Energy

Analytical Assessment of UK Solar PV Capacity.

Introduction

The most readily available form of energy, Solar Power is the conversion of energy from sunlight into electricity. Photovoltaics require incident light to induce current via the Photovoltaic Effect. The electricity produced is in the form of Direct Current (DC) and, in order to be used on the electrical grid or locally, requires an ‘Inverter’ to convert the current to Alternating Current (AC).

Rising energy costs, previous support of the Feed in Tariff (FiT) and the Renewable Obligations Certificates have significantly increased the financial viability and attractiveness of installing solar PV panels over the past decade. Installations may be roof/wall mounted or standalone/ground mounted. They represent time-limited, reversible land use and provide an increased, diversified and stable source of income for landowners.

Historic Trends and Growth

Solar power represented a very small part of electricity production in the United Kingdom until the introduction of a feed-in-tariff (FiT) subsidy in April 2010 which, alongside the falling cost of photovoltaic panels, saw rapid growth of the UK photovoltaic market, with many thousands of domestic installations along with numerous commercial, community and industrial projects.

However, since 2010, government backed incentives and subsidies have been steadily cut. With FIT subsidy’s cut in the fast track review announced by DECC on 9 June 2011, large arrays of solar photovoltaics became a less attractive investment opportunity for developers, especially for scaling projects greater than 250 kW. The Feed-in tariff ended to new applicants on 31st March 2019; this saw a step increase before the deadline and a slower growth following. There were 992,065 new solar panel installations for the period it was active. Additionally, as of 1st October 2019, VAT was increased from 5% to 20% for Residential Solar Panels. All of these factors have caused a slow in capacity growth.

Solar PV generation in the UK from January 2010

As of 1st January 2020, the Smart Export Guarantee (SEG) ensures that small-scale low-carbon generators receive payment for any electricity they export to the grid, with a total installed capacity up to 5MW. A new report by the International Renewable Energy Agency (IRENA) found that between 2010-2019, the cost of solar PV globally dropped by 82%.

Since the introduction of the Feed-in-Tariff in 2010, the share of electricity produced by Solar PV has increased at a rate greater than that of energy demand; its market share has increased by 4.00% in the past 10 years but can be seen to cycle over the period of a year due to fluctuations in seasonal generating capacity. Additionally, this growth has been slowing to a YOY increase of 0.05%.

Percentage of UK power generated by Solar PV

Future Analysis

There remains a high degree of uncertainty across a wide range of critically important factors that will directly impact future solar PV deployment. These include:

  • Ongoing networking charging reform processes:
    • Residential, commercial/industrial: Risk that reforms that could reduce further economic incentives for on-site generation/reducing electricity consumption.
    • Utility-scale: Flexible connection options and locational charging could favour new development, but risk of loss of embedded benefits (TCR) remain.
  • Future wholesale electricity prices:
    • Extent of capture price risk due to growth of CfD-backed offshore wind.
    • Ongoing UK participation in EU Internal Electricity Market (IEM) and extent of access to interconnectors.
    • Future of carbon pricing post-Brexit.
  • Future of VAT on small-scale solar and storage, particularly post-Brexit.
  • Ongoing reform to Building Standards, and the role of solar in Government policy with regard to decarbonising the built environment.
  • Ongoing Business Rates revaluation.
  • Global cost decrease trajectories for both solar PV and energy storage technologies.

From the perspective of Government incentives, the latest Committee on Climate Change analysis of ‘pathways to achieving the UK’s legally-binding 2050 Net Zero target’ suggests that 54 GW of solar capacity could be needed by 2035 to accommodate rapid uptake of electric vehicles and hybrid heat pumps. This is equivalent to more than 2.5 GW (18.5% of current capacity) in net additional PV capacity deployed each year, or more than 40 GW by 2030. This cannot be achieved without significant policy intervention before 2050.

The fall in solar prices has allowed the subsidy-free market to emerge. Developers are still progressing with large-scale solar sites, such as the largest ever UK solar site Cleve Hill Solar Park, which was approved on 28th May 2020. However, there is concern that COVID-19 will hamper investment into renewable energy projects in the short term, but large scale solar is expected to bounce back quickly.

Brief modelling of solar capacity trajectories up to 2030 has been performed on three scenarios to illustrate the requirement for government policy intervention to meet set targets.

Scenario:Assumptions:
Low-Ambition Scenario
“Business as Usual”
No significant improvement in the existing regulatory framework.
Continued year-on-year decreases in input costs
Stable operational costs
Limited improvement in solar and storage technologies.
High-Ambition Scenario  Favourable regulatory reform (e.g. network charging and connections)
A robust carbon price.
Sustained growth in public and private-sector demand for PPAs
Incremental improvement in climate policy ambition
No direct policy support for onshore renewables before 2030.
Net Zero ScenarioConstant incremental increase to meet 2030 targets
No further assumptions made
Projected Solar Power Production

Financing & Landowner Considerations

Large Scale (>5MW)

As government subsidies have been cut, Developers require that Solar farms increase in size to drive down the costs; the norm will be anything from 5MW to 120MW, with approximately 20 acres being required for a 5MW solar farm. This now means landowners are often joining together with neighbouring landowners to provide an adequate amount of land for development.

To seize opportunities from developers, landowners will need to have or be located near a grid connection to the National Grid with a large amount of free capacity nearby anything from 5MW – 120MW). Rental incomes from solar farms are increasingly attractive, given that current subsidy free solar rents are £500 – £650 per acre per annum. However, they can reach as much as £1,000 per acre with very little risk. Leasing arrangements are generally long-term, meaning that solar can provide guaranteed, index-linked rental income for 30-50 years.

The rate achieved depends on the amount of solar radiation the site receives and various costs including connecting to the national grid, planning, installation and the cost of finance. In general, legal and development costs are paid by the developers, leaving the landowner free to accrue the rental income. Additionally, solar farms tend to be constructed in such a way that the land can also be grazed, therefore making the site dual use.

Small Scale (<5MW)

For small-scale projects, landowners can benefit from the Smart Export Guarantee tariff (SEG). The installation must be MCS-certified and requires a meter that can provide 30-minute readings. Companies set their own SEG tariff prices, so Landowners need to shop around to ensure best prices. There are currently two types of SEGs: Fixed rate and Flexible rate. These tariffs pay out on excess electricity generated and exported to the grid.

Investments of this size can significantly reduce electricity costs whilst in turn paying out for any excess power generated. Between April 2019 – March 2020, the average cost of installation was £1,558.37 per kW across 26,650 installations. However, this saw a significant reduction in cost per kW as the size of the system increased up, with the cost of the Inverters spread out.