Uncertainty Prevails In UK Solar Market
Neil Budd Director of Renewable Energy, Shakespeare Martineau
The appointment of Amber Rudd as Secretary of State for Energy and Climate Change, following the election of the Conservative Government in May, was welcomed by the renewable energy industry as she is known to be a supporter of renewable energy including solar. However, despite that fillip, the mood in the industry remains one of uncertainty. Rumours have started that the Government will not go ahead with the next CfD auction which was scheduled for October this year. Although the auction last year was not exactly a resounding success for solar developers, indications are that some of the bigger players in the industry were planning to submit bids in the next auction, so clearly these rumours will be a cause for concern for them.
For the majority of developers, focus has switched to developing sub-5 MW projects, for which ROCs remain available although they are scheduled to reduce to 1.2 ROCs/MWh in April 2016. However, it is widely predicted that the proposed ROC reduction next year will not now go ahead and that these projects will either lose their ROC entitlement completely or, at best, the number of ROCs for which such projects are eligible will fall. Certainly, if you compare the price per MW which electricity generated from such a project would get under a PPA compared to the strike prices in the CfD auction for 2015/16 projects, it is difficult to justify maintaining ROCs at 1.2/MWh.
As well as sub-5 MW projects, some developers are also busy on the surprising number of larger projects that have benefited from the grace period offered to projects above 5 MW which fulfilled certain requirement in May 2014 in terms of their development (i.e. they had site documentation in place, a grid connection offer which they had accepted and had applied for planning permission). Grace period projects need to commission by 31 March next year in order to benefit for ROC entitlement at 1.3 ROCs/MWh but there are some grey areas in the legislation, particularly in terms of changes that took place to planning permissions or grid connection agreements after the deadline. As a result, some developers are opting to wait, to try to get some understanding of how Ofgem will deal with these matters, before committing money in building these projects. However, Ofgem treats applications confidentially so obtaining information on these projects is hard to come by.
Ground-mounted FiT projects are facing a hyper-degression in July as a result of a spike in projects in Q1, possibly due to the sharp fall in brown-power prices making the export tariff of 4.8 pence index-linked suddenly start to look interesting. This degression, which may well be followed by a further degression in Q4 as developers rush to apply for preliminary accreditation before 1 July, is likely to severely affect the interest in commercial and community projects sharing the same site (so-called "5+5 projects").
With all the uncertainty, maybe it's time for developers to take a few weeks off and head for the sun-lounger until things become clearer.
