Government’s Feed-in tariff cut was a masterpiece of miscommunication

I’ve had a series of very interesting conversations with parties involved at various points in the supply chain for solar PV products over the last few days. Invariably, there is bemusement at the Government’s ham-fisted changes to the Feed-in tariff. As I said to one contact, “You know something has been b#&*%ed up when it creates an alliance between the CBI, the Local Government Association and Friends of the Earth.”

However, it is the manner of the communication and timing which has left me truly dumbfounded. The decision to announce a 50 per cent cut in the tariff, but delay implementation for over a month has created chaos in the marketplace.

It is the equivalent of the Chancellor of the Exchequer announcing that he intends to double cigarette duty in his April Budget but delaying actually starting until May. I think we all know what would happen. There would be a gigantic surge of fag buying with a stockpiling of Benson & Hedges on an unprecedented scale! Of course, that boom would lead to an inevitable bust as soon as the change came in.

Much the same is now happening in the solar PV market. Much better in my view would have been a solution which has been rumoured in another sector, namely a fuel price stabiliser, whereby consumers would be cushioned from the impact of fuel price rises by a corresponding reduction in fuel duty.

It is easy to see how this sort of solution could have been implemented in the solar PV market. Unit cost of solar PV has been falling sharply of late. A stabiliser system would have reduced the Feed-in tariff in line with any reduction in the unit cost of equipment, thereby ensuring that nobody was making a killing, but at the same time not collapsing the entire market.

Instead, the heating industry runs itself into the ground trying to satisfy short-term demand, all the time knowing that the market is going to go into free fall on December 12th.

Madness!

UK Economy: tales from the front line

In a sort of 21st Century version of Cobbett’s Rural Rides I have been meeting senior managers at companies across the UK. Some were clients, others were suppliers to clients, some were merely acquaintances, but the common denominator amongst them all was an almost desperate desire to talk about the state of the UK economy. Unlike Cobbett my trusty steed was a Seat Altea and my rides were more urban than rural but you get the gist – I’ve been out a lot.

I personally have three tests of economic vibrancy, namely traffic levels, “sold” signs and skips on my street. All three have been giving off conflicting messages recently, hence my interest in gauging the opinion of those on the front line with real P&L responsibility.

So what is going on out there? My first conversation was with a managing director of a premium priced organic healthcare products company which sells directly to consumers and through retailers. In his words, “we’ve dropped off a cliff”. Ahhh not good then!

In Solihull a chief executive of a financial services company which is strongly aligned to consumer spending patterns, admitted to me last week that things had slackened off but he remains optimistic, despite some inflationary fears. “The thing I have noticed is the price of eating out” he told me. “I draw the line at £25 for a steak. I told the wife to get the BBQ out instead.” However his view is that, rather than not buying at all due to increasing prices or concerns over the economy, consumers will take advantage of the vast range of different price points for products and trade down to cheaper items.

That’s the down-ish side, but a trip to Bedfordshire to meet the managing director of a drainage products company with strong ties to the construction sector painted a different picture. I naively offered the opinion that things were presumably difficult at the moment. “Oh no” he said, “we’ve just had a record-breaking 2010 and we are ahead of target for this year.” Noticing my double-take he went on, “we supply to commercial developments and they’re doing fine.”

I finished my grand tour in Worcestershire at a global machine tool builders which manufactures metal cutting machines for anything from £60k through to £2 million (big ticket items then!). Rarely have I seen a factory so busy. In the words of the harassed looking production manager, “we can’t make ’em fast enough.”

And this is not just a result of the weak pound sucking out exports. I’m told that UK sales are going great guns as well. One of his colleagues in sales offered this opinion: “I think a lot of our customers are taking the view “let’s just get on with it!”

What is clear is that the closer you are to the consumer the more difficult life is likely to be at the moment. If the UK economy is to stop flat-lining and return to growth we need more of that can-do attitude I saw in Worcestershire.