New UK funding scheme will hit solar hard, says industry

The U.K.’s soaring solar industry has been dealt another blow this week following the publication of the Department of Energy and Climate Change’s (DECC) Allocation Framework, which determines spending within the government’s Contracts for Difference (CfD) renewables support scheme.

The Allocation Framework, which sets out the general rules for the auction process and bidding eligibility requirements, stipulates that only two renewable technologies (wave and tidal power) will be granted guaranteed support.

The rest, including solar, wind and biomass, must bid against one another for a share of the monies – a situation the Renewable Energy Association (REA) and Solar Trade Association (STA) deem unfair on solar. Between now and 2019, money will be allocated to the cheapest bids, tilting the CfD fund in favor of longer-term projects that can undercut near-term ones on price.

The "Just in time" nature of most large-scale solar projects in the U.K., allied to the fact that the sector is largely driven by SMEs rather than huge corporations, means that the CfD scheme is likely to prove unwieldy for solar, argue both the REA and STA.

"The government has unveiled the rules of the game for this year’s allocation round, and as we all know, the devil is in the detail," said REA CEO Nina Skorupska. "The fact is that CfDs are going to disadvantage SMEs and independent generators. DECC must act to remedy this – not doing so will put jobs and investment at risk."

No level playing field

The STA has long campaigned for the government to simply lay the path for a level playing field for solar. The removal of the Renewable Obligation Certificate (ROC) for large-scale solar projects from April next year was the first hint that government support for this segment of the industry was waning.

The introduction of the CfD scheme, with full government backing, has been criticized by the U.K.’s solar industry despite British Prime Minister David Cameron last month writing directly to the STA to argue: "We believe that the CfD being introduced under Energy Market Reforms will provide a viable route to market for larger-scale solar PV going forward."

Cameron’s words have proven small crumb of comfort for the STA, which maintains that the nature of the U.K.’s solar industry – relatively fledgling, but bursting with potential – means it is ill-equipped to compete for funds allocated under CfD rules.

"Large-scale solar is set to be particularly hard hit [by the introduction of CfD] because it will not have the security of the ROC, and the new CfDs are not designed either for SMEs, or to support the steady cost reduction of solar," said STA head of external affairs, Leonie Greene, who confirmed that the association is working with the DECC to find a way to make CfDs work better for smaller solar businesses.

"The consequence for consumers of failing to make CfDs work for SMEs is less competition in power generation going forwards, when we urgently need more," continued Greene. "Stalling solar’s pathway to being subsidy-free also means more expense for consumers. For solar companies this is a strange reward for delivering greater cost reductions than any other renewable technology."

The STA was also critical over parliament’s perceived lack of scrutiny over CfD’s suitability for solar, and urged pro-solar MPs to do more to ensure solar is a competitive part of the U.K.’s energy mix in the future. In the House of Lords, by contrast, the CfD legislation was examined in July and was found to be lacking in certain details that made it ill-suited for small players.

Improvement suggestions from the STA and REA have included the introduction of more frequent auctions under the CfD scheme; expediting access to the Offtaker of Last Resort mechanism to support independent generators, and proper consideration of providing minimum capacity for more technologies.