FUNDVIEW-UK solar capacity seen rising despite support cut

Fri Mar 18, 2011 2:21pm GMT

* 250 MW of solar capacity by end-2012 is achievable

* UK government reduces support for large-scale solar

By Adveith Nair and Nina Chestney

LONDON, March 18 (Reuters) - Asset management firm Foresight Group expects Britain's installed solar capacity to rise sharply this year despite a government proposal to reduce support tariffs for large-scale solar projects.

Britain proposed on Friday cutting financial support for new solar plants with a capacity over 50 kilowatts (KW) from Aug. 1 because it wants to focus instead on supporting smaller household and community-level projects. [ID:nLDE72H125]

But even amid the regulatory changes, the UK market should grow "significantly" by the end of next year from 50 megawatts (MW) of installed capacity last year, Jamie Richards, chief executive of Foresight Solar, told Reuters.

"50 MW is about 150 million pounds' ($242.2 million) worth of installations," Richards said. "Maybe 250 MW is achievable, depending on how fast installers roll out their propositions."

Foresight, which manages solar power assets worth more than 150 million pounds, would now turn its focus on the smaller scale projects in its pipeline, Richards added.

"We were alive to the regulatory risk in the sector, and wanted to develop a pipeline that we would be able to invest in -- whichever segment took off in terms of momentum -- and was able to be sustained by the incentive package," he said.

"The domestic and schools sector, sub 50 KW, is where we've now focused our efforts and where we expect to invest."

Richards is not alone in his thinking.

British energy efficiency specialist Eaga EAGA.L said on Thursday it had secured 300 million pounds for its project to install solar panels on over 30,000 UK homes. [ID:nLDE72G0GC]

Foresight's plan to raise 50 million pounds for UK solar investment this year, combined with Eaga's announcement, would double the market this year.

"There is momentum there," Richards said. "Banks have come to terms with lending to domestic projects."

BALANCED ROLL-OUT?

Concerns persist that Britain's plans to cut financial support for large solar power projects may stunt the nascent sector's growth, push investors abroad and prevent the country from meeting its renewable energy targets. [ID:nLDE7161Y1]

The decision six weeks ago to review support for solar installations has already caused at least three funds that were focused on large-scale projects, including Matrix, Triple Point and Ingenious, to withdraw their propositions.

Richards said a balanced incentive programme across both small and large-scale projects -- like in some of the world's biggest solar markets including Germany, Italy and Spain -- would help.

"Typically, feed-in tariffs are higher for smaller scale, domestic-sized assets," he said. "If budgetary concerns are the issue, then you'd expect more to be targeted at ground-mounted (solar parks), because you get the same capacity at less cost to incentivise."

"But the government seems to prefer to target the sub 50 KW sector, which is a fundamentally more expensive way of funding the roll-out."

Another option, Richards said, would be to follow in Italy's path and limit the size of greenfield projects on agricultural land, with no such limits for brownfield sites.

"That's the logical thing to do, but (it is) probably unlikely to happen," he said.

OTHER MARKETS ATTRACTIVE?

While the outlook for the UK domestic market seems bright, will investors look to move to other markets that might now seem attractive?

Richards conceded that might be a possibility, but said all major EU countries in the solar sector had generated some uncertainty and investors could look at markets outside of Europe.

"The U.S. is now growing quickly and Australia looks like it might be on the cusp of growth," he said. "The regulatory risk profile in those two countries should be better than in Europe."

But it might not be easy to switch to those countries.

"If an investor has the choice, and has the means of accessing those other countries, then yes, (they could) divert their funds."