In a normal world, if a market declined by an order of magnitude from one quarter to another, one would expect most of the industry participants to be looking for another career opportunity. But we are talking about the solar industry here, so normal benchmarks tend not to be in play too much.
Indeed, UK solar industry deployment fell by almost exactly one order of magnitude between Q1’15 and Q2’15, going from 2.53GW to 254MW. Here is the breakdown of the 254MW:
Solar PV installed in the UK during Q2 2015 reached 254MW, dominated by the residential segment through FiTs. Source: Solar Media Ltd., August 2015.
Media reports of market collapse are wrong
When DECC’s monthly PV statistics came out last week, DECC was sizing Q2 2015 deployment at 200MW. We expect this to crawl up to about 250MW in the next few months once all the quarterly activity is fully documented by Ofgem. However, the reaction to the fall in Q2 2015 was immediate by the mainstream press. The reporting was somewhat sensationalistic and also off the mark. Here is why:
The fact that PV installed in the UK declined by over an order of magnitude during Q2 2015, compared to Q1 2015, was not due to recent government policy announcement proposals from DECC. How could this have possibly occurred? DECC’s shockwave announcement on RO adjustments came in the third week of July, well after all the Q2 2015 action had occurred.
It is somewhat analogous to an Australian waking up on Monday morning, and saying that the vibe at Lords was so good because their team got stuffed ten days later at Edgbaston. You can’t attribute future events for what happened in the past.
The fact is that Q2 2015 solar PV deployed in the UK declined by such an order of magnitude is because it was expected to do so. It is entirely a seasonal issue, and has become par for the course now for the past three years. Because RO deployment has been dominating UK spikes in recent years, and runs on annual banding rate degression on 1 April each year, it means Q1 is a an annual peak and Q2 is an annual low.
Nothing more and nothing less. What DECC announced on 22 July 2015 has a market impact from 23 July 2015 onwards only, as it certainly will. And there will be a time and a place for the mainstream press to run with this when the time comes.
The reality of Q2 2015
The second quarter in the UK was once again the ‘reset-quarter’, with the 12 month phase of working out what’s available for 1.3ROCs getting underway. Consequently, Residential had its annual moment in the sun, as the dominant segment. This will not happen again for another 12 months.
The commercial segments (small/large rooftops and ground at less than 250kW) were extremely slow. While some bits and pieces occurred on large rooftops, the lack of stand-alone activity under FiTs is somewhat more concerning. Or are we now seeing the expected shift of small scale ground-mount EPCs or sub-contractors changing strategies to become lead-EPCs of 5MW sites? We are tracking this very closely, as it could very much open up the EPC landscape in the next 8 months.
A bunch of sub-5MW 1.3ROC sites were completed, the first 2014-grace >5MW was done, and Scotland got its first MW+ solar farm. So, at least something to cheer about for ground-mount personnel, but the real action on the ground will occur in the next eight months.
Aside from new capacity added, asset holders were very busy. First, on mopping up 1.4ROC sites built in Q1 2015 that had come on the market. And secondly, getting rights on 2014 grace-compliant projects to be built during FY’16.
In fact, it is thought that most – if not all – of the largest of the >5MW 2014 grace-compliant sites will have final portfolio destinations pencilled in by now. Even projects at appeal have been pre-sold based on coming through appeal, getting construction finance and being accredited before 31 March 2016. The 2014 grace compliant projects are currently the last-chance-saloon for asset holders to add the 40-50MW sites for quite some time.
Finally, on the planning application side, activity was extremely buoyant – a great quarter if you were a planner or a planning consultant. The project count is still ongoing, mainly because the range of LPAs used is now so diverse, only adding to Ofgem’s problem in maintaining any kind of credible planning database. More on our approach to doing this shortly in a different blog.
And if you were not putting in the planning applications as a project developer, you were probably busy acquiring sites from other project developers. Two of the most active doing this so far in 2015 have been Anesco and SunEdison, but many others are getting into this game also. Buying sites at the right time between now and Q1 2016 will be an interesting topic to track shortly, and what caveats are put on the deals being done.
As for Q3, let’s just say the market will be higher!