The UK government released a solar strategy in April that sets an ambitious goal of reaching one million solar rooftop installations by the end of 2015. The focus is mainly on medium-size projects on the rooftops of commercial, industrial and larger public buildings. The strategy paper is the first dedicated solar strategy released by any European government. The United Kingdom has become an important player in the European market for solar PV despite notoriously fickle weather and the fact that most Britons flee to the Iberian peninsula and other points south when they want sunshine. Size of Market The domestic solar PV manufacturing base is relatively small, relying heavily on imports. However, in May 2013, the European Photovoltaic Industry Association reported that the UK has a 6% share of deployed solar capacity across Europe (in comparison to Germany with 44% and Italy with 20%). Although the UK has less sunshine and, therefore, lower load factors than other European countries, in southern England, where there are an estimated 250,000 hectares of south-facing commercial roofs, irradiation levels are comparable to that in Germany, where deployment of solar PV is considerably higher. Last year was a record year for solar PV in the United Kingdom, with the industry continuing to press forward with significant levels of deployment after the realignment of financial incentives with market prices. Solar PV currently accounts for 12% of renewable electricity capacity in the UK. As of the end of June 2013, of the 2,400 megawatts of capacity installed, 1,700 megawatts were small-scale residential and commercial installations that benefited from feed-in tariffs paid by local utilities and other retail electricity suppliers and 200 megawatts were larger-scale installations that benefited from a “renewables obligation” that obligates the six UK electricity distribution companies to supply a certain percentage of their electricity from renewable sources. The percentage level of electricity to be generated from renewable sources was 10.4% in 2011 and is intended to rise up to 15.4% by 2015. The sector has demonstrated the ability to deploy at all scales –- from residential and commercial buildings to large, utility-scale facilities, and growth has been seen across the spectrum. The government believes there is a potential deployment range of between 7,000 to 20,000 megawatts, with 20,000 megawatts being the maximum level of solar PV deployment by 2020. Solar PV has been deployed currently on more than 500,000 buildings, so that the country is already more than half way to the 2015 target. The total installed capacity is expected to exceed 4,000 megawatts by the end of 2014, which would represent 67% growth in capacity in 18 months. The government encourages solar currently through a feed-in tariff that is described below and the renewables obligation. The ability to sustain such a high growth rate will depend on a number of factors. A number of government initiatives place the obligation of financing energy policies on private companies. The cost is usually passed on to the consumer. To keep the cost affordable to consumers and ensure a secure energy supply, the government has set up a “levy control framework.” This sets caps on levy-funded spending in each financial year to be funded by the government. Within the available budget, the government sets annual limits on the overall costs of the renewables obligation and the feed-in tariffs scheme, achieving further significant reductions in the cost of solar panels and inverters so that solar can compete with other low-carbon technologies and finding affordable ways to upgrade the electricity grid to accommodate more intermittent renewables.The UK solar PV market has already seen a significant reduction in costs in recent years. Installed costs have fallen by around 50% since 2009. Large-scale solar PV has a lower cost per installed megawatt than offshore wind, but it is still more expensive than onshore wind. The government is projecting a further reduction in levelized costs of domestic solar PV of around 20% by 2020. If this rate of cost reduction continues into the 2020s, solar PV could compete with other large-scale generation technologies such as combined-cycle gas turbines by 2025, assuming no further breakthroughs in gas turbine technology or major reductions in the cost of gas. The UK Department of Energy and Climate Change will commission a solar PV strategy group in the next six months to report on opportunities for further reducing solar installed costs. There are three main markets for solar PV in the UK currently: residential, building-mounted and ground-mounted installations. In addition to this, there is a small but growing market for building-integrated photovoltaics. Financial Support The UK government is planning to remove support for solar under the renewable obligation scheme for projects over five megawatts from April 2015, and generally the scheme will close to all other new generation at the end of March 2017. The government said it proposed the changes because growth in the solar power sector had been faster than expected as developers have rushed to deploy large-scale solar to beat the deadline. Solar facilities that are installed before the deadline will continue to benefit from the renewables obligation subject to the maximum 20 years of support and the 2037 end date. For the final 10 years of the renewables obligation regime (2028 through 2037), a “fixed ROC institution” will purchase the renewables obligation certificates from generators at a set price based on headroom plus 10%. A major advantage for generators of there being a government-backed institution that is compelled to pay a set price is that the risk of a renewables obligation certificates price crash in the twilight years of the scheme is removed. This chosen model ought therefore to promote greater financial certainty among investors and developers who are looking at the period 2028 through 2037 for existing or pipelined renewable obligation supported projects. The falling cost of the technology has also contributed to widespread adoption. By the end of April 2014, more than 325 solar PV farms of one megawatt or larger had been completed, and there are more than 60 projects with installed capacities of greater than 10 megawatts. Another 444 large-scale ground-mounted solar PV farms are currently at various stages of planning with 124 projects having had their planning applications approved. The government now considers it necessary to control the costs of large-scale solar PV to ensure it remains affordable in the context of the renewables obligation. The government has proposed closing the renewables obligation scheme to new solar PV generating stations, both ground- and buildingmounted, above five megawatts from April 1, 2015. Solar PV installations over five megawatts that applied to the scheme before the deadline will still be allowed to benefit from the renewables obligation as a form of transition relief for developers whose projects were already far along when the government announced its intention to withdraw the renewables obligation scheme from such projects. From 2014 onwards, the primary financial support mechanism for new large-scale renewable generation will be contracts for differences. These are long-term contracts between the generator and an industrial customer who wants the electricity that pay the generator the difference between an estimated market price for electricity, called the “reference price,” and the long-term price needed to cause the project to be built, called the “strike price.” The actual electricity is sold into the grid. The industrial customer pays the generator a fixed strike price, and the generator turns over to the industrial customer the floating actual price he received from the grid for the electricity. The fixed strike price means that the generator is protected from wholesale price volatility and the cost of the electricity to the industrial customer is capped. The strike prices are set by Ofgem, the regulatory body that regulates the gas and electricity markets in the UK. The intention is to keep the strike prices consistent with the renewables obligation levels of support. The feed-in tariffs scheme was introduced with the intention of encouraging deployment of small-scale (up to five megawatts), low-carbon electricity generation. The scheme has been a success with more than 450,000 installations (2,200 megawatts of capacity) registered under the scheme by June 2013. Of these, around 99% are solar PV installations. FIT generators receive three financial benefits from the scheme: a payment at the tariff rate from the local utility for all electricity generated by the installation, an export tariff or additional payment from the local utility for surplus electricity exported to the local grid, and savings on their electricity bills from generation used on site. A comprehensive review of the tariff program in July 2012 has led to a new ‘degression’ mechanism under which tariff levels are being reduced as the level of solar deployment increases. The tariff rate for a particular solar PV installation project is fixed for 20 years on the date the project is put into service, but the tariff can rise in line with inflation. Key Actions Permitted development rights for micro-generation have facilitated the deployment of solar PV at smaller scale by removing the need for formal planning permission for many small installations. Some of this deployment has been on brownfield land or connected to existing commercial or industrial facilities. In addition, a significant proportion has been sited on greenfield sites where these have met planning policy requirements. With increasing solar PV deployment, it is likely that the larger proportion will be small-scale installations. The government is working on extending the automatic granting of permitted development rights in England for building-mounted solar PV to rooftop systems up to one megawatt. The government is interested in promoting wider use of midscale solar on top of factories, supermarkets, warehouses, car parks and other commercial and industrial buildings. The government aims to work with developers to cut red tape and sweep away barriers to making use of industrial rooftops. The government will be using the public estate such as the Ministry of Defense and hospitals to target up to 1,000 megawatts of solar PV. Sites are currently being assessed for their suitability, and the expectation is that installation could start later in the summer, subject to gaining any necessary approvals. The government has also targeted the 24,000 schools in England and Wales to install solar arrays. The government will identify the first 500 megawatts of deployment and seek private finance partners to incentivize installation later this year. As the benefits of solar deployment on public buildings are realized, the government expects deployment across this sector to increase substantially. The government will continue to encourage overseas investment in the manufacturing end of the sector through the Department for Business, Innovation and Skills and the Foreign Office. Developers need to know they will be able to connect their projects to the electricity grid. Ofgem has put new regimes in place on standards of performance and penalties when agreed time frames and provision of service are not met by local utilities. Residential Rooftop Market An average of 2,000 new residential rooftop systems are now being installed each week in the UK. Installing solar PV on housing, where systems typically are less than four kilowatts in size, is the largest sub-sector of the UK solar PV market currently, both in terms of number of installations and the total capacity installed. More than half a million homes now have solar panels. This is a remarkable achievement given that, as recently as 2010, that number stood at fewer than 15,000 installations. The main drivers for the growth in the domestic sector have been the introduction of the feed-in tariffs in 2010, the dramatic reduction in installed costs, particularly the price of the panels themselves, and the increasing confidence and familiarity that consumers have with the technology and the benefits that it can bring. Most systems are owned by homeowners or small businesses, unlike in the United States where solar rooftop companies have made rapid inroads by retaining ownership and either leasing solar systems to homeowners or selling them the electricity under leases or power contracts with 20-year terms. The average homeowner in the UK with solar on his roof recoups the cost of the system in approximately 10 years. As the cost of solar PV at a domestic scale continues to fall ultimately towards grid parity, recoupment should be faster. The government is interested in seeing innovation in financing. The market is moving to various product choices such as lease financing, power purchase agreements, home equity solar loans or even small loans from the local utility. Commercial and Industrial Growth in the commercial and industrial market has been slower than in other European countries, but there is potential for very significant growth in the UK. Some of the barriers to the wider uptake by potential commercial and industrial customers include inability to access capital, the transaction costs (management time), suitability of the building stock and split incentives, primarily landlord-tenant issues. These issues can be significant for companies of any size, but are likely to be particularly acute for small to medium enterprises. In many other European countries, particularly Germany, more than half of solar PV deployment is in this sector, compared to 5% to 20% in the UK. In Germany, for example, the legal ownership of mid-scale roof-mounted arrays is often simpler than in the UK because the array can be dismantled and moved elsewhere, for example if the business moves to new premises. Additionally, a higher proportion of commercial and industrial buildings are owneroccupied in Germany than in the UK, simplifying PV deployment and avoiding the contractual complications between landlord and tenant often experienced in the UK. Property ownership is less common in the UK. Most commercial tenants lease their premises from landlords. The complexity of the relationship between landlords and tenants, particularly in the large retail sector, has an effect. Landlords incur the costs of the deployment and take the feed-in tariff payments, but tenants benefit from reduced energy bills. The government has set up a separate “finance task force” to focus on these barriers. Ministers will meet with senior representatives of the retail and finance sectors in the early summer to agree on a way forward, with a view to holding meetings in the future with other sectors facing similar problems. The government is also considering the introduction of new permitted development rights that would assist in removing another barrier to deployment. Currently, rooftops with over 50 kilowatts in capacity require planning permission, which can add significantly to development timescales, increasing uncertainty and therefore risk. Solar PV developers and financiers have identified this as a barrier, and statistics show a marked fall in deployment of systems above 50 kilowatts which would seem to strengthen this claim. The government is working on a proposal to allow permitted development rights for solar rooftop panel systems up to one megawatt. The proposal is expected over the summer. The amount of time that it can take to complete the application process for a feed-in tariff on installations above 50 kilowatts may be another source of delay and therefore risk. Ofgem has introduced a two-stage application checking process (as opposed to three stages) for straightforward applications to enable approval more swiftly. Ofgem is also producing two new guidance documents, designed to help applicants get their applications right the first time, that will be published later this year. Building-Integrated Solar The potential market for building-integrated photovoltaic solar is both new build and refurbishment of existing buildings. This is so-called “third generation” solar. Examples of BIPV products are putting solar inside the glass of skyscrapers and inside canopies that shield windows from the sun. Solar roof tiles integrated into building roof designs will also make solar PV less visible, while other products including louvres, glazed facades and atria offer other potential areas for BIPV integration. Some BIPV products can incorporate insulation, which can improve the energy efficiency of existing buildings. The solar PV strategy group being set up by the government will focus on this as a potential growth market.