23rd March 2012
Travelling back and forth between Cambridgeshire and California during the Dot Com era I experienced, first hand, the emergence of the century’s first bubble market. So perhaps it was not just the unseasonable warm weather during this week’s Ecobuild that made me feel that, rather than arriving at Excel centre, the Docklands Light Railway had somehow transported me back to San Jose.
Ecobuild started life as something of a niche exhibition – this year it filled two halls and looked a bit like the wireless and computer events of ten years ago. However, as was the case with the exploding high technology industry, a lot of what was on offer at this year’s Ecobuild was being sold into a market built out of mirrors - and enough smoke to double the price of carbon credits.
This time it is not just venture capitalists who are inflating the renewable energy market – although they have helped puff up photovoltaic (PV) panel companies to the point where they occupied almost a third of Ecobuild’s exhibition space. Key culprit in creating this bubble is the UK government, which postulated that if electricity was worth around 60 pence a Kwh then electricity companies would pay just over 40 pence a Kwh. So now householders are microgenerating some of the most expensive electricity in the world - and electricity companies are buying it.
The market is now past the point where feed in tariffs alone drive it forward - investors have joined the party and are helping companies buy market share. This is how the Dot Com market ended in tears – rather than a long analysis of how bubble markets rise and fall I will point you towards a book by Benoit Mandelbrot called ‘The (Mis)behavior of Markets.’ This provides a simple explanation of how exuberance is replaced by panic and remorse.
Of course the legacy of the Dot Com boom and bust has been a trillion dollar worldwide, connected online industry. Perhaps the crash of the PV solar market will prove just a bump in the road to a UK where the equivalent of a couple of nuclear power stations are spread out across the nation’s rooftops. Or perhaps not.
When the age of inflated feed in tariffs ends the PV solar industry will be forced to stand on its own feet and sell on the basis that the householder can use PV panels to generate ‘green’ electricity and save themselves a little money. After carrying out a straw poll of PV solar users I fear that not too many householders will be willing to pay £10,000 just to reduce their carbon footprint. Care of the environment came fourth on a list of reasons why 16 square metres of industrial looking glass now obscure the top of the range Marley roof tiles that were on display when the proud house owner moved in.
Top motivator for the householder's move into micro generation is return on investment: at 10% a lot higher than other government (ie safe) investments - such as premium bonds. The word ‘pension’ was often mentioned in this context. Reason two was that PV solar increased the value of the house - as the next owner picks up the fag end of the investment. So far the householder has not even mentioned the words ‘electricity’, ‘aesthetics’ or ‘carbon’ so we can assume that if the government said it would pay the householder £1000 a year if they agreed to bolt a set of patio furniture to their roof the householder would probably go along with it.
Reason three: here free electricity was mentioned, free because the investment in the generating equipment was already generating a return of 10%. Take away this subsidy and the electricity is very expensive and the householder will no doubt start paying close attention to the performance of the PV solar installation itself. This is where pigeons come home to roost – assuming there are any roofs left in the country they can land on. The dash for solar, driven by the looming cut back in subsidies has seen a lot of equipment appear in places where it will never see the light of day, so to speak. With apologise to the comedian Tim Vine, a solar panel on the north wall of a multi-storey car park is wrong on so many levels. No doubt a flood of emails will arrive in the inbox of the Daily Mail's consumer affairs editor once Summer is over and the oil wells on the rooftops of the UK are found to be dry.
So will the government’s PV solar drive have achieved anything? In Germany an inflated feed in tariff saw the rise of a thriving solar energy industry; perhaps UK Plc will benefit in the same way. ‘No’ on this one as well I’m afraid. Germany’s feed in tariff subsidies were scaled back just as the UK’s came into force. Spain, a big export market for German solar companies, also trimmed its feed in tariff support. This saw the UK become the small kid trying to hold onto a large bag of sweets in a very hungry playground. With only a small home grown solar PV industry the UK has sucked in exports from both Germany and China. The Dot Com era saw the emergence of industry champions such as ARM and Autonomy. The UK’s PV bubble has also seen the rise of world-class companies – unfortunately they are in Köln and Zhejiang.
We can but hope the Green Deal levels the playing field, which is currently tilted in favour of the PV solar sector, and gives the rest of the UK’s renewable energy industry the chance to show its mettle. Next time around – if there is a next time around – perhaps the government will pay greater attention to the country’s core competences.
Closer to home I am going to take advantage of the unseasonably warm weather to play with heat exchangers and resurrect the earlier trial that generated hot water using our passive solar energy system. Spot the vested interest here.
Stay cool, in the shade, and have a good weekend.