Solar developers turned off by rollercoaster policies
The UK solar sector has seemingly become a victim of its own success, with big developers and investors now claiming they will not be making use of the Contracts for Difference (CfD) scheme for large projects over the next year.
According to a new survey conducted by PwC in conjunction with the Solar Trade Association (STA), the majority of developers who were responsible for adding more than 1GW to the grid in the past six months have said they will be focusing on smaller projects in the short-term, due to the recent closure of the Renewable Obligation Certificates (ROC) support mechanism for large-scale solar farms.
As of April this year, solar schemes larger than 5MW in size are no longer eligible for ROCs, which oblige electricity companies to buy a certain amount of their electricity from renewable sources. The changes led to an industry ‘gold rush’, whereby developers hurried to connect large systems to the grid in time to qualify for certificates.
ROC to CfD
The Government hoped to create a transition from ROCs to the new CfD scheme, which sees developers from across the renewable energy industry compete with each other in reverse auctions to win subsidy contracts.
But a diminished pot of support funds under CfD has created an unevenly balanced playing field that is demonstratively puncturing the solar sector’s recent growth. The auction process has also made solar farm development much more risky for the small businesses who typically build them.
It is anticipated that the next allocation of CfD contracts will begin in October 2015 but, according to the survey, nearly two thirds of solar developers said they will instead be focusing on projects smaller than 5MW, which do not qualify for the CfD scheme but do continue to qualify for Feed-in-Tariffs.
“The scale of finance and construction achieved at an accelerated pace for the ROC deadline demonstrates the solar industry’s maturity in using cost-effective and tested technologies,” said PwC’s director of energy and utilities John Dashwood. “Solar has gained trust in the financial community and now represents an important part of the UK economy but recent changes have created industry uncertainty at an important time.
“In particular, survey respondents are yet to be convinced about whether CfDs will work for them. With any renewables technology, viable returns on investment are key and the survey reflects wider industry concerns about costs and support in the new policy environment.”
Developers and investors also voiced concerns about the rising cost of grid connections, with 80% of survey respondents citing a rise in costs over the past year. The 29 developers and investors that were questioned made 254 grid applications in the past six months and received 167 approvals – but accepted only 34 grid connection offers.
The STA’s chief executive Paul Barwell said: “The responses to this survey highlights how rising grid costs are becoming more and more of a problem. The fact that solar developers only accepted one fifth of the offers they received showed that something is seriously wrong with the offers that the grid operators are handing out.
“We are also concerned how few companies are embracing CfD’s. Considering this is the only route to market for utility-scale installations once the RO closes in 2017, we have our work cut out to ensure smaller businesses can be part of the bidding process in future auction rounds.”
Solar PV accounted for 6.1% of renewable generation last year – almost twice that of 2013, due to an increase in capacity. But this upward trend may discontinue in 2015 as there will be no large-scale solar plants developed in the UK under either the CfD or RO schemes.
© Faversham House Ltd 2023 edie news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.