PwC RENEWABLE ENERGY VIEW 2015
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GROWING SOLAR INVESTMENT HAS TRIGGERED AN END TO RO SUPPORT FOR LARGE (>5MW) INSTALLATIONS
In late 2014, DECC announced that the Renewables Obligation (RO) will close to new solar installations with a capacity above 5MW (or additions taking TIC above 5MW) from 1st April 2015, following Government’s consultation on the level of support. The decision to curtail the support
available to large scale solar comes in response to faster than anticipated deployment of the technology, with Government aiming to protect the Levy Control Framework (LCF) budget from future development. In their own words, DECC “considers it necessary to take action to control the cost of large-scale solar PV to ensure it is affordable in the context of the RO and the EMR”. So what options does this leave solar developers?
State of the Renewable Industry
Reduce output to qualify for <5MW ROC
DECC have confirmed the RO will remain open to <5MW installations, although DECC will presumably be vigilant of developers splitting larger sites into a number of small sites.
Grace periods
Projects which fail to commission before the 31st March 2015 cut-off may be able to accredit under regulatory ‘grace periods’. Under the terms of the grace period, applicants must be able to evidence that a number of milestones have been reached before the 13th May 2015, including an accepted grid connection offer; confirmation of ownership, lease agreement or option to purchase the land, and confirmation that planning applications has been received. Where all of these conditions are met, the prevailing banding will be awarded (1.3 ROCs/MWh for ground mounted and 1.6 ROCs/MWh for building mounted) .
3.4. Renewable electricity investments 2015-2020
Given the developments during 2014 in terms ofmarket reform and the resulting record investment and capacity additions, what are the implications for investment in renewable electricity generation from2015-20?
The capacity investment outperformance during 2014 certainly appears positive in the context of achieving 2020 targets; however, this apparent benefitmay bemisleading.
Apply for a CfD As an ‘established technology’, developers of solar PV are able to apply for a CfD in competitive auctions which started in October 2014 (the next auctions scheduled for October 2015). The total funding available to Pot 1 (‘established technologies’) is £50m for delivery in 15/16, rising to £65m in subsequent delivery years. There was some criticism from the solar industry over the
capacity is not mirrored by an equivalent increase in generation or total demand. Put another way, the share of renewable power expected in 2020 has not moved as a result of this increase in capacity (rising 1 percentage point only, to 34%). The increase in capacity is simply a function of the need for a greater volume of low load factor renewable capacity to meet the existing decarbonisation target. Indeed, the increase in forecast capacity
One of themost notable effects of this outperformance is that DECC has increased its forecast for 2020 renewable electricity capacity by almost 7 GWto 44.6GWin 2020. This increase in the forecast capacity largely reflects the boomin low load factor generation during 2014. The increase in capacity is notmirrored by an equivalent increase in generation or total demand. Put another way, the share of renewable power expected in 2020 has notmoved as a result of this increase in capacity (rising 1 percentage point only, to 34%). The increase in capacity is simply a function of the need for a greater volume of low load factor renewable capacity tomeet the existing decarbonisation target. Indeed, the increase in forecast capacity will lead to a greater requirement for capital investment in order to deliver the now higher capacity.
will lead to a greater requirement for capital investment in order to deliver the now higher capacity. One effect which will not yet be reflected in DECC’s September 2014 capacity forecasts is the increased affordability of projects securing CfDs in DECC’s first round auction held in late 2014. As already identified, several large projects cleared considerably below the administrative strike price, meaning that
FIGURE 12 DECC CAPACITY DEPLOYMENT FORECAST (GW) 19, 20 Figure 12: Capacity deployment forecast (GW) 10,18,19
10 15 20 25 30 35 40 45 50
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2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F 2019F 2020F 86 REview Renewable Energy View 2015
One effect which will not yet be reflected in DECC’s September 2014 capacity forecasts is the increased affordability of projects securing CfDs in DECC’s first round auction held in late 2014. As already identified, several large projects cleared considerably below the administrative strike price,meaning that under the limited LCF budget, a larger volume of renewable capacity can be supported. The extent to which this is the case remains to be seen following updated projections, however, the implication will be thatmore capital will be
Actual 2014 DECC Forecast 2013 DECC Forecast
deliver this increased capacity target requires a view of the mix of technology that will be deployed. However, DECC no longer provide
TIC: Total Installed Capacity Sources: Berwin, Leighton, Paisner Renewables update: RO to close to large-scale solar, October 2014
under the limited LCF budget, a larger volume of renewable capacity can be supported. The extent to which this is the case remains to be seen following updated projections, however, the implication will be that more capital will be required to finance the developments. Estimating the capital requiremenet to
classification as an ‘established technology’, which sees solar PV compete for subsidy support with onshore wind, which cleared at £79/MWh (16/17 delivery). Aside from the technology level competition, the risk profile of CfDs is fundamentally different to the RO. Where the certainty of accrediting under the RO justified the necessary DEVEX (e.g. grid connection costs), a developer is no longer guaranteed a CfD at auctions, introducing allocation risk. This allocation risk may reduce the availability of equity or debt funding for CfD sponsored solar projects. The result of this risk is a substantial
incentive for developers to commission large scale solar in advance of 31st March 2015. Some analysts have suggesting the planned ROC closure for >5MW could trigger as much as 4GW of capacity additions in the 12 months to 1st April 2015.
Investment in Renewables
www.r-e-a.net
Capacity (GW)
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