CEBR STA Report Sep 2014 1

Solar powered growth in the UK
The macroeconomic benefits for the UK of investment in solar PV

Report for the Solar Trade Association
September 2014
2
Disclaimer
Whilst every effort has been made to ensure the accuracy of the material in this document, neither Centre for Economics and
Business Research Ltd nor the reports authors will be liable for any loss or damages incurred through the use of the report.
Authorship and acknowledgements
This report has been produced by Cebr, an independent economics and business research consultancy established in 1992. The
views expressed herein are those of the authors only and are based upon independent research by them.
The report does not necessarily reflect the views of the STA.
London, September 2014
Centre for Economics and Business Research

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Contents
Foreword The opportunity of solar powered growth by Dr James Watson, EPIA 4
Executive Summary 6
1 Introduction 9
1.1 Background and motivation for the study 9
1.2 The UK solar PV industry 11
1.3 The UKs solar PV sub-markets 13
1.4 Scope of the study 14
1.5 Structure of this report 15
2 Methodology and assumptions 17
2.1 Development of scenarios 17
2.2 Investment analysis 20
2.3 The contribution of large-scale solar PV to UK electricity generation 27
2.4 Electricity user benefits 30
3 Potential economic contribution of investments in solar PV 31
3.1 Contribution of large-scale solar to GDP 31
3.2 Contribution of large-scale solar to employment 37
3.3 Employment impacts of domestic and rooftop solar PV 40
3.4 Electricity user benefits of large-scale solar PV 41
Conclusions 43
Appendix 1: Consumer surplus theory and approach 44

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Foreword
The opportunity of solar

powered growth
Dr James Watson, EPIA
Solar energy drives growth for businesses and employment. It
supports a cleaner future for society, in a highly cost effective way.
Solar works. It works in Britain, in Europe and all across the world.
Solar is also getting much cheaper and accessible. Support has fallen by 65% since 2010. It will soon
become so competitive it will be subsidy-free. Growing private finance is forecasted by leading banks, like
UBS, to significantly support the development of solar energy.
This will only be the case, however, with the right policy framework. In Europe the Heads of State are set
to unfurl their plans for future energy targets to 2030. Anything short of a binding 30% renewable target
for energy production across Europe will be a woefully inadequate signal to public and private investors
to back the solar energy transition.
This report demonstrates how recent UK Government proposals to cut large-scale solar out of the
Renewables Obligation could disrupt the industrys path towards cheaper solar. This could have substantial
and long lasting negative impacts on the industry and its potential in the UK.
Every industry needs a stable and consistent investment framework to thrive, and solar is no exception,
thus the UK Government must act coherently to deliver the security that solar industrial development
needs. Getting the right policy framework to drive solar is crucial if we are to seize the opportunity that
solar energy offers.
In Britain the potential is real, as this report from the Centre for Economics and Business Research
demonstrates. Significantly, if 20GW of large-scale solar is built by 2030, as per the Bold scenario, this sub-
sector of the solar market alone can add more than 25 billion cumulatively to the output of the UK
economy. This is a huge contribution. But the contribution of solar could be far greater still if we were to
also consider the economic output of the roof-top markets, which is outside the scope of this report.
Even more importantly than this, the report confirms that an average of almost 50,000 full time jobs would
be sustained every year between now and 2030 across large-scale and rooftop solar. The economic
analysis shows that solar is much more competitive than other low carbon alternatives, so solar generates
much more value for the UK and its people.
The UK Government has the power in its hands to herald the dawn of a new solar jobs boom.
The cost of solar is falling. This too can only mean good news for consumers, who will see their energy
costs drop.
This report outlines that 425m could be put back into consumers pockets by 2030 if solar is rolled out on
an ambitious scale. This would be in the form of lower electricity bills, cheaper prices for goods and services

5
that rely on electricity and a lowered tax burden. Solar can deliver real value, is on its way to being the
cheapest energy, and as the IPCC has said, has the greatest technical potential to meet energy demand.
Creating the right framework for investments in solar is crucial. The International Energy Agency recently
outlined that investment in renewable energies could fall due to the uncertainty caused by government
policy changes.
Policymakers in Britain and Europe must, therefore, take their responsibilities to their countries seriously
and ensure that the right signals are given to investors to drive the solar energy transition.
Dr James Watson is the CEO at the European Photovoltaic Industry Association.

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Executive Summary
The solar photovoltaic (PV) market in the UK has grown from virtually zero four years ago to an estimated
5GW of installed capacity by August 2014. This rapid growth, occurring as it has against a backdrop of
economic austerity, has propelled the UK into the top ten global markets for solar PV. The significant
deployments involved have also contributed significant economic benefits, including robust business and
job creation in industries that supply the components and labour required to achieve rollout. But the scale
of rollout has also been accompanied by steep capital cost reductions that have outpaced almost all prior
projections.
But recent changes to the financial support available to the solar industry, particularly to large-scale solar
PV installations, threaten the potential economic viability of the industry and the benefits that solar PV
can continue to deliver to the UK economy.
This report by Cebr seeks to shine a light on these benefits through an examination of the macroeconomic
benefits (GDP and jobs) of investment in large-scale, ground-mounted solar PV farms up to 2030.
Commercial and domestic rooftop installations like industrial and domestic rooftops are considered when
possible, but the lack of data prevented their inclusion in the more detailed and data-intensive elements
of the assessment.
We adopted a scenario-based approach, developing scenarios that hypothesise the total size of the UKs
solar market in 2020 and 2030. Table 1 summarises the scenarios assessed in this study.
Table 1: Scenario parameters

of which: large-scale capacity
Installed Capacity (MW)
Scenario (MW)
2020 2030 2020 2030
Solar Strategy 11,000 22,000 4,700 7,300
Ministerial Ambition 20,000 40,000 8,500 13,300
Bold Scenario 25,000 60,000 10,600 20,000
Source: STA, Cebr analysis
To put the installed capacity figures for 2030 in perspective, the Solar Strategy is the equivalent of
powering 6.7 million homes, the Ministerial Ambition scenario the equivalent of powering 12.1 million
homes, and the Bold Scenario the equivalent of powering 18.2 million homes.
The estimates presented in this report of the GDP and employment contributions expected under each
scenario takes account of the development, build/manufacture and installation of large-scale solar
capacity, but also of the power generated by these large-scale solar PV generators. Our key findings
include1:
Over the years 2014-30, the scale of solar PV deployment implied by the Solar Strategy scenario could
contribute to the UK economy:
1
The figures discussed below include indirect and induced multiplier impacts. Monetary sums are expressed in 2014 prices.

7
- 9.5 billion in GVA contributions to GDP through the investments required to develop this large-
scale PV capacity, and the electricity generated by large-scale PV generators;
- 48,900 full-time equivalent jobs for one year each (FTE-years), equivalent to an annual average of
2,900 FTEs in large-scale solar.
However, when examining the deployments implied by the Ministerial Ambition scenario, this extent
of solar PV could contribute:
- 18.1 billion in GVA contributions to GDP through the development, build and installation of this
large-scale PV capacity, and the large-scale generators energy output;
- 96,700 annual full-time equivalent jobs (FTE-years), equivalent to an annual average of 5,700 FTEs
in large-scale solar.
The most aggressive path of solar PV deployment considered in this report, termed Bold Scenario,
would contribute an estimated:
- 25.5 billion in GVA contributions to GDP via the investment programme to build this large-scale
PV capacity, and the power generated by large-scale PV generators;
- 148,800 full-time equivalent jobs for one year each (FTE-years), equivalent to an annual average
of 8,800 FTEs in large-scale solar.
These potential contributions indicate that, rather than inexorably flowing abroad, investments in large-
scale solar PV are a substantial stimulus to domestic businesses and industries, and so yield substantial
benefits for the UK economy. Taking into account both capital and operational expenditures over a 25-
year project lifetime, the average UK content for large-scale solar PV investments stands at an estimated
62% in 2014, a ratio which is expected to rise to 71% by 2030.
In addition, the expected downward path of the price of large-scale solar PV-generated electricity will
deliver welfare benefits to the purchasers of this energy. Under our Bold Scenario, these cost reductions
would result in an increase in consumer surplus of 425 million by 2030 relative to present levels,
equivalent to around 13.40 per UK household.
We note, however, that a narrow focus on large-scale solar PV would overlook the major jobs potential in
domestic and commercial rooftop solar PV. Building upon analysis from the BRE National Solar Centre, we
estimate that the Solar Strategy scenario would support an annual average of 14,000 direct and indirect
FTE jobs over the years 2014-30. The equivalent figure for the Ministerial Ambition scenario is 26,800 per
year, rising to 40,600 per annum in the Bold Scenario. These annual averages are significantly higher than
those outlined for less labour-intensive large-scale solar PV.
Combining the employment figures for domestic, commercial and large scale, we can therefore estimate
that the Solar Strategy scenario would support an annual average of 16,900 FTE jobs over the years 2014-
30. The equivalent figure for the Ministerial Ambition scenario is 32,500 per year, rising to 49,400 per
annum in the Bold Scenario.
Yet the benefits discussed thus far do not fully capture the advantages to the UK of pursuing solar PV
deployment. Other benefits include:
Supporting SME creation, both within the solar development sector, as well as through the
establishment of new energy suppliers in the form of large-scale solar PV generators.

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Reducing the nations dependence on imported fossil fuels, energy sources that are volatile in price,
are expected to become more costly over the longer-term and the availability of which is subject to
unpredictable geopolitical developments.
Contributing to the achievement of the UKs binding climate change and emissions targets in a cost-
effective way.
Providing decentralised power generation directly to households and businesses, reducing domestic
energy bills and increasing the competitiveness of UK industry.
Acting as a complement to other renewable generation sources in the UKs energy mix, such as
onshore and offshore wind, thereby contributing to security of supply and helping to balance that
supply with electricity demand.
Analysis by the STA suggests that the cost estimates underlying Government energy policy decisions are
not reflective of the significant economies being achieved through the rapid rollout of large-scale solar
PV technology. By withdrawing financial support at this stage, the Government risks sacrificing
opportunities for investment in a cheaper renewable technology in favour of more expensive and,
ultimately, riskier technologies. It will also cast doubt over the achievability of the projected
macroeconomic benefits of solar PV to the UK economy, as presented above.

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1 Introduction
This report details the findings of a study conducted by Centre for Economics and Business Research (Cebr)
of the macro and wider economic impacts of investment in the UK solar industry. The study was
commissioned by the Solar Trade Association (STA).
1.1 Background and motivation for the study

Decarbonisation of the power sector is one of the central aims of the UKs energy policy, with the UK facing
a binding EU obligation to produce 15% of its energy from renewable sources by 2020, which translates as
30% of its electricity. With a view to achieving this and other climate change targets, the system of carbon
budgets set out in the Carbon Plan (2011) detail a strategy for reducing the UKs emissions to 50% below
their 2011 levels over the 2023-27 period.2
Meanwhile, electricity demand is expected to continue increasing over this period, driven by both
population growth and the progressive electrification of heating, transport and industrial processes.
Therefore the requirement to meet these emissions targets necessitates a significant role for low-carbon
technologies to meet future energy demand.
Solar power can be an important contributor to bridging this gap. The UKs solar photovoltaic (hereinafter
solar PV) market is one of the fastest-growing in Europe. Total installed capacity has grown from virtually
zero in 2010, to 2.8GW at end-2013 (which represented a 60% year-on-year increase compared to 2012),
while more recent SolarBuzz figures indicate that capacity reached 5 GW as of August 2014. Looking
further ahead, DECCs Solar PV Strategy document sets out a central forecast of 10-12 GW of installed
capacity by 2020. However, a more ambitious deployment target of 20GW had been set out by the former
Energy Minister Greg Barker.3
Yet recent Government proposals to close Renewables Obligation (RO) support for large-scale solar PV
generators have introduced unwelcome uncertainty to the market. Withdrawing financial support and
undermining confidence in government policy could have substantial and long-lasting negative impacts
on the industry. As well as hindering the activities of businesses already operating in the sector, this
reduction in support would pose a significant threat to the inherent potential for considerable rates of
SME creation in the solar PV market, potential that has already been realised up to now.
It also threatens to disrupt the solar industrys ongoing progress in achieving cost reductions. Cost
reductions already achieved have been rapid and significant, driven by the investments and innovations
enabled by utility-scale projects, as well as the falling costs of installation and prices of imported
components. Indeed, the rate of cost reduction has been so unexpected as to complicate DECCs policy
analyses, which are based on levelised costs of energy (LCOE) for solar that are very high compared to the
most recent industry projections (see Box 1 below). This has the effect of making large-scale solar look
more expensive in comparison to other generation technologies, whereas, with stable support, it could be
cheaper than onshore wind by 2017-2018.
The Government, therefore, risks sacrificing opportunities for investment in a cheaper renewable
technology in order to prioritise more expensive and, ultimately, riskier technologies. It is against this
2
The Carbon Plan: Delivering our low-carbon future (2011), DECC
3
This is considered by industry and the Minster to be both desirable and achievable.

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background that the Solar Trade Association commissioned Cebr to conduct a study that would highlight
the benefits that large-scale solar delivers to the UK economy.
Box 1: DECC and STA LCOE analysis for large-scale solar PV
The levelised costs of energy (LCOE) describes the ratio of total lifetime costs (both capital and operating) of a specific
generator, to the total amount of electricity expected to be generated over its lifetime, both expressed in present value terms.
LCOEs are often used to compare different generation technologies, as they estimate the life-cycle costs of generation per unit
of power output.
A comparison between DECCs estimates of the LCOE of different technologies (converted to 2014 prices) and DECCs forecast
of wholesale electricity prices shows that large-scale solar becomes cheaper than gas (CCGT) before 2025 and cheaper than
wholesale electricity before 2030:
Figure 1: DECC LCOEs for selected technologies (/MWh, 2014 prices)
Source: LCOE values from Electricity Generation Costs (DECC, 2013). Wholesale electricity price from Energy and Emissions projections (DECC,
2013). All figures are in 2014 prices. DECC data points are disclosed for the years with markers, with linear relationship assumed in the
intervening years.
Due to the fast-moving nature of solar PV technology, including ongoing and rapid cost reductions, it is STAs contention that
DECC utilises a LCOE for large-scale solar PV that does not reflect the current state of the technology. Through surveying their
membership for detailed breakdowns of current and expected future costs of large-scale solar with stable policy support, and
inputting their findings into the same modelling approach utilised by DECC, they arrive at LCOEs that are significantly lower
than DECCs latest figures. This analysis is set out in
Figure 2 below.

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Figure 2: Comparison of DECC and STA estimates of LCOE for large-scale solar PV (/MWh, 2014 prices)
Source: LCOE values from Electricity Generation Costs (DECC, 2013). Wholesale electricity price from Energy and Emissions projections (DECC,
2013). STA calculated values from STA analysis Sept 2014. All figures are in 2014 prices. DECC data points are presented for the years with
markers, with linear relationship assumed in the intervening years.
The graph shows that the crossover point of solar PV and CCGT is much earlier under the STA input data (2018 as opposed to
roughly 2023). Therefore, the STA analysis suggests solar PV could be cheaper than gas around 5 years earlier than DECCs
analysis suggests. The crossover point for solar PV and the wholesale electricity price is also predicted to be earlier. Whereas
the DECC analysis suggests that solar PV will be cheaper than wholesale electricity by around 2028, the STA analysis suggests
that solar PV will cross at 2024, four years earlier.
With the results of this analysis, it is clear that supporting large scale solar PV in the short term will lead to substantial benefits
in the longer term.
1.2 The UK solar PV industry

The rapid growth in solar PV capacity has acted as a significant stimulus to suppliers of the goods and
services required to deliver solar PV installations. This demand has generated a supply response that,
within three years, propelled the UK into the top ten global markets for installed solar PV capacity.
Deployments of all sizes, from domestic and industrial rooftops to larger ground-mounted arrays, attracted
6.4 billion of private sector investment in the three years to 2013.4
This level of investment has stimulated rapid business and job creation in the solar industry. The
Renewable Energy View 2014 report, published by REA, Innovas and PwC, estimates that the solar PV
industry supported 15,620 UK jobs in 2,200 enterprises during 2012/13. On this measure, the solar PV
4
Delivering UK Energy Investment, DECC (2014)

12
industry accounts for 15% of total jobs in renewable energy industries and a third of all renewables
companies in the UK. Indeed, the business creation potential inherent in the industry is so pronounced
that the solar PV industry supports more than twice the number of companies per 1 million of investment
as the other renewable sectors examined in that report.
Figure 3: Number of companies per 1 million investment in selected UK renewable energy sectors, 2012/13 5
1.2
Companies per 1m investment
1.0
1.0
0.8
0.6
0.5
0.4 0.4 0.4 0.4 0.4 0.4 0.3
0.4 0.3
0.2
0.0
Source: REA, Innovas, PwC, Cebr analysis
This rate of business creation within the solar industry suggests that barriers to entry are relatively few in
comparison to other generation technologies. The activities of the solar PV industry also support the
establishment of many other businesses, in the form of large-scale solar PV power generators. These
enterprises, which provide distributed electricity generation in what has historically been a highly
centralised market, contribute to reducing nationwide dependence on relatively few large energy
suppliers. They also provide stable long-term income to landowners, many of whom work primarily in the
agricultural sector. This, by its nature, is subject to volatile seasonal developments from year to year. The
rate at which these businesses are entering the marketplace is startling, as seen in Figure 4 below, which
compares historic enterprise birth rates within the power sector and the UK economy overall.
5
This chart compares the 10 largest UK renewables sectors, by turnover, as identified in the REA/Innovas/PwC report. One
technology, Deep Geothermal, supports more companies per unit investment. However, this is a niche market (accruing just 10
million in turnover during 2012/13).

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Figure 4: Business birth rates, 2008-12 6

50%
45%
45% Power sector 40%
40% UK economy
35%
30% 26%
23%
25% 21%
20%
15% 11% 11% 11%
10% 10%
10%
5%
0%
2008 2009 2010 2011 2012
Source: ONS, Cebr analysis
While the birth rate of the power sector has been well above the UK average in each of these years, it has
been particularly elevated in the years since 2010, when the UKs solar PV industry began its dramatic
acceleration. Cebrs query to ONS regarding the underlying causes of this elevated birth rate revealed that
recent years have seen a very rapid proliferation of small-scale renewables generators, particularly solar
and wind farms. These generators export power back to the Grid in sufficient volumes to reach the
turnover threshold which necessitates their registration for VAT, thereby triggering their recording in ONS
measures of registered businesses. While this stark increase in the rate of enterprise births reflects the
proliferation of several types of renewables generators, the contribution of solar PV to this trend is
certainly non-trivial, and further underlines the inherent potential for SME creation in the industry.
1.3 The UKs solar PV sub-markets

The market for solar installations in the UK, as it stands at present, can be disaggregated into 3 main sub-
markets:
Domestic: consisting of small-scale building-mounted installations on domestic rooftops. Once

installation is paid for, these systems provide free electricity to the occupant of the home, allowing
reductions in electricity bills as well as contributing to reductions in the UKs carbon emissions. These
usually have a capacity of 3-4kW, or up to 10kW on larger homes.
Commercial rooftops: this sub-market describes those arrays installed on non-domestic buildings and
are typically larger than those seen on domestic rooftops. To date, the capacity of these installations
typically ranges from 10kW to 250kW, but can be as large as 5MW, providing industrial users with a
substantial degree of self-generated power, thereby reducing their ongoing energy costs and, likewise,
reducing the UKs carbon footprint.
6
Business birth rates refer to the count of new enterprises set up in a given year, expressed as a proportion of the total stock of
enterprises in the economy or a specific industry. The power sector is defined along its Standard Industrial Classification (SIC)
code of 35: Electricity, gas, steam and air conditioning supply.

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Large-scale solar: sometimes referred to as ground-mounted or utility-scale developments, this

segment refers to large-scale solar farms which are mounted at ground level, rather than on a building.
These arrays do not typically provide power directly to end-users. Rather, the energy generated is
supplied to the grid. Large-scale arrays usually have a capacity of at least 1MW. However, most of the
UKs ground-mounted capacity consists of arrays of a much larger size (5MW+).
To date, the domestic and ground-mounted markets have seen impressive growth, with little deployment
seen within the larger rooftop market. The Solar Buzz data illustrated in Figure 5 below shows that only
around 3% of the UKs solar PV capacity falls within building-mounted arrays of 250kW+ size. However, it
is hoped that these larger building-mounted segments will see stronger growth in the coming years if a
more supportive policy framework is provided.
Figure 5: Breakdown of UK aggregate solar PV capacity, by installation size, June 2014
Ground-mount, 5MW+
35% 36% Ground-mount, <5MW
Building-mount, 1MW+
Building-mount, 250kW-1MW
Building-mount, 50-250kW
Building-mount, 10-50kW
8%
12%
6% Building-mount, <10kW
1% 2%
Source: NPD Solarbuzz
Each of the sub-markets described above is characterised by distinct costs, investors, and patterns of use.
But developers and installers across the sub-markets share common suppliers, from manufacturers of
components to providers of engineering services, which means that investment in one sub-market
stimulates the common supply chains of all sub-markets. In effect, this means that the industrial capacity
that is established in response to utility-scale investments is available for the development of commercial
and domestic rooftop installations, and vice versa. As such, investments in each sub-market stimulate
competition amongst suppliers to all three sub-markets, thus driving cost reductions and efficiencies
across the industry. With ground-mounted capacity representing 48% of total UK solar capacity at present,
it can be concluded that the rapid development of large-scale arrays has made a considerable contribution
to the cost reductions achieved thus far.
1.4 Scope of the study

While this study is concerned with the economic benefits of solar PV in general, the quantitative analysis
focusses primarily on the large-scale segment. The large-scale segment was the only sub-market where
sufficiently detailed and robust cost data were available, and the cost projections used as the basis of our
analysis were compiled by STA through a detailed survey of developer members. The survey polled current
experiences of, and future expectations for, the costs of components and services that make up a solar PV

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installation. Greater uncertainty around the cost projections for the commercial and domestic rooftop sub-
markets constrained our ability to quantify the economic impacts of these sub-markets.
Furthermore, the nature of power that is produced and consumed by the same agent acts as an additional
hurdle for the analysis of the economic contribution of power production in the domestic and commercial
rooftop sub-markets. Where a household or commercial business draws self-generated power from their
rooftop solar PV installation, the absence of a directly-observable market price for this output means its
value must be imputed from, for example, average residential or industrial prices. While these prices
could be assumed for analytical purposes, the absence of sufficiently reliable capital or operational
expenditure estimates meant that the costs (and therefore the net economic contributions) of this power
could not yet be robustly estimated.
But, to take account of the substantial employment contributions that could be supported through the
(comparatively more labour-intensive) domestic and commercial rooftop sub-markets, we do analyse the
potential jobs contributions of these sub-markets. These draw on estimated employment intensities
implied from the BRE National Solar Centres 2013 analysis of direct and indirect jobs in the UK solar
industry.
Other channels through which solar PV could make economic contributions to the UK economy are not
explicitly considered in this study. Some of these include:
Solar PVs potential to contribute to moderating the UKs dependence on imported fossil fuels. Recent
global developments have emphasised how political factors can adversely affect the price levels and
availability of such commodities. In addition, unforeseen currency movements can make the relative
costliness of imported fuels highly uncertain, further underscoring the difficulties of long-term
planning in the energy market. Solar PV does not require any fuel once installed, and so is immune to
these uncertainties.
Its potential contribution to reducing the UKs carbon emissions. The UK has binding emissions targets,
outlined at the beginning of this section, that will require extensive decarbonisation within the
electricity sector. Solar PV can act as a substantial contributor to this goal, providing large volumes of
emissions-free power through utility-scale arrays. In addition, domestic and commercial rooftop
installations reduce the demand for power drawn from the Grid.
Its nature as a complement to onshore and offshore wind power. These technologies are also expected
to play an important role in the UKs future energy mix. Having both solar and wind as part of a
diversified energy portfolio permits each technology to partially-offset the others natural variability,
smoothing their combined generation, and supporting security of supply and the matching of
electricity demand and supply within days and across seasons.
1.5 Structure of this report

This report focusses on the so-called standard economic impacts of large-scale solar PV. These standard
impacts are estimated for solar power investments on the one hand and, on the other, for the operation
and maintenance of solar installations in the production of solar energy. The economic indicators against
which these standard impacts are measured include gross value added (GVA) and contributions to UK
GDP, as well as contributions to employment.
For each of the two streams (solar investment and solar electricity generation), a set of direct and
multiplier impacts are estimated, where the multiplier impacts denote indirect (supply chain) and induced
(employee spending) impacts. This highlights the economic footprint of the solar industry in the UK

16
economy, and quantifies the extent to which the industry could become an important source of economic
benefit to the UK.
This report is structured as follows:
Section 2 sets out the methodology and assumptions underlying the analysis;
Section 3 presents the results of the study;
Appendix 1 presents further detail on welfare analysis.

17
2 Methodology and assumptions

This section of the report sets out the methodology and approaches utilised for the study.
2.1 Development of scenarios

In estimating the future economic contributions that the solar industry could make to the UK economy,
our starting point involved formulating a series of future deployment scenarios. These scenarios assume
different trajectories of solar PV capacity in the UK, based on relatively more or less aggressive deployment
pathways. The data in this section refer to the entirety of the UKs solar market, rather than focussing on
a specific sub-market.7
Although these scenarios draw upon DECC projections for some of their parameters, we note they do not
reflect forecasts by DECC or other Government agencies. Nor are they to be understood as predictions by
STA or by Cebr. Rather, the scenarios are assumptions-based and intended to illustrate the comparatively
greater gains to the UK economy which could be expected to result from varying degrees of solar PV
deployment.
The three main scenarios adopted for the study, and discussed throughout this report, are as follows:
Solar Strategy: The main parameters for this scenario are drawn from DECCs Solar PV Strategy
document, published in April 2014. It references Government scenarios in the Final EMR Delivery Plan,
which describe 10-12GW of solar PV deployment by 2020. The scenario adopted in this study assumes
the mid-point of this range (i.e., 11GW) is installed by 2020. Beyond this date, we assume that
deployment continues at a modest pace, with an additional 11GW installed during the following
decade, leading to 22GW of total solar PV capacity by 2030.
Ministerial Ambition: While the aforementioned Solar Strategy scenario is related to DECCs central
forecast, the same document also references a more ambitious target, that of 20GW of solar PV
capacity early in the next decade (described by the former Minister for Energy and Climate Change as
both desirable and achievable). We align this scenarios parameters to the solar industrys goal of
20GW of installed capacity by 2020. Further to this, we assume deployment continues apace beyond
this point, with a further 20GW added during the subsequent ten years, bringing total capacity to
40GW by 2030.
Bold Scenario: To further highlight the potential gains from solar PV deployment, we also present a
more aggressive scenario. This bold deployment schedule lying between the Level 3 and Level 4
scenarios adopted in DECCs 2050 Pathways analysis, and aligning to scenarios described by Bloomberg
and others implies 60GW of installed solar PV capacity by 2030. For the medium-term scenario
parameter, we assume 25 GW of this capacity is installed by 2020.
7
Our scenario figures for 2014 are estimates of end-year installed capacity. This builds upon NPD Solarbuzzs mid-year (June
2014) estimate of approximately 4.8 GW of capacity, which implies around 2GW of installations having taken place since the end
of 2013. In discussions with the STA, we conservatively assume 800 MW of capacity will be installed between that date and the
end of calendar year 2014.

18
Table 2 below sets out the 2020 and 2030 parameters for the scenarios discussed throughout this study.
For context, it also presents an equivalent number of homes for which this capacity could provide power
for a full year (using a ratio of 1,515 homes per 5MW of capacity).
Table 2: Scenario parameters, total installed solar PV capacity, MW
Equivalent number of homes

Installed Capacity (MW)
Scenario powered per year (millions)
2020 2030 2020 2030
Solar Strategy 11,000 22,000 3.3 6.7
Ministerial Ambition 20,000 40,000 6.1 12.1
Bold Scenario 25,000 60,000 7.6 18.2
Source: STA, Cebr
Figure 6 below sets out the annual deployment pathways implied by our scenario parameters. Due to the
constraints of the scenarios, the most conservative pathway Solar Strategy shows very modest capacity
additions in the years to 2020. Thereafter, deployment slowly accelerates, until capacity reaches the 22GW
level by 2030. Ministerial Ambition assumes a much more aggressive installation schedule in the decade
to 2020, with additions peaking in that year as the 20GW scenario constraint is reached. Thereafter, a
deceleration in the rate of annual installations is implied by the 40GW target for 2030. The Bold Scenario
follows a greater acceleration in the rate of deployment in the years to 2020, with only slight deceleration
in the following years, in order to reach the 60GW scenario parameter for 2030.
Figure 6: Annual solar PV installations (MW), by scenario, 2010-2030
4,500
Solar Strategy
4,000 Ministerial Ambition
Bold Scenario
3,500
3,000
2,500
MW
2,000
1,500
1,000
500
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Source: DECC, STA, Cebr analysis
We note that the more aggressive scenarios set out in this section may present technical challenges in
terms of their integration with the current energy market and the UK electricity grid. Increasing the
penetration of large-scale renewables in the UKs electricity mix requires overcoming such hurdles as the

19
development of a well-functioning capacity market, as well as undertaking investments in local grid

management. Longer term balancing mechanisms, such as interconnection and storage, will allow very
large levels of renewables penetration. National Grid states that it is currently able to accommodate just
10 GW of large-scale solar PV on its transmission network, but is developing several potential approaches
and solutions to connecting the greater capacities indicated in more ambitious projections. 8 Grid
availability is relevant to large-scale solar but most on-site solar installations meet power demand at or
near the point of use, and so is invisible to the transmission grid. Grid design is significantly more advanced
in other countries, and it is expected that the availability of daily and longer-term storage solutions will
enable very large proportions of solar PV integration both in the UK and abroad. For example, the USAs
Sunshot Vision study considers in detail the integration challenges of ambitious solar PV investment,
concluding that capacity to satisfy 27% of Americas electricity needs by 2050 could be accommodated.9
The economic impacts of the reforms and investments required to enable a large contribution of
renewables into the UK electricity mix, while undoubtedly substantial, are outside the scope of this study.
It should also be noted that as a decentralised technology connected to buildings and local electricity grids,
solar power can potentially offer further benefits through easing the burden of investment required in
National Grids transmission network. We acknowledge that the ambitious scenarios in this study will have
implications for such infrastructure. However, these measures will prove necessary under any future
scenario in which renewables account for a large proportion of the UKs electricity mix. Given the UKs
binding targets for reductions in fossil fuels emissions, these market reforms and infrastructure
investments will be required regardless of the exact role of solar PV in the UKs energy portfolio.
Similarly, the proliferation of decentralised power generation such as solar PV will also contribute to
reducing demand on the grid, as domestic and commercial roof installations provide power which is not
drawn from the grid, but rather generated locally and used directly. The implications for local grids having
to manage local electricity demand and supply are likewise outside of the scope of this study.
We note also that the supply chain dynamics required to realise our solar PV deployment scenarios will be
very different. For example, the Bold Scenario, featuring a rapid increase in demand for solar PV
installations throughout the period, would in all likelihood accelerate the maturing of the UK-based solar
PV supply chain. The sustained demand would promote competition across the solar PV sector,
incentivising R&D and investments in capacity, thus helping achieve cost reductions through learning
which may not materialise under a more conservative deployment pathway. However, we do not attempt
to quantify any resultant differences in cost across our scenarios: the cost projections presented in this
section, based on the latest available data from the STA, are assumed to be constant (these are set out in
Figure 8 and Table 3 below).
Scenario details for the large-scale sub-market

For the purposes of this study, our quantitative assessments of economic impacts are concerned with the
large-scale segment of the solar PV market. This means that, while the installed capacities in the scenarios
set out above pertain to all types of solar PV, we restrict our in-depth economic analysis to a sub-set of
this market.
NPD Solarbuzz figures show that around 48 per cent of the UKs solar capacity was in ground-mounted
arrays, as of mid-2014 (see Figure 5). Taking this proportion as our starting point, we assume that the
8
Solar PV: Options for integrating increased levels of solar PV generation, National Grid (2014), accessed via
http://www2.nationalgrid.com/UK/industry-information/future-of-energy/
9
Sunshot Vision Study, US Department of Energy (2012), accessed via http://energy.gov/eere/sunshot/sunshot-vision-study/

20
market share of large-scale arrays declines gradually. This is due to the expected future growth in the
commercial rooftop market. As such, a simple one-third split between each of the sub-markets is assumed
(in terms of total installed capacity) by 2030. The results of this segmentation are shown in Figure 7 below.
Figure 7: Total cumulative installed large-scale solar PV capacity, MW, 2014-30
25,000
Solar Strategy
Ministerial Ambition
20,000 Bold Scenario
15,000
MW
10,000
5,000
0
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Source: DECC, STA, NPD Solarbuzz, Cebr analysis
2.2 Investment analysis
Capex
This analysis explores how the significant investment expenditures involved in deploying large-scale solar
capacity can be expected to impact the UK economy. We consider how the manufacture and installation
of solar PV panels will provide a source of demand for suppliers and firms throughout the economy who,
in meeting the demands of these investment schedules, generate economic output (and thus a
contribution to GDP) and sustain employment.
The starting point in quantifying the economic benefits of these investments was an analysis of a detailed
breakdown of the costs of delivering these investments, received from the STA. These costs are illustrated
(for all solar sub-markets) in Figure 8 below.

21
Figure 8: Solar PV capital cost estimates, 000 per MW, 2014 prices 10
1,600
Domestic
1,400 Commercial rooftops
Large-scale
1,200
000 per MW
1,000
800
600
400
200
0
2014
2016
2020
2025
2030
Source: STA
These costs were used, along with information regarding the goods and services required to deliver these
solar PV investments, to establish the direct beneficiary industries of our investment scenarios, within
the Standard Industry Classification (SIC) scheme the classification through which the Office for National
Statistics (ONS) accounts for economic activity in the UK.
As our quantitative analysis focusses on the impacts of large-scale, ground-mounted solar farms, we utilise
a detailed breakdown of cost items for these types of projects, in order to apportion capital expenditures
to the relevant industry sectors. Table 3 below sets out the sectors to which these investments are
assumed to flow.
Table 3: Beneficiary industries of ground-mounted solar PV capital expenditures, average 2014-30
% of total
Capex cost item Beneficiary industry
capex
Panels Panels 35% Electrical equipment manufacturing
HV, LV & DC electrical works 9% Construction
Inverter supply 6% Electrical equipment manufacturing
Transformer supply 5% Electrical equipment manufacturing
Other HV, LV & DC equipment supply 5% Electrical equipment manufacturing
Balance of
System Fabricated metal products manufacturing;
Rack supply and installation 10%
repair & installation
Security system & installation 3% Repair & installation
Project management 2% Construction
Civil engineering 1% Construction
Developer Grid connection deposits 3% Repair & installation
fee Data processing <1% Information services activities
10
Domestic sector here refers to average per-MW costs for a typical 4kW installation. Commercial rooftops refers to average
costs for a 250kW installation. Large-scale refers to average costs for a typical 10MW array.

22
% of total
Capex cost item Beneficiary industry
capex
Engineering, technical & analysis Architectural, engineering, technical testing
1%
services and analysis activities
Other professional, scientific and Other professional, scientific and technical
1%
technical services activities
Payments to landowner <1% Real estate services
Planning & Land Registry Fees 4% Public administration
Grid costs 8% Repair & installation
Other Legal Services 4% Legal services
Financial Services 3% Financial services
Source: STA, Cebr analysis 11
However, it would be inappropriate to assume that the whole of these investment expenditures would
flow to domestic industries, stimulating economic output and sustaining employment within the UK.
This is because large-scale solar PV systems installed in the UK are currently produced by supply chains
which draw to an extent upon imported components. To take account of this, our analysis assumes that
panels, inverters and transformers are entirely imported in large-scale solar schemes. This simplifying
assumption in all likelihood understates the extent of UK content in large-scale installations, since the
larger inverter and panel manufacturers do have a significant presence of sales and support staff employed
in the UK.12 Expenditures related to project development and professional services, metals and mounting
equipment, and system installation are assumed to flow to UK industries. The resultant aggregate UK
content is estimated at around 45%.
A number of factors can influence these UK content ratios over time and between scenarios: for example,
under the more ambitious scenarios of UK solar installation, a domestic supply chain would proliferate and
reach maturity more rapidly. This would support cost reductions that, all else being equal, would improve
the availability and attractiveness of UK suppliers relative to international ones. However, the aggressive
deployment scenarios may also imply that a domestic supply chain reaches capacity constraints or
bottlenecks more rapidly. The resultant cost implications would incentivise a higher proportion of the
investments to be sourced from abroad. Due to the uncertainty regarding the relative importance of the
effects described above, in this study UK content ratios are assumed to be constant between scenarios,
though UK content is expected to increase over time (see Figure 10, which follows).
This UK content ratio is compared with estimates for two other technologies in Figure 9 below. While the
assumptions, methodologies and data underlying these estimates vary significantly, this comparison
illustrates that investments in large-scale solar PV can contribute a comparable share of economic activity
to the domestic economy as those of other generation technologies. This is in contrast to a common
misconception that the economic benefits of solar power investments must necessarily flow abroad, since
PV panels are largely sourced outside the UK.
11
Note that these capex percentages represent averages drawn from across the industry, and will vary substantially between
developments, as well as over time.
12
Building-integrated photovoltaic (BIPV) systems, currently a specialist product, feature a larger proportion of UK content. To
the extent that BIPV proliferation increases in the coming years, the UK content assumptions outlined in this study could prove
conservative.

23
Figure 9: Selected UK content ratio estimates for capital expenditures associated with energy technologies
50%
45% 44%
40%
31%
30%
20%
10%
0%
Large-scale solar Nuclear (2012) Offshore wind (2012)
(2014)
Source: STA, DECC, Cebr analysis. 13 14
Due to efficiencies driving projected cost reductions, as well as the changing relative costs of the various
components and services which make up solar PV developments, the overall UK content is expected to
rise over the period under analysis. We estimate that the UK content of large-scale solar PV stands at 45.0
per cent for projects initiated in 2014, rising to 56.8 per cent by 2030, driven by reductions in the costs of
imported components, particularly panels, which therefore account for a lower proportion of the total
investment value.
13
Nuclear Supply Chain Action Plan, DECC (2012), accessed at https://www.gov.uk/government/publications/nuclear-supply-
chain-action-plan. Nuclear in the chart above refers to the baseline UK value share of a 16GW build programme over the years
2012-30.
14
The macroeconomic benefits of investment in offshore wind, Cebr (2012). The ratio in the chart refers to estimated 2012
readiness of the UK supply chain for deploying Round 2 offshore wind farms. http://www.cebr.com/reports/economic-impact-
of-offshore-wind/

24
Figure 10: UK content of large-scale solar PV capital expenditures, for projects initiated in given year, % of total, 2014-2030
60%
56.8%
55.5%
55% 54.2%
50.8%
50%
45.0%
45%
40%
35%
2014
2016
2020
2025
2030
Direct and multiplier impacts

Once the size and time profile of the investments that accrue to UK industry are established, we are in a
position to integrate them within Cebrs economic impact models, allowing us to quantify the economic
contributions that would result from these deployment pathways.
Cebrs impact models are based upon the ONS supply-use and input-output tables, which are the most
detailed official account of the UK economy. These tables detail how sectors interact with other sectors,
with consumers and with international markets in producing the nations GDP and national income. We
assigned within these tables an explicit role for solar PV investments, matching the investment
expenditures with the components and services required to deliver those investments. This allowed us to
model the increase in productive activity within the industries supplying these components and services,
in terms of standard economic metrics such as output, gross value added (GVA, broadly comparable to
GDP)15 and employment.
Broader economic contributions occur through the multiplier process: the process whereby an initial
increase in the rate of spending brings about a more than proportionate increase in national income. We
15
GVA is a measure of the value from production in the national accounts, and can be thought of as the value of industrial
output (i.e. what is produced) less intermediate consumption (i.e. the goods and services used as inputs to produce it). GVA is
also known as income from production, and is distributed in three directions to employees, to shareholders and to
government. GVA is linked as a measurement to GDP both being a measure of economic output. That relationship is (GVA +
Taxes on products - Subsidies on products = GDP). Because data on taxes and subsidies on individual product categories are
only available at the whole economy level (rather than at the sectoral or regional level), GVA tends to be used for measuring
things like regional output, and the output of other entities that are smaller than the whole economy. GVA must be
distinguished from turnover measures, which capture the entire value of sales. By contrast, GVA captures the value added to a
set of inputs by a firm on their journey from raw materials to finished products. Thus, for example, the value added of a firm
that uses metals to fabricate basic structures is equal to the price that it sells the structure for, minus the cost of the metals used
as inputs. Similarly, the value added of a solar array rack manufacturer, that builds a rack from these metal structures, is equal
to the price that it sells the rack for, minus the cost of the structures used as inputs. The concept of added value avoids double
counting when estimating the size of economic activities.

25
use input-output analysis to quantify these effects, drawing upon the Leontief inverse matrix, which shows
the inter-industry dependencies of an economy. Through isolating the appropriate portions of the sectors
serving solar PV investments as a discrete industry within this matrix, we were able to ascertain the
resources which solar PV suppliers draw upon from other sectors of the economy, in order to serve a given
investment schedule.
Employment and jobs impacts

Due to the fast-moving state of the solar industry and its supply chain, there is a shortage of robust data
regarding employment within the sector. This is related to the fact that renewable industries are not
currently disaggregated under the SIC 2007 system through which the UKs official employment statistics
are compiled.
We estimate the current and future employment which solar PV deployment could contribute to the UK
economy through the input-output modelling approach described previously. This approach uses official
data on the structure and productivity of industries defined under the SIC 2007 framework, in order to
quantify the employment associated with given levels of economic activity within these industries. We
assigned the capital expenditures implied by solar deployment to the relevant industries within the
modelling framework, thereafter quantifying the employment supported by these levels of output. We
also calculate the indirect jobs supported elsewhere in the economy through multiplier effects using the
input-output modelling approach described above.
While consistent with official data, this methodology nevertheless has several limitations. For example,
the approach assumes that there are no structural differences in productivity or labour-intensity between
firms in the solar supply chain, and the broader industries of which they are a part (as defined under the
SIC system). While this may not be the case, given the lack of detailed analysis regarding such structural
features of renewables industries, we do not undertake adjustments in lieu of these potential differences.
However, in recognition of these limitations, we also sought to generate alternative jobs estimates.
To this end, we drew upon data from the BRE National Solar Centre, which recently carried out a
comprehensive employment survey of the UK solar industry on behalf of DECC. 16 They estimate that
14,000 full-time equivalent (FTE) direct and indirect jobs were supported in the UKs solar sector during
2013, reflecting a jobs intensity of around 20 FTEs/MW for rooftop installations, and 7 FTEs/MW for large-
scale solar farms. We apply these ratios to the deployment scenarios detailed in Section 2.1, comparing
them to the estimates outputted from our investment impact modelling.
For these projections, we also assume that the employment associated with each MW of installed capacity
will fall gradually, reflecting Cebrs forecast for rising output per worker across the economy. Through this
estimation procedure, by 2030 our assumption is that the jobs supported by large-scale solar farm
installations will fall to around 5.6 FTEs/MW, with the equivalent figure for rooftop installations reaching
16 FTEs/MW. While the future path of productivity growth is highly uncertain, especially for a very
technically-specialised sector such as solar PV, this process is intended only to take account of the fact that
the labour-intensity of solar investments would not remain static over time.
It could also be expected that there would be substantial differences in productivity growth between our
scenarios. More aggressive deployment trajectories would incentivise relatively more R&D, investments
in capacity, and innovation at all stages of the solar supply chain. Thus in all likelihood, the jobs supported
16
BRE National Solar Centre, Job growth in the solar sector (2014); accessed via http://www.bre.co.uk/news/BRE-National-
Solar-Centre-measures-job-growth-in-the-solar-sector-965.html

26
per MW of installed capacity would be comparatively lower in the Bold Scenario than in the Solar Strategy
trajectory. However, due to the uncertainty around such dynamics we have not attempted to model
differences in productivity between scenarios.
Opex
The starting point for this analysis was again a detailed cost breakdown of the operational expenditures
associated with solar PV deployment. These gross cost estimates are set out in Figure 11 below.
Figure 11: Large-scale solar PV operational cost estimates, for projects initiated in given year, 000 per MW, 2014 prices
30
25.6
24.3
25
21.0
19.8
20 18.8
000/MW
15
10
0
2014
2016
2020
2025
2030
As with capital costs, in order to trace the economic impacts of these expenditures, it was necessary to
match the cost items with specific sectors or areas of the economy to which these expenditures would
flow. Table 4 below shows this breakdown.
Table 4: Cost breakdown of large-scale solar PV operational expenditures, average 2014-30, 2014 prices
% of total
Opex cost item Beneficiary industry
opex
Technical O&M contract 43% Repair & maintenance
Site security 5% Security systems service activities
Purchase of electricity 3% Electric power generation, transmission and distribution
Business rates 10% --
Insurance 7% Insurance
Administration & contingency 4% Administrative and support services
Land lease 21% Agriculture
Community benefit 5% Social care services
Metering and communication 2% Electric power generation, transmission and distribution
We note that all operational expenditures discussed in this analysis, excluding the costs of replacing an
inverter once during the lifetime of the array, are assumed to flow to UK suppliers or sectors. This is due

27
to the impracticality of sourcing such operational services from abroad. The near-total UK content in opex
means that the overall UK content in expenditures associated with solar PV deployment are higher than
the capex-only ratios presented in Figure 9 and Figure 10 above. By adding the expenditures associated
with installation to those of a 25-year opex schedule, the overall UK content of solar PV investments can
be derived. These are presented in Figure 12 below.
Figure 12: Overall lifetime UK content of large-scale solar PV investments (capex + opex), for projects initiated in given year,
% of total, 2014-2030
75%
71.1%
69.6% 70.1%
70% 68.1%
65%
62.0%
60%
55%
50%
45%
2014
2016
2020
2025
2030
However, the day-to-day expenditures associated with operating large-scale PV arrays are not by
themselves sufficient to quantify the potential economic contributions of the three given scenarios of
deployment. For this, we must also ascertain the monetary value of the electricity output from these large-
scale systems that is, estimates of the revenue which could be expected to be accrued by the UKs solar
farm generators. The methodology for this is explored in the following section.
2.3 The contribution of large-scale solar PV to UK electricity generation

To value the output of the UKs solar installations, our starting point was DECCs electricity price
projections, as updated and published in September 2013.17 The potential for subsidy-free solar to reduce
wholesale and retail electricity prices is not covered by this report.
17
DECC publishes several price projections, which are based upon various underlying assumptions regarding the costs of fossil
fuels, economic growth in both the UK and abroad, and the effect of government policies on price trends. The Reference
scenario presented in this report is based on DECCs central estimates of fuel prices and economic growth, also taking into
account all agreed policies where impacts upon prices can be modelled in a sufficiently robust manner.

28
Figure 13: Wholesale, industrial and residential electricity prices, reference scenario, p/kWh, 2014 prices 18
25
Wholesale Residential Industrial
20
15
p/kWh
10
0
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Source: DECC
These projections provide the starting point from which we value the estimated power output of large-
scale solar PV installations in each of our three scenarios. However, wholesale prices are not the only
determining influence on the value of electricity output from large-scale solar arrays. The unit prices
accrued by solar farms in future will also be affected by strike prices fixed price levels, established by
long-term (15-year) contracts, which are intended to provide certainty for generators and thereby
incentivise investment in low-carbon generation. As such, generators who sign these Contracts for
Difference (CfDs) will receive this fixed price, limiting their exposure to price volatility in the wholesale
energy market.
Hence, in valuing the revenue accrued by large-scale solar PV generators for their electricity output in the
coming years, we have utilised strike prices as provided to us by STA. These are set out in Figure 14 below.
Beyond the 2025/26 time horizon, we assume that generators accrue the wholesale price for electricity
(at price levels indicated in DECCs projections, illustrated in Figure 13 above).
18
Accessed via https://www.gov.uk/government/publications/updated-energy-and-emissions-projections-2013

29
Figure 14: Assumed strike prices for large-scale solar PV generators, /MWh, 2014 prices 19
140 132
125
120 108
99
100 94 90 87 83 79
/MWh
77 74
80 72
60
40
20
Source: STA
Having established the operating costs per MW of large-scale solar PV installations, as well as the expected
market value of the electricity they generate, the final step was to estimate the power output of the large-
scale solar installations in our scenarios. To do this, we utilised a constant load factor of 11 per cent.20 We
were then in a position to quantify the economic benefits which could be accrued from the various levels
of large-scale solar electricity generation implied by our three scenarios.
Direct and multiplier impacts

In quantifying the economic contribution of operational large-scale solar PV generators, we first estimate
the value of its output through the steps set out above: that is, total large-scale capacity is taken, along
with its load factor, and multiplied by strike (or, where appropriate, wholesale) prices to obtain a monetary
measure of the output of the industry. From these industrial output measures are subtracted the
intermediate costs of producing this electricity, as detailed in the opex discussion in Section 2.2. This
results in an estimate for the direct gross value added which is contributed to the UK economy through
large-scale solar PV arrays production of electricity.21
This direct GVA contribution will also be accompanied by GVA multiplier impacts. These describe the
additional economic value generated along the large-scale solar PV industrys supply chain. For example,
the operational expenditures associated with each arrays O&M contract will support further GVA among
the businesses who maintain the arrays, while expenditures on security contracts will likewise support
additional GVA among the firms which monitor these security systems. The multiplier analysis also
captures the supply chain activities of these businesses, which contributes further GVA among the
industries from which they source their own inputs. These multiplier impacts are estimated using input-
output modelling.
19
These strike prices are estimated by the STA based on the cost analysis described earlier in this section, CfD contract lifetime
and additional input assumptions such as PPA agreements.
20
Electricity Generation Costs December 2013, DECC (2013). Load factors describe the ratio of average electricity output to
maximum possible output.
21
See Footnote 15 for a conceptual overview of gross value added (GVA).

30
2.4 Electricity user benefits

The estimation of user benefits is based on conventional consumer theory, where consumer surplus is
defined as the benefit that a consumer enjoys from a purchase in excess of the cost incurred when making
that purchase. This is essentially concerned with the welfare implications associated with the transfer
between the providers and the users of electricity when circumstances change, such as a fall in the price
of electricity paid by households or by businesses.
Increasing levels of investment in solar PV will, over time, exert downward pressure on the costs associated
with generating solar energy. While, in the short term, the monetary costs of renewable generation are
higher than established methods of fossil fuel-powered generation, over the longer term, the difference
between these costs is expected to narrow significantly. These savings can in turn be expected, at least in
a competitive economy, to be passed on to users through lower electricity prices.
The reference to consumer surplus can be misleading in this context as the population of electricity users
includes not only households (with whom we normally associate consumption), but the entire productive
economy that relies on electricity as an essential input to produce just about any product or provide just
about any service. Lower prices for electricity users results in lower household bills but also lower costs of
production for everything else. And in a competitive economy, such cost savings get passed through to
consumers in the form of lower prices for all goods and services that rely on electricity for their production.
Therefore, consumers should be the ultimate beneficiaries, even though the savings may be reflected in
the general level of prices of all goods and services and not just in the price of electricity. In addition,
reductions in the aggregate cost of subsidy would reduce the burden on government finances. This could
in turn allow these savings to be passed through to both households and businesses, in the form of lower
aggregate taxation.
Substituting user for consumer is useful and working under the framework just outlined facilitates the
use of a methodology based on the concept of consumer surplus to measure the benefits to all electricity
users, under the assumption that this is the total that could eventually get passed through to final
consumers, either through lower household bills, lower prices for all the other goods and services that are
reliant on electricity to be produced and provided, or lower taxes.
Returning to traditional theory, we can use it define user surplus as the benefit an electricity user enjoys
from the use of electricity in excess of the cost incurred in making that purchase. This benefit is based, in
traditional consumer theory, on the concept of utility, this being a measure of usefulness or the ability of
something to satisfy needs and wants. But concepts like satisfaction cannot be measured directly and, to
get around this problem, economists tend to think of utility as being revealed in peoples willingness to
pay different amounts for different goods and services. The precise methodology used to calculate user
surplus is outlined within Appendix 1.

31
3 Potential economic contribution of investments

in solar PV
This section presents the findings of our study.
3.1 Contribution of large-scale solar to GDP
GVA contribution of large-scale solar PV capital investments

Throughout the time profile of investments set out in Figure 6, the development, construction and
installation of large-scale solar PV capacity will generate direct and multiplier gross value added (GVA)
impacts. We begin by setting out direct GVA impacts, a summary of which is presented in Table 5 below.
Table 5: Potential direct GVA impacts of large-scale solar PV investments, by scenario and selected years, m, 2014 prices
Solar Strategy Ministerial Ambition Bold Scenario

2014 279.6m 279.6m 279.6m
2016 85.3m 165.1m 218.4m
2020 30.0m 185.8m 270.6m
2025 49.1m 82.3m 165.3m
2030 43.3m 33.8m 90.6m
Cumulative direct
1,119m 2,206m 3,382m
GVA, 2014-30
Source: ONS, STA, Cebr analysis
Since the value generated through these investments is dependent upon the installation schedule, these
impacts can be understood to rise and fall in line with the rates of large-scale solar PV deployment inherent
in each scenario.
However, taken in aggregate, our modelling suggests that even the most conservative deployment
scenario would result in a cumulative direct GVA contribution of 1.1 billion, measured in 2014 prices;
which rises to over 2.2 billion under the Ministerial Ambition scenario, and to 3.4 billion under the Bold
Scenario.
Yet these impacts do not take account of the additional economic activity along the supply chains of the
large-scale solar sector, or of the impacts which would be expected to result from these suppliers
employees spending their income in the wider economy. Our input-output modelling suggests that a
substantial degree of further GVA would be generated through the multiplier process: this GVA multiplier
of 2.39 is detailed in Figure 15 below.

32
Figure 15: GVA multiplier for large-scale solar PV investments
Therefore, taking into account the indirect and induced multiplier impacts of these investment
programmes, the total GVA contributions are as set out in Table 6 below.
Table 6: Potential GVA impacts of large-scale solar PV investments, by scenario, cumulative 2014-30, m, 2014 prices

Direct GVA 1,119m 2,206m 3,382m
Total GVA 2,668m 5,269m 8,089m
Total GVA (annual
157.0m 309.9m 475.8m
average 2014-30)
Source: ONS, STA, Cebr analysis. Note that total GVA in this table refers to the total (including multiplier) GVA contributions of
large-scale solar PV investments, but exclude the potential GVA contributions of large-scale solar PV power generation. These are
examined in the following section.
The Solar Strategy scenario, which in our study assumes around 6.7 GW of installed large-scale solar PV
capacity by 2030 (representing an increase of around 170% relative to 2014), could be expected to
contribute a GVA impact of 2.7 billion in the period 2014-30. This is equivalent to around 157 million
per year over the course of the scenario.
The Ministerial Ambition scenario, which implies around 13.3GW of large-scale solar capacity by 2030,
would result in a GVA contribution of 5.3 billion, representing an annual contribution of around 310
million.
For the Bold Scenario, which implies total large-scale PV capacity of 20GW in 2030, the GVA impact would
be approximately 8.1 billion. This amounts to 476 million per year on average.

33
GVA contributions of electricity generated by large-scale solar PV

The production of electricity by large-scale solar PV generators also results in GVA impacts, contributing
towards GDP. The GVA impacts set out in this section can be understood as the accrued value of electricity
output, less the operational costs of maintaining and running the solar PV installations. Since the nature
of solar PV generation means that no purchased fuel inputs are required in order to produce electricity,
there is a relatively high proportion of value-added in each unit of solar PV electricity output. Across our
three scenarios, the average GVA/output ratio of solar PV generation is estimated to be 75 per cent this
is compared to just 17 per cent for the present-day electricity generation sector as a whole (2011 data).
Table 7 below sets out our scenario estimates for the direct GVA which would be contributed by large-
scale solar PV generators, installed during the period under analysis.
Table 7: Potential direct GVA impacts of large-scale solar PV electricity generation, by scenario and selected years, m, 2014
prices

2014 113m 113m 113m
2016 231m 286m 319m
2020 281m 561m 717m
2025 342m 742m 1,039m
2030 303m 687m 1,080m
Cumulative
4,932m 9,623m 13,125m
total 2014-30
The economic contributions made through the production of electricity, rather than being linked to the
rate of annual installations, are driven by the total installed large-scale solar PV capacity. As such, the
annual GVA contributions rise through each of our scenarios, albeit at a different pace. However, in the
final years of the period under analysis, the expiry of Contracts for Difference (CfDs) entered into during
the 2014-15 period leads to a slight fall in the aggregate value of large-scale solar PV electricity output.
This, in turn, reduces the annual GVA impact slightly. This effect is less pronounced in the Bold Scenario,
where the aggressive installation profile means that the value of electricity output from new installations
offsets some of the downward effect caused by the expiration of fixed-price agreements.
Our modelling suggests that the Solar Strategy scenario could, over the years 2014-30, contribute over
4.9 billion in direct GVA from power generation to the UK economy. The Ministerial Ambition scenario
would result in a cumulative GVA contribution of 9.6 billion from power generation, with the equivalent
figure for the Bold Scenario amounting to over 13.1 billion.
However, as with the capital investments, the generation of this electricity also produces multiplier
impacts. These are explained in Figure 16 below.

34
Figure 16: GVA multiplier for large-scale solar PV electricity generation
Since there is a very high GVA content in solar PV output, this has the effect of producing relatively lower
multiplier impacts for solar PV electricity generation, with the average Type II GVA multiplier across the
three scenarios amounting to just 1.34. This low multiplier is due to the fact that for each unit of GVA
contributed by solar PV installations, relatively fewer resources are drawn in from other sectors in the
economy as inputs to its production. This means that the supply chain impacts for its operational activities
are comparatively small, and as such relatively less GVA is generated elsewhere, for each 1 of GVA
contributed by solar PV-generated electricity.
Table 8 below sets out our estimates for total GVA impacts, taking into account indirect and induced
multiplier effects.
Table 8: Potential aggregate GVA impacts of large-scale solar PV electricity generation, by scenario, 2014-30, m, 2014 prices

Direct GVA 4,932m 9,623m 13,125m
Total GVA 6,832m 12,888m 17,450m
Total GVA (annual
401.9m 758.1m 1,026.5m
average 2014-30)
Source: DECC, ONS, STA, Cebr analysis. Note that total GVA in this table refers to the total (including multiplier) GVA
contributions of solar PV generation, but exclude the potential GVA contributions of large-scale solar PV capital investments.
These are examined in the preceding section.
Including multiplier impacts, the Solar Strategy scenario could be expected to see large-scale solar PV
electricity generation contributing an annual average of around 402 million in total GVA; amounting to a
cumulative contribution over the period 2014-30 of 6.8 billion (measured in 2014 prices). In the case of

35
the Ministerial Ambition scenario, the average annual impact amounts to 758 million, with the
cumulative contribution over this timeframe reaching 12.9 billion. The Bold Scenario would see an
average annual GVA contribution, including multiplier impacts, of 1.0 billion. This is equivalent to a
cumulative impact of 17.5 billion over the years 2014-30.
Figure 17: Total annual GVA contributions of large-scale solar PV electricity generation, m, 2014 prices
1,600
Solar Strategy
1,400
Bold Deployment
1,200 Ambitious Scenario
1,000
800
600
400
200
0
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Source: DECC, ONS, STA, Cebr analysis. Note that total GVA in this chart refers to the total (including multiplier) GVA
contributions of solar PV generation, but exclude the potential GVA contributions of large-scale solar PV capital investments.
Aggregate GVA contributions of large-scale solar PV, by scenario

To summarise the above two strands of analysis, we present here the potential combined GVA impacts
implied by our scenarios, through both investments in large-scale solar PV (set out in the investments
column in Table 9 below) as well as the electricity generated by large-scale solar arrays (denoted by
generation in the below table).
Table 9: Potential total GVA contributions of large-scale solar PV, 2014-30, by scenario, m (2014 prices)
Scenario Investments Generation Total

Solar Strategy 2,668m 6,832m 9,501m
Ministerial Ambition 5,269m 12,888m 18,157m
Bold Scenario 8,089m 17,450m 25,540m
Source: ONS, STA, Cebr analysis.
This demonstrates the GVA contribution to the UK economy of large-scale solar PV would reach at least
9.5 billion under the most conservative scenario (Solar Strategy) which we have modelled. The central
Ministerial Ambition scenario would result in an estimated 18.2 billion in cumulative GVA, while the most
aggressive deployment scenario (Bold) could yield 25.6 billion. (All these estimates include indirect and
induced multiplier impacts, and are expressed in 2014 prices).

36
GDP contributions of solar PV electricity generation

As explained in footnote 14, while gross value added (GVA) is related to gross domestic product (GDP), in
order to fully appraise the impacts of productive activity upon GDP, it is also necessary to take into account
the taxes and subsidies levied on the good or service which is produced.
In the case of large-scale solar PV, the electricity output generated by these large-scale arrays accrues a
subsidy through the contract for difference (CfD) framework. Under this system, a government
counterparty pays the solar generator, for each unit of power output, the difference between the strike
price (taken in our modelling as per the STA estimates set out in Figure 14) and a given reference price
(taken in our modelling to be DECCs projection for the wholesale price). This is a subsidy on large-scale
solar PV electricity output, which must first be subtracted from its GVA contribution. Second, the indirect
taxes which are generated through the charging of VAT on the supply of the product (in this case,
wholesale electricity) must also be added, to estimate its GDP contribution. Figure 18 below disaggregates,
for the Ministerial Ambition scenario, the proportions of gross turnover (including VAT) accrued by large-
scale solar PV generators, which are paid by the purchaser (in practise, likely to be energy companies or
traders), and that which is paid by government counterparty through the subsidy framework.
Figure 18: Disaggregation of large-scale solar PV output into purchasers price and subsidy, Ministerial Ambition scenario,
2014-30, m, 2014 prices
1,400
CfD subsidy
1,200
Purchasers' price (net of subsidy)
1,000
800
600
400
200
0
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Source: ONS, DECC, STA, Cebr analysis
The blue segment of the graph, representing the monetary sums contributed by the subsidy scheme and
its legacy costs, comprise an estimated 50% of turnover accrued by large-scale solar PV generators in 2014;
falling to just 10% by 2030. The sharp decline in this segment during the final years of our analysis reflects
the expiry of CfDs entered into during the 2014-15 timeframe.
Once this subsidy is subtracted from the GVA contributions of large-scale solar PVs electricity generation,
the accrued VAT must be added in order to estimate the equivalent GDP contributions. This is illustrated
in Figure 19 below, which sets out the two measures (the difference between them being the magnitude
of subsidy and VAT). The two measures converge toward the end of the period as the proportion of GVA
accounted for by subsidy diminishes. By the end of the forecast period, GDP is estimated to rise above
GVA as the value of VAT paid on the electricity exceeds the subsidy accrued for its production.

37
Figure 19: Direct GVA and GDP contributions of large-scale solar PV electricity generation, Ministerial Ambition scenario, m,
2014 prices
900
GVA
800
GDP
700
600
500
400
300
200
100
0
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Source: ONS, DECC, STA, Cebr analysis
Repeating this calculation for each scenario results in the following estimated GDP contributions:
Table 10: Cumulative direct GVA and GDP contributions of large-scale solar PV electricity generation, 2014-30, m, 2014
prices
Direct GVA 4,932m 9,623m 13,125m
Direct GDP 3,856m 8,350m 11,946m
GDP/GVA Ratio 78.2% 86.8% 91.0%
3.2 Contribution of large-scale solar to employment
Large-scale solar PV capital investments

The level of economic activity implied by the investment scenarios would support thousands of jobs
across the years under analysis.

38
Table 11 below sets out our estimates for the direct employment impacts of the deployment scenarios,
measured in FTE-years, where 1 FTE-year represents the employment of one full-time equivalent
employee for a single year.

39
Table 11: Potential direct employment impacts of large-scale solar PV investments, by scenario, 2014-30, FTE-years

2014 5,100 5,100 5,100
2016 1,600 3,100 4,100
2020 600 3,500 5,100
2025 900 1,600 3,100
2030 800 600 1,700
Cumulative total
21,000 41,500 63,800
2014-30
The direct employment totals refer to the jobs supported in the companies and industries supplying the
components and services which make up solar PV investments. However, as with the GVA impacts
discussed previously, there will also be indirect and induced multiplier effects, stemming from the
employment supported along the supply chains of these firms as a result of demand for solar PV
investments; as well as in the industries that produce the goods and services on which these employees
spend of their incomes in the wider economy. These multiplier impacts are outlined within Figure 20 below.
Figure 20: Employment multiplier for large-scale solar PV investments
Source: Cebr analysis
Adopting these employment multipliers, in combination with our direct employment estimates, as set out
above, we arrive at total employment impacts as set out in Table 12 below.

40
Table 12: Potential total employment impacts of large-scale solar PV investments, by scenario, cumulative 2014-30, FTE-years

Direct Employment 21,000 41,500 63,800
Total Employment 48,900 96,700 148,800
Annual average total
2,900 5,700 8,800
employment
Across the years 2014-30, our baseline modelling estimates show that the Solar Strategy scenario could
support the employment of 2,900 FTEs per year on average; taking into account both indirect and induced
multiplier impacts. The Ministerial Ambition scenario could support 5,700 FTEs per year on average
across those years; with the equivalent figure for the Bold Scenario amounting to 8,800 FTEs.
These sums represent the estimates produced through Cebrs economic impact models, as adapted to
evaluate the impacts of solar PV investments. However, as detailed in Section 2.2, we also produce
estimates drawing upon analysis by the BRE National Solar Centre, which surveyed the jobs impacts of the
entire UK solar sector in 2013.
Their study quantified the direct and indirect (but not induced) employment impacts of the UKs solar
sector: this means that their estimates encompass the first two elements of the multiplier set out in Figure
20. After applying the equivalent multiplier from our modelling (known as a Type I multiplier) to our direct
jobs impacts drawn from the Ministerial Ambition scenario, we arrive at jobs projections as shown in Figure
21 below.
Figure 21: Direct and indirect employment impacts for Ministerial Ambition scenario, 2014-30, FTEs
10,000
Cebr baseline model
9,000
BRE NSC jobs intensities
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Source: ONS, STA, BRE NSC, Cebr analysis
The differences between these estimates are small: those which utilise the BRE NSCs jobs intensities are
on average just 6 per cent higher than those utilising Cebrs baseline impact models. This is likely due to
the fact that the baseline models draw upon data regarding the structural characteristics of industries

41
which are defined under the SIC system. As noted in the methodological overview, the renewables
industries in general are not defined explicitly under the SIC framework, much less the solar PV sector in
particular. Therefore our modelled estimates draw upon, for example, the labour intensity of the wider
repairs and installation sector to estimate how many solar PV installers have their employment supported
through a given level of investment. The consistently higher estimates resulting from BRE NSCs labour
intensity data suggest that the large-scale solar PV industry is slightly more labour-intensive than the
broader SIC sectors of which it forms a part.
3.3 Employment impacts of domestic and rooftop solar PV

An examination of the employment contributions of investment in solar PV would be incomplete without
reference to the domestic and commercial rooftop sub-markets. Installations on rooftops are
characterised by much greater labour intensity than is seen in ground-mounted developments, due to the
technical complexity of installations on pre-existing structures. As such, more employment is supported in
these sub-markets per MW of installed capacity. Due to this, and the fact that in practice, many solar
industry employees engage in both activities, we also estimate the potential employment which the
investments in our scenarios could sustain in these markets.
Our scenarios assume that the domestic and commercial rooftop sub-markets will, by 2030, each account
for exactly a third of total installed capacity. Aligning this assumption with our scenario parameters as set
out in Section 2.1, results in the following assumed deployment pathways:
Table 13: Assumed total solar PV deployment within domestic and commercial rooftop sub-markets, by scenario and selected
year, MW

Domestic Commercial Domestic Commercial Domestic Commercial
2014 1,900 1,000 1,900 1,000 1,900 1,000
2016 2,900 1,600 3,400 1,900 3,600 2,000
2020 3,700 2,600 6,800 4,700 8,500 5,800
2025 5,200 4,400 10,500 8,900 14,700 12,400
2030 7,300 7,300 13,300 13,300 20,000 20,000
Source: STA, NPD Solarbuzz, Cebr analysis
As outlined in Section 2.2, we utilise employment intensities as implied by the National Solar Centres 2013
study of jobs in the UK solar industry. These are estimated at 20.0 direct and indirect FTEs per MW of
installation among the domestic and industrial rooftop sub-markets. Together with a productivity
assumption, this results in an estimate of 16.1 FTEs/MW by 2030. This results in employment estimates as
set out in Table 14 below.

42
Table 14: Direct and indirect jobs supported in domestic and commercial rooftop sub-markets, 2014-2030, FTE-years

2014 28,800 28,800 28,800
2016 12,800 22,200 28,500
2020 8,500 33,300 46,900
2025 14,200 26,000 44,200
2030 17,500 23,500 42,700
Total 2014-30 237,300 455,600 690,000
Annual average total
14,000 26,800 40,600
employment
Source: BRE NSC, STA, NPD Solarbuzz, Cebr analysis
This analysis clearly highlights the potential employment contributions that the more aggressive
deployment scenarios could make to the UK economy. The rooftop sub-markets, being much more jobs
rich than the large-scale element of the industry, could support thousands of FTEs over and above the
employment contributions estimated in Section 0 above.22
3.4 Electricity user benefits of large-scale solar PV

Based on the methodology outlined in Section 2.4, and the Appendix and the worked example in the latter,
we generated estimates of the benefits to electricity users of solar PV energy. These are set out in Figure
22 below, and reflect our estimates of the value of areas B and C in diagram in the Appendix of this
document. These electricity user benefits represent the total increase in consumer surplus that could be
passed through to households in the form of lower bills, lower prices for the goods and services that rely
on electricity for their production, or a lower tax burden as the cost of subsidy declines.
Figure 22 shows the annual increases in electricity user benefits (consumer surplus) relative to 2014 levels
resulting from the future roll-out and costs of large-scale solar PV under our three scenarios. Under each
scenario, consumer surplus is expected to increase for solar power users, driven by the falling price paid
for large-scale solar PV-generated energy.
22
We note that these employment estimates are not directly comparable with the ones in the prior section. This is because they
include the direct and indirect elements of estimated multiplier impacts, but exclude induced impacts.

43
Figure 22: Increase in consumer (user) surplus relative to 2014 from large-scale solar, by scenario, m, 2014 prices
450
Solar Strategy
400 Ministerial Ambition
Bold Scenario
350
300
250
200
150
100
50
0
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Source: DECC, STA, Cebr analysis
The greatest increase would be expected under the Bold Scenario, which by 2030 would result in an
increase in consumer surplus of around 425 million, as the prices at which solar power is supplied to
users falls and the quantity supplied increases. By comparison, under the Ministerial Ambition and Solar
Strategy scenarios, user surplus rises by 287 million and 213 million, respectively, as a result of the large-
scale solar element of solar electricity supply.
Under each of the scenarios, a significant increase in the magnitude of consumer surplus increases is
expected over the years 2028-30. This is due to an expected decrease in the average price paid for large-
scale solar PV energy, driven by the expiry of contracts for difference (CfDs) entered into during the 2014-
15 timeframe.
As already noted, the manner in which these benefits will in practice reach consumers will vary from
household electricity bill reductions, to reduced prices for the goods and services that rely on electricity
for their production, or a reduced tax burden as the subsidy support for solar PV abates. Neither are they
likely to be spread equally amongst all consumers or households. However, to understand these benefits
better, it is useful to imagine what the average reduction in household electricity bills would be if they
were passed on through electricity bills and spread equally amongst all households.
For example, the Department for Communities and Local Government (DCLG) provide estimates of and
forecasts for the number of households in the UK for the years to 2021.23 Extending DCLGs estimates to
the end of our forecast period in a linear fashion leads to an estimate of 31.6 million households by 2030.
On this basis, the increase in consumer surplus of 425 million under large-scale solar deployment within
the Bold Scenario would be equivalent to an annual average reduction in household electricity bills of
over 13.40 by 2030. Under the Solar Strategy and Ministerial Ambition scenarios, this figure would be
estimated at over 6.70 and 9.08, respectively, as a result of investments in large-scale solar PV.
23
See https://www.gov.uk/government/statistical-data-sets/live-tables-on-household-projections

44
Conclusions
The scenarios modelled in this study seek to demonstrate the potential economic benefits of investments
in solar PV. Large-scale solar PV arrays deliver substantial output at low input cost, providing value to the
UK economy, and deployments of all scales sustain employment across the nation. The conservative Solar
Strategy scenario could contribute 9.5 billion in cumulative GVA and support 2,900 full-time annual jobs
on average over the years to 2030, while the more ambitious scenario could generate 25.6 billion in GVA,
supporting 8,800 full-time jobs on average.
Aside from these GVA and employment benefits, the industry supports a high rate of SME creation while
the general economys business birth rate remains subdued by historic standards. In an energy market
characterised by a few large providers, large-scale solar PV is also a key driver of the creation of thousands
of local electricity generators, supplying decentralised power and thereby easing demand upon the UKs
transmission networks.
This diversification of energy sources at a local level is pertinent at a time when geopolitical developments
underline the risks associated with the extent of the UKs dependence on imported fossil fuels. With the
North Sea resource depleting, the finances of UK industry and households will become ever-more exposed
to volatile imported commodities.
In addition, volatile fuel prices are indicative of an ever-more challenging energy policy landscape. In
seeking to optimise an energy portfolio in the face of such uncertainty, the incremental nature of solar PV
development offers additional benefits. For example, a requirement for 10 TWh of power generation
would, in the case of lumpy plant investments (such as gas or nuclear), involve many years of lead-time,
substantial upfront investment and irretrievable sunk costs. By contrast, utility-scale solar PV can be
deployed at similarly large scale yet in an incremental manner, permitting greater flexibility in the event
of unforeseen economic or policy circumstances.
These difficulties in planning during uncertainty can be illustrated by DECCs own cost estimates for solar
PV, which are significantly higher than the most recent industry estimates. As set out in Box 1, the STAs
calculation of large-scale solar PVs levelised cost of electricity (LCOE), based on a recently-conducted
survey of developers from across the industry, show a LCOE which is both lower than DECCs current
estimates and also projected to fall more quickly in future.
This report shows that a rapidly-expanding solar PV industry, having effectively begun from zero four years
ago, could benefit from a relatively short period of stable fiscal support to achieve significant cost
reductions. This would in turn enable extensive contributions to the UK economy, whilst also making
important contributions to security of supply, and the better balancing of demand for and supply of
electricity.

45
Appendix 1: Consumer surplus theory and

approach
Figure 23 below shows a stylised demand curve and the effect of a change in price for a good or service.
Taking the initial price as P0 and the initial quantity as Q0, the existing user surplus is identified as the area
A. This is because the demand curve demonstrates that at the price P0 there are users who are willing to
pay a higher price. If we move to a new price, P1, the demand curve shows us that at this price the quantity
demanded will be equal to Q1. At this new lower price and higher quantity, the amount of user surplus has
increased to the area [A + B + C]. To estimate the increase in the user surplus as a result of the reduction
in price, the task is essentially to estimate the values of B and C.
Figure 23: illustration of consumer or, in this case, user surplus
To estimate the area of B is fairly straightforward. This is given by the change in price (P1 less P0), multiplied
by the original quantity demanded (Q0) and amounts to a direct transfer from the providers to the users.
C represents the surplus that results from users that were previously excluded because the price they were
willing to pay was lower than the market price P0 but who, at the lower price P1 pay less than their
willingness to pay and are therefore willing to purchase. Estimating the value of C is less straightforward
and requires knowledge of the shape of the demand curve. One method of estimating C is outlined below,
with a worked example illustrating our approach in examining the benefits to the users (or purchasers) of
large-scale solar power (these users or purchasers can be expected to include electricity companies and
traders, as well as the Government counterparty that contributes the top-up CfD payments to those
generators with strike price agreements).24
Calculation of consumer surplus requires inputs from the scenario parameters outlined in section 2.1.
These include:
24
That is, the electricity output from large-scale solar power is paid for by both private users and government; where
government pays the difference between reference (wholesale) and strike prices.

46
the development of large-scale solar PV electricity demand, as well as its supply;
the average cost of this electricity (informed by wholesale and strike prices).
Using these data, we can estimate the change in consumer surplus can be measured as the difference
between the price and quantity that consumers demand in 2014, and the price and quantity they purchase
in a given forecast year, and under a given scenario.
This can be estimated by first assuming the demand curve takes the form:
P = KQ
where is the approximate elasticity of demand for the good or service with respect to price and K is a
constant, thereby capturing the slope of the demand curve at its various points. Using this specification,
area C can be estimated as:
K
C= (Q+1 Q+1
0 ) (Q1 Q 0 )P1
+1 1
Taking the example for solar energy and for the Bold Deployment scenario, the projected demand curve
for solar energy is illustrated in Figure 24 below.
Figure 24: Estimated price paid and quantity demanded for solar PV electricity, 2010 prices
In terms of the change in the consumer surplus, this is approximated by the area [B + C] on the chart. As
in the example above, to estimate the change in consumer surplus we need four figures as a starting point,
which are outlined in Table 15 below.

47
Table 15: Parameters for estimation of consumer surplus change between 2014 and 2030, Ministerial Ambition scenario
Value (2014 for initial, 2030 for

Item
final), 2010 prices
Initial quantity of solar energy demanded (GWh) 1,299
Initial price paid for solar energy (/GWh) 123,817
Final quantity of solar energy demanded (GW/h) 11,234
Final price paid for solar energy (/GWh) 79,231
As in the example above, area B is given by the change in price, multiplied by the initial quantity demanded,
in this case:
B = (123,817 - 79,321) X 1,299

To estimate area C, we use the estimated line of best fit illustrated in Figure 24. This specifies that:
0.19
GWh = 513,427(Total GWh)
This means that area C can be approximated as:
513,427
C= (11,2340.19+1 1,2990.19+1 ) (11,234 1,299) 79,321
0.19 + 1
This calculation yields an estimated increase in consumer surplus of 269 million by 2030 (measured in
2010 prices). This figure is in Section 3.3 in 2014 prices, equivalent to approximately 287 million.

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Solar powered growth in the UK

The macroeconomic benefits for the UK of investment in solar PV

Centre for Economics and Business Research

1.1 Background and motivation for the study 9

1.2 The UK solar PV industry 11

1.3 The UKs solar PV sub-markets 13

1.4 Scope of the study 14

1.5 Structure of this report 15

2 Methodology and assumptions 17

2.1 Development of scenarios 17

2.2 Investment analysis 20

2.3 The contribution of large-scale solar PV to UK electricity generation 27

2.4 Electricity user benefits 30

3 Potential economic contribution of investments in solar PV 31

3.1 Contribution of large-scale solar to GDP 31

3.2 Contribution of large-scale solar to employment 37

3.3 Employment impacts of domestic and rooftop solar PV 40

3.4 Electricity user benefits of large-scale solar PV 41

Appendix 1: Consumer surplus theory and approach 44

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The opportunity of solar

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Dr James Watson is the CEO at the European Photovoltaic Industry Association.

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Table 1: Scenario parameters

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Centre for Economics and Business Research

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1.1 Background and motivation for the study

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Figure 1: DECC LCOEs for selected technologies (/MWh, 2014 prices)

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1.2 The UK solar PV industry

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Source: REA, Innovas, PwC, Cebr analysis

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Figure 4: Business birth rates, 2008-12 6

Source: ONS, Cebr analysis

1.3 The UKs solar PV sub-markets

Domestic: consisting of small-scale building-mounted installations on domestic rooftops. Once

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Large-scale solar: sometimes referred to as ground-mounted or utility-scale developments, this

35% 36% Ground-mount, <5MW

Source: NPD Solarbuzz

1.4 Scope of the study

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1.5 Structure of this report

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This report is structured as follows:

Section 3 presents the results of the study;

Appendix 1 presents further detail on welfare analysis.

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2 Methodology and assumptions

2.1 Development of scenarios

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Equivalent number of homes

Figure 6: Annual solar PV installations (MW), by scenario, 2010-2030

Source: DECC, STA, Cebr analysis

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development of a well-functioning capacity market, as well as undertaking investments in local grid

Scenario details for the large-scale sub-market

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2.2 Investment analysis

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