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Generating Income

08 December 2009

Feed in Tariffs and Reneable Heat Incentives have been designed to encourage UK businesses to take up renewable energy sources, but as John Meadows explains, the legislation is complex but the financial benefits will soon be clarified

TO MEET THE UK’S 2020 15 percent renewable energy target the Government has seen a need to develop new ways of generating energy in all sectors and incentivise businesses and households to become involved. The Energy Act 2008 saw the introduction of the Renewables Obligation, feed-in tariffs and also the Renewable Heat Incentive.
Until now, the Renewables Obligation (RO) has been the Government’s main mechanism for supporting the generation of renewable energy. The RO places an obligation on licensed electricity suppliers in the UK to source an increasing proportion of electricity from renewable sources.
The RO focuses on supporting large-scale renewable energy projects and it is mainly centralised on renewable generation such as landfill gas, hydropower and offshore wind farms, with those commercial businesses that run large scale microgenerators also able to take advantage of the scheme.
In addition, in April 2006 the Government launched the Low Carbon Buildings Programme, where grants were available to any business to support the costs of low or zero carbon technologies (LZC) in low carbon developments. Organisations could apply for Government grants towards the cost of microgeneration technologies including, solar photovoltaic, wind turbines and ground or air source heat pumps. Eligible products would have to be credited by the Microgeneration Certification Scheme and in the case of solar PV, a list of accredited modules is published. However, the only streams open to grants currently are relevant for not-profit organisations and domestic dwellings.
Feed in tariff
The proposed introduction of the feed-in tariff is, therefore, very timely, as this is most likely the preferred option for most UK businesses. Called the Clean Energy Cashback scheme, it is due to come into effect from April 2010, this is intended to encourage the uptake of small-scale low-carbon energy technologies (electricity generated from renewable sources, such as solar power, wind power, biomass, hydropower and geothermal power) by households, communities and businesses.
Under the feed in tariff, regional or national electricity utilities will be obligated to offer a premium payment for every unit of renewable energy generated for at least 20 years – with a bonus for surplus power exported to the grid. It is envisaged that receipt of the tariff will be linked to the ownership of the equipment, therefore if a premises is sold the new owner will receive the payment. However, generators can assign the rights of the feed in tariff s payments to a third party by way of a bilateral agreement.
The recent consultation suggested that small scale renewables can contribute 2 percent of the UK’s electricity supply and cited international experience that showed investors can expect a rate of return of between 5-7 percent. It is promised that the proposed tariff levels, which have not yet been confirmed, will be calculated to ensure that the total benefits an investor can be expected to achieve (from the generation tariff, the export tariff and/or the offsetting benefit) should compensate the investor for the costs of the installation as well as provide this level of return.
In terms of how the RO and feed-in tariffs sit together, it is proposed that any system under 50kW will only be eligible under the feed-in tariff, any system over 5MW must only claim under the RO while any scheme in between will retain the right to choose between RO and FITs. To put this into perspective - the size of an average domestic solar system is 1.5 - 2kW, which equates to between 10-13 sq m of solar panels. A business would, therefore, need over 350 sq m of solar panels to reach the threshold of 50kW output and have the choice as to whether to claim under the feed-in tariff or RO.
For businesses now looking at benefiting from the RO or feed-in tariffs and reducing energy costs and carbon emissions, solar PV presents a simple solution. When compared to alternative renewable technologies, solar PV is easier to retrofit and less intrusive, meaning it is often easier to gain planning permission for its installation. It is also a scaleable technology, meaning it can be specified to meet exacting requirements and can be moreeasily extended at a later date.
On-going developments in product design have also seen the integration of solar panels into the building fabric itself. The ASI® Glass module range from Schott Solar, for example, combines energy generation with striking aesthetics to offer an integrated solar glass system, suitable for a wide variety of applications, including semitransparent façade glazing, roof glazing and rain screen cladding. Alternatively, the InDaX V 225 is designed for direct integration into pitched roofs, providing an efficient photovoltaic function as well as protection against rain, hail, snow and wind.
The consultation period for the feed-in tariff has just concluded and the Government will soon be announcing the tariffs levels for solar PV to ensure the feed-in tariff is  established in law by April2010. It is important to note though that whilst the feed-in tariff is a good starting point, there is certainly room for improvement. At the moment, the proposed feed-in tariff for a retrofit Solar PV system of less than 4kW, for example, is 36.5p/kWh. However, this has been referred to as too little. Colin Challen MP, Labour chairman of the Commons All Party Climate Change Group, said the proposed tariff levels will not deliver the return the DECC is claiming, and it was reported in the Guardian newspaper that supermarket group Asda has also made it clear to DECC officials that the proposed tariff is too low for the company to take the time to invest in putting large arrays on its shop or warehouse roofs.
Renewable heat
In addition to energy generation, plans are also under consultation with regards to incentivising renewable heat. Currently only 0.6 percent of total heat demand is generated by renewable energy sources with estimations that this needs to rise to 12 percent to hit the UK’s binding EU targets. It is therefore the aim of the Renewable Heat Incentive (RHI) to provide financial assistance to generators of renewable heat and producers of renewable biogas and biomethane.
Details of the scheme have not yet been finalised with a consultation planned towards the end of 2009 and implementation by April 2011. However, it is expected that the incentive will apply to generation of renewable heat at all scales, including by business, and will cover a wide range of technologies including biomass, solar hot water, air- and ground-source heat pumps, biomass CHP, biogas produced from anaerobic digestion, and biomethane injected into the gas grid.
The Renewable Heat Incentive will provide subsidies for any supplier of renewable heat or renewable fuel to be used for heating purposes. The incentive payments will be funded by a levy on suppliers of fossil fuels for heat, which will be mainly licensed gas suppliers but also include suppliers of coal, heating oil and LPG. There is still some way to go in terms of finalising a succinct policy, understandable by all. Businesses not only need to understand how the Renewables Obligation and feed-in tariffs sit side by side, in order to determine which scheme they should align themselves to, there is also the added complication of the Carbon Reduction Commitment, which starts in earnest next April. Under this, any organisation that consumed at least 6,000 megawatt hours of electricity through half-hourly electricity meters during calendar year 2008 is legally obliged to buy carbon dioxide emissions allowances in an effort to incentivise them to save energy. However, currently the DECC says firms will not be able to report CO2 savings from on-site renewables unless they forgo subsidy from the RO - which many fear will stop renewables projects going ahead.
● John Meadows is managing director of SCHOTT Solar

For further information on the Government legislation aimed at incentivising UK businesses to take up renewable energy sources:

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