Revised strike prices: Industry reaction

The Department of Energy and Climate Change (DECC) has announced new, lower strike prices for solar energy.

The new strike prices will be available to developers under the contracts for difference (CfD) scheme from 2015 and are outlined below:

Below is a comprehensive roundup of the industry’s reaction to the news:

Reza Shaybani, chairman, British Photovoltaic Association said:

“The new strike prices for large scale solar announced today by DECC are cause for concern but not panic. In one hand the government is saying is pro renewables and green is on top of the agenda but on the other hand the action is somehow different? The announced figures will come into effect from 2015 and frankly the industry was expecting this anyway but the industry is surprised by firstly the level that strike prices are set at and secondly the timing of the announcements. These kinds of constant changes may bring short term political popularity but will harm long term energy security and prosperity.

“We don’t agree with DECC’s statement that investors are queuing up to enter the UK renewables market as recently RWE pulled out of a major wind energy project. A number of investors in solar energy projects have contacted the BPVA today and are also concerned about government attitude to solar and the mixed messages. We know that DECC prefers to see increase in deployment of solar in domestic and commercial rooftops but large scale is an important part of the solar mix and frankly hugely responsible for cost reduction. “

Paul Barwell, chief executive, Solar Trade Association said:

“The negative political rhetoric about solar farms is a shame given the announcements today show good support for solar after 2015. The strike prices clearly show this is a technology on track to compete with fossil fuel prices. This is fantastic news for the public as solar will deliver clean power at a very stable price, with no unexpected cost fluctuations. The changes in strike price announced today widen the gap between the cheapest and most expensive technologies, which is a concern as funds are limited.

“Developers still have the option of the Renewables Obligation until 2017, which DECC has pledged to keep stable to support investor confidence during the transition to EMR. All in all, the outlook remains positive. But it is frustrating that the strike prices don’t properly reflect real world costs – it looks as if on the back of the consultation they’ve simply taken off £5/MWh across the board. Certainly the cost evidence the STA submitted was much more nuanced than that. Perhaps DECC have sought to spare nuclear’s blushes by giving us a higher strike price than them, when we could have gone lower.”

Ben Warren, head of environmental finance at Ernst & Young said:

“Today’s announcements send mixed signals about the UK Government's commitment to investment in renewables. A closer look reveals that the devil really is in the detail. Not only will levels of support for all other forms of renewable investment will go down by 2018/19, but the positive news about offshore wind seem to be unfounded as the strike price is expected to only go up by £5.

“At a time when developers, investors and industry have been asking for longer contracts to allow much needed renewables infrastructure to materialise, it remains to be seen what the impact of today's announcements will be on investment levels in the UK. At last, however, there is some clarity on pricing that should provide the market with confidence to continue to invest.”

Dane Wilkins, regional director, Jones Lang LaSalle’s renewable energy capital team said:

“This revision of the draft strike prices for onshore wind and solar remains politically sensitive but these latest reductions will significantly affect future prospects for both the onshore wind and solar development industries especially once the Renewables Obligation (“RO”) support mechanism is withdrawn in 2017.

“Overall these reductions to onshore wind and solar strike prices will further drive developers to ensure their projects are commissioned under the RO. It is also likely there will be a reduction in investment in development assets up for commissioning in 2018 in the absence of significant further capital cost reductions.  Furthermore it will not improve confidence that tariff setting is driven by underlying economics and the achievement of targets rather than political wrangling.”

Munir Hassan, head of clean energy at Cameron McKenna said:

“What the industry is crying out for is certainty. The draft strike prices were published only this July.  The changes now announced may reinforce the view that the strike prices could be subject to regular changes, making it more difficult for renewable project developers to plan ahead. 

“While the reduction of support for onshore wind and solar is supposed to reflect the anticipated lower costs for these technologies in the future, DECC has been careful not to formally require the subsidy levels to be set by reference to the actual cost of the different renewables technologies. While the industry is therefore likely to accept the reductions as a sensible position, industry will want comfort that strike prices are set objectively at levels that actually help to deliver the UK's renewable energy targets.”

David Ferris, energy & utilities team, Osborne Clarke said:

“At first glance, it would be easy to say ‘this is going to affect onshore wind and solar massively’. Some of the media this morning certainly seemed to go with that line. But the devil’s in the detail, and the information being released shows the changes are more in line with the accepted and continuing movement towards tapering off of subsidy levels as technology matures and costs reduce, reflecting the strength and maturity of the UK onshore renewables industry.

“If we’re not careful, we’ll lose sight of the really important detail here: this only affects future onshore solar and wind projects that are over 5MW and are not yet accredited. In short, there’s lots of great renewables projects that this simply doesn’t affect.”

Dr Nina Skorupska, chief executive, the Renewable Energy Association said:

“The spin in Westminster and the media today is disappointing but not surprising. Today is actually a good news day for renewable electricity and renewable heat. The real reason that support for solar and onshore wind will go down is that they are leading the race for cost-competitiveness with fossil fuels. Government policy is working and bringing down costs. The important thing is that decisions are evidence-based, not purely political, and we need to see the methodology to assess that.

“The big picture here is that renewables are the only low carbon technologies which can help bridge the looming supply crunch – and yet Government has actually depressed its ambition for biomass and conventional waste to energy generation. This means more coal and gas plants, keeping us very much hooked on volatile fossil fuel prices.

“The real test for EMR is in the policy design – not just the headline support levels. There is more work to be done to ensure that EMR works for independent generators as well as the big utilities. Independent generators help drive competition and innovation, and can also help communities invest in their own local energy projects.”