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Subsidy-free solar power – what does this mean for the sector?

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The last year has been a momentous year for solar power in Europe, with one of the most talked about developments of the year being the advent of subsidy-free solar power. This new segment has seen phenomenal growth in the last 12 months, with impressive pipelines and a surge of interest in the southern European region.

 

And while this is exciting, a lot remains to be resolved as there isn’t a one-size-fits-all approach to the development and structuring of these deals. So, with this in mind, what exactly does subsidy-free solar mean for the sector and the people who operate within it?

 

Subsidy-free solar is not without challenges

Although the arrival of subsidy-free renewables means zero-carbon electricity at a reduced cost for consumers, overcoming the higher cost of financing subsidy-free schemes is one challenge, while managing variable renewables on the grid is another.

 

Furthermore, governments will have to weigh up the appeal of hoping the market delivers zero-carbon electricity without policy support, against the risks of failing to meet other priorities – which for the UK, includes legally binding climate change targets.

 

Subsidy-free deployment holds the promise of upending the current cycle

As it stands, renewable sources of energy have been helped into the market by an array of government subsidies and mandates, with the idea being that it would help renewable technologies to mature. This could then develop the industries, production volumes and the supply chains needed to bring down the costs – so that subsidies would eventually become unnecessary.

 

However, the wake of the financial crisis and changes in government have meant that this path has been far from smooth – a pattern of boom-bust cycles have characterised the European renewables sector, as successive government subsidies have created new markets, helped to drive down unit costs and then been ended abruptly.

 

Subsidy-free deployment, however, looks set to upend this cycle; at its simplest, it means deployment without government-mandated support in the form of the types of scheme mentioned above.

 

So, what’s next?

Currently at least 15 projects in Europe are planned, with subsidy-free solar farms sprouting across Europe, from the UK to Italy – in the UK alone there are thought to be over 130 active sites, with more in the pipeline (around 4GW waiting to be developed).

 

In Germany and Spain, incentives in the form of feed-in tariffs for solar electricity made it easy to anticipate how much each project would earn, giving bankers and investors enough comfort to loan to the industry. However, developers are now starting to build plants that don’t rely on these mechanisms – their costs are low enough that they can profit from selling power at the market price, or arranging long-term PPAs with larger industrial consumers such as Facebook and Apple. Ultimately, it’s not the feed-in tariffs that are being banked against now, it’s PPAs – and this is already underway in Europe.

 

While there are undoubtedly still challenges and unknowns ahead, what’s exciting about subsidy-free solar power is not just the ability to generate green electricity at market prices, without any kind of subsidy or mandate, but that we’re now entering a new phase where energy turnaround is concerned. Solar power is now cheaper to produce than conventional power, giving the renewables market a further push in the right direction as it vies to catch up with traditional energy sources.

 


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