Monday 6 April 2015

Solar Power in the CRC Energy Efficiency Scheme

The solarblogger spoke at a recent Solar Trade Association event on the commercial solar market.  In my presentation I discussed two drivers that were encouraging commercial customers to install solar power on their rooftops.

The first case study highlighted the importance of local planning requirements.  Many local authorities require that a percentage of energy consumption in new commercial buildings should come from renewable energy.  The calculation of the energy consumption of the building is woefully low because it doesn’t take into account heating or lighting in warehouse spaces or the use of the building.  However, the very fact of the planning requirement created the opportunity for the new warehouse owner to find out about the financial benefits of installing a solar PV system.  In the end they opted to install a system more than ten times larger than that required to discharge the planning requirement.

However, it was my second case study which raised an issue that this blog will clarify.

This case study was a company that operates a business and leisure park.  They have a very high annual power use of 5,500 MWh and an energy bill over £600,000 per year.

Any business with a combined electricity consumption across all sites and subsidiaries greater than 6,000 MWh per year must join the CRC scheme.

Once on the scheme, the business needs to inform government of details of all energy consumption - electricity and gas (where this is used for heating purposes).  A carbon emission level for consumed energy is calculated and the business must pay a carbon tax for every tonne it emits each year.

For 2014-15, the emissions factor for grid electricity is 0.5331 kgCO2/MWh.  The fees in this year were around £16/tonne depending on when you buy your allowances.

So any business breaching the 6,000MWh limit and qualifying for the scheme is hit with a bill for

6,000,000 kWh x 0.5331 x £16 / 1,000 =  £50,000

The asymmetric nature of the tax creates an enormous incentive for businesses that are approaching the cut off to reduce their use of energy.

A member of the audience questioned whether solar electricity counted towards energy use or not:

"We've been advised that because it's an efficiency scheme you have to total up all your electricity use, whether that comes from on-site solar panels, a diesel generator or grid electricity."

Further research has clarified the situation.  PV generated electricity should be reported, but is excluded from the CRC so long as the installation is eligible for, but has never received, Feed in Tariff (FITs) or Renewables Obligation (RO) payments.

See page 40, section 4.3.2 of The CRC Energy Efficiency Scheme guidance for participants in phase 2, version 2.  November 2014.

So there you have it.  An on-site PV solar installation is a valuable way for businesses that are approaching the CRC qualification limit to avoid the significant costs and administrative burden that come from having to join the scheme.

For businesses already on the CRC, the carbon tax rate of £16 a tonne translates into a saving of just under 1p for every kWh of electricity the PV offsets (to which you can add savings of around 10p of grid electricity not bought).  With the Feed in Tariff yielding 10p/kWh currently, to which can be added payments for export and savings on grid electricity, it seems like most businesses already on the CRC scheme would opt to take the FIT unless the PV installation could drive them below the qualifying limit for the scheme.