Financing Renewable Energy: an introduction to FITs and RHI

1. Financing Renewable Energy: an introduction to FITs and RHI Andrej Miller Renewable Financial Incentives Office of Renewable Energy Deployment andrej.miller@decc.gsi.gov.uk

2. Why new incentives? • EU Renewables target • Currently no incentive scheme for heat • Carbon targets • Instrumental in changing behaviour • Need simple incentives - particularly at small scale • Associated benefits including: • Security of energy supplies • Economic benefits, new jobs

3. Costs of renewables

4. FITs - key features • 5MW limit • Support for: • Solar photovoltaic • Wind • Hydro • Anaerobic digestion • Domestic scale micro CHP (2kW) • Tariffs provide 5-8% returns, indexed to RPI for 20-25 years • Degression: year-on-year reduction of tariffs for new installations in line with cost reduction predictions • MCS/RO accreditation

5. Tariffs structure • A payment for every kWh generated • Generation tariff • An additional payment for every kWh exported / spilled to the local electricity network • Export tariff • Additional benefit from usage of electricity “on-site” • Avoided costs

6. FITs in practice • Non-generation household • Only imports electricity • Billed by their supplier based on meter readings of kWh imported U 4500kWh I 4500kWh

7. FITs in practice • Non-generation household • Only imports electricity • Billed by their supplier based on meter readings of kWh imported U 4500kWh I 4500kWh Import tariff

8. FITs in practice Avoided costs Avoided costs 8

9. FITs in practice Avoided costs Avoided costs Avoided costs Generation tariff Export tariff Export tariff Import tariff (on fewer kWh) 9

10. FITs in practice Avoided costs Avoided costs Avoided costs Differs by technology and by scale Generation tariff Export tariff Export tariff Import tariff (on fewer kWh) 3p/kWh 10

11. FITs launched on 1 April • ~6000 installations transferring from Renewables Obligation • ~2000 new installations so far, majority PV • Seeing third party provision of solar panels – company supplies PV panels and claims FITs, homeowners get free electricity • Some plans for large scale PV

12. Heat is half the battle • Heat, including electrical heating, accounts for around: • 46% of primary energy consumption • 47% of UK CO2 emissions, and • 42% of all greenhouse gas emissions • 54% of heat use is domestic; 30% industrial; and 16% commercial/public sector

13. RHI consultation proposals • All scales – domestic to industrial • Wide range of technologies – must count towards renewables target under Renewable Energy Directive: • Ground and air source heat pumps • Biomass boilers – heat only and heat from CHP • Solar thermal • Biogas combustion (anaerobic digestion of wastes) • Biomethane injection into the gas grid • Only installations completed post 15 July 2009

14. Tariff setting proposals • Compensate for cost difference between renewable and fossil fuel heating • Rate of return of 12% (6% for solar thermal) • Plus compensation for barrier costs and inflation adjustment • Tariff lifetime = expected equipment lifetime (10-23 years) • No degression until first review • Fixed tariffs (grandfathering) • Deeming of heat load to prevent over-generation

15. Consultation feedback • ~700 responses from a range of people, organisations and business • Broadly supportive of proposals • Key issues raised included: • Microgeneration Certification Scheme • Energy efficiency • Backup boilers • Inclusion/exclusion of certain technologies • Support levels/banding for certain technologies • Sustainable supplies of biomass

16. What now on RHI? • Consultation closed on 26 April – proposals made under previous Government • New Government committed to renewables target and renewable heat but also need to consider the costs of all policies, including RHI • Aware of renewable industry’s need for clarity • Will be making further announcements in the autumn

17. Scale of delivery • Estimated numbers of RHI installations in 2020: • Estimated numbers of FITs installations in 2020: