The solar industry made headlines in September last year when the first subsidy-free solar farm was opened to great fanfare by clean growth minister Claire Perry. The 10MW Clayhill solar farm in Bedfordshire cut costs by 30 per cent by rethinking all aspects of project design. It also has 6MW of energy storage on site, so developer Anesco can “revenue stack”, receiving payments in return for grid services such as frequency response and balancing services.
In the nine months since it opened, Clayhill has been profitable, says Anesco executive chairman Steve Shine. The company has plans for two further projects using the same model but has delayed decisions on these until it is clear whether solar will be allowed into the next round of contracts for difference (CfD) auctions.
“We’re as confident as you can be. We think onshore wind and solar will be in the next round, but with a special focus on hybrid (using solar with storage). The cost has come down – we can build hybrid now for the same price as we used to build solar only,” he says.
Without batteries, solar projects can only receive around a 4 per cent return on investment, which is not enough for investors, he adds.
Anesco is able to predict revenue streams from the various sources open to its projects using a bespoke financial model developed with consultants at Cornwall Insight. Mike Mahoney, head of wholesale and modelling at the firm, says the model allows Anesco to test various scenarios and work out the most financially advantageous way to use its assets.
However, the business model used by Anesco at Clayhill has yet to be replicated elsewhere. The government has been happy to use the advent of the UK’s first subsidy-free solar farm as justification for its exclusion of solar projects from the CfD auction. However, in a parliamentary written answer to a question by Zach Goldsmith MP in December, energy minister Richard Harrington admitted he did not know of any other solar developers working on subsidy-free projects. He also said the government did not have detailed knowledge of Anesco’s business model.
“We’re not convinced the business model stacks up,” says Leonie Greene, head of external affairs at the Solar Trade Association (STA).
Market struggles
Away from Anesco, the commercial solar market is at a virtual standstill. Solar installations grew to 12, 335MW between 2010 and March 2017, when the Renewables Obligation closed. Since then, only 177MW has been added, according to government data. “There’s lots of projects desperate to get away – there was at least 1GW of schemes with planning permission and grid connections that didn’t get in on time for the Renewables Obligation,” says Greene.
Greene does not expect this pipeline to come forward till next year.
Solar developer Hive Energy is planning to build “a couple” of solar projects without subsidy over the next year, including a 40MW solar park on land around its headquarters in Hampshire. It is also looking at selling energy direct to city councils for locations where they have a set demand that they can match to the output of a solar farm.
Hugh Brennan, managing director of Hive Energy, says: “At the moment, we’re focused on making renewable electricity as efficiently as possible, rather than on how much money we’re going to make from that electricity.”
Similar to reports from onshore wind developers, Brennan has seen a change of approach from investors in solar energy who are not expecting the guaranteed returns of the past. “A different type of investor is coming in, who understand that the need for energy is the same as the need for bread and milk, but that there are good years and bad years and it won’t be the same return every year,” he says.
The firm is looking at how batteries can help its business case, and describes revenue stacking as “nice to have”, but he stresses that technology improvements in equipment such as inverters and the fall in price of solar panels is all coming together. The technology to adjust electricity generation in real time in response to demand from National Grid has become cleverer and cheaper. “There is less need for big, expensive kit,” he says.
In contrast to the struggles of the commercial solar sector, a new trend has developed over the past couple of years which is “keeping most of the sector afloat”, according to Greene. Local authorities are now driving installation of solar technology in new-build homes, all without financial support from government.
Authorities around the country are also asking developers to meet higher building standards than those set by national government, including Bristol City Council and Sheffield City Council. The Greater London Authority has a Solar Action Plan, which aims to achieve 1GW of installed capacity by 2030, and 2GW by 2050. As part of this, it is maximising use of solar technologies on its own buildings and is encouraging solar installations through the planning system.
The Scottish Government has also insisted on high standards for new-build and two-thirds of new homes now opt to use solar as a cost-effective way to meet the standards, according to STA data.
This is an extract from a premium report by Utility Week called Subsidy-free Renewable Energy – Commercial Reality or Government Fantasy? available to Utility Week subscribers. For the full report visit the Premium section of the website.