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T863 Environmental decision making: a systems approach – Project Report
Name: Andrew Turner
Personal identifier: M4321071
Title of project: FiT for Purpose? Investigating the UK Government's
Domestic Solar PV Feed-in-Tariff Mechanism
Date: April 2011
Number of words: 4391
Andrew Turner M4321071 Page 1 of 43
Table of Contents
1 Summary................................................................................................................................................................ 4
2 Introduction............................................................................................................................................................ 5
2.1 Background....................................................................................................................................................5
2.2 Aim................................................................................................................................................................ 5
2.3 Personal Stake-holding.................................................................................................................................. 6
3 Exploring the existing situation..............................................................................................................................7
3.1 Motivation: underlying interests and values..................................................................................................7
3.2 Scheme Aims................................................................................................................................................. 7
3.3 Stakeholder Analysis..................................................................................................................................... 8
3.4 System of Interest.......................................................................................................................................... 9
3.5 Identifying changes........................................................................................................................................9
3.6 Taking Action...............................................................................................................................................10
3.7 Government evaluation & revision..............................................................................................................10
3.8 Re-evaluation: fitness for purpose............................................................................................................... 11
3.9 Government audit review............................................................................................................................ 13
4 Re-exploring the situation systemically.............................................................................................................. 14
4.1 Stakeholder perspectives and interests........................................................................................................ 15
4.2 Modelling.....................................................................................................................................................17
4.3 Exploring with diagrams............................................................................................................................. 18
5 Developing understanding and formulating interests...........................................................................................21
6 Identifying feasible and desirable changes...........................................................................................................25
6.1 Exploring Changes...................................................................................................................................... 25
6.2 Negotiating outcomes.................................................................................................................................. 25
6.3 Mechanisms in other jurisdictions............................................................................................................... 25
6.4 Feasible and Desirable Changes.................................................................................................................. 26
7 Taking action........................................................................................................................................................ 28
7.1 Limitations...................................................................................................................................................28
Andrew Turner M4321071 Page 2 of 43
7.2 Implementation............................................................................................................................................ 28
7.3 Evaluation and monitoring.......................................................................................................................... 29
8 Critical Appraisal..................................................................................................................................................30
8.1 Framework...................................................................................................................................................30
8.2 Diagramming Techniques............................................................................................................................ 31
9 Conclusions.......................................................................................................................................................... 33
9.1 Existing mechanism.....................................................................................................................................33
9.2 Recommendations....................................................................................................................................... 33
9.3 Limitations...................................................................................................................................................34
10 Acknowledgements........................................................................................................................................... 35
11 References......................................................................................................................................................... 36
12 Glossary..............................................................................................................................................................39
13 Appendices........................................................................................................................................................ 40
13.1 Appendix A – Criticism of government review......................................................................................... 40
13.2 Appendix B – PV installation case study...................................................................................................43
Andrew Turner M4321071 Page 3 of 43
1 Summary
In early 2010 the UK government introduced a scheme to encourage photovoltaic roof panel
installations through a generous tariff paid for the electricity they generate.
It has been a victim of its own success: failing to monitor falling installation prices and rapid
scheme uptake caused costs to rise out of control. A clumsy budgetary cap was introduced.
The government attempted hastily and belatedly to dampen demand by suddenly slashing the tariff
paid and linking eligibility to energy efficiency. This has created boom and bust conditions and
undermined the programme as well as the government's credibility to deliver on its legislative
environmental responsibilities and election promises to be the “greenest government ever”. 1
This report investigates the scheme and discovers it is far from best practice. The government
should consider removing the budgetary cap and inappropriate energy efficiency eligibility linkage
and create an effective, timely system to monitor unit-cost and installations. It should convene a
forum to define and manage a new, open, predictable tariff-setting mechanism with the
collaborative participation of stakeholders such as solar PV industries and NGOs that will allow the
scheme to continue fostering a growing green economy and support its carbon-reduction goals in a
sustainable manner.
[200 words]
1 http://www.number10.gov.uk/news/pms-speech-at-decc/
Andrew Turner M4321071 Page 4 of 43
2 Introduction
2.1 Background
Climate change caused by greenhouse gas emissions is seen by many as the greatest threat to the
planet's biophysical environment2 and so decisions that reduce these are important. This report
investigates one UK example: a government-set tariff which encourages householders to install
solar photovoltaic panels to generate CO2-free electricity. The effectiveness of such schemes
globally has great potential to limit climate-change.
This report focuses on small-scale domestic PV installations (although the scheme itself extends to
other technologies and sectors3).
The scheme take-up from April 2010 was much greater than expected4 and as a result the UK
government suddenly announced in October 2011 drastic tariff rate reductions of around 50% with
almost immediate effect. This has shocked solar PV stakeholders and been the subject of significant
criticism.5
2.2 Aim
This project aims to define an effective and sustainable ongoing tariff price-setting mechanism. The
existing situation will be reviewed and critiqued and then the situation systemically re-explored for
improvements.
The decisions this project aims to make are therefore:
1. Is the current FiT-setting system fit for purpose and if not, to identify its shortcomings
◦ T863 techniques are used to explore and evaluate the existing situation
2. Devising a better mechanism
2 E.g.: US Agriculture Secretary Vilsack: “Climate Change is ‘One of the Greatest Threats Facing Our Planet”, UN global warming conference, Cancun, December 2010
3 Interestingly, solar PV is not one of the key eight C02-saving technologies as defined by the government – see http://www.decc.gov.uk/assets/decc/11/meeting-energy-demand/renewable-energy/2167-uk-renewable-energy-roadmap.pdf, p.14
4 UK NAO FiT Briefing, p. 125 http://www.bbc.co.uk/news/uk-15687873
Andrew Turner M4321071 Page 5 of 43
◦ The T863 framework is used to re-explore systemically; analyse the system of
interest; identify changes; and propose action
2.3 Personal Stake-holding
My personal stake-holding in this project is three-fold:
1. As a part-time domestic solar PV consultant, the FiT is central to the recommendations I
make to clients;
2. As a customer considering installing solar PV on my own roof;
3. As a citizen having a stake in the global biophysical environment.
Andrew Turner M4321071 Page 6 of 43
3 Exploring the existing situation
3.1 Motivation: underlying interests and values
Precautionary Principle
The exact consequences of climate change caused by greenhouse gases are unknown but thought by
experts to be potentially catastrophic6. It is sensible therefore to limit them by adopting the
precautionary principle7.
Initial Review
A spray diagram was used initially to explore what may be wrong with the existing system.
6 E.g.: US Agriculture Secretary Vilsack: “Climate Change is ‘One of the Greatest Threats Facing Our Planet”, UN global warming conference, Cancun, December 2010
7 T863 Book 3, p.78
Andrew Turner M4321071 Page 7 of 43
Figure 1: Spray Diagram : Initial analysis - what's wrong with the Feed-In-Tariff?
Legislation
Under the Climate Change Act 2008, the UK has a legally binding target of reducing greenhouse
gas emissions by 34% by 2020 compared with 1990 levels8. As part of reaching this commitment,
the UK Government's Renewable Energy roadmap9 states that 15% of UK energy demand is to be
met from renewable sources by 2020 and identifies solar PV as providing an important
contribution.10
To facilitate this, the government in April 2010 introduced under the 2008 Energy Act a Feed-In-
Tariff11 that pays for energy generated from installed renewable technology such as solar PV, at a
guaranteed rate index-linked over 25 years. These payments are funded by the energy companies
who recoup these costs through energy bills to all their customers.
3.2 Scheme Aims
DECC defines the motivation for the introduction of the FiT:
“DECC hopes to encourage deployment of additional small-scale (less than
5MW) low-carbon electricity generation...This will allow many people to
invest in small-scale low-carbon electricity, in return for a guaranteed
payment.”12
DECC commissioned an extensive report in June 200913 to recommend a tariff mechanism. The
report defined these aims:
1. Encourage uptake of small-scale solar PV;
2. Reducing C02 emissions;
8 http://www.decc.gov.uk/en/content/cms/legislation/cc_act_08/cc_act_08.aspx 9 http://www.decc.gov.uk/assets/decc/11/meeting-energy-demand/renewable-energy/2167-uk-renewable-energy-roadmap.pdf , p.910 http://www.decc.gov.uk/en/content/cms/meeting_energy/renewable_ener/re_roadmap/re_roadmap.aspx , p.111 Energy Act 2008, Sections 41 and 4312 http://www.decc.gov.uk/en/content/cms/meeting_energy/Renewable_ener/feedin_tariff/feedin_tariff.aspx 13 From Pöyry Energy Consulting and Element Energy: http://www.decc.gov.uk/assets/decc/consultations/renewable%20electricity%20financial
%20incentives/1_20090714182339_e_@@_relateddocelementpoyryfinalreportonqualitativeissuesinfitsdesign.pdf
Andrew Turner M4321071 Page 8 of 43
3. Security of energy supply;
4. Job creation from a green economy.
The tariff analysis was largely undertaken using mathematical modelling based on predicted ROI
sufficiently attractive to encourage uptake by small-scale domestic customers.
3.3 Stakeholder Analysis
The report considered only government and (by proxy) consumer stakeholders as shown in the
systems map14 in Figure 2.
14 T863 Techniques Book, p. 36
Andrew Turner M4321071 Page 9 of 43
Figure 2: Systems Map for DECC FiT decision-making system
3.4 System of Interest
The system of interest in setting the FiT appears to be defined as:
A system to define a tariff so as to encourage small-scale PV and thereby
help meet climate-change and energy supply security requirements and
encourage job creation from a green economy.
This definition will subsequently be used to evaluate subsequently selected actions.
3.5 Identifying changes
The report recommended:
1. A fixed tariff set at a level to attract householders (ROI around 5%);
2. Against setting a capacity cap;
“Capacity caps should be avoided unless set sufficiently high so as not to
artificially constrain uptake...if poorly designed could lead to a boom and
bust scenario as the example of solar PV deployment in Spain.”15
3. Fixing the guaranteed payment period for at least 15 years;
4. Reviewing the tariff every three years, and after the first year initially.
3.6 Taking Action
The DECC received this report and launched the following scheme in April 2010:
• 43.3p / kWh feed-in-tariff (for retro-fit schemes under 4kW);
• fixed for 25 years;
• paid for out of all consumers' energy bills;
• no budgetary cap.
15 http://www.decc.gov.uk/assets/decc/consultations/renewable%20electricity%20financial %20incentives/1_20090714182339_e_@@_relateddocelementpoyryfinalreportonqualitativeissuesinfitsdesign.pdf, p.5
Andrew Turner M4321071 Page 10 of 43
3.7 Government evaluation & revision
Cap Introduced
Despite this, in October 2010 the new UK coalition government introduced a budgetary cap of
£867m for all FiT schemes.16 Almost immediately, commentators warned this cap was being spent
too quickly17 causing industry uncertainty.
However, it was not until October 2011 that the government published Phase I of its review18 and
summarily announced a massive cut in the small-scale domestic PV tariff of around 50% (to
21p/kWh19) effective from 12 Dec 201120 in order to keep tariff spending within the budget cap.
This sudden cut shocked industry and consumer, threatening to jeopardise a successful new
business sector.21 Many industry stakeholders felt this policy change unreasonable and Friends of
the Earth successfully took the government to court22 over its decision, citing a “botched review”23.
The review also linked eligibility for the tariff with the energy efficiency of the home, despite
serious reservations from industry24 and an inability to demonstrate meaningful linkage between this
and the aims of the FiT scheme: it seems that this may simply have been an attempt at dampening
uptake.
3.8 Re-evaluation: fitness for purpose
It was always envisaged that the tariff would taper in value as installation prices fell, but knee-jerk
responses are very unhelpful as John Cridland, director general of the CBI, states:
16 http://www.decc.gov.uk/en/content/cms/news/gb_sol_article/gb_sol_article.aspx 17 http://www.guardian.co.uk/commentisfree/2011/oct/31/britain-solar-energy-unsustainable-foundations (and, curiously given its inaction, reposted
on http://www.decc.gov.uk/en/content/cms/news/gb_sol_article/gb_sol_article.aspx) 18 http://www.decc.gov.uk/en/content/cms/consultations/fits_comp_rev1/fits_comp_rev1.aspx 19 http://www.decc.gov.uk/assets/decc/11/consultation/fits-comp-review-p1/3364-fits-scheme-consultation-doc.pdf , p.1820 Despite the 'consultation' officially running until 23 Dec 201121 “Solar tariff cuts risk jobs”, http://www.bbc.co.uk/news/business-15507750 22 http://www.guardian.co.uk/environment/2011/dec/21/solar-subsidy-cuts-legally-flawed 23 http://www.foe.co.uk/resource/press_releases/solar_fits_victory_21122011.html 24 Which? Magazine, amongst others: http://www.which.co.uk/documents/pdf/review-of-the-feed-in-tariffs-scheme-tariffs-for-solar-pv-which-
response-275825.pdf
Andrew Turner M4321071 Page 11 of 43
"moving the goal posts doesn't just destroy projects and jobs, it creates a
mood of uncertainty that puts off investors... Industry trust and confidence
in the Government has evaporated.".25
Table 1 examines in simple terms (a cut-down 'is-vs-ought' analysis26) whether the scheme has met
its aims as defined in the system definition in Section 3.4 .
It seems not - and this view is reflected in the outcry from consumers, NGOs and the solar industry
(see Appendix A). This is due to failing to take systemically into account stakeholder perspectives
and to implement effective monitoring.
Monitoring
DECC only realised in June 2011 that it could take up to three months for small-scale installations
to be recorded on Ofgem’s central FiTs register27 (see Figure 328) – and even then these data were
not being actioned.
25 http://www.cbi.org.uk/media/1156796/john_cridland_cbi_east_midlands_annual_dinner_speech_101111.pdf 26 T863 Book 3, p.18527 NAO FiT Briefing, p.1128 http://www.decc.gov.uk/assets/decc/11/consultation/fits-comp-review-p1/3364-fits-scheme-consultation-doc.pdf , p.16
Andrew Turner M4321071 Page 12 of 43
Aim Result
Small-scale PV encouraged? Too much so and unsustainably.
Pricing not monitored and adjusted often enough.
Meet climate-change and energy
supply security requirements
Partially, inasmuch as this scheme is able to do so, but this
progress under threat as unpredictable landscape makes uptake
unattractive for future customers.
Encourage job creation from a
green economy.
Knee-jerk changes to tariff and scheme parameters make it
difficult for green businesses to plan, invest and grow a green
economy.
Table 1: Existing scheme meeting its objectives?
This led to the belated, knee-jerk tariff change which shook industry confidence. DECC's approach
was purposive29 with actions dictated by a simple need - to encourage small-scale PV – based on
static, predictive, mathematical models with limited stakeholder involvement.
3.9 Government audit review
The relevant government audit committees commissioned their own report30 which heavily
criticised the management of the FiT system, in particular:
• Insufficient monitoring mechanisms for:
◦ scheme uptake;
◦ installation costs;
◦ budgetary cap depletion.
• Knee-jerk tariff changes risking the fledgeling industry;
• Government failure to consult with industry;
29 T863 Book 3, p.33 & T863 Book 2, p. 7530 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvaud/1605/160502.htm
Andrew Turner M4321071 Page 13 of 43
Figure 3: Under-reported PV installations: actual (MCS) and reported (CFR)
• Criticism of the sudden decision to link home energy efficiency to scheme eligibility, fearing
the cancellation of most future installations from what appears simply to be an unjustifiable
braking mechanism;
A purposeful31 reiterative investigation of the system considering broader stakeholder input is
investigated in the next sections.
31 T863 Book 2, p.74
Andrew Turner M4321071 Page 14 of 43
4 Re-exploring the situation systemically
Stakeholder Analysis
The importance of including multiple stakeholders and their perspectives is key to successful
systemic analysis32. Figure 4 shows a systems map33 which explores stakeholders more completely
than DECC's original analysis (compare Figure 2).
System of Interest
The diagram helps define the system of interest. Each stakeholder relates to the situation by having
a material interest within it and this determines the system boundary. The boundary-setting criteria 34
considered, over several iterations, which are actors, beneficiaries or victims of the tariff-setting
mechanism.
32 T863 Book 2, p.71 (and many others)33 T863 Techniques Book, p.3634 T863 Techniques Book, p.8
Andrew Turner M4321071 Page 15 of 43
Figure 4: Systems map showing the decision-making stakeholders in the FiT system
The sub-systems then indicate the customers, actors and owners35. The customers are domestic solar
PV customers although the Renewables Sector set members are potential 'clients, beneficiaries,
victims'36 and so these are grouped together. The actors lie in the Regulatory Stakeholder sub-
system, which includes not only the government and immediate decision-making support
stakeholders but also NGOs and trade associations who act together to drive the system. The owner
of the system is the government, specifically DECC, which has the authority to set tariff levels.
4.1 Stakeholder perspectives and interests
Government
The UK government's perspective is one of managing the FiT and, latterly, keeping it within the
spending cap37. Stepping back, this cap limitation may be re-assessed, although the government
review declared this “firm and fixed”38.
Its intention is to be “the greenest government ever”39 which indicates encouraging renewable
technologies. However, its “most urgent priority”40 is to tackle the budget deficit and therefore their
bias is to reduce costs in public spending wherever possible. By removing a budget cap - or no
longer considering FiT payments as public expenditure as postulated by the audit review41- these
constraints could be removed.
NGO
The perspective of an NGO, such as FoE, is that of advocate for the regional, national and global
biophysical environment. It supports the increasing use of renewable over fossil-derived energy to
reduce C02 emissions. Its bias tends towards environmental improvement over financial or party
political objectives and in social fairness42.
35 T863 Techniques Book, p.7336 T863 Techniques Book, p.7337 http://cdn.hm-treasury.gov.uk/sr2010_completereport.pdf 38 http://www.hm-treasury.gov.uk/spend_spendingreview_introduction.htm 39 http://www.number10.gov.uk/news/pms-speech-at-decc/ 40 http://www.hm-treasury.gov.uk/psr_reducing_government_deficit.htm 41 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvaud/1605/160506.htm , points 18 & 1942 http://www.foe.co.uk/what_we_do/about_us/friends_earth_values_beliefs.html
Andrew Turner M4321071 Page 16 of 43
It has criticised “the Government’s constant and disastrous tinkering with the feed-in tariff”43 and
urged for “industry certainty and stability and bring back a level of investor confidence.”43
Customer
The perspective of the small-scale PV customer (including myself) is concern for the biophysical
environment, specifically global warming reduction via lower carbon emissions; and/or someone
interested in financial return from solar PV panels on their roof. This is reinforced by my experience
of small-scale domestic customers: see Appendix B – PV installation case study.
Trade Associations
Solar trade associations are generally not-for-profit organisations which represent and promote the
interests of its members and their employees who operate in the solar industry as manufacturers,
installers, consultants, etc. employing around 25,000 people.44 Their bias is towards legislation
which encourages the deployment of renewable technologies and “to grow sustainably solar’s
share of the UK’s energy mix”45. The Solar Trade Association has “serious concerns about the
remaining FIT budget”46, and believes changes mean “the market could be cut 92% next year”47.
Installers and Suppliers
Suppliers want a tariff that makes their product attractive to consumers and a predictable tariff-
setting mechanism to let them plan their business. In response to the government's October 2011
review, Jerry Stokes, President of Suntech Europe, says:
“This very disturbing sudden and massive reduction from previous tariffs
damages attractiveness for investment and sustainable job creation in the
UK... FiT reduction is healthy for the longevity of the market … when well-
planned.”48
43 http://www.foe.co.uk/resource/briefing_notes/eac_green_economy.pdf , p.1144 http://www.r-e-a.net/news/rea-sta-solar-survey-details-industry-distress 45 http://www.solar-trade.org.uk/ 46 http://www.solar-trade.org.uk//media/Solar%20Trade%20Association-%2023%20March%202012.pdf 47 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvaud/1605/1605we05.htm 48 http://www.pv-tech.org/guest_blog/uk_fit_review_we_will_not_be_moved?utm_source=pvtechfeeds&utm_medium=rss&utm_campaign=guest-
blog-rss-feed
Andrew Turner M4321071 Page 17 of 43
Solar PV Consultants
Their perspective (and mine as one) is to encourage a predictable, sustainable domestic renewable
energy environment in which they can advise customers on effective utilisation of solar PV.
Perspective Summary
See also Appendix A for stakeholder responses.
4.2 Modelling
Whilst the drawbacks and uncertainties of purely economic modelling are well documented, there is
no evidence that any stakeholders object to the core principle of setting the FiT based upon a
mathematical model which provides a minimal hurdle ROI above which customers are prepared to
invest.
The drawback with this positivist approach in isolation is its potential trap49 of implying
unwarranted accuracy through the use of numerical techniques which produce precise results but
are based on imprecise or out-of-date data.
49 T863 Book 2, p.58
Andrew Turner M4321071 Page 18 of 43
Stake holder Headline perspective
Government Encourage PV uptake via FiT and boost solar economy within budgets
NGO Encourage PV uptake sustainably & progressively via FiT to reduce C02 emissions
Customer Help environment and get good ROI through FiT
Trade Associations Sustainably grow solar economy through FiT & open, progressive legislation
Installers and Suppliers
Encourage affordable PV via FiT & provide predictable, sustainable business conditions
Solar PV Consultants
Use FiT & open mechanisms to develop sustainable PV business sector & predictable business conditions
Table 2: Summary of stakeholder perspectives
By incorporating assessments of risk and uncertainty into this model50, its likely impact can be
explored more reliably by quantifying the level of subjectivity and uncertainty.51
However, numerical models alone fail to acknowledge the less tangible factors that have a systemic
impact, such as fostering a stable and predictable business landscape. These factors are therefore
explored next to develop understanding and identify changes.
4.3 Exploring with diagrams
The MCD52 in Figure 5 explores the various causes, states and events that influence the FiT level
and the sustainability and viability of the scheme, which are at the system of interest's core. This
was refined into a Sign Graph53 in Figure 6 which focuses on the level factors which affect the
number of new installations.
50 T863 Book 3, p.7451 See Decision Analysis inter alia; Book 3, p. 7752 T863 Techniques Book, pp. 26-2853 T863 Techniques Book, pp. 30-32
Andrew Turner M4321071 Page 19 of 43
Figure 5: Multiple cause diagram showing factors affecting FiT level
Together they indicate the dynamic causal aspects of the system and indicate runaway feedback
loops, such as the number of new installations decreasing average unit cost which in turn increases
new installations. The sign graph explores how this unmonitored increase has led to regulating
feedback via (unexpected) tariff reductions which undermines public trust levels in the scheme and
thus reduces new installations.
These diagrams reveal the significance of the budgetary cap imposed by the government and
suggests that this may not be compatible with an ongoing sustainable mechanism. Indeed, the
original DECC review and best practice overseas54 recommend no cap.
To explore this aspect further, a systems dynamics diagram55 was drawn (Figure 7) to see if the
budget cap worked as a tariff-regulating mechanism. The diagram shows how scheme uptake is
54 See Mechanisms in other jurisdictions55 T863 Techniques Book, p. 33
Andrew Turner M4321071 Page 20 of 43
Figure 6: Sign graph showing cause and effect relationships around number of new domestic solar PV installations within the system of consumers, suppliers and the government FiT scheme.
regulated but struggles to explain how a budgetary cap properly regulates the tariff level.
Andrew Turner M4321071 Page 21 of 43
Figure 7: Figure 2: System dynamics diagram depicting factors affecting Tariff Level and Solar PV Uptake - Tariff Level setting mechanism is not clear with the use of a budgetary cap
5 Developing understanding and formulating interests
Legislation
The legislation which provides the framework for the FiT has been explored in section 3.1 .
Moderating these is the October 2010 Spending Review56 which introduced a budgetary cap for FiT
payments. A fully systemic reappraisal of the situation must reconsider this legislation - although
this may prove unacceptable to the system's owner, the UK government.57
By considering the scheme's aims from the government's perspective (section 3.2 ) and those of the
major stakeholders (Section 4 ) a system of interest is defined which is used to reveal suitable tariff-
setting mechanisms.
Defining the system of interest
The CATWOE mechanism of SSM58 is used here (modified to BATWOVE to identify separately
beneficiaries and victims59) to formulate a root definition of the system of interest60 and then a
conceptual model61 is generated to reveal insights, actions and to compare with the current situation.
The results are shown in Table 3.
56 http://cdn.hm-treasury.gov.uk/sr2010_completereport.pdf 57 http://www.hm-treasury.gov.uk/spend_spendingreview_introduction.htm 58 Soft Systems Methodology (SSM) (Checkland, 1981; Checkland and Scholes, 1990).59 T863 Techniques Book, p. 7460 T863 Techniques Book, pp. 73-7561 T863 Techniques Book, p. 56
Andrew Turner M4321071 Page 22 of 43
Andrew Turner M4321071 Page 23 of 43
BATWOVE Elements
Beneficiary B
Small-scale domestic PV customers; PV manufacturers; PV suppliers and installers; PV consultants
Actors A
Government: DECC (ultimately Secretary of State for Energy & Climate Change, Gregory Barker), the Treasury; NGOs; solar
industry; solar trade associations
Transformation T
1. Unsustainably high total solar PV Feed-In-Tariff costs → Feed-In-Tariff reviewed and adjusted *
2. Uncertain business landscape from inconsistent tariff-setting → landscape made predictable, sustainable
2. Poor public awareness and uptake of domestic renewable technologies → awareness raised
3. Boom and bust domestic renewable energy sector → sector made sustainable, predictable
* The first is taken as the primary transformation and used to generate the system of interest. Were time and report
space available, the others could be considered in depth also and are any event be incorporated later into the
system thinking.
World View W
Within the context of reducing national CO2 emissions and conforming with emissions targets agreed by UK government at
international summits to reduce global warming, the total uptake and therefore cost of the feed-in-Tariff for small-scale solar
PV has been much greater than that originally envisaged and must therefore be reviewed and regulated whilst also maintaining
support for the fledgeling PV industry and individual public engagement in renewable energy as planned in the original
legislation.
Owners O
The UK Government, more specifically DECC and ultimately its minister Gregory Barker.
Victim V
Electricity users (everyone, via their bills which fund the scheme)
Environment E
The UK government regulatory and budgetary framework which controls public spending and the tariff scheme.
Root Definition
A system to review and adjust the small-scale solar PV Feed-in-Tariff by comparing current and originally predicted
costs and assessing the impact of reducing the tariff in order to make the current scheme sustainable and affordable
whilst maintaining public engagement and the fledgeling solar PV industry.
Table 3: BATWOVE analysis
Conceptual Model
Following T863 guidelines62, a number of ordered, imperative actions were derived to generate a
conceptual model63 from the selected root definition above, and checked using BATWOVE.
The model reveals actions missing from the current system of:
• timely collection and monitoring of installation and unit-costs data;
62 T863 Techniques Book, pp. 56-58 & suggestions from T863 Book 2, p. 23663 T863 Techniques Book, p. 56
Andrew Turner M4321071 Page 24 of 43
Figure 8: Conceptual model : unsustainably high total solar PV Feed-In-Tariff costs → Feed-In-Tariff reviewed and adjusted
• informing installers of predicted tariff changes;
• providing open, stable tariff environment.
These changes are required to meet the transformation defined in the root and are explored in the
next section.
Andrew Turner M4321071 Page 25 of 43
6 Identifying feasible and desirable changes
6.1 Exploring Changes
The understanding gained indicates an approach that sets the FiT openly and dynamically whilst
accounting for:
• monitoring uptake and unit costs;
• budgetary cap allowances;
• ongoing input from stakeholders;
• to provide a sustainable, predictable business landscape.
6.2 Negotiating outcomes
Government regulations generated in isolation may fail to account for the interests of stakeholders
whose expertise and action is required to implement them. Failure to negotiate outcomes risks
system failure, as the introduction of the FiT has shown: a generous tariff introduced without broad
stakeholder negotiation and without sufficient ongoing evaluation resulted in a gold-rush for solar
followed within 18 months by a drastic cut which risked the viability of the industry.
Negotiation should be bilateral and open. Various studies have shown the inherent flaws in
traditional positional-based negotiation64 where both sides consider only their interests, and the
benefits of interest-based negotiation where all openly explore everyone's interests and co-
operatively work together to see how both sides' needs can be met.65 The report recommends this
approach.
6.3 Mechanisms in other jurisdictions
It is worth leveraging experience from other countries66. Deutsche Bank produced a detailed report
64 Priscoli, 200365 Susskind et al, 2000; Siddaway, 200566 This is a kind of expert support: see T863 Book 2, p.153 and T863 Book 4, p.121 for its evaluation
Andrew Turner M4321071 Page 26 of 43
of FiT schemes in several other jurisdictions67 and evaluated Germany's highly successful scheme as
best in class. The key successful elements were:
1. Integrated energy and climate policy;
2. Lack of budgetary cap;
3. Periodic, planned tariff monitoring and setting;
4. Transparent, predictable tariff price reduction policy enabling industry to plan.
6.4 Feasible and Desirable Changes
The considerations above suggest:
◦ Utilising social-learning and participation68, the owner, DECC, convene forums to
agree and maintain open mechanisms for monitoring installation costs and uptake
and criteria for setting the tariff to avoid knee-jerk responses and foster predictable
business conditions;
▪ This could involve the use of multi-criteria analysis69 techniques to weight
priorities;
◦ An initial broad consultation would allow for systemic, purposeful decision-making
and have the power to consider systemic changes such as removing the budget cap;
▪ Regular forums would maintain this;
◦ A flexible, transparent numeric model devised collaboratively to set and maintain the
FiT, generated using a spreadsheet or similar utilising variables identified
previously, such as installation cost, hurdle ROI, etc);
▪ Backcasting70 used to reach the desired future uptake levels and keep the
67 http://www.dbcca.com/dbcca/EN/_media/German_FIT_for_PV.pdf 68 T863 Book 3, pp. 118-11969 T863 Techniques Book, pp. 64-6670 T863 Techniques Book, pp. 6-7
Andrew Turner M4321071 Page 27 of 43
scheme sustainable and desirable.
◦ Decision analysis tables are quantitative models which combine outcome probability
with a subjective value to generate a measure of desirability of change.71 These could
be used to analyse the desirability of alternative incentives to the existing FiT, such
as guaranteed FiT payment period lengths or time-variant FiT levels.
71 Book 3, p.75
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7 Taking action
7.1 Limitations
A limitation of this report is the inability of the author directly to affect policy or take action.
However, the report investigates the situation from multiple perspectives and recommends actions
that incorporate both the author's perspective and by proxy (possibly unreliably72) via analysis of
publicly stated positions those of the other key stakeholders.
7.2 Implementation
The owner and key actor is the UK Government which has the power to control the tariff and other
mechanisms. It should host transparent, participatory positional-based negotiation forums but its
authority to deliberate is not absolute: it must recognise the value of systemic, holistic thinking and
formative evaluation73, valuing all perspectives and permitting systemic change.
Suggested items for forum consideration:
• The current level of the tariff and its attractiveness to new customers;
• What other factors are influencing scheme uptake? How have they changed?
• As the budgetary cap is constraining the system, how should it be removed?
• How are installation and other data gathered and reported back in a timely fashion?
• Changes in technologies and other opportunities: how they will affect future uptake?
• How to learn from global best practice, such as Germany's scheme.
72 T863 Book 4, p. 11573 T863 Book 3, p. 191
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7.3 Evaluation and monitoring
CSH in ongoing evaluation ('is vs ought') mode could be used to evaluate action taken74 but its
complexity places it outside the scope75 of this report.
The original CATWOE/BATWOVE definition are used to evaluate the action as follows:
• E1 = efficacy, e.g.:
◦ Scheme uptake;
◦ Health of PV industry;
◦ CO2 reduced.
• E2 = efficiency, e.g.:
◦ Appropriate scheme interest;
◦ Monitoring data collected in accurately and timely.
• E3 = effectiveness, e.g.:
◦ Tariff sustainably managed.
These continuing action evaluation mechanisms allow the scheme to run sustainably.
74 T863 Book 3, p. 19875 By which I mean, 'word count'
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8 Critical Appraisal
8.1 Framework
The framework's strength for me lay in breaking the decision-making process into four stages of
exploration, interests definition, considering changes and taking actions; providing a coherent,
logical flow for decision-making. Iteration over these and modelling and diagramming techniques
refined my understanding. Taking action and evaluation was problematic given my negligible
influence over government policy as consultant and I am unsatisfied with the vague
recommendations made here.
Creating Space and valuing stakeholders
Good decisions are made with better understanding and that comes from clearer perspective. The
framework suggests making space around a situation76 and I found it useful first to explore the
existing situation, defined by purely economic and legislative factors, and then re-explore from a
greater distance by widening the set of stakeholders, considering their perspectives and other causal
elements with the use of diagrams. Considering as many stakeholder perspective as early as
possible in the exploration is central to the framework. In this way I developed my practice by
learning and applying these techniques, my understanding by analysing their output, and ultimately
recommended improvements in the situation.
Expert Support
Analysing these data developed my practice in exploiting expert support77 and reminded me of the
benefit of stepping back and seeing what relevant analysis has been produced elsewhere. For
example, the first-order evaluations provided by the Deutsche Bank78 and UK government audit
review79 reports provide extensive information surrounding the system of interest. My evaluation of
76 T863 Book 4, p.1177 T863 Book 4, p.12178 http://www.dbcca.com/dbcca/EN/_media/German_FIT_for_PV.pdf 79 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvaud/1605/160502.htm
Andrew Turner M4321071 Page 31 of 43
these reports, acknowledging them as techno-centric and ego-centric80 respectively, is a second-
order81 process that allowed me to step outside their framework and consider how their exploration
aids understanding.
My own role and stake-holding
My own role and perspective changed whilst writing this report. I recognise better the conflicts and
opportunities in representing multiple stake-holding perspectives, e.g. my concern for the
biophysical environment is different but does not exclude my interest in a good ROI as a customer;
recognising and evaluating this develops my expertise as does considering the situation from
alternative perspectives, such as DECC's limited worldview.
8.2 Diagramming Techniques
Systems Map
Initial brainstorming helped identify potential stakeholders and CATWOE's82 Customers, Actors and
Owners helped me define sub-systems. I realised that both PV customer and industry are
'beneficiaries and victims' of the system and switched to BATWOVE83 to value these distinct
perspectives. Iteratively exploring stakeholders and their relationships aided a systemic analysis by
considering as many perspectives as possible early on and helped define system boundaries.
Considering the role and interests of each stakeholder helped formulate problems, opportunities and
systems of interest and in this way I developed practice and understanding.
Multiple-Cause Diagram
I used this diagram technique to establish relationships between FiT level and other factors in the
system of interest. Iterative role-playing identified these interdependent elements which aided
understanding and exploration of the dynamic factors affecting the setting mechanism and which
influence the Government who ultimately sets the tariff. Whilst drawing the causes I discovered an
80 T863 Book 4, p.9781 T863 Book 4, pp.103-10482 T863 Techniques Book, p.7383 Soft Systems Methodology (SSM) (Checkland, 1981; Checkland and Scholes, 1990).
Andrew Turner M4321071 Page 32 of 43
ongoing review and trigger process is required to achieve sustainability and added this. I changed
'Price of tariff' to 'Tariff price reduction', revealing that the system seeks not to set an absolute tariff
level but define its moderating mechanism.
Systems Dynamic Diagram
I found this diagram hard to use, specifically translating system elements into rates and flows - but
this may reflect subject choice. However, I developed my practice by considering the system from a
difference perspective and it improved my understanding that the cap mechanism is not a good way
to throttle scheme uptake.
Andrew Turner M4321071 Page 33 of 43
9 Conclusions
9.1 Existing mechanism
• Lack of monitoring and openness in the present tariff scheme causes knee-jerk changes,
boom and bust conditions and threatens fledgeling PV industries and scheme aims.
• Opaque and unpredictable tariff-setting exacerbates this.
• The basic principle of a tariff price set at a level to stimulate uptake is acceptable but it is
not monitored and adjusted regularly enough.
• Mechanisms that stifle unacceptably high demand, such as a budgetary cap and linking
scheme eligibility to domestic energy-efficiency measures, are not justified.
9.2 Recommendations
DECC should convene a consultation forum of stakeholders to explore and collaboratively consider:
1. Removal of budgetary cap and energy-efficiency eligibility criteria
◦ These appear inappropriate mechanisms for regulating the tariff. This should be
explored and if confirmed they should be dropped to an agreed open timetable.
2. Monitor PV installation costs and scheme uptake
◦ Devise an open, efficient mechanism regularly to monitor and report number and
unit cost of PV installations.
3. Determine transparent tariff-setting mechanism
◦ Stakeholders collaboratively devise an open, predictable model using timely data to
regulate tariff levels providing acceptable customer ROI and maintain this regularly,
allowing industry time to adapt.
4. Collaborative framework to determine future policy thus providing predictable business
Andrew Turner M4321071 Page 34 of 43
landscape landscape.
◦ DECC should host regular stakeholder consultation forums to review mechanism.
9.3 Limitations
An over-abundance of available data and opinion dictated care in order to avoid information
overload. The scope of the project was limited to exploring small-scale domestic PV and primarily
only the poorly managed initial government review.
A more comprehensive report (less constrained by word count) could explore underlying aims
systemically by considering alternatives to PV and house energy efficiency measures.
The report provides neither a definitive tariff price nor mechanism for setting it as this, as stated,
should be decided collaboratively by stakeholders.
Andrew Turner M4321071 Page 35 of 43
10 References
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OFGEM (2012), Feed-in Tariff Payment Rate Table [online]. Available from
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%20Tariff%20Table%201%20April%202012.pdf [accessed April 1st, 2012]
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which-response-275825.pdf [accessed March 18, 2012]
Andrew Turner M4321071 Page 38 of 43
11 Glossary
CO2 – Carbon dioxide, a 'greenhouse gas' whose presence in the atmosphere contributes to global
warming and threatens all life on earth.
DECC – Department of Energy and Climate Change
FiT – Feed-In-Tariff, i.e. the amount of money per unit of electricity generated by the solar panel
system the householder or bill-payer is paid, as set by the government and as paid for by the utility
company and paid for out of its general revenues. It is paid regardless of whether the electricity is
used within the household or exported out to the grid and is typically in addition to the smaller
amount paid per unit of surplus electricity that the solar panel system exports to the grid.
kWp – Watt-peak (Wp) or kWp is a measure of the nominal power of a photovoltaic solar energy
device under laboratory illumination conditions.
NGO – Non-governmental Organisation is a legally constituted organization created by natural or
legal persons that operates independently from any government and in the context of this report
refer to national and international environmental advocacy organisations such as Friends of the
Earth.84
ROI – Rate of return on investment, for example: a solar PV system that costs £10,000 and returns
through FiT and other payments an income to the householder of £800 has a ROI of £800 / £10,000
= 0.08 or 8%.
SSM - Soft Systems Methodology, (Checkland, 1981; Checkland and Scholes, 1990).
84 http://www.foe.co.uk
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12 Appendices
12.1 Appendix A – Criticism of government review
This appendix records the predominantly negative reaction from stakeholders to the government's
review of the FiT mechanism for solar PV in October 2011:
Trade Associations & Industry
• The Renewable Energy Association and the Solar Trade Association
“...the solar industry has arrived at a point of crisis in the UK just 18
months since the start of a successful scheme”
“Many [installation] companies will now be faced with an extreme Tariff
adjustment at just 6 weeks notice. This is an entirely avoidable and very
damaging situation.”85
• John Cridland, CBI Director General
“Industry trust and confidence in the government has evaporated...If you
keep moving the goal posts around and make changes in haste, then the
danger is that people don't have confidence and they don't invest.”86
• David Frise, Building & Engineering Services Association
“B&ES felt that the level of decrease was justified on the basis that the
original FIT was set at too high at an unsustainable level, particularly
given that solar PV product prices have decreased significantly (by about
30%) since the introduction of FIT in April 2010.
What is particularly controversial, and unreasonable for B&ES members
85 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvaud/1605/1605we05.htm , Evidence to government review, November 201186 http://www.bbc.co.uk/news/uk-15687873 , 11 November 2011
Andrew Turner M4321071 Page 40 of 43
involved in the scheme, is the proposed timing for when the revised FIT
would come into force.”87
NGO
• Andy Atkins, Director, Friends of the Earth:
"Government plans to slash solar incentives will devastate a thriving
industry and pull the plug on thousands of jobs. In a time of economic
gloom, the solar industry has been one of the UK's brightest success
stories, enabling homes and communities across the country to free
themselves from expensive fossil fuels. We believe the Government's
proposals are not only wrong, they're also illegal - which is why we are
taking Ministers to court."88
Installers and Suppliers
• Solar Century Ltd
“the Government asserts that: 'EPC level C [house energy efficiency]
requirement reduces uptake by up to 92% 2012-13 onwards compared to
uptake under proposed tariffs.'
It is no exaggeration to state that the proposed link to EPC level C
threatens literally all of the jobs that have been delivered since the feed-in
tariff was confirmed.”89
Solar PV Consultants
• BECL, Renewable Energy & Environmental Consultants
“Again we are in limbo with uncertainty and confusion.”90
87 http://www.b-es.org/about/key-issues/crc-efficiency-scheme/ 88 http://www.foe.co.uk/resource/press_releases/solar_cuts_cost_millions_23112011.html 89 http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvaud/1605/1605we10.htm , Evidence to government review, Nov 201190 http://www.becl.co.uk/news/solar-pv-feed-in-tariffs/
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• Alex Hagen, Energy Consultant, Strutt & Parker
“These tariff changes are going to have a significant impact upon the
financial viability of Solar PV project”
“The way that the FIT review has been announced and handled will reduce
confidence in property owners exploring the RHI and Green Deal91 as they
become available in 2012.”92
91 A proposed UK government domestic energy efficiency promotion programme, to which eligibility for the FiT is proposed.92 http://www.struttandparker.com/media/291423/research_fit_consultation_october_31st_2011.pdf
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12.2 Appendix B – PV installation case study
Client Location Rugby, Warwickshire
Installation Date 24th March 2011
Installation Cost £9,308.00 (inc. 5% VAT)
Installation Size 15.72 m2 panels producing 2.22 kWp
Performance over 1st twelve months
Electricity generated 2,337 Units
Feed-in-Tariff 2,337 * £0.433/unit ................................£1,011.92
Export Tariff 1,169 * £0.031/unit.................................£36.24 ('deemed 50%')
Electricity saved Approx 2400 units @ avg. £0.12/unit....£288.00 (based on previous 6 years)
Year 1 total return ...............................£1,336.00
Year 1 return on Investment................14.3%
Additional Information
The client already had thermal solar panels for hot water and this PV installation was in addition to this on a
separate roof. The clients principal motivator was doing “something green”, i.e. reducing personal carbon
footprint in aid of limiting climate change. They said they would not have installed PV prior to solar thermal,
despite far better returns, as their research had told them solar thermal is much more effective at reducing
carbon output in terms of C02 saved and net installation impacts.
Had the system been installed under the new reduced tariff (March 2012) of £0.21/unit, total return on
investment would still be around 9% and possibly higher given decreasing unit installation costs. The client
said they “most definitely” would still install under these conditions today.
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