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Is There Hope For Solar Funding Beyond CfD?

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As solar businesses across the UK prepare to submit proposals for the second round of CfD funding, what can they learn from the first process to try and secure backing this time around; and what are the funding options if they don't?

In light of the falling cost of solar production, and its acknowledged ability to help the UK meet carbon emission reduction targets, solar projects should have done well in the first round of Contract for Difference (CfD) funding. But, as the solar industry predicted, it received very little funding in the final auction results.

The only solar projects that did get funding for 2015-16 were two priced at £50/MWh, which are now not going ahead. The businesses that received these awards, Hadstone Energy and Royston Solar Farm, only managed to secure them by pricing the projects so low that it's not financially viable to deliver them. Now that these businesses have pulled out, there are no new large scale solar projects being built in the current financial year. Two projects for 2016-17 priced at c£80/MWh also received funding but whether these will actually be delivered remains to be seen.

Paul Barwell, CEO of the Solar Trade Association, said: "The problem with the first CfD round was that it was just far too much of a risk for small or medium sized solar companies to even put in a bid." He likened the process to asking first time home buyers to put down a deposit on a house, without knowing whether they were going to be able to actually buy it in the end and with no guarantee that their deposit would be returned if they couldn't.

With access to funding for SMEs coming through a process that puts them on the back foot right from the start, combined with the overall lack of solar investment allocated in the first round, it could seem that the outlook for smaller British solar companies isn't that bright.

Richard Howard, Head of Environment and Energy at Policy Exchange said that the message this sends to the solar industry is that it needs to cut costs even further. "The CfD framework is pushing towards technology neutrality, allocating contracts on the basis of cost. Essentially Solar PV lost out as it cannot yet compete with onshore wind.  The potential for cost reduction in solar is arguably larger than in onshore wind, so it will be competitive at some point."

Considering solar power is the industry predicted to be the dominant global energy source by 2050, the UK's rollercoaster policies are not helping its position, nor it seems doing as much as possible to support it. "We hope that whoever is in government when the next round goes ahead looks at this technology with fresh eyes to develop a fairer and more sensible approach, and send a more supportive message to the solar market." Barwell added.

So how can the smaller solar companies improve their chances of getting funding in the forthcoming CfD round? Barwell believes that there is still a lot of work to be done. "By pressing, in tandem with the Solar Trade Association, for key reforms of the CfD process we could allow SME solar to compete on a level playing field with other technologies. We need a bigger budget for established technologies, quarterly auctions and more appropriate Milestone Delivery Dates for solar."

But Howard thinks the fault lies with the businesses that made the bids rather than the CfD process itself: "The solar projects at £50/MWh have been abandoned "“ this is not a failing of the auction framework per se, more their bidding strategy, so it will be interesting to see whether the solar PV projects that received funding at £80/MWh are viable at this level."

Whatever side of the fence you're on in this debate the fact remains that CfD funding is hard to access, subsidies to solar farm installations are being cut and really the only funding options available to SMEs outside of government schemes is through business loans or venture capital investments. So what does the future of solar power in the UK look like?

Barwell is unsure: "It is a brave pundit who could predict how the UK solar market will perform. Following the debacle of the closure of the RO last year, anything is possible. I'm not expecting any ground breaking policy decisions which will actually impact deployment for the calendar year 2015, but I do feel that there will be some significant policy decisions made that will impact future years."

The Solar Trade Association believes the policy decisions we'll see will mainly be associated with the FiTs (Feed in Tariffs) review: "If the stars align this would readjust the policy framework to allow for significant additional growth under FITs (as detailed in our forthcoming Solar Independence Plan), but this would only impact deployment in 2016 and beyond.  Policy outcomes around new build is another key area that will have significant uncertainty." Barwell added.

Policy uncertainty aside, the likelihood of a lot more rooftop solar panels appearing on new builds, and as retrofits on existing homes and commercial buildings, is high according to Howard. "For the next year, I predict there will be a focus on small scale / rooftop (<5MW) installations. This segment is still deploying pretty rapidly. If large scale is to come back it must be on the basis of lower cost (i.e. at or below onshore wind), but given global trends on solar this should be achievable within coming years."

Climate change and sustainability issues are not going away so, costs aside, we are going to have to continue to invest more in renewable energy whether we like it or not, and there are a couple of things that have got Barwell excited about future possibilities for solar's significant growth: "The freefall in costs over the last 5 years, which has been dubbed the terrordome because of the sheer scale of the cost reductions, means that we could see cost parity with gas and fossil fuel generated electricity, if we are given stable policy support over the next Parliament. There's also the potential to twin solar and electricity storage. These developments could really unleash the solar transformation."

So, for now, success for solar SMEs in and out of the CfD process is dependent on policy decisions but if the right ones are made then the future looks a lot brighter than it currently seems.

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