Renewables

If you follow our blogs, you may have been surprised that there have been two blogs on solar this month. Surprising given that, as both Kendra and Ashley have commented, Scotland is not exactly known for its sunshine  – but luckily that’s not what solar is about.

This last week, the solar industry feels like it is looking at a cloudy rather than a bright future. As it faces the third major subsidy review in as many years, serious concern and criticism has been voiced.

A consultation has been launched on changes to financial support for solar PV. The key proposals are:-

  1. To close the Renewables Obligation (RO) to new solar PV above 5 MW from 1 April 2015.
  2. The RO will still be available to projects under 5 MW not eligible for Contracts for Difference (CfD).
  3. Projects above 5 MW will be able to apply for CfDs.
  4. To split the degression bands for Feed in Tariff projects greater than 50 kW into:-
    • Stand alone
    • Non stand alone

The Government wants to encourage increased levels of mounted solar PV (which has been deployed at lower than anticipated levels), and to slow down the growth of solar farms. There is however nothing to increase levels of support to give building mounted solar a push, and arguably fill the gap that would be created by a slowdown in solar farms.

In addition this week DECC also published a response to the EMR consultation on competitive allocation. Solar over 5 MW is included in the “established technologies” category, so will have to compete with other renewables projects such as onshore wind.

Some see the proposals as simply a reflection of the major success of the industry. Essentially, the significant cost reduction in technology (some estimate this at a 30% reduction in the last 2 years) plus the speed of installation, has given policy makers a somewhat unique challenge to keep solar subsidies under control.

The argument is that frequent cuts to subsidies are needed to ensure that solar PV projects are not being over subsidised and provide excessive returns to developers. So why not simply rely on degression? The concern is that the ease and speed of installing solar panels or even building a solar farm means that deployment rates could quickly bust the budgets, even with automated degression cuts.

So what is predicted for the future? It does not look bright. Certainty is the key cornerstone of success that the solar industry (as well as all other renewable energy technologies) needs.  Uncertainty undermines investor confidence, curbs growth, drives up capital costs, risks jobs and ultimately threatens the achievement of renewable targets and the move to a low carbon economy.

The Chief Executive of the Renewable Energy Association Dr Nina Skorupska has been widely quoted this week in her response to the consultations:-

“…solar power meanwhile is subjected yet again to devastating instability. Government must ensure that policy drives and rewards technology cost reductions with a stable trajectory of gradually declining financial support, not the cliff edge the Government is proposing for solar.”

“Proposals to close the RO for 5 MW+ solar farms simply create very damaging instability to existing policy”.

The growth of solar farms is likely to continue until April 2015 (and indeed there may well be a big increase, with some predicting as much as 4 Giga Watts of solar farms to be installed from now to April 2015). Beyond that, the position is uncertain.

Will the cost savings in the industry happen quickly enough to allow solar farms to compete with wind farm developments in the CfD auctions? Will the potential gap left between a slowdown in solar farms and uptake in large scale rooftops lead to a hiatus in development?

A recent poll suggests 85% of the public support solar, and it has the fastest falling cost curve of the clean energy technologies. The frequent changing of solar policies is however putting the industry at risk.

It is also ironic that the same week the consultations were published, the House of Lords warned the Government of looming electricity power cuts in the winter of 2015/2016 as a “very slow-moving car crash”. OFGEM’s most recent Electricity Capacity Assessment Report supports the real concern that by then, the capacity margin in the UK will be close to zero.

The Lords specifically commented that there were

“not enough wind farms and solar panels to fill that gap in a credible way”,

and that the looming threat

“…reflects a lack of clarity and consistency in energy policy over many years”.

A statement that will no doubt have support from all corners of the renewables industry.

It is generally accepted that a mix of technologies is needed to achieve renewables targets, and that appropriate and necessary support is required. Optimists suggest that in the long term the industry will survive, and will weather the current disruption. But the more immediate concern is the damage that will be caused by a hiatus in new development, potentially leading to significant job losses, millions in lost investment and the impact on achieving renewables targets and of course ultimately the ever present energy trilemma.

Renewable Energy

At Brodies we are focused on providing the legal support that developers, funders and landowners need to facilitate development and maximise Scotland's energy generating potential. Find out more at http://www.brodies.com/business-sectors/renewable-energy
Renewable Energy