The UK government announcement on incentives for small scale renewables has three unexpected features:
- The payments for renewable heat, such as the home burning of wood to replace gas or rooftop solar hot water, are much higher than predicted.
- The figures for wind have risen since the autumn consultation document. This means that well-located wind turbines of the 6-15 kW size are likely to produce returns above 13% per year.
- The payments for solar PV have been increased slightly, but do not offer returns as good as wind. Importantly, the government has also signalled that it will allow PV installed at any time over the next 28 months to capture the full feed-in tariff. Previously, the tariff declined for installations made after March 2011.
An earlier article on this topic which looks in more detail on the incentives to take up the new ‘feed-in tariffs’ is here.
Renewable heat incentive
Full details are not yet on the DECC website, but the payments for heat look surprisingly large. A wood-burning boiler will attract payments of 9p per kilowatt hour generated, or almost three times the current price of mains gas. Let’s put this another way. A tonne of very dry wood generates about 5,000 kWh of heat. So the payment for burning this tonne in an efficient stove would, we assume, be £450. Since the price of wood on the ground in southern England is no more than £60 a tonne, this incentive will transform the economics of forestry. Virtually no wood is harvested across much of Britain but landlords will now find it far more attractive to manage their holdings. My recommendation – buy woodland now. Timber is going to be worth a lot more in ten years’ time.
Payments for solar hot water installations are also much higher than expected and will undoubtedly spark a rush to put up rooftop panels. Combined with the boiler scrappage scheme, the solar hot water incentive will encourage many hundreds of thousands of homes to upgrade their heating systems.
Domestic combined heat and power systems are also heavily incentivized, as are heat pumps.
Wind
A 15 kW wind turbine – the sort of size that might sit on a small hill at the back of a village – costs about £50,000 to buy and install. (Installation costs will vary substantially, depending on the proximity of the electricity network.) The draft figures suggested a payment of about 23p per kWh but the final announcement today has increased this to over 26p. My previous calculation suggested a return of about 12% per year, but these new figures take this figure to above 13%. Confusingly, the government’s announcement suggests a figure of ‘5-8%’ for the financial returns under its proposals but I believe the figures for community wind are actually much higher and will kick mutual ownership of turbines into life. A turbine of 15 kW should be an easily financeable proposition across much of the UK.
Solar
The payments for PV have been increased from the earlier proposals. The solar installation industry had been sweating nervously about the possibility of a large reduction. Today’s figures suggest that a good south-facing roof location in the English south-west will achieve financial returns of above 8%. The government may correctly have felt that the likely continued decline in the cost of solar panels will gradually improve this figure over the next few years. Surprisingly, the announcement says that the solar PV feed-in rates will last for more than two years. Previously they were slated to fall gently from April 2011. This may produce a perverse incentive. The fall in the price of solar panels – as a result of improved manufacturing techniques and the entry of huge amounts of Chinese capacity – may mean that parsimonious householders wait until 2012 to put up the panels. The government wants us to invest today.
Tags: carbon reduction initiatives, domestic, housing, politics, power generation, renewables
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Wow – payment to burn firewood – that will really transform the firewood market. I struggle to see how it will be managed in practice though. Will households be rewarded for reducing their use of mains gas below current levels? I can’t see inspectors coming out to each home to check on everyone’s wood pile.
9p per kilowatt hour for a wood burning boiler sound great, but in practice wood boilers are over complicated pieces of expensive technology. A simple wood stove in a well insulated house is more reliable and can eliminate the need for gas powered space heating.
I can see this also having an almost perverse effect – if industrial scale installations start muscling in on the domestic firewood market the upfront costs of firewood may skyrocket. If a household needs 5 tonnes of firewood to get through a full winter (possible if they are also heating water) and the cost of firewood approaches that figure of £450 families would be looking at an upfront cost of nearly £2000 to buy in their wood, which presumably they wouldn’t be able to reclaim until they burnt it up to a year later (6 to 18 months to season firewood properly).
This could be a substantial disincentive to cough up in the first place.
I can’t wait to see what develops in practice.
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Reading their analysis more closely, their figures are based on wood pellet and wood chip prices only. These tend to have more ‘industrial’ supply chains which makes them easy to measure.
If a home owner buys 3 tonnes of wood pellets, you can be pretty sure they are burning 3 tonnes of wood pellets and so have accountability to pay them. How does this then sit with homeowners or landowners who cut their own firewood as this falls outside the supply chain that can be assessed? Driving everyone towards wood pellets would be great for the pellet industry I’m sure, but I’m not sure it would actually encourage responsible forestry management. The UK’s mature neglected woodlands would be poor feedstocks for wood pellet producers who prefer sources such as short cycle willow coppice.
The figures for ground-source heat pumps are particularly startling -
“Under the proposed tariffs the installation of a ground source heat pump in an average semi-detached house with adequate insulation levels could be rewarded with £1,000 a year and lead to savings of £200 per year if used instead of heating oil.”
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The average existing semi-detached house is not well placed to fit GSHP though so I wonder how much uptake of this particular technology there will actually be!
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Ground source heat pumps (GSHP) don’t have much of an edge, if any, over air source heat pumps. Air source heat pumps work well in windy places where the air is humid, such as a damp UK Autumn. They don’t involve digging up your garden and are not limited by the collection area available in quite the same way.
For many people air source IS viable – as these are relatively simple units that you can bolt on to the exterior of your house and wire directly into your existing plumbing. “Sustainable energy – without the hot air” has a good analysis of the two types of heat pump and their applicability on a national scale (book downloadable in pdf and well worth reading!). In most urban settings Air Source wins out.
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One assumes that akin to every other “Green” initiative we see from whitehall, the raft of incentives will be attached to a much bigger raft of regulation. I wonder if you can still get these incentives if you’re a keen amateur engineer with access to home made PV or Wind Turbines, I suspect the technology must be installed by an approved contractor which will massively hike labour rates and leader to profiteering similar to the “free” insulation debacle.
FYI. Ground source returns seasonal system efficiencies up to twice that of air source in winter and summer when the air temperatures are less than ideal. It does however cost a LOT at about £2000 per kilawatt installed.
FYI. Air source heat pumps have a maximum heating temp of about 50C degrees before the efficiency starts to fall off, by 80C the efficiencies offered by the heat pump technology have been eliminated and the running costs would be similar to that of electric fan heating. Alternatively you can run at the lower flow temp and double the number or size of every radiator in your house instead, or run underfloor heating.
Isn’t the cheapest solution just a low interest loan scheme for the thermal rendering or interior insulating of solid wall terraced property and reducing the demand on the grid in the first place. -
The new FIT scheme is a kick in the teeth for early adopters. If you were doing what the government now says is the right thing prior to July 2009 and not in an RO scheme (which is the case for most small home producers with PV/solar) then you are not eligible for payment. Well done DECC you have taught us all it doesn’t pay to use your initiative in advance of turgid government process.
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Brian – have I misunderstood this? Won’t you get 9p a kWh for pre-installed PV?
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In reply to Alastair’s point about overheads for installation – absolutely right! The Microgeneration Certification Scheme that is a prerequisite for FiT approved installations adds considerable cost for dubious benefits and seems to have been an effective stitch-up by the larger firms that will probably keep the smaller local business out of entering the market. It is particularly bad for micro hydro where the MCS standard isn’t even agreed yet!
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Regarding the renewable heat/wood chip incentive.
Having looked at the infrastructure needed to support domestic scale biomass I doubt that the majority of UK dwellings could support it. The boiler requires a hopper & feed system that can be supplied, ideally, direct from a truck so there needs to be access to refuel in contrast to heating oil where a simple pipe will go round all the corners to wherever the tank is. The boilers themselves are larger than average due to having to cope post-combustion with ash handling (obviously not an issue with gas or oil). However, for larger dwellings (5+ beds with a driveway and separate boiler room or cellar) it looks a good deal and for small groups of dwellings with shared heating it looks ideal if there is some sort of co-op support for it.
The issue that I have, as the renter of a small 2-bed stone cottage who’s primary peak-time heating fuel is wood, is precisely what Chris suggests is a good idea. Folks buying up woodland to operate their own semi-commercial systems. I can’t burn pellets or chips, never will be able to irrespective of incentive. Moving woodland towards semi-commercial timber crop that is suitable for pelletisation is likely to reduce the crop locally available for the split logs which are my only heating choice other than coal.
Unless there is some stipulation of supply chain security for the poor little guys, like me, this is a step backwards socially and economically to provide a small step forward environmentally. I have no objection to the incentivisation of the industrial-scale use of biomass where appropriate, but on first inspection the domestic side of this proposal looks like a way to give cash to owners of large houses while hoping that there isn’t economic fall-out on those who already use wood for heat because they have no choice.
I know that there was a small fund (£1.5m or so) to try and get the wood supply chain going in a similar way to that done by some German regions, but if the focus is entirely on pellet I can only see the little guy loosing out as woodland management changes to provide that product. -
Just to follow up on this – we have just bought our hectare of woodland. Or rather 12.5 acres of rather neglected chestnut coppice/oak.
A search for woodland for sale brought up a nice plot nearby – short drive from home, good access and even a small stream. It should see us in for firewood indefinitely. Thanks for the heads up on this!
Mike
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Dear Mike,
To heat the average UK home requires about 3 tonnes of wood a year (at 5,000 kWh a tonne). You should easily be able to get a sustainable 3 tonnes a year off a single hectare of well-managed woodland. So you can sell the wood from the remaining 11.5 hectares to neighbours to keep them warm. Congratulations – my sense is that this might be the best investment you have ever made.
Chris
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Hi Chris, Thanks for the response.
We are quite excited about all the opportunities. It is 12.5 acres rather than hectares – I ran that through a converter and it comes to around 5.5 hectares. Still respectable! My parents do pretty much all their heating with wood, and with an unlimited wood supply I can see this increasing.
It has actually been a dream of my father’s for years to have some woodland where he can practice some traditional wood land crafts. Green wood turning with a traditional whip lathe for example. The whole area is on a massive london clay deposit – soft squishy stuff. That and the stream running through it is probably why it has been neglected by the forestry industry.
There are too many oak trees so the coppice under story is being rather heavily shaded. I think it will be a few years, possibly a whole coppice cycle, to bring it up to full productivity.
So, an exciting lifestyle choice and hopefully a wise investment too!
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Chris. Yes existing (pre july 2009) PV installations will get 9p/kWh if they registered for ROCs. However that’s quite a lot less than many people were getting as they were on the Scottish and Southern/Ebico tariff of 28p/kWh exported, or Good Energy’s 15p/kWh generated. Now it is possible that companies such as these will still offer a premium over the FIT rates, but none have yet said they will, and thus many existing PV owners are very unhappy about the way they have been treated.
The anti-DIY aspect of all this is also a serious problem. Before FITs, installation just had to be legally correct (G83/1 electrical regs, notify the DNO). Now that’s not good enough, and if you try to save £3000-odd by self-installing (that’s how much cheaper a typical domestic DIY install is over a professional MCS one, despite their VAT advantages) then the govt will insist that your installation does not exist and will get no incentives, despite the fact that its output is measured by an approved meter so there is absolutely no argument about how well it performs.
It will no doubt be the same story for solar thermal next year (where DIY can be <£1000 total cost vs £2500 minimum for a MCS-approved install). The govt seems primarily interested in generating an installation industry, not in maximising installations, or carbon savings. I find this very depressing.
Don't get me wrong; I'm very glad that a FIT scheme has been introduced, I just find it outrageous that it has been made impossible to DIY and qualify. Anyone who has installed their own stuff will know that DIYers generally do a much more careful and neater job than professionals, who are always in a tearing hurry, because the econmics require it.
The MCS requirement is particularly daft in micro-hydro, as Francis pointed out, because there _are_ no MCS certified installers currently.
You can comment on these things (for the heat incentives) on the consultation: http://www.decc.gov.uk/en/content/cms/consultations/rhi/rhi.aspx
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