Feed-in tariff briefing note

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					   Feed-in tariff briefing note
   The Chartered Institute of Housing has been part of a broad coalition, campaigning for an
   amendment to the Energy Bill, to introduce a UK version (including incentives for
   renewable heat) of the tried and tested ‘feed-in tariff’, which has proved successful in a
   number of European countries, most notably Germany. There, the policy has led to a
   considerable increase in electricity generated from renewable sources (current share is 15
   per cent). Its renewables industry employs 249,000 people, with a turnover of €24.6bn. In
   comparison, the UK generates 5 per cent of its electricity from renewables and employs
   15,000. According to the German government, savings of 57 million tonnes of CO2 in 2007
   were directly attributable to the country’s feed-in tariff legislation.

   How does a feed-in tariff work?
   A feed-in tariff gives a guaranteed price for each kW/h produced from renewable sources
   and exported to the grid for a fixed period, usually 20 years, as in the case of Germany.
   The level at which the tariff is set will depend on the kind of renewables used. The
   amendment does not specify how the tariff will be paid for. The cost could be met from
   general taxation or as an addition to energy bills (as currently happens with the Renewable
   Obligations).

   Energy Act 20081
   The Energy Bill received Royal Assent and government has committed itself to introduce a
   feed-in tariff by April 2010. The Energy Act also contains provisions for renewable heat
   incentives, although it is not clear whether this will be along the lines of a feed-in tariff. The
   Act provides a broad framework for the scheme, with the details, such as tariff levels and
   length of support left for consultation.

   The potential benefits for the housing sector
   We believe that a feed-in tariff would give the affordable housing sector the much needed
   incentive to invest in renewable technologies, as it would significantly reduce pay-back
   periods (see worked example overleaf). In particular those housing organisations which
   have addressed the ‘low-hanging fruits’, such as cavity-wall and loft insulation and wishing
   to go further find it difficult to justify investment due to high upfront capital costs and
   long/poor pay-back periods. However, renewables, such as micro-CHP might in some
   instances actually be the more cost-effective solution.

   In this context, smaller/medium scale renewables could make a significant contribution to
   tackling fuel poverty. Those living in the one-third of homes that are classified as ‘hard-to-
   treat’ are especially vulnerable to fuel poverty. For these homes that are unable to get
   cavity wall insulation or are off the gas grid, renewable energy is a vital part of the strategy
   to tackle fuel poverty. Supported by the tariff, housing providers could target invest to ‘fuel-
   poverty proof’ these properties, both on an individual dwelling or community level (such as


   1
       Energy Act 2008, available at http://www.opsi.gov.uk/acts/acts2008/pdf/ukpga_20080032_en.pdf


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   district level heating systems). Housing organisations could do this in partnership with local
   authorities and others through the establishment of energy services companies (ESCOs).




   Example of a heat tariff

   Sheffield Road Flats – Barnsley (saved 300 tonnes CO2)


   The Sheffield Road Flats community heating scheme of 177 flats benefited from a
   capital grant of around £50,000 (this grant programme has since closed).

   The cost of wood chip against gas may give a 0.5 to 1.0 pence per KWh price saving.
   On this basis, with no grant and no tariff, the simple payback period would be in the
   region of 10 to 20 years.

   What impact would the heat tariff have on projects similar to the Sheffield Road Flats
   community heating scheme?

              •   Wood boiler, fuel feed system and bunker, approx capital cost:
                  £150,000
              •   Typical heat delivered per annum:        1.4 million KWhs
              •   At 2p/KWh this would give an annual income of:         £28,000
              •   Simple payback time with heat tariff:           5.4 years


   If the heat tariff were only 1.5 pence/kWh, the payback period would be just over 7
   years. The tariff relates to a carbon price of approx £118/tonne CO2 (or £88/tonne at
   1.5p/KWh).




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Description: Feed-in tariff briefing note