Feed-in tariffs (FiTs) are financial incentives for electricity generated from small-scale renewable and low-carbon sources.
FiTs are guaranteed payments to small-scale generators, which are paid for electricity generated by accredited installations using certain renewable and low-carbon technologies (of which hydro is one) for a fixed period of time (currently up to 20 years).
WHEN people talk about renewable energy projects, in most cases your mind will first be drawn to wind power and the manufacturing of turbines.
Yet a significant opportunity currently exists for Scotland, and its construction sector, in another source of renewable energy: hydro power.
In June, Scottish Renewables released a position paper on hydro electric pumped storage schemes. The paper calls on the UK and Scottish Governments to work together to look at how hydro technology can strengthen the UK’s energy security.
The combination of green energy targets, government incentives and Scotland’s geography and climate has put hydro firmly on the agenda.
Hydro power is regarded by many as being a truly environmentally-friendly means of producing energy on a large scale. For example, Norway, despite being a major oil and gas producer, obtains most of its energy from hydro.
Scotland’s hydro building programme in the 1950s and 1960s resulted in infrastructure which still produces electricity today.
Scottish Renewables estimates that the country generated 1.5 GW of hydro power capacity and electrical output from hydro schemes in 2012, which made up around 12% of Scotland’s electricity consumption.
However, there remains substantial potential for further development.
Recent surveys have identified potential for a further two gigawatts of capacity, and that development seems to be moving apace.
Government incentives, such as the Renewables Obligation and the Feed-in Tariff (FiT), are stimulating this new development.
The main drive for hydro at the moment is the sub-5 MW schemes eligible for FiT income. Within this range the 50 KW to 2 MW range of commercial projects is growing quickly.
According to British Hydropower Association and Smartest Energy’s recent Hydro Energy Entrepreneurs Report 2014, landowners account for more than a third (33.1%) of all independent commercial-scale hydro projects in operation, followed by developers (24.8%), water companies (15.7%), onsite generators (10.6%) and farmers (9.4%).
There are 254 commercial scale sites in operation across Great Britain with 43 sites coming on stream in 2014.
In addition to the attractive FiT subsidy, there are noteworthy investment opportunities for businesses and landowners.
This is mainly because schemes can be packaged which enable capital funding to be obtained and long term income generated for the electricity that is produced.
They are also often less intrusive on the local environment than, say, wind turbines.
Currently the hydro industry is dealing with the planned reduction in the value of FiT.
The UK Government has announced its “degression” programme and this is focusing minds on faster project delivery.
The rush to generate renewable electricity means all new generators are competing for grid capacity on the electricity network and it appears that this will be constrained for some time to come.
While there are undoubtedly challenges to be overcome, there remains considerable opportunity in Scotland for the development of hydro power schemes, which could bring with them jobs and investment.
The construction sector could be one of the primary beneficiaries if it harnesses that potential.
• By Frazer Wardhaugh, partner at HBJ Gateley.
What is hydro power?
Hydroelectric power is simply the process of converting running water into electrical energy, normally where water flows through a turbine which rotates a generator, in the process producing electricity. There are, however, variations on this theme:
1) Storage. Storage schemes are generally large scale and use a dam and a reservoir of water. This water acts as an energy store and can be used when required.
2) Run of River. Run of river schemes have no significant storage element and use the natural flow of the river. Some schemes use a small dam or weir to allow for short term regulation of water flow.
3) Pumped Storage. Pumped storage schemes work in a similar way to storage, but water is pumped back up to the storage reservoir at periods of low demand when energy prices are lower.