If there was one clear takeaway from the consultation and impact assessment releases by the UK’s Department of Energy and Climate Change (DECC) today, it would be that the government does not want any more solar farms as of today.
It is hard to come to any other conclusion, but of course, stating this in black and white would be a clear own-goal with regards to the inevitable legal backlash now expected from the industry. And on this topic, if legal challenges in the past to previous DECC amendments had a somewhat partial industry representation, then today's announcements are likely to move the bar even higher.
In May 2014 the coalition government announced that support under the Renewable Obligation scheme (RO) would end in March 2015 for solar projects over 5MW. Rumours of further cuts circulated after the election.
The release from DECC today is not a surprise. The surprise is that it took DECC so long to get its head around what was going on. In fact, earlier in 2015, DECC claimed it had done its own internal analysis on deployment of sub-5MW solar farms for the fiscal year ending 31 March 2016, and announced an expectation of 200-300MW of solar farms within this power range. No alarm bells were raised then to the industry when these statements went out from DECC, and if anything gave the industry a clear message that DECC was okay with sub-5MW sites being developed, this is probably the strongest signal.
However, the forecasts then were grossly underestimated by DECC – no fault of the solar industry. So, when the first quarter build out of solar farms was complete under 1.4ROCs on 31 March 2015, there was nothing on the table from DECC to provide any forewarning that problems would arise for developers in the next 12 months. Other than DECC's track record of being spooked by solar deployment, crucially with a time lag that is all too apparent from anyone relying upon the databases supplied by the regulator, Ofgem, to monitor both deployment and pipelines.
Indeed, with virtually everyone in the UK solar industry aware of the Ofgem database problems, one could potentially flag the issue that the government should have been aware that their monitoring of future deployment had a six-month lag. And six months have passed since the previous claims of 200-300MW of projected annual deployment of sub-5MW sites. So the frustration that will inevitable become highly vocal from developers in the coming days and weeks is blatantly clear to understand.
On the specifics of the proposed changes, the first takeaway on the RO is to effectively close it 12 months early, almost regardless of the grace criteria, on 31 March 2016. The other option DECC had here would have been to keep the RO open as planned to 31 March 2017, but reduce the banding level from 1.2ROCs/MWh to a token-gesture level that was well below break-even levels. Either would have had the same effect.
But the potential killer is opening up the grandfathering clause. Indeed, if there was one word that will completely shock the whole renewables community – not just solar – then here it is. Potentially, it has the scope to effectively shatter the investor premise that the UK is safe, risk-free once installed, and that the UK will not implement anything that could be considered to be retroactive as was the case with southern European countries in the past few years. While there is nothing in the proposals on retroactive cuts, simply introducing the grandfathering word for future developments does not send out the correct message at all. Surely the same end goal from DECC could have been advocated without going down this line? Are they aware of the potential ramifications of this, even at the proposal level?
All said and done, where is the middle ground? Going on the assumption that today's releases from DECC are its opening gambit, then which parts have the scope for negotiation. Which proposals have red lines drawn around them?
Ultimately, this is likely to be what affects deployment of sub-5MW solar farms between now and 31 March 2016, and the next few months will be critical in this. In this respect, the advance warning and the time to do anything before 31 March 2016 should be called into question. Previous consultations and final announcements of policy changes tend to drag on.
If this process runs into October, November or December, then there is potentially only weeks left to do anything before 31 March 2016. And getting back to the comments above, this is entirely down to the six month delay by DECC in realising what was happening at the planning stage, and something that the industry can feel highly aggrieved about today. If this consultation proposal was to come out, it should have come out on 1 April 2015, after the deployment of Q1, not almost seven months later into the current fiscal year.
This article first appeared on PV Tech's sister site in the UK, Solar Power Portal. Finlay Colville will be hosting Solar Intelligence’s inaugural webinar: ‘Aligning and implementing business strategies for the multi GW solar farm deluge ahead’ on Thursday July 23.
The webinar will give an overview of the leading companies in the UK ground-mount solar sector, identify the business models of the top 500 companies active in the sector, name the Tier 1 developers, EPCs, ICPs, module suppliers and much more. Register for the webinar here.