Monday, June 13, 2011

The Feed-in Tariffs review fiasco

With a stroke, DECC has undermined the competitiveness of the UK solar industry in the export market.

Over 80% of respondents to the Government's review of Feed-in Tariffs opposed the deep cuts to the incentives with most calling for more modest cuts and for the retention of high levels of support for community-scale installations for schools, hospitals and offices.

Many investors are now changing their minds about supporting the industry.

The funding for Feed-in-Tariffs comes from everybody's electricity bills - estimated at an average £3 extra per bill by 2016. DECC's argument for the its U-turn on tariffs is that the £860m pot allocated for it cannot get any bigger because consumers would not tolerate the consequent higher bills, especially at a time when energy prices are rising anyway.

Its prime aim is to encourage awareness amongst the general public of the need to save energy and the importance of renewable energy rather than cost-effectively tackle climate change.

Putting solar panels on lots of homes is seen as the best way to do this. It wants to put the money from the FITs into the pockets of householders and not into the pockets of larger concerns.

It's a shame that this is an either-or alternative.

Because unfortunately, those large concerns are not just big companies but community groups and farmers, which flies in the face of the Government's localism agenda. It needs to make an exception in these cases and reinstate the higher tariff bands for PV.

But how successful is the policy at tackling the aim of reducing the country's carbon emissions? Pound for pound of investment, solar PV does not represent good value for money when seen from an environmental point of view in the UK when compared to some other technologies.

The UK does not get a lot of sunshine, except in the very south and south-west, the sun only shines some of the time, and so investment in technologies that can produce renewable and sustainable power all of the time more efficiently will therefore produce more carbon savings [see p. 40-44 of this CERT doc. for the supporting evidence that shows which domestic-level measures produce the most cost-effective savings].

This is where anaerobic digestion (AD) comes in. With a feedstock that can keep it generating every hour of the year, it is also an emerging technology that requires support to get it up and running. It may not be as sexy as PV modules, but it does the job.

The AD industry lobbied for much more support and has been devastated by the result. What it got was an increase in the FIT rates of just 1p. They are now 14p/kWh for schemes up to and including 250 kW and 13p/kWh for schemes up to and including 500 kW.

This is not nearly enough to stimulate further investment in the technology, as Lord Redesdale, chairman of the Anaerobic Digestion and Biogas Association (ADBA) has warned.

With a capital cost of around £7,745 per kWe, AD has the highest cost per MWh of any form of heating for district heating schemes - almost £250; twice the cost of a community biomass combined heat and power (CHP) plant. But put this in perspective: it is not as much as an energy-from-waste CHP plant.

And it has other benefits besides producing heat and power - such as discouraging N2O (a very potent greenhouse gas) emissions and nitrogen pollution by processing farm slurries, and the production of compost which can be sold for soil enrichment.

It is ideal for district heating. The main benefit of moving to district heating a declared Government aim - is saving carbon emissions. Here, anaerobic digestion CHP scores way higher than all other technologies, at around 5,100 kg of carbon dioxide per year compared to a conventional system. (Incidentally, air source heat pumps used for this purpose actually cost carbon compared to a conventional system.)

By the way, these figures are taken from a report commissioned by the Department of Energy and Climate Change itself two years ago on renewable heat and district heating networks.

So it is surprising to hear DECC's Greg Barker say that there is not enough evidence to support the industry's case for greater help.

Its own research shows that if you take into account the implied carbon abatement cost, anaerobic digestion actually ends up being one of the cheapest forms of renewable district heating at less than one fifth the cost of a community boiler using natural gas.

It is still not the cheapest by any means, but this is because the plant is doing more than just burning a feedstock, and because the technology is relatively new.

And the whole point of the Feed-in Tariffs and Renewable Heat Incentive is to bring down the cost over time.

The National Grid itself has said it can see a time in the not too distant future when up to 50% of the gas in the networks is renewable, much of it coming from anaerobic digestion of organic waste.

The Coalition Government is to publish a new anaerobic digestion strategy later this month. While this is not expected to include any more financial help, the more it can do to boost this potentially highly valuable technology, the better.

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