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Tackling climate change is a key challenge for all. The move to a virtually zero carbon electricity system will be essential if the UK is to achieve an 80% reduction in carbon emissions by 2050. Renewable energy, in particular, will play a vital role and the Energy Act of November 2008 sets out a series of provisions in order to help the government meet its targets.
In recognition of its commitments under the EU Renewables Directive, the Government’s UK Renewable Energy Strategy aims to increase renewable electricity generation as a share of total electricity generation from 5.5% in 2008 to over 30% by 2020. The Renewable Electricity Financial Incentive consultation proposes changes to large-scale renewable support, including the Renewable Obligation (RO) and the introduction of Feed-in Tariffs (FIT) for domestic and small scale renewable generation less than 5MW.
Up until now, the Renewables Obligation (RO) has been the Government’s main mechanism for supporting the generation of renewable energy. The RO places an obligation on licensed electricity suppliers in the United Kingdom to source an increasing proportion of electricity from renewable sources. The RO focuses on supporting large-scale renewable energy projects and it is mainly centralised on renewable generation such as landfill gas, hydropower and offshore wind farms. However, those commercial businesses that run large scale microgenerators are also able to take advantage of the scheme.
Feed-in tariff
The proposed introduction of a feed-in tariff is most likely to be the preferred option for most UK businesses. Called the
Clean Energy Cashback scheme, it is due to come into effect from April 2010, this is intended to encourage the uptake of small-scale low-carbon energy technologies (electricity generated from renewable sources, such as solar PV power, wind power, biomass, hydropower and geothermal power) by households, communities and businesses.
Under FITs, regional or national electricity utilities will be obligated to offer a premium payment for every unit of renewable energy generated for at least 20 years – with a bonus for surplus power exported to the grid. It is envisaged that receipt of the tariff will be linked to the ownership of the equipment; therefore if a premises is sold the new owner will receive the payment. However, generators can assign the rights of the FITs payments to a third party by way of a bilateral agreement.
The recent consultation suggested that small scale renewables can contribute 2% of the UK’s electricity supply and cited international experience that showed investors can expect a rate of return of between 5-7%. It is promised that the proposed tariff levels, which have not yet been confirmed, will be calculated to ensure that the total benefits an investor can be expected to achieve (from the generation tariff, the export tariff and/or the offsetting benefit) should compensate the investor for the costs of the installation as well as provide this level of return.
In terms of how the RO and feed-in tariffs sit together, it is proposed that any system under 50kW will only be eligible under the feed-in tariff, any system over 5MW must only claim under the RO and any scheme in between will retain the right to choose between RO and FITs. To put this into perspective - the size of an average domestic solar system is 1.5 - 2kW, which equates to between 10-13 sq m of solar panels. A business would therefore need over 350 sq m of solar panels to reach the threshold of 50kW output and have the choice as to whether to claim under the feed-in tariff or RO.
A simple solution
For businesses now looking at benefiting from the RO or feed-in tariffs and reducing energy costs and carbon emissions, solar PV presents a simple solution. When compared to alternative renewable technologies, solar PV is easier to retrofit and less intrusive, meaning it is often easier to gain planning permission for its installation. It is also a scaleable technology, meaning it can be specified to meet exacting requirements and can be more easily extended at a later date. The solar feed-in tariff system has already been in place in many states such as Germany, Israel, the US, Spain and Australia for some time now and has been instrumental in the success and growth of renewable energy operations there.
On-going developments in product design have also seen the integration of solar panels into the building fabric itself. The ASI Glass module range from Schott Solar, for example, combines energy generation with striking aesthetics to offer an integrated solar glass system, suitable for a wide variety of applications, including semitransparent façade glazing, roof glazing and rain screen cladding. Alternatively, the InDaX V 225 is designed for direct integration into pitched roofs, providing an efficient photovoltaic function as well as protection against rain, hail, snow and wind.
The consultation period for the feed-in tariff has just concluded and the Government will soon be announcing the tariffs levels for solar PV to ensure the feed-in tariff is established in law by April 2010.
Protecting investment
Renewable energy supporters are pleased that the Government is considering a revenue stabilisation mechanism to provide greater certainty to investors and at the same time protect consumers from paying unnecessarily high premiums for renewable generation. However, given the challenging renewables target and the acknowledged high costs of the RO, which has become increasingly complex over time, there is certainly room for improvement. Currently, the proposed feed-in tariff for a retrofit Solar PV system of less than 4kW, for example, is 36.5p/kWh. However, this has been referred to as too little. In the longer term a robust carbon market should provide carbon prices that investors can rely on, driving the support for established renewables.
