The latest consultation from DECC on the Renewable Heat incentive suggests that there will be subsidies for Micro Renewables based on the deemed heat need (surveyed) and the lifetime of the equipment.
The table below shows the proposed subsidy per kWH
Is 2010 the year that Micro renewables finally takes off in a big way? So that it is "common" in the UK to have a Micro renewable source of fuel. Creative Destruction implies that an industry changes completely and has a significant impact on our lives. How might the energy market change?
Micro renewable is a term that implies use at the household level and technically an output of 45 kWH or less. This could be a biomass boiler or a ground source heat pump.
The government survey on gas and electricity use in 2006/7 shows gas use at between 16000 kWH for smaller houses and 24,000 kwh for larger houses. This does vary by geographic area and by type of house.
An "average" gas bill for a year is said to be about £800. Oil may be higher than this, as will LPG, and again will vary on the sort of house and location. Purchase, Installation and maintenance may increase the cost to £17000 over a 15 year period assuming prices stay the same.
The majority of people have ignored the Micro Renewable market as the capital cost of installation is simply too high. If, for instance the cost of installation and equipment were £5000 higher than Gas or Oil, the payback period, even if the fuel was "free" would be over 6 years.
There are a number of factors that are causing this market to show signs of shifting:
Gas and oil prices are going up significantly and are perceived as coming from politically unstable places.
The public are starting to believe carbon neutral is a good thing
The government in the UK have signed up to reducing CO2 and home heating is a big area
The number of businesses offering a Micro Renewable solution has increased and households are becoming more familiar with what each solution can do.
Planning regulations will come into force in the future that new homes should be carbon neutral
Renewable Heat incentive will be introduced in April 2011 for all "approved" new installations post July 2009 to harmonise the market.
There are therefore 2 key factors:
We want to feel "greener"
We want a good deal
How might this work?
For biomass the subsidy is 9p per Kwh for 15 years. Using the average house consumption of 20500 kWH this equates to about £27,000.
If you paid:
£5000 for your boiler
£2000 for installation
£200 per year for maintenance (£3000)
Between £9000-£14000 for fuel over the lifetime of the boiler (depending on how and where you buy your fuel from and accepting that prices of fuel may rise)
This gives a total of about £20,000 for the average house over 15 years or £1300 a year
It is clearly more expensive than gas. However if the 9p is accepted you will get back £27,000 - and you will gain £7000 over 15 years for having biomass heating rather than gas. This is therefore an investment opportunity.
This scheme is to be introduced by April 2011 and administered by Ofgem. It wont get ratified in parliament before the next election - and it is clear that this 9p rate may change. What is encouraging however is that there is cross party agreement on the approach and the need to do this. Even if the rate were 3p it would mean a £9000 subsidy over the life time of the equipment and would make biomass (wood pellets) cheaper than gas.
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