This page is designed to give you an overview of the solar power and renewable energy sector for those new to the industry and wishing to have an overview to begin with before researching any subject matter in greater detail. We will run you through the technologies, Government and industry cash incentives, investment returns and pitfalls of the renewable energy sector. At the end there is suggested further reading, all to be found on this website. After all this please feel free to post a Comment on this article, with any questions you may have – we will endeavour to reply either on this post, or directly, ASAP.
A quick guide to Government Policy:
The Government has several reasons for encouraging renewable energy generation as it has legally binding targets for carbon reductions to reach by 2020. It also aims to create something called energy security, whereby the country no longer needs to import gas and oil from other countries. For this reason the UK Government has introduced numerous legislations for every part of the economy. From the largest of corporate to the smallest households – we will all be affected at some point.
A quick guide to the Technologies available:
The technologies can be separated into two main categories:
1. Technologies that produce electricity
2. Technologies that produce heating
For the heating technologies, they can further be divided into two sub categories:
a. Producing hot water
b. Producing space heating (heating a specific room or area)
Why are these separate?
This is because a lot of the technologies for heating aren’t powerful enough for the old style radiator heating systems, and are more designed towards hot water requirements and under-floor heating systems (which generally are used on new-builds and require a lower temperature of heating and a more constant flow of heat/energy). That said, there are certain technologies suitable for space heating, as we will see below.
Next we will run through the main technologies for domestic renewable energy generation. There are 6 categories of systems:
For renewable electricity generation:
- Solar Photovoltaics (Solar PV)
- Domestic Wind Turbines
For renewable heat generation:
- Solar Thermal
- Ground Source Heat Pumps (GSHP)
- Air Source Heat Pumps (ASHP)
- Biomass & log burners
Now, whilst we are not saying there are no other renewable technologies available, what we are saying is that the above 6 are the main widely available domestic systems. Also, for the purpose of “A Beginners Guide” these are certainly more than enough.
1. Solar Photovoltaics (Solar PV)
Solar PV is the generation of electricity from the Sun. These are the solar panels that you see on roof’s and are based on the same technologies as the Solar powered calculators that we have all seen. They are one of the most widely used forms or renewable electricity generation used for domestic properties and have become even more widespread since the introduction of the UK Feed In Tariff system in April 2010. A typical system will cost between £8,000 and £10,000 and will produce around half your annual electricity. The returns achieved are between 4% and 6% APR, inflation linked.
Wind turbines are more suited for the larger scale projects, such as those we are now seeing offshore or in the countryside. The effectiveness of the systems are very dependent on location and weather conditions (as opposed to Solar PV that doesn’t even need the sun for them to produce energy, just daylight). As such, these are not widely used by the domestic sector, whilst for those installations that have been installed, the results remain sceptical. For systems in the correct location they can generate up to 100% of your energy needs, depending on the system size. Returns should come in around 5% to 7%.
This is one of the oldest technologies and the one we traditionally associate with solar panels on the roof of a house that heats the water fluid that passes through them. They are also one of the cheapest systems on the market, with costs between £4,000 and £6,000. However, against popular belief, they do not suit “space heating“ requirements and are generally only suitable for hot water heating. They also only really work during the summer months and thus are used in conjunction with your existing boilers. That said, with the introduction of the UK Renewable Heat Incentive in June 2011 they will generate annual returns of around 5% APR.
4. Ground Source Heat Pumps (GSHP)
The temperature several feet underground remains constant all year round and can therefore be used to heat water in winter and cool it during the summer. The water is passed through the underground pipes, with the water absorbing the underground temperature and then passed back into the house for heating. These systems also use thermodynamics to increase the temperature attained. Again they are only suitable for either under-floor heating systems or producing domestic hot water requirements, although they work extremely well for space heating requirements when use in under-floor heating systems. They are also quite expensive to install on retro-fit properties due to the land excavation requirements, and thus are more suitable for new-builds or extensions where ground work needs to be done. Systems can cost between £12,000 and £15,000, and with the introduction of the UK Renewable Heat Incentive can generate annualreturns of around 12% APR.
5. Air Source Heat Pumps (ASHP)
These systems work under the same dynamics as GSHP’s, using thermodynamics to achieve high temperatures of heating. However, they also work in a reverse manner to air-conditioning units, or fridges. They use the difference air temperature between two areas to create heat. They can be very effective for both hot water and space heating, as they can be used as a direct heater (separate from the traditional radiator system). They cost between £8,000 and £12,000 depending on the sixe of the system and will generate an annual return of around 12% APR.
One of the most simple technologies on the market is a log burner, which operates in a closed system. They can be linked to your water tank for hot water requirements and also provide space heating. They can be simple but very effective and come in all shapes and sizes. That said, there are very few MCS registered systems, so you need to be careful when choosing one for your house.
A quick guide to the Government and Industry cash incentives:
There are two main UK Government schemes to encourage the installation of renewable energy projects. Naturally, one is for electricity and one is for heat:
In April 2010 the UK Government introduced Feed In Tariffs to encourage the installation of renewable electricity generating technology in all types of buildings across the UK. Under this scheme you are paid a fixed rate for every Kilo Watt Hour (kWh) of renewable electricity that you generate, regardless of whether you use the electricity yourself or not. For electricity that you do not use you will be paid an additional rate for every KWh that you “feed-back” into the national grid, whilst you will also save money on your electricity bills as you will purchase less electricity from your supplier. Technologies included are Solar PV and Domestic Wind Turbines (amongst others). The current Tariff rates are:
The scheme is guaranteed for 25 years, with the payments linked to the RPI and are exempt from income tax. The scheme is paid for by the energy companies in the UK, whom are allowed to pass the charge onto end customers in the form of a “green tax” on regular energy bills – thus we all pay for the scheme.
In June 2011 the UK Government is set to introduce a “Renewable Heat Incentive” to encourage the installation of renewable heat technologies throughout the economy. The RHI is very similar to the FIT scheme for renewable electricity, but applies to technologies that generate heating in a renewable fashion. The RHI is being put in place to encourage the take-up of renewable heat technologies that remain more expensive to install and run than traditional fossil-fuel heating systems. It is for this reason that the Government is setting up a cash incentive scheme whereby under the RHI you will be paid annually on the total amount of heat generated, expressed in kWh. The scheme aims to generate a return on investment of 12% for all technologies and 6% for Solar thermal. This is more than the investment return the FIT scheme attempts to achieve (5%) and this is because the technologies available are less well known, more expensive to purchase and run on a standalone basis (i.e. there is no grid connectivity to allow the generator to sell excess production). Solar thermal gets a lower rate of return as it is a widely known technology with lower barriers to entry and cheaper installation costs. Systems included under the scheme are GSHP’s, ASHP’s, Solar Thermal and Biomass boilers and Log Burners. The tariff for the RHI is:
A quick guide to Investment return:
There are numerous ways in which you can calculate your return on your investment:
1. The first, and most widely used in the renewable energy sector, is the Payback Period. This is how long it takes for the technology to pay for itself through energy bill savings and cash-back incentives.
2. A more accurate way to calculate your return is to use Return On Investment (ROI). This is a market standard measure used in finance to compare different projects. It is calculated as:
ROI = (Gain from Investment – Cost of Investment)/Cost of Investment
3. An even more accurate measure of return is to calculate your Annual Percentage Return. This will give you the rate of return on an annual basis, and allows you to compare the investment more easily with other investment options, such as bank deposits, equities or bonds. The APR is calculated as:
APR = [(Total Income over life of Investment / Cost of Investment)^(1 / # of years)] – 1
Caveat Emptor: Buyer Beware
Some companies are calculating the rate of return on your investment without actually adjusting for you to receive your capital outlay back.
For example: A client of ours recently got a quote from a large Solar PV installer in the Anglian area:
The system cost was £15,000 fully installed and this would give the client an annual income of £550 per year from the FiT. Our client was told that this would give a rate of return of 3.7% (i.e. you earn £550 from an initial investment of £15,000, thus 550 / 15000 = 3.7%).
However, you never get your £15,000 back, as at the end of the 25 years your panels must be assumed to be relatively worthless. Thus, over the 25 years you earn a total of £13,750 – a net negative return. The actual ROI on this would be -8%, and the APR would have been -3.5%, NOT the +3.7% quoted by the sales person!
A net NEGATIVE return over the period!
So what sort of return can I earn?
- The government has structured the scheme for you to be able to return around 5% per annum from the FiT and between 10 and 12% from the RHI (to reflect higher barriers of entry into the market), both inflation linked.
- These are certainly good benchmarks to aim for, although they will vary depending on the performance of your systems which are affected by things such as location, among other things.
- One thing to watch out for is the high cost of installations currently due to the huge demand for systems after the introduction of the FiT. This can significantly affect your investment performance, and you really need to be careful that you are not over charged.
Suggested Further Reading:
Technology:
Regulation & Incentives:
Microgeneration Certification Scheme
Calculating your Return on Investment
