The future of the UK solar PV market: Part one

In the first of a new exclusive two part blog for Solar Power Portal, NPD Solarbuzz team leader Finlay Colville discusses different scenarios for annual solar PV deployment in the UK out to 2018. The second part of the blog will discuss the different scenarios in greater detail, highlighting also the importance of the Levy Control Framework budget on the amount of incentivised solar PV on offer to the UK industry.

NPD Solarbuzz has just completed its latest five-year outlook for the UK solar PV industry, the results of which are due to be featured in the forthcoming European PV Markets Quarterly report.

This blog summarises the different scenarios for solar PV in the UK, discussed in more detail within the report (that captures the role of the UK in Europe also and all other European PV countries over the next five years).

The blog also captures some of the best-case and worse-case scenarios for developers, installers and suppliers for PV in the UK, and highlights the key issues set to impact the industry today and going forward.

The landscape today

First, let’s recall where the UK is now for solar PV deployed, as of the end of the second quarter this calendar year (CYQ2’14) at 30 June 2014.

NPD Solarbuzz released the UK’s solar PV half-year figures two weeks ago, just after the quarter closed, revealing that the UK had deployed 1.47GW during the first six months of the year – more than was installed during the whole of 2013. (NPD Solarbuzz provides weekly updates on the UK’s solar PV capacity to the UK’s Solar Trade Association, on a data-sharing basis.)

Figure 1 shows the quarterly solar PV capacity installed in the UK, going back to Q1’10, and up to the quarter ending 30 June 2014 (Q2’14). Total deployed capacity had reached 4.8GW.

Note that the most current data-point from the government, as of end May 2014, puts the UK’s cumulative solar PV capacity at 3.611GW, but this acknowledges the long lag in time between RO-based solar farm build and accreditation being registered officially through the Ofgem process and counted by DECC:  about 3-9 months, depending on the geography/council/DNO (notwithstanding ROO-FiTs and NIROC phasing also).

With so much installed in Q1’14 (over 1GW across all FIT, ROO-FIT, NIROC and ROC categories) that was dominated by RO-based solar farms, the lag of 1.1-1.2GW on the government data is fully understandable, and is actually in good alignment with up-to-date NPD Solarbuzz data sizing for UK solar PV deployment. The expectation is that DECC’s data releases will catch up with the frenzy of Q1’14 in a few months (albeit then lagging much of the large-scale activity deployed from 1 April 2014 onwards).

Figure 1: NPD Solarbuzz UK solar PV capacity deployed each quarter from Q1’10 to Q2’14. Sources: NPD Solarbuzz European PV Markets Quarterly report July 2014, Solar Trade Association (STA) member updates.

What will happen over the next five years in the UK for solar PV was completely reset by the announcement from DECC at the start of May 2014, to change the landscape for large-scale ground-mounted solar under ROCs. This has been well-documented in the past few months.

The concerns of the industry have been clear to see and are completely understandable.

*The impact of Greg Barker’s replacement is also a new factor that is likely to be viewed with caution, but the outcomes here are way too early to know for sure.

While the frame-of-reference is different for the May 2014 DECC announcement - and the timing/notice for the RO changes provides a unique case-study - one can’t help but recall the concerns back in 2012 when FiTs were cut for large-scale solar. Or those that called the end of solar farms in the UK when ROCs were reduced from 2 to 1.6 on 1 April 2013; or when small-scale FiTs were slashed for the residential market.

But, regardless of the historic analogies, there is much more at stake this time around; and more to lose for developers, if the nightmare scenario of minimal ground-mount activity comes to fruition from 1 April 2015. Together with any growth in renewables scepticism from personnel changes in the government, the threat of a double-whammy to the solar PV industry cannot be discounted.

What is different today (compared to previous policy revisions to the UK solar PV industry) is the Levy Control Framework (LCF) budget, and concerns that the budget for financial year 2021 (FY’21) may be getting eaten into quicker than expected from RO allocations from solar during FY’13 and FY’14. (These issues were real back in 2011 for FiTs, but simply not so pertinent.)

UK-based solar PV companies had staffed up for business out to 2017 (under ROs) and were not expecting the jolt back in May. While overseas developers active in the UK may simply switch to other global PV markets (as has been their want in the past), UK-centric developers may not have that luxury at their disposal. A similar (but to lesser degree) issue is true for investors in solar farm assets that had seen the UK market as a source of low-risk pickings to shore up portfolios quickly.

Right now, nothing is decided (officially) on the RO changes, with the consultation period just ended. So it’s a case of waiting and seeing what the final changes will be, who will deliver these changes, what will be allocated within the forthcoming CfD auction, and whether solar will really have a clear run this time, away from onshore wind: more on this later in part two of the blog.

But we’ve not even fast-forwarded more than four months, and already there are some very big unknowns in the mix!

Nevertheless, below is the current thinking from NPD Solarbuzz on the five-year trajectory of solar PV in the UK. As with any forecast for the future (especially over a period as long as five years), it is the methodology behind the data that counts, rather than saying (for example) that 510MW or 520MW is going to be deployed five years out in any one of the application segments.

Some of the numbers on the Upside may look large, and some on the Downside may look alarmingly low. But there is no need for any health warning related to these. PV markets globally have a nasty habit of going through extreme cycles in deployment.

Five-year scenario forecasting out to 2018

The NPD Solarbuzz Baseline (read as ‘Most-Likely’) forecast now has the UK reaching 2.9GW in 2014, up from 1.45GW in 2013. During 2014, projects above 50kW in size are expected to account for approximately 80% of annual demand. The Upside figure for 2014 is well above 3GW (see below also), with the level of ground-mount projects under 1.4ROCs completed before 31 December 2014 (as opposed to 31 March 2015) being the key swing factor here for calendar year totals.

How much gets done on the ground during Q4’14 compared to Q1’15 will provide a metric on the calendar year 2014 numbers when rankings and stats are compiled for the UK in January 2015, but it will be the six-month period from 1 October 2014 to 31 March 2015 that will define the final deployment under 1.4ROCs, and potentially what’s left for subsidised rooftops going forward.

The Downside scenario shown below could be provided if the government acts quickly to slowdown the large-scale, ground-mount segment, reacting to the unexpected growth seen in 2013 and Q1’14. Other factors are included in the downside forecast – these will be discussed in part two of the blog, in more detail.

Figure 2: NPD Solarbuzz UK solar PV forecast scenarios out to calendar year 2018, reflecting the impact of key policy swings over the time period. Source: NPD Solarbuzz European PV Markets Quarterly report July 2014.