Many challenges ahead for the UK Small and Medium Renewable Energy market

The market for ‘small and medium’ renewable energy products has fluctuated since 2011, when market values peaked, but has remained at well above £2bn per annum in 2012-15, according to a new report recently published by AMA Research. The main driver has been solar photovoltaics (PV), which accounts for over 80% of all renewable electricity and 98% of all installations under the FIT. While private households were the main area of application, this market has declined since 2012 due to a reduction in subsidies, while demand from the commercial sector has grown.

The new edition of this report has been extended from covering just the renewables microgeneration sector and renewable heat generation, to covering small and medium size renewable electricity and heat generation. The upper limits are in accordance with the parameters of the Feed In Tariff (FIT) and Renewable Heat Incentive (RHI) subsidy programmes, which are for installed capacities of 5 MW and 200 kWth respectively.

While the FIT incentive has been almost the sole demand driver for nearly all sub 5 MW solar PV schemes, other small-medium size renewable energy projects have been developed, either under the Renewables Obligation (RO) or without government support. Although the RO was closed off to new sub 5 MW developments after the launch of FIT, it still continued to support new developments in Northern Ireland, where the FIT is not available. While private households have been the main area of application since 2012, when the first degression led to a large reduction in tariff payments for domestic schemes, this market has declined while demand from the commercial sector has grown.

All other small-medium size renewable energy markets, such as windpower, hydropower, anaerobic digestion-with-biogas and wood-fuelled boilers, have also grown since the introduction of FIT in 2010, albeit at much more modest rates than the solar PV market. The RHI subsidy programme has also provided a significant boost to the number of renewable heat technologies, although wood-fuelled boilers are by far the most widely installed type in the non-domestic sector. In the domestic sector, the main area of demand has been for heat pumps and, to a lesser extent, wood-fuelled boilers. Other types of technology, in particular solar power, have suffered from declining demand in recent years.

“The forecasts through to 2020 illustrate the expectation that the market is likely to face significant challenges, in the form of declining Government support as well as lower gas and electricity prices, and this is likely to mean that any growth in the market will be at an individual product level, rather than an overall market level” said Keith Taylor, Director of AMA Research. “The recent round of degression to tariffs under the FIT scheme is likely to severely impede growth in the renewable electricity sector - while rates have been reduced for all technologies they have been particularly severe for solar PV and windpower.“

While the prospects for solar PV and windpower do not look promising under current support schemes, other sectors are expected to fare better, in particular non-water industry anaerobic digestion (AD). One of the least mature renewable technologies, the impact of degression has been relatively small because new capacity coming on-stream each quarter has not been sufficiently high to trigger large drops in tariff rates. One key factor expected to drive the market is the recent availability of RHI tariffs for biomethane-to-grid injection. With negligible capacity prior to 2014, it increased by over 400% in 2014 and is forecast to grow fourfold in 2016.

Unlike solar PV and windpower FIT tariffs, the RHI programme appears to be relatively safe for now, with £1.5bn annual support pledged by the Government in the Autumn 2015 review. How this is apportioned across the eligible technologies is as yet unknown but, as well as AD biomethane, heat pumps and commercial wood-fuelled boilers are likely to benefit from increased demand. In spite of this, the whole renewables industry is now faced with a raft of problems that could curtail growth, including the proposed implementation of EU requirements to raise VAT levels to 20%, the removal of the Climate Change Levy Exemption Certificates (LECs) for all renewable power generation, whether new or existing schemes, the withdrawal of the Allowable Solutions scheme and the abandonment of the Zero Carbon Homes targets, and the removal of tax breaks for community and small business energy projects. However, constant policy changes make it a difficult sector to forecast and prospects will continue to be volatile as new initiatives are introduced.

The ‘Small and Medium Renewable Energy Market Report – UK 2016-2020 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services within the construction and home improvement markets. The report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.