This article is based on a report written in January 2012 with minor updates at the start of April 2012. It does not cover loan-based support from banks or other financial lenders. This type of financial support is now available from most of the major UK banks and also from a number of other commercial lenders. However their terms will vary significantly. Reviewing the best options for this type of loan-based finance would be the subject of a further article.
There is a wide range of Government and other funding assistance available for renewable energy projects although many options will be limited to specific types of applicant – private households, businesses, public bodies, voluntary organisations, community groups etc.
The main options are listed below – the report on which this article is based had a strong Scottish focus. However most of the funding schemes are available across Britain. A more detailedlist of all options is provided on the Energy Saving Trust website under their funding and finance section:
Feed in Tariffs (FITs) were introduced in April 2010 by the Government with cross-party support to encourage the installation of renewable energy technologies in properties (both business and domestic). By legislating on what an individual or company gets paid for the energy generated, the technology is guaranteed to recoup the investment costs far quicker than was previously possible.
The reason the Government was so keen to get people to install renewable energy systems is because there is a legally binding EU target of producing 15% of the UK’s energy from renewables by 2020. At the start of 2010 we were only producing about 2% of our energy from renewables and whilst offshore wind farms and other big energy generation projects will make a significant contribution, it simply will not be enough on its own. Official estimates in 2010 calculated that the tariffs should produce 8% of the UK’s energy from renewables.
The first stage is to install the technology and have it grid connected. Once it starts generating electricity, you will use what you require. Any surplus that your system generates but you do not consume is automatically exported back to the National Grid. Any additional electricity that you need (for example if it’s night time when your solar panels don’t work or simply because you need more power than you are generating) is automatically imported into your property in exactly the same way that you currently get your electricity from the National Grid.
The payments happen in three ways:
1. You get paid for all the electricity that you generated and used yourself
2. You get paid for all the surplus electricity that you exported back to the National Grid
3. You pay your energy supplier for the additional electricity you needed to import
It is your energy supplier who will pay you, typically once a quarter, for point one (the electricity you generated and used yourself) and point two (the electricity you exported to the grid). You will pay them for the electricity you needed to import in the period.
Renewable Heat Incentive
In March 2011, the UK Government announced the details of their Renewable Heat Incentive (RHI) which is designed to provide financial support that encourages individuals, communities and businesses to switch from using fossil fuel for heating, to renewables such as wood fuel. Non-domestic installations can claim the RHI now for any installations commissioned on or after 15 July 2009. Installations that are eligible for the RHI include:
Applications opened on 28 November 2011 for the RHI and must be made to Ofgem. They will make quarterly payments to the owner of the installation.
For domestic installations, the householder, or owner, of the installation will be able to claim the RHI early 2013. In the meantime, the Renewable Heat Premium Payment can be accessed for eligible householders. This is a relatively small grant (available through a voucher) towards the purchase and installation of solar thermal panels, heat pumps and biomass boilers. Any householder can claim this money for solar thermal installation. However, only houses without mains gas can claim the grant for biomass or heat pumps. Note that this grant has recently been extended to 31 March 2013. Householders claiming the grant can also access the RHI when it becomes available to them hopefully around this time.
Green Deal is a new government initiative designed to help meet the upfront cost of making your home more energy efficient. Due to be launched in late 2012, the Green Deal will allow householders to install energy-efficiency measures and pay for the improvements with the savings on their fuel bill. Although they will repay the cost over time, this is not a conventional personal loan as the charge is attached to the meter and paid back through their fuel bill. If they move house, the idea is that the new occupant will pick up the outstanding loan while also benefiting from a more energy-efficient property.
Enhanced Capital Allowances (ECA)
The Enhanced Capital Allowance (ECA) Scheme is aimed at UK businesses allowing them to claim 100% first year capital allowances on investments in energy saving technologies and products, including some renewable energy technologies. Businesses are able to write off the whole cost of their investment against their taxable profits of the period during which they make the investment. The Government’s energy technology (www.eca.gov.uk/etl) lists promote products that encourage sustainable energy use and reward businesses for investing in them through the ECA Scheme. ECAs allow 100% of the cost of the product on the technology lists to be offset against your taxable profit of the year it was purchased. ECA’s bring forward the time that tax relief is available on qualifying investments, allowing the full cost to be written off against the taxable profits of the period in which the qualifying spending is incurred, delivering a useful cash flow boost and a shortened payback period on investment.
The company can claim the price paid for a new product and the costs directly associated with the installation of the product. Claims can only be made for products appearing on the technology lists at the time of investment (i.e. claims MUST be made within the same tax year that the equipment is purchased).
It is possible to use the ECA in conjunction with other sources of financial assistance, such as the Small Business Support Loan (detailed below)
Note that the interest free loan can be used in conjunction with the Enhanced Capital Allowance Scheme detailed above.
Interest Free Loans for domestic consumers
Interest free loans for up to £2000 are available for domestic renewable installations. The householder must contact the Energy Savings Trust to arrange for a free home survey and then the loan application pack will be sent out. Further information can be found at http://www.energysavingtrust.org.uk/
E-On Sustainable Energy Fund
The E.ON Sustainable Energy Fund offers grants of up to £20,000 to community groups and not for profit organisations who wish to consider and implement sustainable energy projects in their buildings - from energy efficiency through to micro-generation. The organisation must benefit specific groups namely:
The RDP is a significant sum of European funding for the development of rural areas. Funding is available for a wide range of activities including the development and diversification of land based businesses and the installation of biomass boilers. Further information can be found at the following website: http://www.scotland.gov.uk/Topics/farmingrural/SRDP
Note that this funding cannot be accessed if the applicant intends to take advantage of the Feed in Tariff or the Renewable Heat Incentive.
Energy Savings Trust
Provide advice on all aspects of energy efficiency and renewable technologies. They also administer the interest free loans. Website: www.energysavingtrust.org.uk
Provide advice to businesses on issues relating to the reduction of carbon emissions. Website: www.carbontrust.co.uk
As the Renewable Heat Premium Payment opens for business, GEN speaks to three homeowners in different settings about their renewables projects and the role that financial incentives have played.
Urban eco-family going solar
Daniel lives with his partner and two children in a 150 year old terraced house in Leith, Edinburgh. One year ago they decided to install a 1.58kW solar PV panel on their roof. As Daniel explains it was the natural next step in a carbon saving journey, “We read an article by Mark Lynas about carbon footprinting in the home and had really done everything that can be easily done to an older house. The gas boiler had been switched to an efficient condensing version, alongside draftproofing and changing all the bulbs to energy efficient versions and installing a wood stove. We had a bit of money put aside so with the Feed-in–Tariff coming in alongside a grant we went ahead with solar PV.”
The installation cost approximately £9k with around 30% of the cost being paid through an Energy Saving Trust grant. Daniel says the FiT was an attractive part of the package. “It seems like an ideal way to invest savings when there is a guaranteed return for 25 years at such a good rate.” He admits though that the FiT is more attractive if you don’t intend to move away. “We live in a nice place with the kids settled at the local school, the solar installation was part of improving the house on a number of levels. I hope to enjoying the financial benefits of lower cost bills in this house well into my 70’s.“
In terms of advice they went to the Energy Saving Scotland advice centre, who helped set up the grant and put them in touch with suppliers.
Rural family swapping oil for a renewables mix
Living in Fintry, Stirlingshire presents some energy challenges for Gordon and his wife and two children. Being off the gas grid and running an old inefficient oil boiler was expensive for a four bedroom older house so renewables options were investigated. The first project was to install a 1x2m solar thermal panel on the roof about 4-5 years ago. ‘It provides about half of our hot water needs and there is virtually no maintenance needed’ says Gordon. The cost of installation was around £3k and at the time an SCHRI (Scottish Communities & Householders Renewables Incentive) grant brought the cost down by a further £1K.
The biggest project though was to replace the oil boiler. The options were narrowed down to a biomass boiler or a ground source heat pump (GSHP). Gordon explains, “We wanted a mix of cost savings and functionality, the ground source heat pump fitted the space we had available a lot better but it had to be able to heat the existing radiators properly too.” They ended up with a 17 kW GSHP sunk into a borehole in the garden. Total installation costs were about £17k with £3k covered through a grant and £10k of the capital outlay being covered by an Energy Savings Trust loan.
“The loan made a huge difference to the project going ahead, I think that even when the RHI (Renewable Heat Incentive) comes in people will still need a way to cover the upfront capital otherwise the scheme will just benefit those who have substantial savings to put into projects.”
The GSHP was installed last December during the coldest part of an exceptionally cold winter. So far the family have had a noticably warmer house with lower fuel bills with estimates that the GSHP will save between £500-1,000 per year. Advice and information was was gathered from a range of sources including an energy advisor employed by the Fintry Development Trust who pay for his work from having a financial stake in the local wind farm.
Renewable central heating for an off-gas terrace
Mark and Melinda live with two young children in a three bed room terraced house near Doune in Stirlingshire. Four years ago they moved into their property which is off the gas-grid and required some modernisation. They explain, “We had very little time to do the property up before moving in, but were keen to replace the ancient electric storage heaters with a proper radiator based central heating system that was renewable and cheaper to run than an oil boiler.“ In the end the family chose a 13kW stove that runs on biomass woodfuel pellets. “We didn’t have enough space to house a full scale biomass boiler, but the pellet stove option seemed like a good idea as it could fit in the living room while the pellets are stored in bags in the garden shed.”
The cost of the whole central heating re-fit was around £7k with the family receiving around £900 through the SCHRI to help with capital costs. Total fuel costs for heating and hot water from the system come in at around £1k a year. Did the grant make a difference? Mark explains, “It was certainly helpful at the time, but we had made some profit from the sale of our last house, so we put most of it into doing the new house up including the installation of the central heating system. If we were to do it again now, then getting a low cost loan would be essential. I have seen the new RHPP rates (Renewable Heat Premium Payment) but they look pretty similar to what we got under the old grants.” Advice came from contacts who had installed similar systems and from suppliers.
Loans are key
It clearly depends on the circumstances of the householder but incentives have a role to play in terms of promoting the options available and in 'nudging' consumers down the renewables path. Given the ongoing slump in house prices and the reluctance of banks to lend, the amount of capital available to make a green switch is going to be limited in the medium term.
Government's would be well advised to consider how loan funding can work alongside other initiatives such as the Green Deal to overcome this barrier, while keeping the rules around incentives such as the Feed-in-Tariff stable.