In light of the Government’s announcement to reduce the support offered for biomass projects at the end of 2015, Richard Baker at Siemens Financial Services explains on the Renewable Energy Focus website how equipment suppliers can keep momentum going and remain competitive in an increasingly saturated market.
Making biomass investment affordable
Biomass is an increasingly popular source of energy in the UK. In 2014, electricity generation from bioenergy sources (1) was up 25% from the previous year (2). Bioenergy also contributed to the largest absolute increase in total electricity generation from renewables in 2014, from 4,543 GWh to 22,792 GWh, largely due to an increase in biomass generation (3). As a whole, bioenergy use for renewable heat generation increased by four and a half times between 2005 and 2014 (4).
The Renewable Heat Incentive (RHI) has played a crucial role in driving the take-up of biomass energy sources. Under the RHI, businesses that have installed biomass technology receive quarterly payments based on the energy generated (5). By the end of 2014, a total of 11,487 full applications to join the RHI scheme had been received since its initiation in November 2011, with a combined capacity of 1.9 GW. Applications were largely made up of small and medium biomass boilers (95%) (6). The government has, to date, implemented seven tariff degressions, reducing the payback businesses receive (7), partly due to the unexpected popularity of biomass. The latest tariff degression was affected on 1st October 2015, and resulted in a 5% reduction in the small biomass tariff to 4.18p (8).
Against this backdrop, businesses may feel that investing in biomass technology is beyond their reach, believing they lack the financial means required to implement an active energy management policy. Recognising the potential financial hurdle confronting organisations, an increasing number of equipment suppliers for biomass technology are incorporating financing in their offerings with the help of specialist financing schemes in the market.
The Energy Efficiency Financing scheme (EEF) is one such specialist facility. A joint initiative between the Carbon Trust and Siemens Financial Services Limited (SFS), the EEF scheme is designed to provide finance for energy-efficient equipment and renewable technologies for organisations, where the expected savings in energy costs and/or income from energy generation offsets the monthly equipment finance costs, effectively making the investment zero net cost or even cash positive. Prior to finance being approved, the Carbon Trust conducts an independent Energy Savings Assessment (ESA) to verify that the expected energy savings/income generation will match or exceed the equipment finance payments, assuring organisations that the projected figures provided by their suppliers are achievable.
Equipment suppliers can apply to become a recognised supplier of the scheme, which will allow them to integrate the financing offer into their overall sales proposition. In other words, their customers will no longer have to seek external funding sources for equipment acquisition and can instead enjoy the convenience of a one-stop solution. Since the scheme has the flexibility to customise payments to suit each client’s requirements and budgets, customers do not have to make do with what they can afford, allowing suppliers to offer the most optimal technological solution suitable for their customers’ circumstances. By helping customers remove the financial obstacle, equipment suppliers secure themselves a unique competitive advantage to close deals faster. They can also benefit from improved cash flow as payments are typically made direct to suppliers by SFS within 24 hours of receiving correct documentation. Furthermore, suppliers who wish to manage the sales and the financing process for themselves will be provided with additional training and support to help them get the most out of the scheme.
One example of how suppliers can make use of the EEF scheme to help organisations go green is RN Mechanical. Its client, Bede’s School, wanted to replace its inefficient, ageing boilers serving its senior school and three older boarding houses. It was keen to overhaul its heating infrastructure with the deployment of wood pellet biomass heating systems, which would maximise its use of energy whilst helping to cut energy bills. As a recognised EEF supplier, RN Mechanical recommended the financing solution as a flexible and affordable way to meet the school’s specific requirements. The conversion project, one of the largest of its kind in the UK, replaced 23 of Bede’s existing liquefied petroleum gas (LPG) and oil boilers with three wood pellet boilers. The biomass heating systems would provide heating and hot water for the senior school and the three boarding properties. The £1.2 million financing arrangement, with a payback period of ten years, not only included the acquisition of the biomass boilers and their installation, but also the renovation of the subterranean electrical infrastructure, as well as the installation of a Building Management System (BMS) – a computerised control and monitoring system to ensure that the boilers maintain the desired temperature in buildings. Fuelled by wood pellets sourced from sustainable British woodlands, the biomass boilers are delivering the predicted energy savings of £70,000 per annum, along with an annual reduction of carbon emissions by over 580 tonnes. In addition the school has been able to take advantage of RHI payments as part of the implementation.
As biomass plays a crucial role in the UK’s energy policy, equipment suppliers should seize the opportunity to drive further interest in the technology. Forward-thinking biomass suppliers can take policy changes in their stride and enhance their customer sales proposition with the help of specialist financing schemes. By combining technology and financing into an all-encompassing package, equipment suppliers can deliver value-added services to end-customers and further differentiate themselves in an increasingly competitive market.
(1) Plant biomass accounted for 58% of bioenergy generation in the year 2014.
(2) DECC, Chapter 6 Renewable sources of energy (2015)
(3) DECC, Chapter 6 Renewable sources of energy (2015)
(4) DECC, Chapter 6 Renewable sources of energy (2015)
(5) OFGEM, Tariffs that apply for non-domestic RHI for Great Britain
(6) DECC, Renewable Heat Incentive quarterly statistical release, December 2014 (22 January 2015)
(7) The Department of Energy and Climate Change control RHI expenditure through a process known as degression, which works by gradually lowering the tariffs that are paid to new applicants as more renewable heating systems are installed. For more information see: DECC, Domestic Renewable Heat Incentive (RHI) Factsheet – Degression Mechanism (2014)
(8) DECC, Non-Domestic Renewable Heat Incentive scheme Degression mechanism (November 2014)