Renewables update: Renewables Obligation to close to large-scale solar

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Summary: The Renewables Obligation (RO), as anticipated, will be closed to new solar PV generating stations with a capacity of greater than 5MW (and to additional capacity of greater than 5MW added to existing accredited stations) from 01 April 2015, following the government consultation on changes to financial support for solar PV.

The Renewables Obligation (RO), as anticipated, will be closed to new solar PV generating stations with a capacity of greater than 5MW (and to additional capacity of greater than 5MW added to existing accredited stations) from 01 April 2015, following the government consultation on changes to financial support for solar PV. In a move very much orientated to protect the Levy Control Framework budget and with large-scale solar deployment proceeding much quicker than anticipated, the Department of Energy and Climate Change (DECC) have made a call now to restrict its future development.

For those projects fortunate enough to commission on or before 31 March 2015, DECC have confirmed the banding levels (and grandfathering of these projects at the relevant Renewables Obligation Certificate (ROC) level) will not be amended at this time.

Options for Large Scale Solar

With the onset of winter inevitably leading to construction/grid delays, the ROC downgrade deadline of 31 March 2015 will now be looming large. Depending on how far down the project path a developer is, there are a couple of options open:

1.          Grace periods:

There may be scope for projects which fail to commission before the 31 March 2015 deadline date to take advantage of a grace period. As ever with regulatory grace periods, the devil is in the detail. Some of the evidence required includes:

  • a grid connection offer and acceptance, both dated no later than 13 May 2014;
  • a directors certificate confirming ownership of the land, lease of the land or an option to lease or to purchase the land as of 13 May 2014; and
  • confirmation that a planning application has been received by the relevant planning authority in respect of the project on or before 13 May 2014.

Generating stations that do qualify for a grace period must commission and accredit under the RO by no later than 31 March 2016.

The government also confirmed that projects which have obtained preliminary accreditation as of 31 May 2014 will be granted a separate grace period, providing they commission and accredit under the RO by no later than 31 March 2016.

The level of support (ROCs/MWh) for all grace period generating stations will be as set out at the time of accreditation (currently 1.3 ROCs/MWh for ground mounted solar and 1.6 ROCs/MWh for building mounted solar).

2.        Reduce the output of the generating station to below 5MW:

DECC confirmed yesterday that the RO will remain open to new solar projects below 5MW (though the position as regards additional capacity at existing generating stations is a little unclear and Ofgem will no doubt be live to developers splitting large new developments into smaller sub 5 MW projects).

3.        Apply for an EMR CFD, which has no MW cap on output:

While a review of EMR CFD’s is beyond the scope of this note, developers of solar PV, as an “established technology”, are eligible to apply for a CFD in the first CFD allocation commencing on 16 October 2014 (with a proposed further allocation round in October 2015). The total funding on offer (Pot 1) is £50m for projects commissioning in 2015-16, and a further £65m for projects commissioning yearly from 2016 - 2021.

The risk profile of a CFD at this juncture, however, appears fundamentally different to a ROC. While a developer may be able to justify large grid connection Capex with a guaranteed ROC at the end of the process (assuming the generating station is commissioned accordance with the regulations prevailing at that time), a developer is not guaranteed a CFD, let alone a CFD at the published strike price (if the number of applications exceed a pots budget, an auction process is implemented which could result in a lower strike price to any winning bidder). And all this before you speak to off-takers to negotiate a PPA for your power (who will have less incentive than under the RO to compete for your output). The availability of equity and debt funding for solar CFD projects, given the uncertainty around the award of CFDs and any guaranteed price, also remains to be seen.

Given the uncertainty, there is a big incentive now for large-scale developers to commission projects before 31 March 2015. G59 engineers are in for a busy Spring.

Rooftop Solar

As an aside, the government has re-affirmed its preference for rooftop mounted solar going forward and indicated that the feed in tariff (applicable to sub 5MW generators only) digression will be split next year into “stand alone PV” and “other than stand-alone PV” (a somewhat illusory reference to building mounted solar). While short on detail, the government has maintained its intention to encourage deployment of building mounted solar at the expense of ground mounted. We await further details on this development in due course.

 

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