15 kW Proven Energy wind turbine. Image credit: Aeolus Power.
This article refers to the UK proposals made in July 2009. The actual feed-in tariffs will be more generous and the new rates are discussed in a follow up article here.
After months of deliberation, the UK government has announced a range of illustrative figures for feed-in tariffs (FiTs). FiTs are fixed payments made to the owners of small generating stations for the electricity that they export to the grid. Micro-generators need high payments to justify their expensive investment in buying and installing green generation.
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The proposed levels of FiT vary by the type of technology. The principal ones covered are biomass combustion (burning wood to generate electric power), hydro, solar photovoltaics, and wind turbines. Of these, the most appealing are likely to be wind and PV. If my estimates in the following paragraphs are correct, the government’s proposal for payments for rooftop PV will yield returns of about 8% annually. The payments for rural wind are slightly higher. If the figures survive unchanged through (yet another) consultation process, they are probably high enough finally to get the microgeneration industry started.
Solar
The proposal is for a FiT of 36.5 pence per kilowatt hour for a domestic rooftop system for installations carried out in financial year 2010/2011. A typical UK home installation is about ‘2 kilowatts peak’, a figure for the maximum output in the middle of the day in mid-summer. Such an installation will generate about 1,800 kilowatt hours (kWh) a year in a sunny location in Devon or Cornwall on a south-facing roof. Typically a third of this electricity would be fed into the grid, the rest would be used in the home. The government’s documents suggest that the homeowner would receive financial benefit in three different ways:
- A payment for all generation (confusingly, this is not a conventional ‘feed-in’ tariff which generally refers only to electricity exported from the installation into the grid).
- A much lower payment for exports from the house to the grid.
- The money saved from generating and using electricity that would otherwise have been bought from an electricity supplier.
In the case of our 2 kilowatt peak PV system, the revenues from the proposed tariffs are approximately as follows:
2 kilowatt peak installation in the English south-west
| Annual output | 1,800 kWh |
| FiT | 36.5p per kWh |
| Total value of FiT | £657 |
| Used in the home | 1,200 kWh |
| Savings from not buying supplier electricity | 12p per kWh |
| Money saved | £144 |
| Electricity exported | 600 kWh |
| Export payment | 5p per kWh |
| Value of export payment | £30 |
| Total value from all three sources | £831 |
|---|---|
| Annual service (estimate) | £100 |
| Total return | £731 |
The cost of such an installation today would be about £10,000, meaning a running return of about 7% for the 20 years of the guaranteed life of the FiT scheme. A PV installation is likely to last 25 years or more, albeit with gradually declining output, so the installation pays back its cost with something to spare. In the north of England, the figures would be less good. PV is nice, but it isn’t a money-spinner, even with these new tariffs.
Currently, the income from a PV installation or other micro-renewable installation is not subject to tax, but the Treasury could change this.
Wind is better
A 15 kW turbine at the end of a large rural garden or on a village green would cost about £50,000 (source: Proven Turbines: £41,000 for the turbine and my estimate of £9,000 for installation and grid connection). This machine would generate perhaps 25,000 kilowatt hours on a windy and exposed site with minimal turbulence created by trees. In the analysis below, this would get pumped into the grid. If some of it is used in a home, replacing grid electricity, the numbers would be slightly better.
15 kilowatt wind turbine in a good location
| Annual output | 25,000 kWh |
| FiT | 23p per kWh |
| Total value of FiT | £5,750 |
| Export payment | 5p per kWh |
| Value of export payment | £1,250 |
| Less: yearly maintenance cost (estimate) | £750 |
| Total value of installation | £6,250 |
|---|
If these estimates are correct, the return on a 15 kilowatt turbine would be over 12% p.a. A machine should last twenty years or more. It isn’t a return that would excite Goldman Sachs, but it isn’t bad. If you have a choice, go for a wind turbine, not for the more glamorous solar panels.
It is conventional wisdom in Germany and elsewhere that a near-guaranteed return of 6% is sufficient to spark interest in renewables from ordinary families. At the proposed levels for FiTs, this figure will be clearly achieved in the UK in good locations.
(This article will be part of the second edition of Chris Goodall’s How to Live a Low-Carbon Life to be published in February 2010.)
Tags: carbon reduction initiatives, domestic, Goldman Sachs, politics, power generation, Proven Energy, renewables
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Chris, I think your sums are wrong.
There are 3 elements of support / benefit in the consultation proposal:
1. A Generation tariff for every kWh generated, regardless of who uses it, equal to 36.5p for small PV. Total 36.5p X 1800 = £657.
2. A guaranteed Export tariff for every kWh exported to grid. The consultation puts this at 5p per kWh, and suggestes that, if the market dictates a different price, the generation tariff may be adjusted accordingly. Total = 5p X 900 = £45.
3. Reduction in purchased electricity. Total £117.So, total benefit is £819, not £445.
Not that this changes your main point: a straight payback of 12 years is hardly attractive.
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Paul,
You are absolutely right and thank you for correcting me. The article above will be changed to reflect your correct assessment of the numbers.
Chris Goodall
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The article now uses the correct numbers. Apologies for my mistake.
Chris Goodall
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I think you also need to take into account the lifetime of the inverter – this might only last 8-10 years and is reasonably expensive.
I came across a reasonably good article on PV economics from the US which made this point ‘The Market Value and Cost of
Solar Photovoltaic Electricity Production’
Severin Borenstein
JanuaryThe cost of a 10kW PV installation in 2007 quoted in the article was $80,000, with the inverter cost $8,000 – per article “After installation, the largest cost that the owner of a solar PV system is expected to
face is for replacing the inverter. Median time-to-failure estimates for inverters range from 5-10 years, so I assume 8 years, which implies that the inverter will have to be replaced twice over the 25-year life of the panels, assumed to occur in years 8 and 16. Current
inverter cost for a 10kW system is in the range of $8000, but that is likely to decline over time. Inverter costs are assumed to decline by 2% per year in real terms, consistent with a study by Navigant consulting (2006) for National Renewable Energy Laboratory.2008″The really interesting question however is how large wind farms and small microgeneration interact in the market – if the goal is less CO2emissions and greater fuel security, from which does society get a better return for each £ invested? – nobody appears to be looking at this issue.
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The feed in tariffs have now been set at 41.3 p per unit generated is it not time that you changed the maths on this page to show what you will get.
Also a twelve year payback is not bad as this is really showing a 8% return, on something that will add value to your home, and as energy prices rise so will the return,, so if electricity charges rise by 60% in 6 years as suggested by OFGEM, then your return will be a lot more as the energy you export will rise and the generation tariff will rise by inflation and this is all tax free, the whole deal is a lot better than putting the money in the bank and getting a staggering return of 2-3%
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