Debating renewables

Renewables are key to meeting our future energy needs, but as with all emerging technologies, the way forward isn’t always clear. Ideal Commercial Heating’s James Parkinson charts a path through the financial and legislative minefield for building owners and operators.

The Government’s target for an 80% reduction in carbon emissions means that more than one building needs to be refurbished or refitted every minute between now and 2050 – because there are a staggering 26 million homes and two million commercial and non-domestic buildings that need to be upgraded. Given the extent of this challenging situation, it’s no surprise we’ve seen the introduction of green taxes such as the Carbon Reduction Commitment (CRC), together with financial support for the uptake of low carbon technology. The case for renewables is strong – even before you’ve factored in rising fuel costs.

In this context of rapid change, anyone responsible for energy management in a commercial building must stay on top of new legislation and understand the range of energy saving schemes available. This is no mean feat when you consider the degree of uncertainty surrounding many of these initiatives, plus the vast array of options available.

There is no getting away from the fact that renewables involve a financial investment, and getting it wrong could be a potentially costly and wasteful exercise. As a result, there is a danger that building owners will be put off from investing in renewables and missing out on the financial benefits.

Energy generation

The major success story of renewables so far is solar PV, thanks in no small part to the Feed in Tariffs (FITs) and since launching last April, there have been over 50,000 PV installations under the scheme.

The FITs are a financial support initiative for low-carbon electricity technologies, including new anaerobic digestion (AD), solar PV, hydro and wind power in small scale installations up to 5MW. Within the scheme, energy suppliers make payments to the generator based on the number of kilowatt hours (kWh) generated.

For example, solar PV systems of between 10 and 50kW (e.g. up to around 200 PV panels) currently receive generation tariffs of 32.9p for each kWh produced and consumed on site. Surplus energy which is sold to the grid attracts an export tariff of 3p per kWh. The generation tariffs are index-linked and guaranteed for 25 years, while the Government reserves the right to review the export tariff at a later date.

Commercial buildings stand to gain considerably from the FITs. Most are occupied during daylight hours, and this means they will not only benefit from free energy, but will also attract the generation tariff.

This can only be a good thing considering that electricity prices are predicted to rocket, with energy companies expected to pass on the costs of the Chancellor’s carbon floor price following its introduction in 2013. Furthermore, climate policies will likely push prices even higher, with Government figures suggesting that electricity costs for intensive industry will increase by 52% by 2020 as a result.

FIT for the future?

Amidst concerns that the spirit of the FITs might be abused, the Government fast-tracked a review of larger scale generation tariffs by a year. The Secretary of State for climate change, Chris Huhne, was keen to close what he considered to be a loophole being exploited by so-called solar farms, where PV arrays are set up in fields and disused spaces.

As a result of the review, new lower tariffs (which will only affect new entrants to the scheme) were announced for solar PV installations above 50kW on 9 June 2011. Starting in August 2011, new installations of between 50 and 150kW will receive a generation tariff of 19p for each kWh produced and consumed on site. Installations measuring between 150 to 250kW will receive 15p per kWh generated, and the tariff reduces to 8.5p per kWh for systems of between 250 and 5MW.

More change is expected however, and a Comprehensive Review of the FITs is due to publish results at the end of this year. By their very nature, the tariffs must reflect the changing nature of the energy market in order to be effective, and it is hoped that the sliding scale of tariffs will keep pace with the falling costs of production and greater competition.

All this highlights the benefits of early participation in the scheme, while the generation tariffs are higher. The technology is now widely available to ensure long term performance and reliability, and with new legislation due that will make a company’s energy consumption public knowledge, there is a good case to act sooner rather than later.

Heat generation

Structured in a similar way to FITs, the Renewable Heat Incentive offers long term financial rewards for sustainable heat production. The long awaited scheme opens for applications from the non-domestic sector and community projects in September 2011, and currently supports the installation of solar thermal, biomass boilers, biomethane and ground source heat pumps.

As with FITs, solar is the biggest winner, with solar thermal attracting the highest tariff of 8.5p per kWh for installations up to 200kWth. This figure is rather disappointing; however the positive impact on organisations that use a lot of hot water, such as care homes and hospitals, could be significant.

The Government hopes the RHI will lead to 13,000 new renewable installations in industry, and 110,000 installations in the commercial and public sector by 2020. In total, this could reduce the heat energy consumption of these sectors by up to 25%, and represent a seven-fold increase in the renewable heating market.

Green loans

The Government is currently considering including renewables in the Green Deal, which offers consumers (including businesses) a loan to cover the capital costs of energy efficiency improvements. The loan is expected to be up to £10,000 over 25 years, and repayments must be made out of the resulting savings on energy.

However, given the relatively small loan amount available, the Green Deal will be more useful for fabric upgrades such as insulation and double or triple-glazed windows.

More points to consider

In addition to the legislative and financial issues highlighted so far, there are yet more reasons to focus on energy efficiency. European Legislation is due out this year which will remove the building size threshold for Display Energy Certificates (DECs). This will have an impact on an organisation’s public profile and, potentially, their competitive position as well.

We are also starting to see premium rents being charged for the most energy efficient commercial premises, with tenants becoming increasingly aware of the marketing benefits associated with an eco-friendly image.

In conclusion

By looking at all these incentives together, we can build up an overall picture of how the Government is seeking to support the market for renewable power and heating. And there is no denying that the theory looks good. PV has taken off like a rocket because the incentive is clear, and hopefully heat generation will follow suit once the Government sorts out the funding model.

In the meantime however, building owners and operators can make decisions with some certainty. We know that fuel costs will continue to rise, and that climate change will continue to have an impact on targets – and given that the tariffs are fixed at this time, we can calculate payback with more confidence.

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