The UK PV market only started to properly emerge in 2010, but demand has since exploded in a short period of time. However, the overall strong growth recorded over the last five years was also marked by notable annual fluctuations, which have posed challenges to the industry. In 2011, the number of PV installations grew by more than eight-fold, reflecting the nascent nature of the sector and favourable feed-in-tariffs (FITs). However, the number of installations fell in the following two years, largely due to cuts to FITs. In 2013, despite a significant 44% drop in the number of installations, the installed capacity rose by 36%, reflecting the rapid development of large-scale solar farms during the year.

In 2014 and the first quarter of 2015, large-scale, ground-mounted solar PV installations continued to drive the market as developers rushed to meet the 1 April 2015 deadline, from which date the RO subsidy scheme was closed to large-scale solar installations above 5MW. In 2014, the total number of solar PV installations rose by 32%, while the new capacity added more than doubled. The early part of 2015 has seen a further explosion of new capacity added, once again driven by large-scale solar deployment. In the first half of 2015, new capacity added already exceeded the total for 2014, while the number of installations was equivalent to 55% of the 2014 total.

Figure 1: Development of Photovoltaic Installations in Great Britain, 2010-2014

Source: MBD analysis of DECC data

Exceptional growth in residential PV installations was recorded in 2011, reflecting the introduction of FITs in the previous year and the infancy of the market. However, the number of residential installations fell in the following two years as FITs were reduced. In 2014, the sector showed some recovery, with both new capacity and the number of installations up by 33%, reaching 385 MW across 127,293 installations.

Data for the first half of 2015 points towards a further increase in activity, with 91,694 installations undertaken to the end of June 2015, equivalent to 72% of the 2014 total. Following the government’s proposal to slash FITs from January 2016, this could potentially lead to a spike in residential roof-top installations in the latter part of 2015, as some solar companies are likely to adopt “get it before it’s too late” strategy. If the government goes ahead with its proposed 87% cut in FITs, this will undoubtedly have a dramatic impact on residential solar PV uptake post 2015.

Figure 2: Residential Photovoltaic Capacity Installed in Great Britain, 2010-15

* includes pre 2010 installations

** includes installations up to August 2015

Source: MBD analysis of DECC data

Take-up of roof-top installations in the commercial sector has been low to date. This reflects a number of barriers to deployment in the sector - mostly economic, such as the poor capital of many companies and the relatively long payback period of PV systems (businesses tend to look for investments with a payback period of less than five years). Other factors, such as difficulties with grid connection and landlord-tenant splits, have also acted as deterrents to increased solar PV uptake in the commercial sector.

However, the sector undoubtedly provides strong growth potential for PV deployment, with some 250,000 commercial buildings having south-facing roofs. The sector was also supported by the DECC’s 2014 Solar PV Strategy, which attempted to shift solar developments from large-scale ground-mounted deployment towards midscale buildingmounted, commercial and industrial onsite generation and domestic deployment.

Following the upheaval in government policy, the UK market for new solar PV capacity is expected to contract over 2016 and 2017. The sector is expected to return to growth between 2016 and 2019, although new installations are likely to remain below those recorded in 2015. The focus of new installations is expected to return towards roof-top installations, reversing the recent trend towards ground-mounted installations, with mid-scale commercial PV deployment likely to show the strongest growth.

Despite frequent changes in government policy and a strong drop in installation costs in recent years, the solar industry has proved resilient and shown that it can reinvent itself in a changing landscape. The industry is expected to continue to do so in the foreseeable future, although it is expected to contract and consolidate in the next few years. Going forward, companies are increasingly planning their future without taking into account any financial incentives provided by the government.

Figure 3: Forecast new photovoltaic capacity installed in Great Britain, 2014-18

Source: MBD forecasts

The government’s main mechanism to drive the deployment of solar PV is the financial support it provides. Without this support, solar PV would not be able to compete in the electricity market as costs are currently higher than conventional generation. However, this is support is being reduced as the costs of solar PV decline over time. The industry consensus is that solar PV in the UK could reach grid parity by 2020 - the point at which it costs as much to generate one’s own electricity as it is to buy it from a supplier.

UK solar PV deployment has been mainly supported by two government mechanisms: the Renewables Obligation (RO) for large-scale solar, and Feed-in-Tariffs (FITs) for small-scale generation. Support for large-scale solar PV was withdrawn from 1 April 2015 two years earlier than planned, with the primary financial support mechanism for new largescale renewable generation now Contracts for Difference (CfDs).

The government is consulting on its review of the FIT scheme, which could see FITs slashed by 87% from January 2016, coupled with deployment caps on the number of installations eligible for the scheme.

The DECC has admitted that these proposals would shave around 6 GW of additional solar PV capacity from the UK’s 2020/21 projected portfolio, suggesting very turbulent times ahead for the UK solar PV industry.

The first competitive CfD auction concluded in February 2015, with disappointing results for the solar PV industry. Solar only won five contracts – with two to be built in the current financial year and three in the next. This means a mere 72 MW of PV capacity will be delivered over the next two years under the new CfD scheme, while onshore wind won 15 contracts in the first CFD auction. In July 2015, the new Conservative government announced that the next CfD auction, which was due to take pace in October 2015, will be postponed.

10% of survey respondents said they have solar panels installed on the roof of their homes, but this is considerably higher than actual household penetration. According to official DECC data, just more than 2% of UK households have solar panels installed. The higher proportion identified in the Mintel survey is likely to be due to the relatively low statistical base, which has distorted total ownership levels on a national basis.

The majority (72%) of people who have solar panels on their roofs have paid for the panels and installation themselves, while 21% opted for free panels through a ‘rent-a-roof’ scheme.

Four out of 10 people who currently do not have solar panels installed would consider having them installed through a ‘rent-a-roof’ scheme, while 23% would purchase the panels themselves. Nonetheless, 49% of all respondents are not considering having solar panels installed over the next five years.

Increased uncertainties in the UK solar PV market during 2015, caused by changes in government policy and further planned subsidy cuts, claimed its first victims in October, with three installation businesses entering administration. These are likely to be the first of many companies to go bust or exit the UK market if the government goes ahead with its proposals to drastically slash FITs. The Solar Trade association has warned that up to 27,000 solar jobs could go if the FIT cut proposals are enacted.

Overall, the industry is set for increased rationalisation and consolidation over the next few years, especially if the proposed FIT cuts are imposed. Larger companies are likely to acquire smaller firms to achieve economies of scale and put them in a stronger position to ride out the market turmoil. Larger entities are also expected to increasingly look at vertical integration.

Installers are set to increasingly look to diversify into other sectors and technologies, such as renewable heat and energy efficiency technologies, in the wake of the government policy upheaval. According to a recent survey by Solar Media, the most popular areas installers are also looking to enter include lighting and electrics, and the boiler and heating industries. Other industries of interest include roofing, insulation, plumbing, and design.

With the current policy upheaval and significant cuts to the FIT schemes looming on the horizon, the outlook for the UK solar panels markets is marred by significant uncertainties. Whatever the outcome of upcoming policy announcements, the industry clearly has to prepare itself for a future without government financial support. Most companies will welcome the day when the industry can operate subsidy-free as it will give them more certainty in the business planning process and reduce the boom and bust cycles caused by frequent policy changes and deadlines. However, the government proposed FIT cuts from January 2016 are coming too early with solar PV grid parity still a few years off, meaning that they are likely to cause major turmoil in the market over the next few years.

Despite major uncertainties going forward, the commercial roof-top sector is expected to offer the strongest opportunities. Deployment of ground-mounted PV installations, especially large-scale solar under the CfD support mechanism, is likely to be restricted. Demand in the residential sector is expected to slump following the FIT cuts. However, the sector still offers strong opportunities, especially in light of the emerging trend for smart homes, though this means that companies will need to offer much more than the installation of solar panels. Installers will need to take interest in customers’ energy demands and consumption, and help them manage consumption more effectively. This will require solar PV companies to become ‘smart installers’ with an increased focus on data management and control solutions. The emergence of cost-efficient energy storage solution also offers significant opportunities.