The Solar cliff-edge
Planning for major solar projects isn't working so developers are keeping projects small.
For me, there is no more persuasive evidence in policy than a line graph with a cliff-edge.
Take the VAT Registration Threshold, businesses with annual turnovers equal to or below £85,000 do not have to register for VAT. The measure is designed to cut the administrative burden of tax on SMEs, but it has an unintended consequence. A business close to the threshold will face massive marginal tax rates on any revenue that takes them over. In effect, earning £1 more could net a business on £84,999 an extra £17,000 in tax. Understandably, businesses close to the threshold do all sorts to avoid tipping over. In The Times, tax specialist Dan Neidle reports that many self-employed people simply stop working when they get close to the threshold. The impact of the threshold is clear as day in the data. As the chart below (from when the threshold was £81,000) shows, as soon as earnings hit £80,000 or so, the number of sole proprietors plummets by more than half. It’s clear evidence that incentives matter and that taxes affect behaviour.
Or take French employment law. Hitting 50 employees is a milestone that most businesses would see as cause for celebration, but in France it came with a catch. All firms with 50 or more employees were forced to set up works and health-and-safety councils run by elected union delegates. Managers were forced to consult the councils on all range of issues. For instance, the Economist cites the example of managers being forced to consult employees on the rearrangement of office furniture. More significant to firms is the need to negotiate all layoffs of more than 10 staff members under a tightly regulated social plan. The impact is that many firms are reluctant to hire more than 49 employees as the chart below shows. Again, we see a massive cliff-edge. It’s clear evidence there’s a trade-off between more generous employment benefits and employment.
As part of my role at Britain Remade, I’ve been looking at the problems with the planning system for major infrastructure projects and I recently came across another striking cliff-edge (though sadly not a line chart). The energy wonk Adam Bell recently shared a graph looking at the mega-wattage of solar farms applying for planning permission. It shows a really stark bunching at the 49MW mark.
So what’s going on here?
All solar projects generating more than 50MW or above worth of energy must go through the Nationally Significant Infrastructure Planning (NSIP) process. If you read my last post on infrastructure, you will know that this process was created originally to be a fast-track for complex and large infrastructure projects. And to start with, it worked. However, over the years, the process has become increasingly cumbersome.
Almost half of all decisions for projects (all, not just solar) going through the NSIP process are delayed. The NSIP process typically takes 22 months to navigate, but that’s an average. The Norfolk Vanguard offshore wind farm waited 44 months for a result. This, of course, doesn’t include the pre-application process, which usually involves multiple consultations, environmental assessments, and documentation. In fact, the average NSIP submission was over a thousand pages long (1,143 to be exact) in 2020.
Why has the process become so difficult to navigate? National Policy Statements, the documents that planning inspectors use to assess whether a project should go ahead, haven’t been updated in ages. They’re meant to be regularly re-assessed and updated every five years, but the National Policy Statement for Renewable Energy was last published in 2011. There’s a draft updated document, but it’s still awaiting implementation. The problem is that solar technology and climate policy has moved on since then.
This isn’t just the case for solar. All forms of energy generating tech and the transmission networks they rely on are awaiting updated National Policy Statements. The consequences of a lack of policy certainty are more and more documents attached to every planning application, frequent legal challenges, and ultimately, a greater reliance for the UK on foreign imported gas.
The result is a perverse scenario where developers would rather take their chances with local authorities than subject themselves to the NSIP process’ (in theory) fast-track.
The good news is that this should be easy to fix. There’s an updated National Policy Statement for renewables, which has already been consulted on, sitting on the Secretary of State for Business, Energy, and Industrial Strategy’s desk. All the Secretary of State needs to do is hit publish.
The bad news is that the out-of-date national policy statements are far from the only barrier to abundant clean energy to be overcome. We also need a siting strategy for new nuclear power stations, reforms which streamline environmental impact assessments, the legalisation of onshore wind, and much, much, faster connections to the grid, but that’s for another post.
Sam, you clearly don't understand VAT. Reaching the threshold and registering for VAT will REDUCE the tax a business pays, as it will now be able to reclaim from HMRC the VAT it has paid to its VAT-registered suppliers. Neither will the business itself pay any VAT to HMRC. What it will have to do is charge its customers VAT and pass this on to HMRC.
That's why small businesses are reluctant to breach the threshold and register - because they fear that having to put their prices up by 20% will discourage their customers from ordering and hence reduce their income.
Yes, well, putting solar farms on productive farmland in a wet country latitude 52 degrees North is on the far ultra-violet edge of the stupid spectrum.