Solar ROC Removals: How Will You Be Affected
 Topic: removal of Renewables Obligation Certificates. |  Read Time: 5 mins |
 Landowner type:Independent landowners | Institutional landowners |  Energy: Solar |
21st June 2024Are you a landowner with an existing solar project? Here’s what you need to know about solar ROC removals (and how the replacement scheme compares).
Since their introduction in 2002, Renewable Obligation Certificates (ROCs) have provided a reliable boost to solar project incomes. However, from 2027, the government will remove them entirely and replace them with the Contracts for Difference (CfD) scheme.
But what does this mean for your income as a landowner? Let’s break it down.
What Are Renewables Obligation Certificates?
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. The scheme places an obligation on licensed electricity suppliers in the UK to source an increasing proportion of their energy from renewables.
Since their introduction, ROCs have provided financial support to solar farms. But the scheme has 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. The subsidy will be phased out entirely by 2027.
The government applied a one-year grace period between 1 April 2016 and 31 March 2017. This allowed certain solar projects to gain accreditation under the Renewables Obligation if they met strict eligibility conditions.
It’s also worth mentioning that the conditions for this grace period were strict. The government would only grant you entry into the ROC scheme if developers had already made significant investments or if delays were due to Grid connection issues. While opportunities were limited, some projects managed to qualify during this narrow window.
Why Were ROCs Beneficial for Solar Projects?
ROCs are responsible for about 50 per cent of the income that renewable energy projects across the country currently make.
For many developers who started their projects under the old scheme, ROCs have been essential to maintaining financial stability.
When the government phases out ROCs in 2027, income for these projects will naturally decline as the developers will no longer receive this critical support.
How Will the Removal of ROCs Impact Your Solar Project?
I’m not suggesting that the removal of solar ROCs is a positive step forward for the industry – these changes will inevitably reduce the profitability of running solar projects.
However, the overall costs of running a solar project are likely to decrease over time.
Once the developer pays off the initial investment, all revenue generated by a site becomes profit.
If a developer signed up for the scheme several years ago, the site may have recouped its investment, meaning the financial impact of ROC removals could feel less significant.
It’s also worth noting that solar power technology is constantly improving, making panels more efficient. This means you’ll need fewer panels to capture the same amount of sunlight, leading to greater economies of scale. While these improvements won’t fully offset income losses from ROC removals, they could help reduce the overall impact.
For landowners, solar ROC removals will likely affect rental payments. This is particularly true when dealing with hybrid, turnover or generational rental payment arrangements. As site income decreases, so too will the rental income tied to it.
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 decrease proportionally, not dramatically, in line with these changes.
If something about your rental income seems out of step with these adjustments, it’s always worth raising the issue with your site operator.
What Will Replace ROCs?
The Department of Energy and Climate Change (DECC) has confirmed that large-scale ground-mounted projects can apply for Contracts for Difference (CfD) under the new regime.
The major downside of this new scheme is that the prices offered are generally lower than the current market rates 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, the CfD scheme should incentivise developers who are managing high upfront costs. It does this by providing a stable income to help 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 long-term source of income. As a result, many projects will move onto the new scheme for the security it provides and to make forecasting easier.
Is There Anything You Can Do to Mitigate the Impacts?
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.
Alternatively, if you’re located near large local businesses, there’s an opportunity to sell energy directly at a higher price than the wholesale rate. This arrangement benefits both parties, and it’s far more efficient for the power to reach its intended source as it has a shorter distance to travel. Plus, you’ll be removing the middleman by selling directly to the consumer.
Landowners must be incredibly proactive in finding a developer willing to cut out the middleman. As an alternative, Dewlay Cheese Farm in Lancashire achieved significant cost savings with its onsite wind farm by using the energy itself. Although the Dewlay case study involves a wind farm, you could do the same thing for a solar project.
Final Thoughts
In my 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 the government removes them entirely in 2027. Additionally, the higher energy prices in recent years, driven by their link to the price of gas, have provided landowners with significant benefits 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.
That said, repowering could be an excellent option in the future. Advances in photovoltaic technology can significantly improve efficiency, enhancing economies of scale and boosting the profitability of updated projects.
Feel free to get in touch with Lumify Energy 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.
