BBLB architects

The EU Renewable Energy Directive 2008 sets an ambitious target that 20% of energy used in the EU in 2020 should come from renewable sources. This target applies to all energy uses including electricity, heat and transport. In the UK, while the majority of this increase will be from large-scale technologies such as onshore and offshore wind delivered through the Renewables Obligation Certificate scheme, it is expected that a contribution from smaller-scale technologies will be required if the overall target is to be met.

The Energy Act 2008 gives the Government powers to introduce Feed-in Tariffs (FITs) for small-scale generators with capacities under 5MWe. After a consultation period, FITs formally started on 1 April 2010 and apply to a wide range of green electricity generation technologies; from domestic-scale PV arrays through to megawatt scale wind turbines and anaerobic digestion electricity plants.

Feed-in Tariffs are widely used to promote renewable electricity in continental Europe, and have led to widespread deployment of higher cost technologies such as photovoltaics that have not been delivered in large numbers under the UK’s Renewable Obligation Certificate scheme (ROCs). The FITs structure is aimed to provide the right level of simplicity and certainty to encourage non-energy professionals to invest in small-scale generation. It is also aims to provide the incentive to encourage those generators to become more energy efficient.

FIT Payment Structure

Although the name ‘feed-in tariff’ suggests payment for electricity fed into the national grid for use in the broader energy market, FITs payments will in fact be made to all electricity generated and not just that which is exported (this means that remote generators, not connected to a national grid will still be eligible).

The generation tariff will be a fixed price per kilowatt hour and will remain at the fixed priced (although will rise with inflation) throughout the entire support period (25 years for PV, 10 years for micro CHP and 20 years for the other eligible technologies). Whilst the fixed price remains the same for most of the eligible technologies, no matter what year the installation takes place, PV arrays and small scale wind turbines will have reduced fixed price tariffs for new projects over the years. The government also reserves the right to change the tariff level if there is a sudden change in technology costs, but an installation which has already started to receive a tariff at a certain level, will continue to receive the same generation tariff level throughout the entire support period. FITs awards for domestic installations are also exempt from income tax. FITs follow this basic structure:

• A fixed payment from the electricity supplier for every kilowatt hour generated i.e. FIT.
• Another payment additional to the generation tariff for every kWh exported to the wider energy market. Generators will be guaranteed a market for their exports at a long-term guaranteed price (the minimum price has been guaranteed at 3 pence per kWh). The generator may choose whether to sell exported electricity to the supplier at this guaranteed export tariff, or negotiate a price for exported electricity in the open market.
• In addition, generators will benefit because they will have the opportunity to use that electricity on-site to offset some or all of the electricity they would otherwise have had to buy.

In the above diagram, the roof mounted PV panels generate 2,500 kilowatt hours (kWh) per year. The occupants use 1,500kWh of the electricity generated but 1,000kWh is exported to the grid, because it is generated at times when the household does not use it. The household uses a total of 4,500kWh per annum. Therefore, they need to import 3,000kWh from their electricity supplier.

For an existing house with a PV array installed after April 2012 and before April 2013, the FIT for a small PV array is 37.8pence per kWh. This means that the household would receive a total FITs payment of £945 per year (2500kWh x 37.8p) for the electricity generated. They will also receive a payment for the electricity they export; assuming the minimum guaranteed price of 3p/kWh this would be £30 (1000kWh x 3p). They also derive a benefit from the 1,500kWh they generate and use on-site as that will offset 1,500kWh they would otherwise have had to buy from their electricity supplier. Assuming an import price of 12p per KWh this would be a saving of £180 (1500kWh x 12p). This means that:

• A house without the PV array would have an annual electricity bill of £540 (4,500kwh x 12p).
• A house with the PV array would have an annual electricity bill of -£615. Yes, the household would make an annual profit of £615.

FITs & Payback Periods

In the example above, the PV array would yield an annual profit for the household of £615. FITs therefore significantly impact and reduce the likely payback period of a renewable installation. As a minimum, any payback calculation should include the following:

• Capital cost of installation
• Annual maintenance cost
• Annual FIT payment
• Annual export energy payment
• Annual offset energy cost

Out of all of the renewable energy technologies, PV installations have often been chastised for having a very long payback period (in excess of 100 years). Working through the example above, the following payback period can be calculated:

Of course, this calculation assumes that electricity prices will remain constant – perhaps a very optimistic view in today’s energy market. This means that the likely payback period of a typical PV installation would be less than 19 years and nearer 14 years (a similar calculation suggests a payback period of around 8years for a well sited small 6kW wind turbine).  However, payback periods are not the only consideration; there is also a capital cost increase in the value of the house as well as the added marketability and sellability.

The article above has been kindly provided by Halcrow Yolles. For more information visit http://www.halcrow.com or call Antony Bursey on 01793 815603.