While the additional support available through FITs dries up for some sectors of the renewable energy market, a new source of support may finally be coming on stream for others through the Renewable Heat Incentive (RHI). DECC revealed the details of the scheme in March, alongside draft Regulations.

The RHI was proposed, but not implemented, by the previous Government. The Coalition Government decided to revise the scheme and has made a number of changes. Firstly, the scheme will be paid for out of taxation, rather than a levy on fuel bills, which this government felt was an unfair burden. Secondly, the incentive will only be made available to businesses initially. Householders will be able to take advantage of a slightly different scheme, called Renewable Heat Premium Payments, though the RHI may be extended to householders at the end of 2012. Further details on the Renewable Heat Premium Payments will be published soon, but it appears that this will be used to trial and monitor less established technologies – with householders agreeing to record and monitor performance as a condition of receiving the payment.

By contrast, RHI will only be available to established technologies which are considered to meet the definition of generating heat energy from renewable sources under the Renewable Energy Directive 2009/28/EC. The summary document published by DECC explains that “The primary objective of the Renewable Heat Incentive (RHI) is to encourage the installation of renewable heating equipment and generation of renewable heat in order to meet the UK’s share of the EU 2020 renewable energy target”. The summary goes on to state: “The renewable energy target is extremely challenging and, given the funding and time limitations, the RHI needs to focus on the technologies which can be counted to meet that target”. While any support for renewable energy is of course welcome, it seems slightly myopic to accept this logic for the RHI but, effectively, reject it at the very same time by withdrawing FIT support for large scale solar farms, which also have an important part to play in meeting that target.

One change to the RHI which will be particularly welcome to many of our readers is that the RHI will be made available to equipment that burns Municipal Solid Waste (MSW) or fuel derived from MSW. There are plans to reconsider other types of waste fuel as the scheme progresses. Like FITs, the tariff will be adjusted for inflation and will last for 20 years. The rate is higher than that available through FITs and is designed to give a 12% rate of return. However, tariff levels will be reviewed in 2012 and, as has happened with PV, if a particular technology is taking off commercially one can predict that its tariff will be cut sooner. If you are planning to take advantage of the RHI then we advise that you should not delay. The example of FITs suggests that those who want to secure the best rates of return need to act fast.