Speech

Making Contracts for Difference work for solar

Speech by Minister Gregory Barker to Making CfDs work for solar conference.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon Gregory Barker

Introduction

Many thanks for the opportunity to speak today about the future of one of the most exciting energy technologies on the face of the planet: Solar.

I particularly want to thank the Solar Media team for having pulled together such an impressive conference.

And what a bright, sunny day to do this! According to the STA, solar generated 8% of British electricity demand this weekend. This really hits home the message that solar has arrived here in the UK.

Now, the title of today’s conference is ‘Making CfDs work for solar’. Ladies and gentlemen, that is exactly what Contracts for Difference were designed to do.

I’d therefore like to focus my speech by looking ahead over the next few months and years.

But, before I do so, let me reflect on the tremendous progress we have already made. Government and industry working together.

The last few years, since I became Minister for solar, have seen a remarkable transformation in solar in the UK.

We have seen huge deployment at all levels. Over 3GW have been installed – at small-scale, rooftop, and large-scale.

Putting the UK firmly in the global Premier League for deployed solar.

For the first time, solar has been included as a focus technology as part of our Renewables Roadmap.

Prices of panels have come down massively – by nearly 60% since 2011.

And, most exciting of all, Britain has become a “go-to” country for solar investment. Placing us firmly in pole position to compete in the global race for green jobs and growth.

These successes need to continue. And today I’d like to make three points about the future.

First, we now have a truly sustainable foundation for continued, high-level growth of solar in the UK.

Second, I understand and fully recognise your genuine concerns about the transition from the Renewables Obligation to Contracts for Difference.

I am absolutely committed to working through your concerns and getting them right.

My Department is fully-engaged and I want my officials to go the extra mile during the consultation period to work through this with the industry.

But third, and importantly, this transition should be seen as an opportunity…

…To place solar at the forefront of the move to a new renewables revolution…

…And to bring solar to that holy grail of renewables: grid parity and zero subsidy.

Zero subsidy, the essential driver of my ambition to reach 20GW of UK solar.

Let me take those points in turn.

Springboard for growth

First, solar’s prospects for growth.

Since 2010, Government and industry have worked together tirelessly to help solar deploy. The figures speak for themselves:

  • Over 3GW of deployed capacity

  • Over half a million buildings across the country

  • Reductions in price – from £15,000 for a typical household installation to under £5,000

  • Reductions in subsidy needed – from over 40p per kWh to around 14p per kWh for small-scale installations, and down to just 6.8p per kWh for larger installations

I have personally seen fantastic examples of solar, installed on buildings up and down the country:

  • Bentley’s 5.1MW panels in Crewe

  • Sainsbury’s 2.3MW installation in Birmingham

  • Jaguar Land Rover’s 5.8MW installation in Coventry

  • The 1MW ‘solar bridge’ in Blackfriars, installed by SolarCentury in an iconic London location

This growth has created both opportunities and challenges.

On the opportunity side, I believe we can reach my personal ambition for 20GW of solar early in the next decade.

This means boosting the small-scale market. Opening up the Green Deal, for example, to allow FITs income to count towards the Green Deal’s golden rule. Making solar available to pretty much everyone.

It means boosting the mid-scale market. We are looking at changes to reduce financial and non-financial barriers to mid-scale deployment. And I hope to announce some of these before the summer.

It means boosting innovation. Supporting through Government grants new solar technologies such as Naked Energy’s work in Imperial. Or cutting-edge storage solutions, to complement solar.

And it means boosting solar on the Government estate. I’ve launched a campaign with Michael Gove to get solar on Britain’s 20,000 schools. And we have plans to deploy half a gigawatt on the Government estate.

But such growth also brings challenges. I’d highlight two in particular.

First, financial pressures. We must spend wisely. The subsidy budget for renewables is generous but finite. Subsidy which, after all, comes directly from the energy bills of hard-pressed consumers.

Second, policy pressures. We need a 21st century policy framework which enables a low-cost transition to competition amongst renewable technologies. And, eventually, drives the renewables sector as a whole to zero subsidy.

Zero subsidy that is not a dream – or a threat.

Zero subsidy is the clear destination and a goal, that the whole industry should embrace…

…and a race that the solar sector should be determined to win.

With zero subsidy comes breathtaking scale and extraordinary opportunity. But managing these policy pressures along that journey is not easy.

Transition from RO to CfDs

The need to handle these pressures leads me to my second point: the shift from the Renewables Obligation to Contracts for Difference. The nub of today’s discussion.

We have proposed a number of changes to policy over recent months. I know that these have caused some concern in the industry.

So let me address those concerns today.

But first, let me make one important point.

We are determined to get this transition right. While there will no doubt be some costs in transition, and an element of uncertainty, we want to minimise these.

That means working closely with you – the industry – to understand the impact of the changes. And understand any unintended consequences. Address them. Correct them. And iron these out.

That is why we are consulting. That consultation is open. We are keen to hear your views.

As I have said already, I have directed my excellent team of officials to engage and collaborate with industry on this crucial issue.

I want this to be an exemplar consultation.

So please send in your thoughts to my capable team in DECC. Work with your trade associations, who have had dozens of meetings with Ministers and officials over the last few weeks.

We are listening, and will try our best to ease that transition.

Now, to address five specific points.

First, we are determined to super-charge the mid-size roof-mounted sector. This is why we are consulting to split the FiTs degression band for projects over 50kW into two: one for standalone, one for non-standalone. With different capacity triggers for each.

Second, we are not planning to change any RO support for anything other than the larger projects. The consultation proposals apply just to projects above 5MW.

Third, we want to protect projects which have made a significant financial commitment. That is why we have proposed a grace period.

We are working intensively with your industry representatives to get those grace period arrangements right. Making them work, while not adding further financial pressures.

To do so, we need evidence. Please help us by providing it, either direct or via the trade associations.

Fourth, we are trying our best to design Contracts for Difference in a way which makes them accessible for the solar industry:

  • Lowering barriers to entry for smaller participants, by using a pay-as-clear auction. Which doesn’t require complex bidding strategies

  • Lifting requirements on bidders to post a bid-bond as a requirement for participating in auctions

  • Consulting thoroughly to set eligibility criteria in a way that is low but meaningful

  • Offering larger time windows in which to deploy; allowing developers to change size and delivery date to protect against uncertain project timelines

  • Enabling a clear route to market by creating an Offtaker of Last Resort

And finally, the big question in your minds is bound to be the budget for CfDs.

This will be announced in July. So I can’t pre-empt the decision.

Additionally, I should manage your expectations about the size of the budget. As with all other Government support, and given concerns about energy bills, we can’t – and shouldn’t – play fast and loose with public subsidy.

But I can reassure you that I am listening very carefully to what the industry is saying.

And we understand the messages you have given us, particularly around the importance of budget visibility.

Before I move to my final point, let me stress the key message here.

The work we are doing to transition to competition is quite literally groundbreaking. No other country has taken this step, though many intend to – and, within the EU, all will have to.

But we are determined to get it right. In partnership with you, the industry.

And we are determined to do our best to help you understand the new system.

That is why my officials have already run sessions to help stakeholders understand the auction process.

And I can announce today that we plan to produce further guidance – including a ‘user guide’ – to help bidders understand how to bid for CfDs.

The opportunity – zero subsidy

Let me end by focusing on the opportunity. To speed up the move to a zero-subsidy world.

Our intention is that CfDs are a modern policy instrument for a modern renewables sector.

Competition will keep up with cost-reduction, unlike administrative arrangements like ROs.

Competition will help us get maximum bang for our buck for consumers.

Competition will help deliver maximum deployment.

And competition is coming anyway. For all technologies. And across the EU. State Aid guidelines make that clear.

Given that, we need to get ahead of the game.

And who better to do that than the solar industry?

You have seen huge cost reductions to date. With scope for more.

You are a nimble, innovative, responsive community of developers and project managers.

Analysts increasingly think you can reach grid parity this side of 2020 – perhaps as early as 2018.

Conclusion

To conclude, I was in China last month and took the opportunity to meet all of the large PV manufacturers.

It was clear that the solar industry is still fizzing with possibilities for further cost-reduction, innovation and new applications.

So please approach this transition to CfDs with the sense of optimism and energy you have displayed regularly over the last few years.

I believe that solar can make it.

To coin a phrase, the future is bright. The future is solar!

Published 25 June 2014