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The Government should “level the playing field” by expanding the investment allowance to the Electricity Generator Levy.
Speaking at the Environmental Audit Committee’s (EAC) Technological innovations and climate change: onshore solar energy parliamentary evidence session yesterday (11 January) Chris Hewett, chief executive of Solar Energy UK said that while the solar sector was not against a windfall tax, not providing the same exception on investment as the oil and gas (O&G) sector was granted was a “mistake”.
The Electricity Generator Levy was announced in November as part of the Autumn Statement and came into force from 1 January 2023. It is set at a rate of 45% on “extraordinary returns from low-carbon UK electricity generation".
It followed the introduction of the Energy Profits Levy – the O&G windfall tax announced in May. This will be increased from 25% to 35% from 1 January 2023, and will now come to an end on 31 March 2028 as opposed to December 2025.
The Energy Profits Levy also however includes an Investment Allowance, which means companies save 91p for every £1 they invest. This nearly doubles the tax relief available, ensuring the more a company invests, the less tax they will pay.
Electricity generators were not provided with such a mechanism, which sends a poor signal to renewable energy developers, in particular in light of the energy crisis being driven by high gas prices whilst solar and wind remain nine times cheaper than gas.
Despite the challenge this presents however, the panel of experts were positive that solar would be able to reach its 70GW capacity by 2035 target. Some panelists suggested that further targets were strictly needed for the growth of the sector given its trajectory, whilst Dr Chris Case from Oxford PV encouraged the government to expand the target given solar’s history of exceeding forecasts.
Solar as an industry globally only really started in 2010, noted Hewett, so it is still hard to predict what it will look like in 2050, other than there being “a hell of a lot” of deployments expected.
Currently solar is distributed as around two-thirds ground-mount, and one-third rooftop installations, this is likely to continue, with all segments expecting the surge in growth seen in recent years to continue.
As noted by Prof Alistair Buckley from the University of Sheffield, a range of applications wil be required to both meet the target and drive decarbonisation of the electricity sector and beyond.
There was concern from a number of members of the EAC around the development of solar having an adverse impact on food security in the UK. This was a prominent topic of discussion throughout 2023, with both former prime minister Liz Truss and current prime minister Rishi Sunak attacking the technology during their hustings speeches over the summer.
In addition, former environmental secretary George Eustice suggested solar was being developed on land designated as Best and Most Versatile (BMV) – that classified 3A and above, and therefore the most productive from an agricultural perspective. While he corrected his original criticism, his successor Ranil Jayawardena suggested redefining BMV to cover 3B land, on which the majority of ground-mount solar is developed.
The panel however highlighted the small amount of land actually given over to solar. If every solar farm currently put forward was built, this would still account for less than 0.4% of the UK’s agricultural land and 0.28% of the UK’s entire land area, according to Solar Energy UK.
And even if five times as many solar farms were built as the country pushes to increase the share of renewables within the energy mix, they would still only occupy less than 0.3% of UK land – less than half that currently taken up by golf courses.
Previously the National Farmers Union had provided evidence to the EAC itself stating that the development of solar is not expected to impact food security.
Along with concern over the impact of solar on agriculture, the panel discussed concerns around grid connections holding back the rollout of ground-mount solar, the skills shortage and need for development of domestic solar installer training and the potential of further incentives from the government to rollout residential solar, as well as concerns that the Solar Export Guarantee remains too low.
To find out more and watch the fill parliamentary evidence session, see here.