UK Solar Industry Sidesteps Tariff Cut to Build Biggest Plants

June 19, 2012 by  
Filed under Green Energy News

Solar-energy companies are applying
to build the U.K.’s biggest projects, sidestepping a cut in
state subsidies aimed at limiting new power plants by relying on
a decade-old incentive program and tumbling panel prices.

The market for utility-scale projects, stymied since the
U.K. lowered feed-in tariffs paid to generators in August, may
as a result see as much as 600 megawatts of plants built through
April, the Solar Trade Association said. That’s about four times
the level of such installations now operating in the country.

“It’s kind of ironic,” Jeremy Leggett, chairman of the
London-based installer Solar Century Holdings Ltd., said in an
interview in the city. “The government tried to avowedly kill
large ground-mounted solar last year and now it’s back.”

Inazin Power Ltd. and Hive Energy Ltd. are among companies
proposing plants using Renewable Obligation Certificates first
introduced in 2002 and previously only employed in generation
such as wind farms. Their use of the incentive program, which
gives lower returns compared with the tariffs they used to get,
encourages developers to build bigger for economies of scale.

The ROCs, which only make sense for solar companies because
prices of panels have fallen by half, also aren’t limited to
facilities of 5 megawatts or less like the feed-in tariffs.

The certificates pay some of the lowest rates for solar
power in Europe. A megawatt-hour of solar energy qualifies for
two tradable certificates over 20 years, the same as offshore
wind. They now trade at about 42.5 pounds ($67) a certificate.

Eight Times

On the other hand, the cuts in tariffs have throttled their
appeal for developers, with the guaranteed payments set to fall
to 71 pounds a megawatt-hour for 20 years from August, compared
with 85 pounds for 25 years now, and 293 pounds last year. The
ROCs support larger projects by rewarding each megawatt-hour
with certificates that electricity distributors need to buy.

Proposed solar plants are as much as eight times the size
of the largest so far built in the U.K. Inazin, formerly Low
Carbon Developers Ltd., is seeking approval for a 40-megawatt
park at a disused airfield. The U.K.’s Hike Energy plans a 40
million-pound, 25-megawatt site with Moser Baer India Ltd. (MBI)

Lark Energy, a unit of housing group Larkfleet Ltd., has
also sought permission to construct a 30-megawatt facility.

In comparison, the largest operating solar parks are 5
megawatts due to the limit on the size of facilities eligible
for feed-in tariff support. About 133 megawatts of utility-scale
plants, which are those with 1 megawatt or more, were completed
using the incentives, according to Bloomberg New Energy Finance.

“The economics with ROCs now works,” Leggett said.

Collapsing Costs

That’s mostly down to a collapse in the cost of technology,
with panel prices declining by half in the past year.

“Developers and investors are talking about hundreds of
megawatts in utility-scale solar plants in the next few years,”
Daniel Guttmann, PricewaterhouseCoopers LLP’s head of renewable
energy strategy, said by e-mail. The “extreme” drop in costs
means ROC is becoming attractive for photovoltaic, he said.

One potential danger for companies hoping to ride a wave of
installations is the U.K.’s record of removing industry support.

The state announced another lowering of feed-in tariffs for
projects on May 24 and is reviewing the renewable obligation
system. A decision on the number of certificates for each
renewable technology from April 2013 is expected this month, the
Department of Energy and Climate Change said by e-mail.

“There’s a lot of interest in large solar plants using
ROCs and we will play a part,” Solar Century’s Leggett said.
“But how long will it go on for if people start building at the
multiple-gigawatts scale in the U.K.?”

Following Money

The disincentive of lower rates on certificates is partly
countered by cheap panels and reduced opportunities in mainland
Europe, where support for large-scale solar is being reined in.

Germany introduced a cap of 10 megawatts for developments
in April, Italy is prioritizing rooftop developments and Spain
temporarily halted subsidies altogether in January.

“Money follows the opportunity,” Guttmann said. “Many
European countries have revised their feed-in tariffs, often
restricting utility-scale solar parks.” Such plants can be
built for less than half the cost of 18 months ago, he said.

Germany’s Kronos Solar plans to build a 13-megawatt park in
Wales for 20 million pounds, while Dublin-based BNRG Renewables
Ltd. plans five projects totaling 25 megawatts. “There will be
a lot of desperate German companies coming to Britain trying to
stay alive with very, very low margins,” Leggett said.

They will compete with U.K. developers. Inazin expects to
complete more than 100 megawatts of large-scale solar projects
this year and Anesco Ltd., backed by Scottish utility SSE Plc (SSE),
plans 50 megawatts. Hike Energy expects to develop at least 200
megawatts this year, Chief Executive Officer Giles Redpath said.

TGC Renewables Ltd. is also building two multi-megawatt
plants and expects to construct another 25 to 30 megawatts,
according to the company’s Managing Director Ben Cosh.

“The Renewables Obligation is designed to encourage large-
scale renewable projects including solar farms,” the energy
department said in its e-mail. “Solar can play a role.”

To contact the reporter on this story:
Marc Roca in London at
mroca6@bloomberg.net

To contact the editor responsible for this story:
Reed Landberg at
landberg@bloomberg.net

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