Presently the United Kingdom’s economy—and indeed its society as a whole—is undergoing an immense transition. The Brexit referendum of June 23rd, 2016 saw a majority of Britons vote to leave the European Union (EU), and with it, a new era begins for the UK in the international community. To pro-Brexit Britons, the UK’s departure from the EU means a return to sovereignty in London, free of the perceived red tape and nanny state oversight of Brussels.
To pro-Remain Britons, the UK’s departure is a disastrous move for the UK’s economy, as well as its broader standing within the international community as it will now no longer have an official voice in Europe’s most powerful institution. Whatever your view, it’s clear the UK leaving the EU has many substantial implications for the UK’s solar industry, and the wider renewable energy industry.
The build-up to an official Brexit
In order to provide a fair understanding of the current state and future prospects of the UK’s solar industry, it’s first necessary to review the key events of recent years since the Brexit referendum, as ultimately these have had a bearing on where the UK solar industry stands today.
Although a majority of Britons voted to depart in June 2016 it was a relatively slim majority, with 52% in support of Brexit beating 48% in support of remaining in the EU. Given the actual act of Brexit promised such momentous economic and geopolitical implications—with the British Pound dropping to a 31-year low in the hours following the referendum outcome becoming known—many Britons (politicians and private citizens alike) responded to the Brexit vote with appeals for the Parliament to stop Brexit outright, or at least hold a second referendum.
These calls grew louder in the years to follow as economic turbulence continued and the British government led by Prime Minister Theresa May was unable to get a majority to pass a Brexit deal in Parliament. But ultimately as of January 31st, 2019 Brexit has now occurred—but it’s nowhere near clear sailing yet for the British government, with this 2020 year ahead to be it’s most high-stakes yet.
The key events of this year
Since leading the Conservative Party to a thumping reelection victory in December of last year, UK Prime Minister Boris Johnson’s government has gotten an exit deal passed in Parliament and presided over the UK officially leaving the UK on January 31st, 2020. A “transition period” is currently in place that lasts until December 31st of this year where although the UK loses voting rights in the EU it previously had, by most other measures it’s “business as usual” in terms of UK-EU trade and cross-continental engagement.
Amidst this transition stage in months ahead, the UK and EU will look to finalize a trade agreement that would codify the new trading relationship between the two parties. It’s expected a UK-EU summit in June would see finalization of a new trade deal occur, if indeed both parties can agree to one. If they cannot—and in absence of a last-minute agreement or an extension to trade talks occurring—then the end result of this year could be a “no-deal” Brexit.
In this scenario, the UK would default to trading with the EU via World Trade Organisation rules. To some Brexiters, this is seen as the ideal outcome, but numerous economists have warned such a result would be an economic disaster, not only for the profoundly difficult position in places the UK in going forward in terms of trade but also in terms of logistics. As the UK would no longer fall within the scope of the EU’s mutual recognition system, it’s expected a no-deal outcome would result in immense delays at UK and EU borders, with a November 2018 report by the UK’s National Audit Office estimating British authorities would see the number of custom declarations they need to process skyrocket from 55 million a year to 260 million a year.
With this background now detailed, it can be contextualized as it applies to the past, present, and future state of the UK solar industry.
The core takeaway of recent years that is that there’s been an extended period of instability as a result of the UK being unable to quickly achieve Brexit—whether supporter or opponent of it, all could agree on the negative impact uncertainty has had on the UK economy—and that accordingly even with it now clear Britain will no longer be a member of the EU, there is set to be many years of uncertainty to come.
The state of UK solar
At the outset of any critical assessment regarding Brexit’s solar industry the obvious must be acknowledged: yes, the UK is not famous for its sunshine—it’s quite the opposite. Nonetheless, although many cities like Manchester, Cardiff and Glasgow are indeed renowned for their rain comparatively the UK isn’t as rainy as perceived, ultimately coming in around the 70th rainiest nation in the world.
Yet, even so, it’s something of an unfortunate quirk of geography that although the UK is surrounded by a number of nations that are among the sunniest on the planet—principally Portugal, France, and Spain—that it does not even enter the top 30 in rankings of the world’s sunniest nations means anyone who would look at the state of the solar industry in surrounding nations and anticipate some equivalency would find it’s altogether a different playing field with the UK. This said, this reality ultimately makes the UK’s recent endeavors in this space all the more impressive, given Britons have indeed displayed strong support for solar, and the potential of renewable energy generally.
The transition era
In June of 2019, the UK passed a new law that set the year 2050 as the target in which it would reach net-zero emissions. Already the UK had made some strong inroads to a net-zero future, estimated by 2019 to have reduced emissions more than 43% since 1990. Impressively, the 2018 measurement also saw UK’s emissions estimated to be 2.5% lower than in 2017, illustrating as technologies improve and momentum behind sustainable policy grows in the public and private sector alike, an increase in the speed in which emissions reductions take place year by year could occur.
Yet even so, for the UK solar industry finding the footing for its future will remain a challenge. One where even if the UK gets a real sweetheart deal with the EU that sees a relatively orderly exit at the end of this year, this will still by any measure by a confronting new world for the modern nation, with the expectation it will take at least until the mid-2020’s for it to once again have anything resembling normalcy in its national life.
Although UK residents have been keen adopters of UK solar, the industry has also known its setbacks. Even though as of 2016 an impressive 800,000 households had solar, and 2018 polling confirmed a majority of Britons desire to install solar panels, ultimately the target of 10 million panels on homes by 2020 set by Imperial College London back in 2014 has proven a very high bar, with recent estimates holding there are just over 1 million solar installations across the country.
The very popular Feed-in Tariff scheme came to an end in March 2019. Even though the Smart Export Guarantee (SEG) that’s taken effect since January of this year shall offer some benefit to solar panel owners looking to receive some money back for the extra energy they export to the grid, to the minds of many it has been offering a far more uncertain climate in the long term. In absence of the promise a substantial investment in solar today will be accompanied by a strong return on investment (ROI) tomorrow, it’s no surprise predictions have been rolling in that far fewer Britons will feel incentivized to take up solar unless the government restores a more enticing scheme.
Recent months have seen many uncertainties surrounding Brexit resolved—namely that it is (barring some unimaginable political revelation) now certain to occur, and given the UK is officially in a transition period no British-based business in 2020 will be playing the waiting game to see if the nation may just remain after all—but there do remain issues substantial matters where the final outcome is far from clear.
If a no-deal Brexit occurs, the UK will immediately cease being part of the EU VAT and customs union. This will result in the UK being defined as a “third country” for such taxation purposes, and accordingly would result in a raft of new paperwork, alongside the more significant impact it could have on cash flow for businesses.
Given so many issues have been resolved—and the UK solar industry remains standing—writing any business off as a result of another economic speed bump in the road would be a bold call. But nonetheless, the potential for this to be an immense disruption in the short term is considerable, meaning if a withdrawal agreement is not in place by late December of this year, businesses across the nation will have to prepare for a rude interruption to their annual holiday season when the UK crashes out on December 31st.
There’s also the capacity in this area for the government to kick a big “own goal”. When word got out in mid-2019 that the Treasury had plans to hike the VAT on new solar battery systems from 5% to 20%, while retaining the existing VAT on coal. This led to criticism by the Renewable Energy Association (REA) that such a move “contradicts the government’s commitment to tackling climate change”. Regardless of what’s transpired in the year prior, for all the good work the UK government has done in advancing solar Brexit only is certainly not the biggest hurdle to its future.
Furthermore, it is possible the future of UK solar may get the “worst of both worlds”. Where predictions of uptake due to anxiety surrounding power supply and costs ultimately does not come to pass, while the government and the wider community seeks to prioritize other renewable energy projects, like wind power in Scotland that—provided Scotland does indeed remain a part of the UK and not opt for independence in a second referendum that Holyrood has been pushing for—is proving to be a leader not only in the UK’s renewable energy sector but indeed the whole worlds.
Seeking the sunshine
Even if the UK does finalize a trade deal done with the EU in months ahead, there’s little-to-no chance it will allow the UK to retain such favorable economic concessions as it has previously enjoyed in trading with European nations as a member of the EU. Pro-Brexit optimists will quickly point out when this reality is raised that by no longer being a member of the EU the UK will have the opportunity to more easily pursue free trade agreements with other non-EU nations globally.
This is true, but so too is the reality that although many Brexiters may look upon the idea of the UK being free of the EU with romantic memories of London’s international standing and economic power before it joined the European Economic Community—the precursor to the EU that was incorporated into the latter once it commenced in 1993)—the UK is not in 2020 what it was in 1973, and neither is the world around it.
Especially because just as nations once closely aligned economically with the UK—such as Canada and Australia—have since cemented new trading links in North America and Asia. Given the heritage, such nations hold in the UK, and the strong ongoing diplomatic relationships they retain, certainly government economists in Ottawa, Canberra, and beyond will be receptive to forging closer trade ties with a post-Brexit UK.
But there can be no mistake that just as the UK’s decision to join the EEC in 1973 saw an economic decline between the UK and a number of its former colonies, so too is it impossible for London to now turn back the clock.
Especially because it’s expected the years and decades ahead will see a number of nations in Asia, Africa, and Latin American continue to grow rapidly. Indeed, according to PricewaterhouseCoopers when measuring GDP at PPPs, by 2050 Indonesia, Mexico, and Brazil are expected to secure their place among the world’s top 8 economies, with Europe’s biggest economies in Germany, the UK and France to be decisively overtaken, while other current members of this group outside Europe in the US, India, and Japan will remain. For the UK solar industry, there is some measure of solace in the notion that even if a “no-deal” Brexit does occur at the end of the year—for all the upheaval that will bring to other areas of the economy—in the years ahead it could ultimately result in an uptick in popularity for solar. This owing to the understanding these intervening years between when the Brexit result was first known and now has seen many UK households pursue solar installation. Doing so as a result of their concern surrounding the instability that a no-deal Brexit would look like.
By no means will this see solar panels adorn every rooftop across the UK before the end of the year, but the absence of stable EU-UK energy transfer deals that would accompany a “no-deal” Brexit means upon such time as no-deal occurs, households across the UK would immediately look to avenues that could increase their own energy security and protection against a spike in prices going forward.
This concern is not unfounded, with early September 2019 bringing news that the UK’s reliance on energy exports had climbed to a record high. In turn, by the leaked UK gov report Operation Yellowhammer, that forecast energy prices would climb in event of a no-deal.
Ultimately, the anguish over climbing energy prices being seen across the UK has also not been helped by the government and wider political class’ preoccupation with Brexit. Although undoubtedly it’s understood why this “once in a generation” political issue has distracted for many years now, it’s also unquestionably come at a cost.
Not only have many would-be solar adopters been stopped in their tracks by the SEG, but reportedly investment in UK renewables had declined 46% as of early 2019 due to the ongoing uncertainty surrounding Brexit.
That’s why now in 2020 it’s clear, following the national election that the greatest gift the solar industry could receive from the UK government and the Parliament is the delivery of a quick and orderly Brexit . And in the interim, a return of focus to the policy development and support of the industry more widely that saw in achieve such strong growth in the years before the historic poll of June 2016.
A special word on the coronavirus
Brexit and all its machinations have been a game-changer for the UK solar industry, and now 2020 has required the UK to contend with another seismic event: the coronavirus outbreak. The outbreak has now been declared a pandemic, and its spread across the world has wreaked havoc not only on human health, but on supply chains and commercial operations too. As a result, it can be expected the UK solar industry will once again have to brace for another setback.
It's possible in this arena—especially for those businesses who don’t utilize Chinese solar panels or have substantial parts of their supply chain located in the nation—that they could ultimately make some gains due to their supply chain not being disrupted.
But even so, it’s anticipated government resources and consumer spending will undergo a substantial shift in the months and weeks ahead, meaning even if existing solar businesses are able to carry on as normal it’s unlikely the regular operations of public authorities and demand from their customers will continue the same.
What’s your opinion on the current state of the solar industry in the UK? Aside from coronavirus, do you feel Brexit will ultimately help or hinder the UK solar industry in future? We at Solar Magazine would love to hear your thoughts, so let us know in the comments below! comment↓