How will the UK market develop?
The overall feeling is surprisingly optimistic. “We’re getting back to an era where people can start to believe in the future again, we have also worked with investors on the value proposition behind the cost of energy generated not just the CAPEX of the PV power plant. So that combined with the greater level of experience and support from the councils and their planning teams, business is becoming more realistic. It's a market we can certainly work successfully in”, says Duncan Bott, Director of BELECTRIC’s UK office. Neil Martin, UK Sales Manager for inverter producer SolarMax, shares this view: “The digression for the feed-in tariff is finalised and seems to be in a pretty stable place. Once customers' confidence is restored following all the mismanagement and misinformation, it's going to start moving forward again. For 2012, I've seen various projections. Personally, I think we're looking at around 800-900 MW.”
The FIT reductions
Simon Hailey, Export Services Manager for Krannich Solar, already sees demand picking up: “I’d say, for us, even now with the feed-in tariff cuts of 1 August, it's already ramping up. We're obviously trying to get things done before the feed-in tariff cut in August, but we're confident that it's going to carry on growing and we're not too worried about the feed-in tariff cuts.” SolarMax’s Neil Martin isn’t afraid of the looming danger of 1 August. “I think 1 August will have very little effect on the marketplace. I honestly do. The month's delay in the cut has given people time and space enough to be able to get their heads around the cuts. Most people have done the calculations and they know it's still a good investment. So it's just a matter of persuading the public. ”
However, part of the transition and the settling down of the market will be consolidation of the market. Andy Watts, National Account Manager for Sharp Solar: “I think what will happen over the next twelve months or so is that you'll get some stability in the people that are out there. Some of the people that came on the scene six months, nine months ago probably won't be around in another six or nine months - if they're not out already.”
While the residential market has slowed down, the market share of commercial and large-scale PV applications seems to be growing. Hailey (Krannich Solar): “From what I've seen going on at the moment, I've seen domestic installations going down compared to last year, but we've seen a lot of increase in inquiries and quotations for 10 to 50 kw installations as well.” Andy Watt (Sharp Solar): “I think there will be a more commercial element - farmers, for example: lots of farms in the UK have got solar on their roofs. It’s financially attractive and they have the buildings already there to do it with. I think the commercial market will be quite significant in a year or two's time, but residential will probably still form the backbone of that.” John Schroeder, Project Manager for Goldbeck, remarked, “In terms of open-land megawatts, my guess is that between 1 June 2012 and 1 January 2013 there will be somewhere around 300 MW installed or under construction.”
But even here, the uncertainties caused by the rapid changes in regulations can be a big bottleneck. Duncan Bott (BELECTRIC): “It can take up to 9 months for any new investor to understand the dynamics of large scale PV investing in the UK, and therefore any regulatory changes can impact the decision making process. Investors seek predictability; making large scale deployment even more complex.”
The promising perspective of the ROCs
There has been a lot of talk about financing through Renewable Obligation Credits (ROCs). Companies like BELECTRIC now see new opportunities arise from ROC financing: “In our opinion, ROCs are now becoming slightly more interesting. That's because the investment community has great belief in it. And so - although the returns are less - we can make it work.”
SolarMax also shows faith in the ROCs. “If the ROC-funded projects really take off in the way it looks that they will, then you're talking about some serious volume that could be added there. My prediction would be somewhere around 500 MW of ROCs-funded work, judging just from the feedback that I've heard from other people and also the number of inquiries that we've had. I think that until April 2013 it's going to be very, very good for the UK marketplace. ”
John Schroeder (Goldbeck) expressed that the ROCs are very much under the attention of investors: “From July on, we have had a number of investors approach us who want to build pipelines under projects based on ROC compensation. They have not hesitated in their development processes and seem eager to build under the ROCs, even though it is relatively new for solar and a new concept for many investors.” And the projects aren’t limited in size by regulated caps. “Under the feed-in tariffs, there was a cap of 5 MWs. With the ROCs, that cap does not exist. We jave had developers and investors present us for projects of 10 MW, 11 MW in size.”
But what will happen after March 2013, when the ROCs will be revised again? Duncan Bott (BELECTRIC): “At this stage it’s a bit of an unknown entity. We have to ask the investors we're working with: ‘Can you source the equity within this time frame?’ And they’ll turn around to us and say: ‘Can you commission the plant before that time frame?’ The challenge then falls on to the Distribution Network Operators (DNOs), because what the government doesn't seem to fully recognize, is that you can have a twelve month delay in your project, purely waiting for outage on the national grid.” Therefore the biggest challenge for the UK market still seems to be the government. “The challenge originates from the fact that the tariff changes are coming in quicker and faster than it is often possible to manage the technical realities of commissioning a project. As you can see if the DNO is going to say: ‘sorry, it's going to take twelve months to provide an outage on the network’, it is very difficult to run a finance model when we’ve limited visibility on the project viability by the time we can grid-connect the project I'm looking at a great deal of uncertainty... it's a gamble."
A market without subsidies
If there’s one thing all the industry representatives seem to be convinced of, it’s that the industry desperately needs stability. Though the industry already seems to be stabilizing after the rapid price changes of 2011, there are still a lot of question marks in the near future. ROCs seem to be a good way of continuing investment beyond 1 August, but what will remain of it after March 2013? It seems likely that the much called-for stability will only really kick in once all forms of subsidies and certificates are off the table and the UK market finally reaches healthy, unsubsidized grid parity.
On 26 June 2012, Solarplaza will be holding the 3rd edition of ‘The Solar Future: UK’, the leading conference on solar PV in the UK. During this event, the current and future status of the UK solar market will be discussed, with a special focus on PV financing, the reduced feed-in tariffs and new business models. The conference will include an interactive workshop, combining the expertise of the speakers and the experience of the industry players. For more information and registration, please visit: www.thesolarfuture.co.uk