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England's Clouds Part for Solar as Panels Carpet Fields

Cloudy Britain is emerging as Europe's hottest market to build solar parks, as cheaper equipment costs and steady subsidies are attracting developers of large-scale, ground-mounted projects from nations like Germany and Spain that pioneered solar on the continent.

Britain may build more big plants -- 2 megawatts or larger -- than any European country, adding as much as 2,000 megawatts of capacity this year, according to PricewaterhouseCoopers LLP. Those panels would occupy about 16 square miles, enough to cover most of central London.

While much of the continent has scaled back solar aid to favor economic growth over green policies, the U.K. pledged subsidies through 2020 with no limit on the size of projects. Investors raised at least 750 million pounds ($1.2 billion) last year for megawatt-scale projects, according to data compiled by Bloomberg.

"The boom in large-scale solar started much later in the U.K. than in most of Europe, so the country has been able to learn from others," said Daniel Guttmann, PwC's head of renewable energy strategy. "Projects are developed at much lower cost than earlier ones abroad. This right level of support, along with policy stability, is driving fast growth."

The new installations would power about 600,000 average homes. Such growth however depends on the U.K.'s Conservative Party-led government keeping solar subsidies in place amid a political storm over rising energy costs, which have been blamed in part on the environmental levies.

First Funds

Britain is attracting investors and developers from across the region including Portugal's Martifer SGPS SA and the Dutch Infrastructure Fund BV. The country's first solar funds listed last year: Foresight Group LLP raised 150 million pounds in October for one, while Bluefield Partners LLP got 130 million pounds in July for another. Both attracted retail and institutional investors, which increasingly are interested in the industry.

"We expect the U.K. to be a multibillion-pound solar market over the next few years," said James Armstrong, a partner at Bluefield, which seeks as much as 400 million pounds within two to three years.

Britain, one of the gloomiest countries in the region, could have as much as 20 gigawatts of solar capacity by 2020 from almost 3 gigawatts now, Energy Minister Greg Barker has said. That would beat Italy's current 16.5 gigawatts and Spain's 4.7 gigawatts, while trailing Europe's biggest solar nation, Germany, with 35.4 gigawatts.

'Exciting Market'

"The U.K. is the most exciting growth market for solar in Europe," Barker said at an industry event on Dec. 12. Barker will unveil a road map for the technology in spring.

Last month, the government set a new system of guaranteed power prices to support renewables through 2019. At the same time, it reduced support for onshore wind and solar after earlier tightening planning rules in response to complaints that the technologies are a costly eyesore.

The promise of long-term subsidies has been sweetened by the price of panels, which has dropped by half since 2011. Solar Century Holdings Ltd. Chief Executive Officer Frans van den Heuvel expects as much as 1,400 megawatts of projects over 1 megawatt to be completed next year, more than anywhere in Europe, he said in an interview.

PwC's Guttmann sees Britain adding 1,500 to 2,000 megawatts of projects over 2 megawatts in 2014. He based his estimate on the 1,500 megawatts already approved and another 1,500 megawatts awaiting approval.

European Decline

Citigroup Inc. predicted 1,000 megawatts of total solar installations in a note last month, while warning that lawmakers in Britain will reappraise their commitment to fighting global warming as they face elections in 2015. Some 600 megawatts to 800 megawatts in large-scale solar were added last year, Bloomberg New Energy Finance estimates.

Meanwhile, Europe is in decline. Spain stopped subsidies to new solar parks in 2012, and Italy ended them in July. Germany has cut tariffs and limited the size of projects amid a broader shift in energy policy. Fast solar growth in Greece, Romania and Bulgaria in the past year has stalled due to subsidy cuts and policy changes.

France alone on the continent still has a sizable market for solar parks, while growth is limited by government auctions that award projects to the developers prepared to sell power at the lowest price.

"The U.K. is the last market in Europe that still has attractive subsidies for large-scale solar plants," said Jenny Chase, Bloomberg New Energy Finance's lead solar analyst. "The U.K. has a long way to go to meet its solar targets so we expect this market to be reasonably sustainable."

Rush to Connect

U.K. solar parks get aid through the Renewables Obligation Certificate system, which requires power suppliers to source an increasing portion of their electricity from clean energy.

The program, available until 2017, grants tradable green certificates for 20 years. Support for new solar projects, now 1.6 certificates for each megawatt-hour, drops each April, prompting a rush to connect. From next year, developers can opt for an alternative system involving so-called contracts for difference at rates announced on Dec. 4.

While solar parks will earn 5 pounds less per megawatt-hour than expected through 2016, the rates show good support for the industry until 2020, the STA lobby said.

Lightsource Renewable Energy Ltd., Britain's largest developer, has invested more than 600 million pounds in more than 300 megawatts and sees the market continuing to grow after subsidies are reduced.

"There's a big demand for this asset class in the U.K. and this will continue to drive momentum," Paul McCartie, Lightsource's finance director, said in London.

Copyright 2013 Bloomberg

Lead image: Solar panels on many residential roofs in the UK, via Shutterstock

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