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Archive for the ‘feed in tariff’ Category

pllWith the election looming, it’s time to nail your colours to the mast. Ain’t no purdah round here, so here’s my contribution…

If I were Secretary of State for Energy and Climate Change, my mission would be to put us firmly on the path to zero carbon heat and electricity. Only by doing this will we meet our legally binding promise to decarbonise the UK economy and mitigate the worst effects of climate change.

As you’ll see, I also wouldn’t get too hung up on where my remit officially stopped.

To get back on the path, we’ll need to radically improve energy efficiency, develop our ability to shift electricity demand, enable renewables to meet the bulk of our electricity requirements, and rapidly develop our district heating market.

First: ramp up energy efficiency

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Here’s the promo video for the Sol-evo PV carport we’ve developed over the last 3 years or so. One of several reasons why this blog has suffered! I try and console myself that at least there’s a good reason.

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It’s taken longer than I’d hoped, but here we go:

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The feed in tariff has arrived and my inbox is filling up fast with emails from companies selling PV systems making wild claims about payback periods and rates of return. Some of them are clearly from cowboys. Some of them are from reputable companies that (unless I’ve missed something or they’re temporarily insane) should know better. In this febrile flurry of market positioning,  PV may rapidly become the new double glazing.

I have to admit that I love PV. As soon as I got to know PV properly through some projects we’re doing in Italy, I fell in love.  PV is the business and I have absolutely no doubt that it’s a key solution to our long term energy needs.

But you’ve got to be realistic about costs and output. The UK isn’t Italy. As a result of years of domination by very few players, the UK PV market remains immature and install costs are high. In addition, (obviously) there’s less solar radiation so outputs are lower.

So what sort of IRR is realistic? I’ll go do some graphs now.

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The proper way to slash carbon emissions is to tax carbon at the point of fuel extraction and let the market sort the problem out.

But because there’s no political appetite for carbon tax, we end up tinkering at the margins trying to address the emissions problem in tortuous and esoteric ways. Here’s a list I jotted down on the train on my way into the office:

  • CERT
  • SHESP
  • CESP
  • PAYS
  • Decent Homes
  • Allowable Solutions
  • Part L
  • RHI
  • FiT
  • CCL
  • CRC
  • ROCs
  • Retrofit for the Future
  • JESSICA, JASPERS, ELENA
  • Expanded Suppliers Obligation

All of this cost and bureaucracy becomes redundant the moment the real price of carbon is reflected in the cost of energy. Is political expediency the biggest obstacle to carbon abatement?

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DECC have announced the final FiT levels in advance of the incentive coming in in April. Having had a number of disheartening conversations with policy makers over the last few months, the FiT levels are no surprise. No one in government seemed to mind that the FiT would be a subsidy for middle class greenies and folks like McAlpines. The important thing was that the FiT wouldn’t cost too much.

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Wrong. Unless they include extra charges.

The Code for Sustainable Homes, upcoming changes to building regs, and national emissions targets are all driving the industry towards much wider use of on-site generation.

Reducing carbon with on-site generation (also called “distributed energy” or just “DE”) brings extra costs relative to the business-as-usual approach of individual gas boilers and grid electricity. Cyril Sweett and others put the additional cost of building a zero-regulated-emissions house at £10k – £13k per dwelling, and some recent projects at work have borne this out.

This £10k – £13k is a massive problem for developers and housing associations, in some cases making projects infeasible.

There’s a widespread misconception that ESCOs can make the problem disappear. Some of this misconception has been fostered by ESCOs  keen to get deals on the books (I’ll come back to this in a minute), but I think most of the problem is down to a poor understanding of distributed energy and how ESCOs make money.

So how much capital cost can ESCOs take on? Here’s an example: (more…)

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As currently proposed, the feed-in-tariffs are likely to be the exclusive domain of the middle class with lower income households shut out from participating.

To prevent the FiT being accessible only to the middle classes, it needs to be set at a level that allows banks and private equity providers to step in and cover the capital costs of PV while sharing some of the benefit with householders.

In order to be attractive, the return needs to be between 7.5% and 8.5% (ungeared) depending on interest rate and how the FiT revenues are taxed. Some institutional investors say it needs to be higher, but if we stick to this figure we stay on the conservative side.

Taking PV as an example, the FiT as currently proposed would generate a 3-4% return in a mature market (e.g. £4700/kWp installed for a household system as we’re seeing in Italy). In a less mature market (e.g. £5.5k/kWp) the return would be 1.9%.

Looking at it another way, in order to achieve a 7.5% return in the real world based on the proposed FiT, the installed price of PV would need to be £3350/kWp! The other £1.35k is value shortfall (i.e. the difference between £3.35k and £4.7), which might be covered by an eco-minded middle income household but will certainly not be attractive to a low income household.

Bottom line: the proposed FiT for PV is too low. In order to provide an 8% return in a mature market (£4.7k/kWp installed for a small system), the FiT needs to be set at around 55p/kWh. For the largest schemes (>100kW), this would step down to 37p.

Sorry I’ve departed from my usual policy of putting all the underlying numbers up. The calculations are pretty straightforward but they require a spreadsheet and I don’t have a public facing version yet.

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Following on from discussion about planning reports last week, here’s a chart I put together showing roughly how much PV you can fit on a flat roof. It’s based on the formulas described by Volker Quaschning, the German Godfather of Sol (Thank you! I’ll be here all week. Try the crab).

Solar-shading

The shading angle is the angle from the bottom of the panel behind to the top of the panel in front. As a rule of thumb, you can use the height of the sun at noon on the winter solstice – for London, this is about 15°. Utilisation factor is the ratio of panel area to roof area.

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The new SAP has a revised carbon intensity for grid electricity (set in the consultation at 0.591 kgCO2/kWh, up from 0.422). This has a big impact on the resulting carbon emissions from heat pumps, in most cases making them higher than emissions from the worst boiler you can legally install. This goes for both air source and ground source.

You can see from the graph above that at a grid carbon intensity of 0.591 even a GSHP with a COP of 4 is struggling to outperform an 86% efficient gas boiler. The real world COPs seen at Barratt’s Chorley scheme (2.6 for GSHP) and recent field trials by Mitsubishi  (3.0 – 3.4 for ASHP according to a letter from Mitsubishi in the latest CIBSE mag) mean that heat pumps would emit significantly more carbon than the boiler.

And yet in the low carbon transition strategy, DECC state that heat pumps will be eligible for the Renewable Heat Incentive (pdf – see para 1.22), rewarding them for being a renewable energy source! What the hell are they thinking?

Here’s how I did the numbers:

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