Stating the case for alternative energy

The Government is offering growers incentives to invest in renewable energy, Claire Shaddick reports.

Wind turbines - annual average wind speeds are critical to growers' payback calculations - image: Morguefile
Wind turbines - annual average wind speeds are critical to growers' payback calculations - image: Morguefile

Over the next 20 to 25 years glasshouse nurseries have the opportunity to earn income from investing in a renewable source of power generation, such as a wind turbine. By next year, they could also get paid to switch their heating from a fossil fuel to a renewable source.

Andrew Kneeshaw, managing director of energy consultancy Farm Energy, explained these opportunities to growers at a renewable energy forum held in Stoneleigh, Warwickshire, in April.

"Renewable energy generation has been a commercial non-starter for the past century," he said. "But now Government has national and international policy commitments to lower carbon emissions, which will be achieved through energy efficiency and non carbon-based energy generation."

The renewable energy forum was organised as part of the Horticultural Development Company (HDC)-funded Growsave project, set up to provide growers with energy-saving advice.

Jonathan Scurlock, NFU chief policy adviser on renewable energy, also attended the forum, where he informed growers that the Government's energy policy is being shaped by the convergence of three issues - climate change, the cost of energy and food security.

Concern over a warming climate, he explained, has led to various policy targets including an 80 per cent reduction in greenhouse gas emissions and a 2 degsC limit to the rise in global temperatures by 2050. The second driver - the cost of energy - is mainly to do with the roller coaster oil price. Scurlock pointed out that, while it may be back down to $85 per barrel after the 2008 price spike, it is now increasing steadily.

"Our energy security is shaky because of the phenomenon of 'peak oil' - when we reach a point where new demand from emerging economies exceeds the oil industry's ability to keep up with demand," he said. "It's a real concern."

The third pressure is worries over food security - where worldwide structural change, increasing global demand and new markets for biofuels have pushed up food prices.

So, as part of the move to a low-carbon economy, the Renewable Energy Directive commits the EU to meeting 20 per cent of its total energy consumption from renewable sources by 2020. The UK's share of the target is a pledge to source 15 per cent of its energy from renewables.

"The UK is bottom of the EU league with only 2.5 per cent at the moment," said Scurlock. "We need a seven-fold increase in renewables over 10 years." As a consequence of this pressing deadline there is a growing range of financial incentives, he added.

Until now, support for farmers and growers has mainly come in the form of capital grants such as the bioenergy capital grant scheme, which supports biomass-fuelled heat and combined heat and power projects, or from the Rural Development Programme.

Electricity companies have also been encouraged to increase the amount of renewable energy they source. The Renewables Obligation, introduced in 2002, offers suppliers an incentive to source electricity from renewable sources - but the scheme is best suited to large electricity generation projects by larger businesses more used to financing risk. Progress has been slow, said Kneeshaw.

As a result, the Department of Energy & Climate Change (DECC) has brought in a new mechanism called in feed-in tariffs (FITs), which are incentives to increase the amount of electricity generated from low-carbon sources. FITs, which were introduced in April, aim to assist individuals, households, communities and businesses to invest in small-scale renewable energy projects, up to 5MW. Now the DECC is planning a similar scheme for renewable heat.

Feed-in tariffs

Government-backed and low-risk, FITs are modelled on schemes in other European countries where they are known to work well, said Scurlock. Rates depend on the technology and the project size and are guaranteed for up to 25 years.

They apply to photovoltaic solar panels, wind turbines, hydro-electric and anaerobic digestion but exclude biomass. The tariff, which will be paid by electricity suppliers, is made up of two elements - the generation tariff and the export tariff.

The generation tariff is earned on every kWh generated whether or not the electricity is used on site. The tariffs available for new installations of some technologies will be set at a lower rate each year, to reflect the expected reductions in the capital costs of projects, but the only change to a tariff once allocated is an adjustment for inflation.

For instance, the tariff on a wind turbine starts at 24.1p/kWh for new installations in the scheme's first year and drops to 16.6p for projects installed in 10 years' time. The tariff also reflects the higher equipment and installation costs per kWh of small-scale projects with the smallest turbines starting on a rate of 34.5p/kWh. If two types of technology are installed on the same site, each will have to be metered separately and will be allocated its own tariff.

The export tariff is an additional payment, set at three pence for every kWh exported from your site to the national grid, as a way of guaranteeing a return for generators. Both payments will be index-linked.

Qualifying installations completed before 15 July, 2009, but not accredited under the Renewables Obligation before 31 March this year, will not be eligible for support through FITs. The scheme applies to England, Scotland and Wales.

When growers are not exporting electricity to the grid they will, of course, be saving on the cost of the electricity they would otherwise have to buy in. "This component will increase if energy prices go up and becomes more important," said Kneeshaw. "It might be worth your while to use as much of the electricity you generate as you can."

FITs are designed to give a rate of return on capital investment of five to eight per cent. They are a good deal for some technologies, especially wind. As a result we are seeing development companies that want to help you develop your project, commented Scurlock. But tariffs are not really good enough for small-scale anaerobic digestion.

For wind projects, however, annual mean wind speed will be critical to the sums, which means growers need to look closely at wind speeds on their own site. Taking a 50kW wind generator as an example, at a capital cost of £180,000, Kneeshaw calculates a £14,000 difference in annual returns between wind speeds of five and six metres per second, adding four years to the payback.

With the arrival of FITs, Scurlock says some manufacturers and installers are now offering attractive packages such as free electricity if you allow them to develop wind power. But Kneeshaw advised growers to be careful if companies knock on their door looking to lease them equipment, for instance, or lease roof space from them for solar panels. "Sometimes you might be better off investing your own money," he suggested.

As for which technology to go for, FEC Services technical director Tim Pratt said the economics will vary from site to site. Hydro is unlikely to be a runner for many businesses anyway, so the choice is between wind and solar photovoltaics. "Solar PV is lowmaintenance but high-cost. The 'fuel' is more reliable than wind and improved performance of PV is on the cards," he added. "Wind has a reliable return on investment - if you do your homework."

Renewable heat incentive

There is no incentive to install a renewable heat source under FITs, which is why the Government is now looking to introduce a separate scheme, the renewable heat incentive, from April next year.

This will pay a tariff on each kWh of heat generated from renewable sources with rates and period of availability depending on the technology. It will apply to biomass boilers, air and ground source heat pumps, biogas produced by anaerobic digestion, bioliquids produced from biomass and renewable combined heat and power.

A Government consultation, which closed in April, proposed tariffs at levels set to yield a rate of return of 12 per cent, except on solar panels where the return is calculated at six per cent. Because it is more difficult to meter than electricity, output for small- to medium-scale installations will be estimated. The scheme will remain open to new projects until at least 2020 and installations that are completed after 15 July, 2009, but before the scheme starts, are also expected to be eligible.

Investment in heating from a renewable source is a riskier proposition, said Kneeshaw. For instance, payback on a 1MW woodchip boiler system, costing £250,000, operating for 3,000 hours a year and needing 770 tonnes of woodchips could vary by 30 years depending on what happens to both the price of the gas being displaced and the woodchips being bought in. The cost of the fuel is critical, he added.

Being able to use flue gases for CO2 enrichment could play a big part for growers of glasshouse edible crops in deciding whether to invest in a bio-mass boiler. "It is clearly a major limiting factor," said Pratt. "Is it possible? We believe it is and some manufacturers say it is." An HDC project that started this year will review the technical and economic status of a range of CO2 sources and technology, such as cleaning flue gases or the pre-combustion treatment of fuels.

If faced with the choice of investing either in energy efficiency or renewable energy, FEC Services commercial director Chris Plackett said the winner has always been energy efficiency, even though its value is limited to a percentage of the cost of the energy used.

Horticulture has reduced energy use by 22 per cent since 2004 but industry use figures suggest some nurseries have room to improve. "Energy saving still has much to offer," he said. "But the returns get progressively smaller."

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