Round 5 of the CfD awards: what does it mean for the UK solar industry?

Our market research team has now completed a week of site identification, matching up all of the awarded Contracts for Difference (CfD) projects within our overall pipeline of about 90GWp-dc of solar farms in the UK (across more than 1,300 sites).

This now shows all CfD Allocation Round (AR) 5 sites, including the full audit trail of each site from scoping (many years ago for some of the projects) to full planning approval (at the local or national appeal level), through the various stages of site ownership changes (leading up to the pre-build site owners today) and full geographic identification.

Shortly after the CfD AR 5 results came out, we issued a special, ad-hoc release of our monthly-updated UK Large-Scale Solar Farms: The Post-Subsidy Prospect List report, allowing instant filtering of the 56 successful CfD AR 5 solar projects (2.8GWp-dc) from within the overall 90GWp-dc pipeline. To access this report, please follow the link here to subscribe.

Similar to when we did this in July 2022 for the projects under the previous round (CfD AR 4), the results make for fascinating reading, with the final audited listing in our report likely being the only accurate data source of this currently.

The level of tracking on each of the projects often meant that it took a few hours just to match the nomenclature used in the auction release files to sites that are already known to us, but whose participation in the CfD rounds was not known outside of the companies doing the submissions earlier this year. In fact, some of the projects submitted into the auction were absolutely not expected to be there, but more on this below.

Analysis of the successful CfD AR 5 sites

To start with, 96% of the awarded capacity is for sites located in England, with isolated projects in Scotland and Wales making up very small numbers. This is not surprising, given the ongoing issues at the devolved Welsh government level that are not yet conducive to quick decision-making or indeed in taking a positive view on large-scale solar deployment. In Scotland, the requirement for Holyrood intervention (and grid availability) tends to just slow things down, rather than put up any significant barriers to ultimate approval.

Across the regions of the UK (and specifically England where almost all the capacity is located), the North East and North West accounted for 22%, Eastern England for 11%, the Midlands (collectively East and West) for almost 30%, Yorkshire and Humber for a further 11%, and with the largest concentration for any individual region being the South West at 23%.

But a key takeaway from the geographic allocation is that the projects cover 49 different local planning authorities, with just seven having more than one awarded project. Two ‘combo’ packages (two separate projects/applications located ‘side-by-side’ and that can be treated as one overall project) feature within the announcement. One of these is located in the North East and already owned by one of the UK’s largest solar farm asset owners today. The other in the Eastern region is also already owned by one of the other major names in UK solar now.

About 85% of awarded capacity is coming from projects that began their ‘life’ after Renewable Obligation Certificates (ROCs) had been discontinued, giving these projects a welcome boost given that there was no guarantee of CfD’s being on the table when most of these were being scoped out.

The most interesting part of the jigsaw, however, is that a bunch of projects predate these by some margin, with about 100MW of projects beginning life back in 2013. These were originally started in the hope of getting 50MW allowable ROC subsidies but missed that chance and are now reappearing. Never underestimate the ingenuity of a UK project developer to prolong the life of a successful planning application!

In fact, it now seems that unused capacity on previously approved solar farms is still hot property. This explains why some of the sites awarded look, on the surface, to be barely worth it; say, at the 10MW or so level, not the 50MW-plus you would expect. However, remember that unused field space has essentially had its upfront costs written off, from previous partial build-out.

About 60% of the project capacity awarded in CfD AR 5 has already been acquired by long-term asset owners, another confirmation of institutional money going in at the planning stage (as opposed to bidding post-build in the legacy multi-flip ownership days). There were 22 different project developers behind the range of sites awarded contracts, although many were simply joint ventures (JVs) with final owners in order for the ultimate asset owner to have a guaranteed pipeline of projects in the works.

About 20% of the remaining capacity is likely at final stages of ownership-transfer, or will be put to market in coming weeks and months, ultimately for others to bring in the financing to build the sites.

Therefore, the opportunity from the projects being awarded CfD’s in AR 5 is mainly for sub-contractors (EPCs, etc.) yet to be appointed, component suppliers (modules, inverters, trackers) and the legal profession in making sure that CfD contracts are concluded satisfactorily.

What’s left in the pipeline now?

To answer this question, some perspective is required. Prior to the CfD Round 5 results being announced, the pipeline of ground-mounted solar farms in the UK was in excess of 90 GWp-dc. Consider how this has evolved in the past few years, since ROCs finished.

At the end of 2017, the pipeline was 4GWp-dc. 12 months later, the pipeline had actually declined, with many of the legacy projects officially mothballed. During 2019, things started to pick up, with developers seeing the long-term opportunity in the UK as viable, irrespective of subsidies being in place. At the end of 2019, the pipeline had grown to 6.3GW. The next year was dramatic in terms of new planning applications, and by the end of 2020, the pipeline had more than doubled to 13.7GW.

During 2021, we started to see long-term and mega-scale UK solar farms become real. The pipeline of projects at the end of 2021 grew to about 37GW. This trend accelerated in 2022, and by the end of last year, the pipeline was 81.5GW. As of now, this has grown to above 90GWp-dc.

In some respects, one may conclude that the CfD AR 5 capacity is simply the tip of the iceberg, but this is not the case. The key – for any pipeline – is to understand what that really means and what percentage of this is actually ready to build (approved and with available grid).

Once we take out the CfD capacity (pending AR 4 and all AR 5) from the 90-plus-GW of pipeline, this leaves circa. 85GW of pipeline capacity. Nearly 65GW of this is yet to submit an official planning application. This may seem a large number, but in part this is coming from developers starting early with very large plans that, if they come to fruition, would be built in 2030 or beyond.

Therefore, it is probably of value to examine the circa. 20GW of capacity that is in the system now; in the planning portals (local or governmental), over and above what has been awarded a CfD under AR 4 and 5.

About 1.5GW of this is pending Planning Inspectorate decision-making, having been rejected by a local authority and subsequently appealed by the developer. Given the success of recent rejected sites being overturned on appeal, one could easily see 1GW of this as being good-to-go when planning decisions are reversed.

About 8GW of projects are currently awaiting planning decisions. I fully expect that at least 6GW of this will be approved (either by local planning authorities or national or devolved governments in the UK).

Finally, we have over 10GW of projects that have been approved. Easily, 9GW of this will be built. Probably before the end of 2027.

Therefore, aside from the CfD projects pending build, we have about 16GW that is very likely to get built between now and the end of 2027. In rough numbers, this hints towards a potential 4GWp-dc of new solar farms in the UK from next year. This is not crazy, and could easily be adopted as a positive move, in particular if the Labour Party gets into power next year and wants to point quickly to changes under their watch that show a true desire to hit net zero ambitions faster than the existing government.

The main thing though is that the pipelines are continuing to grow. In fact, no-one seems spooked or phased by the short-term soundbites of the current political parties. A large-scale application (at the Nationally Significant Infrastructure Project (NSIP) level for example) scoped today will – all things going well – probably not start ground-breaking until a further two general elections have taken place in the UK (at least).

What are the barriers to large-scale solar farm deployment in the UK now?

Over the past 12 months, global solar activity has been moving at breakneck speed; especially relating to manufacturing capex, technology-change, supply-chain scrutiny and pricing volatility. And to the fore now is a global technology war, largely between the US and China and focused on semiconductor chip fabrication, that is spilling over into adjacent technologies (solar, EVs, batteries) and forcing other regions (especially the European Commission) to have a strong position on each of these (or indeed, just to have a position).

An offshoot of this relates to manufacturing sourcing: not simply a Xinjiang issue, but a China one more broadly. And much of Southeast Asia (in particular countries that have become no more than cheap outsourcing channels for Chinese companies) may well see extra scrutiny as the US ratchets up its global awareness campaign on the whole anti-slavery issue.

You may be asking how this affects the UK solar industry, and specifically the pipeline of large-scale solar farms? The answer is simple: more than 90% of polysilicon, ingots, wafers, cells and modules today are made by Chinese-owned companies, either in China itself or owned facilities in Southeast Asia. Worse still for UK buyers, the most serious problem comes down to polysilicon availability outside China, as this is largely secured in full today for modules shipping to the US market between now and 2030.

A couple of years ago, about half of all Chinese-made polysilicon was done in Xinjiang. This percentage has declined as new plants have come online in other parts of China, but this part of the value-chain is still of huge concern moving forward. Can we really expect the US to stop at just Xinjiang?

Understanding how to procure modules in Europe and the UK is becoming a major issue, and there could easily be rules set by the European Union and UK-specific policy-makers, running in parallel with whatever ESG procurement guidelines are self-imposed by corporate buyers themselves.

The European market has been flooded with Chinese modules in the past nine months, resting in crates at ports of mainland Europe. Buying these at low pricing is not hard; 15 euro-cents per Watt offered probably gets a instant delivery tomorrow to build a large solar farm. But much of this is product that will struggle to pass rules imposed by corporate buying scrutiny today, far less any changes that may come along next year at the policy level.

Buying non-compliant product today, simply because the policies are not in place now, is not an acceptable business practice anymore. Buying decisions today will come back to haunt ESG corporates in years down the line, if they are not fully scrutinised based on global directions of travel, especially as they relate to anti-slavery as a whole.

As a reference point today. Europe may have tens of GW’s of module inventory (or at least stacked up through the channels), desperate for a home today. But there is a chronic undersupply of modules to the US. None of the 50GW of European inventory can get into the US or will even be bought in hope by US developers. If Europe (and/or the UK) was to move towards having a similar political relationship that the US has with China now, there is no reason to suggest that a chronic undersupply of ‘compliant’ product would ensue. Today, it is hard to buy a module in the US south of 30 cents per Watt.

As a result, solar farm pipelines in the UK need to be seen as dependent on planning approval, financial viability (return on investment), grid-accessibility and component buying compliance. While in the past, it was generally one of the first three issues that would delay any project from coming to fruition, from 2024 it could be that compliant component availability curtails or delays projects, seemingly shovel ready and even having CfD contracts in place.

For now, however, the number one thing is to know which projects have secured CfDs in Round 5 of the auction, and fully understand the ownership status of each of these. A reminder finally to subscribe to the UK Large-Scale Solar Farms: The Post-Subsidy Prospect List for this and the other 1,300-plus solar farms that form the basis of much of the ground-mount capacity that will be built in the UK out to 2030 and beyond.