Developers across the UK feel like they have been dealt a “kick in the teeth” by the government’s latest proposals to constrain the deployment of solar in the UK. From April 2015, the government wants to remove all RO support for solar developments over 5MW.
The reason being that the Department of Energy and Climate Change (DECC) has failed to accurately model the current explosion in solar farm deployment. As a result, the proportion of the Levy Control Framework (LCF) budget being eaten up by solar has been deemed too much (no mention of why DECC isn’t allocating onshore wind under spend to help support continued solar farm growth though).
In place of the RO, DECC is expediting the introduction of Contracts for Differences (CfDs) for solar developers. So, what exactly are Contracts for Difference?
Well, they’ve gone through a number of changes already and it’s no surprise that the industry hasn’t kept fully abreast with their shifting form. But, since the European Commission released its new state rules on renewable subsidies, CfDs have undergone a massive transformation from the initial proposals – they are now auction based.
This means that a group of technologies will compete against each other to win a CfD contract with the government. Solar has been placed in the mature technology pot, alongside onshore wind, energy from waste with CHP, Hydro, landfill gas and sewage gas.
When DECC first revealed that solar was going to be considered an ‘established’ technology the sector pointed out that it wasn’t ready yet to compete on price terms… DECC’s response? Solar costs are falling so quickly that we are confident it will be competitive when CfDs are introduced.
But now the department has just shifted the timeframe forward by two years. Will solar be ready? The industry doesn’t have much time to prepare. The table below outlines the government’s proposed timetable for CfDs.
CfDs’ next steps
|
Planned date |
Implementation step |
|
June |
The final CfD Allocation Framework published |
|
July |
The indicative CfD budget available to National Grid for allocation to be published |
|
12thSeptember |
National Grid publishes information on how to apply for a CfD. |
|
14th Oct |
CfD applications can be made |
|
26thNov – 3rd Dec. |
CfD applicants put in sealed bids (if competition is required). |
|
Christmas Eve |
Ed Davey reviews National Grid’s proposed allocation and decides whether to go with it. |
|
29th Dec – 13th Jan 2015 |
The results of competitive bidding are announced and winners start receiving their contracts. |
|
29thApril 2015 |
Earliest CfD generators can start being paid |
As you can see the first tranche of CfD applications will go live in October, leaving developers with a small window to get to grips with the CfD mechanism (not to mention wait for the government to fill in a number of policy blanks).
One area that the solar industry had been holding out for was the introduction of a minima for solar. Unfortunately, proposals published yesterday confirmed that DECC is not looking to set minimum capacity threshold for solar – a fact that the Solar Trade Association’s Leonie Greene thinks is a serious threat to solar post April 2015. She explained: “The CfD proposals contain no minima for solar – as the STA has made clear, solar will not be able to compete with onshore wind until 2017/18”.
Wave and tidal, not classed in the same pot as solar and onshore wind, will be guaranteed a minimum capacity of 100MW in the first auction round.
At the moment, DECC’s proposals would leave a two-year gap where the cheapest form of UK solar would be stranded. Although it’s important to stress that onshore wind will still be able to access the RO during this period – solar might not even end up having to compete with wind until 2017 anyway if wind developers choose to stick with the RO.
Lars Weber, sales manager, Neas Energy thinks that the industry could end up embracing CfDs. He said: “We are ready to have a commercial discussion about CfDs now. From a PPA point of view the big difference between CfDs and ROCs is that you no longer have exposure to the power market – that’s what makes the whole sector ready for institutional investment.”
Weber added: “In the future, I hope, that a lot of the debt providers can be assured by the fact that there is a backstop PPA provider – that makes the PPA a lot cheaper because I, as a PPA provider, don’t have to put down collateral. The offtake of last resort is a great thing but government of course made sure that you are not going to get it in your first year. So you will need your PPA, especially for your first year.”
DECC still needs to do far more to persuade the solar industry that CfDs are a viable alternative to the RO. The STA summarises that proposals to replace RO with CfDs are, “highly complex and will greatly increase risks for smaller SME companies, which are prevalent in solar, compared to big utilities”.
Solar Power Portal will be running a series of articles, feature videos and interviews over the coming weeks on the state of Contracts for Difference for solar.