Renewable Heat Scheme Approved by Cabinet

The much-awaited renewable heat incentive has been approved by the Irish government. However the Taoiseach told us it needs a new name, to avoid unhelpful parallels with the Northern Ireland scheme of the same name, which eventually became known as the "Cash for Ash" scandal.



It is now being called the Support Scheme for Renewable Heat (or SSRH). Semantics aside, the approval of the scheme by Cabinet and the emergence of some detail is a welcome development and will allow the assessment of opportunities by customers and suppliers alike over the coming months.
 

It is expected to be open for applications towards the end of 2018, although an EU State-aid approval is required prior to this. It is worth remembering also that the UK equivalent changed significantly before and after state aid clearance, with different support levels being finally approved by the EU competition authority.

Inside a wood pellet boiler (BioXL)

The Sustainable Energy Authority of Ireland (SEAI) are charged with administering the scheme and they have to prepare a robust mechanism and T&Cs to implement the scheme.

And what of the scheme and rates proposed?

BioXL prepared an extensive piece of research and recommended rates in 2015 on behalf of the Irish Bioenergy Association. Perhaps unsurprisingly the rates announced are below the required rates that were evidenced by industry. The recommendation of tiering supports has been embraced with the introduction of five reducing-payment tiers.

The payment rates are set at a level that should be appealing for switching from oil or coal to biomass heating with wood chip or wood pellet, but will not be a competitive option for those using gas boilers or electrical heating systems. About one third of public or commercial buildings currently use some form of oil heating. It can't be expected that they would all replace their existing heating systems. A decision on heating systems is normally taken when a building is first constructed or substantially renovated, or when the existing heating system gives up. One in five making the move to green heat is perhaps a reasonable prediction over the next few years. A typical office building with a 200kW boiler could expect a support payment of €16,800/year for 15 years to make the capital investment to switch over to biomass.



Poultry shed fitted with fin radiators (BioXL)

Farm applications should also be of interest, primarily for piggeries or poultry units that have an ongoing heat requirement and wish to stop using oil. They will have the space and flexibility to adapt their business to a green heat solution and this was a popular application in Northern Ireland.

Pending legislation about near zero energy buildings (NZEB) will also make new developments consider renewable heat options more carefully.
 

Heat from anaerobic digestion has been included, but at a rate that will have limited material impact. The annual payment is capped at €36,500/year.

The possibility of grid injection of biogas has been considered but deferred to a later phase and subject to additional economic analysis. This will disapppoint those with projects in the pipeline.

The decision to provide grant support for heat pumps is sensible, given that the investment is almost entirely front-loaded. It will cut out unnecessary administration and allow tighter controls around the scheme.

Rising Solar Energy Interest

(prepared for our panel participation on solar energy at Energy in Agriculture 2017)

Solar PV Arrays (BioXL)

There has been a large increase in the development of utility scale solar photovoltaics (PV) in Ireland. As of July 2017 there are about 1.5 GW in the planning system, with 95 projects granted planning permission (Thanks to our friends at PHR). There are also connection applications for 3.7 GW made to ESB Networks so far, and a further 1.8 GW to Eirgrid.

What is driving this?

Challenges with public acceptance of wind energy have increased the costs, risk and timelines associated with projects to unsustainable levels. From a planning and public acceptance perspective, solar arrays are far more benign than wind turbines. Many who work in wind energy have now diversified into solar energy. The reality remains that wind energy is cheaper and more productive than solar on a straight energy basis: a MW of installed wind generates three times as much electricity as a MW of solar.

From a landowner point of view, higher returns are available than for existing farming activity. More money for less risk, no outlay and minimal effort is hard to overlook. It is particularly appealing for relatively small conacre farms.

Swanson's Law (Wikimedia/Creative Commons)

Costs of solar PV have fallen dramatically over the last decade and continue to fall. Swanson's law is an observation that the price of solar modules tends to drop 20 percent for every doubling of cumulative shipped volume. There is the prospect over time that solar PV will become more cost-effective than any other technology.



Experience in the UK

A look across to the UK shows how a substantive industry arose from a standing start. In 2011 there was no solar sector to speak of, but by 2017 over 12 GW had been installed. This is enough to power the Irish grid twice over at peak demand. UK subsidies were cut dramatically in 2015 and deployment of solar since has stalled to a trickle. The abrupt decrease in UK activity has encouraged actors there to cast their eye to Ireland.

Getting on the Grid

Grid to consider (BioXL)

With over 500 projects seeking grid connectivity, and a cumulative capacity that would exceed the size of the present generation, what are the prospects for connecting any of these projects?

ESB Networks are processing 47 of these at present and it is taking about a year for the offer process with each one. So effectively the majority of projects are 'on hold' for a lengthy period of time.

The CER is concurrently reviewing the grid application process, and the 5.5GW of solar will appear modest once the 12 GW of queued wind projects are added into the mix. The intent is to provide a more equitable grid access process, although it is a finite resource that cannot be split ad-infinitum.

What cause for optimism regarding future connections? Growing demand (e.g. via numerous data centres) and electrification of our energy needs (e.g. electric cars and heat pumps) will lead to a larger and more resilient network. A large body of work is underway to accomodate growing levels of renewable generation under Eirgrid's DS3 programme, ultimately allowing 75% instantaneous levels of variable output (or technically speaking non-synchronous) generators on the system.

Is there room for so many projects?

Clearly the answer is no. It is already apparent that many projects will not be viable for a variety of reasons. Quite a number of projects have allowed grid connection offers to lapse as they were not commercially affordable.

Many challenges (BioXL)

The likely emergence of auction-style support mechanisms puts competitive pressure on developments to minimise return on capital and explore funding solutions that don't involve traditional bank project finance. Changes to the way projects engage with and partner with a community are necessary, but by the same token likely to be complex and costly.

There has been an increasing level of planning refusals, particularly for larger scale sites (20MW+). This is a major dent in the commercial prospects of a site with an earmarked grid connection contract. The CER (along with most sector actors) are keen to link grid offers to planning, and it will become more difficult to reassign grid to alternate land in the event of a planning refusal.

The commercial environment generally for renewable energy projects is dis-improving. Local authorities are imposing high development levys on projects (€10k/MW in many areas) and implementing revised commercial rates which will alter the fixed cost base of projects materially. Regulatory changes to the single electricity market are also creating more and more uncertainty for future project development and finance.