Is it worth it in 2016 ?

If you have a stream with promise, the decision to proceed or not with installing a small hydro usually boils down to money: - will it be worthwhile ? 

Working through to a solution of this question is not very straightforward; the factors which  determine if a scheme will be cost effective are constantly changing. So in this diary entry I thought it might be useful to touch on how things stand in the UK as of now, November 2016, whilst also casting an eye to the future to bring in issues which are already in the pipeline (sorry for the pun) and which will inevitably come to bear on the matter sooner or later.

Income from energy generated

• Feed in Tariff (FIT) payments have dropped colossally; in 2013 when my scheme gained accreditation with OFGEM, the payment per kWh for small hydro was 21.65 p; for new schemes now it is 7.65 p; the rate is due to drop further in more leisurely stages to reach 7.52p by Jan 2019.

• the export tariff has gone up;  this payment is additional to the FIT payment but is paid only on 75% of the total kWh's generated;  it was 4.64p /kWh; today it is 4.91p.

• receiving export payments on 75% of generated units is called 'deeming' and deeming has worked very much to the advantage of Powerspout owners because the output of a Powerspout is so low that in reality most generated power gets used 'in-house'; little or none is actually exported; owners who are canny have been able to go further in ensuring no export happens by installing a diverting device to send excess power to a heat storage load such as an immersion or room storage heater.  But deeming is about to change.  A recent consultation paper made it clear that the government's intention is that homes having renewable generation will need to have a Smart meter recording energy flowing each way, - into and out of the premises; no more deeming; export payments in future will be based only on an actual reading of energy exported.

• to flesh out what these changes mean with real figures: it used to be the case that a Powerspout owner would receive payment of £251 for every 1000 kWh's generated; now the figure is just £113 whilst deeming continues; £76 when it stops and if no power is exported.

The effects of sterling devaluation

• at the rate today, the value of sterling has fallen 16% against the US dollar since the Brexit referendum; as the price of a Powerspout is denominated in US dollars, this is going to make Powerspouts and their spares more expensive; however, the cost of a Powerspout accounts for only about 1/4 of the total cost of an installation so this effect is not particularly off-putting.

• by contrast, the fall in the value of the pound will have a more significant opposite effect which will make turbine installation attractive;  this will come about because of the effect on the cost of electricity; right now as I'm writing, the UK national grid is importing 4.3% of its requirement from France, 2.2% from Holland and is generating 50% of its load from gas; much of the gas is imported now that North sea gas is dwindling; all this importation paid for with a weak pound will soon force supply companies to put up their prices; the effect will be to make it increasingly valuable to avoid buying energy by producing it yourself.  

• the rate at which prices will rise is going to be steep; at the moment the tariff I pay is 18.3p for day units and 7.67p for night (VAT included); these rates have been fixed for over 2 years but are nevertheless nearly double what they were 10 years ago; there is no escaping that the pause of the last two years in the rise of the price of electricity has been an aberration in its otherwise relentless upward trend, and that soon that upward trend is going to reassert itself; as it does so, the case for a Powerspout is made to be ever more attractive.

• to illustrate how much more attractive: in the past two years, for each 1000 kWh I've generated, my electricity bill has been reduced by £152 ( a calculation which assumes I've used everything generated and none was exported); if prices rise by 5% per year for the next 5 years, the saving at the end of the 5 years will have grown to £194 per 1000 kWh generated; at the end of 10 years, it will be £247.

To conclude, I offer no answer to the question "is it worth it in 2016 ?"; the answer is too specific to each scheme, - how great is the promise of the stream; how willing is the scheme owner to rise to the challenge of devising a way of making the scheme work, of tackling the bureaucracy involved, of doing the installation work themselves.  

In all this however, too much should not be made of the strength of the business case in reaching a decision; there is the feel good factor to consider as well; the feeling of becoming a generator connected to the national grid, contributing in a small way to the energy needs of the country in a sustainable way. 

It might not count for anything on a balance sheet but in the bigger picture, the feel good factor is a potent force for making a scheme seem worthwhile.