Renewable energy information

From the blog

Good news on grants and feed-in tariffs

[view entry]

Solar hot water: It's the best thing I ever did

[view entry]

Solar thermal panels are possible with a combi boiler

[view entry] subscribe to rss renewable energy blog

Home » Financial Incentives » Renewable Energy Information

Financial Incentives

Introduction to the Clean Energy Cashback: financial incentives for renewable energy

The Clean Energy Cashback is the government's financial incentive to encourage the take up of renewable energy. It has two main strands: the feed-in tariff and the renewable heat incentive.

The feed-in tariff came into force on 1 April 2010. It focuses on the microgeneration of electricity. For domestic users this means solar PV panels, wind, or if you're lucky enough to have the right stream nearby, micro-hydro.

The renewable heat incentive is due to be introduced from 1 April 2011. It was introduced by the Labour government, which started a consultation process. Responses are now being read and incorporated, but at time of writing (May 10) it is not known if the Tory / Lib Dem coalition will continue with it or not.

What is a feed-in tariff?

The feed-in tariff - known as the Clean Energy Cashback is paid to encourage installations of wind turbines, solar photovoltaic panels and micro hydro schemes of up to 5MW capacity. Its aim is to encourage the production of low carbon electricity.

The structure of the feed-in tariff is:

A fixed payment from your electricity supplier for every kilowatt hour (kWh) your system generates. This is called the generation tariff. See below for rates.
A guaranteed price for any surplus electricity that you do not use on site, and export to the grid. This is called the export tariff and will also be paid by your electricity supplier. It has been set at 3p per kWh indexed annually by the retail price index.
In addition, any as you use electricity generated on site you will need less from the national grid – so your import bills will be lower.

The rates of generation tariff for the first two years of feed-in tariffs (April 2010 - March 2012) are as follows. The rate is indexed to the retail price index for the life of the tariff.

Hydro: 19.9p for installations up to 15kW; 17.8p for 15-100kW; 11p for 100kW-2MW; 4.5p for 2-5MW, paid for 20 years

Solar photovoltaic panels: 41.3p for installations of less than 4kW retrofitted onto an existing building (36.1p if it is on new build); 36.1p for 4-10kW; 31.4p for 10-100kW; 29.3p for 100kW-5MW and for stand alone systems, paid for 25 years.

Wind: 34.5p for installations with a capacity of less than 1.5kW; 26.7p for 1.5-15kW; 24.1p for 15-100kW; 18.8p for 100-500kW; 9.4p for 500kW-1.5MW; 4.5p for 1.5-5MW, paid for 20 years.

MicroCHP pilot: 10p per kW for micro combined heat and power installations. This will support up to 30,000 installations and will be reviewed when the 12,000th system has been installed. It is paid for 10 years.

Microgenerators (under 50kW) who installed their system before 15 July 2009 and were accredited under the Renewables Obligation are automatically transferred to the feed-in tariff at the rate of 9p per kWh, regardless of technology. They will receive the payment until 31 March 2027.

Tax: In the 2009 Pre-Budget Report the Chancellor confirmed that household which use renewable technology to generate electricity mainly for their own use will not be subject to income tax on feed-in tariffs.

The tariff for new projects will reduce annually (“degress”) to reflect (and to some extent encourage) expected decreases in technology costs.

For frequently asked questions on the feed-in tariff, and to ask your own questions, see the blog Feed-in tariff: your questions answered.

Renewable heat incentive

Heat is the biggest use of energy in the UK. Just under half of the UK's CO2 emissions and 60% of domestic energy bills are used on heating space and water. Heat in the UK is currently supplied predominantly by fossil fuels - less than 1% comes from renewable sources.

The proposed renewable heat incentive (RHI - also known as clean energy cashback) aims to change that. Its ambitious goal is that 12% of heat is generated renewably by 2020. The consultaion on the RHI, which is the first such scheme in Europe, closed in April 2010, and the final scheme is expected to be announced in September 2010. The aim is to introduce the scheme from April 2011 (but with a change of Government nothing is certain).

This article concentrates on the aspects of the scheme that apply to the domestic market (and also smaller businesses). It looks at the proposals, what they will mean for homeowners.

How much will I be paid for heat I generate?

Proposed tariff levels for small installations (up to 45kW, except solar thermal which is up to 20kW):
Solid biomass, 9p per kWh for 15 years
Biodiesel, 6.5p per kWh for 15 years
Biogas on-site combustion, 5.5p per kWh for 10 years
Ground source heat pumps, 7p per kWh for 23 years
Air source heat pumps, 7.5p per kWh for 18 years
Solar thermal, 18p per kWh for 20 years

Which technologies are included in the scheme?
Air, ground and water heat pumps, solar hot water panels and biomass boilers are the main technologies that will be used in the domestic market. The government proposes omitting wood burning stoves, air heaters and open fires from the heat incentive, as they are generally used as optional secondary heating, and because it's difficult to monitor to what extent they are used with non-renewable fuel such as coal. We would argue that they should consider including wood pellet stoves with and wood burners with back boilers where this is the main method of heating water; and wood pellet stoves used for space heating more than just one room.

People who have oil-based heating systems will be eligible for the renewable heat incentive if they convert their boiler to run on a blended fuel that is part renewable oil/part heating oil. Bioliquids (ie oils made from arable crops such as rapeseed) will not generally eligible, apart from this special case. The blended fuel will have to be certified to be eligible.

What return on investment will I get?
The payments are intended to give a 12% rate of return. This is a better return than under the feed-in tariff because the government sees renewable heat as a priority area for growth; and also because it thinks the hassle factor involved in the installation of technologies such as ground source heat pumps will mean people need more incentive to do it. The rates have been set so that they cover the higher cost of installing and running new technologies.

How will it work?
To qualify for the RHI payments, you will have to use an accredited installer and product. The main accreditation scheme is the Microgeneration Certification Scheme (MCS), and equivalent European schemes will also apply. Once a system is in place, your installer will issue a certificate that will enable you to register the installation with Ofgem. Once it has accredited the installation it will pay the incentive - this is likely to be an annual payment into your bank account.

How is the payment calculated?
The payments will be 'deemed' rather than metered. Although it is possible to meter heat the technology is in the early stages of development. The final methodology for how it will be done is yet to be decided. It is likely to be based on a table of average energy needs for space heating broken down by property type and size. For example, a 2-bedroom flat, with 61m2 of floor space, and cavity wall construction may be deemed to need 4,441kWh/year for space heating. A 3-bedroom semi, with solid wall construction may be expected to need 16,390kWh/year. The useful energy requirement for hot water will be assumed constant across property types and sizes at 3,742 kWh/year. This is based on an average occupancy of 2.9 people.

Are there any energy efficiency requirements?
You will need at least 125mm of loft insulation and cavity wall insulation, where appropriate, to qualify for the heat incentive. DECC does not propose to make more stringent requirements, as a deemed tariff system will encourage people to make their home as energy efficient as possible. The more efficient it is, the less energy will be needed for heating, so energy bills are lower, and more of the incentive payment is available to be saved or spent on other things.

Who can receive the payment?
The 'owner' of the heat installation is the only person who can receive the payment under the Energy Act 2008. This will usually be the person who bought and paid for the installation of the equipment. However, where there has been a hire purchase or similar agreement to fund the purchase, the payment can be made to the person who has taken out the loan even if they are not the legal owner. There may also be times when the person who owns the equipment is not the person who benefits from the heat it produces - ie if a landlord installs it in a rented property. In this case the landlord can receive the payment.

To receive the payment the owner may be asked to sign a declaration that they agree to keep the equipment working and well maintained to qualify for ongoing payments. Ofgem may want evidence of ongoing maintenance and repair by an approved person.

What installations are covered?
People who installed their heat generating equipment after 15 July 2009 are eligible for the renewable heat incentive. Only the installation of new equipment is eligible - refurbishment , repair or conversion will not be. There is considerable weight of feeling that existing microgenerators (who installed prior to the cut off date) should also be included in the scheme, as installers are being asked to rip out kit that works well, and install new, so people can claim. There is also strong feeling that a lot of education is needed for the RHI to really work, and that pioneer users with good stories to tell are vital to that education process.

What about fuel?
To qualify for the RHI payment, fuel needs to come from an approved sustainable source. It's not clear yet whether people with their own source of wood (or other biomass) will be able to use that in a biomass boiler - or whether they have to buy from an accredited source. This is something that we will be chasing up on in our response to the consultation

What if I live in rented accommodation?
Private landlords will be able to claim the RHI payments on renewable heat equipment that they install in their properties, with the aim that it is a logical financial decision to install it.

What about people in fuel poverty and social housing?
There is no requirement for social landlords to adopt renewable technologies, but the government thinks that the incentive will offer them a strong business case to offer this choice to their tenants. It is developing guidance to enable them increase the energy performance of their housing stock. The government is also consulting on ways to help low income households in fuel poverty to take advantage of the scheme. A lot of people in fuel poverty live off the gas grid, where switching to renewable technologies can make the most difference. The RHI includes provision for district heating systems, to encourage larger scale installations, for example in large blocks of flats, where that makes sense.

Renewable Obligation Certificates

Renewables Obligation Certificates are issued for each megawatt hour (MWh) of electricity generated and can be sold on the energy market. They are designed to incentivise big energy companies to invest in renewables. Prior to the feed-in tariff small generators were also able (with quite some effort) to claim payment from this incentive, and more recently they were available fairly simply through electricity suppliers.

Following the introduction of the feed-in tariff microgenerators using equipment less than 50kW is size will no longer be able to choose to recieve RoCs.