One year on: How has the solar feed-in-tariff closure impacted renewables in the UK?
The UK's Feed-in Tariff (FiT) scheme for small-scale renewable arrays closed on 1 April 2019, much to the disappointment of key green campaign groups and solar industry figures. But, in the 12 months that followed, how has the market responded?
Launched in 2010, the FiT scheme provided payments to owners of small-scale renewable generators at a fixed rate per unit of electricity produced, enabling the cost of installation to be recouped.
It was applicable to all forms of renewable generation ,but its impact was ultimately most felt in the solar sector. In January 2010, just 100MW of solar photovoltaic (PV) capacity was deployed across the UK. By the end of 2017, the cumulative total was 12.7GW, of which 4.8GW was supported by FiTs. By March 31 2019 – the final day of FiTs – the cumulative total of installed capacity supported by the scheme was 6.2GW.
Even in its final weeks of operation, the scheme was growing in popularity, according to official figures from the Department for Business, Energy and Industrial Strategy (BEIS). The Department recorded a 3% year-on-year increase in capacity installed between March 2018 and March 2019, or a 4% rise in total installation numbers.
The Government’s decision to close the FiT scheme was, therefore, unsurprisingly criticised by key figures and organisations across the UK’s green economy.
Shortly before the closure, Green Alliance warned that the move would affect 30 community solar projects totalling 4MW, and a further 77 private and public sector renewables projects, totalling 32MW of solar and 21MW of wind.
Separate research from SolarPowerEurope revealed that the impact of the decision was being felt long before the final closure of the scheme itself, with installation numbers halving in 2017, then again in 2017. Even before the decision on FiTs was taken, the UK Government had introduced a string of subsidy changes which collectively saw financial aid for solar arrays of all sizes slashed by 65%. Most notable was the closure of the Renewables Obligation (RO) initiative.
A bounce-back on the horizon?
It is worth noting that, given that subsidy changes relating to commercial and industrial-scale PV were made before the FiT closure, the market has had longer to react and stabilise in a new financial context.
EY ranked the UK seventh in its May 2018 Renewable Energy Country Attractiveness Index (RECAI), up from tenth in the previous iteration of the bi-annual ranking. The consultancy broadly attributed this improvement to the investment landscape settling as the market adapted to the RO closure and preparations for the FiT closure progressed.
Stabilisation – or even positive change – in the wake of the FiT closure is likely to take a little longer to materialise. BEIS’s latest statistics show that 43% fewer small-scale PV installations were made across the UK in February 2020 than in February 2019 – a trend the department attributes almost entirely to the FiT closure.
This is despite the introduction of the Smart Export Guarantee (SEG), designed by BEIS to ensure that businesses and residents creating and exporting solar electricity to the grid will be guaranteed payments. Unlike with FiTs, the SEG payment comes from energy suppliers rather than central Government. This, according to the Energy Saving Trust, leaves homeowners and businesses at the mercy of the market in regards to how long payments last and how much they will be, with different suppliers having different offers and some having failed to outline SEG procedures before the scheme was introduced last summer.
Since the introduction of the SEG, industry bodies such as the Renewable Energy Association (REA) and Solar Trade Association (STA) have been calling for a fair minimum price for generators and a minimum contract length. Measures undertaken to date by the central Government and by regulator Ofgem have not yet resulted in the creation of such sureties.
A way forward
It is worth noting that the STA has long accused BEIS of producing poor data on solar installations; the Association claims the Department has continued to exclude subsidy-free arrays from its calculations even after the changes to the RO and FiTs.
With this in mind, BEIS’s 43% year-on-year drop, detailed above, may not be as steep as it first seems.
The STA’s data shows that residential solar sales have broadly held steady over the last 12 months – due to a combination of the SEG’s launch; the UK’s legislating for a 2050 net-zero target; increasing public interest in climate change, off the back of improved scientific research and growing protest movements; and higher energy standards being introduced for new builds by several local authorities in Scotland. On the latter, Scotland’s net-zero deadline is notably five years ahead of the broader UK ambition, with several key cities having set more ambitious deadlines still (Glasgow’s is in 2030, as is Edinburgh’s).
BEIS has said it is “reviewing data sources to improve coverage”.
In the absence of Government data on overall installations, what can be assessed are PV technology costs. The IEA estimates that solar power costs, having already plummeted in most markets since 2010, will fall by a further 15% to 35% by 2024, spurring further growth over the second half of the decade.
Taking standalone, small-scale installations in the UK specifically, research from consultancy EVORA concluded that a 50kw PV system – including design, structural engineers report, mechanical and electrical (M&E) support and the installation itself – cost an average of £40,000 in 2019, down from £65,000 in 2015. Projects of this size typically generate an annual investment rate of return (IRR) of 12% and have a 35-year lifespan, the research concluded.
These considerations, regardless of the number of other installations, will doubtless prove attractive to businesses, homeowners and investors. Moreover, the fact that swinging tariff rates resulting from FiTs have now been out of the picture, businesses can calculate financial returns with “more confidence”, according to Gloucestershire-based PV firm MyPower.
These trends are likely to materialise in the coming years. A recent study by Centrica concluded that one-quarter of UK businesses without onsite generation are planning to install capacity before 2025, while 80% of businesses with onsite arrays are keen to increase capacity within the same timeframe.
With this calmer policy landscape, the only blip on the road for the deployment of small-scale solar in the UK now would seem to be the coronavirus outbreak. Bloomberg NEF analysis published this month states that global solar demand could be 16% lower this year than previously forecast, due to the sector’s reliance on production in China and the likely impact of social distancing measures on installers.
“Until the Covid 19 outbreak, the STA had been forecasting growth in unsubsidised large scale solar and commercial rooftops in 2020, clearly these projects will now suffer from delays and it is too early to tell the extent of this,” an STA spokesperson told edie, regarding the likely UK-specific impact.
Once the pandemic is overcome, however, the market for renewables in the UK is likely to re-gather momentum, as shorter-term policy measures are developed and implemented to bolster the long-term net-zero target. Meeting the UK’s target, the CCC has repeatedly concluded, will require renewable energy generation capacity to quadruple within 30 years.