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Thursday, 23 February 2012

‘Renewable Heat Incentive is Rubbish’

, is what someone would say who lived on GJ 1214b. It is one of many planets orbiting stars in other solar systems that have been found over the past twenty years. At 200oC (392oF) and with a confirmed high presence of water this is a truly exotic place where your cocktail might be poured over ‘hot ice’ after an afternoon’s surfing on ‘super-fluid’ waves.

In contrast, here on Earth for most of us keeping warm is a basic need. The discovery of fossil fuels made it a lot easier to abandon the standard issue camp fire. Unfortunately, it also has contributed substantially to pushing us down the path of pollution. According to the Department of Energy and Climate Change (DECC), generating heat accounts for almost half of all energy consumption and emissions in Britain. This may sound a lot but hot water is used for more than just space heating. Numerous domestic and commercial applications depend on it from the kitchen tap to curing rubber.

Starting at the Business End

British governments are not normally known for bold, ground-breaking initiatives. It is, therefore, all the more remarkable that the Renewable Heat Incentive (RHI) is a world first in responding to how energy is used for this purpose and can be guided actively towards renewable sources. It runs alongside the electricity related Feed-in-Tariff scheme (FiTs)  but is different in that it is paid for out of state coffers instead of consumers’ wallets. I know, ultimately that amounts to pretty much the same. However, for the RHI the government has set aside funding from which the programme is financed directly rather than everyone’s energy bill. The administration falls on Ofgem, a government regulator, although the Microgeneration Certification Scheme has some input in certain situations.

There are two phases. The first one began on 28th November 2011 with the opening of the scheme for applications. Initially, it is focussed on business installations. Systems are accepted even if they were fitted before the start date, going back to 15th July 2009. In the words (and hopes) of Greg Barker, minister of state for climate change ‘The scheme will help drive around a seven-fold increase in renewable heat over the coming decade, which will help shift what currently is a fringe option, firmly into the mainstream.’  Of course, Britain has bravely committed to drastic reductions of emissions, 80% or more by 2050, so that it needs to grab every opportunity it can get to push renewables.

Eligibility

Technologies that qualify are

 

  • Biomass (wood, organic waste, energy crops, etc.)
  • Ground & water source heat pumps
  • Deep geothermal heat
  • Anaerobic digestion plus biomethane that is being fed into the national gas grid
  • Combined heat and power (CHP)

There are no uniform limits, as for the FiTs. Biomass boilers, for example, will have to be registered through the MCS if they deliver up to and including 45 kilowatt thermal (kWth). Above that Ofgem has complete control. The DECC assumes that the largest proportion of biomass will come from wood. As energy crops are not left out and the debate of food versus such material raging as heated as ever it will be interesting to watch how the wording will change over time and sources be defined more precisely. Already, ‘Biomass generators of 1 MWth and above, together with producers of biomethane will be required to report to Ofgem on the sustainability of their … feedstock’. [DECC, Renewable Heat Incentive]

Air source heat pumps are excluded at this stage. Apparently the department does not understand them properly. Ground and water source installations are part of the list but need to have a minimum coefficient of performance of 2.9. It means they have to provide at least 2.9 units of heat for every unit of electricity they consume, mainly for driving the pump.

Deep geothermal heat really is only viable for large users, because they require boreholes that are several hundred meters deep and cause considerable costs. Biogas is supported up to 200 kWth, while solar thermal generation has the same limit but might be expanded in future. CHP units will only be accepted if the resource is renewable and eligible under the above criteria.

The Financial Side of RHI

Naturally, setting up these systems is going to be expensive. Especially since this is targeted at the business sector to begin with, the question arises whether they are financially sustainable. Three benefits can be taken advantage of:

  • Saving by generating heat for own use
  • Receiving payments from the RHI regardless whether produced for own use or export
  • Potential savings on the Climate Change Levy (CCL)

Guaranteed for 20 years the money on offer is based on individual calculations that include the type of technology, the amount of heat generated in kWth, and the tariff rate. Details can be found on the DECC website.

The CCL is a business tax on energy products that include liquid petroleum gas, coal or electricity (although oil is spare for some reason!). Exemptions are granted if a renewable technology will replace a fossil fuel source, in which case the levy disappears completely, not to mention the additional income from RHI payments. The same is true for CHP installations. However, they have to be

-          registered with the Department of Energy and Climate Change’s (DECC’s) CHP Quality Assurance (CHPQA) programme (see paragraph 2.2)

-          certified annually under that programme, and

-          covered by a valid CCL Exemption Certificate issued by DECC’s Secretary of State.

HMRC Reference: Notice CCL1/3 (November 2011) Reliefs and special treatments for taxable commodities

RHI – Good for Business?

The reliance on fossil fuels still is so deeply ingrained in the general concept of energy that every find of another drop of oil is celebrated as a huge success, Canada defends tar sands tooth and nail, and shale gas fever has grabbed the pinnacle of British holiday glory – Blackpool. Renewables might make perfect sense to you and me. Unfortunately, that does not mean they are part of everyone’s logic. The fight goes on and a simple reality check proves we have a long way ahead of us. The RHI, as a rare political example of positive impetus, is forcing significant strides towards a future where low-carbon systems will be the norm.

Funnily enough, in the show-me-the-profit-and-I’ll-do-it world of business this scheme has raised the bar where some tasty returns can be had. In a report titled ‘The Case for Renewables in UK Business’ the Carbon Trust speaks of returns in the region of 11-12% and perhaps 20% or more in exceptional cases. Some companies have taken measures already. According to Mike Farish, writing in EnergyEngineering (37/2011), IKEA (a furniture store chain) and John Lewis (a retailer) are generating all the electricity they use by renewable means, from ground source heat pumps to biomass.

This is not merely a chance to put on the mantle of green credentials. It makes good common business sense.

 

See you next week

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