pv magazine: A post-Brexit U.K. solar market may be free from minimum import duties, but it is likely to be at least two years before EU treaties no longer apply by which time the MIP could be irrelevant. Whats Solar Power Europes view on this, given current price reduction trends in solar?
James Watson: There is a short-termist view that some in the Brexit camp have put forward, suggesting that solar in the U.K. would benefit from being outside the EU, because the U.K. would then be able to charge the import duties that they want, ie, nothing. On the VAT issue, some are saying that Brexit would be great because the U.K. could have 5% VAT, and no minimum import price (MIP) on panels coming in from China, thus making the energy transition much cheaper.
Those are short-term arguments. On VAT, the European Commission has already announced that it will bring forward a review package on the VAT directive in 2017, so at the moment there is no pressure on the government to change the VAT rates whatsoever. Also, the MIP is to be decided by the end of this year. The feeling is that we might well be MIP-free by the middle of next year, so this has to be taken into account the trading situation with China is likely to improve.
Would you say that single EU regulation, such as the Energy Efficiency Directive and the Energy Performance of Buildings Directive, has been the driver of solar adoption in the U.K.? How has EU membership benefited the British solar industry?
Those short-term arguments may sound seductive, but in reality you have to strip it back and ask: where did solars growth in the U.K. come from? Frankly speaking, it is simple: with the European Renewable Energy Directive, there would have been no pressure on the government to do anything to support renewables, and especially the current government, which is not very supportive of solar. You would find it hard to imagine that without the EU they would have put in place the kind of legislation that would have seen such a boom in recent years.
The UK is now Europes third-largest PV market in terms of installations; that would never have happened without the renewable energy directive, and that was something that came from the European Commission.
So looking at the overall framework for renewables, it is hard to imagine a U.K. outside of the EU doing anything to put solar forward. These are frameworks set up at EU level, not London, and it has been the EU that has been the driver of solar in the U.K.
How has this uncertainty impacted investor confidence in the U.K. solar market?
Former U.K. energy and climate secretary Ed Davey has said that investor confidence is being knocked because of the uncertainty and volatility inherent within the U.K. at the moment. Yes, hes right this landscape is not attracting investors, they will go elsewhere. But remember, the U.K. is still in the EU; its true that uncertainty is harmful, but it would be worse if the U.K. was outside of the EU, because then there are no frameworks. The U.K. still has these problems even while in the EU, so if the country behaves like this changing its policies regularly and also lacks the EU framework to guide it, then it will frighten off investors even more and have very little hope of enticing them back.
What might the U.K. energy sector look like outside the EU? What kind of relationship could Britain strike with the EU perhaps something similar to that enjoyed by Norway (which allows it access to the single market but means it has to accept all trade rules, including MIP, and free movement of people)? But if thats the case, then wouldnt that make the reasons for Brexit kind of moot?
You can look at the Norwegian model and see Statoil doing well, sending lots of gas down to Europe. They also have their hydro, supplying power to Denmark. The U.K. could go a similar way, creating access through interconnections the country has with Continental Europe, so the Europeans wouldnt want to be without the extra energy the U.K. can provide. So a similar model to Norways is possible, but the U.K. will have to abide by certain rules, which means that everything Brexiteers think they are gaining in terms of independence, they are not. The U.K. will simply have to adhere to it.
Another idea is to join the Energy Charter Treaty, which basically ensures that you have a certain commonality in the approach to the EU towards energy policy. The irony here though is that most of the countries that are members of that are accession countries that want to enter the EU and to harmonize their systems with Europe. Its a kind of EEA-lite; all that would be happening by joining that treaty is the requirement to basically do what you need to do to trade freely in the energy market with your European counterparts.
So I dont see much of an alternative from these models, which basically means having to do what the EU wants you to do, but without having a seat at the table. If you go to the broader WTO situation, the U.K. will quickly find that the world is a much harsher place than a lot of Brexiteers believe it to be. The U.K. turning up to a negotiating table with China or the U.S. with a list of demands of what they want for a free trade agreement? Im afraid the list will be screwed up and tossed away, probably accompanied by a fit of laughter. What will happen is the U.K. will receive a pre-ordained list of things the country will have to do to access these markets. They will be told to sign or go, basically.
This is the reality of trade negotiations. There is a naïve belief that this one country would be able to stand and hold negotiations with the Americans, and force them to agree certain terms, when even the EU a 28 country bloc already has tremendous difficulty in doing so. How will the U.K. achieve anything better?
What about general brain drain? Much of the UKs solar expertise is underpinned by Europeans, many of whom may leave Britain if Brexit happens is this a concern for SolarPower Europe?
One concern is that the U.K. is the third-largest solar market in Europe. There is expertise in U.K.-based companies that want to explore market opportunities in the EU, and these opportunities would be denied them if the U.K. exits the EU. It will be much harder for U.K.-based companies to bring their services and know-how to potential European markets. Poland, for example, could really embrace solar at some point in the future, and U.K. firms should be well placed to move into that market. But they wont be able to do that as easily outside of the EU. That is a concern.
The lack of access for British companies that have done well during the U.K. boom in Europe this really is something that needs to be taken on board by voters. 1 GW of investments could possibly disappear companies across many markets and sectors have made it clear that if the U.K. is outside of the EU, they dont see the value of investing in a market of 60 million people, when there is a market of 450 million just next door. It would make more sense to go to the larger market.
Europeans working in solar in the U.K. would also be in a pickle. There could well be a brain-drain from these companies. These are two ways that UK businesses could suffer hugely if the country came out of the EU. The market in Europe is not at 20 GW a year anymore, but there are good opportunities across the continent.
And conversely, do you foresee any positive impact a remain vote have on both the U.K. and European solar landscapes? Or will it simply be a case of business as usual?
It will be business as usual. If when we wake up on the 24th of June [the referendum is on June 23] the polls show a vote to remain, there will be a mixture of relief and perhaps a hangover or two but generally it will be a case of "Phew!, now back to the day job of actually making sure that solar in Europe grows, and solar in the U.K. grows, and not have this sideshow frenzy that is distracting and destabilizing." We have been put through quite a lot, and hopefully when we see its a remain we will look back and say: "We really didnt need that."
The forthcoming June issue of pv magazine features an in-depth round-up of all of Europe's leading PV markets, including the U.K., with further analysis of the potential impact of Brexit. Published June 13.
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