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Summary

With subsidies falling elsewhere in Europe, the UK is emerging as one of the most important solar photovoltaics (PV) markets on the continent. Solar PV will play a vital role if the UK is to meet its legally binding renewables targets. Solar PV will likely hit a target of 10GW of installed capacity by 2020, although ministerial ambition could set the target at 20GW. The Department of Energy and Climate Change (DECC) believes that domestic and small-scale commercial installations will account for 75% or more of this capacity.

The industry must invest in smart grid technologies to make widespread domestic solar possible

Although installation costs continue to fall – and are expected to fall by at least 10% by 2020 – solar PV is still heavily reliant on subsidies. Feed-in Tariffs (FiTs) are vital to the UK domestic PV market: solar relies on FiTs more than any other renewable technology, and domestic solar receives a disproportionately high share of UK FiTs. Removal or rapid reduction of solar FiTs in other countries has led to a rapid market slowdown, so policymakers have to remain committed to them if they are to remain committed to solar.

There are two short-term risks to the solar FiT: if the May general election results in the inclusion of the renewables-skeptic UKIP in a coalition, or an outright majority for the cost-cutting Conservatives, there could be a rapid removal of solar subsidies in the UK. In 2H2015, DECC will perform a three-yearly review to ensure its FiT policy meets its wider objectives. At present, we believe domestic FiTs will remain on their current trajectory; small-scale commercial solar may receive even larger subsidies.

However, higher solar penetration will cause significant problems to grid management. UK Power Networks’ Low Carbon London study demonstrated that at high penetration levels, the power generated by domestic PV and exported to the grid will cause considerable over-voltage when demand is low and PV generation is high. At these higher penetration levels, significant levels of back-feeding will be experienced at substations. At present, this will be mitigated by shutting down inverters, reducing the revenues that customers will earn from export, and undermining the whole idea of deploying renewable generation. Likewise, National Grid research indicates that if solar capacity were to reach 10GW, generation would have to be frequently taken off the network.

It is critical for the market to develop tools to help balance the supply and demand of electricity, including demand-side response, smart metering, energy storage, interconnection, and flexible generation. The industry as a whole must lobby DECC to ensure that the National Grid and local distributed network operators (DNOs) invest to create networks that can manage the additional volatility that higher penetration levels of solar PV will cause.

Appendix

Author

Stuart Ravens, Principal Analyst, Utilities Technology

stuart.ravens@ovum.com

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