Government subsidies for solar projects may have been scrapped but there is growing investment interest in subsidy-free development across the United Kingdom.
Despite the government curbing and withdrawing subsidies that supported large scale solar projects, there has been a resurgence of interest in solar development across the UK market. Factors include the falling prices of solar photovoltaic development and a growing awareness of the need for renewable energy use. Politics and economics are coming into alignment.
The International Renewable Energy Agency has determined that between 2010 and 2018 solar electricity costs fell by 73% and that costs are predicted to half again by 2020. With prices expected to continue to fall and Ernst & Young (in April 2019) naming the UK as the 8th most attractive country to develop renewable energy, is this a market opportunity that should not be missed?
With a brief look at how the UK market has been shaped, this insight will primarily focus on the reasons for, and potential challenges to, investing in future opportunities.
What were the subsidies?
The Renewables Obligation scheme was introduced in England, Scotland and Wales in April 2002 in order to encourage the generation of large-scale electricity from renewable sources. This was achieved by placing an obligation on UK electricity suppliers to source such alternatives to the traditional fuels of gas and coal. Under the scheme, energy companies that sourced renewable energy usage qualified for generous subsidies. However, the RO scheme was closed to all new generating capacity on 31 March 2017, with the scheme having already been previously closed in 2015 for projects generating more than 5MW.
The government’s decision to revoke such subsidies was taken to control the costs of the regime, mainly as solar deployment had been quicker than anticipated. However the reduction in solar development costs has made this source of energy virtually cost comparable to the conventional sources of energy. Solar is now seen as an established technology with low construction costs ready to compete with coal and gas on a subsidy-free basis.
The return of established greenfield developers, seemingly confident in the prospects of subsidy-free solar farm investment, has resulted in a growth of development in recent years. This included the opening of Clayhill farm by Anesco in September 2017.
Having risen from 131 in October the previous year, in March 2019 there were 220 subsidy-free solar sites in at least the pre-planning stage of development. Furthermore, it is estimated that 41 projects are currently viable for completion by the end of this year.
Some of the largest recent projects include a 1,000 acre development that will include a battery storage system for electricity conservation (Cleve Hill) and a 36.6 MW farm in Scotland that will be completed by July 2020 (developed by Green Energy International).
The reasons often cited for confidence in the market are the following:
- To secure funding, the economics have to be right and it appears that they are now shifting into place. Developers are optimistic of continued falling costs of development.
- Whilst it remains a challenge, the efficiency of cells has seen marginal improvement.
- The key developer, funder and contractor players in solar PV development have experience of the UK market and have overseen successful projects under subsidy.
- Climate change has been climbing up the agendas of many world leaders and the UK government may choose or be forced to think carefully about long term energy strategy.
As with any development project, each has to be assessed on its own merits. Whilst the above challenges raise concerns for the market, many of the key components are in place and experienced developers are likely to be familiar with these challenges and have the ability to navigate them to reap rewards.