NEIL HARRISONPRESENTATION - Biomass and The RHI re:heat F34
CONTENTS 1. Context 2. What is Biomass? 3. What is the RHI? 4. Maximising the Returns
CONTEXTTotal Energy Use in EU27 (mtoe)Energy Use in EU27 re:heat Source : DECC Energy Trends, December 2010
CONTEXTRenewable Energy Use in EU27 (mtoe) re:heatSource : DECC Energy Trends, December 2010
CONTEXTRenewable Energy Use in EU27 (proportion)Source : DECC Energy Trends, December 2010
CONTEXTRenewable Heat Use in EU27 (proportion) re:heat 63.1% 1.4%Source : DECC Energy Trends, December 2010
CONTEXTEnergy & Heat Use in the UK 80% of energy use in a UK household relates to heat.
CONTEXTRenewable Heat Use in EU27 (proportion) re:heat UK is committed to sourcing 15% of its energy from renewables by 2020 (12% target for heat); Will be necessary to increase proportion of energy from renewables across all sectors of economy - electricity, transport and heat; Heat has been the Cinderella of renewable energy until recently - the current combination of sticks and carrots will drive the sector forward - particularly woodfuel.
CONTEXTInstalled Biomass Capacity in the UK Number of identified woodfuel heating installations in England by Summer 2010 (2011) : 2,372* Number of identified woodfuel heating installations in Scotland (2010) : <203** Number of identified woodfuel heating installations in Wales (today) : <150 (est.) * Forestry Commission Biomass Energy Centre, 2011 ** Forestry Commission Scotland, 2010
CONTEXTAspirations for Growth re:heat DECC Press Release : • By 2020 we estimate that the renewable heat sector will have grown to include around : 13,000 installations in industry; 110,000 installations in the commercial and public sector, supplying 25% of the heat demand in these sectors. 50% of this is anticipated to come from biomass.
CONTEXTAspirations for Growth That means 64,500 commercial and industrial biomass- fired installations in the UK by 2020. That’s IEO 7,600 per year, every year, for the next 8 years - more than twice what we’ve installed in the last decade…
CONTEXTAspirations for Growth re:heat Royal Academy of Engineering, quoting the Heating and Hot Water Task Force, see the target for 2020 as 1,000,000 biomass boilers installed. 125,000 per year for next 8 years… This is the unwavering direction of Government Policy.
CONTEXTWhy Biomass? Focus will be on biomass for heating. Why? • ‘Drop in’ replacement for tanker delivered fuels; • Boilers produce heat at same temperature (most heat pumps don’t, so radiator replacement or underfloor heating necessary); • Solar thermal only good for summer DHW load; • Energy from Waste only technically possible at large scale; • Biomethane injection will only benefit producers - grid injection; • Deep geothermal only economic at large scale - Science City.
WHAT IS BIOMASS?Definitions re:heat• Virgin wood : trees, sawmill co-product, anything clean and woody;• Energy crops : high yield crops grown specifically for energy applications;• Agricultural residues : residues from agriculture harvesting or processing;• Food waste : from food and drink manufacture, preparation and processing, and post-consumer waste;• Industrial waste and co-products : solids and sludges from manufacturing and industrial processes.
WHAT IS THE RHI? re:heat The Renewable Heat Incentive is governments’ response to market failure in the renewable heating industry and the desire to deliver public goods; Is effectively a payment to not use fossil fuels (reducing CO2); Has been several years in the making, and replaces a number of on- and-off grants programmes (which were ineffective); Operates within a legislative framework set by DECC, and is administered by OFGEM E-Serve on their behalf; Is now the principal mechanism for supporting renewable heating.
WHAT IS THE RHI? The RHI involves paying those installing eligible equipment for the heat produced and used by the kWh; Payments are quarterly and in arrears, and are index linked.
WHAT IS THE RHI?Eligibility : The Basics re:heat Any applicant must be the owner of the installation; Installation of the plant was completed and first commissioned on or after 15 July 2009; The heat must be used for space, water or process heating; The heat must be used in a building; The installation has not received, and will not receive, a grant from public funds.
WHAT IS THE RHI?Eligibility : The Basics The plant must be new at the time of installation; The heating system must use a liquid or steam to deliver heat; For installations of 45kWth and below, the equipment and installer must be certified under the MicroGeneration Certification Scheme (MCS) (or equivalent).
WHAT IS THE RHI?Eligibility : The Basics re:heat RHI is in two phases - commercial, which is live now, and domestic, which will go live in 2013 as part of the ‘Green Deal’. Domestic is classed as any single property, i.e. with a separate Council Tax payment; Commercial is anything else - including two individual domestic properties linked to a single heat source, e.g. 1 woodchip boiler; RHI is designed to deliver an IRR of 12% on average, but in reality, returns significantly in excess of this are possible (20%+).
WHAT IS THE RHI?Eligibility : Commercial or Domestic? For single domestic premises : • “treated as separate and self contained premises for Council Tax Banding purposes”; • “Where such premises are used wholly or mainly as a private residential dwelling where the fabric of the building has not been significantly adapted for non-residential use”; • “where a premises consists of a main property and other buildings such as outhouses, pool-houses, lean-to’s etc which are together treated as one self contained unit in single occupation for Council Tax”; • Single boiler heating only these premises =
WHAT IS THE RHI?Eligibility : Commercial or Domestic? re:heat For multiple domestic premises : e.g. Main property and adjoining properties (e.g. annexes, flats, gatehouses, workers cottages, etc…) which are themselves treated as self-contained units for council tax banding; If each premises is served by its own boiler = If two or more self-contained units are heated by a single boiler =
WHAT IS THE RHI?Eligibility : Commercial or Domestic? Defining non-domestic premises : Will be business rateable (although some agricultural buildings may be exempt); Where a private residential dwelling has been significantly adapted for non-residential use - council tax officer may decide that this makes all or part of the property business rateable; Therefore premises may be viewed as non-domestic and eligible for the RHI.
WHAT IS THE RHI?Applying and Claiming re:heat All heat must be metered - this forms the basis of all claims for RHI payments from Ofgem; Complex and time consuming process to register an installation - Ofgem are acutely aware of the possibilities for fraud; 95% of applications to date have been returned by Ofgem - only 20 out of 376 approved in first quarter (to end April); Ofgem indicating that applications are inconsistent, incomplete, contained insufficient information or illegible supporting docs; Getting a 20 year guaranteed payment is not, and should not be easy - expect to spend at least a day for simple system!
MAXIMISING THE RETURN Smart approaches to project selection and design can deliver excellent returns from the RHI; Experience is the key to unlocking projects which provide the best returns - biomass is not solar PV! Some pointers…
MAXIMISING THE RETURNTarget Off Gas re:heat Current Heating Fuel Costs @ April 2012 16 14 12 Pence per kWh 10 8 6 pence kWh 4 2 0 Electricity LPG @ 57p/litre Oil @ 65p/litre Mains Gas Wood Pellets @ Wood Chip @ Logs @ £90/t & £200/t & 10% £100/t & 30% 20% MC MC MC
MAXIMISING THE RETURNTarget Off Gas Average UK Home Uses 20,500kWh Average rural home uses c. 33% more : 27,325kWh £4,500 £4,000 £3,500 £3,000 £ per Year £2,500 £2,000 Average UK £1,500 Average Rural £1,000 £500 £- Electricity LPG @ Oil @ 65p/litre Mains Gas Wood Pellets Wood Chip @ Logs @ £90/t 57p/litre @ £200/t & £100/t & 30% & 20% MC 10% MC MC
MAXIMISING THE RETURNTarget Off Gas re:heat £0.80 65p £0.70 £0.60 Pence per Litre £0.50 30p £0.40 £0.30 15p £0.20 £0.10 £- Mar Nov May Aug Nov Feb Nov Mar Nov Feb Sep Jan May Oct Mar Jun Nov Feb Jun Jan Nov Feb Jul Deb Feb Apr Jun 01 01 02 02 02 03 03 04 04 05 05 06 06 06 07 07 07 08 08 09 09 10 10 11 11 11 11 Date Delivered cost of heating oil in pence per litre 2001-2011 Source : Aggregated Data from re:heat clients
MAXIMISING THE RETURNTarget Off Gas Average UK household uses 20,500kWh for heating, which at current prices is eq. to c. £1,256 on heating oil and c.£2,330 on LPG; Rural housing stock is older and colder, meaning roughly 1/3 more heat is required for thermal comfort (£1,675 and £3,105); Consequently, across a 400-household portfolio, the annual spend on oil could easily exceed £600,000; Across the UK’s 1.5m oil-using households, the total spend will be in the region of £2,323 million (£2,785 million including LPG) - DECC figures state a £33bn spend on heat in 2012 across UK economy.
MAXIMISING THE RETURNTarget Off Gas re:heat Using rough metrics, there are at least 10m kWh of heat being used across XXXX Estate’s properties, and possibly a lot more; Because fossil fuels are now so expensive, few tenants will be using as much as they need to see reasonable levels of thermal comfort; In excess of £600,000 is being ‘lost’ annually from the Estate area through the purchase of fuel for heating; Woodfuel + the RHI presents a once-in-a-generation opportunity to recapture this value - 10m kWh is equivalent to 3,250t of seasoned chip/logs at 35% MC.
MAXIMISING THE RETURNMaximise the Use Real project! Four separate heat uses/systems around a 1960’s industrial unit; Total heat energy bill in the region of £37,500 for space and process heating; Heat used in very different ways : standard oil boiler and rads in office; ceiling-mounted direct oil burners in factory; hand-filled oil burner in paint shop and mutiple 3kW ‘kettles’ for tool warming; No central heat production, no real controls other than office boiler.
MAXIMISING THE RETURNMaximise the Use re:heat FACTORY SPACE HEATING 450,000kWh/annum £25,650 on oil OFFICE SPACE HEATING 25,000kWh/annum £1,425 on oil PAINT OVEN 66,000kWh/annum £3,760 on oil TOOL HEATING 70,000kWh/annum £6,700 on electricity
MAXIMISING THE RETURNMaximise the Use Taken together, some 541,000kWh of heat are used across the site; Project will centralise heat production from a pair of woodchip boilers at c. 400kW, with heat piped to each point of use; Capex likely to be in the region of £200,000; Fuel costs will drop from £37,500 to £16,771 on chip at 3.1p/kWh; Majority of RHI payment will be in upper band at 5.1p/kWh (525,600kWh), with some in lower at 2.1p/kWh (15,400kWh); Total RHI income IRO £26,800, delivering simple payback of 4.1 yrs.
MAXIMISING THE RETURNEvaluate ESCo Proposals Carefully re:heat If you are an attractive enough site for an ESCo provider, you are likely to be attractive enough for a bank or non-traditional lender to provide finance; ESCo options can be very good, but RHI is generous enough that an ESCo provider should not be looking to take all of the RHI payment; There are an increasing number of ESCo providers touting ‘free boiler’ deals, many of whom were previously in the solar PV field; Your heating bill is now potentially an asset!
MAXIMISING THE RETURNConsider District Heating Pellet boiler (c. 15kW) installation in single domestic property - £15-20,000. Pellet boiler (100kW) installation in municipal property - £80-120,000. In-building works for district heating connection - £3-5,000. District heating main - c. £100/linear metre. 8 houses + municipal building - c. £170,000. Capex saving at least IEO £50,000.I n s t a l l a t i o n | M o n i t o r i n g | F u e l S u p p l y | D u e D i l i g e n c e
MAXIMISING THE RETURNConsider District Heating re:heat Incremental cost of boiler plant is lower per kW installed as economies of scale are introduced; As scale increases, fuel substitution is possible, < costs further : Bag Pellets Bulk Pellets P45 Chip P63 Chip P100 Chip 4.6p/kWh 3.8p/kWh 2.9p/kWh 2.7p/kWh 2.4p/kWh Where heat is sold to tenants, margins can increase dramatically, esp. where tanker-delivered fuels are displaced at 6- 8p/kWh; And of course, more kWh through the boiler equates to higher RHI receipts.T r a i n i n g | C o n s u l t a n c y | R e s e a r c h | P r o j e c t M a n a g e m e n t
MAXIMISING THE RETURNConsider District Heating Backup boiler (where required) can be a single unit, rather than multiple units); Virtually all maintenance is associated with the central plant - reducing running costs substantially; Lifetime replacement costs are lower, and generally relate only to in- building components and boiler - heating mains are long-life; Where social objectives are a consideration, opportunities exist to reduce the cost of heat provided to tenants; Risks are removed - no combustion in properties (CO, etc…).I n s t a l l a t i o n | M o n i t o r i n g | F u e l S u p p l y | D u e D i l i g e n c e
MAXIMISING THE RETURNConsider District Heating re:heat All emissions are centralised in a single plant - reducing air quality issues and making clean-up technology cost-effective to implement; With current supply chain, woodchip only really justifiable for use in boilers rated at 50kW and above - DH allows this threshold to be reached at many sites; Critically, the delay in the domestic RHI & nature of qualifying criteria for commercial has created a major imperative for the connection of multiple domestic properties to a single heating system.T r a i n i n g | C o n s u l t a n c y | R e s e a r c h | P r o j e c t M a n a g e m e n t
IN SUMMARY RHI offers a chance in a lifetime to invest in new heating infrastructure, create new revenue streams and reduce the impact of rising fossil fuel costs; Experience counts when designing, installing and operating a biomass heating system; Developing a project can be something of a minefield; The RHI process is complex and requires some thought; Rewards can be huge for successful schemes.
re:heat Stand F34 Neil Harrison email@example.com 07917 632 171 Ben Tansey firstname.lastname@example.org 07917 626 724 I n s t a l l a t i o n | M o n i t o r i n g | F u e l S u p p l y | D u e D i l i g e n c eT r a i n i n g | C o n s u l t a n c y | R e s e a r c h | P r o j e c t M a n a g e m e n t