Solar planning applications up as developers rush to secure UK government subsidies, says expert

Requests to local authorities for planning consent for solar developments increased from 208 in 2013 to 348 in 2014; while those granted increased from 133 in 2013 to 220 in 2014, according to official figures. Solar projects with generating capacity of 5MW or above ceased to be eligible for the Renewables Obligation (RO) subsidy regime on 1 April 2015 and developers must now compete for support under the new Contracts for Difference (CfD) regime.

"There has been a noticeable change of pace in the solar industry as developers rush to get over the line ahead of the 1 April cut-off point," said energy and planning law expert Jennifer Ballantyne of Pinsent Masons, the law firm behind Out-Law.com. "Subsidy through RO is a well-trodden path compared to the CfD regime, which creates uncertainty around project returns."

"The competitive auction process means securing funding will be far more challenging for small-scale developers who may find themselves squeezed out. If they don't have sufficient capital upfront they may find it impossible to develop assets fully, so will need to either sell out or partner with large funds. We're expecting a transformation in the solar industry which will alter the profile of prominent developers across the UK," she said.

Introduced under the 2011 Energy Act, CfDs will ultimately replace previous incentives encouraging the development of renewable energy generation technology, including the RO which will be phased out entirely by 2017. They provide guaranteed payments to operators of approved renewable generation technology, while enabling the system operator to 'claw back' money when market prices are high.

Solar photovoltaic (PV) generation is classed as an 'established' technology for the purposes of the CfD scheme. This means that developers must compete for the lowest guaranteed payment below a certain 'strike price' that they would be willing to accept per megawatt hour (MWh) of electricity supplied to the grid. Solar PV projects compete with onshore wind, CHP, hydro, landfill gas and sewage gas in each CfD allocation round, but offshore wind and other 'less established' technologies are not expected to compete with them on price.

Ballantyne predicted that many developers would seek to sell on assets once the CfD regime came into effect. Infrastructure funds were already evaluating potential investments, she said.

"Our experience in other sectors of renewables, such as onshore wind, would suggest that there will be some consolidation once the new regime kicks in," she said. "Many of those who have secured consents, but not in time to qualify under the RO, will effectively sell on projects for others to develop rather than seek capital to do so themselves. However, for those projects which have been completed and accelerated under RO, there is likely to be consolidation."

"Infrastructure and institutional investment funds are likely to be at the front of the queue to acquire RO projects, as they see an opportunity for long-term, stable returns - particularly if a project has been consented and developed such that there is no construction risk," she said.