Presenation on the RHI and biomass to Greenbuild Expo and Conference, May 2012

1. NEIL HARRISON
PRESENTATION - Biomass and The RHI
re:heat
F34

2. CONTENTS
1. Context
2. What is Biomass?
3. What is the RHI?
4. Maximising the Returns

3. CONTEXT
Total Energy Use in EU27 (mtoe)
Energy Use in EU27 re:heat
Source : DECC Energy Trends, December 2010

4. CONTEXT
Renewable Energy Use in EU27 (mtoe)
re:heat
Source : DECC Energy Trends, December 2010

5. CONTEXT
Renewable Energy Use in EU27 (proportion)
Source : DECC Energy Trends, December 2010

6. CONTEXT
Renewable Heat Use in EU27 (proportion)
re:heat
63.1%
1.4%
Source : DECC Energy Trends, December 2010

7. CONTEXT
Energy & Heat Use in the UK
80% of energy use in a UK
household relates to heat.

8. CONTEXT
Renewable Heat Use in EU27 (proportion)
re:heat
UK is committed to sourcing 15% of its energy from
renewables by 2020 (12% target for heat);
Will be necessary to increase proportion of energy from
renewables across all sectors of economy - electricity,
transport and heat;
Heat has been the Cinderella of renewable energy until
recently - the current combination of sticks and carrots
will drive the sector forward - particularly woodfuel.

9. CONTEXT
Installed Biomass Capacity in the UK
Number of identified woodfuel heating installations in
England by Summer 2010 (2011) : 2,372*
Number of identified woodfuel heating installations in
Scotland (2010) : <203**
Number of identified woodfuel heating installations in
Wales (today) : <150 (est.)
* Forestry Commission Biomass Energy Centre, 2011
** Forestry Commission Scotland, 2010

10. CONTEXT
Aspirations for Growth
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DECC Press Release :
• By 2020 we estimate that the renewable heat sector
will have grown to include around :
13,000 installations in industry;
110,000 installations in the commercial and
public sector, supplying 25% of the heat demand
in these sectors.
50% of this is anticipated to come from biomass.

11. CONTEXT
Aspirations for Growth
That means 64,500 commercial and industrial biomass-
fired installations in the UK by 2020.
That’s IEO 7,600 per year, every year, for the next 8
years - more than twice what we’ve installed in the last
decade…

12. CONTEXT
Aspirations for Growth
re:heat
Royal Academy of Engineering, quoting the Heating and
Hot Water Task Force, see the target for 2020 as
1,000,000 biomass boilers installed.
125,000 per year for next 8 years…
This is the unwavering direction of Government Policy.

13. CONTEXT
Why Biomass?
Focus will be on biomass for heating. Why?
• ‘Drop in’ replacement for tanker delivered fuels;
• Boilers produce heat at same temperature (most heat pumps
don’t, so radiator replacement or underfloor heating necessary);
• Solar thermal only good for summer DHW load;
• Energy from Waste only technically possible at large scale;
• Biomethane injection will only benefit producers - grid injection;
• Deep geothermal only economic at large scale - Science City.

14. WHAT IS BIOMASS?
Definitions
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• Virgin wood : trees, sawmill co-product, anything clean and woody;
• Energy crops : high yield crops grown specifically for energy
applications;
• Agricultural residues : residues from agriculture harvesting or
processing;
• Food waste : from food and drink manufacture, preparation and
processing, and post-consumer waste;
• Industrial waste and co-products : solids and sludges from
manufacturing and industrial processes.

16. WHAT IS THE RHI?
re:heat
The Renewable Heat Incentive is governments’ response to market
failure in the renewable heating industry and the desire to deliver
public goods;
Is effectively a payment to not use fossil fuels (reducing CO2);
Has been several years in the making, and replaces a number of on-
and-off grants programmes (which were ineffective);
Operates within a legislative framework set by DECC, and is
administered by OFGEM E-Serve on their behalf;
Is now the principal mechanism for supporting renewable heating.

17. WHAT IS THE RHI?
The RHI involves paying those installing eligible equipment for the
heat produced and used by the kWh;
Payments are quarterly and in arrears, and are index linked.

18. WHAT IS THE RHI?
Eligibility : The Basics re:heat
Any applicant must be the owner of the installation;
Installation of the plant was completed and first commissioned on or
after 15 July 2009;
The heat must be used for space,
water or process heating;
The heat must be used in a building;
The installation has not received,
and will not receive, a grant from
public funds.

19. WHAT IS THE RHI?
Eligibility : The Basics
The plant must be new at the time of installation;
The heating system must use a liquid or steam to deliver heat;
For installations of 45kWth and
below, the equipment and installer
must be certified under the
MicroGeneration Certification
Scheme (MCS) (or equivalent).

20. WHAT IS THE RHI?
Eligibility : The Basics re:heat
RHI is in two phases - commercial, which is live now, and
domestic, which will go live in 2013 as part of the ‘Green Deal’.
Domestic is classed as any single property, i.e. with a separate
Council Tax payment;
Commercial is anything else - including two individual domestic
properties linked to a single heat source, e.g. 1 woodchip boiler;
RHI is designed to deliver an IRR of 12% on average, but in
reality, returns significantly in excess of this are possible (20%+).

21. WHAT IS THE RHI?
Eligibility : Commercial or Domestic?
For single domestic premises :
• “treated as separate and self contained premises for Council Tax
Banding purposes”;
• “Where such premises are used wholly or mainly as a private
residential dwelling where the fabric of the building has not been
significantly adapted for non-residential use”;
• “where a premises consists of a main property and other buildings
such as outhouses, pool-houses, lean-to’s etc which are together
treated as one self contained unit in single occupation for Council
Tax”;
• Single boiler heating only these premises =

22. WHAT IS THE RHI?
Eligibility : Commercial or Domestic? re:heat
For multiple domestic premises :
e.g. Main property and adjoining properties (e.g.
annexes, flats, gatehouses, workers cottages, etc…) which are
themselves treated as self-contained units for council tax banding;
If each premises is served by its own boiler =
If two or more self-contained units are
heated by a single boiler =

23. WHAT IS THE RHI?
Eligibility : Commercial or Domestic?
Defining non-domestic premises :
Will be business rateable (although some agricultural buildings
may be exempt);
Where a private residential dwelling has been significantly
adapted for non-residential use - council tax officer may decide
that this makes all or part of the property business rateable;
Therefore premises may be viewed as non-domestic and
eligible for the RHI.

24. WHAT IS THE RHI?
Applying and Claiming re:heat
All heat must be metered - this forms the basis of all claims for RHI
payments from Ofgem;
Complex and time consuming process to register an installation -
Ofgem are acutely aware of the possibilities for fraud;
95% of applications to date have been returned by Ofgem - only 20
out of 376 approved in first quarter (to end April);
Ofgem indicating that applications are
inconsistent, incomplete, contained insufficient information or
illegible supporting docs;
Getting a 20 year guaranteed payment is not, and should not be easy
- expect to spend at least a day for simple system!

27. MAXIMISING THE RETURN
Smart approaches to project selection and design can deliver
excellent returns from the RHI;
Experience is the key to unlocking projects which provide the best
returns - biomass is not solar PV!
Some pointers…

28. MAXIMISING THE RETURN
Target Off Gas
re:heat
Current Heating Fuel Costs @ April 2012
16
14
12
Pence per kWh
10
8
6 pence kWh
4
2
0
Electricity LPG @ 57p/litre Oil @ 65p/litre Mains Gas Wood Pellets @ Wood Chip @ Logs @ £90/t &
£200/t & 10% £100/t & 30% 20% MC
MC MC

29. MAXIMISING THE RETURN
Target Off Gas
Average UK Home Uses 20,500kWh
Average rural home uses c. 33% more : 27,325kWh
£4,500
£4,000
£3,500
£3,000
£ per Year
£2,500
£2,000
Average
UK
£1,500 Average
Rural
£1,000
£500
£-
Electricity LPG @ Oil @ 65p/litre Mains Gas Wood Pellets Wood Chip @ Logs @ £90/t
57p/litre @ £200/t & £100/t & 30% & 20% MC
10% MC MC

30. MAXIMISING THE RETURN
Target Off Gas
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£0.80
65p
£0.70
£0.60
Pence per Litre
£0.50 30p
£0.40
£0.30
15p
£0.20
£0.10
£-
Mar Nov May Aug Nov Feb Nov Mar Nov Feb Sep Jan May Oct Mar Jun Nov Feb Jun Jan Nov Feb Jul Deb Feb Apr Jun
01 01 02 02 02 03 03 04 04 05 05 06 06 06 07 07 07 08 08 09 09 10 10 11 11 11 11
Date
Delivered cost of heating oil in pence per litre 2001-2011
Source : Aggregated Data from re:heat clients

31. MAXIMISING THE RETURN
Target Off Gas
Average UK household uses 20,500kWh for heating, which at
current prices is eq. to c. £1,256 on heating oil and c.£2,330 on LPG;
Rural housing stock is older and colder, meaning roughly 1/3 more
heat is required for thermal comfort (£1,675 and £3,105);
Consequently, across a 400-household portfolio, the annual spend
on oil could easily exceed £600,000;
Across the UK’s 1.5m oil-using households, the total spend will be in
the region of £2,323 million (£2,785 million including LPG) - DECC
figures state a £33bn spend on heat in 2012 across UK economy.

32. MAXIMISING THE RETURN
Target Off Gas
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Using rough metrics, there are at least 10m kWh of heat being used
across XXXX Estate’s properties, and possibly a lot more;
Because fossil fuels are now so expensive, few tenants will be using
as much as they need to see reasonable levels of thermal comfort;
In excess of £600,000 is being ‘lost’ annually from the Estate area
through the purchase of fuel for heating;
Woodfuel + the RHI presents a once-in-a-generation opportunity to
recapture this value - 10m kWh is equivalent to 3,250t of seasoned
chip/logs at 35% MC.

33. MAXIMISING THE RETURN
Maximise the Use
Real project!
Four separate heat uses/systems around a 1960’s industrial unit;
Total heat energy bill in the region of £37,500 for space and process
heating;
Heat used in very different ways : standard oil boiler and rads in
office; ceiling-mounted direct oil burners in factory; hand-filled oil
burner in paint shop and mutiple 3kW ‘kettles’ for tool warming;
No central heat production, no real controls other than office boiler.

34. MAXIMISING THE RETURN
Maximise the Use
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FACTORY SPACE HEATING 450,000kWh/annum £25,650 on oil
OFFICE SPACE HEATING 25,000kWh/annum £1,425 on oil
PAINT OVEN 66,000kWh/annum £3,760 on oil
TOOL HEATING 70,000kWh/annum £6,700 on electricity

35. MAXIMISING THE RETURN
Maximise the Use
Taken together, some 541,000kWh of heat are used across the site;
Project will centralise heat production from a pair of woodchip
boilers at c. 400kW, with heat piped to each point of use;
Capex likely to be in the region of £200,000;
Fuel costs will drop from £37,500 to £16,771 on chip at 3.1p/kWh;
Majority of RHI payment will be in upper band at 5.1p/kWh
(525,600kWh), with some in lower at 2.1p/kWh (15,400kWh);
Total RHI income IRO £26,800, delivering simple payback of 4.1 yrs.

36. MAXIMISING THE RETURN
Evaluate ESCo Proposals Carefully
re:heat
If you are an attractive enough site for an ESCo provider, you are
likely to be attractive enough for a bank or non-traditional lender to
provide finance;
ESCo options can be very good, but RHI is generous enough that an
ESCo provider should not be looking to take all of the RHI payment;
There are an increasing number of ESCo providers touting ‘free
boiler’ deals, many of whom were previously in the solar PV field;
Your heating bill is now potentially an asset!

37. MAXIMISING THE RETURN
Consider District Heating
Pellet boiler (c. 15kW) installation in single domestic property - £15-20,000.
Pellet boiler (100kW) installation in municipal property - £80-120,000.
In-building works for district heating connection - £3-5,000.
District heating main - c. £100/linear metre.
8 houses + municipal building - c. £170,000.
Capex saving at least IEO £50,000.
I n s t a l l a t i o n | M o n i t o r i n g | F u e l S u p p l y | D u e D i l i g e n c e

38. MAXIMISING THE RETURN
Consider District Heating
re:heat
Incremental cost of boiler plant is lower per kW installed as
economies of scale are introduced;
As scale increases, fuel substitution is possible, < costs further :
Bag Pellets Bulk Pellets P45 Chip P63 Chip P100 Chip
4.6p/kWh 3.8p/kWh 2.9p/kWh 2.7p/kWh 2.4p/kWh
Where heat is sold to tenants, margins can increase
dramatically, esp. where tanker-delivered fuels are displaced at 6-
8p/kWh;
And of course, more kWh through the boiler equates to higher RHI
receipts.
T r a i n i n g | C o n s u l t a n c y | R e s e a r c h | P r o j e c t M a n a g e m e n t

39. MAXIMISING THE RETURN
Consider District Heating
Backup boiler (where required) can be a single unit, rather than
multiple units);
Virtually all maintenance is associated with the central plant -
reducing running costs substantially;
Lifetime replacement costs are lower, and generally relate only to in-
building components and boiler - heating mains are long-life;
Where social objectives are a consideration, opportunities exist to
reduce the cost of heat provided to tenants;
Risks are removed - no combustion in properties (CO, etc…).
I n s t a l l a t i o n | M o n i t o r i n g | F u e l S u p p l y | D u e D i l i g e n c e

40. MAXIMISING THE RETURN
Consider District Heating
re:heat
All emissions are centralised in a single plant - reducing air quality
issues and making clean-up technology cost-effective to implement;
With current supply chain, woodchip only really justifiable for use in
boilers rated at 50kW and above - DH allows this threshold to be
reached at many sites;
Critically, the delay in the domestic RHI & nature of qualifying
criteria for commercial has created a major imperative for the
connection of multiple domestic properties to a single heating
system.
T r a i n i n g | C o n s u l t a n c y | R e s e a r c h | P r o j e c t M a n a g e m e n t

41. IN SUMMARY
RHI offers a chance in a lifetime to invest in new heating
infrastructure, create new revenue streams and reduce the impact of
rising fossil fuel costs;
Experience counts when designing, installing and operating a biomass
heating system;
Developing a project can be something of
a minefield;
The RHI process is complex and requires
some thought;
Rewards can be huge for successful schemes.

42. re:heat
Stand F34
Neil Harrison neil@reheat.uk.com 07917 632 171
Ben Tansey ben@reheat.uk.com 07917 626 724
I n s t a l l a t i o n | M o n i t o r i n g | F u e l S u p p l y | D u e D i l i g e n c e
T r a i n i n g | C o n s u l t a n c y | R e s e a r c h | P r o j e c t M a n a g e m e n t