The great grant farce

Raising the profile, and therefore the installation and use, of renewable energy sources is, allegedly, high on government agenda.

The global consensus on the need to cut carbon emissions and secure energy supply is well documented, so finding ways to encourage domestic users, responsible for more than a quarter of our greenhouse gas emissions, to install their own sources of green energy is imperative.

The first phase of the Low Carbon Buildings Programme (LCBP) was established to provide grants to householders as an encouragement towards making their homes more self-sufficient in terms of energy use and to help the renewables industry find a market. In theory, this sounds laudable. But the reality of the programme, up until now, is one of muddle, disappointment and intermittent grant availability.

The concept of offering grants to help reasonably wealthy people with the installation of renewable products unsatisfactory. Many within the industry feel that they are having a negative impact on the market.

Relying on an inevitably finite government funding system is not healthy in the long term. It is also frequently damaging to installers and manufacturers who wish to plan their businesses around a real market, rather than an artificial market created by grants.

Run by the Energy Saving Trust, the aim of the LCBP is to encourage households to invest in one renewable energy creator – whether that is solar, wind or photovoltaic or less popular technologies. Of these, thermal solar is the most popular technology with the public but attracts the smallest grant of £400.

The grant is, for some unfathomable reason, dependent upon the householders putting in insulation and low-energy light bulbs (which have nothing to do with water heating). So, not everyone qualifies for it.

Most people spend around £3,000-£4,000 installing their solar systems, so the grant of £400 is largely a peripheral bonus rather than a deciding factor. If you meet the conditions for having a grant (relating to energy efficiency rather than creating your own energy) it would make sense for the grant to be readily available.

The budget in March doubled this year’s grant with another £6M added to the existing £6M allocated to the solar thermal sector. Up until now, instead of the grant pot being made consistently available over the 12 months, £500,000 has been released at the beginning of each month – and is often already allocated within an hour of it being released, so high is the demand.

The DTI has accepted that the current system is not working properly. Its response has been, at the time of writing, to suspend the monthly allocation while the scheme is restructured. According to the DTI’s curiously named Emerging Technologies Unit, the grant will be reinstated by the end of May 2007 or early June. But the workings of the new scheme are not yet known, and no genuine industry consultation have taken place on how it should be restructured.

It is true that something needs to be done to improve the current system. The whole system is a complicated mess. But halting the scheme is a curious response. It will not induce confidence in those consumers using the grant scheme or those businesses operating in the renewable field where grants are theoretically available. It plays havoc with the businesses operating in the renewable field. Those who have been expecting to incorporate the LCBP contribution into their plans are likely to have lost faith and patience in the system altogether.

The stop-start method of releasing funding used up until now has been extremely frustrating for both the applicant and the industry. It does not allow for manufacturers and suppliers to be able to accurately forecast their production figures. And it means that they must work on a hand-to-mouth, monthly basis – unsure of regular demand. This is affecting the entire industry. And the national newspapers are already reporting job cuts in the sector, which are directly attributable to the LCBP’s current suspension.

The current scheme is a farce and it is hard to imagine any viable reason for releasing the money monthly – apart from the government’s own opportunities to boast that it is providing a grants scheme for a whole year. If all the money allocated was spent within a month, the government would find it difficult to resist demands for more money, and would not want to face the political consequences of not having a grants scheme in being.

It therefore settled on a phased release of funds, despite its inefficiencies and the problems it causes to the householder and the industry.

The publicity the government is getting as a result of this debacle is negative and concentrates on how quickly the money is running out. There are a lot of disappointed people missing out on the grants they have built in to their figures. Overall, it makes the government look incompetent and lacking in commitment to the challenge of climate change, which is probably worse than having a successful scheme where the money quickly runs out.

A more effective way would be to release the funds once a year. That way people would know exactly when to apply. And, even if the money ran out after three months, the industry would be able to gauge demand

Although a grant system designed to aid the consumer and the industry rather than provide government publicity would be a step forward, the industry would be better off without grants. Having a finite source of funding which rapidly runs out is not conducive to a flourishing industry. There are far better ways of encouraging the use of renewables.

For example, Austria has an efficient and attractive system whereby the cost of household solar systems are offset against income tax. This scheme has led to them becoming the second biggest installer on a per capita basis of solar systems in the EU after Cyprus.

This can be a simple system to implement and it prevents issues of erratic funding. Consumers are given a full choice of approved installers and suppliers who issue a certificate once the work is complete, which is then submitted with the buyer’s tax returns.

This is an appealing prospect all round – reducing pollution, helping the government meet its targets, and reducing income tax for those who choose to go down the recommended route. It is consistent with the principle that the polluter should pay.

The use of renewables by members of the public who have limited resources is best encouraged by a tax rebate system. It is cheaper to administer than grants, simpler to audit. And people prefer to apply for a modest tax reduction in their tax returns rather than having to apply for a modest grant.

It is both possible and economically viable to execute a similar programme in the UK. The rebate could be either in respect of income tax or council tax. It would encourage a much higher take up of renewables, and make the industry far more stable.

The treasury could control any financial loss it may suffer by withdrawing the tax rebate if the scheme proved too successful. But whether they would wish to do this after their own commissioned review by Sir Nicholas Stern is doubtful.

Once finally reinstated, the LCBP funding is due to run out in mid 2008. And then the future is uncertain. Again, the micro-generation industry will be affected if the government allows a gap in funding or does not provide an alternative to coincide with the end of the last allocated funding. It is impossible to predict the outcome of the present restructuring or any future impromptu review. But now is the time for the whole renewables industry to insist that our attempts to build a green future are not thwarted by government incompetence.

Robert Kyriakides is chief executive of Genersys and author of The Energy Age.

Visit www.genersysplc.com