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Insights on the UK solar photovoltaic market
October 2011
www.pwc.co.uk
The UK solar market:dusk or dawn?
2 The UK solar market: dusk or dawn?
Contents
Growth of the industry from April 2010 4
When the axe fell: spending cuts and a review of FiTs 6The FiT review divided the market and left many with strategic decisions to make
7
The Government’s dilemma 9
PwC view 14
Recommendations for the way ahead 16
Keeping in touch 18
In May 2010, we released ‘On the brink of a bright future?’, a research report examining the UK solar photovoltaic (PV) market following the introduction of feed in tariffs (FiTs) in April 2010.
Since the publication of our report, the Government initiated an accelerated review of FiTs which has resulted in severe downward adjustments of FiTs payable to systems over 50kW, and the formation of a restricted spending envelope. This has caused significant uncertainty but has only had a limited impact on the largest segment of the market domestic systems. Despite this cut, virtually all of our scenarios suggested that the spending envelope will be exceeded in 2013, before its intended end in 2015 and that in the absence of more funding a cut to domestic system FiTs will be required. Such a cut is now imminent – ranges of 25-75% have been rumoured. This requires some tough decisions by Government and has the potential to lead to further uncertainty.
This publication examines the events between the introduction of FiTs and their early downward adjustment, and where the industry will go from here.
1 “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
3Insights on the UK solar photovoltaic market 2011
FiTs – Feed in Tariffs are payments made to the owners of renewable electricity generating installations. They provide a return that is deemed sufficient to offer an incentive to install renewables. In the UK, owners are paid a generation tariff for every kWh produced and an additional 3p per kWh for any excess electricity fed into the grid.
Timeline July 2009 FiTs announced by Government
April 2010 FiT scheme launched
November 2010 CSR and FiT review announced
June 2011 Results of accelerated review (including new bands and rates) announced
August 2011 New rates and bands become active
Oct/Nov 2011 Expected announcement of cuts to domestic sytem FiTs
Jan/Apr 2012 Expected date of implementation of revised rates for sub 50kW systems (quantum of revision and timing unknown)
Our key messages in May 2010:
• The installed capacity of solar PV was very small – the UK was 11th out of the EU 27 countries in the solar capacity league and was a decade behind the leading European countries
• Some important building blocks for growth were falling into place – the recently introduced FiTs had the potential to kick start growth
• PwC expected significant growth in capacity in the medium term – c.1,000 MW by 2015
• However, the UK solar industry was not geared up for this growth – this was especially true for downstream, e.g. installers
• In order for the UK industry to fully benefit from the solar potential, significant investment in training, scale and professionalisation was necessary
• Over time the industry would transform from a cottage industry, driven by consolidation and new entrants
Key messages in September 2011:
• The Government’s FiT review and reduction for larger systems appears sensible given its focus on the roll out of smaller systems. It is unfortunate that FiT spending envelope constraints have limited the scope for larger systems, but it was never the Government’s intention to support solar farms with the FiTs
• Despite the level of publicity and emotion around the Government’s FiT rate changes, the impact on the majority of the market has so far been limited
• The market for solar PV is growing strongly (predominantly driven by domestic systems) and is likely to continue to do so in the short to medium term
• Despite the cuts to date the current FiT spending envelope is likely to run out before March 2015. The Government has two principal options, either reduce tariffs or increase the spending envelope.
• Cuts to domestic systems are now imminent – a c.50% cut appears likely. We believe that even at this level, the FiT envelope will not last until 2015.
• Either way the Government’s target of 2.68GW of solar PV installed by 2020 remains achievable, although the timing of roll out is uncertain
• Winners are likely to be organisations with established channels to market and balance sheets to support their growth
4 The UK solar market: dusk or dawn?
The introduction of the FiT had the desired and expected impact on the UK solar PV industry.
Media interest in the potential for domestic customers and novel schemes, such as ‘free solar panels’, raised the profile of solar PV and helped educate the public – an area we identified as critical to sustained future growth.
Companies invested in expanding their skills and the number of Microgeneration Certification Scheme qualified companies began to increase rapidly to meet expected demand (rising from c.260 in April 2010 to over 2,500 in August 2011).
New entrants, mostly from continental Europe, were attracted to the UK.
Consequently, installed solar capacity increased significantly through 2010:
• Capacity grew 6 fold between April 10 and August 11
• August 11 installations were equal to PV capacity installed in the decade to 2010
• Initial data suggests that September installations were significantly ahead of August
Nevertheless, by December 2010, the UK had slipped to 12th place in the EU27, overtaken by Slovakia, which managed an annual increase of 144MW.
Growth of the industry from April 2010
Fig 2. Cumulative installed solar PV capacity in the UK by type (April 2010 – August 2011)
Inst
alle
d s
olar
PV
cap
acity
(MW
)
0
50
100
150
200
250
Stand alone
>100kW-5MW
>10-100kW
>4-10kW
<=4kW (new build)
<=4kW (retro�t)*
39 4145
4955
6065
7076
85
95
108
118
135
152
178
213
Ap
r10
May
10Ju
n10
Jul1
0A
ug10
Sep
10O
ct10
Nov
10D
ec10
Jan1
1Fe
b11
Mar
11A
pr1
1M
ay11
Jun1
1Ju
l11
Aug
11
Total
Source: Ofgem, PwC Analysis
* Note that all installations prior to April 2011 assumed to be sub 4kW retrofit
Fig 1. Total installed solar PV capacity for selected EU countries (2010)
1
(1)
2
16
(2)
–
(3)
(1)
1
(2)
1
(3)
(2)
(1)
(1)2
(1)
(1)
(4)
(1)
1
(1)
(0)
Change in rank from 2009 to 2010
0 500 1000 1500 2000
Latvia
Estonia
Lithuania
Ireland
Malta
Hungary
Poland
Romania
Cyprus
Denmark
Finland
Sweden
Bulgaria
Luxembourg
Slovenia
UK
Netherlands
Austria
Portugal
Slovakia
Greece
Belgium
France
Czech Rep
Italy
Spain
Germany 17,370
MW
3,808
3,479
1,953
1,054
787
205
144
131
103
97
75
36
27
17
10
10
7
6
2
2
2
2
1
0
0
0
Source: EuroObserv’ER, Photovoltaic Barometer April 2011
5Insights on the UK solar photovoltaic market 2011
The interest in large stand alone systems was fuelled by:
• experienced continental developers (predominantly from Germany), hoping to leverage their expertise by bringing teams into the UK,
• larger, more established UK solar PV companies aiming to increase value-add, and hence profitability, and escape the fight for the fragmented domestic market; and
• speculators, some with experience of property development, aiming to act as middle men between the EPCs (Engineering, Procurement and Construction), equity investors and banks in return for a cut of the FiT revenue stream
Fig 3. Solar photovoltaic installations split by type for selected EU countries (2010)
0%
20
40
60
80
100
UK
Bel
gium
Fran
ce
Por
tuga
l
Italy
Ger
man
y
Gre
ece
Cze
ch R
ep
Slo
vaki
a
63
27
10 10
49
41
68
7
25
20
60
20
20
68
12
94
2
4
23
77
0
96
40
95
5
Ground mounted
Pro
po
rtio
n o
f in
stal
led
bas
e (%
)
Commercial/ IndustrialResidential
Source: EPIA
Fig 4. Evolution of module prices over time (April 10-Aug 11)
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
Ap
r 10
May
10
Jun
10
Jul 1
0
Aug
10
Sep
10
Oct
10
Nov
10
Dec
10
Jan
11
Feb
11
Mar
11
Ap
r 11
May
11
Jun
11
Jul 1
1
Aug
11
Mo
dul
e p
rice
s (€
/W)
Source: Solar Buzz
One unexpected development was the interest in stand-alone solar farms, which was significantly higher than the Department for Energy and Climate Change (DECC) and many observers had predicted.
This interest was unsurprising given the experiences of other European countries, although the Government had intended to make the ROI unattractive to financial investors (c.5-7%). However, a significant decline in module costs and the availability of debt funding drove up returns and stimulated demand for large installations.
6 The UK solar market: dusk or dawn?
In November 2010, the newly formed coalition Government announced the Comprehensive Spending Review (CSR), which included Feed in Tariffs.
The CSR, capped FiT payments for all technologies to £867m until April 2015, this included an additional requirement of c.10% savings in 2014/15.
Table 1. FiT spending envelope by year
£m FY12 FY13 FY14 FY15 Total
Feed in tariffs 80 161 269 357 867
In order to remain within this envelope (and retain as much funding as possible for smaller, domestic systems), the Government completed a fast track review of larger systems and chose to reduce the levels of FiTs available for PV systems over 50kW significantly.
• At the same time, it re-banded Anaerobic Digestion and increased tariffs to make the returns attractive to investors The new FiT rates were announced in June and became
effective on the 1 August 2011.
This gave developers of larger systems (over 50kW) a deliberately narrow window in which to complete their projects and still be eligible for the favourable tariff rates.
The timing of the review less than a year after the establishment of FiTs and the short window given to larger systems to complete (risking the loss of significant investment) hit market and investor confidence and left many industry participants frustrated.
When the axe fell: spending cuts and a review of FiTs
Table 2. Comparison tariff rates
Pre August 2011
August 2011- March 2012
Percentage decrease
FY13 FY14 FY15
50kW up to 100kW
32.9 19.0 42% 17.4 15.9 14.6
100kW up to 150kW
30.7 19.0 38% 17.4 15.9 14.6
150kW up to 250kW
30.7 15.0 51% 13.7 12.6 11.5
250kW up to 5MW
30.7 8.5 72% 8.5 8.5 8.5
Standalone (any size up to 5MW)
30.7 8.5 72% 8.5 8.5 8.5
Source: DECC Note: FiTs for systems below 50kW did not change
Subject to review annually or as required
7Insights on the UK solar photovoltaic market 2011
The FiT review divided the market and left many with strategic decisions to make
The FiT review had a profound effect on the market and split it into two distinct segments.
Larger systemsDevelopers of larger systems sped up their work on projects in order to get full or partial systems registered before the end of July.
• Ofgem’s difficulties keeping up with the rush of paperwork, means that it is difficult to assess accurately how much large capacity has been installed
• However, industry sources believe that up to 60MW were due to be installed on farmland or brownfield sites
Many larger systems that did not manage to install their total intended capacity hoped to use a legislative loophole to allow them to extend at the pre-1 of August rate. This was closed in October following a review by DECC over the summer.
• The National Farmers’ Union thought extensions alone could total a further 30MW
Many investors (financial and in the value-chain alike) exited the market or curtailed their plans for the UK
Those that remain are refocusing on the 49.9kW segment, predominantly by targeting individual systems (e.g. schools) or distributed schemes (e.g. on social housing or new build developments).
Companies seeking to reduce their carbon footprints (to meet internal CSR targets, for example) are likely to consider switching to using 49.9kW systems to maximise commercial returns, even if they have the space to install larger systems (and had plans to do so).
8 The UK solar market: dusk or dawn?
Table 3. Feed in Tariff rates for a selection of systems in key European countries (August 2011)
GBP Pence
Domestic roof mounted (3kW)
Commercial roof mounted (49.9kW)
Standalone (5MW)
UK* 37.8 32.9 8.5
UK (Proposed cut) 20 20 8.5
Italy 32.6 28.5 22.2
Germany 25.5 24.3 18.7
France** 24.4 23.1 10.4
* Excludes export tariff of 3p per kWh ** Systems are assumed not to be building integrated
Retrofit domestic systemsThe FiT cuts have had no impact on the domestic roof-top segment which accounts for over 95% of the market, by number of installations.
Indeed, in August this segment installed over 30MW – almost as much as had been installed in the 10 years to the end of 2009.
Similarly, the number of MCS qualified companies has continued to grow.
However, the Government has already announced its intention to review the FiTs available for smaller systems installed from April 2012 (or earlier if necessary).
Whilst there is undoubtedly room (and the requirement; see later) for a FiT decrease without hampering demand significantly (UK rates are greater than those in Germany, Italy and France, for example), renewed large cuts or destabilisation of the market could have a detrimental effect on the renewables market overall.
Fig 5. Cumulative number of MCS registered solar PV installers (June 2009 – August 2011)
0
500
1,000
1,500
2,000
2,500
3,000
Num
ber
of
MC
S q
ualif
ied
so
lar
PV
inst
alle
rs
26/0
6/09
26/0
8/09
26/0
9/09
26/1
0/09
26/1
1/09
26/1
2/09
26/0
1/10
26/0
2/10
26/0
3/10
26/0
4/10
26/0
5/10
26/0
6/10
26/0
7/10
26/0
8/10
26/0
9/10
26/1
0/10
26/1
1/10
26/1
2/10
26/0
1/11
26/0
2/11
26/0
3/11
26/0
4/11
26/0
5/11
26/0
6/11
26/0
7/11
Source: MCS
The Government faces a dilemma over how to proceed in the short – medium term, with the Treasury and DECC the key players.
The Government’s dilemma
Treasury DECC
Government’s dilemma
• There is a set limit for FiT payments to FY15 and this must be met
• The Government has a binding obligation to increase renewable energy (not just electricity) from 3% to 15% of total UK consumption by 2020 – this includes an over 30% target for electricity
• If demand is likely to exceed the budget, changes must be made to rates and/or banding to bring payments back in line
• To achieve longer term aims and drive the desired reduction in energy usage, the Government needs to engage the public. Investing in microgeneration is one way of achieving this
• Consequently, 2% of the targeted renewable electricity production in 2020 is envisaged to be generated by small scale (sub 5MW) systems
PwC view
• The UK is not positioned to capture significant value from solar PV roll-out – it isn’t a technology or manufacturing leader (there are some exceptions) – so there is limited justification for investing heavily in the industry (compared to offshore wind, for example)
• Retaining the goodwill of renewable technology companies and investors is necessary to fund innovation and to achieve the broader education and microgeneration
• It would be unfortunate to have to damage an industry that has responded exactly as policy intended for the domestic market
• The cost of deploying solar PV have fallen faster than expected and further support would be a good news story for the green ‘credentials’ of the Government
• Indeed, delaying roll-out of solar PV by 2-3 years makes economic sense. Solar PV is currently the most expensive mainstream renewable energy source, but its costs are falling rapidly
• Minimising disruption to the industry is therefore preferable
9Insights on the UK solar photovoltaic market 2011
Please refer to Fig 6 on the following page for more information
10 The UK solar market: dusk or dawn?
Fig 6. Estimated levelised costs for selected renewable technologies (2010–2030)
Leve
lised
pro
duc
tio
n co
sts
(£/M
Wh)
50
100
150
200
250
300 Solar PV
Onshore wind >5MW
Offshore wind Round 3
Offshore wind Round 2
2010 2015 2020 2025 2030
Source: DECC/ ARUP
The balance of our scenarios suggest that under the current FiT regime the FiT spending envelope will run out during 2013 – long before the intended end in March 2015
The Feed in Tariff is available to all microgeneration technologies, not just solar PV and many industry participants believe that solar PV will continue to account for 85% of all FiT payments. Is this a realistic assumption? Our analysis estimates that payments to Anaerobic Digestion could total £250-£275m by the end of April FY15, the equivalent of c30% of the spending envelope.
For solar PV deployment virtually all of our scenarios imply that the FiT spending envelope will be exceeded during 2013, when the UK has 600-800MW of solar PV installed.
• If 90MW of large scale capacity was installed/extended at pre-August rate then the entire spending envelope could be taken by solar PV, assuming relatively modest growth in capacity supported at the rates announced in June 2011
• Even if only 50MW of large scale farms completed, any substantial growth in the 49.9kW market could again push solar PV beyond the proscribed limits
11Insights on the UK solar photovoltaic market 2011
At first sight, the Government has two options to address this:
1. Increase the FiT spending envelope to allow the market to grow at the current rate – this might be difficult in the current economic climate
2. Decrease rates and/or re-band to constrain spending to fit the current spending envelope – a deep and fast cut would be required. This could have a negative effect on confidence in the UK as a safe market for investment in renewables
We recommend that, as with the most recent change, the Government should announce new rates and bands close to the date they take effect to reduce the likelihood of a bubble before the rate change
• Each additional 30MW of retrofit residential capacity on the current rates has a £50-75m impact to the end of FY15 (or 6-9% of the FiT spending envelope)
Recent reports suggest that the FiT for systems under 50MW will be cut by c.50% to 20p.
Such a cut will likely slow the market down, but we believe that the FiT envelope will still be exceeded before 2015.
While severe, this reduction is not as bad as many in the industry were expecting. Falling module process are likely to re-energise the market in the next 1-1.5 years (which may lead to further FiT cuts).
Fig 7. Total Feed in Tariff payments to March 2015 under selected different scenarios (£m)
800(£m) 0Solar PV scenario 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900
Modest growth with 50MW of standalone installed in July 2011 (Base case)
Solar PV only Spending envelope limitOther technologies
Base case plus strong growth of 49.9kW systems
Base case plus 90MW of standalone installed in July 2011
Base case plus bubble of activity in domestic market prior to rate change
Increasing rate of roll-out of domestic systems
860-900 1,200-1,600
880-925 1,225-1,650
900-950 1,250-1,675
925-970 1,300-1,750
975-1,100 1,400-1,900
Source: PwC Analysis
12 The UK solar market: dusk or dawn?
Therefore, it appears that the Government is faced with the unpalatable option of increasing funding or imposing deeper on further cuts.
Looking at the longer term, these issues are however unlikely to affect meeting the Government’s National Renewable Energy Action Plan(NREAP) target.
The Government actually increased its ambition slightly for solar PV to 2,680MW by 2020.
In absolute terms, this is not a very ambitious target – several countries have installed this capacity in only 1-2 years.
Therefore, delaying deployment until after March 2015 is unlikely to have a material impact on the achievability of the target.
In the interest of investor confidence in UK renewables, the Government needs to consider its options and actions carefully.
Controlling FiT spend is not as straightforward as cutting rates for particular bands.
The announcement of FiT cuts long before new tariffs apply will lead to a surge in demand.
Combined with very strong installations in September, this new capacity will contribute significantly to the drain on the FiT envelope (each additional 30MW installed at current FiT rates has a £50-75m impact to the end of FY15).
Some market observers believe that the domestic solar PV market has sufficient momentum already to continue to grow, regardless of rate cuts.
Corporates (larger users) can switch to different technologies, if they become differentially more attractive, meaning that money ‘saved’ on solar PV is used spent elsewhere (e.g. AD).
We therefore estimate that even the proposed cuts of 50% (which some investors are already assuming for planning purposes) to the published rates for Solar PV for FY13-FY15 might not be enough to constrain spending within the limits of the current spending envelope.
Fig 8. Outlook for UK solar PV capacity to Government 2020 target
0
500
1,000
1,500
2,000
2,500
3,000
End2020
Gap totarget
March2015
August2011
213
750-1,100
1,400-1,800 2,680
Source: PwC Analysis
13Insights on the UK solar photovoltaic market 2011
Whatever happens, the UK solar PV market is unlikely to achieve the level of growth that many had forecast.
It seems probable that the UK will continue to slip further down the EU27 rankings over time. Pending future FiT cuts, installed capacity in the medium term is likely to reach c.950-1,300 MW by 2015, similar to France in 2010.
By 2020, if the NREAP target is met but not exceeded, the UK will have installed 40W/per capita – less than Luxembourg had achieved by 2010.
Fig 9. Per capita installation of solar PV for selected EU Countries (2010)
0
50
100
150
200
250
Ger
man
y
Cze
ch R
ep
Sp
ain
Bel
gium
Italy
Luxe
mb
ourg
Slo
vaki
a
Gre
ece
Slo
veni
a
Fran
ce*
Por
tuga
l
Aus
tria
Cyp
rus
Net
herla
nds
Mal
ta
Bul
garia
Finl
and
Den
mar
k
UK
Sw
eden
Hun
gary
Irela
nd
Rom
ania
Est
onia
Pol
and
Lith
uani
a
Latv
ia
Average for the EU27 Cap
acit
y p
er c
apit
a (W
/per
son)
Source: EurObserv’ER Photovoltaic Barometer April 2011
14 The UK solar market: dusk or dawn?
When the Government implemented the FiT it was clear about what it hoped to achieve.The Government set out its ambition for microgeneration in the Renewable Energy Strategy in July 2009, and has broadly stuck to it.
“ We want to encourage the deployment of small-scale renewable electricity technologies so that communities and individuals can make an active contribution to the renewables target and to our longer-term carbon goals. The lead scenario recognises that these are relatively expensive options compared to other renewable technologies, and that deployment is from a very low base so the scope for this sector to contribute is naturally limited.”
At the time, DECC liaised closely with the solar PV industry to understand its views and the potential for deployment. It then released its forecast for solar PV deployment, expecting 1,025MW by 2015 increasing to 2,300MW by 2020 – the vast majority to come from domestic installations, with larger systems playing a minor role from 2014 onwards.
This information could have guided the industry as to how the Government hoped solar PV would be deployed.
In many respects, the government’s FiT policy has been a resounding success....• Renewable energy generation/ PV capacity –
Introduction of the FiT had a significant impact on capacity growth – it took the UK ten years to install 32MW (to the end of 2009). However, between April 2010 and August 2011, capacity grew more than six fold
PwC view
15Insights on the UK solar photovoltaic market 2011
• Green job creation – A key goal of driving creation of green jobs was met with companies in all parts of the supply chain serving the UK investing in new jobs. Although the majority of these were in the installer segment where MCS registered entities increased by almost 2,250 between April 2010 and August 2011.
• Citizen engagement – Over 58,000 PV installations (over 95% of total) have been on residential roof-tops
…but the events of the past 18 months could perhaps have passed more smoothly if:• DECC had considered the likelihood of roll-out of
stand-alone systems more closely, which was observed in most other countries that have introduced FiTs
– It was unfortunate that the introduction of FiTs coincided with an unprecedented decline in module prices, which boosted ROIs, but even a 5-7% ROI was generous if the Government didn’t want any stand-alone systems installed
• Cuts had not been announced so soon after the introduction, thereby shaking investors and supply chain companies
– Following the initial FIT announcement, a significant number of companies across the value chain (developers, distributors and manufacturers) drew up plans to enter the market. Many of these plans have subsequently been shelved or curtailed upon announcement of the early FiT review
– To some extent, the Government’s hand was forced by a global recession, the need for savings and siginificant cuts in other countries, which were partly driven by rapidly declining module prices. Every other major European country has moved to reduce its FiT rates
– Many are doing so more frequently than the UK has. France, for example, has been altering its support system almost monthly and now requires pre-approval for larger systems (above 100kW). However, we note that the UK is less mature in terms of solar (and renewables) capacity
…thereby reducing the impact on:•Investorconfidence – The UK’s track-record for a stable
regulatory environment for renewable is patchy at best. Over the past five to ten years, there were repeated revisions to ROC banding and uncertainties of grandfathering for certain technologies. This has contributed to the flow of capital for technology and generating assets into other European countries. The furore around the FiT introduction, the subsequent early FiT review, the current RO banding review and the Energy Market Reform have added further doubts in investor’s minds
•Skillsandemployment – Large scale solar parks require different skills and suppliers than rooftop installations. While overseas developers of large parks would have initially “imported” skilled labour, it is likely that this would have transitioned to UK labour in the short term. Established UK companies that ventured into the sector are now considering how to re-focus in order to prevent redundancies. If the 49.9kW segment does not grow as expected, or is curtailed, it is likely there will be some job losses. The continued growth in the number of MCS qualified entities is also potentially a cause for concern – it seems less likely that the market will grow sufficiently for all these installers to generate sufficient scale to survive over the medium term
16 The UK solar market: dusk or dawn?
The industry and Government need to work more collaboratively and acknowledge the difficulties each other faces.
Recommendations for the way ahead
Government
• The Government needs support in making sure the limited FiT spending envelope goes where it is intended and lasts as long as possible – to prevent a boom and bust cycle, like that seen in Spain
• It needs to ensure that the imminent cut is well thought through across technologies and capacity bands. This cut then has to remain in force for more than a few months. A timetable has to be announced and adhered to.
Industry
• The Industry needs to try to work more collaboratively with DECC/the Government to make best use of the available support, which does not necessarily mean maximising short term profits
• It is likely that many of the installers and other new entrants to the market will struggle to survive the next three years if tariffs are cut
– One option might be diversification into other technologies (e.g. ground source heat pumps) to create a point of difference and access the (also limited and delayed) RHI spending envelope
• Those companies in the market for the long haul must consolidate and professionalise to drive out costs and help maintain market momentum, assuming the tariffs (even for domestic installations) are cut to very low levels in the not too distant future
• Patience could pay off and large-scale solar return in the future. The Government has highlighted the possibility of using large scale solar PV when it is more economic to do so
– “The Government believes that solar PV could potentially have a role to play in larger scale UK renewables deployment in the future, though this will depend on a number of factors [primarily cost reduction]” Renewable Energy Roadmap, 2011
17Insights on the UK solar photovoltaic market 2011
The outlook for UK solar PV is positive, but all stakeholders have a role to play
Source: European Commission Joint Research Centre, UK Government Renewable Energy Strategy July 2009, PwC Interviews
ConsumersAwareness and education: understanding of available technologies,
how to install and suitability of PV for the UK
• TherehasbeensignificantcoverageofsolarPVinthemedia,whichhasraisedconsumerawarenesssignificantly.Inparticular,the‘freesolar’schemesattractedinterestfromsomeconsumergroupsleastlikelytohavebeenawareofsolarPV.Although,notallthepublicitywaspositive,withsomeconcernaroundhardsellingandthetermsof‘rent-a-roofschemes’
• Whilstthereisscopeforincreasedunderstanding,themomentumin themarketandcontinuedmediainterestshouldhelptodrivesolar PV awareness
Funding upfront costs: upfrontcostsofdesignandinstallationhaveoftenpreventedcapitalconstrainedconsumers
• Movementonthisissuehasbeenmixed.Theinnovativebusinessmodelof‘freesolar’enabledlesswelloffconsumerstoaccessfreeelectricity(ifnottheFiTs)fromthebeginningbutthefinancialsectormovedmoreslowlythananticipatedindevelopingproductsforhomeowners
• Thesituationhadbeeneasing,withmoreinstitutionsinterestedinofferingloans.However,itremainstobeseenwhethertheFiTchangeswilldampenthedevelopmentofmainstreamoptions
GovernmentConsistency of policy and prioritisation: uncertainty caused by
inconsistentorchangingGovernmentpolicy
• TheindustryandnewparticipantsinvestedheavilyinsolarPVon theunderstandingthattheyhadthesupportoftheGovernment
• Withtherapidimplementationofratechanges,manystandtolose some,ifnotall,oftheirinvestment.Thiswillhaveanegativeimpact onenthusiasmtoinvestgoingforward.TheGovernmentmustact toreassurepotentialinvestorsifitwantstoretaintheirgoodwill
Consumer loans: Changestoloanstructurestoallowloanslinkedtosystem/propertyratherthanperson
• Lastyear,wefeltthatconsumerloanswouldbeaconstraintonthemarket.Whilstthisdoesn’tappeartohavebeenthecase,itremainstobeseenhowsaleablepropertieswithsolarPVinstallationsare.Inparticular,willhomeownersgetanacceptablepaybackiftheyhavetorepayanoutstandingloanonsaleoftheproperty?
• Itremainsthecasethatthemajorityofinstallationswillsurvivethecurrentpropertyowners.ThereforeitisstillimportantthattheGovernmentchangesfinanciallegislationasithasoutlinedintheHouseholdEnergyManagementStrategy
IndustryAccess to capital:mostcompanieswillrequireaninjectionofcapital topermitrequiredlevelsofgrowth
• Thebanksdidappearhesitanttoinvestincompanies,eventhosewithestablishedtrackrecords.Corporatesandoverseasinvestmententeredtofillthegap
• NowthattheFiTspendingenvelopeislimitedandthereforemarketgrowthislikelytobeconstrained,demandforinvestmentfundsislikelytoreduce.Thosecompanieslookingtobuildaportfolioofoperatingassetswillcontinuetofindbanksconcernedaboutarangeofissues,includingtheabilitytofindandsecuresites,lifetimeperformanceandO&Mrisks.However,therecouldbeinterestfromcompaniesseeking to diversify into renewable heat
Lack of workforce skills: Potentialshortageofqualifiedlabourforce
• ThenumberofMCSaccreditedentitieshasincreaseddramaticallyand,withthedemiseofsignificantnumbersoflargesystems,therequirementforhighlyskilledresourcehasreduced
• ThelimitstotheFiTspendingenvelopemeanthattherecouldbeasurfeitofqualifiedworkershopingtomakealivingfromsolarPV
Key: Timeframe over which roadblock likely to be resolved Short term Medium term Long term
2010
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18 The UK solar market: dusk or dawn?
Daniel Guttmann DanielleadsPwCStrategy’sRenewablesand Cleantech team
He has over 10 years experience in advising corporate and private equity clients in a variety of transactions and strategy development across a range of industries.
He focuses on components, systems and services across the value chain and provides corporate and business unit strategies, investment appraisal and commercial due diligence.
Daniel has worked across a variety of segments in the renewables/cleantech space, including wind (offshore and onshore), solar PV, CSP, fuel cells and geothermal energy
Tel: +44 (0) 207 804 9714 Mobile: +44 (0) 7808 056 887 E-mail: [email protected]
Keeping in touch Contact details
Charlotte Mitchell CharlotteisanAssistantDirectorinPwCStrategy’sIndustrialProductsteam
Charlotte has over seven years’ experience in consulting, in both the technical engineering and strategy fields. She works in PwC Strategy’s Industrial Products practice and focuses on renewable energy and cleantech. Her particular area of interest is Solar PV and she has spent significant time in developing a view on opportunities in this sector in the UK and Europe.
Tel: +44 (0) 207 213 8337 Mobile: +44 (0) 7725 706 646 E-mail: [email protected]
Neil Hampson HeadofDealsStrategy
Tel: +44 (0) 207 804 9405 Mobile: +44 (0) 7841 497 220 E-mail: [email protected]
Vimal Vallabh Corporate Finance
Tel: +44 (0) 207 212 3006 Mobile: +44 (0) 7912 741298 E-mail: [email protected]
Ronan O’Regan Energy,InfrastructureandUtilities
Tel: +44 (0) 207 804 4259 Mobile: +44 (0) 7720 805 683 E-mail: [email protected]
Gus Schellekens SustainabilityandClimateChange
Tel: +44 (0) 207 804 1770 Mobile: +44 (0) 7711 828 845 E-mail: [email protected]
With thanks to:
Solar CenturyCrystaloxAdgen EnergyEcolutionMidsummer EnergyMy Planet SolarREASharp Solar
GB SolKrannich SolarSouthern SolarChelsfield SolarPhoton EnergyEvoEnergyIBC SolarMCS
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