CfDs Will Not Be The Focus For Investors And Developers
Solar developers and investors who were responsible for adding over 1GW to the grid in the past six months say they will not be looking to secure support for larger projects through Contracts for Difference (CfD) in the year ahead.
The findings, from a survey by PwC in conjunction with the Solar Trade Association, examined the impact of the closure of the Renewable Obligation Certificates (ROC) for large scale solar farms on March 31st 2015, and the outlook for solar in the new policy environment.
Solar projects of more than 5MW are not eligible for the Renewable Obligation as of 1 April this year. The survey highlights industry concerns that solar risks becoming a victim of its own success after this change and the results of the first CfD auction.
Despite solar's increasing cost competitiveness with fossil fuels, and the publicised success of CfDs of creating competition amongst renewables, none of those surveyed said they would focus on securing support for larger projects through CfD in the year head. Nearly two thirds of respondents said they will focus on projects under the 5MW limit for ROs in the short term.
Respondents reported 84 percent of their projects in construction in the run up to the deadline were completed (76 out of 90) with power additions of up to 220MW through single developers. Grid connection difficulties "“ due to cost or availability "“ were partly to blame for a quarter of the projects not completed. Respondents expect 23 projects to fall into the grace period for projects that did not meet the 1 April Renewables Obligation deadline, meaning they can be completed in the next 12 months.
Developers and investors also voiced concerns about the rising cost of grid connections, with four in five respondents citing a rise in costs in the past year. Respondents made 254 grid applications in the last six months and received 167 approvals - but accepted only 34 grid connection offers.
John Dashwood, Director Energy and Utilities, PwC, and specialist in solar power, comments:
"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. 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."
Paul Barwell, CEO of the Solar Trade Association commented:
"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"
