What will Contracts for Difference mean for solar?
FiTs, ROCs and now CfDs. What is the difference between these subsidies and who will be eligible to receive the new CfDs?
Until recently there were two main support schemes in place for subsidising renewable energy deployment like solar. These are the Feed in Tariff (FiT) and Renewable Obligation Certificates (ROCs). The Feed in Tariff is aimed at smaller scale installations and only projects that are less than 5MW in size are eligible. ROCs are aimed at larger scale systems over 250kWp, although any system that is greater than 50kWp is eligible to claim ROCs (our FiTs and ROCs explained guide has further info about how these schemes work).
Where will the new Contracts for Difference (CfDs) scheme fit?
The government hopes that the introduction of CfDs will provide a more stable financial market for electricity produced from renewables than is currently offered by ROCs. At present the ROCs trading scheme enables those who receive ROCs for the production of renewable electricity to sell them at auction (primarily to electricity suppliers). This means their value can vary, although historic ROC auction pricing shows there isn’t a huge difference between the highest and lowest values.
DECC confirmed a strike price of £125 / MWh for solar PV
The Contracts for Difference will also operate via a trading scheme but the main difference will be the introduction of a minimum ‘strike price’ for each MWh of renewable electricity produced. In June of this year DECC published the Electricity Market Reform (EMR), which outlined the proposals for CfDs. It was confirmed that the strike price for solar will be £125 / MWh from 2014. This rate will then be reduced incrementally to £120 / MWh in 2016/17, £115 / MWh in 2017/18 and £110 / MWh in 2018/19.
What will be the effect on the solar industry?
There is, however, a major concern for the solar industry because the EMR also announced that the new Contracts for Difference will only be available for those schemes that are over 5MW in size. A 5MW solar PV system would comprise of roughly 20,000 solar panels so as you can imagine this rules out the vast majority of commercial installations currently being installed throughout the UK. DECC have advised that solar PV installations under 5MW in size should carry on using the Feed in Tariff or ROCs schemes but those in the industry are worried that as the pricing for these schemes are gradually reduced, there is a risk that solar PV will become a less attractive financial investment.
The recent rapid changes in the global PV market means it is hard to say what the future will hold but for now solar remains financially sound investment opportunity, with a guaranteed income for 20+ years, whichever subsidy you sign up to.