Richard Sansom, head of business development at Swindon Borough Council-owned Public Power Solutions, says falling costs and rising demand for solar power purchase agreements (PPAs) makes large scale solar investment a good bet for local authorities.
The last 12 months has seen some hugely significant environmental commitments made by central and local government in the UK.
At a national level, sales of new petrol and diesel cars will be banned by 2040 in England, Wales and Northern Ireland, and the UK has become the only G7 country to make a legal commitment to net zero emissions by 2050. Locally, councils across the country have demonstrated strong leadership with over 100 so far declaring a climate emergency. Many of these have an ambitious target to achieve carbon neutrality as early as 2030.
At the same time there has been a gradual re-emergence of large-scale solar PV opportunities, following the abrupt slowdown after subsidies for new projects finally ended in 2018.
The good news for local authorities committing to reduce their carbon emissions is that subsidy-free solar is now becoming commercially viable in the UK.
This is due to a number of factors on both the supply and demand side. Installation costs for ground-mounted solar have fallen considerably, with EPC costs now as low as £500,000 /megawatt compared to £900,000/mw only a few years ago. The advent of co-location of solar with battery storage also offers greater optionality with the opportunity to tap into additional revenue streams. These include arbitrage (storing energy when it is abundant, and therefore cheaper, and discharging it when demand is greater and the cost is higher); grid-balancing services (smoothing out the peaks and troughs which occur naturally in power demand); and the capacity market (which provides insurance against the possibility of future blackouts).
Demand for solar power purchase agreements (PPAs) – the contract between generator and buyer – has grown sharply, with around 40 PPA providers active in the UK and a competitive market for short-term PPAs. The corporate PPA market for longer term contracts of up to 15 years is also promising, mainly driven by RE100 commitments – the firms committed to using 100% renewable power – and the desire for multinationals to fix a significant portion of their wholesale electricity costs over the long term as a hedge against future price volatility. The nascent market for synthetic PPAs – a purely financial instrument – also offers the opportunity for generators to sell power via a utility to a number of organisations of varying size through a Contracts for Difference arrangement, the government’s incentive scheme for energy generators which guarantees a fixed price.
Local authorities are very well placed to benefit from investing in solar PV and take a further leadership role in line with their climate change commitments. These commitments have been made against the backdrop of austerity with greatly reduced revenues from central government to fund public services. Investment in a new solar farm, whether on the council’s own land or elsewhere, can be a big step towards achieving carbon neutrality by installing additional renewable generation in the UK, as well as earning a long-term cash revenue stream that could fund frontline services.
Public sector organisations are also in a good position to take a longer-term view than corporates and have strong creditworthiness, often cited as the most important characteristic of any PPA offtaker or purchaser. Local authorities can borrow at favourable rates through the Public Works Loan Board to invest. They own significant land assets in the UK, with sites that are not suitable for new housing which may be good for solar development. Councils can also make ideal bedfellows for community investment, sharing the benefits from solar PV incomes with their residents. For example Chapel Farm solar park, owned by Swindon BC and developed by Public Power Solutions, a wholly owned subsidiary of the council, delivered the first renewable energy community Individual Savings Account (ISA) attracting local investment of £2.4m, alongside a £3m capital commitment from the council.
One structure that sits well within the current subsidy-free solar landscape is where a local authority invests in a new solar farm and ‘sleeves’ the power back to themselves. As with a corporate PPA, the local authority benefits from price certainty on their wholesale electricity costs while also demonstrating a genuine commitment to green electricity through additional solar generation, rather than an offset through an existing asset via REGO certification. This has been achieved successfully by West Sussex CC working with their framework provider LASER energy and NPower as supplier.
We would therefore urge any local authority to look closely at their land assets for potential solar development. PPS is actively working with a number of councils to this end as we look to expand on the 170 MW of subsidised solar farms we have developed in recent years.
Some sites which may have been discounted at the time of subsidies may now be worth a second look, as capacity and cost of local grid connections may have changed since the initial investigation. Where there is no suitable site within a council’s own geographic area, there may be opportunities to lease or buy land outside of their boundaries, as evidenced by Warrington BC’s recent investment in two sites situated in York and Hull.
The fundamentals that make a commercially viable solar site – a good grid connection, favourable planning conditions and leasing arrangements – are even more acute in the subsidy-free market. However, in the right circumstances new solar farms offer excellent commercial opportunities and can be an exciting option for local authorities aiming to achieve carbon neutrality and close the revenue gap by maximising the value of their land assets.