Whilst the UK government has proudly touted its ambitious clean energy plans, the tough economic and political headwinds caused by the pandemic and an increasingly unstable energy market are already posing a threat to their viability.
The constant drip of nuclear power plant closures in the UK, without adequate replacements, means British consumers are particularly susceptible to the unintended consequences of this perfect storm. Now with a cost of living crisis upon us, existing Net Zero orthodoxy – that higher taxes and subsidy dependencies are the right approaches – requires revision.
If the transition to renewables is ever to become a self-sustaining one, it must be grounded in the understanding that government is not the key – market forces are. There is no better renewable energy source in the UK for this approach than solar power, which made up just 6.2% of the UK’s 35.9% share of electricity generated from renewables last year according to the Department for Business, Energy and Industrial Strategy.
Pulling the right levers
As the CEO of Otovo, Europe’s leading marketplace for residential solar installations, I have seen first-hand how the market for consumer solar can flourish in the absence of inhibitive taxes and under-funded subsidised initiatives.
Whereas consumers often defer their installations when subsidies expire, leading to much lower adoption rates, meaningful tax reductions do not have the same effect. Take Sweden, which had a notoriously underfunded subsidy scheme from 2015 to 2020 but recently replaced it with a 12% tax credit that made 2021 their strongest year in solar yet, despite the pandemic.
And with market-driven growth in demand for installations come the efficiencies required to make the renewable market a sustainable one. The cost of solar installations in the seven European markets in which we operate has now halved in the last five years alone, with greater competition amongst installers, combined with reduced hardware costs, resulting in cost reductions of 10% year on year. And this has not come at the expense of installers, who continue to see their marketing costs fall and their labour supply increase.
Across Europe, it is becoming clear that cumbersome subsidies and high taxes are not the effective levers for progress that many assumed they were. With VAT on solar installations in the UK still at 5%, eliminating this would save consumers £300 – assuming the average installation costs are £6000 – whilst cutting the payback times by 1-2 years, meaning these investments will be repaid in just 6-8 years.
Additionally, every UK home with a solar system on its roof will reduce by half the amount of energy it draws from the grid for the next 30 years. For consumers sensitive to savings and wary of their increased susceptibility to rising energy prices, such an offering from the UK government would be a no-brainer.
Limitations of solar? Yes – but not for long.
This is not to say, however, that eliminating subsidies and cutting taxes is a panacea for renewable energy. Solar battery and storage systems are on the cusp of a breakthrough – the technology is developing at an encouraging pace – but better, more advanced, systems are required to push the sector forward.
But whilst solar alone is not a silver bullet, particularly in the short run, it can certainly be a building block towards real progress.
If the Government can drive rising demand for installations, we will begin to see advances in the sector that will change consumer energy markets as we know them.
Enhanced battery and storage systems will also reduce concerns about the lack of winter light in the UK, as effective batteries store energy round the clock. In the long run, interconnected grids between Northern and southern European countries will also help to mitigate against seasonal changes and potential congestion charging.
For consumers, solar installations will present them with new opportunities to become more energy independent, such as using smart meters and devices that work in tandem with their solar installations. Households in the same building will also be able to share their costs of energy consumption (virtual sharing), thus accelerating decarbonisation through solar electrification.
Getting ahead now
These advances will become even more crucial as the UK presses ahead with its electric vehicle (EV) transition, and mass consumer solar is central to that process. Cutting taxes now is not just economically smart, but politically too.
A single Tesla charge is equivalent to a week’s energy consumption for an average household – as consumers transition to EVs, comprehensive residential solar systems will be critical to alleviating astronomical prices and an unseen demand for electricity that would place the UK’s national grid under severe pressure.
If the Government is willing to change course by eliminating subsidies and cutting taxes on solar now, the UK will be one step closer to realising its ambitions.
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