Cleve Hill, the U.K.’s largest-ever solar project, received its government planning approvals this week. The question is how the 350-megawatt development proceeds from here in a large-scale solar market that has all but died out.

Located in southeastern England, along the North Kent coast, Cleve Hill is under development by Hive Energy and Wirsol. The developers say they will not seek any government subsidy and will not participate in the contracts for difference (CFD) auction next year.

The project, which may include a substantial amount of battery storage, will be built near the existing grid infrastructure used by the London Array offshore wind farm, once the largest in the world.

Cleve Hill is targeting completion in 2022, Giles Redpath, CEO of Hive Energy, said in a statement. A spokesperson told GTM that a final investment decision would be made ahead of construction work beginning in spring 2021. 

Despite a reputation for gray skies, the U.K. enjoyed a boom period for large-scale solar between 2013 and 2017, rivaling Germany as the hottest market in Europe. But the policy program underpinning that success closed to new solar projects in March 2017, and just 385 megawatts of solar projects larger than 5 megawatts have been connected since. Britain’s largest installed solar project today is around 70 megawatts.

The market’s promise has never gone dark. With the economics of solar improving all the time, developers have been busy readying a project pipeline that now stands at 8 gigawatts, waiting for a clear route to market to emerge. Cleve Hill could be the project to beat that path, but many questions remain unanswered.

“It’s good news that it’s been approved, but it’s still a long way from being realized,” said Tom Heggarty, principal analyst at Wood Mackenzie’s energy transition practice. “There are still many challenges in terms of closing finance for large PV projects in the U.K. The economics are still pretty marginal in the vast majority of cases.”

Government auction? No thanks

To many, the most obvious path for moving forward with a big solar project like Cleve Hill looked like the government’s CFD program. 

The last two rounds of the biannual CFD tender have been closed to onshore wind and solar, with the government taking the view that those technologies were mature and could stand on their own two feet. Fast-forward to 2020, however, and the U.K. has a net-zero target enshrined in law. Restarting the stalled markets for onshore wind and solar is considered essential in meeting that goal.

The next CFD auction, planned for 2021, may reopen the door for onshore wind and solar to secure long-term revenue guarantees. In that case, the two technologies would compete against each other while offshore wind competes in own separate track.

But Hive told GTM that Cleve Hill will not participate in the next round of the CFDs. The company is confident that the scale of the project means it can proceed without one, even as it acknowledges the financing arrangements are not complete. “We are talking to a number of financial institutions about the optimal strategy,” the spokesperson said.

While the next CFD auction is likely to support solar in ways that it hasn’t recently, there are no details on the scale of support that will be available. “There’s a huge pipeline of pre-financial-close onshore wind projects in the U.K., much of which will be gunning for the CFD as well. It’s not like solar has a free run at that,” Heggarty said.

Cleve Hill could be six months into construction by the time the next CFD auction is held in September 2021.

The corporate PPA route?

In the U.S., a 350-megawatt solar-plus-storage plant might have a good chance of securing a corporate power-purchase agreement these days, but in Europe that market is still getting started. Lightsource BP has closed deals with water utilities, Budweiser brewer AB InBev and, more recently, a brick factory. But the market remains nascent.

Heggarty points out that lower power prices and the slightly higher cost of finance, courtesy of the coronavirus pandemic, means the economics of a PPA-backed project are being eroded from two different sides. Despite the immediate headwinds, he thinks PPAs will have a major role in the project’s route to market. 

“Hive and Wirsol will be looking at all of these different options, or a combination of them, to see what they can make stack up,” Heggarty said. “Having the site consented for storage gives them more options. They can be a bit more inventive in terms of the kind of PPAs that they offer. That might open up a broader range of potential offtakers.”

Hive Energy claims that by choosing an east-west module orientation, instead of south, it can cram more capacity onto the same site and generate 44 percent more power overall. A study by Sheffield University found that while east-west systems produced less power, they have a smoother generation profile, something that might appeal to would-be offtakers.

The energy storage ace

The energy storage component of the project brings up even more questions about financing. For most storage projects in the U.K., revenue comes from the capacity market and a range of grid services. Some of these markets for ancillary services are now saturated. 

The network operator, National Grid ESO, is bringing more markets online all the time to improve the grid’s flexibility and resiliency. With a target to be able to run a carbon-free grid by 2025, National Grid ESO is very active in this area. Battery owners have reportedly done well out of the flexible demand market during recent periods of historically low demand.

That’s a good omen for would-be battery owners, but greater structural obstacles remain. Cleve Hill has proposed up to 700 megawatt-hours of storage capacity, via a containerized lithium-ion system. But this value-add would not be acknowledged in the CFDs as things now stand.

“The problem with U.K. and most European renewable tenders is that they don’t place any value on flexibility,” explains Rory McCarthy, a senior analyst at Wood Mackenzie covering energy storage.

The CFD is a simple, lowest-bid-wins system. The next auction could see developers take on the burden of negative pricing if that pricing prevails for more than six hours. Beyond that, a massive solar project paired with a massive battery, such as Cleve Hill, gets the same treatment as a PV plant standing on its own.

McCarthy suggests that “x-plus-storage” renewable projects should have their own carve-out of capacity in the next CFD auction. In the meantime, the best answer for Cleve Hill could be to press ahead as a solar-only project and hold its battery-shaped ace up its sleeve for another day, he said.