Solar ROC Removals: How Will You Be Affected

Topic: new solar projects Read Time: 5 mins
Landowner type:
Independent landowners | Institutional landowners
Energy: Solar
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Are you a landowner with an existing solar project on your site? We’ll explain everything you need to know about solar ROC removals (and how the new alternative compares).

If you’re a landowner with a solar project, you may want to know how solar ROC removals could impact your income. And that’s precisely what we’re here for. These subsidies have boosted solar incomes since they were introduced in 2002. However, as of 2027, the government will remove them entirely and replace them with the Contracts for Differences (CfD) scheme. But what does this mean if you’re a landowner, and how will this impact your bottom line? Well, you’ll want to stick with us to find out.

A Renewables Obligation Certificate (ROC) is a green certificate issued to operators of “accredited renewable generating stations” for the “eligible renewable electricity they generate.”

These certificates were first introduced in 2002 (and 2005 in Northern Ireland) to encourage the generation of electricity from renewable sources. It essentially placed an “obligation” on licensed electricity suppliers in the UK to source more of their energy from renewable sources.

The Renewables Obligation Certificates are subsidies that solar farms have received since 2002/5. They’ll end in 2027 and have been closed to new applications since 2015 (for large-scale solar projects above 5MW). This was announced two years earlier than expected, with a final early closure date of April 2016.

Existing projects were grandfathered in for their lifetime and will continue to receive ROC support until 2027. A one-year grace period was also applied between 1 April 2016 and 31 March 2017 for solar projects. This extension allowed new projects to gain accreditation if they met eligibility conditions. There wasn’t much light in the dark, but some new projects snuck in.

It’s also worth mentioning that the conditions for this grace period were strict. Entry into the ROC scheme would only be granted if developers had already made significant investments or if delays were due to Grid connection issues.

ROCs are responsible for about 50% of the income that renewable energy projects across the country currently make. For many developers who started their projects under the old scheme, the ROCs are key to the project’s financial stability. When the ROCs are removed, income will naturally drop as the developers will no longer receive these subsidies.

A technician installing a solar panel

We’re not going to say that solar ROC removals are a positive step forward for the industry, as they will increase the cost of running a project. However, the overall cost of running a solar project should reduce over time.

Once the developer pays off the initial investment, everything the site produces and sells will remain as profit. If a developer signed up for the scheme several years ago, the site may have recouped its investment, so the income blow will feel less severe.

It’s also worth mentioning that solar power technology is constantly improving. As panels get more efficient, you’ll need fewer to capture the same amount of irradiance. With fewer panels, you’ll have more significant economies of scale to work with – in theory, this should balance the income losses (at least slightly).

For landowners, solar ROC removals will have a knock-on effect on available rents. This is particularly true when dealing with hybrid, turnover, or generational rental payment arrangements. This is because the overall income registered by the site will drop. And if the site sees an income drop, the landowner will, too. However, developers should know precisely how much solar ROC removals will impact a solar project’s bottom line. So, a landowner’s income should only drop proportionally. It shouldn’t take an extreme dip but should reflect the ROC removals accordingly.

It probably goes without saying, but if something looks off, you should raise the issue with your site operator.

DECC has highlighted that projects can apply for contracts for differences (CfD) under the new regime for large-scale ground-mounted projects. The major downside of this new scheme is that the prices offered are generally lower than the current market price for energy. This is because the scheme involves selling energy for a fixed price for 10-15 years in exchange for income stability.

According to the government, this should incentivize developers dealing with high upfront costs and want to recoup their investment. However, if the site makes an amount above or below the amount in the CfD agreement, the site operator must pay this back.

Although the system is far from as good as it was under the ROCs, it still gives landowners and developers a reliable source of income over a long period. So, many projects will move onto the new scheme for peace of mind and to make forecasting easier.

Solar panels surrounded by greenery

While it might sound negative, there’s not much you can do to mitigate the impact of the ROC removal.

You shouldn’t be considerably impacted if your project is grandfathered into the scheme (until 2027, that is). This is because your project should keep receiving the same payments until the end of its life. However, when you repower the site, you will lose the ROC benefits that you received under your previous contract.

In a different vein, if you’re located near large local businesses, these businesses can purchase energy at a higher price than the wholesale energy price. This is often still a deal for the business, and it’s far easier for the power to reach its intended source as it has a shorter distance to travel. Plus, you’ll be removing the middleman in these scenarios by selling directly to the consumer.

Now, landowners must be incredibly proactive in finding a developer willing to cut out the middleman. However, Dewlay Cheese Farm in Lancashire has managed this with an onsite wind farm (and has cut costs hugely) by making use of the energy themselves. Although The Dewlay case study is one of a wind farm, the same could be done for a solar project.

In our opinion, solar ROC removals are not a positive move for the industry. However, landowners should be able to reap the benefits from the ROCs until they’re removed entirely in 2027. It also helps that energy prices have been higher for several years, and as they’re linked to the price of gas, landowners have benefitted for a long time.

The new system will still provide a degree of stability; it just won’t be as lucrative for developers and landowners. It’s hard to say whether this will make new projects less appealing to developers. However, we will say that repowering can be an excellent option down the line, as the improved efficiency of newer photovoltaic models can improve economies of scale.

Feel free to get in touch if you need more information on solar ROC removals and how they may impact you. The team will gladly fill you in on the process and what it might mean for your specific site.

Download our Solar farm checklist to find out if your land is eligible for a solar farm project.