The UK urgently needs to source energy from alternative clean technologies. Homes and businesses are already connected to the national grid so why not join forces and supply the power ourselves?
by Robert Gevargiz
1 April 2010
The UK economy urgently needs to diversify its electricity generation away from traditional hydrocarbon (oil, gas and coal). The government has responded by setting a target: 20 per cent of our grid-supplied electricity should be sourced from renewables – ‘clean technologies’– by 2020.
In the UK, electricity is supplied to businesses and households via power lines that run alongside motorway networks and parts of the countryside. Large-scale power stations supply high voltage (HV) electricity to the transmission network. The power is ‘stepped down’ via transformers, in order to enter the low voltage (LV) network to which most businesses and households are connected.
To meet its 20 per cent renewable target, the government believes 20GW of power will need to be found from alternative energy sources. This means transmission lines will need to be in the right shape (both technically and commercially) to accept and connect to new sources of electricity supply.
Although it is likely that most of this additional power will come from wind energy (onshore and offshore) the government is giving incentives to distributed facilities (installations by businesses and homes) to make a significant contribution towards achieving the national target.
To encourage participation two policy mechanisms have been put in place: the Renewables Obligation (RO) and Feed-in Tariffs (FiTs). RO is an existing instrument and will remain as the primary incentive for the deployment of large-scale renewable electricity generation. FiTs, introduced on 1 April, are incentives for the adoption of small-scale low-carbon electricity generation technologies.
Typical eligible FiTs include:
• Solar photovoltaics (PV – electricity from light)
• Wind
• Hydro
• Anaerobic digestion (natural breakdown of waste
without using oxygen)
• Domestic-scale micro CHP
(with a capacity of 2kW or less)
FiTs support proven clean technologies. They are only being offered initially to technologies that can realistically and effectively be deployed in the short term. Existing systems are ineligible under FiTs except if they transfer from RO, which will be at the fixed rate of 9p/kWh.
The benefit of generating on-site is significantly improved by FiTs, which offer two pricing elements: the installed ‘Generation’ capacity and the ‘Export’ of electricity. The Generation tariff pays a fixed price for every unit of electricity produced on site. The Export tariff is a bonus payment for every unit of electricity not used on site but fed into the national grid for transmission to another end user.
Revenue and savings from the operating site comprise:
• Income for generating electricity on site
• Income for exporting residual power not used on site
• Savings in cost from the non import of grid electricity
The government says that while the tariff levels are designed to give a return of up to 8 per cent, the benefit of index linking may take this towards 10 per cent. Private customers have the added benefit of income tax exemption.
Index links
Generation and Export tariffs will be linked to the retail price index to prevent inflation eroding the value of revenue from projects.
After consultation with stakeholders the price floor for export electricity has been reduced to 3p/kWh (from the originally proposed 5p/kWh). Producers, however, could opt out of this minimum and negotiate prices with energy suppliers on an annual basis.
FiTs will have no direct impact on businesses unless FMs and their companies take part in site-based generation.
There are two ways to improve an organisation’s carbon footprint through such projects: energy supply and energy demand. FiTs are part of energy supply while energy efficiency addresses energy demand issues. In most cases, though, facilities managers should address demand-side issues before considering renewable projects.
There are two reasons for this: first, energy efficiency projects offer much higher rates of return on capital investment – up to 100 per cent or more in a single year. Conversely, renewable projects yield much less attractive returns. FiTs are being brought in to improve these yields.
Second, if efficiency gains lead to lower demand, more of the energy generated on site could be exported to the grid, yielding increased revenue from the investment. In some cases energy efficiency could even lead to smaller plant installation, bringing savings in asset life-cycle costs.
Carbon management is full of new ideas and complexities. Most are developed and fine-tuned as they are implemented. Your organisation must be prepared to assess and manage the various risks, both the known and the unknown.
Robert Gevargiz is director at Energy and Sustainability Consultants, ADIAN Consulting
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