Another Uncertain Year Ahead For The UK Solar Industry
Since the introduction of feed-in tariffs in 2010, it's been a roller-coaster ride for the solar industry. As we look forward to the rest of 2015, uncertainty once again prevails. The results of the current CfD auction are keenly awaited but may not provide much of a guide to the future. The prospects for the next round of CfDs in the autumn is questionable, given budget constraints. Moreover, the dramatic fall in oil and gas prices in recent months means that, potentially, top-up payments made under CfDs are going to be much higher than would have been expected a few months ago, providing a further strain on the budget.
It did seem last year that a number of the big international developers would exit the market in 2015 in search of better opportunities elsewhere. However, at the moment, that seems not to be the case. It looks as though there remains an interest in buying project rights in order to bid for CfDs in the auction next autumn, despite concerns over the budget. This means that originators will get paid their expenses but development fees will be conditional on the project obtaining a CfD.
Of course, a ready market still exists for sub-five megawatt projects, which remain eligible for ROCs (until 2017) as well as feed-in tariffs. Feed-in tariffs have been largely neglected in recent years, no doubt tainted by the events of 2011. However, there seems to be a resurgence of interest in them. The ability to get a six-month tariff guarantee through an application for preliminary accreditation gives protection against degression during the six-month period and the opportunity to receive a twenty year index-linked tariff is not to be sniffed at. That said, the forthcoming tariff degression in April will obviously make feed-in tariffs less attractive. Furthermore, as a result of a recent change in policy, the budget for the "large commercial band" above 50 KW will be split, with the majority of the budget being allocated to building-mounted projects. This means that it could take very little deployment of ground-mounted projects to trigger further degressions from July onwards.
The government remains keen on encouraging rooftop deployment. When feed-in tariffs were first introduced, the main interest was in residential rooftop projects, no doubt because of the extremely generous tariffs that were on offer. However, the experience of trying to do business with registered social landlords proved off-putting to many developers.
Commercial rooftop projects are not proving to be particularly attractive either, with complexities caused by the landlord and tenant relationship and the fact that the project viability will depend on the strength of covenant of the occupier who will commit to buying the electricity.
Despite the difficult environment in which is currently operates, the solar industry has proved extremely resilient over the last five years and will no doubt find a way to prosper in the current climate.
