Renewable Incentives

Feed-in tariffs announced

Last year the UK Low Carbon Transition Plan proposed incentives for small-scale low carbon electricity generation (such as might take place on farm) in the form of Feed-in tariffs (FITs). The concept of rewarding small-scale (up to 5MW) generation was the subject of a consultation last summer (see InsideTrack July/August 2009) and the Government response to that consultation issued early this February sets out in more detail how they will work.

The scheme recognises the benefits of using renewable or low carbon sources of energy as well as the benefits of consuming energy close to where it is generated, thus avoiding losses in transmission. It is hoped that by 2020 the scheme will have supported over 750,000 small-scale installations and saved 7Mt of CO2 emissions.

The Renewables Obligation (RO) will remain the main means of incentivising large-scale electricity generation.

There are two elements to the FIT payment. The first is known as the generation tariff, which differs by technology type and scale (see table overleaf) and will be paid for every kilowatt hour (kWh) of electricity generated – regardless of whether the electricity is used on site or exported to the electricity network. The tariffs are fixed for the life of the installation (indexed to RPI) and have been calculated to provide a return on investment (ROI) of 5–8% for well-sited projects.

The second element is the export tariff which generators may choose to have paid at a guaranteed amount per kWh or may sell to an electricity supplier on the open market. The amount of electricity that this applies to may be metered or, in the case of very small installations, be assumed to be a proportion of the generation without the need for metering.

Of course, generators will also benefit from cost-savings owing to reduced electricity purchase costs.The scheme comes in to effect in April 2010 and has been amended in the light of the consultation, including:
• relative change between generation and export rate
• changes to installation size bandings and the introduction of a band to provide support for smaller, farm-scale, (<500 kWh) anaerobic digestion (AD) projects

• the removal of biomass from the scheme (which will continue to be incentivised by the RO and, from April 2011, the new Renewable Heat Incentive scheme (see below)).

The scheme is available to new AD, hydro, solar photovoltaic (PV) and wind projects of up to 5MW capacity in GB (i.e. not Northern Ireland). The scheme will also support the first
30,000 micro combined heat and power (mCHP) installations with an electrical capacity of 2kW or less. Microgenerators (<50kW) will have to use Microgeneration Certification Scheme (MCS) eligible products installed by MCS-accredited installers who will initiate the FIT registration process.

FITs will be paid to generators by electricity suppliers. Generators must find an electricity supplier within 6 months of joining the scheme in order to be paid and will need to have a physical connection to the grid.

Once an installation has joined the scheme, the tariff will be fixed (apart from adjustment for inflation) for a fixed term. However, installation costs for PV and wind are expected to decrease over time due to scale and technological improvements and therefore installations commissioned in future years will lock in to slightly lower FITs.

Source: DECC *Microgenerators (<50KW) that had applied for accreditation under the RO before 15 July 2009.
Coupled with the proposed relaxation in planning regulations (see InsideTrack November 2009) on-farm energy generation is now likely to be more viable – however, success still hinges on the suitability of the site, in particular, prevailing wind speeds for turbines.

Those wishing to apply for FITs should contact electricity suppliers in their area. In the run up to the launch of the scheme in April guidance will also be made available by Ofgem (the electricity and gas regulator), the Carbon Trust, the Energy Saving Trust and DECC (Department of Energy and Climate Change). The full document describing FITs can be found at
www.decc.gov.uk/consultations/elec

Renewable Heat Incentive scheme

DECC did not feel there was sufficient time before the FIT launch this April to make provisions for non-AD biomass. This was because of complex accreditation and compliance issues. There are no clear existing standards and a range of wider issues (such as fuel sustainability, diversion from food production and air quality concerns) could not be addressed effectively in the FIT scheme. Therefore, as an alternative to support through the RO, incentives for heat production from biomass will be an option from April 2011, through the Renewable Heat Incentive (RHI) scheme. The consultation for this scheme was launched alongside the FIT announcement.

Key aspects of the RHI are:
• Support in GB for heat and combined heat and power (CHP) plants using biomass, air-, water- and ground-source heat pumps (and other geothermal energy), solar thermal, use of biogas and bioliquids and the injection of biomethane into the natural gas grid

• RHI payments (see below) will be paid to the owner of the equipment

• Small to medium installations must be certified under the MCS and payments will be based on deemed heat demand rather than metering.

The consultation can be accessed at: www.decc.gov.uk

RO, FIT or RHI?

The eligibility of different types and capacities of installations for FITs compared with the RO and the recently announced RHI is shown on the next page.