The surge of solar installs caused by the Department of Energy and Climate Change (DECC) December 12 deadline, which saw 385MW of capacity installed in just six weeks, left the UK solar industry with little stock reserves as it scrambled to meet unprecedented demand. Analysts didn’t expect the lack of reserves in the UK to affect the market much, as a combination of deep feed-in tariff (FiT) cuts and the Christmas break were expected to dampen demand sufficiently to allow stocks to be rebuilt.
However, contrary to the widely-predicted evaporation of demand following the December 12 deadline, the Court of Appeal’s decision to rule against Government may lead to a second upswing in demand.
Supply and demand
The anticipation of a possible return to the higher feed-in tariff rate has caused the UK market to suddenly explode into life again.
Following a rush of orders after the news broke on January 25, Segen's CEO, Andy Pegg, said: “As the UK’s largest solar PV distributor with a fully on-line ordering system, we saw a large and immediate surge in demand within minutes of the appeal court ruling being announced. Despite publicising the DECC appeal to the Supreme Court very early on, and passing on the advice that the 43p rate was not certain, demand has remained incredibly strong. Consumers are seemingly prepared to take the risk of only getting 21p, whilst hoping for the full 43p!
"In January, Segen shipped over 10MW of inverters, implying that the recent talk of the demise of the UK solar PV industry was premature. After a short term surge in installations in February, I predict the market will return to more sustainable, steady growth levels. From March onwards, consumers and the industry will get used to both the lower rate and lower equipment costs. Average module costs are now less than 50% of their April 2010 level, when the feed-in tariff was initially introduced, matching the reduction in the feed-in tariff and providing consumers with a healthy, but not excessive, rate of return.
"Supply into the UK of Far East modules is currently very restricted due to the surge in demand from Germany. December saw seriously depleting European stocks, but with existing stock and goods in transit, we have so far been able to allocate 95% of all our customer orders, and expect to be able to meet forecast demand for February and March onwards.”
Meanwhile David Hunt, one of the Directors at Eco Environments said, “The phones have already started ringing with homeowners keen to cash in on this mini gold rush. Given that the cost of solar PV installations has dropped dramatically since December 12, consumers can now achieve breathtaking returns on investment. In year one the return is 18 percent, while the average return over 25 years is a staggering 39 percent if you include inflationary increases in FiT payments and electricity price increases. Customers will also be able to enjoy a payback period of just three years.”
And Krannich Solar tweeted: “We expect huge increase in demand for PV materials until March 3.”
It is not clear whether this surge in demand has stemmed from the certainty provided by DECC laying proposals in Parliament, which guarantee FiT rates post March 3, or a perceived window of opportunity as a consequence of the Court’s decision.
There is also currently confusion surrounding what FiT should actually be quoted to customers at present. The fact is, due to DECC’s decision to appeal to the Supreme Court, solar installers should not be selling systems based on the 43.3p feed-in tariff rate. To do so would be disingenuous and risk damaging the public perception of the solar industry, which already has some image problems to deal with. In essence, to sell at 43p is a gamble, as it can not be guaranteed that DECC won’t win its second appeal.
All that is certain at this point is that 4kW solar PV systems registered between December 12 and March 3 will receive a minimumof 21p/kWh.
Yet, while the industry is dealing with a lot of uncertainty, there are also so-called cowboy installers at work, who are claiming the 43p is still valid in a bid to generate a gold rush of custom.
However, many companies are continuing to work with an honest approach. Spirit Solar, for example, has calculated the rate of return for both the 21p and the 43p, making it clear that the lower rate is far more likely than the latter. The company highlights that customers can still expect a 10 percent investment return at 21p and only if DECC loses its appeal at the Supreme Court will the 43p be reinstated. Yet if it is, customers can achieve an extremely attractive 18 percent return on investment.
The point is, the lower FiT rate still makes for an attractive investment and should be sold to potential customers as just that.
The bigger picture
All of that aside, wider global events could still conspire to restrict the potential renaissance of the British market, as a perfect mix of industry conditions could see procurement of solar supplies challenging for UK-based companies.
In the lead up to feed-in tariff rates in Germany dropping by 15 percent, 3,000MW of capacity was installed in December alone. Not many predicted such an enormous spike, and this has had a knock-on effect on global PV stocks. Again, demand hasn’t dissipated as much as expected due to the system price declines in 2011. Price decreases are set to continue in 2012, driving further demand in the German market and adding further pressure on global solar supplies. On top of that, the wider European market is expected to increase by 10 percent year-on-year in the first quarter of 2012 thanks to strong demand from Belgium, France, Spain and Greece.
The escalating trade war between China and the USA is also set to have a detrimental effect on the availability of solar PV modules in the UK. In anticipation of raised duties on Chinese solar products, imports to the USA have skyrocketed as Chinese manufacturers are rushing to stockpile goods to meet the large predicted upswing in the US market during 2012.
Some Chinese module manufacturers are already predicting module shortages by the end of Q1 in 2012. Speaking to ClickGreen, Ray Noble of the Renewable Energy Association, explained: “The Solar Industry was expecting a slow start in 2012 and thought they had enough stock to meet demand and took a long break over Christmas, however they had not allowed for the unexpected 3GW going in Germany which cleaned out the Warehouses of the top brand solar companies.
“Many of the majors, including the top Chinese, will only be able to replenish stocks by early March, unfortunately for UK installers after the 3rd March tariff change deadline. For the UK the present 'mini gold rush', as a result of the Government losing their appeal has come at the wrong time.”
The state of uncertainty has now become uncomfortably familiar in the UK solar market; with no FiT rates set in stone and the threat of a shortage of materials hanging over the industry. Only time will tell whether the industry can fully recover from the upheaval caused by Government’s fast-track review of solar PV feed-in tariff rates and successive legal appeals.
Confused? You can hear directly from DECC, Ray Noble and other industry figures at the Solar Power UK Roadshow: “Coping with the Cuts” coming to a city near you in February and March this year.