Solar farms: what the RO review means for farmers and landowners
DECC?s review, today, of the Renewable Obligation (RO) incentives for large-scale solar has, understandably, been met with frustration and even contempt by solar industry insiders; but what does this mean for landowners with solar farm potential on their ground?
If the cap – FITs?
Today?s announcement sets in train a likely cap on solar farms from 1 April 2015, with some very limited exceptions. DECC?s proposal is for a maximum size of 5MW for solar installations under the RO ? matching the upper limit of the Feed In Tariff (FIT).
Whilst FITs fuelled early deployment of solar farms to 2011, tariff rates have been significantly reduced in the intervening years ? and DECC?s proposed updates to the FIT scheme will significantly limit the UK?s quarterly total installed solar farm capacity under FITs.
A total UK capacity under RO has not yet been set, although DECC has left the door open to review again as and when deployment becomes unsustainable under their renewables budgeting mechanism, the Levy Control Framework (LCF).
The difference with Contracts for Difference (CfD)
From April 2015, solar systems over 5MW will be funded under the controversial Contracts for Difference (CfD) mechanism. This relatively simple scheme was originally expected to provide greater certainty for renewable investors when it replaced RO in 2017 ? albeit the CfD support only extends to 15 years per site, as opposed to the 20 years under RO.
However the ?strike prices? ? which were published by DECC in 2013 and intended to provide lower but more predictable renewables revenues ? have now been abandoned for a less predictable strike price achieved at auction against other, more mature renewables technologies. The first of these auctions is not expected to open until 2014. Until that time the viability of post 2015 schemes over 5MW can only be guessed at, let alone the demand for sites and ground rents that will be paid.
If we assume CfDs won?t revitalise the market for sites larger than 5MW, we should explore the impact of the April 2015 RO cap:
Fewer megawatts means fewer acres per site
A 5MW solar farm typically equates to roughly 30 acres and a cap will, therefore, have a dramatic impact on the land area that an individual landowner can hope to lease to a developer. With the previous commercially-viable ceiling for development having been 50MW ? some 250 acres ? the rent that any single solar farm might deliver will be dramatically reduced.
Fewer megawatts means lower per-acre ground rents
Economies of scale are such that bigger is nearly always better, as far as solar farm developers are concerned, and the ground rents offered have reflected this. Landowners lucky enough to have larger, viable sites in the past have had the double benefit of leasing large areas at inflated revenues per acre. The limit to 5MW will increase the per-megawatt cost of gaining planning permission, building, connecting to the grid and maintaining solar farms ? and as such ground rents are likely to suffer.
Smaller solar farms means more solar farms!
The good news for the landowning community is that there will be bound to be a greater number of smaller solar farms built under the proposed cap. Consequently, a larger number of landowners will benefit from the predictable long term revenues that solar farms offer ? albeit at smaller scales than previously.
A cap ? not a RO reduction ? means more solar farms in the North of the UK
The renewables industry had braced itself for swinging cuts to the value of generated electricity under the RO. Such cuts would have made sites with lower photovoltaic yield potential (fewer MWh generated per MW per year) unattractive to developers ? and this would have had a disproportionate effect on the attractiveness of sites in more northerly counties. The proposed cap will have a less marked impact on geographical implementation of large-scale solar and can, therefore, be seen as more inclusive.
What if you have a project underway?
Many landowners will have been approached by solar farm ?prospectors? over the past months and some will be at varying stages of progress through the development process for sites over 5MW. For those whose developers have already secured grid capacity for their ground ? that is that a Distribution Network Operator?s (grid operator) connection offer has been accepted and paid for by your developer, and the grid operator has confirmed that the capacity is secured and generation can be connected before April 2015 ? a system over 5MW should still be achievable (assuming your developer is competent and there are no hitches with planning and land rights).
If your developer already has a validated grid application in with the grid operator, for your land ? then assuming you do secure the grid ahead of competing landowners? sites ? you may just still be in with a shout!
Think you have missed the boat?
EnergyMyWay?s specialist large-scale team, Energy Assets, helps landowners to rapidly secure remaining local grid capacity without exposing themselves to the pitfalls of the traditional solar farm developer journey. The highly experienced team then attracts offers from competing developers so the landowner, or their agent, can negotiate from a position of strength.
If you have been approached by a renewables developer, or believe you may have large-scale potential on your ground, we can quickly carry out an initial feasibility study without charge or obligation. Please contact Hugh Taylor at email@example.com or on 01993 830571.