Government Incentives

For most organisations, one of the primary reasons for investing in on-site renewable energy has been to gain positive green PR – to boost company reputation and address growing customer concern over the environment.

Motive has rarely been financial – because of lengthy payback periods between 10 and 25 years to recoup initial investment in solar and wind.

But this is all about to change with the introduction of new Government incentives to significantly improve the economics of renewable projects in the UK – aligning the country with its European counterparts in Germany, Spain and Italy.

Feed in Tariffs (FITs)

The FiT (Feed in Tariff) Scheme, scheduled for introduction in the UK by April 2010, aims to stimulate capital investment by shortening the reimbursement times of renewable electricity by at least 50% for solar and wind power; enabling ROI to be achieved in less than 7-8 years in some instances.

FiTs are cash payments made at above-market rates to the owners of renewable systems for electricity generated whether this energy is consumed on-site or exported to the grid. The higher price helps overcome the cost disadvantages of renewable energy sources such as solar PV and wind.

Different versions of the FiT scheme have already been introduced in other countries. But the basic principal remains the same; owners of solar panel, wind turbines and other technologies are paid for all the electricity generated, regardless of whether they use it on-site or export/spill it to the national grid. These payments could be worth thousands of pounds a year and transform the financial case for installing renewable energy.

Feed-in tariffs will be effective for small to medium scale projects (below 5MW), such as wind turbines powering factories or supermarkets. They will certainly encourage the wider installation of solar PV and small wind.

Renewable Heat Incentive (RHI) Scheme

Biomass is also given support under a Government scheme to be launched in April 2011. The Renewable Heat Incentive (RHI) makes payments for every kilowatt-hour of renewable heat that is produced. This level of payment (the tariff) will be different for various renewable energy sources.

 

The finer details of the RHI are still to be established but it will encourage businesses to achieve competitive advantage by providing a predictable income stream for renewable heat generators.

 

Renewable Obligation Certificates (ROCs)

 

Renewable Obligation Certificates require electricity suppliers in the UK to source a specified and increasing proportion of their electricity from renewable sources. The scheme is a current mechanism for incentivising renewable electricity. Where suppliers do not have sufficient ROCs to meet their obligations, they must pay an equivalent amount into a fund, the proceeds of which are paid back on a pro-rata basis to those suppliers that have presented ROCs.  The Government anticipates that suppliers will be subject to a renewables obligation until 31 March 2027.

 

ROCs are issued to accredited generators for each MWh of generation and can be sold separately from the electricity to which they relate. This allows for open trading of certificates.

 

Carbon Reduction Commitment (CRC)

 

The Carbon Reduction Commitment is a new, mandatory, energy saving and carbon emissions reduction scheme for the UK. It starts in April 2010 and introduces new legal duties on any organisation supplied by an electricity meter settled on the half-hourly market.

 

The more CO₂ an organisation emits, the more credits it will need to purchase, so there is a direct incentive to reduce emissions. Participating organisations will need to monitor their emissions and purchase allowances to emit Carbon Dioxide (CO₂). It will act as an incentive to improve energy efficiency and help large private and public sector organisations to generate cost savings through reduced energy bills.

 

Private companies that pollute less can trade/sell their carbon credits on the open marketplace to commercial customers interested in lowering their carbon footprint. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed.

 

Climate Change Levy

 

The Climate Change Levy (CCL) is a tax payable on fossil fuel energy usage, which came into force in 2001. It was created to encourage the commercial and public sectors to improve energy efficiency and reduce emissions of greenhouse gases through renewables.

 

Climate Change Agreements (CCAs) were introduced alongside the levy which provide an 80% discount on the levy if challenging targets are met for improving efficiency or reducing carbon emissions.

 

Other components of the Climate Change Levy are:

 

Enhanced Capital Allowances (ECA) – a scheme for investments in some energy saving technologies and products. This provides 100% first year tax relief on qualifying capital expenditure.

 

Levy Exemption Certificates (LECs) – allowing organisations that pay the CCL to enter into agreements with suppliers to purchase renewable electricity, which is exempt from the levy.

 

With considerable financial-backing available from schemes such as FITs, and by trading with Carbon Credits and ROCs, the costs of inaction on climate change far outweigh the costs of action.