Cameron Curbs Solar in U.K.’s Rural Areas With Shift in Subsidy

(Bloomberg) — Changes to U.K. support for solar power will
deter farmers from building projects in rural areas as Prime
Minister David Cameron’s government says the countryside is
being blighted by unsightly panels.

The government now requires many solar plants to bid for
so-called contracts for difference in an auction instead of, in
the old system, simply offering support to developers who
satisfied the rules. The switch reinforces a program started in
October to remove subsidies for farmers that use solar.

The new regime means solar parks will compete directly
against cheaper onshore wind instead of receiving a specific
allowance for power that comes from the sun. Developers say that
will hurt the economic case for building solar farms in Britain,
among the hottest markets for the technology in Europe.

Britain is promoting the use of solar panels on rooftops,
easing planning curbs for facilities of as much as 1 megawatt.

“It appears by making the contracts-for-difference auction
process technology agnostic, the government doesn’t really want
any more big ground-mounted solar projects as they can’t compete
with onshore wind at this point,” Stephen Lilley, a partner at
Greencoat Capital LLP, said in an interview. “It appears to
want solar panels on roofs.”

With solar about 60 percent more costly than wind on land,
the technology will lose out in any head-to-head competition.
Solar will be further handicapped as facilities larger than 5
megawatts, unlike onshore wind, won’t have the option to choose
to stay with the old Renewables Obligation program until 2017.

Two Pots

Rooftop plants are typically smaller than 5 megawatts.

Solar costs an average of $137 a-megawatt hour, compared
with $86 for wind, according to data compiled by Bloomberg.

Under the CfD system, generators bid for guaranteed power
payments for 15 years. Funding is divided into two pots, with
the first allocated to “established” technologies including
onshore wind and solar. The second, much larger amount is set
aside for less mature renewables such as offshore wind.

The first CfD auction, to allocate 315 million pounds ($467
million) to 27 contracts, gave 15 to onshore wind, three times
more than offered to solar, results released Feb. 26 show.

The U.K. is also responding to a boom in applications for
solar projects beyond expectations as prices of panels slumped,
eating into the government’s renewables budget, according to a
Department of Energy & Climate Change strategy document.

The department was unable to comment when contacted by
Bloomberg because of parliament’s dissolution before the country
holds a general election in May.

Nuclear Deal

“The government has been clear for a while on wanting to
shift U.K. solar from fields to rooftops, mainly due to the cost
impact as large ground-mount projects mushroomed,” said Nico
Tybaji, an analyst at Bloomberg New Energy Finance.

Ministers have tried to stem a backlash against renewable
projects that some campaigners say blight the countryside by
threatening to block subsidies. The ruling Conservatives held
swaths of rural U.K. areas in 2010 elections, from Skipton and
Ripon in the north to Surrey in the south, while the Labour
opposition mostly dominated cities like London, Liverpool and
Glasgow.

The capacity of larger-scale solar projects built last year
almost tripled to 1.7 gigawatts from 620 megawatts in 2013 and
may reach 2.5 gigawatts this year as developers rushed to finish
projects before the old subsidies stop, according to BNEF. Solar
funding contrasts with the 35-year deal for atomic power that
Electricite de France SA got at 92.5 pounds a megawatt-hour.
EDF’s contract is more than twice as long and almost double rate
of 50 pounds awarded to two of the solar parks that won approval
in the first CfD auction.

Wider Remit

“One does ask the question why the Renewables Obligation
system, which seems to be working, is being changed,” Lilley
said. “Perhaps you have to look at the wider remit of the new
CfD regime including nuclear to find the answer.”

A key difference with the new system is that the auctions,
which require developers to have already secured consents and
grid access and paid related costs, are held only once a year.
That means they have to shell out at the risk of losing the
auction and having to wait a whole year before trying again.
They could apply for obligations any time under the old regime.

Building solar on the ground is “much riskier” since the
advent of CfD’s, said Tess Sundelin, managing director of Green
Hedge Renewables Plc. “We’re supportive of the effort to move
to a technology-neutral auction system,” she said. “But as
currently designed we are concerned that the system in fact
doesn’t provide a level playing field for solar.”

If they don’t win a contract, companies must wait another
year before submitting a bid or scrap the project and lose 90
percent of what’s already been invested, Sundelin said.

To contact the reporter on this story:
Louise Downing in London at
ldowning4@bloomberg.net

To contact the editors responsible for this story:
Reed Landberg at
landberg@bloomberg.net
Tony Barrett

About BloombergNEF

BloombergNEF (BNEF), Bloomberg’s primary research service, covers clean energy, advanced transport, digital industry, innovative materials and commodities. We help corporate strategy, finance and policy professionals navigate change and generate opportunities.

Available online, on mobile and on the Terminal, BNEF is powered by Bloomberg’s global network of 19,000 employees in 176 locations, reporting 5,000 news stories a day.
 
Sign up for our free weekly newsletter →

Want to learn how we help our clients put it all together? Contact us