On the 13th May, the Department of Energy and Climate Change (DECC) issued a consultation paper on its widely-trailed intention to reduce support levels for ground-mounted solar entitled Consultation on changes to financial support for solar PV.
The Renewables Obligation (RO) will close to new projects above 5 MW from 1 April 2015 and this will apply to extensions to existing plants as well as where the aggregate capacity would exceed 5 MW. Therefore, any new project above 5 MW which commissions after 31 March 2015 will not be eligible for ROCs. This is subject to a grace period for projects currently being developed which fulfil certain criteria. The criteria are as follows:
- The plant has preliminary accreditation on or before 13 May 2014; or evidence of significant financial commitment made on or before 13 May 2014 must be provided to Ofgem by 31 March 2015.
- Significant financial commitment means all of the following:
- A grid connection offer and acceptance and letter from the network operator estimating or setting a date for grid connection on or before 31 March 2016; or confirmation that no grid connection is required.
- Planning permission has been issued.
- A director's certificate confirming that the developer or operator owns the site or has an agreement for lease. An option will not be sufficient.
- Evidence of spending of not less than £100,000 per MW incurred on pre-development costs or proof that all material equipment contracts have been entered into (i.e. includes panels, inverters, switch gear and mounting structures).
- The plant must be commissioned and accredited by 31 March 2016.
Projects of 5 MW and below will continue to be eligible for ROCs and feed-in tariffs (FiTs) as they are now. Therefore, such a project would be eligible for 1.3 ROCs next year and 1.2 ROCs in 2016/17 or the prevailing FiT rate.
DECC is keen to encourage building-mounted solar projects and therefore is tweaking the degression mechanism for FiTs. This mechanism currently operates as follows. There are three-monthly tariff reviews and the amount of degression depends on deployment. Degression operates in bands, one of which is a "large commercial band" for installations greater than 50 kW and standalone installations. The government's proposal is to split the "large commercial band" into two separate bands: one for non stand-alone installations above 50 kW (in practice, building-mounted installations) and the other for stand-alone installations (predominantly ground-mounted installations). DECC proposes that the deployment triggers for the current large commercial band is split, with 75% of the capacity going to the non stand-alone band and the remaining 25% going to the stand-alone band. In practice this means that the degression mechanism for ground-mounted FiT projects will be triggered much more quickly than at present whilst, conversely, the degression mechanism for building-mounted projects will be triggered much more slowly.
Whilst the industry was braced for bad news, the proposal to remove ROCs entirely from projects above 5 MW has come as a shock. DECC has pointed out that these projects can apply for contracts for differences under the new regime being introduced this year. This is true but the allocation mechanism for CfDs has not been finalised and the budget for CfDs is not scheduled to be announced until July so it is difficult for project developers who were anticipating commissioning projects at 1.3 ROCs to develop projects with no idea of the likely revenue stream.
The provisions on grace periods will also be of concern. The criteria are so restrictive that the only projects likely to be eligible for the grace period are those which don't need it.
On a positive front, projects of 5 MW and below will remain eligible for ROCs and FiTs. It should be remembered that, when the solar industry really got going in 2010, all projects were below 5 MW and it was only the dramatic cost reductions that made ROC projects financially viable. So whilst the large projects may not now proceed, developers can, at least for the moment, still develop ground-mounted projects of a moderate size.
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