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How feed in tariffs could 'democratise' renewable energy generation

21st February 2013


Suddenly, the rewards for generating electricity from low carbon sources are within the reach of far more people than ever before. The financial incentives to encourage the generation of renewable energy, both for use and for export back to the grid, are starting to look very attractive. There’s a viable range of small scale domestic options such as solar PV and small wind turbines, as well as larger technologies which will be more attractive to industrial and other users. Commercial developers and utility companies are starting to take an active interest. Community projects that previously might have struggled to raise capital should now find it easier to get funding from the banks because of the higher returns available.  The profitability of on farm or private estate projects will also be vastly improved.
 
So what’s brought about this very welcome 'democratisation' of small and medium scale renewable energy development? The answer is the Feed in Tariff (FiT). One of two new energy policy mechanisms announced by the UK Government in February 2010, the FiT came into force on 1st April as part of the Low Carbon Transition Plan to meet the targets of the Climate Change Act, respond to Copenhagen commitments, reduce carbon emissions and stimulate growth in low carbon electricity.
 
One of the key aspects of FiT is that the financial support for small scale renewable energy generation is twofold, in that people producing green electricity receive a generation tariff (paid by an electricity company) for everything they generate plus an export tariff for everything they feed back to the grid. In the case of small scale solar PV, for example, the generation tariff is as high as 41.3p/kWh and the export tariff 3p/kWh – so the rewards of self-sufficiency and reduced reliance on the grid are very clear. While the export tariff is fixed, the generation tariff for other forms of renewable energy (up to 5 MW) varies according to the type and scale of the technology that’s installed.

Fewer constraints
 
Although all the technologies covered under the FiT (including anaerobic digestion, hydro and micro CHP) will give returns that stack up very well against other forms of investment, it seems likely that medium scale wind and solar PV will be particularly attractive.
 
While developers in the past have generally not been that interested in wind projects of less than 5MW, those with an installed capacity of between 100-500kW are now likely to provide optimal investment opportunity thanks to the level of tariff and the economies of scale of this size of turbine. With lower noise levels, easier transport and access and less visual impact, they should incur fewer development constraints and planning difficulties thus avoiding the complexities and associated costs of a full environmental impact statement.
 
Solar PV installations benefit from the highest tariff and offer a good return on investment, especially for early adopters. Large scale solar arrays between 1MW and 5MW are now feasible throughout the south of England and are attracting strong interest from commercial developers. Achieving planning consent for these is likely to be easier than wind developments thanks to the minimal environmental impacts. Small scale hydro developments will also benefit from the FiT, 
 
All of these technologies are ideal for enterprises and developments on industrial estates. A transport business with a haulage yard, for example, could easily accommodate a wind turbine, while a warehouse with a sizeable roof area could prove a highly economical site for a solar PV array.
 
If it all sounds like plain sailing, there is of course some need for caution. Smaller scale projects won’t bear the costs of appealing a failed planning application – so choosing the right ones and the right sites at the outset is of paramount importance. Professional help from an experienced consultancy such as Wardell Armstrong in the areas of feasibility, site finding, planning, environmental impact assessments (where required) and design can all play a major part in ensuring success.
 
Developers may also face a particular dilemma in that the FiT rewards arise when you own the building but stop when you sell – so some may look to find ways to retain equipment installed on the roof and use the services of an ESCO (Energy Services Company) to retain and manage these assets.
 
With advancing legislation favouring the generation of small scale and sustainable generation of renewable energy, more and more people stand to gain financially, as well as making a personal contribution to reducing emissions and combating climate change. Equally, as carbon reduction targets grow ever tougher, developers will have to look at new options for meeting them in ways that make financial sense and with the Renewable Heat Incentive around the corner - due to be implemented in April 2011 - a new wave of investment opportunities in medium scale biomass and building integrated heating seems the likely next step.
 
Haydn Scholes, director of Wardell Armstrong’s renewable energy group Wardell Armstrong is a leading independent engineering consultancy specialising in environmental development and management. With a strong heritage dating back more than 170 years, the firm is today helping to tackle some of the world’s most pressing environmental challenges like renewable energy generation, waste management and environmentally responsible mining.

For more information, visit www.wardell-armstrong.com







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