Renewable Incentives Explained
Renewable energy still makes economic sense for the self-builder, says sustainability expert Tim Pullen, who offers his views on current incentives
Our quick, easy-to-follow guide to making the most of Feed-in Tariffs and the Renewable Heat Incentive
The Feed-in Tariff scheme (Fits) and the Renewable Heat Incentive (RHI) were introduced by the government to encourage the take up of renewable energy technologies and thereby drive down the cost of equipment to the point where technologies can stand on their own merit. Fits provides incentives for electricity-generating renewables such as solar PV (photovoltaic) and RHI for heat-generating technology such as heat pumps. The question is, have they got there yet?
There are many other questions, including: will they ever get there, or should your decision to invest in renewables be based on the handouts? There are people – particularly manufacturers – who maintain that tariffs have slowed sales in the domestic sector and that any system should stand on its own merit and the tariff be considered as a bonus. But the truth is that they have become the principal selling tool for most suppliers, and how many of us would put a solar PV array on the roof if we did not believe we are getting something for nothing?
It is also true that tariffs are something of a moveable feast and subject to a degree of ‘interpretation’. What you actually get may vary from what the supplier suggests as they are likely to make assumptions about the system and how it is operated, as well as projecting a best case scenario.
For solar PV, for instance, the property’s Energy Performance Certificate (EPC) rating has to be supplied. The Fits rate above is correct if the rating is A to D. If it is E, or lower, a rate of 3.66p/kwh will apply.
The figures above are the generation tariff — that is, what you are paid for merely generating that electricity,
regardless of what you do with it. So, for solar PV, a typical array will produce around 800kwh per year per 1kwp array. A 4kwp array will produce around 3,200kwh per year and the owner will be paid 3,200 x 4.07p which equates to £130 per year. Other technologies are more difficult to predict as they rely on variables like the wind at a particular site or the amount of water in a particular stream.
There is also the question of selling surplus electricity. The big six electricity suppliers are required by the government to buy the surplus and the current rate is around 5.03p/kwh (but this will vary with the supplier). For most domestic systems, the amount paid is estimated at 50% of production, but if a smart meter is installed the owner will be paid for the amount of electricity actually exported.
The supply company buying your electricity can deduct standing charges and admin costs from that sum, so you may not get the full 50%. It is worth checking the company’s policy on this issue as it can make a difference. There are also many small supply companies out there – Ecotricity, Good Energy, Robin Hood Energy and Ovo Energy, for instance – who are worth looking at. These companies can choose to buy your electricity, or not, but often offer a better deal than the big six.
RHI Payments
Payments are based on the heating and hot water figures in your EPC rating, which has to be less than two years old. The EPC will take account of insulation, double glazing, and so on, and the property has to have at least a D rating. If it is lower than that then you will need to bring it to that rating to qualify.
With biomass and solar thermal, it is that simple (except that solar thermal can only be used for hot water, and not space heating), but with heat pumps the efficiency of that particular machine is taken into account.
If the heat pump has an efficiency of, let’s say, 4.0, that means that for every 1kw of electricity consumed the heat pump produces 4kw of heat. The owner is then paid for the 3kw of energy that is CO free. If we assume that the
2 house needs 12,000kwh of heat that is delivered by a heat pump with an efficiency of 4.0 then, in broad terms, the owner will be paid for 8,000kwh — at the rate of 19.86p/ kwh for ground source (£1,588 per year) and 10.18p/kwh for air source (£814 per year).
Degression and Inflation
Both the Fits and RHI are subject to a quarterly review and typically reduced, notionally at least, in line with reducing capital cost. This is the degression. In the quarter ended 31 September there was no degression, and the prediction for December is also for no degression. The tariffs are also inflated in line with CPI, so this last quarter has seen all tariffs increase.
Contracts for Fits are for 20 years and seven years for RHI. So the rate applicable at the time the system is commissioned will continue for the duration of the contract.
To be clear, if you install a PV array today, your FIT rate will be 4.07p/kwh for 20 years, irrespective of what happens to the rate in that period. The same applies to all technologies and for both Fits and RHI.
The Benefits
When these technologies first made the news there was much talk of ‘payback’ — how long it took for Fits or RHI to return the capital cost of the equipment. A perhaps more interesting way to look at a system is the unit cost of the energy produced.
Take the most popular technology, solar PV:
l A 4kwp solar PV array will produce (in most parts of the UK) around 3,200kwh of electricity per year, for 20 years — a total of 64,000kwh
l Capital cost will be in the region of £6,000 installed
l Add £2,000 for maintenance and repair
l That gives a unit cost of production of 12.5p/kwh compared to the current price of electricity of around 16p/ kwh (including VAT and standing charge).
This is a reasonable difference, but bear in mind that the unit production cost will be the same in 20 years’ time, where the purchase price of electricity is likely to be considerably higher.
Futureproofing Against Future Energy Costs
A similar argument can be put forward for most renewable energy technologies. Investing in capital equipment is akin to buying future energy needs at a fixed price. Take away Fits and RHI and what do you have? Renewable energy justifies itself in comparison to the likely future cost of energy. Fits and RHI are, and always have been, the icing on the cake, the inducement that helps us make the decision. And, at the domestic scale at least, they have never been the cake itself. H
“Investing in capital equipment is akin to buying future energy needs at a fixed price”