Making Solar Pay. The future of the Solar PPA Market in the UK

This report covers the future of the solar PPA market in the UK, demonstrating that the standard method for financing large scale solar PV schemes in the UK is no longer economically viable. Stability from additional Contract for Difference auction rounds is required to unleash the potential of low-cost clean solar power.

The UK analysis published forms part of the EU-wide Horizon 2020 PV Financing project which examines how the solar PV market could adapt to a low-subsidy world. The UK analysis was undertaken by the STA with the support of expert financial contributors including Bloomberg New Energy Finance, EY and Bird & Bird.

There has been massive financial innovation in the solar industry which moved over the past five years from pioneers funding small projects to sophisticated funding models involving mainstream banks and dedicated investors. Confidence in the market significantly lowered the cost of financing helping to reduce the overall cost of solar projects. PPAs became the norm for financing these large-scale schemes, with projects able to sell their power for up to 15 years to a third party, but typically offering 3 years of forward fixed pricing.

Three key models of PPA developed which helped solar to sell its output not only to electricity traders into the wholesale market, but directly to commercial companies who did not need to be geographically nearby;

• Wholesale PPAs, where the power output was typically purchased by traders
• Sleeved PPAs, where the power was typically purchased by commercial companies, with additional complex facilitating contracts signed with licensed suppliers
• Private wire PPAs, where the output could be sent direct via a dedicated wire from a ground-mounted scheme to a nearby commercial energy user.

The report also looks at innovative PPA models including ‘Mini Utility’ and ‘Synthetic PPAs’, which have not yet been deployed at scale in the UK. The report does not look at self-funded ‘behind the meter’ smaller scale domestic and commercial schemes, where the unique electricity consumption profiles of individual sites makes economic generalisations harder. Niche private wire PPAs provide the best economics today but due to the many strict requirements these projects have, the report concludes they are unlikely to become mainstream.