London, 20 May 2014, The announcement on 13 May that the UK Government is proposing to close the Renewables Obligation (RO) scheme to new solar projects over 5MW has come as a significant blow to the solar industry. The decision has been made as large-scale solar PV has been deploying much faster than the Government expected, and the changes have been proposed in order to control the costs associated with this. Whilst support is still available for these large schemes though Contracts for Difference (CFD’s), the closure to support through the RO is likely to see the number of schemes progressed significantly reduced. This has the potential to affect many landowners who have entered agreements with PV developers, but have not yet progressed to a consented or operational site.
Whilst solar farms have been cropping up in the south of England over the last couple of years, it is only recently that developers had been turning their attentions further afield. Many landowners across the UK have recently signed into exclusivity agreements with developers and were hoping to have schemes coming on line over the next 18 months.
The changes announced by DECC mean that few of these schemes will now be realised, with many developers changing their focus to smaller schemes, or even exiting the market altogether. This leaves landowners who had been in discussions with developers unsure of what the future now holds.
However whilst the news in disappointing, there are still incentives available for solar schemes of all sizes. These remaining incentive schemes are more complicated than the renewable obligation and are likely to require innovative thinking and potentially scheme redesigns, however should be able to provide similar returns to a landowner. For many smaller developers, attempting to simply reduce scheme sizes to below 5MW is likely to be the preferred option; however this is unlikely to provide the best value to the landowner and means that projected rental incomes will be much lower than originally expected.
In many instances there are likely to be alternative grid connection options which enable large schemes to be realised, along with alternative developers who may be more inclined to deal with the complex incentives schemes such as CfD’s still in place for larger projects.
Landowners who have previously been in discussions, or entered into agreements, with solar developers should now be looking to seek independent advice as to the best way forward for their specific site, and should potentially be looking to renegotiate terms with developers or change tack to a developer who will maximise the value from their sites.
Alongside the disappointing news on large scale ground mounted PV, there was good news for commercial property owners, with the Government announcing that it wishes to maximise the potential of building mounted and building integrated solar PV panels on commercial and industrial rooftops. Alongside this announcement, improvements to the support for these schemes has also been proposed which is a welcome boost. Commercial building owners should now be considering how to take advantage of the opportunities available for solar PV on their portfolio.