The UK emerged from the EU state aid inquisition last week with its electricity market reforms in the clear. With the European Commission’s stamp of approval, Britain is now able to provide wind farms and solar and biomass plants with deals known as contracts for difference (CfD), which encourage investments by guaranteeing payments for 15 years.
The government in London will underwrite about 80 per cent of power demand through capacity-market payments to fossil-fuel-fired power plants and to nuclear reactors, in return for ensuring electricity is provided when needed. By doing this, the country is aiming to ensure that the lights stay on while boosting the proportion of power it gets from renewables such as wind and solar.
Following the nod from the Commission, the government promptly announced the draft budget for the first CfD allocation round to be held in October. Pot 1 technologies, which include onshore wind and PV, will compete for £50 million ($A90 million) per year in support payments to top up the power price. The Department of Energy and Climate Change intends to follow this with another £50 million budget for a potential second allocation round in autumn 2015.
According to an Analyst Reaction titled UK fog clears for first CfD round, biomass left out published July 24, Bloomberg New Energy Finance expects most onshore wind projects to opt for the outgoing Renewables Obligation support mechanism, which remains open to them until 2017. This could leave some room for PV projects in the CfD allocation round. Having said that, many solar developers are likely to try to squeeze into the RO before they risk being shut out of it next year.
What the CfD means for solar in comparison with wind is discussed in more detail in the Q3 2014 Global PV Market Outlook. In the note, BNEF analysts write: “For solar, the finalised feed-in tariff CfD is much worse than the primary outline delivered in December, as solar will now have to compete in auctions on price with other 'Group 1' mature technologies like onshore wind, and in the UK's cloudy climate solar will lose.”
Meanwhile, in Germany, where the European Commission has approved the final changes to its renewable energy law, or EEG, the commercial rooftop and utility segments have had their policy support reduced with the introduction of an auto-consumption tax. Despite this, the economics of auto-consumption for households is favourable and BNEF expects installations in the 10kW-and-lesser segment to increase, particularly as retail electricity prices for residential consumers increase.
In policy in other countries, Italy continues to deliver blows to investor confidence with retroactive measures affecting operational PV plants. Spain may also see little activity too, with investor confidence at a low after a series of retroactive changes. Canadian policy may be friendlier to solar, the only problem being that the country is not very sunny.
Nevertheless, a stronger second half awaits the global PV market.
Figure 1: Global public market investment in solar in Q2 was $1.8 billion
According to the note, the expected capacity addition for 2014 will be up by several gigawatts, to 45GW-49.6GW. The main drivers and uncertainties are in Japan, which is picking up more strongly than previously expected and is now likely to build 10.3-11.9GW in 2014, and in China, likely to build some 12-14GW this year.
In an interview on Bloomberg TV, Bloomberg New Energy Finance’s Jenny Chase talks about how solar affordability is pushing energy to new heights. “It’s not even it’s going to, it does,” she says on whether it will make economic sense even if subsidies were to be stripped from 2016 onwards. “Solar systems have gotten so cheap that there are fairly significant parts of the world where people are just building these things, forget subsidy,” she adds.
Originally published by Bloomberg New Energy Finance. Reproduced with permission.