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 onApproach & 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 andASHP 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:- BSRIACONFIDENTIAL – © 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 DealAssessment
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 9April 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

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

 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 toTenants
 Massive reduction in heating bills
 Can be installed externally
 Minimal space requirement
 Zero noise in operation, unlikeAir-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
Saving
Equity
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
Saving
Equity
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 - RSLHOUSING 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 DealAssessment 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?

Social Landlords - The Business case is Compelling

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