The immediate reaction following the Department of Energy and Climate Change’s (DECC) 22 July 2015 proposal to change the goalposts for the UK solar industry was obviously one of despair, and what the impact on FY’17 forecasts for ground-mounted solar could be. However, that’s just one part of the story. The other relates to what is left, assuming most of the proposals will end up being rubber stamped by DECC.
In order to fully understand the ramifications of the proposed changes, the starting point is the pipeline of projects built up, and then looking at every one of them and asking the question: what now? So without a comprehensive projects list, there is simply no way to assess the market impact.
Since the announcement from DECC, the research team at Solar Media has been hard at work going through the projects, and we can now reveal for the first time what DECC’s changes could mean for the UK solar industry over the next eight months.
Given that the proposals are just that, for the time being, we have to make assumptions. In this respect, we assume worse-case scenario that suggests if the application was not submitted (let’s put validated aside for now or 2015 grace compliancy) by midnight on 22 July 2014, the project is dormant, and quite possibly dead. This allows us to ringfence active leads into 2014 grace-compliant and 2015 grace-compliant buckets as it relates to the RO scheme.
Before DECC’s announcement, the Solar Media team was tracking 910 active UK solar farm leads (not yet constructed, and basically still ‘live’). This includes large-scale, ground-mount prospects that were segmented into FiT, RO and CfD categories. It included sites at pre-application stages (public consultation, screening and scoping), application submission (pending decision), approved status (awaiting or under construction) and pending-appeal outcome. The total of this pipeline was approximately 7GW.
It should be pointed out that sites that had not progressed from pre-application status over the previous three quarters had already been removed from the pipeline and assigned internally the tag of ‘presumed mothballed’. This had already removed much of the weeds, so to speak, and these are not part of the 7GW total pipeline figure above.
After DECC’s announcement on 22 July 2015, and once we conducted the audit process of the 900-plus sites, we were able to remove 377 sites adding up to almost 4GW. So, in some respects, it could be reported in a somewhat obscure manner, that DECC effectively culled a potential 4GW of UK solar pipeline capacity. What the financial cost to the industry is here is yet to be assessed.
The flip side to that, however, is that just over 3GW remains, comprised of just over 530 solar farm projects. The flow diagram below summarises the unofficial impact assessment of DECC’s proposals for the UK’s ground-mount sector.
Following DECC’s proposals to change the RO incentive goalposts for the UK solar industry, almost 4GW of sites have been removed from the short-term pipeline. Source: Solar Media Ltd., August 2015.
Diving into the ‘Held’ category of 3GW, the breakdown is heavily weighted to 1.3ROC projects (comprised now effectively of two concurrent grace-period conditions of the 2014 and 2015 industry-reset proposals from DECC).
The RO pipeline remains at 2.8GW across 464 projects, into which we have those where the applications were submitted by midnight on 22 July 2015, applications already approved and assumed to be 2014 or 2015 grace-compliant, and sites (again spread across 2014 and 2015 grace terms) that are currently awaiting appeal outcomes.
Large-scale FiT projects account for less than 250MW (with less of a cliff edge barrier at 31 March 2016, but their own sub-set of risk factors), and approved CfD activity from the 2014 auction that is now somewhat in the noise and not relevant within any forecast confined to the current fiscal year.
So, the main takeaway is really the RO pipeline of projects hoping to get built before 31 March 2016. Everything else is secondary in nature. If you are an EPC, a module or inverter supplier, a developer looking to acquire approved sites, or an asset holder wondering what’s going to be on the market on 1 April 2016, this forms the must-have list. Anything that comes out of the mix in terms of government/industry consultation related to ROs after 31 March 2016 is probably best tagging with the text ‘upside potential’.
How many of these 464 projects (adding to a maximum of 2.8GW) will be built before 31 March 2016? Well, this is anyone’s guess. There is no shortage at all of potential spanners in the works. The only thing that is for sure – they will not all get built. But will the final portion be 30% or 50% or 70%? Only time will tell, and we are not going to forecast while there is an active consultation going on right now. Plenty of others are busy giving forecasts based on significantly less information at hand or running off out-of-date or incorrect data.
But after DECC’s 22 July announcement, it could be said that every single one of the 464 projects now has a new, and as yet unqualified, risk element hanging over it like a dark cloud. How much this eats into the 2.8GW pipeline is not even something that a crystal ball will help you with today.
Either way, companies hoping to be part of the pre or post build process – EPCs, module manufacturers, inverter suppliers, mounting and sub-contract based companies – can’t afford to sit back now and wait for the final conclusions to be issued from DECC. The action plan has to be to run with an upside scenario and have as many options as possible across the 464 sites.
When 1 April 2016 comes along, everyone can count numbers then and compare market-share allocations. But delaying is not a strategy that should be considered at all.
Anyone looking to find out the companies associated with the 464 leads (and the other 377 dormant sites), their progress status, LPA application references and the real developers behind the sites, can access this through subscription to Solar Media’s Report 3 – Opportunity Pipeline report, updated daily by the in-house team and released every two weeks through to 31 March 2016.