Renewable Heat Incentive
The Renewable Heat Incentive (RHI) for non-domestic generators opened for applications on Monday 28 November 2011.
N.B. All the information given in this section is subject to change as some of the details of the proposed Renewable Heat Incentive are still under consideration. The latest updates on this proposal can be found on the DECC website.
Heat is the biggest use of energy in the UK. Just under half of the UK's CO2 emissions and 60% of domestic energy bills are used on heating space and water. Heat in the UK is currently supplied predominantly by fossil fuels - less than 1% comes from renewable sources. The renewable heat incentive (RHI - also known as clean energy cashback) aims to change that. Its ambitious goal is that 12% of heat is generated by renewable processes by 2020.
The start of the scheme follows a short delay while DECC resolved the scheme’s compatibility with EU state aid rules and re-submitted the draft regulations to Parliament. Organisations will be able to apply to Ofgem for support under the scheme from Monday 28 November and will receive payments on a quarterly basis for heat generated over 20 years.
The scheme is being introduced in two phases.
In the first phase, long-term tariff support is targeted in the non-domestic sectors, at the big heat users – the industrial, business and public sector – which contribute 38% of the UK’s carbon emissions. Under this phase there is also support of around £15 million for households through the Renewable Heat Premium Payment.
The second phase of the RHI scheme will see it expanded to include more technologies as well as support for households. In light of the later than expected launch of Phase 1, as a result of changes required by the European Commission, we are reviewing the timetable for introducing Phase 2. We will be able to confirm the exact timing early in the New Year.
The RHI is being administered by Ofgem E-Serve. More information on the administration of the RHI can be found on the Ofgem E-Serve: Renewable Heat Incentive web pages. The Ofgem E-Serve Renewable Heat Incentive (RHI) accreditation enquiries line is also open to deal with questions on applications and eligibility. The team can be contacted on 0845 200 2122 between 8:30am until 5pm Monday to Thursday, and 8:30am until 4:30pm on Fridays. Alternatively, you can send an email to RHI.Enquiry@Ofgem.gov.uk. Complicated enquiries are best handled in writing via email.
Which technologies are included in the scheme?
Air, ground and water heat pumps, solar hot water panels and biomass boilers are the main technologies that will be used in the domestic market. The government proposes omitting wood burning stoves, air heaters and open fires from the heat incentive, as they are generally used as optional secondary heating, and because it's difficult to monitor to what extent they are used with non-renewable fuel such as coal. We would argue that they should consider including wood pellet stoves and wood burners with back boilers where this is the main method of heating water; and wood pellet stoves used for space heating more than just one room.
People who have oil-based heating systems will be eligible for the renewable heat incentive if they convert their boiler to run on a blended fuel that is part renewable oil/part heating oil. Bioliquids (ie oils made from arable crops such as rapeseed) will not generally eligible, apart from this special case. The blended fuel will have to be certified to be eligible.
What return on investment will I get?
The payments are intended to give a 12% rate of return. This is a better return than under the feed-in tariff because the government sees renewable heat as a priority area for growth; and also because it thinks the hassle factor involved in the installation of technologies such as ground source heat pumps will mean people need more incentive to do it. The rates have been set so that they cover the higher cost of installing and running new technologies.
How will it work?
To qualify for the RHI payments, you will have to use an accredited installer and product. The main accreditation scheme is the Microgeneration Certification Scheme (MCS), and equivalent European schemes will also apply. Once a system is in place, your installer will issue a certificate that will enable you to register the installation with Ofgem. Once it has accredited the installation it will pay the incentive - this is likely to be an annual payment into your bank account.
How is the payment calculated?
The payments will be 'deemed' rather than metered. Although it is possible to meter heat the technology is in the early stages of development. The final methodology for how it will be done is yet to be decided. It is likely to be based on a table of average energy needs for space heating broken down by property type and size. For example, a 2-bedroom flat, with 61m2 of floor space, and cavity wall construction may be deemed to need 4,441kWh/year for space heating. A 3-bedroom semi, with solid wall construction may be expected to need 16,390kWh/year. The useful energy requirement for hot water will be assumed constant across property types and sizes at 3,742 kWh/year. This is based on an average occupancy of 2.9 people.
Are there any energy efficiency requirements?
You will need at least 125mm of loft insulation and cavity wall insulation, where appropriate, to qualify for the heat incentive. DECC does not propose to make more stringent requirements, as a deemed tariff system will encourage people to make their home as energy efficient as possible. The more efficient it is, the less energy will be needed for heating, so energy bills are lower, and more of the incentive payment is available to be saved or spent on other things.
Who can receive the payment?
The 'owner' of the heat installation is the only person who can receive the payment under the Energy Act 2008. This will usually be the person who bought and paid for the installation of the equipment. However, where there has been a hire purchase or similar agreement to fund the purchase, the payment can be made to the person who has taken out the loan even if they are not the legal owner. There may also be times when the person who owns the equipment is not the person who benefits from the heat it produces – i.e. if a landlord installs it in a rented property. In this case the landlord can receive the payment.
To receive the payment the owner may be asked to sign a declaration that they agree to keep the equipment working and well maintained to qualify for ongoing payments. Ofgem may want evidence of ongoing maintenance and repair by an approved person.
People who installed their heat generating equipment after 15 July 2009 are eligible for the renewable heat incentive. Only the installation of new equipment is eligible - refurbishment, repair or conversion will not be. There is considerable weight of feeling that existing microgenerators (who installed prior to the cut off date) should also be included in the scheme, as installers are being asked to rip out kit that works well, and install new, so people can claim. There is also strong feeling that a lot of education is needed for the RHI to really work, and that pioneer users with good stories to tell are vital to that education process.
What about fuel?
To qualify for the RHI payment, fuel needs to come from an approved sustainable source. It's not clear yet whether people with their own source of wood (or other biomass) will be able to use that in a biomass boiler - or whether they have to buy from an accredited source. This is something that we will be chasing up on in our response to the consultation.
What if I live in rented accommodation?
Private landlords will be able to claim the RHI payments on renewable heat equipment that they install in their properties, with the aim that it is a logical financial decision to install it.
What about people in fuel poverty and social housing?
There is no requirement for social landlords to adopt renewable technologies, but the government thinks that the incentive will offer them a strong business case to offer this choice to their tenants. It is developing guidance to enable them increase the energy performance of their housing stock. The government is also consulting on ways to help low income households in fuel poverty to take advantage of the scheme. A lot of people in fuel poverty live off the gas grid, where switching to renewable technologies can make the most difference. The RHI includes provision for district heating systems, to encourage larger scale installations, for example in large blocks of flats, where that makes sense.