Blog: Holding Our Nerve in an Uncertain Market
By Julian Morgan-Jones, MD South East Wood Fuels and chair of the WHA.
Recently like many of you I have been feeling as though it cannot get any worse for our industry … and then it does. Slow death by a thousand cuts comes to mind. You may have noticed in a recent WHA newsletter about the demise last of month of WHA member Purple Energy Ltd in Staffordshire. This is not the only or unfortunately the last of a recent spate of companies going out of business within renewable heat sector. A recent roll call elicited a list of over 20 companies which have gone to the wall over the last 6 months. While some of these were opportunists seeking to make hay while the RHI sun shone on the small and domestic boiler market and whose poorly implemented projects will not be missed, many like Purple Energy were sizable, well reputed, highly professional renewable heat installers. It is shocking and tragic for those who are employed by these businesses and is also deeply frustrating and dispiriting for those leaders who have invested a chunk of their lives, energy and money in building solid, sustainable businesses to see them end this way.
As an industry reliant upon government we and our customers need both supportive polices and policy stability, neither of which we have right now. The euphoria of a renewed RHI budget last November has given way to the realisation that “business as usual” did nothing to rejuvenate the highly successful small biomass market. This previously underpinned most of our growth and the much hoped for increase in the sales of medium sized systems has simply not replaced the loss of business in the small and domestic sector. Real lives and real jobs are being impacted while we wait for the ponderous wheels of government to respond later this year in autumn to the RHI consultation of last spring. At a meeting last week with clients keen to invest in wood heating the key barrier to the sale was uncertainty over whether the medium biomass tariff would be degressed in October and January. Add to this the continuing pressure of low oil prices, the Brexit vote, and an almost complete change of government nothing feels certain at the moment. Some have even expressed the view that even if the news is good for us in October, will there be an installation industry left to respond?
As a wood heat business owner I have been as confounded as many with these developments. As Chairman of the Wood Heating Association I have given a lot of thought to what I can do or say that can make any of this better or to provide hope under what is without doubt a very difficult time. I do believe however that there is hope in both the medium and long term and that we very much need to hold our nerve and stay the course.
Having worked closely with government and civil service departments in a previous working life, it often felt that getting anything done at senior levels was difficult and time consuming. In my role as WHA chairman for the last 2 years, and working with the REA/WHA team I have begun to get a better grip on working with government and hopefully able to interpret the signs of progress. We have been here before. Prior to last year’s announcement on the renewal of the RHI budget, we all believed the prospect for anything positive for renewable heat was very poor given the slew of bad news for most other renewables. That said even then there were chinks of light which penetrated the gloom but to which we did not give credence given the overwhelming negativity. These chinks proved ultimately to be more representative of the truth so this time round I am going to pay them more heed.
Given that a big hike in oil prices seems very unlikely in the short to medium term, our lot lies with a more favourable policy context and more certainty from government. While we wait for clarity in October we need to remember that the government is (and this means ministers personally are) still legally obliged to meet carbon reduction targets. They have already committed a £720m budget to 2020 for the RHI and need to find a way to meet the heat targets within this budget. We also know that wood/biomass regardless of size provides the lowest cost renewable. There is a solid logic to what solutions government needs to be looking at. Add to this the £320m budget allocated to supporting the development of heat networks for which biomass by virtue of the last statement is the obvious low carbon choice. This means there is up to £1.04bn which could go towards supporting biomass heat in the next 4 years.
A key feature of the RHI consultation last spring was the change in focus of the incentive towards ‘big biomass’ to improve value for money and as the big hitter to meet carbon targets; and also towards heat pumps to support development of an infrastructure to meet government’s strategic heat objective for the electrification of heat. Working with the DECC heat team, the WHA argued in our consultation response along with many WHA members and in face to face meetings that there were simply not enough big projects out there to achieve what DECC wanted and that by extension the best course was to refocus on those systems which have proved successful to date.
Civil servants and Ministers are willing to listen, as they are sincerely committed to meeting heat targets. We need understand when and where we can be helpful to government, because that will ultimately also help us. We do not know how government will respond in October but we do know that we have been listened to and that the government is seriously looking at pragmatic alternatives.
Longer term, one hope for the RHI was that it would break with the erratic, boom-bust type stimulation of previous grant schemes. In hindsight, the RHI and its quarterly degressions have extended the boom-bust cycles and we are more or less back where we started. I would dearly love our industry not to be reliant on government support to be viable and I’m sure government would too! Ultimately our industry needs a longer more sustainable alternative.
My instinct tells me that it would be better for wood heating to operate on a level playing field with fossil fuels where their true cost was reflected in either carbon taxation or in building/planning regulations. This would demand a lower maximum level of carbon emissions for new or replacement heating sources. It is no accident that a good proportion of the biomass boilers installed in the UK over the last 4-5 years are Austrian. A fossil fuel taxation approach taken by the Austrian government in the 1970’s led to the huge growth and technological developments in wood heating that we are now benefitting from. Two months ago with the previous government anything along these lines would have been unthinkable. The recent Brexit vote and governmental changes have thrown all the cards up in the air. While the immediate instinct is to mourn the loss of what we know and often to want to scramble to put the cards back in a similar order we must not lose sight of the opportunity to put them back in a new order – one that suits us better in the long run.
Do all these recent political changes give us cause for hope? Taking a ‘glass half full’ approach there are chinks of light here as well which suggest that it might. The withdrawal of Cameron mean that most the “green crap” detractors have gone and Andrea Leadsom a key sceptic in DECC has gone from any position of influence over energy. The absorption of DECC by BEIS means that energy is now part of a larger department with access to larger resources and more influence. Moreover the appointments of Greg Clark at BEIS and Phillip Hammond at Treasury is positive, as both are noted for their acceptance of climate change and historically for their advocacy of green issues. Hammond is even credited with redefining the Conservative argument on Climate Change and for his strong support for the Paris COP. Nick Hurd is a keen environmentalist and former chair of the APPG on the Environment. While Theresa May has not really shown her colours either way, could we see these appointments and her stalling on Hinckley Point C as a preface to a significant change in UK energy strategy? Is a new context developing that could see a significant change in approach to renewables?
For biomass heating, the consequences of Brexit are still too early to call and the complexities too deep to speculate on, as is how any change in the UK’s political context will impact biomass heating directly. What we do know is that while the wood heating sector is suffering right now, there is a solid foundation of budget, intent, and pragmatism behind a positive outcome for biomass heating in autumn and the next 4 years. In the mean time we need to hold our nerve and work with government to get the best outcomes for the biomass heat industry and the country in the short and long term.
Note: The Board of Directors of the WHA will each month publish a blog on topics related to the biomass heating industry. The views expressed in this blog post are those of the author(s) and do not necessarily reflect the views or policies of the WHA/REA.