Bad news for solar as DECC unveil subsidy cut

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News article

Bad news for solar as DECC unveil subsidy cuts for solar farms

May 2014

solar park
Large scale solar developments over 5MW will no longer be eligible for support under the Renewables Obligation (RO) from 1 April 2015, under plans proposed by The Department for Energy and Climate Change (DECC).
 
This follows recent speculation that the Government wants to restrict the development of ground-mounted solar farms. It claims the changes are necessary to control costs, as the solar industry is currently deploying faster than expected. 
 
Solar projects over 5MW currently receive 1.4 ROCs guaranteed for 20 years. They will still be able to apply for support under the new Contract for Difference (CfD) scheme, however this will only provide guaranteed electricity prices for 15 years and they will have to compete with onshore wind and waste-to-energy projects through an auction process. These effective cuts are likely to harm investor confidence, and undermine growth and jobs in a sector which is booming. Solar is currently on track to become the cheapest source of low carbon power by 2018, and these changes could disrupt the speed of cost reduction.   
 
DECC is also proposing to offer grace periods for solar farms which are already in the pipeline and qualify on or before 13 May 2014, which will allow some projects to access the RO after 1 April 2015.  With solar farm capacity currently around 2.7GW, the proposed cuts are likely to trigger a rush of developments over the next year, with up to 4GW of solar farms potentially being installed before April 2015. 
 
In addition to these proposals, the Government is also consulting on plans to split the banding for solar projects larger than 50kW under the Feed-in Tariffs (FITs) scheme, and extend the degression period for roof-mounted solar, in order to boost deployment on commercial  and industrial buildings such as supermarket roofs. DECC is also consulting on an increased support for community projects under the FITs, increasing the qualifying cut-off point from 5MW to 10MW, and allowing community projects to access separate grant money, to help secure upfront capital. 
 
Harry Edwards of Fisher German comments “the viability of many of the solar park projects that we have been working on are now thrown into doubt, and this is after a lot of money has been spent on the legal process, accepting grid offers and preparing planning applications and the associated survey work. These projects take a long time to prepare and market certainty is essential for investment in the sector, which we had up until yesterday. But all has changed now and the issue with cfds is that you need planning and grid permissions to enter the cfd auction for an undetermined price ie it's not possible to forecast returns in advance of the planning and grid process and so developers could end up with an unprofitable/money losing site if unsuccessful with the cfd auction process.
 
It seems crazy to shut the door on such a successful sector delivering clean energy when the lack of grid capacity was surely enough to naturally slow the industry down without Government intervention. I can understand they may have looked to ban sites on good quality agricultural land but this announcement goes against previous pledges.“
   
For further information on renewable energy please contact Dan Thory at Fisher German on 01858 411226
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