The time has never been better for investing in renewable energy for your home. Until now it has mainly been the preserve of the wealthy or the committed green. Now, thanks to government plans to radically lower carbon emissions, renewable energy is a more attractive investment.
A financial incentive to encourage investment in renewable energy (known as a feed-in tariff or Clean Energy Cashback) will be introduced for electricity generation in April 2010. Germany, Spain and many other European countries have had such a scheme for some time, and it has transformed the take up of small scale energy generation.
The proposals have opened up a six month window of opportunity for people who invest in solar electricity, a wind turbine or a micro hydro scheme. If you install now, you will automatically receive the Clean Energy Cashback when it starts in April next year. You will also be able to apply for a Low Carbon Buildings Programme grant of up to £2,500, to help with the cost of installation. The grants will end when the feed-in tariff starts.
The Clean Energy Cashback will work in three ways.
- A generation tariff is paid for all electricity generated. This is likely to be 36.5p a kWh for a domestic solar system, 30.5p a kWh for the smallest wind turbines, and 23p a unit for slightly bigger turbines.
- An export tariff of 5p is paid for all electricity sold to the grid.
- You also benefit from smaller electricity bills by using electricity you have generated in your home.
The following calculations for ‘typical’ solar and wind installations show how it works:
Solar photovoltaic panels (PV)
An average size (2 kWp) system installed in southern England, producing 1,800 kWh a year, of which half is used in the home, and half is exported. (As you move further north, the system would generate less.)
Generation tariff @ 36.5p per kWh £657
Export tariff @ 5p per kWh £45
Savings on electricity bill @ 12p per kWh £108
Total annual return £810
The cost of installation would be around £10,000, giving an 8% return for the 20 years of the Clean Energy Cashback. If installed with a grant before April next year, the installation cost would drop to £7,500, increasing the return to a little over 10%. This would give a payback time of just over nine years with the grant, or 12 years without.
Wind turbine
A 6 kW Proven wind turbine has an estimated annual output of 6,000 – 12,000 kWh at an ideal site, and an average wind speed of 5 metres per second. This calculation assumes an output of 9,000kWh, of which 3,000kWh is used in the home.
Generation tariff @ 23p per kWh £2,070
Export tariff @ 5p per kWh £300
Savings on electricity bill @ 12p per kWh £360
Total annual return £2,730
The cost of installation would be around £25,000, giving a rate of return of just under 11%, and a payback time of nine years. With a grant the rate of return would increase to 12%, and payback in just over eight years.
So, although it’s still expensive, renewable electricity is now a much more attractive proposition. However, it’s not likely to hit the mainstream until there’s an attractive way of financing it. There is a lot of talk of pay as you save schemes, but so far they are mostly just talk. The Scottish Government has put aside £2m to pilot an interest free loan scheme, the UK Government is planning a pay a you save scheme, where you pay off a loan over a 25 year period from savings in energy bills. The leader in this area is Kirklees Borough Council’s RE-Charge scheme, where you can borrow £10,000, interest free, and pay it back when you sell your house.
Even if you have the cash ready to invest, microgeneration isn’t for everyone. Wind only makes sense if you’ve got a good site. You need average wind speeds of at least 5 or 6 metres a second, and no trees, buildings, hills or other obstacles that might cause turbulence. If not, you’re better off keeping your money in the bank. The only way to be certain is to measure the wind speed before you invest.
Solar PV is suitable for many more people, and can be used in built up areas. Most people put panels on their roof. For it to be effective you need unshaded space, facing between south west and south east. The panels are quite heavy, so your roof must be strong enough to hold them.
Like wind, micro-hydro is site specific, and most of us don’t have a handy river or stream or old mill we can use.
I’ve only talked about renewable electricity generation. It is also possible to generate heat with wood (biomass) boilers and stoves, solar water heating and heat pumps. There will soon be incentives for heat too. The government’s renewable heat incentive will start in April 2011. Detailed proposals are due soon.
This opens a similar (although longer) window of opportunity for investment. If you install renewable heat systems for your home between now and April 2011 you will be able to apply for Low Carbon Building Programme grants and will be transferred to the heat incentive. But until the proposed rates are published we won’t know what the return will be.
Renewable energy is never going to be a get rich quick scheme. But, whether your motive is lowering your carbon emissions, increasing your energy security, an expectation that energy prices can only continue to go up, or just a love of the technology, it’s beginning to look like an attractive investment.
