So why is this the case when Feed in Tariff rates are lower than they were back in 2011?
Installation costs have had a major part to play. The component prices of a solar array have fallen dramatically over the last four years. This was predominantly driven by a booming Chinese solar market that forced many European manufacturers out of business, leaving the cost of an installation today at a mere one third of the cost back in 2011.
The effect of this has been a higher ROI for larger systems and significantly lower capital costs. Whilst a 50kW system is still very much a worthwhile financial investment, we are now seeing the majority of SMEs and farm owners taking advantage of the lower install costs and maximising their returns through larger systems in the 250kW range.
Barry Hellewell, GMI Energy’s solar Design and Estimating Manager explained “There are certain costs that are a given for any project we deliver (prelim costs). These costs include things like health and safety, planning applications, cranage for roof mount systems, surveys. It often makes financial sense for our clients to opt for the larger solar arrays in order to spread the cost of premlims to maximise their returns. 250kW is generally the optimum balance between prelim costs, FiT rates and required capital investment.
Many of our farming clients fund their solar investment with a loan secured against their land. The interest rates are highly attractive and enable them to still earn a generous return on their investment.”
What about the large-scale solar market?
Between 2011 and 2014 there was a rapid expansion of large-scale ground mounted systems in the UK, so much so that the UK is now one of the top global investors in solar, with a total installed capacity of 5GW and rising.
ROCs subsidies for large-scale (5+MW) renewables have played a vital role in the growth of large-scale solar but with ROCs being phased out, we are expecting to see a drastic drop in the large-scale ground mount sector. It was hoped that Contracts for Difference (CfDs) would provide the essential support for large-scale solar in place of ROCs, however, there has been very little uptake of the CfDs for solar, which seem to financially favour offshore wind.
Attention in the large-scale solar market is now turning to the rooftop sector, where the Feed in Tariff still offers a generous return for investors. External support from financers and improved legislation like the new permitted development thresholds for rooftop solar, are helping to remove some of the barriers to investment, such as a lack of capital or lengthy planning processes.
The 250kWp solar sector looks set to thrive in the UK over next few years.