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A bad week for renewable energy

Posted by Stewart Boyle on 3 April 2013 at 3:54 pm

Last week was a bad week for renewable heat, and biomass especially. The announcement that there would be a significant further delay to the introduction of the domestic Renewable Heat Incentive (RHI-2) scheme finally came. With RHI payments due to start no earlier than Spring 2014, this will make a near two-year delay. 

For anyone working in domestic solar thermal, biomass and heat pumps, this is all pretty dispiriting. Delays with the Green Deal have been difficult but now some sort of momentum is happening. Where renewable heat investments are highlighted in the surveys, we now have no more than an RHPP grant to go on and the vague promise of tariffs at some point and at some level. It makes selling of kit out there much harder. 

The 2012 consultation on RHI-2 tariffs did not give confidence that DECC and its advisors really knew what they were doing. On biomass it became clear that they had assumed a cost of less than £7,500 for a hand-fed pellet boiler, way below the true market price for anything other than really basic boiler equipment. Both the Micropower Council and REA organised sessions where real world data could be fed into the process and thought they were making progress.

The heat pump sector was better pleased at proposed tariffs, as they were offered levels that promised a decent market. They began to organise marketing and gear up for a big push this year. With low rates of heat pump uptake in the Commercial RHI, the sector really needed some sense of direction and commitment from Government. 

All of these hopes and expectations have been blown away under a single Government expediency – the need to cut Departmental budgets by a further 5%. The reality is that saving money by whatever means is the only game in town. Civil servants will get kudos by delay, diminishing industry expectations and handing money back to the Treasury. Any hopes of getting back on track with the high targets set for RHI and the heat market are being put to the sword by Treasury dictat. 

In case we miss the point of all this – we still have a legal target of meeting the European Renewable Energy Directive (RED) target of 15%. The transport sector is fast drifting away from its 10% target due to lobbying over liquid biofuels. Now the renewable heat market is being constrained. How on earth are we going to meet that 2020 target? It leaves only wind, some co-firing and a tiny bit of pure biopower to meet the target.

With John Hayes the anti-wind Energy Minister now in No 10, channelling Tory grassroots views to Prime Minister David Cameron, don’t expect pleasant mood music for wind power and renewables in general. Check out the Conservative Home website if you want to gauge anti-climate change, anti-renewables and anti-Cameron ‘greenspeak’ feelings from the Tory roots. 

So where does this leave the industry and consumers seeking to do their bit on renewable heat? I think it makes it difficult, though not impossible, to make an economic case. The cost of competing fuels such as oil and LPG means that the case here is arguable and with an RHPP and a promise of a tariff, for some customers that will be enough to decide. For others who really want to see the numbers and paybacks it is really hard to close a deal.

The dynamic between the domestic and commercial sectors has not been lost on companies working in this sector. A key to the success of the PV market transformation was that plenty of media stories came out on the back of the domestic PV programme, leading to massive public awareness and then related awareness on the potential of bigger PV schemes. A nice synergy existed in the market place. 

It’s harder to get stories in the media on commercial renewable heat projects alone. Given the almost complete absence of marketing efforts by DECC to promote the RHI, there should no surprise over the relatively low level of ‘certified’ projects under the RHI. With a little over 1,000 projects through the process, more than 90% being biomass, this is well below where we should be after 16 months. DECC has spent massive amounts of internal staff time and effort in getting tariff degression and a plan for dealing with over-subscription of the RHI scheme sorted out. Under-subscription to the RHI is the real problem and delays in the domestic RHI won’t help.  

A further set back on commercial RHI slipped out last week when OFGEM changed its mind and confirmed that residential care homes (and by implication student residences) were not eligible for the RHI. The reasoning is that these buildings are exempted business council tax so are on domestic council tax, and hence not eligible according to the existing rules of the game. We are hopeful that Ministerial intervention can sort this madness out, but it seems bizarre given that RHI money went back to Treasury in the first year of operation and the same will happen again this year. 

In a recession of course everyone has to do their bit. I relate to that if everyone really is doing their bit, but in the past few months the partial way Treasury and DECC are viewing the energy sector is becoming clear. More than £2.2 billion a year of DECC's budget goes to the Nuclear Waste Decommissioning Authority – the legacy costs of the £76 billion clean up at Sellafield. Right now EDF are negotiating a deal whereby they get paid 10p/kWh for 40 years to justify building a new nuclear plant at Hinkley Point. This on the back of a Coalition promise by the Lib Dems that no public ‘subsidies’ would support nuclear. Really? 

During the Chancellor’s Budget speech renewable energy was notable by its absence. In contrast, shale gas got a starring role. George Osbourne said: “I want Britain to tap into new sources of low cost energy like shale gas. So I am introducing a generous new tax regime to promote early investment and by the summer, new planning guidance will be available alongside specific proposals to allow local communities to benefit…Shale gas is part of the future. And we will make it happen.”

What we are missing right now is a Prime Minister, a Chancellor and an Energy Secretary who will make it happen for renewable energy. We have the targets in place and the policy and structure to meet those targets. A lot of great things are happening and the market is moving. What is missing is a real commitment to push this all through in political terms by making it a top priority. 

During Hurricane Irene which devastated New York in 2011, and probably tilted the election Obama’s way, Virgin’s Richard Branson spoke the phrase that dare not be spoken of in US media. “It’s called Climate Change,” he tweeted. Perhaps we need to go back to some of the basics that are getting lost in the political under-growth and in-fighting as Government budgets get slashed.

To have any chance of getting out of the recession we need growth from somewhere. The green economy has delivered an estimated 100,000 jobs in the past few years. The job prospects are much higher. Somehow this is all getting missed. We are not seen as a key route to the future, and without that our market will struggle when the going gets tough or budgets are reviewed.

A bad week in the office for sure but at least we know what we are up against. We need to come out fighting and be prepared to argue our case on economic and environmental grounds.

About the author:

Stewart runs the consultancy arm for South East Wood Fuels. His book The Sleeping Giant Awakens: Bioenergy in the UK will be published in May 2013. Click here to get a free download of the first chapter and put Free Download in the subject line.


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