Sunday 21 July 2013

Let's Get Down to Brass Tacks

How to Sell Solar With the RHI

The shape of things to come?  Solar heating and solar PV in a combined installation.
Image courtesy : Viridian Solar

Perhaps inevitably, the first reaction of the solar industry to the new domestic Renewable Heat Incentive (RHI) has been to compare the financial returns for solar heating to the Feed in Tariff (FIT) available for solar photovoltaic panels.

A quick, back-of-envelope comparison is not normally favorable to the RHI, but a more considered evaluation raises some interesting points.

So, before you screw up your envelope and toss it in the bin, read on…

Wide Applicability

Solar water heating requires a much smaller area of roof than PV.  An area of 3 or 4 square metres (2-3 kWth) is ample for most households.  The average PV installation according to the Energy Saving Trust has reached 3.75 kWp or around 22 square metres.  Solar heating therefore is more useful for partially shaded roofs, where only a small part of the roof area can be used.

Because it takes only a small portion of the roof, it can also be more palatable for customers who are interested in the impact of the solar installation on the looks or re-sale value of the home.

The RHI will require only loft insulation and cavity walls to be filled, and only where it is practical to do so.  This means that any building can qualify at modest cost.  The FIT is limited to homes that can achieve EPC D, and many cannot except at exceptional cost. (I’m expecting the FIT to migrate towards similar qualification criteria to RHI – watch this space).

Solar heating is also less affected by orientation or the location of the installation, with a lower drop-off in energy yield for east or west facing roofs or installations in the north of the country.

These factors all contribute to a large potential customer base for solar heating.

Sweet Spots

As the Feed in Tariff (FIT) rates have fallen, energy savings start to feature more and more highly in the financial returns calculations.  Solar companies are starting to get used to the idea that the financial returns for PV now depend much more on the customer’s patterns of energy use and therefore the sizing of the system.  (See my blog on self-consumption of solar electricity here.)

The Renewable Heat Incentive for solar is set at a level where the return on investment also relies upon the amount of energy saving the customer achieves.  This creates “sweet-spots” with above average financial returns:

Larger families
On average, the more people in the house, the more hot water the household uses for showers and baths.  The same solar installation will produce a greater annual energy output when there’s more cold water to be heated up, and the MCS deeming method captures this.

Oil or electric heating
The more expensive the heating fuel being saved, the better the returns that are achieved.  Off gas grid installations will have a higher return on investment.

Cost Sharing
Installing solar heating at the same time as other necessary work can transform the return on investment.  The installation of a solar cylinder can be as much as one third of the cost of the installation.  If a customer was planning to replace an old hot water cylinder anyway, then going solar at the same time would make a great deal of sense.  The same argument goes for roofing repairs, where roof access costs can then be shared.

Rather than relying on chance to provide opportunities for cost sharing, the solar industry now has a gold-plated opportunity to create its own.

From “Either-or” to “Both-and”

A solar installer can create cost sharing to boost the return on investment for customers very simply.

Create your own sweet-spot by offering to install both solar PV and solar heating together

The shared costs of travel, roof access and roofing works provide obvious cost reductions, but it goes much further than that.  Because the average sales price per install is boosted the costs of customer acquisition (sales and marketing, survey) are also shared across more revenue.

Counting All the Pennies

When preparing a financial calculation for solar water heating there are a couple of important points that are easy to miss out.

First, the saving on the energy bill is not the same calculation as the solar energy added to the hot water cylinder.  The fuel burnt to create the same level of heat is higher because the back-up heater will operate with efficiency below 100%.  In fact, it gets better because the “summer efficiency” of boilers is lower than the “winter efficiency” because they have to heat up just to prepare the domestic hot water.

The new version of MIS 3001 proposes a range of “solar efficiencies” for different back up heaters, but a few of the more common ones are shown below:

The energy saving is the solar energy input to the hot water cylinder divided by the boiler efficiency.  Depending on the efficiency of the back-up heater in the home, the fuel saved can be as high as double the solar energy.

Second, the customer is getting a brand new hot water cylinder as part of their solar installation.  If it’s replacing an old cylinder with lower performing insulation and if it’s carefully installed with insulation on all the connecting pipes (not just the solar ones), then there is a significant energy saving for the customer.  When replacing an old cylinder with a properly installed new one, the energy saving averages 750kWh/year, adding around 50% to the energy saving.

These savings are real and they are significant, they should be taken into account in any presentation of the financial benefits of solar heating. 

Getting Emotional

The solar PV market has spent the last few years selling a financial product.  Cold, rational arguments about return on investment, fuel price inflation and comparative returns from ISAs have crowded out the emotional reasons people still have for buying into renewable energy: energy independence, climate protection, conveying their values to others.

Solar heating and solar PV top the charts as the renewable technologies most people know about and understand.  This is especially true for solar heating.

When you step under a hot shower provided by a solar heating system, you are provided with an intuitive, physical link to the energy you are producing.   A customers’ relationship with solar water heating is intimate and emotional.

After all, which other renewable energy technology do you get naked with?

People are not cold, profit-maximising robots - they are individuals with a wonderful capacity to  surprise. The solar industry needs to re-connect with all the emotional reasons for installing solar – oh, and by the way it makes great financial sense too.

Saturday 20 July 2013

The Domestic RHI for Solar

In-roof solar heating panels - image courtesy Viridian Solar

On 12th July, the Department of Energy and Climate Change announced the details of the Renewable Heat Incentive (RHI), an incentive scheme to promote the uptake of renewable heating such as solar panels, heat pumps and wood pellet boilers in the domestic residential sector.

This new scheme, starting in spring 2014, has the potential to be a complete game-changer for solar heating in the UK.  

Here is a summary of the most relevant aspects for solar heating.


Owners of qualifying solar heating installations will be paid at least 19.2p per kWh of renewable heat generated for seven years.

This figure of 19.2p may be adjusted upwards (up to a likely maximum of 21.7p/kWh) subject to a review of the tariffs on the non-domestic RHI scheme that is expected to conclude in the autumn.

The payments will be made quarterly in arrears and index linked to the Retail Price Index (RPI) with annual adjustments to tariff levels.  People who have already received a Renewable Heat Premium Payment (RHPP) or other government subsidy will find their payments trimmed back each quarter so that the total subsidy is decreased by the amount of grant they have already received.


The heat energy against which the domestic RHI will make payments is calculated rather than measured with a heat meter.  For solar heating, the energy figure will be taken from the Microgeneration Certification Scheme (MCS) certificate.  The calculation will be performed by the solar installer according to the method given in the MCS installer standard, MIS 3001, a calculation based on a modified version of SAP.

The MCS solar thermal working group has been working on an imminent new version of MIS 3001, which has some significant changes to the energy calculation compared to the current standard. 

The 2012 consultation on the standard indicated some of the changes being considered:

  • Hot water demand is based on the actual number of people in the house, not a notional occupancy calculated from the floor area.
  • The fuel bill energy saving is calculated by dividing the renewable heat input to the solar hot water cylinder by the efficiency with which the back-up heater works, this efficiency taking into account the summer-bias of solar energy production.

At the same time, a new version of SAP has been released (SAP 2012), which introduces different solar irradiation for locations throughout the UK, and increases the hot water demand for homes without electric showers.

Full details of the new calculation have not yet been revealed. However, the Solar Trade Association has published the following estimates based on SAP 2012 and its understanding of the likely shape of the energy estimate in MIS3001:

Number of people in the house
Deemed Renewable Heat (kWh)
7 Year Tariff Payments (£)
Assumed System
2 m2 panel area, 150 l cylinder
2 m2 panel area, 150 l cylinder
3 m2 panel area, 210 l cylinder
4 m2 panel area, 250 l cylinder
6 m2 panel area, 300 l cylinder
6 m2 panel area, 300 l cylinder

Other assumptions: UK average irradiation, south facing, 30 degrees roof pitch, shading – none or very little, no electric showers in home, twin coil solar cylinder

Source: STA

Target Market

The domestic RHI provides financial support to eligible renewable heating systems that provide heat to a single domestic property.

The domestic RHI is available to owner-occupiers, private landlords, registered social landlords, self-builders and third party owners of renewable heating systems.

Apart from self-builders, new build housing is not eligible for the scheme.

It applies in Great Britain.  The devolved administration in Northern Ireland may launch a similar scheme as it has done with the non-domestic RHI.

While you may often hear DECC saying that the scheme is ‘targeted’ at off-gas-grid properties, the scheme is open to all.  This just means that the value of the energy savings for off-grid properties will be higher due to the more expensive oil or electric heating that is no longer being burnt.

Second Homes

The deeming method will mean that second homes have a lower occupancy, and therefore the deemed water use and renewable energy will be much lower.

Second homes that are Holiday Lets (and therefore considered to be businesses) would be eligible for payments under the non-domestic RHI.

Qualification Criteria

For a solar system to qualify for domestic RHI payments, the following criteria must be met:

  1. The installation must be registered on the MCS database – this means it must have been installed by an MCS accredited installer using solar collectors that are MCS or Solar Keymark certified
  2. The property will have a Green Deal Assessment (see note below)
  3. Loft insulation of at least 250mm and cavity wall insulation where these are possible.
  4. The installation is ‘meter-ready’

Self-build properties are exempt from the second and third requirements as they will be built to current building regulations.  In this case an Energy Performance Certificate (EPC) is sufficient.

The ‘meter-ready’ requirement means providing isolation valves for accessible pipework sufficient for a heat meter to be retrofitted into the system without draining it down. 

The optional additional payments for taking part in the Metering and Monitoring Service Package are not available to solar thermal installations.

Link with the Green Deal

In order to join the RHI, a customer needs to have had a Green Deal Assessment (GDA) of their property, but they do not have to act upon the recommendations of the assessment.  

The exception to this, (as for the RHPP), is that to enter onto the scheme you must have loft insulation to a depth of at least 250mm and cavity walls must be filled (where possible). If these measures have already been done (or are not feasible), the GDA will not list them as recommendations.  If they were done subsequent to the GDA, the householder will have to get a subsequent EPC as evidence.

If the householder does want to take up any of the Green Deal recommendations they do not have to enter into a Green Deal finance arrangement, they could pay for it themselves or borrow the money elsewhere.  

From the above, it seems that the most cost-effective route is for the householder to get loft insulation and cavity wall insulation done before applying for the GDA, thereby avoiding the costs of a subsequent EPC.

Solar Thermal in Conjunction with Other Renewable Heating

Neither heat pumps nor biomass work at their highest efficiency when preparing domestic hot water and this is especially true outside of the space heating season, where the heater has to fire up just to make hot water.   For this reason DECC wanted to provide additional support to installations that use renewable heating in conjunction with solar water heating.

Where a solar thermal system is installed alongside a heat pump or biomass boiler, both technologies will receive payment for the full deemed heat.  This means that householders installing both technologies will in effect be paid twice for the water heated by the solar system, once at the solar tariff, and once at the tariff for the space heating technology.

Legacy Systems

People who already installed a solar thermal system on or after July 15th 2009 are also eligible to join the scheme (called legacy systems).  

The installation must have met the MCS standards prevailing at the time of installation, and the deemed heat for a legacy solar system will be the energy saving estimate entered onto the original MCS certificate. The test of the install date will be the date on the MCS certificate.

In order to manage the numbers applying to join the scheme, OFGEM will phase the opening of the scheme to legacy applicants – details to be announced.