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Solar Investment Plunges Amid Panel Glut

An oversupply of solar panels…

Andrew Topf

Andrew Topf

With over a decade of journalistic experience working in newspapers, trade publications and as a mining reporter, Andrew Topf is a seasoned business writer. Andrew also…

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Solar Could Be UK's Biggest Loser This Year

Traditionally powered by coal, natural gas, and to a lesser extent, nuclear, the United Kingdom has been a reluctant convert to solar power. However that has changed in recent years, with the UK solar sector growing from virtually nothing five years ago to nearly 5GW, enough to power around 1.5 million homes.

Last year was a record for UK solar, with the sector nearly doubling from 2.8GW at the end of 2013 to almost 5GW at the end of 2014, official statistics show.

Now, the British government threatens to slam the brakes on the growth, due to a shift in policy that limits the subsidies paid to large land-based solar farms, and instead, encourages more roof-top solar.

Starting this month, under a new directive known as “contracts for difference,” large solar farms over 5MW will have to compete with other sources of renewable energy such as onshore wind turbines, hydroelectric and waste-to-energy plants, for a limited amount of cash ultimately paid for by UK electricity consumers. Related: Top 5 Richest Tycoons In Renewable Energy

Under the previous system, land owners were encouraged to switch to “solar farming” through a subsidy regime known as “Renewable Obligations” (RO) that could earn them about GBP1,000 a year per acre for up to 25 years, the BBC explained.

Solar providers got paid the subsidy regardless of the price of electricity or their costs of production. The British government therefore was concerned that the switch to solar was happening too quickly and at too high a price, hence the decision to axe the RO system and move to the contracts for difference regime.

The new system clearly favors roof-top solar at the expense of land-based solar farms. Community-based projects, where people band together to put up roof-top panels, will be allowed to double from 5MW to 10MW, and will receive a larger percentage of the subsidy pot than owners of large solar farms, according to The Guardian. Tariffs paid by building-mounted solar panels will also decline at a slower rate than ground-mounted panels.

Not surprisingly, the policy has solar industry advocates up in arms. The Solar Trade Association, which promotes the benefits and adoption of solar energy in the UK, predicts a major decline in the sector as a result of contracts for difference. While the current financial year will still see significant growth, from 2-3GW of large-scale solar, next year new installations will virtually stall, to just 32MW for both small and large PV – or around 1 percent of current levels, according to the association. Related: Could The World Cope With Almost Limitless Energy?

In addition, the STA says that only three of the five projects that won approval through the contracts for difference auction, held earlier this year, will get built, compared to 100 percent of onshore wind projects.

“For an industry that is predicted to be the dominant global energy source by 2050, the UK’s rollercoaster policies are not helping its position. We hope that the new government looks at this technology with fresh eyes to develop a fairer and more sensible approach,” said Leonie Greene, the association's head of external affairs.

A recent report, written for the STA, indicates that the government's new solar policy may pay a price in terms of lost economic output. The September 2014 report by the Centre for Economics and Business Research states that “UK Government proposals to cut large-scale solar out of the Renewables Obligation could disrupt the industry’s path towards cheaper solar.” The report notes that if 20GW of large-scale solar was built by 2030, under a scenario further explained in the report, it could add over GBP25 billion to the British economy, not including the roof-top solar market. Related: Latest EIA Predictions Should Be Taken With More Than A Pinch Of Salt

The Department of Energy and Climate Change is aiming to have between 10 and 12GW of solar by 2020.

For its part, the government claims that the new system will be fairer, telling The Guardian it will create "the right balance of support for renewables … securing the further investment we need to provide clean, green and secure energy, while continuing to deliver value for money for energy billpayers".

But critics see the shift as just another manifestation of the Conservative-led government's aversion to renewables, symbolized by Prime Minister David Cameron's “green crap” comment in 2013.

Cameron reportedly told aides to “get rid of all the green crap” from energy bills in order to bring down costs, creating a firestorm among the British press since Cameron had earlier promised to run “the greenest government ever.”

By Andrew Topf of Oilprice.com

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