, including Britain , will achieve parity within three to five years, say experts.

Once that happens, demand is potentially infinite. Solar PV also has the advantage that, once installed, the buyer is protected from rising oil and gas prices for several decades.

Industry analysts iSuppli forecast in a recent report that worldwide PV installation would tumble by a third this year to about 3.5GWp. But it expects growth to explode again from 2011, reaching 25GWp annually by 2013 and giving the industry an annual turnover of nearly $100bn.

But Jerry Stokes, vice-president for strategy at Chinese group Suntech – the world's biggest maker of PV panels – says life has got tougher.

"The market is very challenging now and there is a flight to quality going on," he says. "Project developers and investors are very cautious about what they spend their money on.

"It's not just about cost per watt but the number of kilowatt-hours you will get over the lifetime of a project, 20 years and more. And we are confident that we are in front in the race to grid parity – we don't want to live off government subsidies any more."