Renewable energy: solar

Generating change

23 April 2015

Good returns are still possible from government incentives and subsidies for small-scale renewables such as solar, write Peter Fane and Ruth Farrell


About half a million homes in the UK have solar panels on their roofs – perhaps the most visible form of renewable energy generation. But it would need 10 million homes by 2020, or about a third of householders generating energy from the sun, if domestic rooftop solar is to deliver its potential. That would enable the UK to produce 6% of its electricity needs from solar, comparable to levels achieved in Germany.

There are many drivers for this development. Some householders have invested in solar panels to reduce dependence on rising energy costs, others want to reduce their greenhouse gas emissions. Not all are focused on the returns.

The UK is committed to achieving 15% of its total energy from renewable sources by 2020, a commitment that will bind any new government. There have long been incentives for investment in large-scale renewable generation projects but initiatives are on offer for smaller scale generation (less than 5MW) both of electricity and heat.

Incentives

Smaller scale renewable energy incentives were first introduced under the UK Energy Act 2008. The best known are feed-in tariffs (FITs). Under the schemes, those who generate energy are paid for every kilowatt hour (kWh) fed into the grid or used on site. This applies whether it is from a 2kW array on the roof of their house, a 50kW wind turbine or a 5MW anaerobic digestion plant. Although rates of payment have reduced very substantially and for mid-scale (sub 50kW) solar photovoltaic arrays now stand at 11.7p/ kWh, just over one third of the level set in 2010, with further cuts set after March 2015, costs of installation have also dramatically reduced. A 50kW solar PV array of 200 panels could now cost less than £50,000 compared with about £120,000 in 2010.The feed-in tariff would be about £4,650 per year, assuming 41,600kWh is generated annually. Electricity generated would vary but PV arrays are now being installed as far north as Aberdeen.

An export tariff will be paid for any electricity unused but exported to the grid. This would be worth an additional £950-£1,000 per annum on a 50kW fixed array, assuming 50% of the electricity can be used on site. Some larger generators may be able to negotiate power purchase agreements to enhance the value of the electricity exported and solar farms would generally export almost all their electricity.

The income from a smaller PV array will generally be maximised where as much as possible of the electricity generated can be used, since that will save the cost of bought-in electricity at say 10-12p/kWh. In the case of this 50kW array, this could be worth £2,280 per year. However, the problems of matching electricity generation to site demand should not be underestimated, since it cannot be stored and must be exported to grid if unused.


The UK is committed to achieving 15% of its total energy from renewable sources by 2020

Lower generation tariffs will apply where the PV array is standalone (not connected to the grid) or where any building to which it is connected has an Energy Performance Certificate (EPC) below band D.

It was always intended that FIT rates for new entrants should decline over time. The tariffs were intended to help an infant industry bring down its costs to a point where no subsidy is needed. Calculations by Imperial College London suggest that by 2030, the cost of solar generation will be competitive with the dirtiest coal powered generation.

Those who take up FITs now will receive the payments throughout the 20 years of their contract, rising in line with inflation. Despite the reduction in FIT rates, analysis by Green Business Watch shows that the rate of return for a well-sited 2.6kW domestic solar installation has risen from an estimated 4.1% in 2010 to 7.8% in 2014.

The government’s solar strategy is now directed at securing rooftop PV, and ministers are using planning and other instruments to slow down the development of solar farms. This is likely to be reflected in the next changes in the FIT regime, due at the end of March.

Wind

Electricity generated from wind is far harder to predict and more site dependent than solar. For a typical 50kW wind turbine, average generation might vary from just under 170,000kWh per year for a site with a hub-height wind speed of 6m/s to about 220,000kWh for a site with average wind speeds of 7m/s.

The generation tariff for this size of turbine is set at 16p/kWh to March 2015, so the payment would be £27,000-£34,800 per year at these wind speeds. If 25% of the electricity is used on site, then the export tariff would be worth an additional £6,000 for a site at 6m/s, and the saving in electricity at 11p/unit would be worth about £4,600 per year.

Renewable heat

The early focus of UK renewable policy was on electricity. The Renewable Heat Incentive (RHI) was set up to encourage uptake of technologies among householders, communities and businesses. The UK government expects the RHI to contribute towards the 2020 ambition of 12% of heat demand coming from renewable sources.

Phase one was launched in 2012 to support the UK’s non-domestic sector. Unlike FITs, it is funded by government and not by a levy on consumers, and paid direct from Ofgem rather than from the electricity suppliers. The gradual reduction in rates for new entrants has been more regulated, so that it is easier to plan and to make long-term decisions.

The commercial RHI scheme rate from January 2015 is 6.8p/kWh for small biomass (up to 200kW) with lower rates applying if the system is used for more than 1,300 hours per year (tier 2). The rate for ground source heat pumps is 8.7p/kWh (tier 1) and 2.5p for cheaper air-source heat pumps (http://bit.ly/1xDP0vh).

The actual rate of payment will need to be calculated separately for each installation, since it depends on usable heat. A 100kW biomass plant at the new 6.8p/kWh rate would generate around £8,900 per annum in commercial RHI payments. These payments will be made quarterly over 20 years, and adjusted for inflation.

A domestic RHI scheme (referred to as phase two) was launched in April 2014 and provides financial support to the owners of renewable heating systems. The scheme is targeted at the four million off-gas households. The domestic RHI is paid on a flat rate, initially at 12.2p/kWh for biomass over a 7 year period, and payments are based on estimated heat demand from an EPC.

Installers must be able to show that the boilers meet performance standards, including emissions limits. Applicants for the domestic scheme are required to obtain a Green Deal assessment, and that they have bought fuel from a firm on the Biomass Suppliers List. Those in the non-domestic (or commercial) RHI scheme can use the approved supplier list or submit their own quarterly sustainability reports to Ofgem.

Conclusion

Renewable energy generation has increased markedly in the UK over the past 10 years. It is still possible that the country will meet the renewable energy generation 15% target set for 2020. Political uncertainty and changing rates of support have discouraged investment but favourable returns are still available, at household or business level.

Peter Fane MRICS is principal consultant at FarmREO renewable energy options, a consortium of consultants advising farmers and landowners

Ruth Farrell MRICS is a rural business consultant at DJM Consulting and a member of the FarmREO consortium

Further information

  • Related competencies include Sustainability
  • This feature is taken from the RICS Land journal (March/April 2015)