Farm Renewable Energy Options - independent advice for farmers and landowners Farm Renewable Energy Options in association with Eurinco Peter Fane FARM

Farm Renewable Energy Options- independent advice for farmers and landowners

Farm Renewable Energy Options in association with Eurinco

Peter Fane

FARM ENERGY 2011Feed In Tariffs and income from renewable energy

Presentation amended to take account of Appeal Court finding 25th January 2012



…

Breaking news (25th January 2012):

Since the Farm Energy event in December, DECC has lost its case in both the High Court and now (25th January 2012) in the Court of Appeal.

Although Chris Huhne, Secretary of State, has said that DECC intend to appeal to the Supreme Court, they have yet to win the right to do so and it is unlikely that the Supreme Court will take a different view on the merits of the case.

The next two slides have been inserted to show the implications of this for farmers considering investing in solar PV.



…

The Court of Appeal (25th January) has refused DECC’s appeal against the High Court finding in December that the way it introduced the change in FIT rates was illegal.

In preparation for losing the case, DECC had set out a new fallback date of 3rd March for implementing the change of rate.

This means that the new reduced rates of Feed-in Tariff for PV will apply from 3rd March 2102, and not as DECC had intended from 12th December 2011



…

The Court of Appeal finding means that some farmers will be able to secure both the significant cost reductions which have become available since October and the previous high rates of feed in tariff, giving simple rates of return of nearly 20% in some cases on typical good quality 50 kW PV schemes;

We would advise farmers only to proceed on this basis if they were already convinced that PV was a good investment at the new rates – to regard the restoration of the PV rates as a bonus, not a basis for planning;

To benefit from this, and to get the system installed in time, farmers will have to be on the point of confirming a contract and to have the funds available, assuming a 50% deposit; and to have started the process of securing planning consent and grid connection approval.

FarmREO can expedite arrangements with good quality suppliers with a track record of supplying to farmers, and can help secure the necessary consents in time – but only for those who act quickly (25th Jan ’12).

See http://www.farmrenewableenergyoptions.co.uk/farmrenewableenergyoptions/decc-loses-court-of-appeal-hearing-pv-rates-to-be-restored-till-3rd-march.html .

http://www.farmrenewableenergyoptions.co.uk/farmrenewableenergyoptions/decc-loses-court-of-appeal-hearing-pv-rates-to-be-restored-till-3rd-march.html



…

The background to feed in tariffs



20% improvement in energy efficiency 20% reduction in greenhouse gas emissions - rising to 30% if multilateral

agreement 20% generation of total energy from renewable sources

(and 10% from renewable transport fuels)

All to be achieved by 2020Renewable Energy DirectiveRenewable Energy Directive , see , see http://eur-lex.europa.eu/JOHtml.do?uri=OJ:L:2009:140:SOM:EN:HTMLhttp://eur-lex.europa.eu/JOHtml.do?uri=OJ:L:2009:140:SOM:EN:HTML

Meeting the EU’s 20:20:20 target:


Farm Renewable Energy Options in association with EurincoThe UK has a long way to go … (2007)

% of overall energy generated % of overall energy generated from renewable sourcesfrom renewable sources



Agriculture emissions of methane and nitrous oxides



EU-27 on target for 20.7% of 2020 energy consumption from renewables?

34% EU electricity demand to be supplied from renewables by 2020?

Wind energy to generate 14% of Europe’s total electricity demand in 2020 (4.2% in 2009)

15 Member States to exceed their national targets

EWEA analysis of NREAPs, Dec ’10

http://orizzontenergia.it/images/stories/Communicati%20Stampa/Per%20Argomenti/Rinnovabili/EWEA%20-%20EU%20will%20exceed%20renewable%20energy%20goal%20of%2020%20percent%20by%202020.pdf

Member State

Binding target

TWh from

RE

% EU

total

Sweden 49% 97 8

Denmark 30% 20 4

Austria 34% 52 2

France 23% 148 12

Germany 18% 217 18

UK 15% 117 9.8

EU27 20% 1200

Meeting the EU renewable sources target?



• Renewables obligations (* 1.9 ROCs for biomass and small wind)• RTFO for transport fuels• Feed in Tariffs 2010 – as amended July ‘11

• And again 31st October/ 12th December 2011 and 31st March 2012• Energy cost savings• Grants – inc RDPE (large grants scheme and energy efficiency)• Tax incentives • Market incentives – lower carbon products, house / building values (rental)?New incentives:• Renewable Heat Incentive (RHI)

Incentives for renewable energy


Farm Renewable Energy Options in association with EurincoTaxation and investment in renewable energy

Feed in Tariff on farm / commercial buildings is taxed as other income (only domestic exempt IT)

Enhanced capital allowances (ECAs) on purchase of new capital equipment

Biogas / biomass CHP (CHPQA certified) exempt from business rates

Renewable Energy Bonus - local authorities can keep business rates from renewable energy projects

Revenue from electricity and FiTs (domestic projects exempt from income tax)http://www.hmrc.gov.uk/budget2007/bn64.htmhttp://www.hmrc.gov.uk/budget2007/bn64.htm



Consider joint ventures- with communities, farmers/landowners, manufacturers/suppliers

Collaboration - with energy companies, retailers, others

Rate of return is crucial – FiTs now based on 5% real terms Venture capital ? Will the third party investors return?

Funding renewable energy projects


FEED-IN TARIFFS (FITs)• Introduced in April 2010 • Scheme is guaranteed by the government

– but Tariff is paid by the electricity supplier. • payments are inflation protected - linked to the Retail Prices Index.• Rate, once set, guaranteed for 20 years (25 years PV)• The Government set EU target of achieving 15% electricity

production from renewable sources by 2020 – current figure is only 7%.

Predictable returns? Subject to emergency tariff changes…

• Help to kick-start mass deployment of renewables to meet 2020 targets;• to bring technology costs down to “grid parity” so public support no longer

needed– costs typically fall by 20% every time the number of installations doubles.

• increase energy security (i.e. reduce dependence on imports) and reduce carbon emissions.

• FITs used in more than 40 countries around the world,– many now have strong renewable manufacturing industries, creating employment and

export revenue.

• FITs attract outside investment: – “international experience shows FITs are extremely effective at attracting investment from

homeowners, farmers, community-schemes and the public sector, as well as the commercial sector.”

(REA FiT briefing - http://www.r-e-a.net/document-library/press-releases/100201FITPressBriefing.pdf)

Why FITs? what will they achieve?


FEED-IN TARIFFS(FITS)

Post 31st October ‘11 phase 1 review


FiTs – “Comprehensive review phase I” 31 October 2011

• ‘Comprehensive Review Phase 1: Consultation on Feed-in Tariffs for Solar PV’

• ‘Consultation’ closes 23rd December, rate changes wef 12th December 2011 (or 3rd March 2012):• Reduced tariffs for all PV with a Total Installed Capacity (TIC) of 250kW or less• new ‘multi-installation’ tariffs for aggregated solar PV schemes(further 20% cut)

• new energy efficiency requirements


Solar PV rates

Band (kW)

Current generation

Rate - p / kWh

Proposed generation post 12th Dec / 3rd March

<4 kW new build 37.8 21

<4kW retrofit 43.3 21

4 – 10 kW 37.8 16.8

10 – 50 kW 32.9 15.2

50 – 100 kW 19 12.9

100 – 150 kW 19 12.9

150 – 250 kW 15 12.9

250 kW + and standalone

8.5 8.5


Feed-in Tariffs – why the review?

Gregory Barker MP, Energy & Climate Change Minister: • “overgenerous subsidies failing to keep pace with plummeting

costs… boom has been built on unsustainable foundations• the costs of the technology have plunged – by at least 30% – since

the scheme started in April 2010 • solar is burning through its budget at an unsustainable rate. The

£867m pot … will be completely devoured if we don't act now.• … avoid the boom and bust already experienced in Italy, Spain and

France, fuelled by over-generous subsidy.• I still believe passionately that feed-in tariffs are essential”.


Opposition day debate in House of Commons

• Motion: “… that solar power – gives families, community organisations and businesses greater control over their energy – will help the UK meet its renewable energy targets and reduce carbon emissions;

• since the creation of the feed-in tariffs nearly 90,000 solar installations have been completed in the UK and the number of people employed in the solar industry has increased from 3,000 to 25,000;

• the Government’s cuts to feed-in tariffs … undermine confidence and deter investment;

• regrets that the cuts to feed-in tariffs were announced with just six weeks’ notice and come into force before the consultation has even finished;

• calls on the Government to withdraw the 12 December 2011 deadline and bring forward more measured proposals, put feed-in tariffs on a sustainable footing”


The Labour case

Caroline Flint MP: – cost of FiTs < £1 per household per year (Ofgem, June)– average household energy bill £1,345 pa– standard tariffs up by £175 per household since June.

• the (solar) industry is calling for … planned, sensible reductions in tariffs.

• “When we introduced the scheme in 2010, we made it clear that there would be a review in 2013, or earlier if needed”.


“the Government is putting feed-in tariffs on a long-term, fair and sustainable footing” (23rd November debate)

Chris Huhne:• If we were to leave the scheme unchanged (it) would add at least £26 to an average

consumer bill… by 2014-15 feed-in tariffs for solar PV would cost consumers about £1 billion a year

• If we do not act now, the entire feed-in tariffs budget for the current spending review period will be fully committed by next spring

• the returns that the new scheme will provide—if, indeed, we proceed with it following what is a genuine consultation will be very similar to those originally intended. The revised tariffs will provide inflation-proofed returns for 25 years of around 5%.

• We have to strike a delicate balance between acting quickly, and allowing people to finish work that is well under way.

• Those who have already installed solar PV and who are registered for feed-in tariffs will not be affected… this approach is consistent with our long-standing principle in the House of not making retrospective changes.


Government response to the FITs debate (23rd Nov)

• Gregory Barker (Energy & Climate Change Minister, Con):– “I believe in the huge potential of solar, and

I am determined to see it at the heart of the coalition’s ambitious plans (for) decentralised energy.

– I recognise that there is concern about the implementation date of 12 December. We are protecting the scheme for the long term ... This is a genuine consultation”.

• Labour motion defeated 297 to 226.http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm111123/debtext/111123-0004.htm


The battle inside the coalition?• George Osborne to Conservative conference October:

– “We’re not going to save the planet by putting our country out of business… we’re going to cut our carbon emissions no slower but also no faster than our fellow countries in Europe”

• Chris Huhne at Renewable UK conference (26th October):– “We subsidise renewables to bring on deployment and reduce costs;– We are not going to save our economy by turning our back on renewable

energy... – I know the Prime Minister agrees…”

• George Osborne’s Autumn statement (29th Nov):– “If we burden them with endless social and environmental goals, however

worthy in their own right, businesses will fail, jobs will be lost…”


CBI: “third own goal” on energy policy.

• John Cridland: – government has undermined investor confidence

and lost trust of the industry;– “Moving the goal posts doesn’t just destroy

projects and jobs, it creates a mood of uncertainty that puts off investors”

– government is jeopardising investment in future initiatives

http://www.egovmonitor.com/node/44609


‘Cut don’t kill’ campaign • 25,000 jobs in 3 - 4,000 businesses under threat

from the Government's proposals?• 87,769 solar installations installed with FiTs since

introduced 2010.• 312 mW solar generated in UK (cf 225mW

Oldbury nuclear power station).• ‘As solar industry grows and costs go down,…

there should be a gradual reduction in the tariffs’.• ‘within 6 – 8 years solar will not need to be

subsidised” – provided current support is maintained (Solar Revolution Strategy for UK)

http://www.oursolarfuture.org.uk/


“Raise the Roof” (Alan Simpson)

– The whole purpose of FiTs is to develop a momentum for renewable energy technologies that will quickly turn them from innovations to mature market technologies.

– Instead of having energy bills that pay for the import of non-renewable fossil fuels, Germany is now paying its own citizens to produce, install and maintain their own renewable energy systems.

– calling on the government to delay the proposed cuts and introduce a framework for tariff rate adjustments, which would prevent future rates being cut by surprise.


The report from the Select Committees:

Tim Yeo MP, Chairman of the Energy and Climate Change Committee:• "solar subsidies needed to be urgently reduced, but the Government has

handled this clumsily.

Joan Walley MP, Chair of the Environmental Audit Committee:• "It doesn’t make economic sense to let the sun go down on the solar industry in

the UK. As well as helping to cut carbon emissions, every panel that is installed brings in VAT for the Government and every company that benefits from the support is keeping people in work.

• The Government is right to encourage people to focus on saving energy before fitting solar panels, but these proposals will require most households to spend thousands of pounds on extra insulation before they purchase the panels. This will stop nine out of ten installations from going ahead”

See http://www.parliament.uk/business/committees/committees-a-z/commons-select/energy-and-climate-change-committee/news/solar-fits-findings/ (22nd December).


SCHEDULE – TABLE OF GENERATION FEED-IN TARIFFS (FIT)PV – 25 Years Wind – 20 Years

TARIFF LEVEL FOR NEW INSTALLATIONS IN PERIOD (PENCE/KWH)

SCALE To December 2011 / March 3012

New rate

>4-10kW 37.8 16.8

>10-50kW 32.9 15.2

>50-150kW250kW -5 mW

And standalone

19.0

8.5

12.9

8.5

TARIFF LEVEL FOR NEW INSTALLATIONS IN PERIOD (PENCE/KWH)

SCALE To March 2012 To March 2013

>1.5-15kW 28.0 26.7

>15-100kW 25.3 24.1

>100-500kW 19.7 19.7


Solar PV in Germany• PV currently generates

– 3% of gross electricity consumption – 10% by 2020?

• 5.2 GW (gigawatts) new capacity installed Oct 2010 to Sept 2011, triggering a 15% FIT reduction.

• Rate for small rooftop installations goes down to 24.43 eurocents / kWh (currently 28.74)

• “the German government has clearly defined the future growth path... the risks of an abrupt change in subsidies are minimal and the market will remain attractive during 2012"

• German Government invested €6.5 billion in solar 2010 (UK: £860 million over four years).


LOCATION

National solar performance


Estimate of solar electricity generationBased on PVGIS data for Peterborough

(fixed system, 10kWp chrystalline, due South at 35 degrees)

Month Av electricity production (kWh)

December 220

July 1090

average per month 710

Total for year 8510


PV PRODUCTS

ROOF MOUNTED :- suitable on a range of agricultural buildings and houses

GROUND MOUNTED :- good option if you don’t have sufficient / suitable roof space available

TRACKER SYSTEM:- alternative ground-mounted installation allowing optimization of grid connection, space and yield


PV RETURNS – before and after 31st October reviewRoof Mounted PV Systems

Size of System (kWp) 9.87 49.90 49.90No of panels 42 214 214Fully installed prices from (excluding VAT) £29,750 £120,000 £80,000Annual energy generation (kWh) 8,320 41,600 41,000Feed in tariff rate 37.8p now 16.8p 32.9p 15.2p post reviewTotal feed in tariff income £3,145 now £1,397 £13,686 £6,232Saving – using 50% off set at 12p/unit £499 £2,496 £2,460

Export 50% at 3p/unit £125 £645 £ 620Total annual income £3,769 now £2,021 £16,826 £9,312Simple annual return % 12.7% now 6.8%? 14% 7.8 – 11.5%Payback in years 7.9 now 14+? 7.1 8.5yrs – 12.5 yrs


WIND TURBINE RETURNSTurbine Size in kW 11kW 3 Phase 50kW 3 Phase

Mast Height 18M 36.5M

All inclusive package price from £63,000 £265,000

Wind speed 5 m/s 6 m/s 5 m/s 6 m/s 7 m/s

Annual output in kWh 31.500 42,000 114,900 168,900 217,700

50% Used on site 15,750 21,000 57,450 84,450 108,850

Feed in Tariff levels pence/kWh 28.0p 28.0p 25.3p 25.3p 25.3p

Feed in Tariff Income - generation £8,820 £11,760 £29,069 £42,731 £55,078

Savings from own use @ 12p on 50% £1,890 £2,520 £6,894 £10,134 £13,062

Export Tariff to Grid (income) @ 3p on 50% £472 £630 £1,724 £2,534 £3,266

Total Annual Income £11,182 £14,910 £37,687 £55,399 £71,406

Annual % Return 17.74% 23.66% 14.22% 20.90% 26.94%

Total Life Generation – 20 Years (inf 5%) £369,000 £493,000 £1,246,000 £1,831,000 £2,361,000

Payback in Years 5.6 4.2 7.0 4.8 3.7


RETURNS WILL INCREASE WITH ELECTRICITY PRICES, FEED-IN TARIFFS ARE LINKED TO THE RPI

• Ofgem, has forecast that electricity prices will increase by 60% in the next 6 years.

• From 1999-2009, domestic users’ bills increased by 37% and non domestic medium users’ bills increased by 66%.

• Feed-in Tariffs – once set for any installation - guaranteed to increase in line with RPI.

– RPI 5.6% Sept (cf CPI 5.2%)– RPI averaged 5% per year from 1987 to

2010


INCREASES IN ELECTRICITY COSTS

OVER THE PAST 25 YEARS


Feed-in Tariffs: other technologies

CHP < 2 kW 10.5 10.5 Max 30,000 units

Hydro

TIC < 15kW

20.9 20.9 20.9 (=23p

adjusted RPI?)

TIC 15 – 100kW 18.7 18.7 18.7

100kW - 2mW 11.5 11.5 11.5

2mW + 4.7 4.7 4.7


Feed-in Tariffs – anaerobic digestion

Rates in p/kWh Yr 1

2010/11

Yr 2

2011/12

Yr 3?

2012/13

AD with TIC < 250 kW 12.1 14 14 + RPI

AD TIC 250 – 500 kW 12.1 13 13

AD TIC > 500 kW 9.4 9.4 9.4


Support for small hydro schemes

Small Hydro FiT p/kWh 2011/12

<15 kW 20.9

15 – 100 kW 18.7

100 k W – 2 mW 11.5


What will tariffs be after 31/03/2012?• Government commitments:

– to 2020 targets in RED (and increase if possible);– to ‘full feed in tariff system’ in Coalition agreement;– to maintain rates, once set, for 20 / 25 years– To protect from inflation

• No commitment to schedule of rates originally set out• System should secure ‘grid parity’ as costs

come down, – ie. no further subsidy needed after a period

• But cuts in rate for April 2012 may be greater: – 50% cut Oct for PV cf 30% cost reduction– So …?


100 Conservative backbench MPs object to wind farms (31st January):

• Conservative MPs wrote to the Prime Minister asking him– to amend draft National Planning Policy Framework to ensure that local

people have the power to object to proposals for unwanted on-shore wind farms.

– to cut the subsidy for on-shore wind and spread the savings made between other types of renewable energy production and energy efficiency measures.

• Simon Reevell MP: “The new National Planning Policy Framework must protect … the right of local people to defeat unwanted on-shore wind farm proposals.”

• “Recent planning appeals have approved wind farm developments with the inspectors citing renewable energy targets”

• … the importance of local heritage and that the local countryside must be given proper consideration.”


Get the basics right first• Consider energy costs and efficiency first, • assess GHG emissions and potential to reduce CO2e per kg• Review and decide right option(s) for business situation and

overall objectives• Assess optimum site and planning situation

– listed buildings? radar / telecoms? – community engagement / part ownership?

• Accurate assessment of wind energy (or solar gain) for site • grid connection costs – and delays• Scope for additional energy savings?• Alternative investment options?• Ownership structure and finance options


Farm Renewable Energy Options

Contacts:

• David Meredith MBIAC, Bridgnorth (West) - Chairman 07702 204439

• Peter Fane MRICS MBIAC, Cambridge (East) 07802 256861

• Philip Uglow MBIAC, Launceston (South West) 07901 516684• Chris Harvey MBIAC, Altrincham, Cheshire (North West) 07736 081424• Ruth Farrell MRICS (Head Office) 01746 785121

– Email: [email protected]

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Farm Renewable Energy Options - independent advice for farmers and landowners Farm Renewable Energy Options in association with Eurinco Peter Fane FARM