It would be understating the case significantly to observe that various national schemes to support solar power are literally flirting with the frayed edges of insanity. The sheer solar-mass of many of these schemes is such that reality literally distorts around the event horizon of the regulatory documentation that describes them. Some are (and have been since inception) so blatantly unsustainable that one is moved to despair upon learning that investors actually supported (with actual capital) the labyrinthine logic that winds through them. Some, however, stand out with decidedly more verve and opulence than others. For example, in the wild animal kingdom of these constructs it is difficult (but, alarmingly, not impossible) to find schemes more blatantly divorced from sanity than those propagated by the United Kingdom.

Depending on one's source, retail electricity costs in the United Kingdom run between GBP 0.12 and GBP 0.14 per kilowatt hour. The figure most often used to describe loaded cost to producers from gas turbine power (likely the most cost effective of the wide-spread production methods in the United Kingdom) is between GBP 0.044 and GBP 0.050 per kilowatt hour.1

Against this basic market structure, the challenge for the enlightened and educated legislator of an appropriate temperament and breeding for the rarefied environs of British Leadership is to design incentives to support the development of less, shall we say, unsavory means of electricity generation. Solar, of course, has emerged recently as a popular means to salve the rapidly festering green wounds infecting many a thin (and pasty) political epidermis.

Astute finem respice readers will not be fooled into thinking that something as trite and irrelevant as the observation that solar production facilities are exceedingly capital intensive relative to their ability to, oh... we don't know... maybe... produce electricity, would present even a speed bump of moderate annoyance to the carefully climate-controlled, outside-world insulated Bentley in which the United Kingdom's then Secretary of State for Energy and Climate Change (and now leader of the Labour Party) Ed Miliband was blissfully riding.

In October of 2008, within weeks of assuming the helm of Energy and Climate Change, and during his first statement as the United Kingdom's Secretary of State for Energy and Climate Change before the House of Commons, Miliband announced the proposed introduction of the United Kingdom's "Feed-In-Tariffs" system:

The Secretary of State for Energy and Climate Change (Edward Miliband):

With permission, I would like to make a statement on the new Department of Energy and Climate Change. The new Department brings together the Government’s work on three long-term challenges that face our country: ensuring that we have energy that is affordable, secure, and sustainable; bringing about the transition to a low-carbon Britain; and achieving an international agreement on climate change at Copenhagen in December 2009. Those are our goals, and the new Department recognises that when two thirds of our emissions come from the use of energy, energy and climate change should not be considered separately, but together.

[...]

Earlier this year, we published our draft renewable energy strategy. Having examined the issue, I can say that what is clear to me is not only the scale of the challenge, but the urgency of getting on with the delivery. The renewables obligation has tripled supply in the past five years, and we are making further changes in its structure, in planning policy and in access to the grid. However, having heard the debate on the issue, including what has been said by many colleagues on both sides of the House, I also believe that complementing the renewables obligation for large-scale projects, guaranteed prices for small-scale electricity generation—feed-in tariffs—have the potential to play an important role, as they do in other countries. Having listened to the views that have been expressed, including those expressed in the other place, we plan to table an amendment to the Energy Bill to make that happen.2

The Right Honorable Gentleman hinted at, but certainly did not explicitly reference, the literal back bench revolt against Gordon Brown's leadership staged months earlier by his own party over the issue of inclusion of Feed-In-Tariffs. As to what motivation Labour would have for imposing literal price controls on nearly 4% of the United Kingdom's GDP, the question is left as an exercise for the enthusiastic finem respice student.

Whatever the answer, the scent of politics was thick next to the dispatch box, and The Right Honorable Greg Clark simply could not help but remind the House of the publicity games that had been already been played:

The Secretary of State is widely regarded as one of the most personable, thoughtful and respected members of the Government. Our debates have always been civilised and productive, and it is certainly my intention that our exchanges on this most important issue for our country’s future should remain so. I thank him for allowing early sight of his statement—although not quite as early as that secured by The Guardian and the Politics Home website, which published most of the statement this morning. I remind him that the true home of politics in this country is Parliament, and that it should have been through Parliament that the statement was first released. But, for all that, we welcome it.3

As we venture on to explore the fundamental nature of Feed-In-Tariffs, the always discerning followers of finem respice will instantly recognize that the expertly drawn, broad strokes of a scheme of such masterly and artful architecture, a legislative edifice of such erudite and perfected design, could only have emerged from the singular genius of one sovereign executive in modern history: The Carter Administration.

Back in 1977, in a televised speech on the key points of his proposed energy policy, Carter quipped:

The oil and natural gas we rely on for 75 percent of our energy are running out. In spite of increased effort, domestic production has been dropping steadily at about six percent a year. Imports have doubled in the last five years. Our nation's independence of economic and political action is becoming increasingly constrained. Unless profound changes are made to lower oil consumption, we now believe that early in the 1980s the world will be demanding more oil [than] it can produce.4

Of course, it was fitting that the first large-scale attempt at Feed-In-Tariffs was founded on an energy policy of such brilliant and obvious top-down prescience.

At its most basic level, the "Feed-In-Tariff" system effectively establishes price controls on energy related to the ultimate source of generation. Premium kilowatt hours of electricity, for instance: hand crafted amperage adorned with all the luxury features and high quality trappings one would would expect from the artisans staffing certain designated solar plants, will command premium or even super-premium rates on a per kilowatt hour basis. Lower quality electricity, barely suitable for use even in the smoldering remnants of Britain's once formidable manufacturing sector5 as, for example: from unclean and polluting natural gas turbines from facilities with less than fully progressive labor policies, will be forced to subsist on commodity price levels.

All that remains, therefore, to effectuate a cogent and prosperous Feed-In-Tariff system is to assign appropriate tariffs for each category of production... well (given that the imposition of direct taxes leveled on the end user are politically unpalatable to the unenlightened and greedy energy consumer), and perhaps to decide which tier in the energy production path will be awarded the honor of acting as political cover before quietly passing costs on to energy end users. Of course, with respect to this latter point, the most obvious rule-making choice for conscientious and enlightened rulers like those that compose the bulk of the United Kingdom's ruling class, was large power generators possessed of facilities with less than fully progressive labor policies, and therefore equally possessed of unfair cost advantages used to exploit the public.

In the United Kingdom, therefore, the appropriate settings for the various levers originally included the following solar power schema:

Existing households installing photovoltaic solar panels with generation capability below 4 kilowatts are paid, by mandate binding their local provider of electricity, up to GBP 0.433 per kilowatt hour their system produces.

Read that once again.

As we explored earlier, the national average for retail electricity in the United Kingdom ranges from GBP 0.12 to GBP 0.14 depending on source. This means that solar power produced from these systems costs "the grid" as much as GBP 0.57. This is, however, before the GBP 0.031 "export tariff," designed to reward the consumer for exporting power to the grid over and above whatever they use at home. Of course, measuring these figures precisely would require the installation of hundreds of thousands of "smart meters" to properly account for the various in and outflows of power to "the grid."

At this point, the uninitiated reader may be caught with a wry smile, mumbling "I believe I am on the verge of spotting the tiny flaw in your cunning plan, Baldrick." But, particularly in the context of the great, time-and-space bending, legislative prowess of the House of Commons, such cynical skepticism is both misplaced and naive. All solar generated kilowatt hours are simply multiplied by .5 and this figure is then used to compute the appropriate number of kilowatt hours to apply the "export tariff" to. (Do not fear, concerned reader, consumers possessed of the belief that they export more than 50% of their generated solar to the grid may apply for a higher assessment rate by filling in the appropriate paperwork).

In effect, this adds another GBP 0.0165 to total Feed-In-Tariffs for a grand total of GBP 0.5865 per kilowatt hour. This is approximately 11.73x the production cost of even the most absurdly expensive large-scale natural gas turbine electricity. Fortunately, as was briefly alluded to earlier, these costs are carried by electricity producers, lest consumers face the massive expense required to fund these incentives.

Of course, dear reader, you are quite right to point out that there is the unfortunate matter of predictability. Sure, these incentives might exist today, but who is to say that in the next couple of years, they might not be revoked by a government with less caring and sophisticated ideas about fiscal policy? Alas, such speculation, again, only serves to demonstrate the limited sort of "inside Her Majesty's Treasury vault" thinking that characterizes the feeble minded. Once your solar facilities are installed, the tariffs rates are guaranteed for 25 years. No, not 2.5 years. Labour could win and lose the majority again in so short a time, after all. Twenty five years.

Well, yes, dear reader, you make a strong point. Twenty Five years later GBP 0.5865 likely won't buy the British consumer 11.8 fluid ounces (Imperial) of petrol anymore. Fear not. You have only, again, missed the most obvious solution to such a problem. The tariffs are indexed to inflation (of which energy prices are a component) for the entire guaranteed term of 25 years. (The first annual indexing between 2010 and 2011 was 4.80%, as it happens).6

Well, it's true. Taxes could well eat into these well-deserved gains to the thousands of noble micro producers. Of course, that's why these payments are tax free. Yes, it is true that, as a result, Her Majesty's Treasury also takes a takes a hit for every kilowatt hour. But this is of little consequence in light of the overall scope and grandeur of the project (plus, it is easy to make up these shortfalls by simply taxing the energy producers).7

Normally, such a system would be considered highly unfair to the many other, quite worthy technologies which manufacture the highest quality, premium luxury electricity, but that fate, in her abject cruelty, has not (yet) seen fit to make economically viable. For this reason a host of other Feed-In-Tariff schemes have been developed for wind, anaerobic digestion,8 hydroelectric, and the like.9

Of course, any great, transformative program is presented with early challenges to overcome. This is particularly so when certain degenerate and parasitic elements of society take unfair, even criminal advantage of such schemes and, through their rank and base avarice and greed, disrupt the carefully designed Five Year Plans of the benevolent plan architects. The draining bites characteristic of the sharp financial fangs lining the gaping maws of these societal harpies exsanguinate the public body of the very resources the wise and benevolent plan architects had slated for a select group of beneficiaries. (Modesty, as well as increasingly progressive European Union data regulations prevent us from explicitly designating these most deserving of constituents publicly, but be assured that their worthiness and unique contributions to society are entirely above reproach).

We refer, of course, to the influence of a pervasive and dangerous international cabal of individuals and institutions dedicated to the propagation of ignorance, evil and depravity. A clandestine force so malevolent and shadowy that we are unable even to particularly name its members or draft definitions of criteria objective enough to permit the general public to identify the vile acolytes of this unseen menace. Of course, such a description can only refer to the dark specter of— and the fingers tremble even to articulate this sequence of keys– European Speculators.10

In their most recent incarnation, the sinister cabal of European Speculators hatched sinister plans to develop vast numbers of large scale (50 kilowatts and over) photovoltaic and farm scale (up to 500 kilowatts) anaerobic digestion systems of such imponderable vastness, that Feed-In-Tariffs specific to these programs, unfortunately, had to be cut in drastic amounts. To wit:

On 18 March I announced the start of a consultation on proposals to change Feed-in Tariffs (FITs) for solar photovoltaic (PV) installations larger than 50 kilowatts and farm scale anaerobic digestion (AD) of up to 500 kilowatts.

Having carefully considered the responses received, of which there were more than 500, I can now confirm the outcome of that consultation and the fast-track review of FITs.

It is clear from all the evidence received as part of the consultation that the demand for feed-in tariff subsidy has grown so substantially that it now significantly exceeds the amount of funding available during this spending review period. Without urgent intervention, the scheme would have been completely overwhelmed within a very short period of time. That is why it is so important for us to act now: it is vital that we protect the integrity of the scheme and can continue to support the ambitious roll-out of new, green, decentralised energy technologies in homes, communities and small business.11

In the "Fast Track" review announced in March of 2011 and released in July 2011 ("Fast Track" in United Kingdom governmental terms being most accurately translated as: "four months") the rationale for this change, less than a year after the announcement of the program, was spelled out in slightly more detail in terms of "financial constraints." "Financial constraints" in this context being defined thusly:

As an illustration of the financial constraint, we estimate that every 5 MW solar PV scheme would incur a cost of approximately £1.3m per year for the scheme, which means that 20 such schemes would incur an annual cost of around £26m, money that could support PV installations for over 25,000 households.12

Pressing relentlessly against the tyranny of the laws of economies of scale, the tariff for new installations producing 250 kilowatts to 5 megawatts was dropped to GBP 0.085, a 72.3% hacking from the original GBP 0.307. Smaller scale projects still over the size of a typical home installation (10 kilowatts and above), such as might be erected atop light commercial buildings or large residential buildings, were subjected to a 42.0% tariff "adjustment."

Less savvy readers may object that these policies seem directly contrary to the stated goals of the program, to wit: to boost the production of renewable energy. After announcement of the cuts, many such voices naively protested that at these levels, larger projects had been rendered commercially inviable.13 This is a common mistake exhibited by novices, generally caused by the inability to understand that the programs of enlightened and caring governments are possessed of a certain "objective agility" with respect to legislative intent as articulated in public or described to the media. The savvy finem respice reader instead recognizes that these stated objectives are most useful for determining the anti-objective.14

Of course, given that the recent cuts are likely to cause European Speculators to embark on a vicious and protracted solar-short campaign designed, with truly Dickensian horror, to cripple the savings of various widows and orphans, the only possible course of action at this point will be to ban the short selling of any equities related to solar power. (Or connected to inter-constituency commerce in energy).

1. 1. In 2010, the top three sources of UK electricity production were: 47% Natural Gas, 28% Coal, 16% Nuclear. See Generally: "UK Energy in Brief 2011" Department of Energy & Climate Change, United Kingdom Statistics Authority. (July 2011).
2. 2. Hansard HC vol 480 cols 939-941 (October 16, 2008).
3. 3. Ibid at 941.
4. 4. Jimmy Carter, "The President's Proposed Energy Policy." (April 18, 1977).
5. 5. Fortunately, industrial energy consumption in the United Kingdom has declined 43% since 1980. Considering a consummate increase in population of 9.8% over the same period, this performance marks the Crown's industrial policy as among the most energy saving and efficient in the world, on par with the likes of Venezuela. See Generally: "UK Energy in Brief 2011," Department of Energy & Climate Change, United Kingdom Statistics Authority. (July 2011).
6. 6. Why, yes, dear reader, it would in fact be quite gauche to point out in mixed company the positive feedback loop implicit in a pricing system with hikes indexed partly to itself.
7. 7. Of course, these figures only tell part of the story. When excluded from a VAT tax on residential electricity of 5% and the 20% income tax in the UK, a tax-free GBP 0.5865 per kilowatt hour becomes GBP 0.7800. Assuming a 3.0% inflation adjustment rate (significantly lower than the 4.8% figure for the single period on record between April 2010 and April 2011 but closer to the 10 year average inflation rate for the United Kingdom) and using the UK's 30 year bond yield of 3.45% as a discount rate, the present value of this 25 year locked-in subsidy is around GBP 17.90 per annual kilowatt hour. The present value of a 25 year delivery contract for gas turbine electricity on the same assumptions (assuming a loaded pre-tax cost of GBP 0.05 per kilowatt hour) is about GBP 1.15 per annual kilowatt hour. Note also that most business-use electricity faces a 20% VAT in the United Kingdom, versus 5% for residential use. Ouch.
8. 8. The term "anaerobic digestion" may seem inappropriate for use at formal dinners, but the alternatives have the unfortunate and ignominious distinction of drawing attention to the fact that the chief products anaerobic digestion creates are methane and carbon dioxide. Obviously, we can't have those sinister threats to modern civilization printed anywhere on the same page with the word "renewable".
9. 9. See Generally: "Feed-In-Tariffs," Feed-In Tariffs Ltd. (August, 2011).
10. 10. In order to infuse the term with a level of gravitas appropriate to its station, finem respice recommends that this phrase be intoned within the reader's inner monologue in the accent of the husband of Labour political figure Rima Horton and former Royal Shakespeare Company member, Alan Rickman.
11. 11. "Fast-Track Review Consultation: Written Ministerial Statement by Greg Barker," Department of Energy & Climate Change. (June 9, 2011).
12. 12. "Feed-In-Tariffs Scheme: Summary of Responses to the Fast Track Consultation and Government Response," Department of Energy & Climate Change (June 9, 2011).
13. 13. The prospects for an industry that is possessed of commercial inviability even when graced with a 25 year, tax free, inflation indexed subsidy of over 170% is left as an exercise for the reader.
14. 14. The finem 1% will go further to recognize that a potential 25 year exemption from the 20% business-use VAT tax on electricity in the United Kingdom was likely a huge motivation for many of the European Speculators planning large systems– and perhaps an unintended consequence of the program overlooked by the normally penetrating intellects in the Department of Energy & Climate Change.

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