FINANCIAL FEASIBILITY
What is presented below is a discussion of the key factors in the installation of any biomass - solar thermal heating systems which exert significance influence on financial feasibility. They are ordered in approximately descending importance:
1. Installation
The technology installed is the obvious starting point to begin financial analysis. This will encompass how many solar thermal panels are installed and the biomass boiler, but also the cost or requisite pipework, electrical cabling, and potentially storage facilities for the biomass boiler and biomass fuel itself. In the consideration of district heating schemes, it may be assumed that some level of financing is required to pay installation costs over an extended period of time. The associated interest payments must then be integrated into an overall feasibility study. Professional fees for physical installation must also be considered. For the purpose of an approximate financial feasibility study, it may be assumed that in typically expensive district heating schemes professional fees for installation are heavily discounted if not neglected.
2. Fuel
Biomass fuel represents the most significant operating cost of a biomass - solar thermal heating system following installation. The cost of this is dependent on a range of technical parameters including fuel type (chip or pellet) and moisture content, but is also heavily dependent on contractual agreements and the influence economy by scale may exert. Any financial forecasting over technology lifetime must be able to facilitate change in biomass fuel cost by defining appropriate sensitivity ranges. It is difficult to accurately quantify any fluctuation over a long term projection. One may propose that the use of biomass as a domestic heating source should expand in the coming years with the continued push for sustainable behaviour, and the cost of biomass should therefore increase as supply chains are stretched to full capacity. Alternatively, the cost of biomass may decrease as supply chains are able to expand to economical autonomous delivery methods facilitated by a comfort in the abundance of demand. There are obviously no fuel costs with solar thermal heating.
3. Maintenance
The only other significant operating cost with biomass – solar thermal heating systems is that of maintenance. One important factor that should be modelled in any maintenance consideration is the change in maintenance required over time. It is simplistic to assume that maintenance requirements of such a heating system should accelerate with time to reflect an equivalent degradation of performance.
4. Consultation
Depending on the accuracy to which the installation was sized to meet user demand, there may be some consideration of fees for professional consultation. However, again it is difficult to quantify this and for the purpose of an approximate financial feasibility study it is practical to assume that a relevant company supplying the installation would conduct the necessary evaluations as part of the service.
5. Planning consent
In order to obtain planning permission from the local council, it may be reasonable to expect that changes required within the local infrastructure should be facilitated by the project proposer. For example, if the roads have to be fitted with industrial scale layering resistant to the excessive weight carried during biomass fuel transportation. Again, it is difficult to generically quantify.
All cost factors described above are points of expenditure. It is now convenient to discuss the one source of measurable income, the Renewable Heat Incentive (RHI) and its two distinct categories, domestic and non-domestic. The Domestic RHI is eligible for only single domestic premises defined by regulations as “single, self-contained premises used wholly or mainly as a private residential dwelling where the fabric of the building has not been significantly adapted for non-residential use” [1]. In our study of district heating schemes with multiple domestic premises served by a centralised heating unit, RHI payments are made under the Non-Domestic classification, where for the purpose of the RHI district heating is defined as “an eligible installation supplying heat to an apartment building, or a network of pipes supplying heat from an eligible installation to a number of local households or businesses” [2]. An introductory discussion of the RHI presented below will therefore concentrate primarily on summarising Non-Domestic legislation, with an abundance of Domestic related material available online [3].
1. Installation
The technology installed is the obvious starting point to begin financial analysis. This will encompass how many solar thermal panels are installed and the biomass boiler, but also the cost or requisite pipework, electrical cabling, and potentially storage facilities for the biomass boiler and biomass fuel itself. In the consideration of district heating schemes, it may be assumed that some level of financing is required to pay installation costs over an extended period of time. The associated interest payments must then be integrated into an overall feasibility study. Professional fees for physical installation must also be considered. For the purpose of an approximate financial feasibility study, it may be assumed that in typically expensive district heating schemes professional fees for installation are heavily discounted if not neglected.
2. Fuel
Biomass fuel represents the most significant operating cost of a biomass - solar thermal heating system following installation. The cost of this is dependent on a range of technical parameters including fuel type (chip or pellet) and moisture content, but is also heavily dependent on contractual agreements and the influence economy by scale may exert. Any financial forecasting over technology lifetime must be able to facilitate change in biomass fuel cost by defining appropriate sensitivity ranges. It is difficult to accurately quantify any fluctuation over a long term projection. One may propose that the use of biomass as a domestic heating source should expand in the coming years with the continued push for sustainable behaviour, and the cost of biomass should therefore increase as supply chains are stretched to full capacity. Alternatively, the cost of biomass may decrease as supply chains are able to expand to economical autonomous delivery methods facilitated by a comfort in the abundance of demand. There are obviously no fuel costs with solar thermal heating.
3. Maintenance
The only other significant operating cost with biomass – solar thermal heating systems is that of maintenance. One important factor that should be modelled in any maintenance consideration is the change in maintenance required over time. It is simplistic to assume that maintenance requirements of such a heating system should accelerate with time to reflect an equivalent degradation of performance.
4. Consultation
Depending on the accuracy to which the installation was sized to meet user demand, there may be some consideration of fees for professional consultation. However, again it is difficult to quantify this and for the purpose of an approximate financial feasibility study it is practical to assume that a relevant company supplying the installation would conduct the necessary evaluations as part of the service.
5. Planning consent
In order to obtain planning permission from the local council, it may be reasonable to expect that changes required within the local infrastructure should be facilitated by the project proposer. For example, if the roads have to be fitted with industrial scale layering resistant to the excessive weight carried during biomass fuel transportation. Again, it is difficult to generically quantify.
All cost factors described above are points of expenditure. It is now convenient to discuss the one source of measurable income, the Renewable Heat Incentive (RHI) and its two distinct categories, domestic and non-domestic. The Domestic RHI is eligible for only single domestic premises defined by regulations as “single, self-contained premises used wholly or mainly as a private residential dwelling where the fabric of the building has not been significantly adapted for non-residential use” [1]. In our study of district heating schemes with multiple domestic premises served by a centralised heating unit, RHI payments are made under the Non-Domestic classification, where for the purpose of the RHI district heating is defined as “an eligible installation supplying heat to an apartment building, or a network of pipes supplying heat from an eligible installation to a number of local households or businesses” [2]. An introductory discussion of the RHI presented below will therefore concentrate primarily on summarising Non-Domestic legislation, with an abundance of Domestic related material available online [3].
RENEWABLE HEAT INCENTIVE
On 28th November 2011 the UK opened the world’s first Non-Domestic RHI scheme for applications, a government incentive programme designed to encourage uptake of renewable heating systems in commercial space, industry space, the public sector, and in extensive district heating schemes as the UK strives to reduce its greenhouse gas emissions by at least 80% (from the 1990 baseline) by 2050. Since its inception, the amount of heat generated by the scheme has accelerated substantially, with the 2014 Annual Report [4] detailing the approval of 458MW of capacity in the single financial year, equivalent to £36million in payments to 3436 supported applicants and 2561 accredited installations. But how does it work?
The Non-Domestic RHI makes quarterly payments over a 20 year tariff period, with applicants receiving a fixed tariff rate for every kWh unit of usable renewable heat they generate over the 20 years. These rates are scaled differently for different technologies, based on the additional costs of each technology over its fossil fuel equivalent, plus a 12% internal return on capital (except for solar thermal which offers a lower rate of return) [5]. The tariff rates displayed in the table below were accurate as of 1st April 2015, and have been updated by the Department of Energy and Climate Change (DECC) to account for a 15% reduction to the small commercial biomass tariff [6]. Why the reduction? The government sets aside a fixed budget for subsidising RHI payments. When the uptake of any one heating technology grows, its respective tariff rate must depreciate in reflection to ensure total payments are confined within the stated budget.
The RHI was structured with a deliberate intention to encourage the combination of solar thermal with other renewable heating technologies. A popular way to combine solar thermal with a biomass boiler is to use a thermal store with dual inputs and outputs to both domestic hot water and space heating. We have discussed previously that a biomass boiler operates with optimal efficiency when fired at a near constant rate over an extended period. So charging a thermal store, rather than persistently moderating fuel input to match a temperamental demand would appear the correct technical solution. In this setup a solar thermal system may make additional contributions to space heating, particularly in spring and autumn when there is both an abundance of solar energy and demand for domestic heating, limiting the required biomass fuel. But in a pertinent discovery examining the financial feasibility of integrated biomass-solar thermal heating systems, solar thermal energy is not eligible for RHI payments when incorporated within a thermal store [7]. Why?
In theory, the consumer should be eligible for RHI payments from using both technologies. But the wording of the RHI legislation has discouraged such systems as it completely discards solar thermal systems that can make even a theoretical contribution to space heating, the payments are intended solely for domestic heat water. It would require intensely intricate metering not viable on a widespread scale to discriminate between these purposed contributions. Indeed the solar contributions are not physically measured, they are instead estimated using an approved calculation method that significantly only works for domestic hot water [8].
We, and other credible sources online, propose that this legislation should be corrected. From a position of admittedly inexperienced knowledge it would not appear difficult to subtract the biomass energy input to the thermal store away from the annual heat demand, for space and water heating, to get a reasonably accurate approximation of solar thermal contributions. Or even simpler, just measure the solar thermal energy input to the thermal store. Why a metering methodology in this mould is not the current practice, would appear to be either the cause of deficient legislation, or the unwillingness of monitory bodies to facilitate any possibility of error in meticulous metering particularly when the difference in paid tariff rates is significantly influential in the financial feasibility to both parties.
Technology is to an extent trying to adapt to this deficient legislation and return some feasibility to biomass and solar thermal heating systems integrated within a thermal store. A thermal store may be eligible under the current terms of the RHI, but only if it possesses the ability to segregate spacing and hot water heating. The only store proposed to do this is the Chelmer Ecocat [9] which has a small store within the main one intended only for hot water. But the consumer would pay more for this arrangement, and would have to establish a balance for each unique example between paying for the additional facility and what it would return in RHI payments. This trend of technology adaptation may continue, or the RHI legislation may buckle under pressure. In any case, within our case the methodology is applied to accurately the real life situation as it must, and potential solar thermal contributions are deemed ineligible for payment under the RHI scheme.
The Non-Domestic RHI makes quarterly payments over a 20 year tariff period, with applicants receiving a fixed tariff rate for every kWh unit of usable renewable heat they generate over the 20 years. These rates are scaled differently for different technologies, based on the additional costs of each technology over its fossil fuel equivalent, plus a 12% internal return on capital (except for solar thermal which offers a lower rate of return) [5]. The tariff rates displayed in the table below were accurate as of 1st April 2015, and have been updated by the Department of Energy and Climate Change (DECC) to account for a 15% reduction to the small commercial biomass tariff [6]. Why the reduction? The government sets aside a fixed budget for subsidising RHI payments. When the uptake of any one heating technology grows, its respective tariff rate must depreciate in reflection to ensure total payments are confined within the stated budget.
The RHI was structured with a deliberate intention to encourage the combination of solar thermal with other renewable heating technologies. A popular way to combine solar thermal with a biomass boiler is to use a thermal store with dual inputs and outputs to both domestic hot water and space heating. We have discussed previously that a biomass boiler operates with optimal efficiency when fired at a near constant rate over an extended period. So charging a thermal store, rather than persistently moderating fuel input to match a temperamental demand would appear the correct technical solution. In this setup a solar thermal system may make additional contributions to space heating, particularly in spring and autumn when there is both an abundance of solar energy and demand for domestic heating, limiting the required biomass fuel. But in a pertinent discovery examining the financial feasibility of integrated biomass-solar thermal heating systems, solar thermal energy is not eligible for RHI payments when incorporated within a thermal store [7]. Why?
In theory, the consumer should be eligible for RHI payments from using both technologies. But the wording of the RHI legislation has discouraged such systems as it completely discards solar thermal systems that can make even a theoretical contribution to space heating, the payments are intended solely for domestic heat water. It would require intensely intricate metering not viable on a widespread scale to discriminate between these purposed contributions. Indeed the solar contributions are not physically measured, they are instead estimated using an approved calculation method that significantly only works for domestic hot water [8].
We, and other credible sources online, propose that this legislation should be corrected. From a position of admittedly inexperienced knowledge it would not appear difficult to subtract the biomass energy input to the thermal store away from the annual heat demand, for space and water heating, to get a reasonably accurate approximation of solar thermal contributions. Or even simpler, just measure the solar thermal energy input to the thermal store. Why a metering methodology in this mould is not the current practice, would appear to be either the cause of deficient legislation, or the unwillingness of monitory bodies to facilitate any possibility of error in meticulous metering particularly when the difference in paid tariff rates is significantly influential in the financial feasibility to both parties.
Technology is to an extent trying to adapt to this deficient legislation and return some feasibility to biomass and solar thermal heating systems integrated within a thermal store. A thermal store may be eligible under the current terms of the RHI, but only if it possesses the ability to segregate spacing and hot water heating. The only store proposed to do this is the Chelmer Ecocat [9] which has a small store within the main one intended only for hot water. But the consumer would pay more for this arrangement, and would have to establish a balance for each unique example between paying for the additional facility and what it would return in RHI payments. This trend of technology adaptation may continue, or the RHI legislation may buckle under pressure. In any case, within our case the methodology is applied to accurately the real life situation as it must, and potential solar thermal contributions are deemed ineligible for payment under the RHI scheme.
define a reference boiler
It is important in the financial feasibility of integrated biomass-solar thermal heating systems to perform a comparative quantitative analysis of forecasted predictions against a conventional fossil fuelled heating system, an advanced study would extend this comparison to alternative renewable heating systems e.g. air source heat pumps. Unfortunately in the scope of this project there is simply not access to software and reliable real-life data to perform such a comparison, but all results are presented against a reference LPG boiler quoted by technical contacts. The common consumer should perform similar comparisons before choosing which heating system to install, and detailed quotes can be easily obtained from a wide variety of available suppliers.
REFERENCES
[1] https://www.ofgem.gov.uk/ofgem-publications/89263/faqsaugust2014.pdf
[2] https://www.ofgem.gov.uk/ofgem-publications/63960/nondomesticrhi-frequentlyaskedquestions.pdf
[3] https://www.ofgem.gov.uk/environmental-programmes/domestic-renewable-heat-incentive
[4] https://www.ofgem.gov.uk/ofgem-publications/89089/rhiannualreport2014web.pdf
[5] http://www.yougen.co.uk/renewable-heat-incentive/
[6] https://www.ofgem.gov.uk/environmental-programmes/non-domestic-renewable-heat-incentive-rhi/tariffs-apply-non-domestic-rhi-great-britain
[7] http://www.yougen.co.uk/blog-entry/2419/Why+RHI++rules+should+be+changed+to+incentivise+solar+thermal+stores+too/
[8] http://www.homebuilding.co.uk/advice/key-choices/green/rhi-review
[9] http://www.chelmerheating.co.uk/self-build/thermal-store-and-buffer-cylinders/ecocat-thermal-store-cylinder-heating-systems.html
[2] https://www.ofgem.gov.uk/ofgem-publications/63960/nondomesticrhi-frequentlyaskedquestions.pdf
[3] https://www.ofgem.gov.uk/environmental-programmes/domestic-renewable-heat-incentive
[4] https://www.ofgem.gov.uk/ofgem-publications/89089/rhiannualreport2014web.pdf
[5] http://www.yougen.co.uk/renewable-heat-incentive/
[6] https://www.ofgem.gov.uk/environmental-programmes/non-domestic-renewable-heat-incentive-rhi/tariffs-apply-non-domestic-rhi-great-britain
[7] http://www.yougen.co.uk/blog-entry/2419/Why+RHI++rules+should+be+changed+to+incentivise+solar+thermal+stores+too/
[8] http://www.homebuilding.co.uk/advice/key-choices/green/rhi-review
[9] http://www.chelmerheating.co.uk/self-build/thermal-store-and-buffer-cylinders/ecocat-thermal-store-cylinder-heating-systems.html