New DECC solar strike price Is no shock to large-scale industry

The Department of Energy and Climate Change (DECC) has today confirmed the revised ?strike prices? for solar, onshore wind and offshore wind.  The strike price is the financial lever by which the Contracts for Difference (CfD) mechanism is operated, whereby the Government guarantees to pay generators the difference between wholesale power prices and a fixed per-megawatt price; the ?strike price?. The revision for large scale solar is down £5/MWh from £125/MWh to £120/MWh for 2015/16.

Small-scale solar and renewable heat unaffected

CfDs only apply to renewable energy generation, as opposed to renewable heat technologies that attract the Renewable Heat Incentive (RHI) ? and they do not apply to those smaller projects that currently attract the Feed In Tariff revenues. Domestic and smaller commercial-scale incentives remain unchanged following today?s announcement.

Buoyant solar farm market geared up for a slow down

This 4% reduction will not be perceived by many in the large-scale market as the ?dramatic cut? that had been billed earlier in the day. The large-scale solar market is highly active, with 4GW of solar farms currently in development. Developers in the market have long accepted that the introduction of CfD will reduce demand from infrastructure funds for ?permissioned? sites from the first quarter of 2015 ? and this reduction in demand will impact on the revenues landowners and developers will achieve.

Today?s strike price revision will serve to underscore this existing time pressure to landowners.  With grid capacity highly constrained, there is strong competition for good points of connection (PoC).  Some prospectors and developers will use this factor to put pressure on owners of sites with access to viable PoCs.

Risks to landowners

The risk this pressure will put on the landowning community will be to blindly sign exclusivity agreements with prospectors or developers who may either land-bank the site (putting it on the shelf in favour of their more attractive sites) or committing their site to prospectors or developers that lack, variously, the skills, experience, risk-capital or buyers to provide the landowner with an executed lease and, ultimately, ground rent payments.

Energy assets model reduces uncertainty

Energy Assets, part of the EnergyMyWay group, advises landowners with large-scale renewable potential in order that they avoid the risks highlighted above.  The Energy Assets team will carry out fast and effective feasibility studies for grid connection and planning consent, before establishing a special purpose vehicle (SPV).

The SPVs established by Energy Assets provide appropriate option-to-lease agreements with landowners, which are attractive to the landowner and the market. These terms, and the SPV?s tax and legal structure, will have been pre-approved by a target infrastructure fund. Therefore, the developers that have been pre-qualified by Energy Assets are then legally committed to progressing a viable site.

If you are a landowner and you would like expert help in realising the large scale renewable energy potential on your farm, the Energy Assets team can help you. Please contact Hugh Taylor in confidence by email or on 01865 733230 or 07979 647294.

Lucy Taylor

By: Lucy Taylor

Lucy is a Chartered Surveyor and Operations Manager at Energy Assets, liaising daily with developers, DNOs and lawyers, and always on hand to offer support and expert advice to clients and their agents.

One Response to “New DECC solar strike price Is no shock to large-scale industry”

  1. […] the ‘strike prices’ – which were published by DECC in 2013 and intended to provide lower but more predictable […]