Financing Renewable Energy: an introduction to FITs and RHI

Andrej MillerRenewable Financial Incentives

Office of Renewable Energy Deploymentandrej.miller@decc.gsi.gov.uk

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

2

Costs of renewables

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

4

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

5

I4500kWh

FITs in practice

• Non-generation household• Only imports electricity• Billed by their supplier

based on meter readings of kWh imported

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U4500kWh

FITs in practice

• Non-generation household• Only imports electricity• Billed by their supplier

based on meter readings of kWh imported

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U4500kWh

I4500kWh

Import tariffImport tariff

FITs in practice

Avoided costs

8

Avoided costs

8

FITs in practice

Avoided costs

Export tariff

9

Avoided costs

9

Generation tariff

Avoided costs

Import tariff (on fewer kWh)Import tariff (on fewer kWh)

Export tariff

Differs by technology

and by scale

Differs by technology

and by scale

FITs in practice

Avoided costs

3p/kWh3p/kWh

Export tariff

10

Avoided costs

10

Generation tariff

Avoided costs

Import tariff (on fewer kWh)Import tariff (on fewer kWh)

Export tariff

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

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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 emissions54% of heat use is domestic; 30% industrial; and 16% commercial/public sector

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

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

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

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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

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Scale of delivery

• Estimated numbers of RHI installations in 2020:

• Estimated numbers of FITs installations in 2020:

Additional renewable resource in 2020

TWh 1,000 installations

Domestic 11 1,728

Non-domestic 62 144

Total 73 1,872

Additional renewable resource in 2020

TWh 1,000 installations

Domestic 1.7 750

Non-domestic 4.3 30

Total 6 780