Thursday, 25 July 2013

Grants and subsidies - the cost of carbon savings

The tortuous progress of the domestic renewable heat incentive (RHI) has achieved another notch on the rack: the tariff levels have been announced [1]. We now know how much we will get paid (come the autumn when the scheme actually starts) for using our solar hot water panels and heat pumps to heat our homes. The tariff levels are set to achieve a target level of take up nationally and are based on the cost of the technology rather than the carbon savings that will be achieved. The payments will be highest for solar hot water panels and ground source heat pumps because these are expensive to install compared to the savings on our bills; the payments are lower for biomass and for air source heat pumps. However, assuming that the overall goal is to save carbon emissions (rather than reduce our dependence on imported fuel) how do the various grants and subsidies stack up? Here are some basic estimates comparing the RHI to the Feed in Tariffs (FiTs) for renewable electricity and grants for home insulation. The RHI is paid for from general taxation whereas the FiTs and the home insulation grants come from the electricity companies. However in either case ultimately the money comes from us.

MeasureInstead of£/tonne CO2 savedNotes and assumptions
Renewable heat
Air source heat pumpOil fired central heating568RHI at 7.3 p/kWh assuming COP (coefficient of performance) is 3.2
Ground source heat pumpOil fired central heating1462RHI at 18.8 p/kWh and assuming COP of 3.2
BiomassOil fired central heating504RHI at 12.2 p/kWh
Solar hot water panelsOil fired central heating719RHI at 19.2 p/kWh
Renewable electricity
Solar PV panels Gas power station450FiTs at 15.4p/kWh plus half the export tariff of 4.5 p/kWh
Solar PV panels Coal power station194as above
Wind turbine 1MW Gas power station365FiTs at 9.8p/kWh plus half the export tariff of 4.5 p/kWh
Wind turbine 1MWCoal power station157as above
Onshore wind farmGas power station101Renewable Obligation certificates (ROCs) - latest price £44.10 /MWh. Onshore wind gets 0.9 ROCs per MWh.
Onshore wind farmCoal power station44as above
External wall insulationGas central heating289£11,000 cost paid for by ECO grant, savings 1.9 tonnes/year according to the EST, over 20 year lifetime [2]
External wall insulationOil central heating201As above
Cavity wall insulationGas central heating45£500 cost, grants only available to qualifying householders under the ECO, saving 0.56 tonnes/year according to the EST, 20 year lifetime [3]
Cavity wall insulationOil central heating31As above

Cavity wall insulation is easily the biggest win, however, a lot of that has been done already and DECC seems to think there aren't many more easy fill cases left [4]. External wall insulation savings are comparable with FiT levels for PV and wind. Grants for external wall insulation come from the Energy Companies Obligation (ECO) which is linked to the Green Deal. You do not need to be on benefits to qualify for help with these. However, grants for cavity wall insulation are now means tested (see Green Deal teething problems).

The RHI carbon savings are expensive compared to the others. It will be interesting to see if the RHI triggers lower prices, as happened in the case of PV panels: when the FiTs were introduced there was massive take-up followed by rapidly decreasing costs. The result was the FiT tariffs came down very quickly. However, this scenario is much less likely in the case of the RHI because the technologies are not particularly high-tech and expensive to make.

The RHI is aimed at households off the gas grid, which is why I have used the oil fired central heating case to calculate savings: in a home with gas the carbons savings will be a little lower and hence the costs per gram saved higher.

You will notice that it makes a big difference if you consider our solar panels to be displacing gas power stations or coal. I consider it highly unlikely they will displace nuclear because we mainly use nuclear for base load and the older power stations are being decommissioned anyway. The carbon savings would be minimal in that case. In 2012 the proportion of our electricity generated from coal increased from 30% to 43% [5]. This is because the global price of coal is much reduced which is in turn due to the USA exporting more because of their increasing use of shale gas. So their cheap gas is putting up our carbon emissions.

Carbon savings from wind are much cheaper than from PV panels, plus wind turbines work all year round whereas PV panels do almost nothing for half the year. Still, PV panels are much more popular. The installed base of PV panels increased by 1270% between 2010 and 2011 compared to a 15% increase in onshore wind. Offshore wind gets more than twice the subsidy compared to onshore: 2.0 ROCs/MWh versus 0.9.

Notes on the table

I have ignored the carbon emissions due to manufacture and installation of any of these. This omission is most serious for PV panels but even then it only comes to about 50 g/kWh generated [6], compared to more than 900 saved for coal power stations.

My estimates are based on carbon emission from DUKES [7]
fuel oil for central heating 267 g/kWh
gas for central heating 185 g/kWh
electricity - overall mix 443 g/kWh
coal power stations 912 g/kWh
gas power stations392 g/kWh

The COP values for heat pumps are high values taken from an EST field study [8] which is a little out of date. Arguably GSHP should do better than this - say 4.0 which would make the savings £1200/tonne.

[1] The Heat is On for Householders ( 12 July 2013)
[2] Solid Wall Insulation Energy Saving Trust
[3] Cavity Wall Insulation Energy Saving Trust
[4] Estimates of home insulation levels in Great Britain (
[5] UK energy statistics show big jump in coal-fired electricity last year The Carbon Brief Feb 2012
[6] Energy and Carbon Emission: the way we live today Nicola Terry (UIT Ltd. 2010)
[7] Digest of UK Energy Statistics (, 2012)
[8] Getting Warmer - a field trial of heat pumps (EST, 2010)

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