Why the RHI probably won't encourage domestic solar thermal installations
Posted by Cathy Debenham on 1 October 2012 at 12:12 pm
New announcements about the solar water heating calculation for domestic RHI render this blog no longer relevant. For the latest information click here.
Unlike the feed-in tariff, the RHI (renewable heat incentive) is not designed to provide a specific rate of return. It is intended as a boiler replacement scheme, and as such, aims to cover the additional capital costs of investment in a renewable alternative.
Relative to the renewable energy that it provides, solar thermal is a more expensive technology than the others included in the incentive shceme. As a result, DECC has chosen to cap the tariff at the marginal cost of renewable energy – which is 17.3p – in its consultation on the domestic RHI. If there wasn't a cap, the rate of RHI for domestic solar hot water would be more than £1 per kWh (using the methodology used for all other technologies).
The economics of the RHI for a domestic solar thermal installation:
Average energy demand for 3-bedroom semi with cavity walls = 15,000 kWh per year of which 3,700kWh per year is for hot water.
A solar thermal system is estimated to produce 60% of the hot water = 2,200kWh
RHI = 17.3p per kWh paid for seven years.
2,200 x 17.3p = £380.60 per year
x 7 years = £2,664.20
Cost for installation for 3 bed semi providing water for family of four is likely to in the range £4,000 - £5,500. For this example I'm going to take the middle of the range: £4,750.
The running cost of solar thermal is estimated at around £100 a year (cost of electricity to run the pump, plus c. £200 every four or five years for servicing). However, if you have solar PV installed this should reduce or negate the cost of running the pump.
Financial savings per year from a solar thermal system vary considerably depending on what fuel you are replacing. Rough estimates for our 3-bedroom semi are:
Replacing electricity: £280
Mains gas: £92
It’s not entirely surprising that, at this rate, DECC expects the deployment of solar hot water systems to be “very low”. It is consulting on whether there is evidence to support a higher tariff - ie a reason why the cap should be broken (solar PV is currently subsidised above the cap). It is also asking whether a one off grant would be more attractive, or a combination of grant and tariff.
To put this in a historical context, under the low carbon building programme of grants which preceded the feed-in tariff, solar thermal was the most popular technology. This was despite the fact taht the grant for a domestic installation was just £400.
We'd love to hear what you think of the solar thermal tariff level in the comment section below. Would it encourage you to install? If not, what rate would? Would an upfront grant be a greater incentive?
Solar thermal installed with complementary technologies
DECC thinks that there are often significant advantages in the performance of renewable heat technologies of installing solar thermal alongside. This reduces the need to use a biomass boiler in summer when space heating isn't needed, and heat pumps perform more efficiently in combination with solar thermal, as it can heat the water to higher temperatures.
Given that the cost of installing both technologies may well put people off, DECC is consulting on whether it should pay "an uplift" to provide an additional incentive to install solar hot water systems with complementary technology. It is also asking for views on what size of tariff would provide sufficient incentive.
The consultation closes on 7 December. You can download the document here. Or let us know below what you think and we’ll incorporate it in our response.
NB: this blog was revised on 3rd October, and again on 8 October.
Photo by Tony RobertsBy Cathy Debenham
If you have a question about anything in the above blog, please ask it in the comments section below.
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