HDC Energy News: July 2013 - page 1

for the horticultural industry
July 2013
Energy market update
Prices for energy have been on a gradual
slide over the last few months.
A good supply of gas and better weather
have helped the market soften. Also, a good
supply of shale gas in the US has reduced
pressure on supplies in Europe and Asia.
Renewable heat —
the moves continue ...
Many growers have now cottoned on
to the big financial incentives available
from the subsidies offered through
the Renewable Heat Incentive (RHI)
and have installed, or plan to install, a
biomass boiler.
But, like the Feed-in Tariff for electricity,
the RHI has become a bit of a moving
target from the viewpoint of economics
and compliance, with the government
continually shifting the goal posts to make
planning anything but simple.
Deployment of medium-scale biomass
boilers — i.e. with a capacity in the range of
200 kilowatts (kW) to 1 megawatt (MW) —
has come in at 69% over the government’s
uptake target in the last year. This means
that there will be an automatic reduction of
the current tariff by 5% for installations not
yet accredited, to try to slow things down.
This is known as degression.
This reduction in price could be even
greater in the future if installation numbers
continue to outstrip the target.
Heat pumps
Looking further forward, we’ve seen a
consultation suggesting that RHI rates will
increase for large biomass, heat pumps
and solar thermal. Also, biomass direct air
heating and air source heat pumps might
be brought into the RHI fold.
Looking at the numbers, the effect on
heat pumps looks interesting. A 1 MW
heat pump costing around £1m and
operating for 4,000 hours per year, could
expect to receive RHI income of £185,000
per year. Running costs should be under
2p per kilowatt-hour (kWh) of delivered
heat. This is cheaper than most growers
are paying now for heat from gas boilers,
which is typically between 3p and 3.5p/
kWh of heat delivered.
The primary energy source for this size of
unit is usually from a borehole source. Of
course, there are no water quality issues
— the water is only used as an energy
source and is not consumed.
Both oil and particularly coal have seen
price falls as use has been displaced by gas.
Markets look stable going ahead, obviously
depending on stability in international
politics. The drive to stimulate markets
seems to have overtaken environmental
concerns for many economies.
Carbon Price Support —
another energy tax
Carbon Price Support (CPS) came in
on 1st April 2013 and is being charged
to those generating over 2 MW of
electricity on a site. The first bills for
this will arrive in July.
CPS is paid on the proportion of fuel used to
generate electricity. Initial rates for natural
gas amount to 0.091 pence per kWh, which
will put about 5% on the cost of fuel used
for this purpose.
Even larger sites that have over 20 MW
of heating capacity are also dragged into
another carbon tax — the European Union
Emissions Trading Scheme (EUETS).
It’s interesting, therefore, that small-
scale Combined Heat and Power (CHP)
units (i.e. with a capacity of under 2
MW) look attractive against some of the
bigger systems. Because they manage to
stay below the radar of these taxes, their
generation costs are lower.
So, when competing with larger generating
sets at equivalent ‘spark spread’ prices (i.e.
the margin between fuel cost and electricity
selling price), sub 2 MW systems have an
advantage at the moment.
Of particular concern are the impending emission limits for biomass boilers. These
are set at 30g of particulate matter per gigajoule (GJ) of heat, and 150g of NO
per GJ
of heat. The introduction of these limits was scheduled for ‘autumn 2013’. Albeit not
yet confirmed, the start date is rumoured to be 1st September 2013.
This uncertainty has only served to panic those considering a non-compliant boiler,
leading to a rush to complete installations and get registrations through the system.
Anybody currently considering a biomass boiler should ensure that it will meet
the proposed emission limits and that the boiler supplier can provide evidence as
required by Ofgem.
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