Profit from Renewable Energy

Sustainable Business NetworkHighbury College, 25 November 2010

Laurie Tennant, Engenius Limited

Since 01 April 2010 it has been possible to achieve good returns on investment in generation of electricity from renewable resources, thanks to Feed-in Tariffs which started on that date. Qualifying Technologies: 

•Wind•Solar-electric•Biomass•Hydro•Anaerobic Digestion•CHP and micro-CHP (the electricity content of Combined Heat and Power) – including NG-fuelled

 Non-qualifying Technologies: 

•Tidal•Wave•Anything else eg landfill & sewage gas for generation, fuel cells

Feed-in Tariff

5kW Wind Turbine

Solar-electric (PV) on school building

Anaerobic Digester

Micro-Hydro Turbine

On 01 June 2011 HMG will introduce a similar scheme in respect of renewably-generated heat energy, called the Renewable Heat Incentive. Details are not yet known but qualifying technologies are expected to include: 

• Bio-mass for heat generation• Bio-fuels (for heat generation; probably not for traction)• Anaerobic Digestion (gas for heating and export)• Solar-thermal• CHP and micro-CHP (the heat content of Combined Heat and Power)

  This presentation is not about the technologies, nor about how to select them. In almost every case the appropriate technology will be dictated by local conditions (site, environment, commercial, ethical). 

We are going to look only at the economics.

Grants for not-for-profit may be available through funds such as CSEP and electricity companies, but LCBP funds will cease when the relevant tariffs come into effect, or before if funding is exhausted. For farmers, see: www.seeda.co.uk/rdpe 

Soft loans are available in some circumstances from Carbon Trust; private financiers have also entered the market eg Triodos Bank and Bridgegreen. Commercial loans will be secured on revenue streams arising from the tariffs. Many mortgage lenders are happy to add the cost of microgeneration equipment to the loan.

Enhanced Capital Allowances do not apply unless equipment is on the ECA list – electricity generation isn’t at present:

http://www.eca.gov.uk/  

 

Conditions of the Feed-in Tariff

 1. Equipment on the MCS-accredited list (<50kW)

2. MCS-accredited installer (<50kW)

3. Genuine use for, or export of, energy generated

4. Less than 5MW installed capacity

5. Installed after June 2009 (lower rates apply before)

 

The Feed-in

Tariff

(as proposed)

Technolog y Scal e 2010 - 11 Tariff p/ kW h

Annual change 3

AD 1 (electricity) <5MW 9.0 0 AD 1 (CHP 1 ) <5M W 11.5 0 Biomass <50kW 9.0 0 Biomass 50kW - 5MW 4.5 0 Biomass (CHP 1 ) <5M W 9.0 0 Hydro <10kW 17.0 0 Hydro 10 – 100kW 12.0 0 Hydro 100kW – 1MW 8.5 0 Hydro 1 - 5MW 4.5 0 Micro - CHP 1 <50K W [T.B.A in Autumn ] PV 1 (New build 2 ) <4kW 31.0 - 7 % PV 1 (Retrofit 2 ) <4kW 36.5 - 7 % PV 1 4 - 10kW 31.0 - 7 % PV 1 10 – 100kW 28.0 - 7 % PV 1 100kW – 5MW 26.0 - 7 %

PV 1 (stand alone 2 ) < 5MW 26.0 - 7 % Wind <1.5kW 30.5 - 4 % Wind 1.5 – 15kW 23.0 - 3 % Wind 15 – 50kW 20.5 - 3 % Wind 50 – 250kW 18.0 0 Wind 250 – 500kW 16.0 0 Wind 500kW – 5MW 4.5 0

Existing RO 1 sites <50k W 9. 0 0 1 Abbreviations: AD=Anaerobic Digestion,

PV=Photovoltaic (solar), CHP=Combined heat and power, RO=Renewables Obligatio n

2 The consultation document doesn’t define these (but see below )

3 The annual 'degression' see question near bottom of this page

SBN Presentation, 8 Dec 2009, UKSA: Profit from Renewable Energy

All exclusive of VATUnits Before FIT After FIT Before FIT After FIT

Gross Capital Cost £ 30,000 30,000 117,500 117,500 Equipment lifetime years 15 15 25 25 Tariff guarantee period years 20 25 Annual Maintenance (life ave) 8% 8% 1% 1%Depreciation (straight-line) £ 2,000 2,000 4,700 4,700

Expected annual output MWh 20.0 20.0 20.0 20.0

Proportion exported 50% 50% 10% 10%

Amount Exported MWh 10.0 10.0 2.0 2.0 Imports avoided MWh 10.0 10.0 18.0 18.0

FIT Tariff £/MWh - 230 - 280 FIT credit £ - 4,600 - 5,600 Export Premium £ 600 500 120 100 Avoided cost of imports £ 900 900 1,620 1,620

Total Value of Generation £ 1,500 6,000 1,740 7,320 Add-back Corp Tax on deprcn £ 460 460 1,081 1,081 Annual maintenance (ave) £ 2,400- 2,400- 1,175- 1,175-

Net annual income £ 440- 4,060 1,646 7,226 Total lifetime income £ NA 60,900 41,150 180,650

Internal Rate of Return 6.7% 6.1%Net Present Value £ 4,642 24,291 Payback period years 10.0 10.8

Based on:Export Rate pre-FIT 6.00 p/kWh = 60.00 £/MWhExport Rate post-FIT 5.00 p/kWh = 50.00 £/MWhImport Rate 9.00 p/kWh = 90.00 £/MWhAssumed real rise of Imp rate 10% paMarginal rate of Corp Tax 23%Discount rate, ave over lifetime 5% pa © Engenius Limited 2009

WIND TURBINE, 10kWe PV ARRAY, 23.5kWpTwo Examples

Tomorrow’s Energy Price?