Costs and Implications of the RHI and Modern Wood Heating

Lenham, 27th July

Stewart Boyle
Senior Associate South East Wood Fuels (SEWF)

Main Points To Cover

SEWF The Importance of Renewable Heat The RHI introduction Tariffs and Income Stream for Wood Heating Systems 3 worked examples Key Check List Summary Conclusions Next Steps

South East Wood Fuels (SEWF)

Formed 2004 Producer Group Now more than 7,000 tonnes wood chip fuel under contract including Pembury Hospital Expanding rapidly and working closely with a range of Producers Range of Contracts available multiple year, rolling, p/kWh on heat meter Looking at ESCOs and O&M with partners Boyle Consulting experience with more than 70 biomass systems from domestic to 3MW steam at hospitals

Renewable Heat Market the Sleeping Giant

RHI is designed to put the UK on a path to achieving Renewable Energy Targets 15% of UK s energy has to come from renewable sources by 2020 - EU Directive 11-12% of heating from renewable sources by 2020 including: 110,000 commercial and public sector installations by 2020 (25% of demand in these sectors) 13,000 industrial installations < 1% of heat today from renewable sources Heating accounts for 47% of UK s CO2 emissions 69% gas, 10% oil, 14% electricity 2 million homes on oil - a key target segment for renewable heat Modern wood heating likely to be at least 50% of renewable heat target & could be a lot more

New RE Heat policy

Feed-In Tariffs for Renewable Heat Value for money is key Two phase approach second phase of the scheme from 2012 September 30th 2011 commercial/industrial, public sector, not for profit, domestic district heating Domestic included from August 2012 initial support through Renewable Heat Premium Payments c.950 via Energy Savings Trust Two-tier tariff for biomass <1MW Funded from Government spending

RHI Scheme Details for Modern Wood Heating

Fuels Include forest residue, pellets, logs (in boilers not stoves), waste wood even if contaminated RHI paid to owner of boiler system for 20 years (15 years for domestic) For eligible installations commissioned after 15/7/2009 public grants must be paid back Paid based on metered heat output Domestic and below 45kW must be MCS registered Installations >1MW need to report on sustainability Administration by OFGEM - payments, auditing, enforcement payments quarterly based on meter readings

Non-Domestic Tariffs for Biomass Heating

Tariff Name Eligible Technology Eligible Sizes Tariff Tariff Rate Duration Support Calculation (pence/ (Years) kWh) Tier 1: 7.9 Tier 2: 2.0 Solid biomass; Tier 1: Municiple Solid 200 kWth and 4.9 Waste (inc. above; less than CHP) 1000 kWth Tier 2: 2.0 1000 kWth and above 2.7 20 Metering Tier 1 applies annually up to the Tier Break, Tier 2 above the Tier Break. The Tier Break is installed capacity x 1,314 peak load hours, i.e.: kWth x 1,134

Small Biomass

Less than 200kWth

Medium Biomass

Large Biomass

Metering

NON DOMESTIC RHI TWO TIER TARIFF A SIMPLE EXAMPLE A biomass boiler rated at 250kW(th) operates for 7 hours/day in winter and 3 hours/day in summer, i.e. 1,825 hours in total over the year. This size of boiler is classified as 'Medium Biomass'. It therefore receives the Tier 1 tariff of 4.9p per kWh for the first 1,314 hours and the Tier 2 tariff of 2p per kWh for the other 511 hours 1314 x 250 x 0.049 = 16,096.50 + 511 x 250 x 0.02 = 2,555.00 Making a total of 18,651.50 per annum

Fuel Wood chips (30% MC) Wood pellets Natural gas Heating oil LPG (bulk) Electricity

Price per unit 90 per tonne 185 per tonne 4.1p/kWh 56p per litre 54p per litre 13.0p/kWh

kWh per unit 3,500 kWh/t 4,800 kWh/t 1 10 kWh/ltr 6.6 kWh/ltr 1

pence per kWh 2.6p/kWh 3.9p/kWh 4.1p/kWh 5.6p/kWh 8.2p/kWh 13.0p/kWh

16.07.11

Information sourced from www.biomassenergycentre.org.uk

Versatile set of Renewable Technologies

 Can provide 24/7

365 days a year low

carbon heating
 Chip, pellet and log fuels  Efficiency has increased dramatically as modern chip and pellet boilers and stoves have come into the market  Automatic pellet room heaters and back boiler 4kW to 26kW  Domestic scale pellet and chip boilers  Commercial scale chip and pellet boilers from 75kW up to 10MW  CHP systems multi-MW  Smaller scale CHP (below 1MW (e)) not currently commercial but this may change

Boiler Sizing Strategies

Winter demand Supplying maximum amount of peak demand Optimum relationship of boiler size, thermal store and proportion of heat supplied by biomass
180 B io m a s s b o ile r re -c h a rg in g t h e rm a l s t o re 160 140 T h e r m a l ra te (k W 120 100 80 60 40 20 0 A u x ilia ry b o ile r s u p p ly in g p e a k lo a d Th e rm a l s t o re s e rvin g d e m a n d B io m a s s b o ile r s e rvin g d e m a n d

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RHI Case Studies for Modern Wood Heating

Three Case Studies 150kW pellet container system (pellet or chip) 500kW district heating system (chip) Domestic System (pellet)

1. Small Off-gas grid: An example RHI Calculation

150kW packaged pellet boiler & integration 98,000 Current: old oil boiler 38,000 l /yr at 55 p/l 5 p/kWh 19,600 oil cost pa Future: Hargassner pellet boiler 85 tonne/yr at 200/tonne 4.1 p/kWh 17,000 pellet cost 16,100 RHI payment Net benefit (fuel + RHI) 18,600 = < 6 yr payback If domestic gas similar payback If public sector gas prices 3p/kWh payback = >10 years If wood chip system Capex higher (+25%) but fuel costs 40% lower so payback similar 13

2. District Heating Project on Gas Grid. Potential RHI scenario

Retrofit existing gas community heating scheme 132 bungalows, 40 flats 3.9m kWhs fuel@ 2.4p/kWh = 2.7m kWhs heat @ 3.4p/kWh 1.2 MW peak load Econergy supply: replace central gas boiler with biomass Design Main contractor (inc CDM) M&E supply Froling 500KW chip boiler 400,000 capital Biomass Heat 1.5 mkWhs heat @ 2.9p/kWh 510 Tonnes PA wood chip (30% mc) RHI benefit (chip = gas price) 49,800 RHI payment pa 7-8 yr payback If off gas-grid Payback down to 6 years

Froling 500KW boiler delivery into retrofit energy centre

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CASE STUDY 3 DOMESTIC RESIDENCE East Sussex Coast

CASE STUDY 3 DOMESTIC RESIDENCE

DETACHED 4 BED CHALET STYLE HOUSE SOUTH COAST

Built 1960 Traditional Construction Double Glazed, cavity & loft insulation

CAPITAL COST OF SCHEME = 12.5k 35Kw Biomass Pellet Boiler (WoodViking) Higher cost if External Pellet Silo (15K) Single Heat Interface Unit & Commissioning

CASE STUDY 3 - DOMESTIC RESIDENCE ANNUAL HEAT ENERGY FOR SITE Annual Heat Energy Required : 27,280 kWh Efficiency of Biomass Pellet System: 90% Annual Energy Consumption: 27,280/.9 = 30,310 kWh

OPERATING COST COMPARISON Existing gas fired system running at 80% efficiency 27,280kWh / .8 = 34,100kWh @ 0.041p/kWh = 1,398 per annum Biomass system running at 90% efficiency 27,280kWh/.9 = 30,310kWh @ 0.039p/kWh = 1,182 per annum Pre RHI saving of annual running cost of 216 which provides a payback of just under 58 years.

CASE STUDY 3 - DOMESTIC RESIDENCE RHI ASSESMENT FOR THIS SITE 35kW biomass pellet system 27,280 kWh per annum Say RHI Allowance for system = 0.08/kWh No tiered system payment on metering only 27,280kWh x 0.08 = 2,182 RHI payment per annum PAYBACK & INCOME STREAM Annual Energy Cost Saving 216 + RHI Payment 2,182 = 2,398 Return of Capital Expenditure: 15,000/ 2,398 = 6.2 years. If Week pellet hopper only payback down to 5 years Income Stream following payback for remainder of RHI 20 year award period : 20yr 5 yrs = 15yr x 2,398 = 35,970 If this scenario was pitched against an existing oil fired heating system at 70% efficiency the payback would be 3.8 years with a fuel saving of 1,000 per annum

Check List for green light to modern wood heating

Key Check List
Good financial payback with the RHI and Fossil Fuel Savings? HOT Sectors - Care Homes, Holiday Lets-Domestic DH, Hotels, Estates, Leisure facilities with high hot water demand, secondary (and primary) schools, sub-200kW and high heat load options, off gas-grid industrial......... Existing Fossil Fuel boilers more than 10 -15 years old? Space & access essential for fuel stores and delivery key aspect of consultancy support Experienced consultancy or wood heating company design support available? Ability to fund high capital cost? OR....... ESCO or boiler finance Local wood fuel supply (if chip), regional-national or imported supply if pellet? Self-supply (Estate) offers even better IRR Security of fuel supply

Summary Conclusions
The RHI offers:
Quarterly payments for 20 year dramatically improved economics of renewable heat 10-12% ROI Reduced payback by up to 90% (domestic) and 50% (commercial) Limited window of opportunity (first come, first served) Scheme opens via Ofgem on 30th September 2011 (1st August Domestic) On-line application process RHI will apply after the installation is commissioned Some (large) schemes involving big can be pre-registered to help de-risk investment

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Next Steps
More information
www.decc.gov.uk/rhi to see:

Policy document, Draft regulations, Impact assessment and supporting documentation, Frequently asked questions

For queries e-mail rhi@decc.gsi.gov.uk The REA web-site www.woodfuelheat.org.uk Carbon Trust Biomass Heating Design Guide www.carbontrust.co.uk Environmental Protection UK: Biomass and Air Quality http://www.environmental-protection.org.uk/biomass/ Get good advice! An experienced consultant, e.g. Carbon Trust low carbon consultants, or experienced wood heating company for Design support avoid the Google Consultant!

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Thanks!
Stewart Boyle stewart@sewf.co.uk 07785 726 306

Wood fuel sources and sustainability Are there enough trees?

 2020 UK Government Biomass Heat Target: 38TWh Requires 11 million tonnes per annum of wood fuel: > 1 billion pa  Wood fuel sources (1) Forestry & sawmill residues, arboricultural arisings, under managed woodland, incl. domestic pellets: 3-4 m tpa possible by 2020 Energy crops: short rotation forestry, willow, poplar etc: c.700,000 hectares by 2020 possible (>9m tpa) Wood pellets: Very substantial supply, not believed to be limited if imports included eg. >6 billion of wood products are currently imported into the UK Recycled waste wood: > 4m tpa available now (industrial plant only)  Low carbon, sustainable sourcing is essential

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