Legislation News

Thursday 26 March 2009

Solar technologies would get the highest tariffs under the industry proposals, with 42.5p per kWh for photovoltaic and 16p per kWh for thermal systems recommended

Plans for renewable energy tariffs to support small-scale green electricity generation and all kinds of renewable heat sources are being presented to ministers today.

Devised by the renewable energy industry, they take the form of "terraced tariffs", which would offer higher payments to users in the early stages after installation, stepping down towards a long-term standard tariff for the technology being used.

This would offer an up-front financial boost to a consumer to take the sting out of the initial investment in microgeneration equipment, without setting up a cumbersome "pre-capitalisation" system within the regulations.

A group of industry experts drew up the plans, co-ordinated by industry trade body the Renewable Energy Association, to help inform the government's design of forthcoming renewable electricity tariffs and a renewable heat incentive.

The electricity tariffs - on offer to domestic, business and community microgeneration installations up to 5MW in size - are expected to come into force in April 2010.

The heat tariff, on offer for any scale of renewable heat use, is intended by government officials to begin a year later.

The REA said today it believed the recommendations would add 3.9% to the average energy bill by 2020, while boosting the UK's renewable energy usage by 10%.

The Association also suggested its blueprint would bring about creation of 100,000 new jobs.

Philip Wolfe, director-general of the REA, said: "The industry has been working night and day to develop the tariff proposals, and we have been delighted that DECC officials and the minister have been so actively supportive of our efforts.

"If government and industry can build on this together, the future for UK renewables could be bright," added Mr Wolfe.

Payment

Smart meters would be the basis of the tariffs being recommended by the REA blueprint, with payments for green electricity paid by power companies to generators based on a pence per kWh rate.

Payments would include power used by the building itself as well as that being exported to the grid, with some form of central fund used to pay properties without access to the grid.

The heat incentive could take the form of a fuel duty on fossil fuel supplied for heating purposes, which would be paid into a central pot, from which renewable heat fuels would be subsidised, the plan proposes.

The REA group has recommended that microgeneration installations should be allowed to choose to receive payments either through the new feed-in tariffs system or the existing Renewables Obligation (RO) scheme - but not both.

It even suggests removing microgeneration from the RO scheme altogether, a move that would simplify the scheme.

The REA is calling on the government to make an early announcement on which kind of installations will qualify for tariffs.

Existing installations should be eligible for "retroactive" tariffs," it suggests, while for biomass technologies, the blueprint calls for some form of "sustainability certificate" biomass fuels to qualify - responding to last year's controversy over the environmental benefits of energy crops.

Tariffs

Calculating its recommendations for individual tariffs, the REA said its working group had assumed a 5% annual increase in energy costs, and had sought a 12-13% return on investment for installations.

The recommended tariffs were also set with a seven-year payback period in mind for householders.

Recommending terraced system of tariffs, which would include a short-term, high-price "initial tariff" followed by a "transitional tariff" leading to a lower but long-term "standard tariff", the REA group said such an approach could avoid the need for a more complex series of tariffs for different technologies and different energy outputs.

The terraced tariffs would divide up into 16 electricity technologies and 14 heat technologies, rather than 80 tariffs on a flat-rate system.

For large-scale projects, the "initial tariff" could last just a few days, with the smallest-scale projects seeing the initial rate lasting anything up to a few years.

Such a system should see solar power receiving the highest standard tariffs, the REA plan suggested - a 42.5p per kWh rate for photovoltaic panels, plus a 7.5p premium for building-mounted systems.

Wind turbines would receive 11.5p per unit, marine technologies a 20p rate, biomass an 11p per kWh rate, while hydroelectric systems would receive an 8.5p tariff.

On the heat side (not limited in scale), solar would again receive the highest tariff with a 16p per unit rate, with dedicated biomass systems (including co-firing) receiving a 3p per kWh rate and anaerobic digestion 5.33p. Heat pumps would receive a 9p per kWh tariff except for air-source systems, which would receive a 6p tariff.

• The REA and New Energy Focus are hosting a special conference in May dedicated to prospects for renewable heat. Click here for more details and the chance to book.