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Feed In Tariff, Fuel Poverty and Energy Efficiency

by Mel Starrs on November 21, 2011

in Feed In Tariff

This is the fourth in my series of blog posts on the feed-in-tariff cuts for PV consultation. The previous entries are:

  1. Feed-in-tariff for PV review – the number crunching
  2. PV Feed-in-Tariff Review: Impact on the private householder with capital market
  3. Fuel poverty, roof renting and Feed-in-tariff – some number crunching

I reckon I have one more post to go, where I’ll look at the consultation document, having looked at the evidence so far. As I said at the start, the numbers are illustrative only and not intended to be taken as financial advice. The models I’ve used INCLUDE inflation at a rate of 2.4% (well below today’s current rate – it is taken as a long-term 25 year average). Numbers here WILL DIFFER from those quoted elsewhere, depending on what assumptions have been made (for example, the rates of 5% quoted by the government DO NOT include inflation). Also my installed rate is possibly still on the high side at greater than £3000/kWp installed – we’re seeing prices sub this already (and likely to drop again in January).

Now we’ve cleared all that up, let’s look at the second of the third legs of fuel poverty – fuel efficiency. (I’m not going to look at the final leg – low income – well beyond the scope of this blog!).

The current fuel poverty definition, as we saw in the last post, defines fuel inefficient houses as having a SAP rating of below 35.

This is virtually everything within an F or G rating (odd, but not unusual for things not to align up exactly – F is from 38 to 21, so a very small faction of F rated properties wouldn’t be in fuel poverty – I’ll ignore this for now).

From the last post, it can be seen that the proportion of fuel poverty due to inefficient dwellings is smaller than the other two factors which is encouraging. Let’s look at some numbers – English Housing Survey Housing Stock Summary Statistics 2009 has a wealth of statistics:

Let’s look at a theoretical RSL (housing association) with a portfolio of 100 houses.

According to the consultation document, a sum of £5,600 will be enough to bring most properties up to a C Rating. We’ll come back to this figure.

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Let’s assume the RSL has a lump of money in the bank, which they have decided will earn more money on the roofs than earning interest (not hard right now). None of the scenarios I have looked at assume any borrowing is involved (obviously the cost of borrowing would have to be factored in if the scenario included this. In effect this reduces the IRR – as obviously it adds another person to the equation who needs to earn some profit).

In scenario 1, they are putting PV on 25% of the roofs, assuming these are the best suited for PV. They are then sharing out the savings on the electricity bills equally amongst the 100 tenants, and keeping the FiT income for themselves. This earns them a sum of £10,078 per dwelling over 25 years which they can reinvest in improving the energy efficiency of each property. For scenario 2, the RSL is pocketing all the savings to reinvest in properties (ie: the tenants aren’t immediately benefitting from reduced electricity bills) and the sum for each dwelling increases to a whopping £14,573 – enough for a fairly extensive retrofit to each dwelling – and depending on the state of the portfolio, some deep retrofit on those which require it.

Our last two scenarios look at what happens when the rate plummets to 16.8p (the proposed aggregated rate which would apply to RSL’s – a deeper cut than the 21p individuals face). Here, in scenario 3, we cannot get the investment to pay back. No houses get retrofitted, no profit is made. No investor would be willing to back it. In scenario 4 where the RSL is again retaining the savings on the electricity bills, it just about works again.

If we go back to our theoretical 100 dwellings, from the EHS data, 64.6% of these will be D rated or worse. Assuming the £5,600 per dwelling to bring up to a C, we would need a capital lump sum of £364,000 – much greater than the capital amount of £237,500 spent on the PV. Of course, not all houses would be upgraded at the same time, but with the PV the RSL was funding the improvements over time. If the aggregated rate of 16.8p comes in, this just does not stack up, especially if the RSL has to borrow the capital in the first place.

A gloomy note to end the number crunching on – but hopefully it has been an enlightening journey. In my last post later this week, I will note some thoughts on the consultation document – of course we have until 23rd December to respond, despite the illogical cut-off date of 12th December!