U.K. Solar Capacity Surges 10-Fold

By Marc Roca – Jan 11, 2012 5:08 PM GMT+0000

Britain’s solar capacity shot up more than 10-fold last year as installers targeted home rooftops to reap incentives the government is working to restrain, making a deeper cut in the subsidy more likely.

Solar panels with at least 761.9 megawatts in capacity were installed by the end of last year, compared with 76.8 megawatts at the end of 2010, according to figures on the website of energy regulator Ofgem. About two-thirds of the capacity and more than 95 percent of the projects were developed on homes.

Support in the form of feed-in tariffs guaranteeing premium rates for electricity from solar power came into force in April 2010, when prices for panels were more than twice as high as they are today. Companies including EON AG (EOAN), Tesco Plc (TSCO) and Carillion Plc (CLLN)’s Eaga rushed to tap the market, supported by fund managers such as Foresight Group LLP and Octopus Investments Ltd.

“It’s been a very busy and successful year for the solar industry,” Howard Johns, chairman of the Solar Trade Association and managing director of installer Southern Solar Ltd., said by e-mail today. “But now most of the industry is at a standstill with the uncertainty caused by the government.”

Twice last year, government ministers moved to reduce feed- in tariffs. The second effort prompted a lawsuit from the industry, which the government is appealing on Jan. 13.
Prices and Subsidies

Plunging prices for solar panels made more developments economical, leading to a surge in installations. Ministers responded in March with an emergency review of its support measures that cut rates as much as 71 percent for commercial- scale plants. Developers then turned their attention to smaller rooftop projects, prompting the government in October propose cuts those facilities too.

The boom outpaced the government’s forecast. More than 230,000 solar plants with 761.9 megawatts have registered to qualify for tariffs since the program started, according to Ofgem. Half of this capacity was registered in November and December alone, the latest weekly data show.

These figures compare with the Department of Energy and Climate Change’s projections for 284 megawatts by April 2013 and 832 megawatts by April 2015.

As much as 1.1 gigawatts might have already been installed in the U.K. because of a lag in registering completed projects, which would cost about 373 million pounds ($572 million) a year in subsidies, according to Bloomberg New Energy Finance figures.

“The cost of the PV installations could easily exceed DECC’s spending cap,” said Jenny Chase, lead solar analyst at the London-based research firm. This is “somewhat embarrassing” for an austerity-focused government, even if the costs are passed on to the consumer rather than being on any fixed budget, she said.

The program, which also includes other low-carbon technologies for projects with 5 megawatts or less, has a spending limit of 867 million pounds by April 2015. In December, DECC said that a further 197 million pounds from the renewable obligation system that supports renewable projects of all sizes was also available for the tariffs.
‘Funded by Consumers’

“The current high tariffs for solar PV are not sustainable, and changes need to be made in order to protect the budget, which is funded by consumers through their energy bills,” Climate Change Minister Greg Barker said in a statement on Dec. 22.

European countries such as Italy and France reduced tariffs last year before schedule to adapt incentives to crashing panel prices. Meanwhile, Germany marched ahead without any spending cap to install a record 7,500 megawatts last year, or about 10 times British levels. Italy has a spending cap of 6 billion euros to 7 billion euros a year.

The surge in installations, coupled with continued declines in panel prices, led the government to propose in October a halving of the rates for small projects as of Dec. 12, four months before scheduled, throwing the market into disarray.

A court deemed the decision to cut rates before a consultation on the matter was completed “unlawful” and ordered a judicial review. A government appeal is likely to be heard on Jan. 13, so it’s unclear when the subsidy reductions will take effect.

The U.K. solar industry, which employs about 25,000, is now in the dark, waiting to learn the new tariff levels and the date when they will come into force.

“The situation is still far from clear, and industry players would be wise to sit tight until a new reference date is set,” said Clare King, a London-based renewable energy lawyer at the law firm Osborne Clarke. “The lack of certainty is going to make it difficult for solar companies, homeowners and investors to plan for the future.”

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