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What will the RHI financial Return on Investment be?

Through the Renewable Heat Incentive (RHI) owners of renewable technologies can receive a regular income for a guaranteed 20 year period. When the added savings in fuel costs is taken into account, commercial organisations can recoup the initial cost of a wood pellet boiler within a few years and look forward to receiving the tariff payments for the remainder of the agreed period.

Take a look at the table below to see the figures involved with wood pellet boilers and the financial breakdown of installing this type of biomass system:

Floor Area (m2)

800

2500

5000

Boiler Size

70kW

200kW

400kW

Capital Cost

£50,000

£120,00

£200,000

Oil Cost

£9,204

£26,296

£52,593

Pellet Cost

£5,250

£15,000

£30,000

RHI Per Annum

£8,643

£24,694

£37,500

Payback Years vs Oil

3.97

3.33

3.63

Payback Years vs Gas

6.84

5.74

8.01

As you can see the immediate saving is in the cost of the fuel. Pellets are approximately 40% cheaper than burning oil, which can save thousands of pounds a year depending on your energy consumption.

The RHI is a financial incentive to switch into renewable technologies, and by burning wood pellets as your primary fuel source you can receive payments depending on the amount of energy produced. The table above shows that these regular payments can total over £30,000 a year for the highest users. It is anticipated that the current generous tariff levels will not be maintained so early adopters of the RHI stand to receive the largest financial support.

For a renewable energy user switching from oil it means that it will take between 3-4 years to recover the money spent on the initial installation. They can then enjoy the remaining 16 or so years of the RHI payments whilst saving money on their fuel costs each year. Current gas users who switch will recoup the money of the boiler installation anywhere between the 6-8 year mark, leaving over a decade’s worth of RHI payments and cheaper fuel left.  

To put this into a more specific context, we’ve come up with the following case study, which looks at a small school:

RHI Breakdown Case Study

Size

500 Pupil School

Boiler size

500kW

Capital Cost

£230,000

Oil Cost

£65,741

Pellet Cost

£37,500

RHI Per Annum

£40,710

Payback Years vs Oil

3.34

Payback Years vs Gas

7.37

This type of school would require a 500kW wood pellet boiler to provide the necessary heating and hot water, at a cost of approximately £230,000. By switching from oil to wood pellets they would save £28,241 a year just on fuel, before the RHI payments are taken into account. For the school in question the RHI payment would be £40,710 each year, meaning the school is £68,951 better off per annum. As a result, it would take just over 3 years to pay off the cost of the boiler when switching from oil or over 7 when switching from gas. The school will then receive the RHI payment each year for the remainder of the 20 year agreement as profit.

A combination of cheaper fuel and the RHI payments makes wood pellet boilers an extremely attractive financial package to any commercial organisation or business.

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