By Maria Connolly, Partner and head of Energy and Renewables at TLT
January's announcement that the US government planned a 30% tax on the import of solar panels might have left the US market questioning the future of their clean energy industry. But, for those outside of the US, this dark cloud could have a silver lining as manufacturers look to increase market share elsewhere.
The cost of solar panels has already dropped considerably over the last few years. The US tax may trigger further drops in price as manufacturers look to other markets to counterbalance potential reductions in US imports. This could have the potentially unintended consequence of helping to unlock subsidy free projects in the UK.
An increasing number of players in an already saturated market can only increase competition. Manufacturers will be chasing a smaller pool of projects and those purchasing solar panels may be able to take advantage and drive a better price as manufacturers look to retain market share.
This is particularly interesting for the UK market, where the end of subsidies has already had an impact on the scale and number of solar projects being built. Whilst the development of large-scale subsidy free projects, combining solar and other technologies, is not that far from becoming a reality, in the short-term there are fewer projects being built-out and manufacturers wishing to import into the UK will need to remain competitive.
One of the positive outcomes of the falling cost of technology are the implications for subsidy free projects, particular those developed on a large-scale. These will benefit from economies of scale in terms of soft costs such as planning, where projects over 49.99MW require DCO rather than traditional planning permission, along with hard costs including the panels themselves, the grid connection and grid connection agreement.
Reductions in the cost of solar panels could therefore play an important role in making subsidy free-projects viable, particular where the proposed development also combines other technologies such as storage. Combined revenue streams from a direct off-taker via a private wire or corporate PPA and grid balancing services can be stacked against competitively priced technology to make the financial modelling more feasible.
Indeed, this trend for the development of mixed-technology schemes seems to be on the rise in the clean energy market – hardly surprising given the lack of subsidies. Combining rooftop, carport or ground-mounted solar with energy storage and electric vehicle charging stations widens out the number of revenue streams a project can benefit from to maximise return on investment. It also makes best use of the land that the project is situated on and increases bankability by balancing associated project and material costs against projected income.
Schemes that facilitate the development of local grids to help businesses and communities manage their energy use is also not only very much in-line with the Government's vision for Britain's carbon neutral future but, increasingly high on the agenda for many companies. Indeed, over the last couple of months, we have seen a number of companies commit to securing their future energy requirements from clean energy sources.
This demand will play a key role in facilitating the development of subsidy free-schemes. Most business don't have the expertise or resources to install their own clean energy schemes and will prefer to partner with a third party developer. From a developer point of view, this will guarantee income from a direct off-taker by way of a private wire or corporate PPA, which could be essential to ensuring scheme viability.
With this in mind, schemes that help companies realise this vision will likely increase in the coming months. The first quarter of 2018 has already seen a revived interest in rooftop solar, particularly from retailers, manufacturers or other large-scale energy users who are looking to install solar panels. These are often as part of a mixed-technology scheme on their own premises to help manage energy costs and reduce their carbon footprint. It is worth noting that again any further reduction in the price of solar panels will only make these schemes more attractive.
Another area of development is carport solar. So far, this has been a relatively untapped market in the UK. But, the switch to electric vehicles is likely to change this. Open air carparks at hotels, retail parks, business parks and housing developments represent an opportunity to create localised grids that combine carport solar, battery storage and electric vehicle charging stations.
From a developer’s viewpoint, these schemes may represent a potentially easier win from a modelling perspective - particularly where there is adoption of smart "vehicle to grid" technologies that allow the use of parked electric vehicles on an aggregated basis in much the same way as separate batteries. This increases the scope for securing additional revenue.
Without a doubt, the clean energy market in the UK has an exciting future. Any reductions in the cost of technology brought about by manufacturers operating in an increasingly competitive import market will only accelerate growth as they help to make subsidy-free solar a reality. It will be interesting to see over the coming months which combined technology models become the new norm, replacing the now mature large-scale ground mounted subsidised solar parks that not so long ago where considered future setting in themselves.