The investment climate for solar plants in the UK is changing. In the last year, the UK solar market has been subject to radical changes to its support scheme. Since May 2014, the solar sector has known that from April 2016 on the eligibility of large-scale solar PV systems above 5 MW for Renewable Obligation Certificates (ROCs) would cease. Then in August of last year, the UK Energy Secretary announced drastic FIT cuts for small- to medium sized photovoltaic systems starting in 2016, too. These drastic changes in regulation for solar plants in the UK will affect future investments significantly.
Shift from the primary to a secondary market for solar plants in the UK
As a consequence to the decision by the Department of Energy and Climate Change (DECC) to end the ROC scheme for large-scale solar projects many developers attempted to complete and connect as many megawatts of ground-mounted PV-projects as possible. Thus, especially in the last two years new installations of large-scale photovoltaic plants of more than 5 MW have soared reaching more than 4 GW installed capacity at the end of 2015. In total, the market size of PV in the UK amounted to about 8 GW at the end of 2015.
Thus, in the last year and now, the UK solar landscape has never been busier. Solar developers with their partners have managed to deliver photovoltaic projects to tight deadlines and to connect them to the grid. This accelerated investments in solar plants in the UK is expected to continue at least one year further until the grace period for large-scale ground mounted PV-plants is terminated. Having already reached a significant market size there is a good case that after that there will be a shift from the primary to the secondary market for operating photovoltaic systems (see Milk the Sun article).
New solar FIT cuts and caps for smaller sized solar plants
Photovoltaic systems below 5 MW are eligible to receive feed-in tariffs in the UK. However, changes to the feed-in tariff scheme came into force on the 15 January 2016. The most important changes to the current system is a reduction in the generation tariffs for PV-plants by more than 70%. Photovoltaic plants with an installed capacity of less than 50 KW will receive only about 4.39 – 4.59 £-p/kWh in the future being subject to further tariff digressions. Photovoltaic systems with a capacity exceeding 50 KW will receive merely 2.27 – 2.70 £-p/kWh. The FIT’s export tariff will remain unaltered being 4.85 £-p for every kWh not consumed but exported to the grid.
Under the new tariffs, the UK government is targeting a 4.8% rate of return for PV-projects. Moreover, quarterly deployment caps for solar projects between 5 and 48.4 MW depending on plant size are defined. According to the published deployment figures by Ofgem, on the first day after re-opening the FIT scheme, the cap for standalone photovoltaic plants was reached. Extrapolated to one year that means that merely 336 MW of new photovoltaic projects may be built and commissioned annually. By comparison, last year’s growth of new PV-plants under the FIT-scheme has been around 1 GW.
While to date the majority of the investments in solar plants in the UK has been at the domestic and utility scale, the UK building industry believes there will be still a business case for commercial rooftop photovoltaic projects.
From domestic and utility scale to commercial rooftop investments in solar plants in the UK
Alongside accelerating the pace in the utility scale segment of PV systems, leading UK solar developers responded to a post-ROC landscape by ramping up its commercial solar plant rooftop investment activity. These are signs that the UK solar market starts diversifying. For example, last year Conergy UK founded a separate rooftop division to target the largely untapped potential of the country’s maturing solar market. However, this was before the FIT cuts have been announced.
The market of commercial rooftop PV installations is still “sleeping” lagging behind smaller sized PV plants. 80% of the total 4 GW rooftop PV installations are domestic solar PV plants with a maximum size of 50 KW. Currently only 20%, or 760 MW respectively, are commercial rooftop PV plants with an installed capacity of 50 KW or larger. Whether this potential can be tapped despite the FIT cuts remains to be seen.
According to Aberdeen Asset Management, even without subsidies 5 to 7% ROI can be achieved for commercial rooftop PV systems. This is because other reasons to install photovoltaic systems for communities remain intact. These are include reducing energy bills and running costs, to increase the value of a commercial property, including the improvement of the property EPC rating, increasing the reputation and profile of the property tenant, decreasing the tax burden and offering carbon emissions reduction.
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