LAST year didn’t end well for the renewable energy sector in Northern Ireland. The proposed early end for onshore wind subsidies remains mired in uncertainty; NIE announced a substantial delay in delivering grid connections; and the Paris Climate Agreement amounted to little more than some very vague promises.
It is so difficult to express the disappointment in the outcome of the Paris talks in a few sentences. After all the self-congratulation of the Paris Agreement adoption on December 11, you could be forgiven for thinking that it was a turning point for UK climate change policy and perhaps an end to the accelerating subsidy cuts by the Tory government.
The Ulster Farmers Union has welcomed confirmation by the DETI minister, Jonathan Bell, that he will consult separately on the NIRO (Northern Ireland Renewable Obligation) closure for small scale wind turbines. The UFU is now pressing for swift action by DETI on revised and improved proposals.
The UFU has been concerned that smaller projects, often awaiting grid connection confirmation, lost out when DETI proposed closing support for onshore wind. Along with Simple Power it has sought a judicial review of the consultation process that extended this to smaller land-based schemes.
“We are pleased DETI is reconsidering its process and consultation. We are however disappointed it has taken until now, a few weeks before the dissolution of the Assembly, to act – although we understand DETI hopes to issue the consultation before the end of March,” said UFU deputy president, Barclay Bell. He said it was clear the cut-off date for qualifying projects of 30 September 2015 is not movable, since this was set by the Department of Energy and Climate Change (DECC) in London.
Latest News NIRO
Following the consultation on the proposed closure of the Northern Ireland Renewables Obligation (NIRO) to new small scale onshore wind, the NIRO has now closed to onshore wind operators with a capacity of 5MW and under in Northern Ireland.
Further guidance regarding this closure will be issued shortly, until this time you can find some FAQs regarding the closure here.
Please note, operators of stations that meet certain criteria may be eligible for a grace period, meaning that they may be eligible to apply for accreditation up to 31 December 2018, depending on the grace period conditions they can meet. Please review FAQs for further information on this.
The upcoming change in ROC rates should boost 2013 sales until April 2013 and help distributors of trade components in the UK PV market.
Through our finance arm we see a significant pipeline of hundreds of megawatts of large-scale, ground-mounted applications ready to go in 2013
We at Mercantile Investors see a rush of developers looking to beat the cuts to the RO rate is expected to lead to a significant surge in demand for the lowest priced off-the-shelf components.
WHAT IS THE RO?
The RO is currently the main financial mechanism by which the Government incentivises the deployment of large-scale renewable electricity generation. Support is granted for 20 years, which balances the need to provide investors with long-term certainty with the need to keep costs to consumers to a minimum.
Since the RO’s introduction in 2002, it has succeeded in supporting the deployment of increasing amounts of renewables generation from 3.1GW in 2002 to 13GW in the first quarter of 2012 and increasing the level of renewable electricity in the UK from 1.8% in 2002 to 9.4% in 2011. It is currently worth around £2 billion a year in support to the renewable electricity industry.
In April 2010, the end date of the RO was extended from 2027 to 2037 for new projects to provide long-term certainty for investors and to ensure continued deployment of renewables to meet the UK’s 2020 target and beyond.
HOW DOES THE RO WORK?
The RO places a mandatory requirement on licensed UK electricity suppliers to source a specified and annually increasing proportion of electricity they supply to customers from eligible renewable sources or pay a penalty.
The scheme is administered by Ofgem who issue Renewables Obligation Certificates (ROCs) to electricity generators in relation to the amount of eligible renewable electricity they generate. Generators sell their ROCs to suppliers or traders which allows them to receive a premium in addition to the wholesale electricity price.
Suppliers present ROCs to Ofgem to demonstrate their compliance with the obligation. Where they do not present sufficient ROCs, suppliers have to pay a penalty known as the buy-out price. This is set at £40.71 per ROC for 2012/13 (linked to RPI). The money collected by Ofgem in the buy-out fund is recycled on a pro-rata basis to suppliers who presented ROCs. Suppliers that do not present ROCs pay into the buy-out fund at the buy-out price, but do not receive any portion of the recycled fund.
We have seen huge PV growth in 2011 and 2012 which was fuelled byfeed-in-tariffs. The installer will now focus after Christmas on getting into the megawatt-scale ground-mount installations as installers seek to beat the end-of-March cut off deadline.
We are advising installers to team up with an EPC and look for a funding partner as the UK’s solar support mechanisms (FiT & RO) have makes the investors see the UK as top-10 global PV market
It is almost like investing in government bonds and for this reason (despite a mess from DECC) the UK has a lower financial risk than other PV markets. As a result, many PV component suppliers are now planning long-term strategies for the UK.
I am frankly negative about a continued decrease in PV prices but will be happy to be proved wrong as it will drive sales against high price increases for energy.
If so I look forward to eating humble pie and will apologise to all the top brass at DECC as they will hit or beat targets
We decided after seeing the developments at Ecobuild that we must form an alliance with the right manufacturer to supply a good share of the 4,000 certified PV installers in the UK and act as a manufacturers agent. Thus better pricing and better service will drive growth for ground-mount and next year will see a later drive in roof mounted systems. Too many middlemen will fail as the investors are clever with money and will not be paying too much for systems installed
Energy Bill, Free Holiday Accomodation, Different Products ahead and all for 2013
As we managed to confound property owners with DECC’s tri-monthly capacity triggers it showed with miserable numbers for the solar industry in October and installation levels are bang on track to fall below the Department of Energy and Climate Change’s (DECC) stated capacity triggers, this will probably result in no tariffs being digressed in January with figures released by DECC showing that the capacity installed from August to October falls below the government’s target range in all three tariff bands.
Should you weave your way through the DECC website you would discover 4000 MCS installers managed 70MW of 0-10kW scale Solar PV installed from August 5- October 28. My estimate this figure is somewhere short of the 100MW threshold required to trigger a 3.5 percent digression and 57% lower than the total installed in May, June and July this year. We probably agree this is something we might have forecast with all the press (much created by our fellow colleagues taking DECC to court) badly making our customers lose with whole system for FiT’s. Whilst we also know Solar PV costs have fallen so fast that they are still economic at the greatest ROI seen. Confusing buyers is no the way to success as domestic installations for the three-month period total led about 70MW and we installed this (collectively) in a single week this time last year. Since the feed-in tariffs were introduced 2½ years ago, there have been five major consultations and reviews; and tariffs have been cut on four different occasions.
The original vision was that the FiTs would be straightforward, predictable and stable; making it suitable for the average consumer. But the increasing plethora of different tariff bands and the complex digression mechanism have made it ever less comprehensible. “The final installation figures for August to October should be confirmed by DECC within the next few weeks.perhaps it might be agreed that this tri-monthly digression scheme is too complicated for consumers to understand.
Along with FiT’s & ROC’s we should keep an eye open for news about the Energy Bill and decide for ourselves if we should prepare for the Solar PV boom some expect to start soon Energy Bill News With the wrong green noise at DECC many wondered what the Energy Bill meant to our future Following the most recent news :
Can we now say we are in the right place at the right time?
Could this new Energy Bill demonstrates rock solid support across Government for renewable energy?
Is it too much to give our industry exactly the kind of assurance we’ve been calling for?
To simplify the new Energy Bill
We look to answer 3 questions What is it ? How will it work? Can my company benefit?
A new Energy Bill is ready to go after two years of preparation but busy installers and distributors would not have time to examine every scheme DECC comes up with so for an overview I wanted to answer the 3 basic questions above and then you can decide if you need to read all the detail before pointing your business compass in a new direction or keeping on the same course you already chartered. What is it? To encourage the needful humongous amount of wind turbines, solar panels and electricity storage, investors will get a guaranteed, attractive, long-term price for the electricity they produce
The idea is to see investment in renewable energy double & treble to almost £10 billion by 2021, meaning the final end of coal-powered generation. UK government will be (they say) supporting low carbon electricity to the tune of £9.8 billion which in today’s money is £7.6bn by 2021, this is over three times the current level of £2.2 billion budgeted for next year. Our Carbon Capture and Storage Association, and Renewable UK are fully behind this as the total budget comes to a huge £110 billion to fuel a whole new ‘green rush’ by giving certainty for investors to unlock billions in investment in low carbon generation.
Should we get through this without David Cameron’s team making a U turn it will enable the UK to meet its energy security and climate change targets,create thousands of jobs, make installers and distributors of renewable energy equipment very busy. When asked Ray Noble of Solar Trade Association said the Bill means that “solar power will be massive” and called for a dedicated strategy for PV, “like gas”. Announcing the Bill in Parliament, energy and climate change secretary, Ed Davey, said: “The Bill will support the construction of a diverse mix of renewables, new nuclear, gas and CCS, protecting our economy from energy shortfalls. It will stimulate supply chains and support jobs in every part of the country, capitalising on our engineering prowess and our natural resources, cementing the UK’s place at the forefront of clean energy development.”
The push for low carbon electricity will add £95 a year to the average household bill by 2020, an increase of 7%. How will it work? Not popular with all is the fact it generates cash for Nuclear Power Generators.You might be surprised to see an Energy Bill offering massive public subsidies to anyone willing to build new nuclear reactors as the Lib/Con coalition pledged not to fund or subsidise nuclear power and after the meltdown in Japan it still amazes me that the money is not placed 100% into the more popular renewable energy sector. Much of the support is expected to stem from (brace yourself for even more new acronyms) Contracts for Difference (CfD) which will guarantee stable revenues for investors in clean energy. As you are aware we are all presently offering clients support for low-carbon generation that is provided through mechanisms such as the Renewables Obligation or Feed-in Tariffs. Without any support we will hardly make any sales or installations as the current costs of production for low-carbon electricity is a lot more expensive than electricity produced from fossil fuels. Without subsidy we sell virtually nothing as an investors’ ability to recover those costs is too low and they have little or no incentive to invest in the first place.
However, when the market price rises and low-carbon generators are able to charge in a way that allows them to cover their costs without support, one-way mechanisms such as the Renewable Obligation and Feed-in Tariffs have the potential to provide the generator with a windfall benefit. FiT CfDs are intended to remove the potential for windfall benefits while retaining the level of support necessary to make low-carbon investment viable. The Feed-in Tariff element of the package “tops-up” any shortfall between the amount the generator receives per unit of electricity and a pre-defined “strike price” in the long-term Contract for Difference. Once the strike price is exceeded, the generator is required to pay the surplus back. The result is that generators neither suffer nor benefit from price volatility as illustrated below: Should the market price of electricity fall below a specified strike price a new government owned company will act as a single counterparty to the CfDs which is good as it is to provide a revenue support structure for low-carbon generators. The new body will have levy-raising powers so it can raise funds from suppliers to meet its costs, which will include payments to generators.
Also Ed Davey had to keep George Osborne ( Chancellor of the Exchequer), happy following his non belief in the facts & figures (perhaps numbers are not his thing) of Climate Change, his disdain for the government’s expensive environmental policy and his love of gas. They seem to have included gas as renewable energy which frankly (my opinion only) undermines making the claim of being ‘greenest government ever’ a farce as they really cannot tell a global warming fossil fuel from renewable energy with this gas inclusion allowed As they launched it was said that you will see encouragement for investors to build gas-fired power plants to provide backup for when wind farms are not generating.
The System Operator (National Grid) will decide the level of generation capacity it judges is appropriate and then contract for it through an auction four years in advance. While the UK seeks an 80% reduction in carbon levels by 2050 (compared to 1990 levels), its demand for electricity is expected to double in the same time-frame. Consumers, meanwhile, are intolerant of price rises despite the £200 billion investment required in generation and transmission capacity in order to meet demand and decarbonisation requirements.
A revolution is -therefore required as 20% of UK electricity-generating capacity shuts down over the next few years. I expect many old nuclear and dirty coal-fired power stations will those to go which is marvellous. Not all roses but should help us make sales is the news from the energy industry’s regulator Ofgem who are saying will have power cuts by 2015 due to demand increasing as we could struggle to replace capacity that is on the increase. With recession and power outages it would be like stepping back to the 1970’s!
The positive is that Britain is committed to getting as much as 30% of its electricity from renewable sources by 2020, so installers and suppliers will be busy. Without full policy on decarbonisation the Energy Bill does not put emissions reduction at the heart of the UK’s energy policy and is seen by some as a grand compromise. This could be shorter term fixing rather than a legacy for our future.
Can my company benefit? As the tables turned on the industry like a spinning top we some Solarpreneurs stumble in 2012. Not through mismanagement as a business operators fault but they scaled up when DECC wanted all to scale down. If you just took on new premises, more staff, financed a new fleet, filled your warehouse with containers of .60p per watt modules and could get into new markets then well done…..for many it was the end. Some Solarpreneurs left to do something else but that is probably good as many of those came in for the right reasons. Some restructured and have comeback and others scraped by. I take my hat off to those who switched with speed into commercial and grew in 2012 as that was one smart move.
The challenges came as large commercial project investors got a little nervous following another botched switch with the ROC banding consultation situation, when DECC consulted on a ROC level that their own impact assessment told them may deliver zero large-scale PV to 2016.
Now DECC are serious about promoting investor certainty and with a Solar PV module having fallen to a record low we can beat wind with solar and we can all be instrumental in making a significant contribution to the 2020 renewables target. Back in the first week in July the installers of Solar PV found it hard to place Power Purchase Agreements at good prices as RO was coming to an end and the market was nervous. I expect we will see higher returns for RO from DECC on roof mounted Solar PV and I hope we will be first to market with sub-50KW PPA agreements. Imagine being to offer every business with an appropriate rooftop the chance to buy power at 50% of the current price and the property owner invests zero!! An investor will pay for the installation and sell the power to the building occupier with a great big discount. Prepare to see this coming in the future as it is the only way to get fast deployment of Solar PV. I expect an installer can plan to create 100 10KW + systems every month at smaller margins but with a huge flow of work and we now know that we can stretch to install huge amounts after seeing activity of exactly 12 months ago. Should this not happen as 10KW + commercial PPA’s I will be surprised but our other sales aid is finance, if Ofgem threaten power cuts this could ruin many businesses who might look at PV in a power storage situation to ensure they stay open whilst the competitors have the lights off. Or they will have no power, while their competitors have PV and take all the market share!
By launch we should confirm the CfD structure is also beneficial to large-scale solar development as a replacement for an outgoing RO scheme. A CfD structure will also remove volatility for investors and lenders of these projects and that fantastic for those financing, buying and selling these Solar PV assets. We know that financing most renewable energy equipment has been very easy when compared to Solar PV which infuriates all parties as we try and place it with a lender at reasonable rates Now we must tread water as we wait for further specifics to be unveiled with a strike price for solar and other renewable technologies Let’s all get ready for a solar industry that can now focus on the imminent publication of the RO banding rate for large-scale solar. Once the this RO rate is known, industry will be able to enjoy a period of unprecedented foresight and stability. Meanwhile get ready for expansion in the short term with heat pumps, solar thermal and thermodynamics. I know of many market leaders getting MCS in place with all the above, and you could be amongst the first to install something special that the UK has never seen before.
Just as PPA power purchase has been great at deployment I expect we are going to see much more HPA heat purchase agreements hitting the market In summary, the proposals are: the introduction of Feed-in Tariffs with Contracts for Difference (FiT CfD), to replace existing subsidies and incentives such as the Renewables Obligation the introduction of a Carbon Price Floor (CPF) to provide a clearer, long-term investment signal for low-carbon generation by putting a firm price on carbon emissions the introduction of an Emissions Performance Standard (EPS) – an annual limit on carbon emissions of 450g CO2/kWh to reinforce the requirement that no new coal-fired power stations are built without Carbon Capture and Storage (CCS) the introduction of a new capacity mechanism either through a Capacity Market or a Strategic Reserve, where generation capacity is procured by a central body and removed from the energy market and for use in certain circumstances. When will FiT CfD’s replace ROC’s? DECC’s intention is for FiT CfDs to replace the Renewables Obligation from 31 March 2017 for new developments.
Developers will have the option between 31 March 2014 and 31 March 2017 to remain with the Renewables Obligation or to adopt the new approach. For those projects which receive support under the Renewables Obligation the calculation of the support will, subject to the separate ROC rebanding exercise currently underway, remain the same. This grandfathering of support means that the Renewables Obligation will not extend beyond 2037. Depending on how the FiT CfDs and grandfathering arrangements are implemented, change in law provisions may be triggered in existing power purchase arrangements.
Carbon Price Floor
The Carbon Price Floor was announced as part of the Budget in 2011, and so strictly speaking it is not part of the Electricity Market Reform package. However, it is so intimately related to the functioning of the market that they should be considered together. The plans, which are subject to confirmation in the 2012 Budget are for the carbon price payable by UK based entities to be subject to a base of £16 per tonne of CO2 (/tCO2) increasing to £30/tCO2 by 2020.
The price floor would mean that the levels of actual price support are predicted to be £4.94/tCO2 in 2013, £7.28/tCO2 in 2014-15 and £9.86/tCO2 in 2015-16. These are subject to confirmation in the Budget in 2012. The support under the price floor regime is to be treated as fiscal spending and so will count as Government Spending in the annual budget setting process. The Emissions Performance Standard (EPS) The White Paper includes proposals for a new constraint on carbon emissions from fossil fuel generation plant. The EPS would require all new generation plant to have carbon emissions lower than 450gCO2 per kilowatt hour (/KWh). Such a level would prevent coal fired generation which did not have Carbon Capture and Sequestration (CCS) capability from being built. In addition, our understanding is that it would also prevent open gas cycle gas fired plant (OCGT) from being constructed; closed cycle gas turbine plant (CCGT) would remain unaffected by the constraints All great to see a long term plan but we could focus on what to do in a free fall of margin at this time of year and early next year.
At the risk of being a bore and saying cutting prices and margins is for idiots unless you gear up for huge amounts of work you could face bankruptcy when you could just test the water with an alternative during these hard times. To make the difference installers need to be different in order to survive. You will be right to say it easy to write it but much harder to implement and I agree as if it was easy we will all be differentiating ourselves from our competitors. The sales pitch is a panel is a panel!
This pitch is to easy when we probably sold a 4KwP system in 2011 for £12,000 and now it is possibly £6,000 in a price war in the UK solar market. A 4kWp system installed in April The current sales pitch price driven and that is fine to headline and get in front of people but once with client use this cheap as chips entry as a bouncer with two other options and these other are sold on 20 years of maximum performance.
If you price one top product at £18,000 one bouncer at £6,000, a medium price one in the middle and give the quote for all three to the property owner some will spend more than you think… the question is how many and how much. To make this work you need something the BIG shed trade merchants and large PV distributors don’t have. This means no direct price comparison can be made.
We all gained our PV experience based on pitching return on investment percentages instead of kilowatt-hours generated. The pitfall of such a tactic is that, in order to compete with the big boys, solar installers are turning to cheap, previously ignored brands. While there is nothing inherently wrong with these panels, often they are manufactured by small companies with no trading history backed by some unknown warranty.
Why does this matter? If you’re offering customers a cheap ‘brandless’ solar module with a 10-year warranty, how can you be sure that in this dodgy market that saw 50% of manufacturers in China close down in 2011 and will possibly see another 50% close over the next 12 month it is hard to spot a company who will stick around long enough to honour the warranty? When your customers return to you looking for a replacement under warranty you are liable. The risk involved in pursuing this business model for the smaller solar installer is too great. Not only are you going straight up against the market leaders (who can harness massive economies of scale to drive down supply costs) but you are leaving yourself open to future headaches by turning to price driven products to compete. We believe the quality of the products are going to be paramount, then learning to make a long comprehensive demonstration based on the features, benefits and true financial cost will make all the difference in 2013.
I will present you with a knock out high quality module that has just completed a fourth quarter on top of the TUV test centre, this company placed its Poly against some of the best know Mono panels and came up tops. On some of the modules offered they have 100% EU components in factories run 24/7 on renewable energy and have a special story to be that very top priced product Secondly we will fit in a middle range product with some unique selling points and have a producer who will do a direct mailshot offering overseas holiday accommodation to all the clients who paid for Solar PV from you in the past and they will offer 3 weeks holiday accommodation to be taken over the next 36 months if one of your customers makes a referral and buys the products off this company. To see how it works you should get a mailshot to your official MCS person with a holiday accommodation offer for you and your family to try before sending out your clients in 2013. Look out for our 2013 mailshot!
We are also taking Thermodynamic to market with WRAS and MCS being done now. Geothermal for district heating is set to be huge and we have a world leader ready to supply the UK from the USA head office in Oklahoma. To top the range off we will have some very high performance Solar Thermal. All designed by a British company for the German market.
It will be sold to very carefully selected and trained dealers. Applications are being taken from the best installers or smaller regional distributors who can help with our competence levels of customer service which aim to differentiate from those who cut corners to sell on price alone. All the above and a weeks holiday accommodation. The family will be happy!
Take heart, Solarpreneurs. We have a bright future ahead and tough times only shake the loose apples off of the tree.