Social Landlords - The Business case is Compelling

Calorex and GI Energy © Issued in commercial confidence

Social Landlords & The Renewable

Heat Incentive

Contents

1. Introduction

2. Calorex & GI Energy Background

3. Renewable Heat Incentive (RHI)

4. Why Ground Source Heat Pumps?

5. Business Model

6. Feedback on Approach & Questions?

CONFIDENTIAL – © Calorex Heat Pumps Ltd

Introduction

An opportunity exists to take advantage of feed in tariff for

domestic heating aimed at the role out of carbon efficient

technologies to the domestic sector

This tariff is called the Renewable Heat Incentive

RHI is operational from Spring 2014

Calorex a leading British manufacturer of heat pumps have

developed the product for the target market

GI Energy a leading installer of GSHP and renewable energy

products have the resources to execute project roll out and delivery


• UK manufacturer and market leader of heat pump technology

• Established 1977

• Made and Installed more heat pumps in UK than any other manufacturer

• Manufactured in excess of 250,000 heat pumps so far

• 1,000,000 hours of measured performance data from UK domestic heating

installations!

• The FIRST manufacturer accredited under MCS (Microgeneration

Certification Scheme)

Calorex Profile


• Based at 80,000 sq ft (7400 sq m) facility in Maldon, Essex

• Export circa 70% of finished goods

• £2m invested in R&D since 2005; ongoing £0.75m p.a.

• Comprehensive GSHP and ASHP domestic ranges designed for UK market

conditions and practices

• New re-built building includes flow line production facility for heat pump

manufacture promoting higher quality with increased output

• Bespoke training facility for ASHP, GSHP, Dehumidifiers & Pool units


Calorex Profile

Calorex

Heat Pumps

Indoor

Swimming Pools

Environmental Climate

Control Systems.

Heat Recovery

&

Dehumidification

Outdoor

Swimming Pools

Air source

heat pumps

Portable

Equipment

Building Dryers

Air Conditioners

Air Movement

Domestic

Heating

Ground & Air source

Heat pumps

Dehumidification

Dehumidifiers

Humidifiers

Heat Recovery

Calorex Product Applications


Calorex Heat Pumps


Calorex – MCS

Ground source heat pumps Air source heat pumps

Output

COP

brine on 0oC;

output to water

35oC

Output

COP

air on 7oC;

output to water

35oC

3.5kW 4.53 4.50kW 3.43

5.0kW 4.53 9.0kW 3.54

8.0kW 4.14 12.0kW 3.65

12.0kW 4.31 Above COP’s include full defrost

cycles

EN14511*

standard 3.50

EN14511*

standard 3.20

* UK Microgeneration certification scheme standard

Source:- BSRIA CONFIDENTIAL – © Calorex Heat Pumps Ltd

Calorex - experience

Calorex have the largest installed population of GSHP in UK

Over 2,700 GSHP installed and working in UK

Products hold market leader status

Product range 3.5 – 6.5kW designed specifically for RSL market

Full range MCS approved products

Calorex technology is 100% Made in Britain

Mainly retro-fitted into social housing

Designed for the UK market and climatic conditions

Extended warranty to ensure RHI funding period is covered


GI Energy experience

GI Energy

• Leading renewable energy solutions partner in the UK

• 13 year experience in market place

• Have installed more heat pump capacity in the UK than any other company

• Own their own drilling equipment and drilling team

• National service and complete maintenance capability

• Experience with remote monitoring options


Full Service Offering


The Renewable Heat Incentive (RHI)

A financial support scheme for renewable domestic heat

Aimed to assist home owners to change their heating systems to

more energy efficient systems and reduce carbon

Comes from DECC “Future of Heating” published in March 2012

Targets 15% renewable energy by 2020 to deliver affordable,

efficient, low carbon heat in the future


RHI (Domestic)

The tariffs are listed below

Confirmed payment process over 20 years

Paid over 7 years quarterly in arrears

Dwelling must have a Green Deal Assessment

Source Pence per kWh

Air Source Heat Pump 7.3

Biomass 12.2

Ground Source Heat Pump 18.8

Solar Thermal 19.2


RHI (Domestic)

The scheme was operational from 9 April 2014

The system output is “deemed” i.e. predetermined in advance of operation;

using rdSAP calculation

The product must be Micro Generation Certification Scheme (MCS) approved This is a customer orientation quality assurance scheme

Requires third party accreditation

See http://www.microgenerationcertification.org/

The installer must be MCS approved Therefore utilising Calorex products with GI Energy installation both product and

installation are completely certified

The system is subject to annual confirmation of operation


http://www.microgenerationcertification.org/

RHI (Commercial Non-Domestic)

The tariffs are listed below

Payment over 20 years

Paid on metered heat output

Source Pence per kWh

GSHP 7.2 (8.7 tier 1; 2.6 tier 2)

Biomass <200 kWth 4.1(8.7 tier 1; 2.6 tier 2)

Solar Thermal 10.0

ASHP 2.5


4 Why Ground Source Heat Pump?

RSL considerations

Eliminate fuel poverty Provision of low cost heating systems to tenants

Reduce carbon foot print (CRC targets)

Deliver quality energy efficient homes Decent home standard

Code for sustainable homes


4 Why Ground Source Heat Pumps?

Target fuels CONFIDENTIAL – © Calorex Heat Pumps Ltd


Comparison with Gas

Cost 1 kWh for a heat pump releases 3 more kWh at no cost

Therefore GSHP running cost is £0.15 total or £0.05 p kWh with 1.7t CO2 p a

Main gas costs £0.06 p kWh with 3.4t CO2 pa

The CO2 savings are significant but the running cost saving is approx £200 pa

Depends on tenant/owner motivation

Running costs?

Carbon reduction/clean energy?

No flues?

Full investment calculations shown later



GSHP

More efficient to run

Zero noise pollution

Greater carbon savings

Minimal annual servicing

Smaller sized units (smaller

footprint)

Consistent output (all year round)

No planning permission

Higher RHI contribution

ASHP

Lower capital cost

Ease of installation (assumed)

Noise levels excessive

Planning permission required

Vandalism & Theft issues

Reduced output is mid-winter



GSHP works better in colder

months

Less temperature variation

No defrost

Less risk of tenant complaint

Zero noise

Simple maintenance



Benefits to Tenants

Massive reduction in heating bills

Can be installed externally

Minimal space requirement

Zero noise in operation, unlike Air-source

No invasive flue work

Simple controls

Minimal maintenance


5 Business Model - Approach to Market

Social Housing off main gas grid offers best returns

Equally effective on gas grid for reducing fuel poverty and carbon

reduction installations

Installing GSHP will; Combat fuel poverty up to 75% reduction in tenant bills

Contribute to carbon reduction commitments

Between 1.8 and 3.1 tonnes per unit per annum of CO2

Attract financial support from 60%-100% of installed cost

Established technology proven in the UK market

Be covered by an extended warranty to match RHI period


5 Business model

Notes

1 Property must first have a Green Deal Assessment performed

2 ECO will contribute towards any external/attic insulation required

3 Only then will renewable heat requirement be addressed

Utility

Tenant

RSL/HA

RHI

Funder

One Stop Installer

GDA provider

Rads

Supplier

GSHP

Supplier

Drilling

Contract

or

Ext Insul

Supplier


5 Business model

RHI fixed guaranteed income payable every quarter for 7 years

Value must be taken for the energy saving by the tenant – fuel

poverty gap narrows considerably.

Will attract renewable funders

RHI can go to RSL, Funders or Installers depending on RSL

choice

Model assumes RHI income to funders so installed cost is reduced


5 Business model - Partners

Calorex have assembled a consortia of professionals to

exclusively provide the RSL

Execute full EPIM on a design, install and maintain basis

Comprehensive warranty with extended warranty offer to

match RHI period

Maintenance & Service package


5 Business model - Financials

Loan finance is covered by

RHI income

ESTIMATE OF CAPITAL THAT CAN BE MET BY RHI CONTRIBUTION

INPUTS TABLE

RHI Tariff 18.8 p/kWh

Heat Saving 15.0 p/kWh Based on cost of electric/storage/oil/LPG cost

Loan life 7 years

Rate of Interest 4.8%

Warranty Life 7 years

Carbon saving 450 g/kWh saved

Energy Use HA installation CH & DHW

GSHP Rating Output

WW 3500 DT 4500 7,000 kWh/annum

WW 5000 DT 8000 9,000 kWh/annum

WW 6500 DT 9000 11,000 kWh/annum

Typical SPF 3.4 Radiator flow temp of 50◦C

Heat Energy

Generated

Renewable

Heat

RHI Contrib

per annum

Inst Cost Ex

Rads

Loan

Finance

Equity

Required Heat Saving

Total Heat

SavingEquity

Shortfall? CO2 Saving

CO2

Saving

kWh/annum kWh/annum Stg£ Stg£ Stg£ Stg£ Stg£ Stg£ mt/pa mt/life

WW 3500 DT 5750 4,059 763 7,301 4,448 2,854 609 4,262 No 1.8 27.4

WW 5000 DT 8500 6,000 1,128 9,320 6,575 2,745 900 6,300 No 2.7 40.5

WW 6500 DT 10000 7,059 1,327 10,993 7,736 3,257 1,059 7,412 No 3.2 47.6


5 Business Model –financials (with rads)

ESTIMATE OF CAPITAL THAT CAN BE MET BY RHI CONTRIBUTION (incl rads install)

INPUTS TABLE

RHI Tariff 18.8 p/kWh

Heat Saving 15.0 p/kWh Based on cost of electric/storage/oil/LPG cost

Loan life 7 years

Rate of Interest 4.8%

Warranty Life 7 years

Carbon saving 450 g/kWh saved

Energy Use HA installation CH & DHW

GSHP Rating Output

WW 3500 DT 4500 7,000 kWh/annum

WW 5000 DT 8000 9,000 kWh/annum

WW 6500 DT 9000 11,000 kWh/annum

Typical SPF 3.4 Radiator flow temp of 50◦C

Heat Energy

Generated

Renewable

Heat

RHI Contrib

per annum

Inst Cost

INCL Rads

Loan

Finance

Equity

Required Heat Saving

Total Heat

SavingEquity

Shortfall? CO2 Saving

CO2

Saving

kWh/annum kWh/annum Stg£ Stg£ Stg£ Stg£ Stg£ Stg£ mt/pa mt/life

WW 3500 DT 5750 4,059 763 9,922 4,448 5,475 609 4,262 Yes 1.8 27.4

WW 5000 DT 8500 6,000 1,128 13,611 6,575 7,036 900 6,300 Yes 2.7 40.5

WW 6500 DT 10000 7,059 1,327 13,496 7,736 5,760 1,059 7,412 No 3.2 47.6


5 Business Model - RSL HOUSING ASSOCIATION WW 5000 DT Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

kWh pa kWh pa kWh pa kWh pa kWh pa kWh pa kWh pa kWh pa kWh pa kWh pa

OUTPUTS Heat energy Generated 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500

Renewable Heat 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000

£ £ £ £ £ £ £ £ £ £

REVENUE (£): RHI Income 1,128 1,128 1,128 1,128 1,128 1,128 1,128 0 0 0

Energy Saving 900 900 900 900 900 900 900 900 900 900

Total Revenue 2,028 2,028 2,028 2,028 2,028 2,028 2,028 900 900 900

OPERATING COST (£): Depreciation (621) (621) (621) (621) (621) (621) (621) (621) (621) (621)

Ext Warranty (200) (200) (200) (200) (200) (200) (200) 0 0 0

Interest (315) (276) (236) (193) (148) (101) (52) 0 0 0

Maintenance 0 0 0 0 0 0 0 0 0 0

Total Operating Cost (1,137) (1,098) (1,057) (1,014) (969) (922) (873) (621) (621) (621)

OPERATING PROFIT (£): Net Profit pa 891 930 971 1,014 1,059 1,106 1,155 279 279 279

Depreciation 621 621 621 621 621 621 621 621 621 621

Capital (813) (852) (892) (935) (980) (1,027) (1,076) 0 0 0

Operating Net Cash flow 700 700 700 700 700 700 700 900 900 900

Net Capital outlay (2,745) 0 0 0 0 0 0 0 0 0

Net annual Cash (2,045) 700 700 700 700 700 700 900 900 900

Cumulative Cash surplus (2,045) (1,345) (645) 55 755 1,455 2,155 3,055 3,955 4,855

IRR 35%

Return on net capital 25% 25% 25% 25% 25% 25% 25% 32% 32% 32%

LOAN REQUIREMENTS (£):

Loan Outstanding 6,575 5,762 4,911 4,018 3,083 2,103 1,076 (0) (0) (0)

Capital payments (813) (852) (892) (935) (980) (1,027) (1,076) 0 0 0

Net Capital Outstanding 5,762 4,911 4,018 3,083 2,103 1,076 (0) (0) (0) (0)

CARBON SAVING (Kg pa) CO2 Saving Kg pa 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700

Cumulative CO2 saved Kg 2,700 5,400 8,100 10,800 13,500 16,200 18,900 21,600 24,300 27,000

CAPITAL COST (£): Installation 9,320

Loan Funds (6,575) 71%

Net HA Investment 2,745

5kw

model

Inc RHI +

savings

Full loan

service

Cash positive year 4

loan clear year 7 Loan finance % CONFIDENTIAL – © Calorex Heat Pumps Ltd

5 Business model

RHI income is fixed and grandfathered

Loan finance and RHI terms are matched Once installed and maintained the RHI will meet all loan obligations

Savings to tenants are from date of installation

The output is deemed for life s.t. annual confirmation that it remains installed

RHI qualified for GSHP that are MCS registered and installed

Dwelling must have a Green Deal Assessment done first

Asset is installed and secure in known location


6 Feedback on Approach & Questions

On approach taken by Calorex/GI Energy

Willingness to work with finance company

Ownership of installation and issue?

Method of claim of RHI

Via RSL

Via Finance company

Via installer

Any reservations re GSHP’s?

Any comments on consortia assembled?


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