These opportunities must be considered against fluctuating risks
within the marketplace.
This report attempts to identify the most attractive renewable
technology opportunities available in the market for a candidate
site assumed to be suitable for all technology options. Nonetheless,
each opportunity will be driven by site specific circumstances.
METHODOLOGY
The Energy Index considers the following onshore technologies:
WIND
ANAEROBIC DIGESTION
SOLAR PHOTOVOLTAIC
HYDROELECTRIC
BIOMASS HEATING
GROUND-SOURCE HEAT PUMPS
Each technology has then been assessed against several factors.
Each factor has been made relative to the scale of the technology
(per kW installed) and then weighted to reflect its importance. The
weighting was formulated by considering which factors would be most
important to an investor. Financial returns are the key influencer, closely
followed by the development risk parameters (development cost and
planning risk). One of the key challenges in developing larger scale
renewables continues to be the availability and timescale of securing
a viable connection to the national grid. The measures and weighting
reviewed for each technology are detailed below:
• C
onsented Value Ratio. We have calculated relative consented
value of individual projects against development cost, to show
which projects have higher final value relative to initial investment
cost (40%);
• Internal Rate of Return (IRR). We have calculated a year 1 IRR
based on typical CAPEX, OPEX and income values (25%);
• P
lanning Approval. Approximate success rates of the different
technologies (20%);
• D
evelopment Cost. We have included development cost to
effect initial upfront risk of the different technologies (10%);
• D
evelopment Timeframe. We have included a score for the
timeframe from project inception to commissioning (5%).
Where possible, data has been sourced from official data sources or
projects which the Carter Jonas Energy Team has been involved in.
We have assessed each technology against the relevant financial
subsidy it can secure. This takes account of the Department of Energy
and Climate Change (DECC)’s proposals to remove support for onshore wind under the Renewable Obligation (RO) from April 2016 and
within all future Contract for Difference (CfD) auction rounds. It also
factors in the proposed removal of support for new solar farms under
the RO from April 2016.
Solar PV up to 5MW will still be supported under the Feed-in-Tariff (FiT)
scheme although DECC have indicated that they may deploy new tariff
bandings between 250kW and 5MW. Larger solar schemes will have to
bid for support under future CfD rounds.
Whilst the FiT scheme is due an overall review before the end of 2015,
DECC have released a consultation proposing to remove pre-accreditation
from the FiT scheme. If implemented, this will significantly increase the
development risk for those projects with longer build out periods.
ENERGY INDEX
RENEWABLE ENERGY PROJECTS CAN
OFFER SIGNIFICANT INVESTMENT
OPPORTUNITIES FOR DEVELOPERS,
INVESTORS AND LANDOWNERS.
TECHNOLOGIES
WIND
HYDRO ELECTRIC
Onshore wind energy is the most prominent
renewable energy source in the UK. For this Index
a single 500kW turbine and a 10MW wind farm were
considered. The 500kW system benefits from the Feedin-Tariff (FiT), but due to recent government changes the
wind farm is unlikely to benefit from financial subsidy.
Hydroelectric power uses flowing water to
extract energy. Schemes can be low or high head
(regarding the vertical drop of water) and have various
different technical designs. For this Index a 500kW
facility has been considered, benefitting from the FiT on
a feasible site with reliable flow.
Key Risks:
Key Risks:
• C
onnection to grid, including the availability of
connection and costs associated;
• E
xtensive environmental and ecological studies are
required to obtain consent;
• Wind speed and obstructions to wind flow;
• Available sites for development are limited;
• P
lanning permission and approval: significant work is
required at planning stage and approval rates can be
relatively low compared to other technologies;
• T
he planning process for suitable sites can be complex
and lengthy;
• D
evelopment timescale can be significantly higher
than other technologies (although not per kW
installed when considering large wind farms).
SOLAR PV
For this Index a rooftop installation (50kW) and
a solar farm (5MW) were considered. The 50kW
system benefits from the Feed-in-Tariff (FiT), but due to
recent government changes the solar farm is forecast
to benefit from a lower support rate under the CfD.
Large-scale solar benefits from higher success rates
for planning and lower pre-consenting costs when
compared with wind farms. Generally, rooftop PV
installations do not require planning permission and can
be relatively easily connected to grid.
• C
osts and resource (income) can vary significantly
between sites.
ANAEROBIC DIGESTION [AD]
This is the contained breakdown of biodegradable
organic materials in the absence of oxygen, resulting
in ‘biogas’ (energy-rich methane) and solid residue
(digestate). AD facilities will accept farmyard manures,
energy crops and food waste. Energy crops will need
to be purchased while a gate fee income can potentially
be secured for waste organics. For this Index a 500kW
energy crop facility and a 1MW food waste facility have
been considered, benefitting from the FiT and RHI (with
an additional food waste income stream for the 1MW
facility).
Key Risks:
Key Risks:
• Availability of feedstock and security of supply;
• C
onnection to grid, including the availability of
connection and costs associated (large solar);
• V
olatility of financial support mechanisms, particularly
the reductions in the biomethane injection tariff (RHI)
and planned restrictions to energy crop feedstock
(FiT);
• S
tructural stability of buildings and repair liabilities
(roof mounted solar);
• Volatility of financial support mechanisms.
BIOMASS HEATING
Biomass boilers typically use wood chip or pellet
to provide low carbon heating and are particularly
attractive for buildings with large heat demands and/
or buildings not connected to the gas grid. The Index
considers a 250kW installation, appropriate to a
rural estate or care home, and benefits from the RHI,
replacing an oil boiler with wood pellet at slightly lower
operational cost. Biomass which replaces gas may
attract lower returns while a wood chip boiler may
attract higher returns.
Key Risks:
• Volatility of financial support mechanisms;
• Security of quantity and price of biomass fuel supply;
• C
apital costs are relatively high when compared to
fossil fuel alternatives;
• M
aintenance requirements such as receiving biomass
deliveries and disposing of ash;
• S
torage of fuels, which may require planning
permission if a separate building is needed.
• D
isposal of digestate could be expensive if suitable
local destinations cannot be agreed;
• O
peration and maintenance is higher than other
renewable energy technologies.
GROUND-SOURCE HEAT PUMPS
Ground Source Heat Pumps (GSHPs) recover heat
stored within the earth by circulating a fluid through
a closed-loop system buried underground. Heat is
extracted via a heat exchanger, providing space heating
at around 30°C.
Key Risks:
• B
est installed during the building construction as
extensive ground works are required;
• D
o not work efficiently on traditional heating systems
and buildings (best for low temperature and/or
underfloor heating in well insulated buildings).
RESULTS
Figure 1 below sets out the combined
attractiveness ranking of each technology and
compares this against where each technology
ranked as at 1 January 2015.
500kW wind remains attractive as this still delivers the
highest return on investment for the right site. However
wind has a lower planning approval rate and also low
development cost score, reflecting the high development
costs and risks associated with securing planning for sites.
A 50kW solar project is considered the most attractive
technology from an investment perspective. Whilst
it does not deliver the highest IRR, it is considered
relatively low risk and scores well in most categories.
Large scale solar and wind farms have historically been
some of the most attractive technologies. However
due to the loss of support under the RO, this has
significantly reduced the projected IRR’s for both
technologies thereby extinguishing the potential
development value of the sites once consented and
making them relatively unattractive.
GSHP are the least attractive system, despite a fair IRR
and low risk at planning. This is because, relative to the
size of the technology, GSHP requires more investment
and timeframe to develop with less significant income
potential for an investor.
Biomass is also an attractive investment, despite recent
cuts to the RHI. It is important to note that small scale
(under 200kW) biomass is financially challenging and
this report considers a system greater than 200kW.
Biomass is an excellent opportunity for properties off the
gas grid in particular.
When considering investment opportunities, it is prudent
to consider the risks against the potential benefits. We
have grouped the various factors together to show
the relative risk/benefit and these are summarised in
Figure 2. 500kW wind has the highest benefit but also
has very high risk, while a 50kW solar scheme also has
good benefit with significantly less risk. Biomass has
reasonably high benefit and low risk, while anaerobic
digestion has moderate to high benefit and medium risk.
Due to recent changes to incentives, large scale solar and
wind farms now offer investors a much lower benefit.
Figure 1
UK Onshore Renewable Energy 2015: Investment Attractiveness Ranking
100
Value vs Dev Costs
Development cost
Approval rate
Dev. Timescale
IRR
January 2015
60
50kW
Solar PV rooftop
200kW
Biomass
500kW
Wind Turbine
1MW
Waste AD
20kW
GSHP
500kW
Farm AD
0
500kW
Hydro
20
5MW
Solar PV Park
40
10MW
Wind Farm
Index Scoring
80
Attractiveness
Figure 2
Risk Benefit Chart
50kW SOLAR
PV ROOFTOP
500kW WIND
TURBINE
Benefit
250kW BIOMASS
1MW WASTE AD
HYDRO ELECTRIC
20kW GSHP
500kW FARM AD
5MW SOLAR PV PARK
Risk
10MW WIND FARM
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ABOUT CARTER JONAS
Report compiled by:
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