In the current economic climate farms, like many businesses, are increasingly under financial pressure. Therefore, any financial assistance that becomes available is a welcome relief.
The Renewable Heat Incentive (RHI) was introduced in November 2011 to encourage investment in technologies like biomass boilers, ground source heat pumps and solar thermal. In addition to gaining a revenue stream from the RHI, farmers who invest in new heating systems can gain additional benefits by saving on their fuel bills, reducing carbon emissions and investing in a modern heating system that benefits the environment.
Earning for Burning
The RHI makes quarterly payments based on meter readings in respect of the heat produced by the system. Payments are made for twenty years from the date of entry to the scheme and are made directly to the owner of the installation by Ofgem. In addition, payments are index-linked and vary according to the size and technology of the installation.
The RHI is available to those who have installed eligible equipment since 15 July 2009.
Uptake in Light of Uncertainty
Confidence in the RHI has suffered a knock-on effect from the cuts that were made earlier this year to the feed-in tariff rates for solar PV installations. Indeed, the Country Land and Business Association has expressed concern about investing in renewable technology following the government’s revisions.
However, the results of the recent spending review should engender confidence as the RHI scheme is set to provide support amounting to £70 million a year, with applications above this threshold being suspended until the following year. According to Ofgem’s recent quarterly report the amount of periodic payments made under the RHI between November 2011 and June 2012 amounts to £350,594. The report can be accessed by clicking here.
In its recent consultation document entitled Renewable Heat Incentive: Proving Certainty, Improving Performance (Consultation) the Department of Energy and Climate Change (DECC) has set the allocated expenditure for 2012/13 at £18 million - this is a projection based on the total number of RHI applications received to date. The Consultation suggests that uptake has been slow with only 128 installations having been accredited by 8 July this year. However, regard must be had to the fact that, of the 670 applications for accreditation that were received, Ofgem approved only a small proportion due to receipt of defective submissions (for example, applications that were inconsistent, incomplete or confusing were returned).
The Consultation can be accessed by clicking here.
Interim Cost Control Measures
The Renewable Heat Incentive Scheme (Amendment) Regulations 2012 (Regulations) came into force on 31 July 2012. The Regulations introduce an interim cost control mechanism to the RHI. This stand-by mechanism for budget control will suspend the RHI until the next financial year if it is estimated that spending from the RHI budget, which is based on accreditations and applications, reaches a level where the budget could be breached.
The Regulations can be accessed by clicking here.
Degression as a Long-Term Solution
Currently, the government is consulting on a flexible degressionbased model to reduce tariffs for new applicants in the event of uptake being greater than anticipated. This model is due to replace the current stand-by mechanism. Under the proposed system, tariff reductions would be predicated on uptake reaching pre-determined triggers at which point a small tariff reduction would automatically be implemented. Degression announcements are due to be made quarterly with one month’s notice being given for any reductions. It is proposed that the triggers for tariff reductions will be set out on the DECC website.
The Consultation also seeks views on proposals for a mechanism through which applicants to the RHI can book a guaranteed tariff rate for certain types and sizes of installations in advance of building. The government believes that the proposals will make future tariff changes predictable and transparent.
The Consultation outlines proposals to ensure that biomass used for heat generation is sustainable. However, the government wishes to support biomass sourced from the same estate as where the boiler is housed - this includes instances in which farmers use woody biomass feedstock (including perennial energy crops) from their own woodland as fuel; therefore, these feedstocks are deemed to meet the sustainability criteria.
The closing date for responses was 14 September 2012.
Can the RHI Help Your Business?
In order to be eligible for the RHI, an installation must supply heat either to commercial premises or to two separately rated domestic dwellings. An installation which supplies heat to domestic and commercial premises is also eligible under the scheme; therefore, although heating a farmhouse does not currently qualify, heating a dairy and a farmhouse meets the criteria.
Uptake of the RHI amongst poultry farmers is on the rise as it has been found that using renewable heating systems for broiler sheds is especially advantageous because of the constant heat demand required. Therefore, installing renewable heating systems such as wood chip/wood pellet fed biomass boilers can lead to significant savings. For instance, a system which produces less than 200kWth may be eligible to receive a maximum of 8.3p p/kWth. A system capable of producing 200kWth to 1,000kWth may be eligible to receive a maximum of 5.1 p/kWth – over time, this can add up to significant savings. Figures from the Biomass Energy Centre show that even without RHI payments, biomass heating is a commercially sound decision mostly because the savings against volatile oil costs are potentially significant. For example, oil costs 6.0p/kWh whilst wood chips and wood pellets cost 2.9p/kWh and 4.2 p/kWh, respectively.
It is not just broiler sheds which can benefit from a renewable heating system; any farm building could be heated in this way, provided the qualification criteria are met. The RHI is applicable to a range of technologies. However, the best opportunities generally lie in biomass district heating systems (several properties heated off one central boiler). This is because biomass is well suited to existing rural buildings which generally have low thermal efficiencies, even when they are upgraded. Many farms and estates also have access to untapped biomass resource in the form of existing woodland, straw or land suitable for the cultivation of coppice.