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DECC Announces Solar Review Process As Expected

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Despite some fears and concerns the review is a proposal aimed at increasing roof top over ground mounted large scale solar

As expected the Department of Energy & Climate Change (DECC) have announced proposed changes to the array of subsidies and policies for renewable energy in the UK. The thrust of the proposed changes for the solar industry are to reduce support for large scale ground mounted solar arrays in favour of roof tops. This is in line with government discussions over the last few months and is not the terrible event for the solar industry that some sectors of the industry and media are trying to make out.

The DECC announcement states the proposed changes include splitting the current "˜degression band' for projects over 50kW under the Feed In Tariffs scheme (FITs) into two: one for standalone, one for non-standalone. In other words, tariffs for building-mounted solar panels would reduce at a slower rate than for ground-mounted solar panels, so giving rooftop-mounted schemes access to more of the financial support available through FITs.

Since 2010 the UK's renewable electricity capacity has doubled; in the same period, over £34 billion of private sector investment has been announced, with the potential to support almost 37,000 jobs. What's more, the scale of growth in the sector has meant that the cost of some renewable technologies, such as onshore wind and solar power, has fallen.

Solar photovoltaic (PV) is an important part of the UK's energy mix: there is currently 2.7 GW of PV capacity in the UK "“ enough to power 620,000 homes "“ placing the UK firmly in the global top 10 economies for solar power. This progress is ecpectedto continue, up to a projected deployment of between 10-12GW by 2020.

DECC published the Solar Strategy only a month ago setting out the actions that Government is taking in partnership with industry to ensure that the solar sector continues to grow. It included a focus on deploying more solar panels on the top of industrial and public sector buildings "“ a part of the sector that had been deploying at lower levels than we expected.

The Solar Strategy highlighted that Government was considering the implications of current deployment trends on the budget available for financial incentives to solar PV under the Renewables Obligation (RO) and would consult on any proposals for amendment. Large-scale solar is deploying much faster than expected. Industry projections indicate that, by 2017, there could be more solar deployed than is affordable "“ more than the 2.4-4GW set out in the electricity market reform (EMR) delivery plan.

The changes are occurring as the government attempts to manage financial expectations from the support programmes. With such fast growth comes greater costs than expected. Another part under review is a proposal to close the RO to new solar PV capacity above 5MW from 1st April 2015, across England, Wales and Scotland. Those proposals include grace period arrangements to protect developers who have already made significant financial commitments.

The intention is to keep the RO open for projects under 5MW which are not eligible for the new Contracts for Difference (CfDs). Projects above 5MW will be able to apply for CfDs "“ part of our world-leading Electricity Market Reform Programme that is marking further progress in its publications today.

There will also be a review of community benefits from ownership of renewables projects. The possiblity of increasing the maximum capacity for community anaerobic digestion, hydro onshore wind and solar PV projects from 5MW to 10MW under the FITs scheme is on the table. Also whether more can be done to allow grants to be combined with FITs payments for community projects up to 5MW. This delivers on two commitments in the Community Energy Strategy "“ published earlier this year.

Robert Goss, MD Conergy UK (who participated on DECC's Solar Strategy taskforce), had a more reasoned response to the proposals than some industry watchers and said, "Let's wait on the results of the consultation, but DECC's proposals are more of a gradual recalibration than an earthquake for British solar. Rather than disappearing overnight, we'd just select projects in different ways. 

Many large solar farms would continue to be built under the CFDs but the trend towards smaller sites, which are politically more attractive, offers encouragement for projects that have been neglected in recent months. 

The wider trend towards on-site power generation and consumption, which is Europe-wide and technology-specific, will take place with or without government intervention.

There are hundreds of thousands of acres of roofs that currently go unused in Britain, on office buildings, factories, warehouses and hospitals, and where the opportunities are huge for solar to cut customers' energy bills, and to reduce demands on the grid."

DECC also confirmed that the budget for Contracts for Difference renewables spending will be divided into groups including (a) established technologies and (b) less established technologies.

A number of criteria were used to select the appropriate grouping of each technology including: the maturity of the technology and industry; levels of UK and global deployment now and in the future; the potential for further cost reductions; and contribution to future decarbonisation.

Technologies in the established group have benefited from significant cost reductions following early research and development and as a result are, in some cases, taking forward large scale deployment. Included in this category are: onshore wind greater than 5MW; solar photovoltaic greater than 5MW; energy from waste with combined heat and power (CHP); hydro between 5MW and 50MW; landfill and sewage gas. These technologies will compete with each other for support from the first allocation of Contracts for Difference, helping to reduce costs and ensure that consumers get good value for money.

Less established technologies have a range of characteristics including significant potential for cost reduction and delivery of low-cost renewable generation in the future. Included in this category are: offshore wind; wave and tidal stream; advanced conversion technologies; anaerobic digestion; dedicated biomass with combined heat and power and geothermal. Support will be provided to create investment that enables cheaper competitive development in the longer term. These technologies will only move to auctions if there are more applicants for Contracts for Difference than are affordable within the budget.

Roy Bedlow, chief executive and co founder, Low Carbon had this to say as he called for longer term policy directions, "The UK government has committed to a challenging climate change goal of an 80% reduction in greenhouse gas emissions by 2050. While this should be encouraging investment in and support of renewable energies, recent actions such as DECC's Consultation on changes to financial support for solar PV demonstrate a continuing hesitancy to fully support large scale solar energy generation in the UK. "

"We feel that this is a mistake, as the solar industry represents a strong opportunity for the UK to plan for the future while diversifying its energy supplies. In an age where energy security can never be fully guaranteed, especially with recent events in the Ukraine and Russia, the UK increasingly needs to safeguard its energy supplies by developing alternative sources and reducing dependence on fossil fuels."

"What we  would like to see is greater consistency in policy definition in this area. This will ultimately allow for continued investment to flow into the solar and renewable energy industry as a whole in the UK. It is a disappointment to today see large-scale solar fall foul of government policy."

"We believe that a low-carbon economy will only be achieved by way of an energy market in which use of traditional fossil fuels is supplanted by renewable technologies. The government should therefore take all necessary measures to support this vision for the benefit of the UK economy as a whole. By failing to support large scale solar, this long-term vision is clearly not being recognised."

 Jerry Hamilton, director of renewables & energy solutions, Rexel UK had the following comments, "In an ideal world, there would be sufficient financial schemes in place to support the growth of both rooftop PV and large-scale solar. However, today's announcement by the DECC marks an encouraging step towards incentivising consumers and businesses to invest in rooftop PV. By capping the funds that go into large scale solar farms,  the government is redressing the balance to provide greater support for the generation of energy where it is being used, in other words on the rooftops of homes and commercial buildings.

Solar PV is an integral part of the UK energy landscape and greater adoption of rooftop PV in the residential and commercial space will encourage positive behavioural change and a greater understanding of our energy usage. It will also ensure that power is stored more efficiently and reduce reliance on the UK's outdated grid infrastructure. The DECC's announcement is a positive step for the UK energy sector signalling a more sustainable vision for the renewables industry as a whole."

The government has set out its plans and proposals and while not pleasing all they have always been part of the plan of a growing UK market. How the industry responds to the announcement will have as much bearing on investor confidence than anything the industry is accusing the government of. Despite the changes the UK remains a stable market for investors. With a goodwill clause for current investments there is no reason that the industry will not continue to grow at a strong and steady pace.

The investor community will have their first opportunity to discuss the changes on the 15th May in London at the Solar UK large scale investment forum.

http://www.solar-uk-conference.co.uk/financeandinvestment/home

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