Last week The Department of Energy and Climate Change (DECC) reviewed the financial incentives for large-scale, ground-mounted solar farm schemes. Hugh Taylor, Director of EnergyMyWay’s specialist large-scale renewables arm, Energy Assets sets out what the new proposals mean for landowners and farmers in the North, including potential for sustained growth in solar farm projects in the region.

The proposals

The Government’s proposals set in train a likely cap on the size of solar farms from April 2015. Solar installations under 5MW (typically under 30 acres) will continue to be funded under the Renewables Obligation (RO) framework and Feed in Tariffs (FIT).

However, solar farm projects over 5MW will be funded through Contracts for Difference (CfD). This scheme will now require developers to bid at auction for DECC’s financial incentives. Under CfD solar farm developers will be bidding against other more mature renewables technologies, most significantly on-shore wind power, that are cheaper to deploy and can afford lower revenues. “The first of these auctions is not expected to open until October 2014 at the earliest. Until that time the viability, demand and rental values of solar schemes over 5MW in 2015 and beyond can only be guessed at,” says Mr Taylor.

The implications

“The southern part of the UK has seen a boom in solar projects since 2010 due to the fact that it gets more sunlight and as a result offers higher photovoltaic yields (greater MWh generated per MW per year) and therefore higher revenues. The North, meanwhile, has only recently seen high levels of solar developer activity as grid capacity has become saturated in the South and the lower solar farm build costs have enabled projects to thrive on the lower revenues the North offers.

“The renewables industry had braced itself for cuts to the incentives for generating electricity under the RO framework.  Such cuts would have made sites with lower photovoltaic yield potential, such as in the North, unattractive to developers. The proposed 5MW cap, however, is now unlikely to have any impact on the geographic distribution of solar projects up to 5MW.  Instead, we expect to see the solar industry’s surge for this size of project in the North sustained, as developers capitalise on the North’s remaining grid capacity,” says Mr Taylor.

Mr Taylor states some of the other likely impacts for landowners in the North as a result of the DECC review include:

• Fewer MW means less acres per site. A 5MW solar farm covers roughly 30 acres.  The previous effective ceiling was 50MW or 250 acres.  The cap will, therefore, have a large impact on the area that a landowner is likely to lease to a developer – and thus reduce the rent that any single solar farm might deliver.
• Fewer MW means lower per-acre ground rents. The economies of scale achieved by larger sites have brought with them inflated revenues per acre.  The limit to 5MW will increase the per-MW 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 landowners is that there will be a greater number of solar farms built under the proposed cap, but most will be smaller. Consequently, a larger number of landowners will benefit from the predictable long-term revenues that solar farms offer, albeit at smaller scales than previously.
• If you have an over 5MW scheme in progress. For those whose grid operator has confirmed that the capacity is secured and generation can be connected before April 2015, a commissioned system should still be achievable and hence landowner income should be at the pre-April 2015 rates. If your developer already has a validated grid application for your site in with the grid operator, then assuming you do secure the required grid capacity, you may just still be in with a shout!