New UK FIT Spurring PV Market Growth

And it’s not just in Cornwall that potential sites are being investigated, but right across southern England, much of which enjoys insolation levels at least as good as those in northern Germany.

With the UK’s new feed-in tariff (FIT) carefully designed to provide gentle, long-term (25 years) support largely to rooftop PV, it is perhaps curious that the opportunity to develop solar farms might be being seized on so readily. As one industry expert said recently: “This interest in large systems is not what the government intended!” Meanwhile of course, the changes in Germany’s feed-in rates make new ground-mounted solar power plants there much less attractive – and perhaps mean there will be a lot of expertise, and investors, looking for new pastures. Those pastures could be in the UK.

At Solarplaza’s “UK PV Conference,” which took place in London in late June, more than half of the participants were potential investors, developers or manufacturers looking to enter – or at any rate explore – the UK market. The message they received from the UK solar veterans was that there is plenty of room; the market has so much scope for growth that, as one speaker put it, “we need all the help we can get” in achieving it.

The FIT in the UK was primarily introduced to stimulate microgeneration and is capped at 5 MW (wind power of 5 MW and above, for instance, is still stimulated by a quota system, the Renewable Obligation). The FIT for PV is designed so that – where power is produced and used on-site – there are three benefits. First, the consumer saves money on the electric power they would have purchased. Second, they receive the generation tariff, paid whether the power is used on-site or exported to the grid. Third, they receive an export bonus set at 3 pence [US $0.0X] per kWh (with an opt-out clause in case system owners wish to negotiate a better rate with a power company). The rooftop rates are higher than those for ground-mounted systems, ranging from 41.3 pence per kWh [US $ 0.62 or 49.8 eurocents] for retrofit systems of 4 kWp or less, down to 29.3 pence per kWh [US $0.44 or 35.3 eurocents] for rooftop systems between 100 kWp and 5 MWp, whether retrofitted or on new build (this is also the rate for ground-mounted systems).

The FIT was designed to provide return on investment in the 5-8% range, which is generally expected to give payback periods of about 12 years. According to Jeremy Leggett, the FIT was not supposed to offer sufficient incentive for utilities and developers to become seriously involved. While the UK has a commitment to produce 15% of its total energy (not just electricity) from renewable sources by 2020, the target is for 700,000 households to have some kind of electricity producing microgeneration installed by 2020, expected mostly to be solar. Policymakers expect all the FIT-eligible technologies combined to supply no more than 2% of UK electricity by 2020 – but this is neither a target nor a cap, and the government has indicated they would welcome a higher proportion.  (By way of calculation, installation of 700,000 3 kWp systems would be total rooftop capacity of 2100 MWp by 2020 – and the most recent UK building code for zero carbon homes requires all houses to generate 10-20% of their electricity on site.)

Yet industry experts think PV penetration levels could grow further, faster, than government targets. The European Photovoltaic Industry Association (EPIA) estimated the market will grow to 20–40 MW in 2010, and 80–100 MW in 2011. Noble – who runs the Renewable Energy Association’s ‘Solar Power’ organization -- thinks that by 2012 the market will be in the range of 200–750 MWp.  And if that pace continued at a steady rate, by 2020 the market would reach more than 4000 MWp or 4 GW.

Money is No Object

With interest rates low and investor’s favourable outlook for solar, it’s likely that UK solar could prove highly attractive to pension fund investors and others looking for a long term, assured income – even if banks are still shy of financing. Several of the conference speakers agreed that finding investors for solar in the UK would not be a problem – as Solar Century’s Jeremy Leggett put it, there are “investors crawling out of Eurostar” (the high-speed train that connects Great Britain with continental Europe).

Leggett has calculated that – in certain circumstances – return on investment (ROI) on large ground-mounted systems could be over 16%. In fact, the Guardian recently reported that the proposed 2 MW facility at Cornwall’s Benbole Farm – which would be the first utility-scale solar farm in the UK – could have a yearly turnover of £700,000 [US $ 1 million] within seven years. According to the business plan, by year 25 of its operation the farm will have generated a total revenue of £13 million [US $19.6 million].   

In order to mobilize much of the potential investment, however, appropriate financial vehicles will be needed that enable institutional investors to invest on a sufficiently large scale, such as in multiple commercial rooftop packages and schemes.

While the financial community is apparently waiting to pour cash into UK solar, there are the usual, and some unusual, hurdles to cross.

Transmission, Permitting and Certification Causing Delays

As always, there are issues of transmission and distribution. The distribution network operators (DNOs) “need to be brought on side,“ said Noble – but mostly it’s a matter of overcoming their lack of familiarity with the PV generation and inverter technologies.  In his experience objections are usually quickly overcome with the right information.

In addition to transmission hurdles, there are permitting and planning challenges. In line with new planning legislation introduced by the previous (Labour) government, planning permission is no longer required for the siting of PV on rooftops (other than on so-called listed buildings – those of special historic or architectural interest). Noble says the planning situation for solar farms can be straightforward too – especially if a flat site is chosen, not overlooked from nearby hills, and preferably a brownfield site (i.e land that has previously been used for non-agricultural purposes).

And one tricky issue, which everyone agrees needs rapid streamlining, is the process for certification of products to receive the FIT in the UK market. The Microgeneration Certification Scheme (MCS) was designed to ensure that only high quality products enter the UK market, and only certified installers can operate, in order to protect the reputation of PV (and other renewable/microgeneration technologies). However, the MCS – essential for PV installations of up to 50 kWp, which will otherwise not qualify to receive the FIT – is causing headaches for various reasons. One is the sheer number of certifying bodies (and the wide-ranging fees and speeds at which they reportedly act). Another is the backlog created because so many manufacturers had not yet applied to have their products licensed for the UK market and are now seeking to do so. A further issue is whether the UK certification process is in fact contravening European legislation by acting as a market barrier, and whether products certified in other European member states should automatically be approved in the UK. Bodies such as the National Energy Foundation agree that clarification is needed, and say it is on its way.

Leggett warns against complacency, saying lobbying efforts must be continued to ensure that once the FIT has “bedded down,” current policymakers (a new government has come into power since the introduction of the FIT) continue to support it. Meanwhile, it seems the UK is finally serious about PV, and the PV industry is serious about the UK.

Jackie Jones is Consulting Editor, Renewable Energy World magazine.