The ‘Renewables Obligation’, places a duty on electricity retailers to source a growing proportion of power from renewables, thereby creating a growing market for green power.

There are various capital grant schemes to help with installation costs and a further means of support called: “‘Feed-In-Tariffs”, is due to start in April 2010. This proposes direct payments to generators, in proportion to the power produced, whether it is used on site or exported to the grid.

The Renewables Obligation and the various grant schemes have, along with private investment, played their part in raising the proportion of our electricity derived from renewables from around 1% in the early years of this decade to around 5% in 2009. However the Government’s target is for 30% of power to be renewable by 2020.

Grants, the RO and the incoming Feed in Tariffs will be crucial to the development of renewable power in the coming years – so each is worth a closer look.

The Renewables Obligation

Generators of renewable power have to register with OFGEM (Office of Gas & Electricity Markets) who award Renewables Obligation Certificates (ROCs) to generators in proportion to the amount of qualifying electricity produced.

Electricity retailers have to buy enough of these ROCs from generators, along with the accompanying green electricity, to prove that they have complied with the Renewables Obligation.

Initially the RO did not distinguish between the different renewable technologies, but in April, after years of CLA lobbying, ‘banding’ was introduced to encourage development of the full range of renewables. Emerging technologies like Anaerobic Digestion, solar photovoltaic and biomass now get 1.5 - 2 ROCs per megawatt hour, compared with the standard 1 ROC for technologies like onshore wind which are already well developed. Micro-generation (under 50 kilowatt) projects now get 2 ROCs for any technology.

Capital Grants

The availability of capital grants is more patchy. There are various schemes, each with eligibility criteria and limited budgets. Some are aimed at specific technologies whilst others can support a range of technologies. Some open for short ‘application rounds’ as funds become available and close once the money gets fully committed.

In the South West, grants are available through the Rural Development Programme for England. Numerous conditions apply but through the Agricultural Resource Management strand of RDPE, funding up to a maximum of £10,000 is possible for small scale installations, such as biomass boilers or micro-hydro schemes, supplying the needs of a farm business.

If the primary aim is to earn off-farm income through electricity sales to the grid, this could be eligible for a much larger grant as a diversification for a single farm business or for a group of farmers or landowners acting together.

The Bio-energy Capital Grants Scheme supports the installation of biomass fuelled heat and combined heat and power projects in the industrial, commercial and community sectors. The maximum award is £500,000. There may be another round soon.

The main scheme offering grants towards a range of technologies is the Low Carbon Buildings Programme.

However the LCBP funding for businesses ended in 2008. Grants are still available for householders (up to a maximum of £2,500) and charities or community groups (up to £200,000) towards the installation costs of a range of technologies.

In addition to capital grants, tax breaks like Enhanced Capital Allowances allow 100% of the cost of certain renewable energy equipment to be set against tax in any one year.

Feed-In-Tariffs

Detailed proposals for FITs appeared in July as part of a consultation on Renewable Energy Financial Incentives. ‘Feed-In-Tariff’ implies payment will only be made for power exported to the grid, however to encourage home generation and consumption, there is a two-fold structure proposed - a ‘generation tariff’ and an ‘export tariff’.

The generation tariff will be a fixed price payment to power producers per kilowatt hour generated. Tariff rates will be set at different levels for different technologies and installation sizes. An additional payment, the export tariff, will be made for every kWh exported to the grid. Generators will be guaranteed a market for their exports at a long term guaranteed price. In addition, generators can use their own power on site to offset some or all of the power they would otherwise have to buy from an electricity company, boosting the net income.

Tariffs are proposed to be payable for 20-25 years and will be available for the following technologies at varying rates depending on installation size. To encourage micro-generation, smaller installations receive higher rates.

ROCs or FITs?

FITs are proposed for installations under 5 MW. Many such schemes can currently benefit from ‘double ROCs’. We anticipate further details in due course regarding how smaller projects should seek support via ROCs and/or FITs.

Before investing, project economics should be studied in the light of the various incentives available and balanced with the capital costs of the project.

There are also 3 comprehensive CLA Advisory Handbooks available on Wind, Biomass and Biogas as enterprises (available through CLA head office in London)