Solar In The UK: Is There A Reason To Panic?
On 22 July 2015, the Department of Energy and Climate Change (DECC) issued a consultation paper Consultation on changes to financial support for solar PV, proposing to end eligibility for Renewable Obligation Certificates (ROCs) for projects below 5 MW, subject to retention of ROC eligibility for projects which fulfil specified "grace period" criteria. This proposal had been feared although industry hoped that eligibility for these smaller projects would be maintained for the final year of ROCs.
Some developers are still working on projects above 5 MW with a view to participating in the CfD auction scheduled for the autumn but it is increasingly unclear whether this will go ahead.
A FiT review is imminent and likely to bring further bad news for both ground-mounted projects and rooftop projects. It is clear that FiTs are too high and are providing internal rates of return well above DECC's target rate of 5-8 percent.
So is there a reason to panic? The answer must be no. The industry has been hit by setbacks before and has overcome them and now the holy grail of grid parity is tantalisingly close. Reductions in the cost of modules and other equipment over the next few years are widely predicted and technology is increasing in efficiency. Although the government has made clear its hostility to subsidies for solar, tax concessions such as enhanced capital allowances would help. Bringing about reductions in other costs such as grid costs and planning fees are more difficult. Developer fees will obviously come down and landowners will have to get used to lower rents than have been the case.
It is difficult to say when grid parity for large-scale solar in the UK is likely to happen, particularly if wholesale energy prices maintain a downward trend, but most commentators think that it is likely to be by 2020 and possibly earlier than that. Until then, unless the government pushes forwards with CfDs and provides a generous budget, it is probably going to be the case that the industry will remain static for a few years but then there is no reason (subject to planning and grid constraints) why solar should not have a very positive future in the UK.