The 2016 non-domestic RHI reform and biomass heat

I think any comments about the RHI reform should start with the point that we are very lucky to have a 20 year output-based, state funded support mechanism for renewable heat.  Whatever its foibles and whatever our quibbles; its better than not having state funded support; it has made a major difference and will continue to do so.

The background to the reforms was that in November 2015 Government renewed its commitment to the ‘transition to a low carbon economy’ by confirming a continued budget for the RHI out to 2020/21.  This left the biomass industry hanging, and it wasn’t until March 2016 that Government set out its initial proposals for RHI reform.  Then finally on 14th December 2016, it published proposals for reform of the scheme following its consultation. These reforms will be implemented in April 2017.

Those 12 months of uncertainty have been unhelpful to say the least.  But as Government puts it :

By confirming the available budget up to 2020/21 and setting out a number of reforms to how the scheme will operate, the RHI now provides the level of certainty needed for consumers and industry to invest in renewable heating and for the market to transition towards being sustainable without Government support in future’.

It is of course most welcome that the proposed RHI reform is published and uncertainty has been removed.  This in itself will probably stimulate new investment and no doubt activate some dormant projects.  Although it is ironic that a scheme designed to grow renewable heat created uncertainty and reduced investment for a whole year.

The final comment ‘without Government support in the future’ is a clear signal that the RHI is not likely to be around after 2021, but as even mature biomass sectors elsewhere in Europe still benefit from support, there will need to be something post 2021.

In more specific terms, the reforms offer two things of note in terms of biomass heat :

  • Tariff guarantees, offering investors greater certainty regarding their tariffs earlier in the project cycle;
  • The three current biomass tariff bands will be replaced with a single tariff, which will be subject to tiering.  The Tier 1 tariff will be set at 2.91p/kWh and the Tier 2 tariff at 2.05p/kWh. Each plant will have a tier threshold equivalent to a 35% load factor.

My own immediate reaction was these reforms spell would spell the end of smaller biomass projects in mains gas areas and that only projects above 1MW would be strongly viable. But the 35% load factor is a more significant change than is first apparent.

Under the new single tariff and a 35% load factor the capacity of the biomass boiler is not such a good indicator of the viability as it was under the three bands of payments.

What will matter now is higher stable heat loads that get to the 3,000 full load hours. For example a 200kW scheme providing 600MWh of total annual heat (a small or medium sized secondary school for example) will get £17,500 a year RHI income.  Remember under the old scheme a 199KW scheme delivering 1,314 run hours got £8,106 a year RHI income: its all about ‘sweating the asset’.

It will be interesting to see how designers and installers go about getting to 3,000 run hours, and this will have significant implications for the sizing and specification of equipment that is capable and warrantied for longer harder working hours.  But actually it feels a sensible move in terms of directing investment and design/specification choices to make the most difference.  It will certainly be better than the 3 bands it replaces.

Furthermore the impact of the reforms above 1MW is unambiguously positive compared to before, so despite my initial reaction, I find myself wishing to congratulate the team who delivered the RHI reform.  Maybe there is even scope for a little focus of quality standards as we move forward?

 

The full RHI reform document is available to download here.

Delivering Renewable Heat – what have targets got to do with it?

Renewable Heat Targets by Steve Luker, Principal Consultant

Back in 2009 we set ourselves some very interesting renewables targets for 2020.  I never quite forgot them, but maybe others did? Theoretically of course they are binding, and you’ll certainly never hear a politician express a scintilla of doubt about this or that policy that will help us meet these targets.  But they get closer everyday.

So as we are only 4 years away, I wanted to examine where we are with the Renewable Heat Target and the role of biomass heat in delivering this.  For this blog I decided to focus on Scotland, as there is some interesting new data that allows a clear focus on this.

For some reason never made clear to me, the Scottish Renewable Heat Target for 2020 is 11%, whereas the UKs target is 12%.  If anyone knows why I’d be interested.

Beyond the obvious question of whether we will actually meet the 11% target, it’s particularly interesting as the Scottish Government is embarking on an energy review and is setting out its objectives for post-2020.  Here’s my attempt to make sense of where we are now.

What do our Renewable Heat Targets imply?

If the Scottish Renewable Heat Target is going to be met by 2020, then 6,420GWhs of annual renewable heat output are needed by that date. At present, Scotland produces 3,031GWhs of renewable heat annually.  Biomass heat contributes 1,716GWhs of that total at present, and biomass CHP contributes most of the rest.

We can roughly calculate how many heat only biomass installations 1,716GWhs is equal to, as each MW of installed capacity provides around 2,600MWhs of heat output.  On that basis, the current biomass heat output represents roughly 660MW’s of installed capacity.  If it is helpful, that’s a bit like 1½ Eon Lockerbie biomass power stations spread over several thousand schools, care homes, swimming pools, rural estates and hospitals.

In present day cash terms it represents £561 million of investment in renewable heat capacity, which I’d say has taken around 15 years to deliver.  A great achievement, if somewhat modest compared to many other northern European countries.

Now, here’s the important bit:

If we simply assume biomass heat will constitute the same proportion of our renewable heat in 2020 (57%), and that the 6,420GWhs of heat is actually provided (the 11% target); then an additional 2,000GWhs of biomass heat must be provided by 2020.  I should say to assume biomass CHP provides a bit more is perfectly reasonable, but if you ‘do the math’ on all other forms of renewable heat (heat pumps and AD), you’ll quickly see they can’t deliver anything like what is needed – never mind making up any biomass shortfall.  In other words, biomass heat may well need to be more than 57%, but lets stick with this figure for now…

192 New MW a Year

So biomass heat has a key role to play in meeting our Renewable Heat Target, and for modelling purposes this can be split into 4 years, which requires 500GWhs of biomass heat output to be added annually.

That means 192MWs of new installed capacity must be added each year for 4 years.

Having got this far, I began to sense a ‘few issues’ about the scale of that challenge…

We know that 1MW of good quality biomass heat capacity costs about £850,000 to install.  As we need 192MWs a year, that requires annual capital investment to run at £163 million for 4 years in row, and £652 million in total : more than has been achieved in the last 15 years combined.

If we assume an average installation size of 250kW, it means 768 installation contracts a year, each worth about £212,500.  Bringing that down to monthly figures it comes to 64 installs a month with a monthly spend rate of £13.6 million.

Typically, each MW of biomass heat capacity creates 2 FTE jobs, so around 1,500 new jobs would be created if 2,000GWhs of biomass heat were produced. In employment terms that would make the sector over 10 times bigger than it is now.

Each scheme will take around 4 to 6 months to plan, design and install. Biomass heat installs require a range of design and contracting skills in M&E, civils, architecture, engineering and a co-ordination expert in biomass to oversee this.

Can we achieve our targets?

There are no reliable figures on how many companies are involved in the design and installation of biomass heat just now.  My own guess is that we have around 10 to 15 specialist biomass companies based in or operating in Scotland, with fewer than 150 direct employees in total. Many others are involved in services like M&E design and civils works, and get involved biomass heat installations alongside their day to day civils contracting, heating and plumbing etc.

Total sector capacity could probably expand quite quickly, but key skills shortages in specialist areas like biomass boiler specification/commissioning and fuel handling  system design will hamper progress.  However, even if demand were to actually run at 64 x 250kW installs a month, it is hard to see how the required capacity could be mobilised sufficiently quickly (i.e. early on in the 4 years we have remaining).

I have reached the clear conclusion that unless things change, the Scottish Government will fall way short of its 2020 renewable heat target.  I do have some thoughts on what could be done to help.  More to follow next week…