The Importance of Project Timing in a Subsidy-Driven Market

For one school in particular this has been a significant issue this year (2017). In September 2016, the Bursar at Lucton School in Herefordshire asked us for a feasibility study on the relative merits of installing a biomass system on his estate. The estate was on oil, so we were sure there was potential; but with renewables it’s always important to do the cost/benefit analysis carefully before committing to an installation. Our modelling established that the most cost-effective option for the school would be a medium-scale district heating system serving the whole site. However, it would have to be commissioned and registered with Ofgem prior to the impending changes in RHI tariff. The financial case stacked up well on the old rates, but it would not be viable on the new rates. At the time the government had announced that the changes would happen in April 2017. As it turned out, the changes were delayed by some 6 months, but nobody could have foreseen that and no responsible school bursar or contractor could plan on it: so the latest safe date for registering with Ofgem was agreed as 1st April 2017.

A biomass system on this scale can take anything from about 4-6 months to complete, so time was of the essence. We were financing and managing the project, so we had to ensure the deadline would be met, but without any short-cuts or increased technical risk. The school had to be quick in considering the case and getting Governing Body approval; (any bursar reading this will know that that is not easy but Lucton School were exemplary in their efficiency). Ecovision, who won the tender for installer, had to meet a challenging timescale and budget.

In the end the project went remarkably well. Anyone who has ever been involved with biomass will know that there are almost always technical challenges: it’s not the same as bunging in a gas or oil boiler, but in the right circumstances the financial and carbon rewards are worth it. At Lucton, for example, tasks such as trenching for the district system still had to be scheduled to minimise disruption for the school, even though time was short: school life has to go on.

Well done to Ecovision for meeting the 1st April 2017 deadline successfully. The system is now all up and running and we’ll be going back to the school in the coming winter months to confirm that it’s performing as modelled and also to check that the school support staff are happy with it.

System size: 500kW. Anticipated net benefit over the life of the 20-year RHI subsidy, including having paid off the finance, is £600,000.

What is going to happen to energy prices in the next few years?

Predicting what energy markets will do is no easier than predicting any other commodity. Indeed, simply working out what the price of energy has been in the past is difficult, because there is so much data available, presented in so many different ways, to suit so many differing vested interests.

Nonetheless, some general trends are apparent:

  • We do know that the national supply of both power and heat is under growing strain. The weight of informed opinion, as well as current purchasing information, suggests that the UK supply for the next 5 to 10 years is likely to be volatile but rising, especially in the provision of power. We do also know that retail prices have already risen a lot this year.
  • Current indicators are that grid power prices are likely to increase substantially in the next few years, owing to a shortage of provision and, ironically, the rising burden of government levies to fund the transition to renewables.
  • Therefore, goes the logic, estates should be looking for cost-effective ways to reduce their reliance on grid power.

This chart shows the National Grid’s own assessment of wholesale power price inflation. The wholesale price represents about half of what the consumer pays for power. The rest is made up of infrastructure charges and government taxes and levies.

A Jedi is no match for a Bursar

Jack Marriner’s[1]Tesla parked itself silently in his allotted space, outside the Bursary at Fandangle Hall School. As he got out he had that sense that today was going to be no ordinary day.

‘Therefore just like every other day in the Bursary’ he thought wryly, as he walked inside.

As he entered he could hear the baleful cries of the prisoners down below. I hasten to assure you, Dear Reader, that Jack was a compassionate bursar at heart; and he disliked this side of the business. But there was no doubting that school fee payment had improved markedly since he’d instigated the deterrent policy of jailing any long term debtors. This, and other initiatives necessary to bring things back on an even financial keel after the untimely demise of his predecessor[2], had earned him a reputation for running a tight ship.

Indeed, his fame in that respect had spread rather further afield than he realised, as he was about to find out. No sooner had he sat down than Softly Softly, his PA, looked in.

‘There’s a Mr Vader to see you.’

‘So soon? It’s only 7.45.’

‘He’s most insistent, and – somehow rather persuasive,’ replied Softly Softly.

‘Alright. I’ll be out in a minute.’ But even as he spoke his visitor was pushing his way through the door.

‘Mr Vader, do come in. How can I help?’ said Jack without a trace of disquiet in his voice, as he walked forward to shake the hand of the tall, dark figure framed by the doorway.

‘I am LordVader, actually.’ The handshake was declined. Jack noticed that his visitor’s features were obscured by a rather forbidding black mask, like something out of a film set. And he spoke with a strange, rasping, almost metallic tone.

‘Oh, I’m so sorry. We had no prior knowledge of your coming and…’

‘Spare me the pleasantries. I hear you run a tight ship and so I am here to find some answers.’ He had a way of emphasising certain words that made him come across as slightly menacing, if a little high-handed for a first meeting.

‘We try,’ replied Jack, wondering where this was going and surreptitiously activating the pocket transmitter that silently alerted his Estate Manager, Sam Wisely, that there might be trouble brewing and he should make his way back to the Bursary just in case. Sam was ex Special Forces and a Grand Master in several martial arts.[3]

‘I understand you have discovered the secret of infinite energy in your school.’

‘That would be a slight overstatement Lord Vader. But we are working our way steadily towards turning a profit on our energy consumption, rather than it being the significant cost that it used to be…’

At this point, Dear Reader, I must step in and bring you up to date with developments at Fandangle Hall School; for it is indeed the case that Jack had achieved great things on the energy front. Infinite energy is another thing altogether, but he had embraced wholeheartedly the opportunities offered by UK Government policy on renewable energy systems over the past two years. And even now, in late 2017, he continued to look for ways to capitalise on the opportunities – for they were still aplenty, contrary to perceived media wisdom.

The secret of his success was that he’d realised from the outset that renewables were not just about saving the planet, but they were also a means to make a longer term profit for the school. The trick was to identify which parts of the estate, no matter how small, could be configured to unlock the most favourable subsidy rates for a given technology, rather than thinking about the estate purely in terms of energy needs. He had tested every part of the estate against the full gamut of viable technologies and now had a range of nice little earners, as well as two major district systems. One by one they would turn profitable, such that by 2021 energy usage on the estate would have become profit-making. It was an extraordinary achievement.

‘It’s all very well,’ I hear you say. ‘But when teachers are beating a path to your door demanding you fix this-that-and-the-other by tea-time; and when the Government seems constantly to be moving the goalposts, it’s easy to lose one’s resolve.’ I agree. But of course, he had not done this alone. He had realised at an early stage that his list of important things to do would never be less than a hundred. So he’d invested some time in finding reliable help – within his staff and externally. However, the key thing is that it was hisbrainchild; and surely that, Dear Reader, is the acme of skill – to get the work done[4].

But I digress. We must return to the office, where Lord Vader had just explained all about his ambitions for the Federation Space Fleet – which Jack found straightforward enough. And now Jack was trying in vain to get Vader to understand the UK renewables subsidy system…

‘So your government will give you money for all the renewableenergy you use for the next 20 years?’ asked Vader.

‘Absolutely. It’s guaranteed; and inflation proof.’

‘They are fools.’

‘Not so. They need to make it attractive, otherwise people would never make the effort to change the status quo. And the rates do remain attractive, in spite of reports to the contrary. Some are amazing. I’m about to install a heat pump that will fetch the school a return on investment of 20% per annum. It’s hard to think of a better way to make money.’

‘There must be a catch.’

‘There isn’t. It’s true that the system can be a bit of a minefield, but I get advice on that when I need it. The Government has already reviewed the subsidies for power generation and set the rates for the next 3 years. They’re reviewing the heat incentives next year, but they’ve already said that they will keep some rates unchanged. And the 20 year guarantee remains in place. So I could install a new solar system next year and still get the subsidy until 2037.’

‘You are planning to renew the Solar System?! Bursars are more powerful than I thought! I musthave some of these subsidies.I need more power to make my DeathStar work.’

‘I’m afraid that won’t be possible, Lord Vader.’

‘Do you defy me? Do not underestimate the power of the…’

‘No, no. You don’t understand, it’s just a technicality’, said Jack, who had already decided that in reality this Vader fella was an easier ticket than the Chair of the Finance Committee. ‘You have to be registered and located in the UK.’

At that moment they were interrupted as Sam Wisely entered.

‘Bad news, Boss’. (He still hadn’t dropped the special forces vernacular).

‘It’s OK Sam. I have it under control.’

‘No Boss, not that. It’s Mr Vader’s space ship. It was parked by the waste collection area. The council truck has just trashed it. Accidental of course. But I’m afraid it’s a write-off.’

Jack looked at Vader with a winning smile. ‘Looks like you could be here for a while, Lord Vader. I’m sorry. However, we do have a vacancy for a teaching assistant in the Geography Department. You must have travelled a fair bit…?’

———————–

 

Key points, Dear Reader:

  • A Jedi is no match for a Bursar.
  • Renewables are a fantastic, much overlooked investment vehicle.
  • The UK Government is still guaranteeing allocated subsidies for 20 years from the date of commissioning. Don’t believe what the jungle drums tell you.
  • Mind where you park your space-ship.

 

 

[1]Who’s Who: Jack Marriner, MBE, MSc, MBA, FRSA. First career in the FCO. Now an independent school bursar.

[2]Colonel (Retd) James Punch OBE. See Bursars’ Review Spring 2014.

[3]Available at most reputable school suppliers – (the transmitter, not the martial arts support to the Bursary).

[4]See Sun Tzu and the Art of Delegation. Published by Faber & Faber 2014.