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Shedding Some Light on Heat - could you be doing more to reduce your heating cost?

on Monday, 20 June 2016.

An unavoidable cost for all schools is the cost of heating their buildings.

Hand in hand with that cost goes the exposure to movements in gas prices - and whilst schools can secure good tariffs for their energy over a period of a couple of years, it is much harder to protect yourself against movements over the longer term.

As with many organisations, schools are expected to demonstrate their green credentials and their efforts at decarbonisation. This has many facets, but the source of your energy is one important part of that jigsaw.

These and other factors have led to a gradual increase in the use of non-traditional sources of heat, including biomass heating systems, in recent years. In particular, the Renewable Heat Incentive (explained below) has helped to encourage growth in the use by schools of biomass boilers, as an alternative to traditional gas plant.

What is biomass?

Biomass is fuel derived from animal or plant products (often woodchip, or pellets). At its simplest, a biomass boiler works in a similar way to a gas boiler, the difference being that rather than burning gas to provide heat and hot water, the boiler is fuelled with biomass.

More complex systems can produce both heat and electricity (known as Combined Heat and Power, or CHP) - although more expensive, they can be an attractive option where you have relatively high electricity consumption.

How does the Renewable Heat Incentive work?

The Renewable Heat Incentive (RHI) is a subsidy to encourage the uptake of 'green' sources of heat.

The RHI sees owners of eligible biomass equipment paid a small amount per unit of heat generated. This payment is fixed (subject to inflation) for a 20 year period, and works in a similar way to the electricity feed-in-tariff scheme (the scheme which has sparked the installation of solar panels on rooftops and in fields up and down the country).

The certainty of these payments can be a helpful element in securing finance for these installations, or in building your business case for the initial capital expenditure on the equipment.

Delivery Structures

There are different contractual and commercial models for the installation of biomass or CHP systems. The simplest model is to procure an installer to design and build a system for your school - you will then take over operation of the system on completion (as you might with a traditional gas boiler).

This structure usually requires the school to finance the purchase and installation of the equipment, and to then manage the purchase of biomass fuel, maintenance services, etc - just as you might with a traditional gas boiler.

A more complex alternative (more commonly used where the system itself is more complex) is to appoint a third party to build and operate the system, and to sell heat to the school. Under this model, the third party will often be responsible for maintenance of the equipment, fuel purchase, etc - and it is often possible to have a degree of price certainty over a relatively long term.

Inserting a third party into the structure in this way is often intended to pass the risk of the design, construction, operation and maintenance of the system to the third party, and away from the school. However, there is inevitably a price to be paid by the school in return for the third party taking on that risk, and you will need to be very careful to ensure that any transfer of risk away from the school is watertight - we can certainly help you with this.

What should you be thinking about?

If you have recently installed new gas boilers, then now is probably not the time to be thinking about biomass and CHP. However, if your existing equipment is nearing the end of its life - or if you are considering putting in additional systems - then it is worth considering whether biomass or CHP systems might enable you to meet your heat (and power) needs more efficiently and in a greener way.

If this might be an option for you, we recommend that you consider it sooner rather than later, because the subsidies which are available through the RHI are being (and will continue to be) reduced on a regular basis.

These systems won't be right for all schools, but there are plenty of experts who can help you to assess whether - with your profile of heat and power requirements - they might be right for you.

If you would like to discuss your options, please contact Edward Rimmell in our Independent Schools team on 0117 314 5232.

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