Perspectives on the UK solar PV market

Jeremy LeggettExecutive Chairman

Solarcentury

Solarplaza London

22.06.2010!

Agenda"

•  Background to UK market: the journey to the feed-in tariff

•  Structure of tariff and government objectives / expectations

•  Pricing: future and present

•  Market growth projections

•  Issues

•  The coming energy crisis

•  Conclusions

Solarcentury"

  BIPV, BAPV, BIST, system integrator and product developer ….rare!  In-house R&D & IP!

  >40% annual revenue growth 2005-2010 driven by own product design!

  Offices in UK, France, Italy, and Spain: 120 employees!

  Manufacturing partnership with Sony!

  Investors: leading PV-focused VCs and SSE plc!

  Awards include CSR Project of the Year 2009 (with SolarAid), and:!Best overall "new product "2007"

Solar irradiation in Europe"

Germany: worlds largest

solar PV market

UK: Similar

irradiation to Germany

SC location

950 850

800

820

750

700

! “This Government is serious about solar energy. I want to see thousands, rising to tens of thousands of roofs covered by solar panels every year over the next ten years, rivalling the large programmes in Germany and Japan.”!

Energy Minister Peter Hain!May 2001!

UK PV: a very long journey"

2001-2010: The reality"

•  Token government grant programmes !•  Stop-start “support”!•  “Demonstration”, not market building!•  Market dependent on “green pioneers”!•  Solar PV sidelined in Government policy after 2003 Energy White Paper!•  Emphasis on innovation and bespoke installations ! Sept 2004

C21, Dalston, London!

Source: IEA and EPIA!

2009e!2008!2007!2006!

10!6!4!3!UK!

100!48!13!2!Belgium!

250!46!31!10!France!

400!258!70!12!Italy!

2,000!1,500!1,135!830!Germany!

Annual installed capacity (MW) in selected countries showing effect of feed-in tariff

But tiny as the market is, you can see it from space

C21, Yorkshire, UK!

A key driver: the UK Building Code"

Social Housing >50k units PA! Private Housing >100k units PA!

Zero Carbon"100%!

On-Site!renewables!

market!increasing!each year!by B-regs!

Renewables significant

Renewables essential

GGL"

London Borough of Hackney

Political and cultural barriers to PV in the UK"

•  Carbon Trust dismissive of 2nd generation solar PV in UK!

•  Renewables Advisory Board unhelpful!

•  “Big is Beautiful” cultural mindset in government!

•  Nuclear or renewables?!•  A small but highly vocal amount

of contrarianism from prominent “greens”!

Solarcentury FiT demonstration outside Department of Energy and Climate Change, 2009

So how did we get a feed-in tariff?"

•  Not by keeping quiet!•  Support from opposition

parties + key Labour MPs!•  Commons pro-solar PV

motion second highest supported in 2008/9 Parliamentary session!

•  Massive business, trade union, fuel poverty lobby and green NGO support!

Representatives of five construction industry sectors deliver a letter to Number Ten, 2009

Key journalists became convinced by economics"

•  3.5 % p.a. with no grant

•  7 % p.a. with 50% grant

•  10% with a 45p feed-in tariff

Solar PV tariffs launched 1 April 2010"

•  Plus export tariff statutory minimum 3p/kWh!•  Generation tariff paid regardless of onsite use!•  Index linked to inflation for 25 years!•  Tax free for households only!•  Tariffs unchanged to April 2012!•  Annual 9% degression thereafter for new customers!•  No BIPV premium!

UK Government feed-in tariff approach through 2020"

•  Less than 2% of UK electricity by 2020 from ALL feed-in tariff technologies!

•  Set tariff levels to deliver no more than a 5-8% ROI!•  “an 8% ROI is assumed to be insufficient incentive for

utilities and developers”!•  Aim: to balance “cost-effectiveness, contribution to the

2020 renewable energy target, engagement at the household level and compatibility with broader energy policy” !

•  Target: over 700,000 household micro-generation installations forecast by 2020, mostly solar PV, enough “achieve a level of public engagement that will engender widespread behavioural change”!

Government expectation of future PV pricing in the UK "

•  2010 global average price of a fully installed PV system: £ 2.75 Wp (€3.25, $ 4.00) [Barclays Capital]!

•  2012 global average price of a fully installed PV system: £ 2.23 Wp (€2.64, $ 3.25) [Barclays Capital]!

•  2015 UK Government average price expectation: !•  for a 2 kWp domestic retrofit system: £3.25 Wp!•  for >100 kWp installations: £2.25 Wp  !

•  By 2020: more than 100% drop in prices (and PV tariffs of 12.7p-18p/kWh to reflect this)!

Larger UK systems in 2010: 100kWp example"

Roof area:! 2,000 m2 roof!Output:! 84 MWh pa!Price:! £350k* (£3.5 Wp)!Tariff:! 31.4 pence/kWh!Electricity:! 9 pence/kWh

IRR:! 7.7% (100% equity)!AER:! 8.2%!

*Subject to Module prices and complexity of project

Larger UK systems in 2010: 1,000 kWp example"

Roof area: 20,000 m2 flat roof!Output: 840 MWh!Price: £2.9m* (£2.9 Wp)!Tariff: 29.3 pence per kWh (index linked)!

IRR ~16% (assuming 20% equity)!

Inc fully monitored O&M !

*Subject to Module prices and complexity of project

Views of UK PV market growth"

•  Nomura Code: 100 MW in 2010

•  PWC: lag in 2010

1 GW by 2015

4 - 6 GW by 2020

•  EPIA: 20-40 MW in 2010

80-100 MW in 2011

The UK civil service expects only a modest UK PV market"

•  Recent PV industry speculation about the potential size of the UK market by 2020 needs to be put in context: he overall scheme ambition is a very modest one!

•  Under a business as usual approach (ie no feed-in tariff) the Government predicts 3TWh or 0.8% of final UK electricity consumption from ALL sub 5MW renewables by 2020. !

•  The chosen scheme increases the business as usual figure to 6TWh from all sub 5MW installations of which approximately 1.75TWh comes from solar PV (or on average around 200 MWp installed per year over the next ten years).!

Total sub 5MW renewables installations (all technologies by investor category) expected by 2020 under the FIT"

Domestic – ! ! 744,000 (vast majority of them PV)!Commercial – ! 25,000!Developer – !! 1,000!Utility – ! ! 2,000!! ! TOTAL:! 777,000!

Source DECC Impact Assessment of Feed-in Tariffs 1 February 2010!

Ecobuild Mar 09"

The change of government and the future"

•  All the indications are that the coalition Government is going to let the FIT scheme it inherited bed down !

•  While in Opposition, all of the key Ministers in the new coalition Government backed our We Support Solar campaign www.wesupportsolar.net!

•  But even assuming that the coalition government is perfectly relaxed about the treatment of small-scale renewables in the current scheme, we cannot presume that the lobbying “job is done.” !

•  Regular reviews will cover all aspects of the policy including whether technologies should remain within the scheme at all!

•  The first scheduled review (after lobbying, and subject to no change from the new Government) will start formally in 2012 for changes to be implemented from March 2013. !

•  In making that decision, the Government also signalled its intention to increase the degression level from later years and promised that !! “the first review period will be an opportunity to consider ! whether this increase should be maintained or indeed increased ! as may be required should the cost reductions that the industry ! have delivered historically be continued or improved.”!

Scheme constraints"

Immediate Issues"

•  Brand new scheme which will take time to “bed down” with Ofgem and the supply companies!

•  Microgeneration Certification Scheme for both products and installers, and the urgent need to keep cowboys out!

•  Grid connection and planning issues particularly for non domestic installations!

•  Raising awareness of the scheme and the technology!

“The next five years will see us face another crunch – the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well. …..Our message to government and businesses is clear. Act. …..Don't let the oil crunch catch us out in the way that the credit crunch did.”!

www.peakoiltaskforce.net"

Conclusions"

•  The UK FiT is an effective scheme for solar PV but with limited scope and with clearly defined 2020 “targets”!

•  It took a decade-long lobbying campaign to secure support for PV tariffs!

•  The scheme should deliver sustainable PV growth in the UK year on year !

•  But an ongoing lobbying effort will be needed to secure a decent settlement for PV in the first tariff levels review beginning 2012 !

•  There will be wild cards – factor in peak oil!