In December 2017, the government confirmed that it would implement a support scheme for renewable heat to provide long-term financial support to generators of renewable heat.
The primary objective of the support scheme is to contribute to Ireland’s EU Renewable Energy Directive target of 16 per cent energy consumed from renewables by 2020.
In support of the ‘total energy’ target, the government has set a target of 12 per cent renewable heat by 2020, requiring 300,000 homes or 3,000 services/public sector buildings, or 200 large industrial sites to install renewable heat systems.
Renewable heat currently provides 6.8 per cent of heat consumed in Ireland, mostly from solid biomass, using waste woods in industrial processes. It is hoped that the support scheme will encourage wider participation and stimulate domestic production of bioenergy.
Overview of the support scheme
Initially targeting biomass and anaerobic digestion (AD), the support scheme will incentivise non-domestic heat users, including district heating, via two support mechanisms:
• Continuing operational support for new installations or installations that convert from a fossil fuel heating system to biomass or AD, paid for a period of up to 15 years;
• A grant of up to 30 per cent to support investment in renewable heating systems that use heat pumps.
Operational support is proposed over six tiers, with lower tariffs paid with increasing output, reflecting the economies of scale associated with larger systems. The highest tariffs are proposed at 5.66 c/kWh for energy produced from biomass heating systems and 2.95 c/kWh for energy produced from AD heating systems. Tariffs will be fixed for the period of support and not index-linked.
Crucially, the scheme will include a number of budget management mechanisms to control spending on operational support:
• A project budget cap – setting an upper limit on the level of payment to a project in any one year;
• An annual budget cap – projects will only be approved where the annual budget cap is sufficient to meet the sum of the project budget caps for all approved projects;
• Tariff reviews, at least annually – reviewed tariffs will not impact on approved projects;
• Periodic projects review – approved projects will be reviewed periodically to ensure they are not in receipt of windfall gains.
The scheme will be administered by the Sustainable Energy Authority of Ireland which is now working on the details before opening the scheme for applications, anticipated mid-2018.
When the Renewable Heat Incentive (RHI) was launched in Britain in 2011, similar in approach to this country's support scheme, it was a world first, intended to result in a sevenfold increase in renewable heat used in industrial, commercial and public buildings, reduce carbon emissions by 44m tonnes and stimulate £4.5 billion of green capital investment by 2020.
While the RHI has yet to deliver on its ambitious targets, it has led the UK on a low carbon pathway, with 3.8GW of renewable heat capacity installed across a wide range of non-domestic heat users, and could indicate the possible impact of the Irish support scheme.
Biomass: proposed Irish tariffs are higher than current RHI tariffs. Under the RHI, biomass accounts for 90 per cent of accredited capacity (installations mostly <1MW capacity) and has the lowest installation cost (£/kW) of supported technologies. Biomass is particularly suited to large constant heat users, and can supply high temperature process heat, delivering significant operational cost savings and carbon reductions.
Biogas: proposed Irish tariffs are similar to current RHI tariffs. Under the RHI, biogas accounts for four per cent of accredited capacity, mostly <1MW. While biogas has the highest installation cost of supported technologies, system operating hours are very high (typically 7,000 hours per annum or more) and when combined heat and power (CHP) is produced, the electricity provides a significant additional revenue stream.
Support high efficiency CHP
The Irish scheme may support high efficiency CHP, though potentially at a reduced rate if electricity is also supported, and will not be supported if in receipt of support under the Renewable Energy Feed in Tariff (REFIT) scheme. The RHI offers a CHP tariff and there is no restriction if also receiving support under other UK schemes; Feed in Tariff, Renewables Obligation/Contracts for Difference. Under the RHI, CHP accounts for three per cent of accredited capacity, comprising a small number of large systems (average >3MW).
Heat pumps: the Irish scheme will use capital grants rather than operational support for heat pumps. Heat pumps account for three per cent of accredited RHI capacity and the installation cost (£/kW) is around three times the cost of biomass.
Heat pumps operate on lower temperatures (typically 50-70°C depending on source temperature), and are most suited to space heating and hot water, and cooling. Since demand for heating and cooling is lower and less constant than commercial and industrial uses, operational cost savings might be expected over a longer period.
District heating: it can use any renewable heat generation technology and supply heat on a large-scale. The RHI supports district heating, though not via a specific tariff. Grants and loans are available to support the additional costs associated with the distribution network via schemes such as HNDU (England and Wales), and LCITP and the District Heating Loan Fund (Scotland).
Other technologies: solar thermal, biomethane grid injection and deep geothermal are not supported under the Irish scheme, though they may be considered for subsequent phases. The RHI supports small solar thermal and biomethane, and whilst accounting for a small proportion of overall accredited capacity can be the most appropriate technology in a specific location.
Similarly, deep geothermal is supported under the RHI. While there are currently no RHI-accredited deep geothermal installations in the UK, there is growing interest in deep geothermal, with capital funded projects progressing in Kilmarnock and Redruth, and others being assessed in Stoke and Cheshire.
Conclusion
Based on UK experience, the Irish biomass tariff is likely to result in market growth, perhaps following a similar pattern of largely medium scale (<1MW) single building installations, although the Irish biogas tariff may be set too low and could result in schemes pursuing electricity generation alone.
Use of capital grants for heat pumps might help overcome higher installation costs (£/kW) compared to biomass and biogas. Due to the high upfront cost of district heating it is likely that the government will need to provide additional capital support, as is the case in the UK.
The exclusion of some technologies (that is, solar, biomethane, deep geothermal) could prevent renewable heat opportunities from being more fully developed.
Project caps and tariff reviews are sensible inclusions to ensure that the scheme is sustainably financed over the long term, learning one of the key lessons of the Northern Ireland RHI scheme, which is forecast to overspend by £700 million.
However, individual project reviews that might adjust payments after a project has been approved in order to prevent ‘windfall gains’ resulting from changing market conditions creates uncertainty and could be a disincentive for potential projects. Would the government increase support if changing market conditions were unfavourable?
While the Support Scheme for Renewable Heat is conservative in its ambition, designed to increase renewable heat generation by only three percentage points, and implicitly accepting that the 12 per cent renewable heat target for 2020 will be missed, the introduction of long-term support for renewable heat is to be welcomed and represents another small step in the long road to decarbonisation.
Author: Guy Milligan, senior renewable heat engineer at Natural Power
About Natural Power
Natural Power is an independent renewable energy consultancy and products provider. The company offers consultancy, management and due diligence services, backed by a product range across the onshore wind, offshore wind, wave, tidal, renewable heat, solar pv and hydro sectors, while maintaining an outlook on other new and emerging renewable energy sector in the US.
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