It’s payback time for home generation by Keith Harrison

25/6/2010 BBC Home owners are sceptical about the benefits of generating electricity to meet the needs of their own homes,says analyst Keith Harrison. In this week’s Green Room, he argues that the UK needs to have an effective subsidies system in order to encourage a significant uptake of domestic renewable technology.
 UK consumers are still sceptical about the value of domestic renewable energy

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When solar panels for heating water were introduced in the UK nearly 40 years ago, they failed to take off.

Exaggerated claims about how well they worked and how soon buyers could recoup their investment enticed homeowners to buy them, but inefficient technology, installation hassles and poor industry governance effectively stifled any prospect of growth and tarnished the industry’s reputation.

At the turn of the 21st Century, home wind generation arrived on the market.

Again, sky-high claims and poor returns made a residential wind turbine more eco-bling than economic.

The disappointment in both solar and wind energy generation over the years has led to the consumer’s renewables sector getting some pretty bad press.

However, earlier this year, the UK government said it would start subsidising green energy generated at home.

Is this just another grand idea, or can we expect to see the first rays of a green dawn?

The subsidy for homeowners generating their own electricity is a Feed In Tariff (FIT). Under this scheme, the government pays the homeowner for electricity generated - whether it’s fed into the grid or not.

A typical three bedroom home in the UK will consume around 3,000 to 4,000 units of electricity (kwh) per year, costing about £1,000.

A roof mounted Photovoltaic (PV) solar system generating around half of the annual consumption could cost in the region of £10,000.

So the PV system will reduce the annual bill by half, with the FIT covering the remainder of the bill.

Assuming the FIT remains in place and linked to electricity tariffs, the PV installation will have paid for itself in about 10 years.

Now, there are a lot of assumptions in this, but compared to even two years ago, this payback period has reduced significantly.

Cost is king

UK consumers are still sceptical about the value of domestic renewable energy but other regions are much more enthusiastic.

Home energy use is a big contributor to the country’s carbon footprint 
When it comes to solar electricity generation, the most popular form of consumer energy generation, Germany leads the world.

At the end of 2009, about 8 gigawatts (GW) of PV panels were installed in Germany, of which some 3GW was residential or consumer generation.

To put this into perspective, a 3GW coal-fired power station would be the second largest power station in the UK.

The German PV market is supported by a thriving network of manufacturers, installation and service companies and, most significantly since 2004, a generous Feed in Tariff, comparable with what is available in the UK.

The growth in consumer renewable generation and supporting businesses was - and still is - primarily down to the FIT.

In the UK, the introduction of FIT for residential or consumer renewable energy is in recognition of how important cost is in consumer decisions on whether to invest in renewable power generation.

There are similar examples in Japan, with high ambitions for residential solar-generated electricity, and the US.

The reputation of the consumer renewables sector in the UK is improving. With the support of the UK Government Department of Energy and Climate Change (DECC), a certification body and scheme for consumer scale renewable generation products and support companies has been established.

Called the Microgeneration Certification Scheme, this scheme is designed to build consumer confidence.

Another key factor in the decision on whether to invest is the efficiency and reliability of the equipment involved.

Today, the fact that other countries have adopted renewable energy enthusiastically means that the effectiveness and cost of technologies has improved.

This applies across all kinds of renewable technologies, from PV solar, small wind turbines, micro combined-heat-and-power units to ground and air source heat pumps.

Payback time

We have looked at some of the factors to consider when exploring the potential of investing in consumer renewable generation.

Heating bills are set to rise in the years ahead
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The payback period for an investment in a PV solar installation can be between 10 and 20 years.

What happens to the price of grid or utility provided power in that period, and beyond, will have a significant impact on the value derived and the payback period.

The future cost of grid, or utility provided power is the big unknown in the value calculation.

We can confidently predict that over the next 20 years this cost to the consumer will rise significantly.

The International Energy Agency (IEA) estimates the EU-wide incremental costs of reducing emissions from fossil fuelled power generation will be $1,300bn (£884bn) between 2010 and 2030. This will increase consumer energy costs.

The likely rises in electricity costs combined with the improvements in consumer renewable generation technologies, the supporting companies and government incentives, make the consumer investment proposition more attractive.

When considering investment in property improvements of a similar price to renewable energy, such as a new kitchen or conservatory, the consumer has an eye on the impact this will have on the value of the property.

An investment in renewable generation will have a positive impact on the value of the property but will also reduce the cost should they decide to stay.

A key point to consider is government subsidy. The growth of the world’s renewable energy portfolio over the last decade, whether that be expansive utility-owned wind farms or residential PV solar, has been economically viable as a result of government subsidy or stimulus measures.

Given the pressures of national debt and slow economic growth, combined with the growth in subsidy costs for renewable energy, at some point renewable energy subsidies could come within the sights of cost-cutting politicians.

This, and not whether the technology can deliver, is now the big issue for the renewable energy sector.

Keith Harrison is research director for Gartner, a global information technology research and advisory company
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