How to warm up financial returns on the Renewable Heat Incentive
Published by Yan Evans for Switch2 in Housing and also in Bill Payments
Yan Evans, Director of ENER-G Switch2 www.energ.co.uk/switch2, advises how to unlock maximum Renewable Heat Incentive (RHI) revenue in both simple and complex installations. He highlights the steps that must be taken at the earliest point in the planning process to develop an appropriate metering strategy and implement accurate and compliant measurement of renewable heat.
The RHI provides annual subsidy payments (over 20 years) for the production of heating by renewable technologies at a level designed to remove the barriers to installation.
The first phase of the RHI, for installation of renewable heat generation equipment in non-domestic buildings, was introduced last year. The second phase, expected to be introduced in summer 2013, will cover residential schemes and help promote the development of complex systems, such as community and district heating schemes where a single renewable heat system provides heating and/or hot water to more than one property, and in some cases into more than one building
Those generating heat and hot water from heat pumps, solar thermal solutions, biomass and bio-methane boilers can be paid up to 8.5p /kWh under the RHI with the annual subsidy lasting for a period of 20 years. According to the Government, which has set tariff levels, users will earn a return of around 12% per annum, but initial industry estimates are more conservative at 6-9%. Nevertheless, this could provide a return on investment within five to ten years, dependent on factors such as the thermal output of the appliance and annual running hours.
In preparing to access RHI funding, there is a tendency to focus on technology selection and system installation in the planning phases, when it is equally important to consider the mechanics for measuring the generated renewable heat and claiming the incentive. This is particularly important for complex installations, defined by Ofgem as installations with one or more of the following characteristics: the heat is generated or used in more than one building, heat is delivered by steam, the heat source is combined heat and power, or there are ineligible heat uses on the system, i.e. heat being produced for the purpose of electricity production.
Whether the installation is simple or complex, generators must ensure that their heat meters and other measurement equipment comply with Class 2 accuracy requirements, as specified in the 2004 Measuring Instruments Directive (MID). Heat meters must comprise: a flow sensor (or meter), a matched pair of temperature sensors (such as two thermocouples) and a calculator/digital integrator.
Simple installations, comprising the heat source and where heat use is within the same building, require generators to meter only the renewable heat generated by the eligible installation. As with complex installations, Ofgem will require certain declarations of metering standards, together with details such as model and serial number and confirmation that metering has been installed in line with manufacturer's instructions and conforms to their specifications.
For complex installations heat meters are required to directly measure three quantities:
1. The heat generated by the eligible installation prior to any common pipework or vessels.
2. The total heat generated by all plants supplying hot liquid to the heating system (this applies to all plants, whether they are eligible for RHI or not)
3. The heat used for eligible purposes by the heating system
The heat meter measuring points must be positioned correctly to meter the heat generated by the installation. The temperature sensors must be installed appropriately so that they accurately measure the temperature of the liquid as it leaves the installation (prior to entering any common pipework or vessels, such as a common header or storage tank) and as it returns to the installation.
A compliant and appropriate metering strategy should be designed into the heat scheme in tandem with the technology selection. This is key to delivering maximum revenue on-time and in-full, while monitoring and protecting technology performance and investment. It is also critical in ensuring affordability of renewable heat in communal heating and district energy schemes.
ENER-G Switch2 has conducted ESCo (Energy Services Company) financial models for a number of community heating projects utilising a biomass boiler within the energy centre, which helps secure planning consent..
In the absence of the RHI, the heat tariff can be between 15 and 30% higher than a development on which the boilers are fuelled by natural gas. This is due to a higher price for wood chip and pellet fuel, higher operating and maintenance costs associated with a biomass boiler and increased capital cost.
The revenue available through the RHI can completely offset the elevated fuel and operating and maintenance costs for the biomass boiler, and in some instances can also help to offset the increased capital cost. As such the RHI could be viewed as the key instrument to striking the balance on the development between achieving the carbon reduction agenda and delivering affordable heat, which is crucial in the social housing sector.
To ensure viability of projects, it is essential to integrate a robust metering strategy into the planning stages of renewable generation and not to consider it as an afterthought.