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UK solar approaching grid parity, says REA/ KPMG

Tom Edwards Senior Consultant

Domestic and commercial solar photovoltaics (PV) will begin to reach grid parity in the UK within the next five years, according to an industry report published on 23 July.

The study, UK Solar beyond Subsidy: The Transition, was prepared by the Renewable Energy Association (REA) and KPMG. It said that the capacity of the technology in the UK was already increasingly rapidly, with 8.1GW deployed and capacity expected to reach 11GW by the end of next year. This was based on fast cost reductions within the sector: levelised costs have fallen by nearly 70% over the past five years, and are expected to fall by a further 35% over the next five (see table below for current LCOE estimates).

To assess the potential cost of solar PV within the Levy Control Framework over the next five years, the report modelled two scenarios for deployment in 2020-21: a 20GW scenario and a 14GW scenario. Under current subsidies, 14GW would cost £130mn/ year, and 20GW would require £340mn/ year. However, in the higher deployment scenario, subsidy costs per gigawatt were less than three times those in the 14GW scenario. This is explained by the faster rate of tariff reduction in the 20GW scenario.

KMPG said that the 14GW scenario, which would require 300MW/ year of deployment, would result in "a non-sustainable picture for the future of the UK PV industry" with several thousand job losses. For the 20GW scenario, deployment would be 1.5GW/ year, which would still be lower than the current level.

The report said that, to deliver a sustainable industry, government policy must guard against creating a "cliff edge", with a managed transition away from subsidy dependence. It made a series of recommendations, including:

  • the development of a strategy and policies to enable the growth of energy storage. The combination of a storage system and domestic PV could "revolutionise" the way households consume electricity, as they would be able both to store excess PV production and take advantage of the price differentials in grid electricity costs between day and night;
  • the implementation of net metering as an "absolute prerequisite" for the long-term sustainability of the PV sector in the UK. In countries with high penetration of PV, net metering is currently considered in various forms, so that it can provide certain revenue to eligible users. Normally, in net metering, dispersed PV is treated as any other conventional technology, carrying perhaps connection charges or Distribution Use of System charges, so it would be essential in a post-parity world;
  • developing new incentives, with a council tax discount identified as the most promising, and other possibilities including a discount on stamp duty; and
  • mandating PV in all new building through Part L of the building regulations. PV installation guidelines in building regulations could be fairly easy to implement and would link solar installations to the churn rate of property capital stock. This would create a steady demand stream for the sector and drive efficiency in design and innovation.

REA chief executive Nina Skorupska said: "We need to get to the low-carbon economy in the most cost effective way, but to do that government and industry have to work together. Clear and stable policy leadership is vital, and as robust as solar is, it can still be held back just short of the finishing line by misguided government interventions. This report shows how close solar is to competing with traditional power generation."

This report adds further weight to the evidence of the potential of solar PV. We agree with the assessment of net metering, and the associated need for half hourly settlement at the domestic level.

REA

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