Cash Rewards for Low Carbon Electricity and Heating

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01 March 2010

The Government has announced plans to provide financial support for anaerobic digestion technologies through feed in tariffs (FITs) by April of this year and has committed itself to developing the world's first renewable heat incentive (RHI) scheme. DECC hopes that both of these steps will help bring about a significant increase in the amount of locally produced small scale green energy and thereby help the UK to meet its 2020 renewable targets.

FITs are designed to work alongside the Renewables Obligations by incentivising renewable electricity production by providing a fixed amount of cash for every kWh of electricity produced. Under the plans, farm-scale AD operators producing less than 500kW a year will get 11.5 pence/kWh and operators producing more than 500kW will get 9 pence/kWh (both for a 20 year period but index-linked). The first 30,000 combined heat and power installations with a capacity of 2kW or less will obtain 10 pence/kWh under a pilot programme. Although the news has been generally welcomed by stakeholders as an important step towards the commercialisation of small scale AD projects, some such as ADBA chair Lord Redesdale, have voiced their disappointment at what they consider the undervaluing of the AD FITs which are considerably lower than those obtainable for small scale wind (34.5 pence/kWh) and some solar PV installations (41.3 pence/kWh). In any event, it marks the growing recognition by the Government of the contribution that AD can make to the renewable energy mix.

The development of a RHI scheme by April 2011 has taken a step forward and has now entered the consultation phases. Similarly to the FITS scheme, the RHI scheme aims to incentivise low carbon heating by providing a fixed financial return for the production of heat electricity from specified renewable sources. The proposed tariff for on-site biogas combustion plants is 5.5 pence/kWh and biomethane injection technology is 4 pence/kWh. Where a plant can generate heat from renewable and non-renewable fuels, the RHI tariff will only reward the renewable component.

Both of these developments will affect the commercial viability of AD plant and should be considered when assessing the financial merits of a given project.  

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