The UK solar market: dusk or dawn? - PwC UK blogs2 The UK solar market: dusk or dawn? Contents...

Insights on the UK solar photovoltaic market

October 2011

www.pwc.co.uk

The UK solar market:dusk or dawn?

2 The UK solar market: dusk or dawn?

Contents

Growth of the industry from April 2010 4

When the axe fell: spending cuts and a review of FiTs 6The FiT review divided the market and left many with strategic decisions to make

7

The Government’s dilemma 9

PwC view 14

Recommendations for the way ahead 16

Keeping in touch 18

In May 2010, we released ‘On the brink of a bright future?’, a research report examining the UK solar photovoltaic (PV) market following the introduction of feed in tariffs (FiTs) in April 2010.

Since the publication of our report, the Government initiated an accelerated review of FiTs which has resulted in severe downward adjustments of FiTs payable to systems over 50kW, and the formation of a restricted spending envelope. This has caused significant uncertainty but has only had a limited impact on the largest segment of the market domestic systems. Despite this cut, virtually all of our scenarios suggested that the spending envelope will be exceeded in 2013, before its intended end in 2015 and that in the absence of more funding a cut to domestic system FiTs will be required. Such a cut is now imminent – ranges of 25-75% have been rumoured. This requires some tough decisions by Government and has the potential to lead to further uncertainty.

This publication examines the events between the introduction of FiTs and their early downward adjustment, and where the industry will go from here.

1 “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

3Insights on the UK solar photovoltaic market 2011

FiTs – Feed in Tariffs are payments made to the owners of renewable electricity generating installations. They provide a return that is deemed sufficient to offer an incentive to install renewables. In the UK, owners are paid a generation tariff for every kWh produced and an additional 3p per kWh for any excess electricity fed into the grid.

Timeline July 2009 FiTs announced by Government

April 2010 FiT scheme launched

November 2010 CSR and FiT review announced

June 2011 Results of accelerated review (including new bands and rates) announced

August 2011 New rates and bands become active

Oct/Nov 2011 Expected announcement of cuts to domestic sytem FiTs

Jan/Apr 2012 Expected date of implementation of revised rates for sub 50kW systems (quantum of revision and timing unknown)

Our key messages in May 2010:

• The installed capacity of solar PV was very small – the UK was 11th out of the EU 27 countries in the solar capacity league and was a decade behind the leading European countries

• Some important building blocks for growth were falling into place – the recently introduced FiTs had the potential to kick start growth

• PwC expected significant growth in capacity in the medium term – c.1,000 MW by 2015

• However, the UK solar industry was not geared up for this growth – this was especially true for downstream, e.g. installers

• In order for the UK industry to fully benefit from the solar potential, significant investment in training, scale and professionalisation was necessary

• Over time the industry would transform from a cottage industry, driven by consolidation and new entrants

Key messages in September 2011:

• The Government’s FiT review and reduction for larger systems appears sensible given its focus on the roll out of smaller systems. It is unfortunate that FiT spending envelope constraints have limited the scope for larger systems, but it was never the Government’s intention to support solar farms with the FiTs

• Despite the level of publicity and emotion around the Government’s FiT rate changes, the impact on the majority of the market has so far been limited

• The market for solar PV is growing strongly (predominantly driven by domestic systems) and is likely to continue to do so in the short to medium term

• Despite the cuts to date the current FiT spending envelope is likely to run out before March 2015. The Government has two principal options, either reduce tariffs or increase the spending envelope.

• Cuts to domestic systems are now imminent – a c.50% cut appears likely. We believe that even at this level, the FiT envelope will not last until 2015.

• Either way the Government’s target of 2.68GW of solar PV installed by 2020 remains achievable, although the timing of roll out is uncertain

• Winners are likely to be organisations with established channels to market and balance sheets to support their growth


The introduction of the FiT had the desired and expected impact on the UK solar PV industry.

Media interest in the potential for domestic customers and novel schemes, such as ‘free solar panels’, raised the profile of solar PV and helped educate the public – an area we identified as critical to sustained future growth.

Companies invested in expanding their skills and the number of Microgeneration Certification Scheme qualified companies began to increase rapidly to meet expected demand (rising from c.260 in April 2010 to over 2,500 in August 2011).

New entrants, mostly from continental Europe, were attracted to the UK.

Consequently, installed solar capacity increased significantly through 2010:

• Capacity grew 6 fold between April 10 and August 11

• August 11 installations were equal to PV capacity installed in the decade to 2010

• Initial data suggests that September installations were significantly ahead of August

Nevertheless, by December 2010, the UK had slipped to 12th place in the EU27, overtaken by Slovakia, which managed an annual increase of 144MW.

Growth of the industry from April 2010

Fig 2. Cumulative installed solar PV capacity in the UK by type (April 2010 – August 2011)

Inst

alle

d s

olar

PV

cap

acity

(MW

)

0

50

100

150

200

250

Stand alone

>100kW-5MW

>10-100kW

>4-10kW

<=4kW (new build)

<=4kW (retro�t)*

39 4145

4955

6065

7076

85

95

108

118

135

152

178

213

Ap

r10

May

10Ju

n10

Jul1

0A

ug10

Sep

10O

ct10

Nov

10D

ec10

Jan1

1Fe

b11

Mar

11A

pr1

1M

ay11

Jun1

1Ju

l11

Aug

11

Total

Source: Ofgem, PwC Analysis

* Note that all installations prior to April 2011 assumed to be sub 4kW retrofit

Fig 1. Total installed solar PV capacity for selected EU countries (2010)

1

(1)

2

16

(2)

–

(3)

(1)

1

(2)

1

(3)

(2)

(1)

(1)2

(1)

(1)

(4)

(1)

1

(1)

(0)

Change in rank from 2009 to 2010

0 500 1000 1500 2000

Latvia

Estonia

Lithuania

Ireland

Malta

Hungary

Poland

Romania

Cyprus

Denmark

Finland

Sweden

Bulgaria

Luxembourg

Slovenia

UK

Netherlands

Austria

Portugal

Slovakia

Greece

Belgium

France

Czech Rep

Italy

Spain

Germany 17,370

MW

3,808

3,479

1,953

1,054

787

205

144

131

103

97

75

36

27

17

10

10

7

6

2

2

2

2

1

0

0

0

Source: EuroObserv’ER, Photovoltaic Barometer April 2011


The interest in large stand alone systems was fuelled by:

• experienced continental developers (predominantly from Germany), hoping to leverage their expertise by bringing teams into the UK,

• larger, more established UK solar PV companies aiming to increase value-add, and hence profitability, and escape the fight for the fragmented domestic market; and

• speculators, some with experience of property development, aiming to act as middle men between the EPCs (Engineering, Procurement and Construction), equity investors and banks in return for a cut of the FiT revenue stream

Fig 3. Solar photovoltaic installations split by type for selected EU countries (2010)

0%

20

40

60

80

100

UK

Bel

gium

Fran

ce

Por

tuga

l

Italy

Ger

man

y

Gre

ece

Cze

ch R

ep

Slo

vaki

a

63

27

10 10

49

41

68

7

25

20

60

20

20

68

12

94

2

4

23

77

0

96

40

95

5

Ground mounted

Pro

po

rtio

n o

f in

stal

led

bas

e (%

)

Commercial/ IndustrialResidential

Source: EPIA

Fig 4. Evolution of module prices over time (April 10-Aug 11)

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

3.50

Ap

r 10

May

10

Jun

10

Jul 1

0

Aug

10

Sep

10

Oct

10

Nov

10

Dec

10

Jan

11

Feb

11

Mar

11

Ap

r 11

May

11

Jun

11

Jul 1

1

Aug

11

Mo

dul

e p

rice

s (€

/W)

Source: Solar Buzz

One unexpected development was the interest in stand-alone solar farms, which was significantly higher than the Department for Energy and Climate Change (DECC) and many observers had predicted.

This interest was unsurprising given the experiences of other European countries, although the Government had intended to make the ROI unattractive to financial investors (c.5-7%). However, a significant decline in module costs and the availability of debt funding drove up returns and stimulated demand for large installations.


In November 2010, the newly formed coalition Government announced the Comprehensive Spending Review (CSR), which included Feed in Tariffs.

The CSR, capped FiT payments for all technologies to £867m until April 2015, this included an additional requirement of c.10% savings in 2014/15.

Table 1. FiT spending envelope by year

£m FY12 FY13 FY14 FY15 Total

Feed in tariffs 80 161 269 357 867

In order to remain within this envelope (and retain as much funding as possible for smaller, domestic systems), the Government completed a fast track review of larger systems and chose to reduce the levels of FiTs available for PV systems over 50kW significantly.

• At the same time, it re-banded Anaerobic Digestion and increased tariffs to make the returns attractive to investors The new FiT rates were announced in June and became

effective on the 1 August 2011.

This gave developers of larger systems (over 50kW) a deliberately narrow window in which to complete their projects and still be eligible for the favourable tariff rates.

The timing of the review less than a year after the establishment of FiTs and the short window given to larger systems to complete (risking the loss of significant investment) hit market and investor confidence and left many industry participants frustrated.

When the axe fell: spending cuts and a review of FiTs

Table 2. Comparison tariff rates

Pre August 2011

August 2011- March 2012

Percentage decrease

FY13 FY14 FY15

50kW up to 100kW

32.9 19.0 42% 17.4 15.9 14.6

100kW up to 150kW

30.7 19.0 38% 17.4 15.9 14.6

150kW up to 250kW

30.7 15.0 51% 13.7 12.6 11.5

250kW up to 5MW

30.7 8.5 72% 8.5 8.5 8.5

Standalone (any size up to 5MW)

30.7 8.5 72% 8.5 8.5 8.5

Source: DECC Note: FiTs for systems below 50kW did not change

Subject to review annually or as required


The FiT review divided the market and left many with strategic decisions to make

The FiT review had a profound effect on the market and split it into two distinct segments.

Larger systemsDevelopers of larger systems sped up their work on projects in order to get full or partial systems registered before the end of July.

• Ofgem’s difficulties keeping up with the rush of paperwork, means that it is difficult to assess accurately how much large capacity has been installed

• However, industry sources believe that up to 60MW were due to be installed on farmland or brownfield sites

Many larger systems that did not manage to install their total intended capacity hoped to use a legislative loophole to allow them to extend at the pre-1 of August rate. This was closed in October following a review by DECC over the summer.

• The National Farmers’ Union thought extensions alone could total a further 30MW

Many investors (financial and in the value-chain alike) exited the market or curtailed their plans for the UK

Those that remain are refocusing on the 49.9kW segment, predominantly by targeting individual systems (e.g. schools) or distributed schemes (e.g. on social housing or new build developments).

Companies seeking to reduce their carbon footprints (to meet internal CSR targets, for example) are likely to consider switching to using 49.9kW systems to maximise commercial returns, even if they have the space to install larger systems (and had plans to do so).


Table 3. Feed in Tariff rates for a selection of systems in key European countries (August 2011)

GBP Pence

Domestic roof mounted (3kW)

Commercial roof mounted (49.9kW)

Standalone (5MW)

UK* 37.8 32.9 8.5

UK (Proposed cut) 20 20 8.5

Italy 32.6 28.5 22.2

Germany 25.5 24.3 18.7

France** 24.4 23.1 10.4

* Excludes export tariff of 3p per kWh ** Systems are assumed not to be building integrated

Retrofit domestic systemsThe FiT cuts have had no impact on the domestic roof-top segment which accounts for over 95% of the market, by number of installations.

Indeed, in August this segment installed over 30MW – almost as much as had been installed in the 10 years to the end of 2009.

Similarly, the number of MCS qualified companies has continued to grow.

However, the Government has already announced its intention to review the FiTs available for smaller systems installed from April 2012 (or earlier if necessary).

Whilst there is undoubtedly room (and the requirement; see later) for a FiT decrease without hampering demand significantly (UK rates are greater than those in Germany, Italy and France, for example), renewed large cuts or destabilisation of the market could have a detrimental effect on the renewables market overall.

Fig 5. Cumulative number of MCS registered solar PV installers (June 2009 – August 2011)

0

500

1,000

1,500

2,000

2,500

3,000

Num

ber

of

MC

S q

ualif

ied

so

lar

PV

inst

alle

rs

26/0

6/09

26/0

8/09

26/0

9/09

26/1

0/09

26/1

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26/0

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2/10

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3/10

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4/10

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5/10

26/0

6/10

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26/0

8/10

26/0

9/10

26/1

0/10

26/1

1/10

26/1

2/10

26/0

1/11

26/0

2/11

26/0

3/11

26/0

4/11

26/0

5/11

26/0

6/11

26/0

7/11

Source: MCS

The Government faces a dilemma over how to proceed in the short – medium term, with the Treasury and DECC the key players.

The Government’s dilemma

Treasury DECC

Government’s dilemma

• There is a set limit for FiT payments to FY15 and this must be met

• The Government has a binding obligation to increase renewable energy (not just electricity) from 3% to 15% of total UK consumption by 2020 – this includes an over 30% target for electricity

• If demand is likely to exceed the budget, changes must be made to rates and/or banding to bring payments back in line

• To achieve longer term aims and drive the desired reduction in energy usage, the Government needs to engage the public. Investing in microgeneration is one way of achieving this

• Consequently, 2% of the targeted renewable electricity production in 2020 is envisaged to be generated by small scale (sub 5MW) systems

PwC view

• The UK is not positioned to capture significant value from solar PV roll-out – it isn’t a technology or manufacturing leader (there are some exceptions) – so there is limited justification for investing heavily in the industry (compared to offshore wind, for example)

• Retaining the goodwill of renewable technology companies and investors is necessary to fund innovation and to achieve the broader education and microgeneration

• It would be unfortunate to have to damage an industry that has responded exactly as policy intended for the domestic market

• The cost of deploying solar PV have fallen faster than expected and further support would be a good news story for the green ‘credentials’ of the Government

• Indeed, delaying roll-out of solar PV by 2-3 years makes economic sense. Solar PV is currently the most expensive mainstream renewable energy source, but its costs are falling rapidly

• Minimising disruption to the industry is therefore preferable


Please refer to Fig 6 on the following page for more information


Fig 6. Estimated levelised costs for selected renewable technologies (2010–2030)

Leve

lised

pro

duc

tio

n co

sts

(£/M

Wh)

50

100

150

200

250

300 Solar PV

Onshore wind >5MW

Offshore wind Round 3

Offshore wind Round 2

2010 2015 2020 2025 2030

Source: DECC/ ARUP

The balance of our scenarios suggest that under the current FiT regime the FiT spending envelope will run out during 2013 – long before the intended end in March 2015

The Feed in Tariff is available to all microgeneration technologies, not just solar PV and many industry participants believe that solar PV will continue to account for 85% of all FiT payments. Is this a realistic assumption? Our analysis estimates that payments to Anaerobic Digestion could total £250-£275m by the end of April FY15, the equivalent of c30% of the spending envelope.

For solar PV deployment virtually all of our scenarios imply that the FiT spending envelope will be exceeded during 2013, when the UK has 600-800MW of solar PV installed.

• If 90MW of large scale capacity was installed/extended at pre-August rate then the entire spending envelope could be taken by solar PV, assuming relatively modest growth in capacity supported at the rates announced in June 2011

• Even if only 50MW of large scale farms completed, any substantial growth in the 49.9kW market could again push solar PV beyond the proscribed limits


At first sight, the Government has two options to address this:

1. Increase the FiT spending envelope to allow the market to grow at the current rate – this might be difficult in the current economic climate

2. Decrease rates and/or re-band to constrain spending to fit the current spending envelope – a deep and fast cut would be required. This could have a negative effect on confidence in the UK as a safe market for investment in renewables

We recommend that, as with the most recent change, the Government should announce new rates and bands close to the date they take effect to reduce the likelihood of a bubble before the rate change

• Each additional 30MW of retrofit residential capacity on the current rates has a £50-75m impact to the end of FY15 (or 6-9% of the FiT spending envelope)

Recent reports suggest that the FiT for systems under 50MW will be cut by c.50% to 20p.

Such a cut will likely slow the market down, but we believe that the FiT envelope will still be exceeded before 2015.

While severe, this reduction is not as bad as many in the industry were expecting. Falling module process are likely to re-energise the market in the next 1-1.5 years (which may lead to further FiT cuts).

Fig 7. Total Feed in Tariff payments to March 2015 under selected different scenarios (£m)

800(£m) 0Solar PV scenario 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900

Modest growth with 50MW of standalone installed in July 2011 (Base case)

Solar PV only Spending envelope limitOther technologies

Base case plus strong growth of 49.9kW systems

Base case plus 90MW of standalone installed in July 2011

Base case plus bubble of activity in domestic market prior to rate change

Increasing rate of roll-out of domestic systems

860-900 1,200-1,600

880-925 1,225-1,650

900-950 1,250-1,675

925-970 1,300-1,750

975-1,100 1,400-1,900

Source: PwC Analysis


Therefore, it appears that the Government is faced with the unpalatable option of increasing funding or imposing deeper on further cuts.

Looking at the longer term, these issues are however unlikely to affect meeting the Government’s National Renewable Energy Action Plan(NREAP) target.

The Government actually increased its ambition slightly for solar PV to 2,680MW by 2020.

In absolute terms, this is not a very ambitious target – several countries have installed this capacity in only 1-2 years.

Therefore, delaying deployment until after March 2015 is unlikely to have a material impact on the achievability of the target.

In the interest of investor confidence in UK renewables, the Government needs to consider its options and actions carefully.

Controlling FiT spend is not as straightforward as cutting rates for particular bands.

The announcement of FiT cuts long before new tariffs apply will lead to a surge in demand.

Combined with very strong installations in September, this new capacity will contribute significantly to the drain on the FiT envelope (each additional 30MW installed at current FiT rates has a £50-75m impact to the end of FY15).

Some market observers believe that the domestic solar PV market has sufficient momentum already to continue to grow, regardless of rate cuts.

Corporates (larger users) can switch to different technologies, if they become differentially more attractive, meaning that money ‘saved’ on solar PV is used spent elsewhere (e.g. AD).

We therefore estimate that even the proposed cuts of 50% (which some investors are already assuming for planning purposes) to the published rates for Solar PV for FY13-FY15 might not be enough to constrain spending within the limits of the current spending envelope.

Fig 8. Outlook for UK solar PV capacity to Government 2020 target

0

500

1,000

1,500

2,000

2,500

3,000

End2020

Gap totarget

March2015

August2011

213

750-1,100

1,400-1,800 2,680

Source: PwC Analysis


Whatever happens, the UK solar PV market is unlikely to achieve the level of growth that many had forecast.

It seems probable that the UK will continue to slip further down the EU27 rankings over time. Pending future FiT cuts, installed capacity in the medium term is likely to reach c.950-1,300 MW by 2015, similar to France in 2010.

By 2020, if the NREAP target is met but not exceeded, the UK will have installed 40W/per capita – less than Luxembourg had achieved by 2010.

Fig 9. Per capita installation of solar PV for selected EU Countries (2010)

0

50

100

150

200

250

Ger

man

y

Cze

ch R

ep

Sp

ain

Bel

gium

Italy

Luxe

mb

ourg

Slo

vaki

a

Gre

ece

Slo

veni

a

Fran

ce*

Por

tuga

l

Aus

tria

Cyp

rus

Net

herla

nds

Mal

ta

Bul

garia

Finl

and

Den

mar

k

UK

Sw

eden

Hun

gary

Irela

nd

Rom

ania

Est

onia

Pol

and

Lith

uani

a

Latv

ia

Average for the EU27 Cap

acit

y p

er c

apit

a (W

/per

son)

Source: EurObserv’ER Photovoltaic Barometer April 2011


When the Government implemented the FiT it was clear about what it hoped to achieve.The Government set out its ambition for microgeneration in the Renewable Energy Strategy in July 2009, and has broadly stuck to it.

“ We want to encourage the deployment of small-scale renewable electricity technologies so that communities and individuals can make an active contribution to the renewables target and to our longer-term carbon goals. The lead scenario recognises that these are relatively expensive options compared to other renewable technologies, and that deployment is from a very low base so the scope for this sector to contribute is naturally limited.”

At the time, DECC liaised closely with the solar PV industry to understand its views and the potential for deployment. It then released its forecast for solar PV deployment, expecting 1,025MW by 2015 increasing to 2,300MW by 2020 – the vast majority to come from domestic installations, with larger systems playing a minor role from 2014 onwards.

This information could have guided the industry as to how the Government hoped solar PV would be deployed.

In many respects, the government’s FiT policy has been a resounding success....• Renewable energy generation/ PV capacity –

Introduction of the FiT had a significant impact on capacity growth – it took the UK ten years to install 32MW (to the end of 2009). However, between April 2010 and August 2011, capacity grew more than six fold

PwC view


• Green job creation – A key goal of driving creation of green jobs was met with companies in all parts of the supply chain serving the UK investing in new jobs. Although the majority of these were in the installer segment where MCS registered entities increased by almost 2,250 between April 2010 and August 2011.

• Citizen engagement – Over 58,000 PV installations (over 95% of total) have been on residential roof-tops

…but the events of the past 18 months could perhaps have passed more smoothly if:• DECC had considered the likelihood of roll-out of

stand-alone systems more closely, which was observed in most other countries that have introduced FiTs

– It was unfortunate that the introduction of FiTs coincided with an unprecedented decline in module prices, which boosted ROIs, but even a 5-7% ROI was generous if the Government didn’t want any stand-alone systems installed

• Cuts had not been announced so soon after the introduction, thereby shaking investors and supply chain companies

– Following the initial FIT announcement, a significant number of companies across the value chain (developers, distributors and manufacturers) drew up plans to enter the market. Many of these plans have subsequently been shelved or curtailed upon announcement of the early FiT review

– To some extent, the Government’s hand was forced by a global recession, the need for savings and siginificant cuts in other countries, which were partly driven by rapidly declining module prices. Every other major European country has moved to reduce its FiT rates

– Many are doing so more frequently than the UK has. France, for example, has been altering its support system almost monthly and now requires pre-approval for larger systems (above 100kW). However, we note that the UK is less mature in terms of solar (and renewables) capacity

…thereby reducing the impact on:•Investorconfidence – The UK’s track-record for a stable

regulatory environment for renewable is patchy at best. Over the past five to ten years, there were repeated revisions to ROC banding and uncertainties of grandfathering for certain technologies. This has contributed to the flow of capital for technology and generating assets into other European countries. The furore around the FiT introduction, the subsequent early FiT review, the current RO banding review and the Energy Market Reform have added further doubts in investor’s minds

•Skillsandemployment – Large scale solar parks require different skills and suppliers than rooftop installations. While overseas developers of large parks would have initially “imported” skilled labour, it is likely that this would have transitioned to UK labour in the short term. Established UK companies that ventured into the sector are now considering how to re-focus in order to prevent redundancies. If the 49.9kW segment does not grow as expected, or is curtailed, it is likely there will be some job losses. The continued growth in the number of MCS qualified entities is also potentially a cause for concern – it seems less likely that the market will grow sufficiently for all these installers to generate sufficient scale to survive over the medium term


The industry and Government need to work more collaboratively and acknowledge the difficulties each other faces.

Recommendations for the way ahead

Government

• The Government needs support in making sure the limited FiT spending envelope goes where it is intended and lasts as long as possible – to prevent a boom and bust cycle, like that seen in Spain

• It needs to ensure that the imminent cut is well thought through across technologies and capacity bands. This cut then has to remain in force for more than a few months. A timetable has to be announced and adhered to.

Industry

• The Industry needs to try to work more collaboratively with DECC/the Government to make best use of the available support, which does not necessarily mean maximising short term profits

• It is likely that many of the installers and other new entrants to the market will struggle to survive the next three years if tariffs are cut

– One option might be diversification into other technologies (e.g. ground source heat pumps) to create a point of difference and access the (also limited and delayed) RHI spending envelope

• Those companies in the market for the long haul must consolidate and professionalise to drive out costs and help maintain market momentum, assuming the tariffs (even for domestic installations) are cut to very low levels in the not too distant future

• Patience could pay off and large-scale solar return in the future. The Government has highlighted the possibility of using large scale solar PV when it is more economic to do so

– “The Government believes that solar PV could potentially have a role to play in larger scale UK renewables deployment in the future, though this will depend on a number of factors [primarily cost reduction]” Renewable Energy Roadmap, 2011


The outlook for UK solar PV is positive, but all stakeholders have a role to play

Source: European Commission Joint Research Centre, UK Government Renewable Energy Strategy July 2009, PwC Interviews

ConsumersAwareness and education: understanding of available technologies,

how to install and suitability of PV for the UK

• TherehasbeensignificantcoverageofsolarPVinthemedia,whichhasraisedconsumerawarenesssignificantly.Inparticular,the‘freesolar’schemesattractedinterestfromsomeconsumergroupsleastlikelytohavebeenawareofsolarPV.Although,notallthepublicitywaspositive,withsomeconcernaroundhardsellingandthetermsof‘rent-a-roofschemes’

• Whilstthereisscopeforincreasedunderstanding,themomentumin themarketandcontinuedmediainterestshouldhelptodrivesolar PV awareness

Funding upfront costs: upfrontcostsofdesignandinstallationhaveoftenpreventedcapitalconstrainedconsumers

• Movementonthisissuehasbeenmixed.Theinnovativebusinessmodelof‘freesolar’enabledlesswelloffconsumerstoaccessfreeelectricity(ifnottheFiTs)fromthebeginningbutthefinancialsectormovedmoreslowlythananticipatedindevelopingproductsforhomeowners

• Thesituationhadbeeneasing,withmoreinstitutionsinterestedinofferingloans.However,itremainstobeseenwhethertheFiTchangeswilldampenthedevelopmentofmainstreamoptions

GovernmentConsistency of policy and prioritisation: uncertainty caused by

inconsistentorchangingGovernmentpolicy

• TheindustryandnewparticipantsinvestedheavilyinsolarPVon theunderstandingthattheyhadthesupportoftheGovernment

• Withtherapidimplementationofratechanges,manystandtolose some,ifnotall,oftheirinvestment.Thiswillhaveanegativeimpact onenthusiasmtoinvestgoingforward.TheGovernmentmustact toreassurepotentialinvestorsifitwantstoretaintheirgoodwill

Consumer loans: Changestoloanstructurestoallowloanslinkedtosystem/propertyratherthanperson

• Lastyear,wefeltthatconsumerloanswouldbeaconstraintonthemarket.Whilstthisdoesn’tappeartohavebeenthecase,itremainstobeseenhowsaleablepropertieswithsolarPVinstallationsare.Inparticular,willhomeownersgetanacceptablepaybackiftheyhavetorepayanoutstandingloanonsaleoftheproperty?

• Itremainsthecasethatthemajorityofinstallationswillsurvivethecurrentpropertyowners.ThereforeitisstillimportantthattheGovernmentchangesfinanciallegislationasithasoutlinedintheHouseholdEnergyManagementStrategy

IndustryAccess to capital:mostcompanieswillrequireaninjectionofcapital topermitrequiredlevelsofgrowth

• Thebanksdidappearhesitanttoinvestincompanies,eventhosewithestablishedtrackrecords.Corporatesandoverseasinvestmententeredtofillthegap

• NowthattheFiTspendingenvelopeislimitedandthereforemarketgrowthislikelytobeconstrained,demandforinvestmentfundsislikelytoreduce.Thosecompanieslookingtobuildaportfolioofoperatingassetswillcontinuetofindbanksconcernedaboutarangeofissues,includingtheabilitytofindandsecuresites,lifetimeperformanceandO&Mrisks.However,therecouldbeinterestfromcompaniesseeking to diversify into renewable heat

Lack of workforce skills: Potentialshortageofqualifiedlabourforce

• ThenumberofMCSaccreditedentitieshasincreaseddramaticallyand,withthedemiseofsignificantnumbersoflargesystems,therequirementforhighlyskilledresourcehasreduced

• ThelimitstotheFiTspendingenvelopemeanthattherecouldbeasurfeitofqualifiedworkershopingtomakealivingfromsolarPV

Key: Timeframe over which roadblock likely to be resolved Short term Medium term Long term

2010

2010

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2011

2011

2011

2010

2011

2010

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2011

2011


Daniel Guttmann DanielleadsPwCStrategy’sRenewablesand Cleantech team

He has over 10 years experience in advising corporate and private equity clients in a variety of transactions and strategy development across a range of industries.

He focuses on components, systems and services across the value chain and provides corporate and business unit strategies, investment appraisal and commercial due diligence.

Daniel has worked across a variety of segments in the renewables/cleantech space, including wind (offshore and onshore), solar PV, CSP, fuel cells and geothermal energy

Tel: +44 (0) 207 804 9714 Mobile: +44 (0) 7808 056 887 E-mail: [email protected]

Keeping in touch Contact details

Charlotte Mitchell CharlotteisanAssistantDirectorinPwCStrategy’sIndustrialProductsteam

Charlotte has over seven years’ experience in consulting, in both the technical engineering and strategy fields. She works in PwC Strategy’s Industrial Products practice and focuses on renewable energy and cleantech. Her particular area of interest is Solar PV and she has spent significant time in developing a view on opportunities in this sector in the UK and Europe.


Neil Hampson HeadofDealsStrategy


Vimal Vallabh Corporate Finance

Tel: +44 (0) 207 212 3006 Mobile: +44 (0) 7912 741298 E-mail: [email protected]

Ronan O’Regan Energy,InfrastructureandUtilities


Gus Schellekens SustainabilityandClimateChange


With thanks to:

Solar CenturyCrystaloxAdgen EnergyEcolutionMidsummer EnergyMy Planet SolarREASharp Solar

GB SolKrannich SolarSouthern SolarChelsfield SolarPhoton EnergyEvoEnergyIBC SolarMCS

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This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2011 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

Design & Media – The Studio (20866 10/11)

www.pwc.co.uk

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