The sun is shining over the UK
The Feed-In Tariff (FiT) came into operation in the UK in April last year, opening the door for the wider use of renewable energy sources within buildings, on roofs and in fields. The FiT provides a premium price for all energy generated, whether used or not, which is funded out of energy bills.
According to recent research by PricewaterhouseCoopers (PwC), solar photovoltaics (PV) currently represent only 0.3% of renewable energy in the UK today, some 32MW. This places the UK a long way behind other countries such as Germany, Spain and the USA. To put this in perspective, in 2009, PV installations in the USA were some 500MW, whereas the UK had a mere 6MW. Both of these pale into insignificance when compared to Germany which installed 3,800MW.
Globally, the PV market has been growing at 20% per annum since 2002, making it the world’s fastest growing energy technology. In 2008, the global photovoltaic market reached 5.5GW and the installed capacity totalled almost 15GW compared to 9GW in 2007.
FiT schemes have been key market stimulants. Germany introduced its FiT over ten years ago, while the UK has been pontificating about it for about as long. Germany had the fastest-growing PV market between 2006 and 2007, and it is estimated that more than 8,000MW of PV were installed in the country last year. The German PV industry accounts for over 10,000 jobs in production, distribution and installation, while over 88% of all PV installations in the EU were grid-tied applications in Germany (2006).
The success in Germany could be an indication of what will happen in the UK in the coming decades and PwC has identified a potential five-fold increase in PV installations in the UK in 2010 as a result of FiT. It estimates that installed capacity in the UK could reach 1,000MW by 2015 and around 5GW by 2020 – this would bring UK capacity in 2020 to levels reached by Germany today. The majority of UK installations are currently small domestic ones, usually no larger than 3kW. This is also the case in France and Germany, while in Spain and Italy, large-scale solar farms are more common.
FiTs have been highly successful in Europe at stimulating markets, driving rapid increases in PV markets. Typically, European annual installations increased by 300% in the first year of a FiT.
There has been a small setback in the UK following the announcement by the new coalition government that the FiT scheme has been included as part of its general cost cutting blitz, reducing the budget from £400m to £360m annually from 2013. The government is also keen to focus the FiT on the smaller-end applications, mainly domestic up to £50kW and commercial up to 5MW, discouraging the larger green-field solar farms in this sector which could have taken a disproportionate amount of the budget. Instead, it wants these to be in the over 5MW section, which is funded out of the Renewables Obligation.
Although these realignments of the incentives may well have an impact, it is unlikely to hold back the establishment of what will be a large new industry sector. This will be augmented by the implementation of the Green Deal from 2012, involving the retrofitting of 26 million existing homes and two million existing commercial buildings, to be undertaken over the next 40 years. PV could be part of the solution for many of these buildings. The Building Research Establishment in the UK is currently completing research into how the industry can deliver the Green Deal, which will be the equivalent of retrofitting some 12,000 homes per week for the next 40 years.
Germany’s PV market is over ten years old and could, as such, be considered mature. With other countries now actively embracing renewable energy sources, including PV, Germany’s overall share of the market, estimated at some 48% of the entire world market in 2006, will decline over the coming years. Although the German market will continue to grow, it will not be as fast as previously, and at a lower rate than other countries, such as the UK who are further down the PV evolutionary path. This is also partly due to the German government which is currently reducing the subsidy provided through the FiT now that the industry is established.
German PV manufacturers have enjoyed good market growth in recent years, but now have to look to overseas markets for future growth. Solarwatt, Germany’s second largest PV module manufacturer, was established in Dresden in 1993, Today it employs around 500 people, has a turnover over 300 million euros and has a manufacturing capacity of some 240MW. Accepting that it needed to look abroad for new markets, it viewed the UK as presenting the greatest potential: the country has just introduced the FiT, the government has legally defined carbon targets to achieve, and the country is actively embracing all elements of renewable energy, including PV, and has programmes in place not only to improve energy efficiency of new buildings, but also of the existing stock. It was also starting from a very low base in comparison to Germany, and so offered a much higher potential for significant growth.
We have now selected Enexos in the UK as our partner, and are already in advanced discussions with a number of potential customers. The company is also currently developing a distribution and installation network to target the smaller end of the market (domestic and smaller commercial) across the UK, in readiness for the start of the Green Deal.
There is huge potential for PV in the UK, both built-in to new buildings (BIPV) and also retrofitted on existing buildings and just to give you an example, we have completed all kinds of applications in Germany, and perhaps one of the most prestigious was a BIPV application at BMW’s factory in Munich where an 823KW roof-top installation was completed.
Another example is a 128KW façade BIPV at DHL’s offices in Leipzig, and a 1.1MW rooftop application at a public waste disposal and cleaning centre in Chemnitz. Larger applications have included a 3.2MW solar farm in Minorca, Spain, and several large PV power plants up to 5MW in the Czech Republic, Italy and Germany.
We believe there are a number of channels to benefit from PV in the UK, which include straight investment in PV panels, where the owner benefits from the electricity and income generated. Returns here can be excellent, depending upon the size, location and form of the application. Another option is to rent a roof or open space, allowing a PV company to install and maintain the PV, and the land/building owner benefits from a steady rental income stream.
The ideal applications for PV are those close to where power is to be used, such as on the roofs of industrial process buildings and office complexes. Other useful applications will be the roofs of logistics warehouses, which tend to be on industrial estates with other occupiers that could use the energy, the education sector and public sector, as local authorities are now allowed to generate and sell electricity to their communities.