UK announces new renewable price guarantees
The Government has published support levels for renewable power under Electricity Market Reform, with the strike price for solar power reduced from the levels consulted on and published in the earlier draft form. The strike price is the guaranteed price that the National Grid will pay for renewable energy generation, allowing longer term forecasting of rate of returns. As expected the prices will decrease in line with the continued reduced cost of PV and although the initial price is lower than expected, the longer term price is higher than some anticipated.
The STA had requested a higher strike price than the proposed £125/MWh up to 2016 because the price of Chinese solar panels has been fixed by EU trade action until then. However, post-2016, when the industry has access to world pricing again, significant cost reductions are anticipated. Indeed by 2018/19 the STA anticipated that solar will require £91/MWh, nearly the same as the strike price for onshore wind announced and lower than new nuclear. The Government has actually opted for a solar strike price in 2018/19 of £100/MWh.
Contracts for Difference are one of the main mechanisms created as part of the Electricity Market Reform (EMR) programme. EMR is the central component of the Energy Bill, currently being considered by Parliament, which will address the need to attract unprecedented levels of investment in the UK electricity sector over the coming decades to replace our ageing energy infrastructure with a diverse, low-carbon energy mix.
STA Chief Executive Paul Barwell said, "The negative political rhetoric about solar farms is a shame given the announcements 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."
DECC say the strike prices are meant to equate to support under the Renewables Obligation (RO) in the early years, but STA modelling does not support this assertion. The large-scale solar industry is therefore likely to rely on the RO for the next few years, meaning there will be little opportunity to test-run the CfD scheme for solar developments.
Rupert Higgin, Managing Director of TGE Group one of the UK's leading suppliers of renewable energy and heat technologies, expressed concern that the amount of changes being made and the number of financial packages being offered makes it difficult for longer term investors to be assured of a consistent approach.
Higgins stated,"The government needs to offer a clear and coherent energy strategy in order for investment and stability in the renewables sector. Currently the industry is being passed from pillar to post as it reacts to the piecemeal policies.
"The high, and increasing, cost of energy in the UK means that solar is still an important part of the country's energy mix and as such should not be ignored. Businesses considering solar should act now if they are to benefit from the double digit returns it currently offers."
The CfDs account for large scale solar and while welcomed there remains a question mark over the government support for smaller PV projects.
STA's Barwell said, "We are disappointed with the strike price in the early years as it is far below the levels we asked for. The transition from ROCs to CfDs requires the higher levels we suggested,
particularly when this is a new and untested mechanism. The published levels are lower than what is needed, so we now have to focus on fixing the variables within the mechanism to make it work for solar. That will be a significant task."
A key concern is the continued exclusion of sub-5MW solar from the CfDs. This will prevent the development of smaller solar farms in future that want to sell their power into the grid.
Solar has reduced in cost faster than any other power generation technology. The extraordinary cost reductions in solar power have been noted recently by Sir David King and The Royal Society. Even Shell sees solar power as the world's largest source of energy by 2070 as discussed in a recent paper from the energy giant.
Solar power is the most popular power generation technology, scoring 86% in DECC's recent public opinion tracker. A YouGov poll for the STA showed over 70% support for good quality solar farms. The STA is pressing the solar farm industry to pursue best practice through its 10 Commitments, which make recommendations to developers to support British biodiversity and continued agricultural use.
