Finance is available for businesses to install renewable heat
Posted by Mark Henderson on 28 June 2012 at 10:31 am
Finance for the up-front costs of installing renewable heat technologies is now available for businesses and other organisations thanks to a new collaboration between The Carbon Trust and Siemens. The Energy Efficiency Financing (EEF) scheme offers low-cost leases, loans and other financing options.
Businesses can pay back money out of the energy savings and renewable heat incentive (RHI) payments generated by the installation of renewable energy systems. Once the loan has been repaid, the equipment will continue producing savings and receiving RHI payments for the remainder of the 20-year span of the RHI scheme, allowing organisations to reap the benefits of renewable energy without having to tie up their own capital. The EEF scheme can be accessed via recognised renewable energy suppliers (a map will be added to the EEF website soon), or companies can go direct to Siemens to arrange the loan.
Worked examples of RHI payback:
Case Study 1: Office block, replacing an oil-fired boiler with a biomass system
A particular office has an estimated annual heat demand of 35,860kWh. This is currently met by oil, at an average annual cost of £3,067. To generate the same heat using wood pellets, the fuel cost would be £2,363 (based on quoted figures of 6.59pence/kWh, after boiler efficiency is considered). The annual fuel saving would be £704.
On top of this, the RHI would be received at a rate of 8.3pence/kWh of heat delivered to the building, as measured with a heat meter. If 35,860kWh of heat demand is fully met, the RHI amounts to £2,976 per annum, payable for 20 years. With the fuel saving of £704, there is a total net annual benefit of £3,680.
The office is in a listed building, adding to the complexity and cost of the installation. If the biomass boiler system costs £24,000, the payback period is less than 7 years. After that, the customer will receive a net annual benefit of £3,680 for another 13 years. Loan finance will increase the payback period, but it is clear that the installation of renewable energy systems is a shrewd investment, generating excellent returns.
Case Study 2: Ground source heat pump installation, with lease financing provided through the Energy Efficiency Financing Scheme.
The annual heat demand of a social housing building is 327,000kWh. If this was to be met by oil, the cost would be £24,427 at current oil prices of 7.47p/kWh. A ground source heat pump could meet the same demand with an electrical running cost of £11,947 per annum. Therefore, the heat pump achieves a net annual saving of £12,480. The total net cost of installing the heat pump is £110,000. This results in a payback period of 9 years.
If the installation is financed under the Siemens lease scheme, the customer has the option of choosing the payback period. In this particular case they opt for a 7-year period. The total net cost of the lease purchase over this time will be £145,209.12. Therefore, the payback period based on annual energy savings of £12,480 increases to 12 years. This is still very respectable, as the equipment has an expected life expectancy of 20-25 years. The figures also do not include any corporation tax savings resulting from offsetting the lease repayments against profit.
However, once RHI is factored in, the economics of the installation are transformed:
If the total 327,000kWh annual heat demand of the property is met by the heat pump, it will attract RHI payments of 4.7p/kWh. This amounts to a staggering £15,369 per annum. Combining this with the annual savings of £12,480 results in a total annual benefit of £27,849, effectively reducing the payback period to less than 5 and a half years!With the lease financing costing £20,744 per annum, it is clear that the combined savings and RHI payments easily cover the cost of repayments during the 7-year lease arrangement. Furthermore, not only has the customer avoided tying up their own capital, but they will continue to enjoy the savings and RHI payments for the remainder of the 20-year period.
An opportunity not to be missed
The RHI represents an extraordinary opportunity for companies and organisations to invest in renewable energy heating systems which not only save money on bills , but will ultimately generate an annual income. In other words, organisations are paid to heat their premises. Furthermore, the new Siemens financing options means organisations don’t even have to invest their own capital to benefit from the RHI scheme.If this sounds too good to be true, it is simply because the Government recognises that ‘early adopters’ of such technology need to be encouraged and rewarded for their commitment to carbon reduction. This paves the way for economies of scale, bringing down manufacturing and installation costs until the technology becomes widely affordable, at which point the incentives will be withdrawn.
About the author: Mark Henderson is founder and franchise director of Ecoliving.
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