The Government unveiled the final version of its Clean Energy Cashback scheme today amid wide consensus that it will help revolutionise UK energy generation – but with concerns raised that it may not go far enough to attract adequate investment, especially from businesses.
The Government says the
Clean Energy Cashback scheme, which will come into effect on April 1, will offer a five to eight per cent return on initial
investment to businesses and households that invest in
technologies, such as small wind turbines and solar. The scheme works by allowing businesses and households that install such technologies to claim payments for the low carbon technology they produce over a 10 to 25 year period.
Installations up to five megawatt (MW) in size will qualify under the scheme – also known as
feed-in tariffs – and tariff payments will range from 4.5 pence per kilowatt (kW) for hydro to 41 pence for retrofit photovoltaic (PV). Technologies under the scheme will also earn a further bonus payment for power exported back to the grid.
According to
Department of Energy and Climate Change (DECC), power generated from a 2.5 kW PV installation could earn £900 in
cashback, on top of £140 reduction on a household’s energy bill.
Following the consultation, the Government has introduced some changes to the scheme, such as increasing tariff payments for certain technologies like PV, and increasing all tariffs in line with inflation. However the changes still fall short of what some renewable firms and environmental groups had been calling for.
Clean Energy Cashback scheme tariffs still too lowFriends of the Earth, the environmental group that led the campaign for the
Clean Energy Cashback scheme, expressed its disappointment, saying that the payment levels should have been set to produce a 10 per cent return on investment instead of five to eight per cent. It said as things stand, the scheme would likely only contribute two per cent of UK electricity by 2020, despite research that shows it could generate three times as much if tariff payments were higher.
"
Installing renewable technologies will now be a good investment for many homes – but farmers, businesses, communities and others will get little or no extra incentive to invest in clean electricity,” said Friends of the Earth's energy and climate campaigner Dave Timms.
Businesses, which will have to pay tax on anything they earn through the scheme, may be put off by the fact that the return on investment is so low, especially for bigger installations. For example, a four kW solar PV system commands a tariff of 41.3 pence per kW, while a one MW system falls to 29.3 pence. In addition, the export bonus for businesses selling power back to the grid has been cut from five to three pence per kW.
The Green Company, though, says analysis it has carried out shows that under the UK’s
feed-in tariff, business and investors can reach 12 per cent nominal returns (10 per cent real returns) on average sites.
"This compares very favourably with savings and internal investment hurdle rates – especially when you consider the hedge against future energy price rises," said Ben Cosh, founder and managing director, The Green Company.
Biomass left out of feed-in tariff schemeThe Renewable Energy Association (REA), which campaigned with Friends of the Earth for feed-in tariffs, said the potential impact of the scheme on all sectors “should not be underestimated”.
But it expressed its surprise that anaerobic digestion (AD) was the only biomass technology that had been kept in the scheme, saying that even for this suggested tariff levels were inadequate for delivering the large potential number of small AD plants for farms and communities. It also expressed its disappointment that feed-in tariffs were not going to be used to help advance the commercialisation of new technologies, including wave, tidal and pyrolysis.
Those that have campaigned for
feed-in tariffs have pointed to the success of Germany, where such a scheme has transformed the renewable energy sector, but where tariffs started off significantly higher than those being proposed here.
REA says the scheme has enabled countries elsewhere to benefit from strong growth and employment in the renewables industry, and to bring down the cost of renewable technologies.
Energy and Climate Change Secretary Ed Miliband said the scheme would “change the outlook for a range of industries, in particular those in the business of producing and installing small scale low carbon technology.”
Renewable Heat IncentiveToday, DECC also launched a consultation on the Renewable Heat Incentive (RHI), due to launch in April 2011, which will pay people for the renewable heat they generate.
Like the
Clean Energy Cashback scheme, the RHI will guarantee a fixed payment to the user for every unit of renewable energy generated over a set period of years.
The consultation will run for 12 weeks.
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