The aggressive feed-in tariff (FIT) reductions scheduled for photovotaics under changes introduced this year and the proposed reductions in Renewable Obligation Certificate (Roc) entitlement under the banding review to take effect in April 2013 (see box) were based on anticipated reductions in technology costs. These expectations of lower costs emerged from expert evidence.
A report by Parsons Brinckerhoff informed both the FIT and Roc reviews. It predicted cost reductions ranging from 0-20 per cent between April 2012 and March 2013, with a medium case of 10 per cent; and further falls of 5-20 per cent in the year to March 2014, again with a medium case of 10 per cent. However, Parsons Brinckerhoff felt that module prices were unlikely to continue to fall at the same pace as in the previous two years, due to the financial difficulties some manufacturers were experiencing, and that this was likely to lead to a stabilisation of prices. Therefore, price reductions would be likely to be due to other components such as inverters.
However, the EU has now started an anti-dumping investigation into Chinese solar panel suppliers. A company is dumping if it is exporting a product to the EU at prices lower than the normal value of the product on its own domestic market. If dumping is proved, anti-dumping measures can be imposed on imports of the product concerned. These measures usually take the form of a duty imposed on the importer in the EU. A key question, therefore, is whether the assumption made by the Department of Energy and Climate Change (Decc) of continuing cost reductions is likely to be rendered false by the outcome of the EU’s anti-dumping investigation.
The investigation started in September 2012 and is expected to take 15 months. Provisional duties may be lodged after nine months. It is too early to predict what the final outcome will be, but the imposition of significant levels of duty is clearly a serious possibility.
The impact of anti-dumping duties, if levied, on the cost base for solar installations is difficult to determine. As Parsons Brinckerhoff noted, module prices are likely to stabilise in any event due to structural changes in the manufacturing industry, and reductions in overall prices are more likely to be due to price changes for other equipment.
Costs will also be affected by demand patterns. Global demand, currently around 30GW, is predicted to increase to 60GW by 2016, with the growth predominantly coming from non-European countries. With global demand patterns changing, it is becoming increasingly difficult for European governments to predict cost movements.
The impact of anti-dumping duties being imposed is likely to be only one of a number of issues affecting the industry for the rest of the decade. The safest prediction, then, is that policymakers, trying to adapt subsidy levels to match cost levels to avoid future “gold rushes” and the negative headlines that go with them, will be increasingly at the mercy of events outside their control.
Neil Budd is a solicitor at SGH Martineau LLP, specialising in renewable energy.
Timothy Lyons QC practises at 4-5 Gray’s Inn Square and has a broad practice which includes EU anti-dumping duty and EU law
The cuts
FITs: In May 2012, Decc announced its intention to introduce new FIT rates for photovoltaics up to 5MW with a three-monthly tariff degression mechanism. The initial reduction came into effect from 1 August 2012 and saw reductions in all bands, with the sharpest reduction in the domestic installation band (below 4kW), which went down from 21p/kWh to 16p/kWh. Reductions will depend on deployment levels; however, there will be a baseline degression rate of 3.5 per cent every three months, with potential for degression to be skipped for two quarters for underdeployment.
Rocs: Cuts are to start from 1 April 2013, with the initial rate proposed at 1.5 Rocs/MWh and annual reductions of 0.2Rocs/MWh. Industry bodies have been lobbying for a smaller initial reduction with shallower step-downs.
This article first appeared in Utility Week’s print edition of 7th December 2012.
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