EMR delivery plan paints a ‘bleak outlook’ for sub 5MW solar

The Department of Energy and Climate Change (DECC) has published its draft Electricity Market Reform (EMR) Delivery Plan which has highlighted a number of concerns for the solar industry.

The document firms up the strike prices offered to solar developers as part of the Contracts for Difference (CfD) mechanism. However, only installations over 5MW will be eligible to access funding under the CfD.

Under the current support mechanisms the market for 250kW-5MW solar installations has encountered severe stagnation due to a low feed-in tariff rate. The industry is concerned that the important mid-range market will continue to falter unless there is a revision.

“EMR stipulates that projects below 5MW will not be eligible for CfDs and will have to use the existing fixed feed-in tariffs (FiT), which are set around a nominally much smaller budget. As anyone in non-domestic solar knows, solar projects over 50kW are very severely constrained under the FiTs even when schemes are cheaper than other renewables,” explained Leonie Greene, the Solar Trade Association’s (STA) head of external affairs.

The STA is concerned that the current distortion within the policy framework will incentivise the domestic and >5MW solar sectors but leave the crucial 50kW-5MW sector short of support – a situation only exasperated by CfDs.  

Greene continued: “Solar is highly effective and cost competitive as a decentralised power source at relatively small scale. Cutting off the sub 5MW market therefore makes solar unique in having a bleak outlook under EMR when the Renewables Obligation (RO) closes. That's not acceptable and we can't believe it's what politicians want given the recent focus on mid-scale and roof-mounted solar. In fact, the result of the policy framework as currently set out would be to drive a focus on schemes larger than 5MW.”

The document also confirms that the department has only predicted 1.8-3.2GW of >5MW solar capacity by 2020. In order to meet Greg Barker’s 20GW by 2020 ambition, it has been expected that large-scale developments would have to account for a much larger proportion than the stated 1.8-3.2GW.  DECC has even warned that the 3.2GW range has been modelled under a scenario where developer costs are lower and/or decline more rapidly than under its central estimates.

According to DECC: “The solar range has been updated to reflect additional scenario analysis covering further uncertainties on fossil fuel prices from National Grid. This does not imply any lowering of ambition by the government [for solar PV] and the strike price remains the same as it was in the 27 June publication.”

In the consultation DECC maintains that solar remains a key player for the UK’s energy future. The document states: “We continue to be of the view that large-scale solar PV has the potential to play a significant role if there are continued cost reductions and innovation in both technology and business models and measures. The strike price trajectory has been set to incentivise those continued cost reductions and innovation.”

The level of predicted capacity has also led to concerns within the solar industry that the level of solar supported under the CfD could be capped. DECC has stated that it expects the CfD mechanism to run on a ‘First Come First Served’ process before moving to what it calls ‘Allocation Rounds’ when a certain portion of the CfD budget has been used.

The department is “examining how the CfD allocation process will support supply chains whilst maintaining value for money for consumers” and will publish proposals on the allocation process later this summer.

DECC has also acknowledged that the route-to-market for independent generators is being assessed, stating that the department is “actively considering interventions to promote competition in the PPA market”.

The STA has welcomed the increased focus in the bill. Greene said: “We are pleased to see a clear focus in the Delivery Plan on Route-to-Market for independent generators. A clear route-to market is essential if independent generators are to have confidence they can secure the market reference price needed to get projects to stack up economically.

“Independent generators are expected to deliver up to 50% of all the investment we need so this issue is absolutely critical and not an add-on. We look forward to hearing from DECC with further details on how they propose to resolve this.”

The strike prices for solar under the CfD are shown below:

The EMR Draft Delivery Plan will be out for consultation for ten weeks, ending on 25 September, before DECC publishes the final version in December.