UK solar beyond subsidy:

the transition

View full report

Executive Summary

This report has been prepared by KPMG LLP, the UK member firm, at the request of the Renewable Energy Association to assess the continuing cost reductions of solar photovoltaics (PV) in the UK and propose a few policy options that can enable the transition to a sustainable, subsidy-free PV industry. Our analysis demonstrates that: PV is the most popular renewable energy in the UK and its deployment is rising rapidly PV deployment reached 8.1GW installed capacity at the end of March and installations continue since then, projected to reach 11GW in 2016. The UK has become the most dynamic PV market in Europe. PV is becoming the most popular renewable energy among British electricity consumers, both in the domestic and commercial sectors. PV is becoming the most competitive new build renewable technology PV is already one of the cheaper sources of renewable energy. The UK PV industry has achieved impressive cost reductions of nearly 70% in the past five years. This trend in cost reduction is likely to continue, with another projected 35% decrease in levelised costs by 2020. The 20 GW deployment scenario in 2020 offers lower cost per additional MWh (under current subsidies) We have modelled 14GW and 20GW capacity scenarios for 2020/21. Under current subsidies 14GW would cost £130 million p.a., and 20GW would require £340 million p.a. The higher scenario offers more installations for a lower subsidy per MW. The 14GW scenario is 300 MW per year which would result in a significant decline in the size of the UK industry. PV will be the first renewable technology to achieve “grid parity”
Similar to other countries, as PV costs are coming down, they will begin to compare favourably to retail electricity prices, so that a need for direct subsidy will no longer exist. This transition from a subsidised technology to a mainstream technology will need continued innovation to take place over several years. Phasing out subsidies for PV requires a transition plan to avoid a “cliff edge” The UK Government needs to consider a managed transition away from subsidies over a 5 year period and beyond, rather than the immediate cessation of support that will result in job losses and industry consolidation. We propose the following policy options: A combination of net-metering and enhanced building regulations in the
residential sector. This would help to create demand for PV on both new build and retro-fit houses. An improved tax regime for nondomestic properties taking into account business rates, capital gains allowance and corporation tax alongside clear rules on required EPC ratings for leased properties would help drive growth in this sector.  A strategy to transition and
integrate PV into energy markets and distributed energy systems The role of PV will be maximised if it operates in synergy with other innovative technologies such as energy storage,
electric vehicles, demand response and smart metering. Also PV will benefit from electricity distribution networks that are designed to make full use of distributed generation. A transition to energy systems with decentralised generation and the use of energy storage will allow PV to operate in the same markets as conventional power. As a versatile technology, PV will be included in new products and services that will be offered in emerging new utility business models, and thereby contribute to bill affordability and security of supply.