It’s very easy to get caught up in hyperbole in the period immediately following a subsidy cut announcement, as all the stakeholders desperately clamour to make their voice heard the loudest. Given the recent cuts to solar subsidies, depending on who you listen to, you could very easily believe that the industry has either been destroyed overnight, along with the UK government’s reputation in the eyes of investors, or that costs have come down so far and efficiency improved to such an extent that subsidies are no longer required at all. It’s fairly safe to assume the truth lies somewhere in the middle.
On the large-scale, ground-mounted side of things, the industry was willing to admit to the government during the recent review of subsidies that it is very close to grid parity now. If that is correct then subsidies are probably no longer required. The focus of developers will therefore sensibly switch to higher yield sites and getting PPAs signed with trusted counterparties; however, as costs continue to fall even these conditions will become less stringent.
The main headline grabbers though are domestic rooftops. These installations are not yet at the point where they can compete without subsidies, so the cuts that were announced last December caused consternation in the industry. The government’s own estimates suggest up to 700,000 rooftop installations that would have otherwise been made by 2020 will now not materialise, and up to 10,000 solar industry jobs will be lost. All this in a sector that has been a great success story, growing from practically nothing to over 9GW in the last decade whilst getting costs down so far that it can now be taken seriously as a part of the UK national energy plan. That seemed out of reach even only a few years ago given the prohibitive costs and amount of space required to produce a meaningful amount of power. So, is financial support being pulled too soon?
I believe that the future of domestic rooftop installations probably depends more on progress with developing cost-effective battery technologies. Once batteries are cheap enough, especially with the use of electricity tariffs that discount off-peak use, households will be able to install solar panels and a battery and pay for it with the electricity bill savings over just a few years. The time when that maths adds up for consumers is not yet with us, but it’s probably not more than a couple of years away for some parts of the country.
So it seems like the solar industry is in for a year or two of genuine slowdown during which only the best-situated large-scale projects will go ahead and the proliferation of domestic systems will reduce right down. This time can give the secondary market a chance to further establish itself and currently active players an opportunity to determine what their role will be going forwards. Those that see a future role for themselves shouldn’t take their foot too far off the pedal, as the breakthrough could really be just around the corner. It now seems more likely than ever that solar power is here to stay.