Assessing the impact of the Renewable Heat Incentive

Biomass, woodchips, wood pellets, space heating, RHI, Renewable Heat Incentive

The Renewable Heat Incentive has a major impact on the economic benefits of boiler projects based on biomass boilers, as we found out from Jim Birse of Econergy.

Biomass fuel in the form of wood pellets and wood chips is probably the most versatile type of renewable energy for heating individual buildings or groups of buildings on an estate using district heating. That is the perspective of Jim Birse, commercial director with Econergy, which has 12 years’ experience in biomass and been involved in over 500 projects ranging in size from 10 kW to 2 MW.

With the payments under the Renewable Heat Incentive for commercial projects having started to be made from the end of September 2011, the economics of biomass projects has improved significantly, as several detailed cost analyses carried out by Econergy for a number of potential projects demonstrate. Indeed Jim Birse asserts, ‘The Renewable Heat Incentive makes biomass heating a really viable investment.’

The projects analysed are wide ranging and include a retrofit for a primary school, rural homes for elderly people, retrofit projects for social housing and leisure centres. The retrofit projects include gas- and oil-fired plant being replaced with biomass boilers. In all cases, the RHI is the key to achieving very attractive payback periods of less than eight years and a simple return on investment of at least 13.4% — as figures compiled by Jim Birse demonstrate.

One project considered was a call centre previously heated with gas-fired boilers using 3500 MWh a year with fuel costs of £96 000 a year. Replacing those boilers with a 500 kW wood-chip energy centre with a heat-distribution system would cost about £600 000.

The new installation is calculated to use 812 t of wood chips a year costing £73 000, so fuel costs would be reduced by £23 000 a year.

In addition, however, the RHI payment would be £64 000 a year, bringing the total benefit to £87 000 a year. Jim Birse says that the payback is seven years, with a 14.5% simple payback. Such figures mean that the entire costs of the new biomass scheme would be repaid well within its expected lifetime.

A proposed retrofit for a primary-school would involve replacing an old oil-fired boiler with a 100 kW packaged wood-pellet and integrating it. The total investment would be about £100 000.

Fuel costs are currently £12 900 a year, based on 25 700 l of oil at 5.7 p/l.

The replacement installation would require 42 t of wood pellets a year costing £8400 — an immediate saving of 35%.

The next stage is to factor in an RHI payment of £10 800 a year to realise a net benefit of £15 300. The simple payback is 6.5 years with a enticing simple return on the investment of 15% — and once again the installation would be paid for well within its expected life.

The third project is for oil-fired boilers being replaced with a 200 kW wood chip energy centre and heat-distribution system for a rural home for elderly people. The total investment would be around £230 000.

The annual bill for 38 000 l of oil is currently £21 000.

The new installation would use 100 t of wood chips a year costing £9000.

Added to the £12 000 a year saving in fuel is an RHI payment of £20 000 a year to give a net benefit of £32 000 a year.

The payback is seven years, with a simple return on the investment of 14%.

The RHI became available to owners of commercial plant from the end of September 2011. Once awarded, payments continue for 20 years. The payment is based on metered heat and paid quarterly.

What Jim Birse’s analyses does not indicate is how quickly the extra cost of these biomass projects might be repaid compared with like-for-like replacements — but they are likely to be very short.

Given the very attractive economics indicated by these studies, how might demand for wood fuel rise and how might it be met?

Jim Birse refers to figures from NERA and AEA that consumption of wood fuel in 2010 was about a million ODT (oven-dried tonnes) and that it would rise steadily to about 2.2 MT by 2020 stimulated by the RHI. The pace of growth is then expected to treble from 2020 to 2030 and reach 6.5 Mt a year.

He then refers to projections from the Carbon Trust where even ‘low’ projections forecast UK resources of 10 Mt (ODT) a year by 2020 and 14 Mt a year by 2030. This ‘low’-availability scenario is based on low prices and lack of investment not overcoming market, infrastructure, policy and technical constraints.

Wood chips and wood pellets as fuels are very low carbon. If they are derived from European forest residues, CO2 emissions from wood chips are 1 g/MJ (3.6 g/kWh) and for wood pellets 2 g/MJ (7.2 g/kWh). For comparison the figure for oil is 76 g/MJ (274 g/kWh).

Wood chips are the cheaper fuel, at 2.5 to 3.5 p/kWh, compared with 3.5 to 5.0 p/kWh for wood pellets. For the same heat output, however, wood chip requires nearly five times as much storage space. Wood pellet offers 3250 kWh/m3 compared with 670 kWh/m3 for wood chips.

As a final perspective on the benefits of biomass, Jim Birse has a quote from The Economist of 21 May 2011: ‘Policies that concentrated on cheaper renewables such as biomass and less on offshore wind and solar would make things less expensive.’

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