Back in the mists of time, before the Renewable Heat Incentive showed us all that wood actually burns, feasibility studies played a key role in establishing the technical and economic case for every biomass heating project. They were considered such an important stage that Forestry Commission Scotland produced a 12 page ‘how to’ guide on producing one in 2011. But for some reason they had disappeared from the decision-making process until very recently.
I’ve personally completed at least a couple of hundred for any number of buildings, including sites as disparate as the US Antarctic bases at McMurdo Sound and the South Pole, through to Balfour Castle – the remote calendar house on Shapinsay. So what happened? Why did the previously critical step of the feasibility study disappear from the process of installing a biomass boiler, and what have been the implications?
As with most things in the sector, the answer lies with the RHI, which since it was introduced in November 2011 has been almost the only reason anyone has installed a wood-fired boiler. Because the biomass industry was starting from such a low base, uptake was slow at first – the supply chain simply wasn’t in place to deliver much more than a few dozen new installations a month, and even a year after it was launched, monthly registrations were still below 200.
Feasibility studies were typically still a part of the decision-making process at this point, and crucially, there was no particular time pressure on customers to commit to a purchase. All this changed in early 2013, when the unregulated nature of the sector and almost uniformly compelling economic case for biomass saw countless new companies pile in to the opportunity created by the RHI. Such was the rate of installations that August 2013 saw the RHI hit a ‘degression trigger’ – a pre-determined point at which the per-kWh payments would be reduced for new projects to slow the sector down.
Rather than having the desired effect, the fear of degression actually drove the number of installations up, and the relatively organic growth of late 2013/early 2014 – around 400 systems a month – turned into monthly peaks of over 1,000, then 1,500 and finally 2,200 biomass boiler registrations in December that year. While a ten-fold increase in the installation rate of biomass boilers might sound like a good thing for meeting targets, there’s compelling evidence from industry and government research that a great many of the installations that happened in this period were simply not fit for purpose.
The insistent drum beat of the RHI and its quarterly degressions had the effect of removing the crucial feasibility study phase from almost every project that went ahead. As 2014 progressed and the market overheated, the formal design process and – in some cases – even detailed quotations were skipped in the rush to complete the sale, installation and registration process. I’ve seen half-page quotations for £200,000 engineering projects and layouts for projects in listed buildings scrawled on the back of envelopes dating from the boom years of the RHI.
So, on to the $64m question – is a biomass heating project still feasible? Well, that crucial first step of a feasibility study will help to determine the technical and economic case for any project, and broadly speaking, biomass still makes sense for most off-gas applications. The ‘shape’ of the RHI has changed in the last couple of years, there’s been the removal of tariff banding and the attendant loss of the sweet spots of 199kW and 999kW, as well as the doubling of the Tier 1 threshold to 3,066 full load hours. This removes the incentive to design around the tariff structure, and means that installers can now provide a proposal which is untainted by the tail-wagging-the-dog perversities of the tariff bands.
A feasibility study for a project in 2019 will typically demonstrate an 8-12 year payback for most rural installations, and should also set out the various practicalities of taking a scheme forward – from fuel delivery vehicle access to planning permission requirements, boiler size to chimney height. With the invariably high investment costs associated with biomass projects; the technical complexity associated with delivering a safe, efficient and easy-to-operate scheme; and the relatively complex legislative environment that often applies to rural projects, I’d argue that having a feasibility study carried out prior to taking a project forward is more important than ever.
The RHI closes to new applications on 31 March 2021, meaning the clock is ticking for those thinking of taking a project forward. UK government are playing their cards very close to their chest when it comes post RHI-support for the decarbonisation of heat, but taking us to Net Zero carbon emissions by 2050 (and ideally a lot sooner) means something will invariably be required. Most informed observers believe that this will be a combination of sticks and carrots – most likely a levy or tax imposed on fossil heating fuels which ratchets up year-on-year, coupled with reducing levels of financial support for those making the change to renewable sources of heat. Over time the carrots will get smaller and the sticks will get bigger – both will deliver the desired outcome, it’s just a question of how much pain the end user will have to bear.