In contrast to other renewable energy support mechanisms, the Renewable Heat Incentive (RHI) looks at heat rather than electricity. Although heating accounts for 47% of the UK's carbon dioxide emissions, little has been done to date to incentivise the generation of heat from renewable sources. The RHI is intended to address this, and is billed by the Government as the first scheme of its kind.
The Government is currently consulting on the RHI, which is due to be introduced with effect from 1 April 2011.
1. What technologies will receive support?
The RHI generally seeks to support all forms of renewable heat generation. However, building on experience of the Renewables Obligation, the RHI will provide different levels of support to different technologies.
The following sources of heat will be supported:
- biomass (including the biomass element of waste);
- ground source and geothermal heat;
- air source heat;
- water source heat; and
- solar thermal.
In an important step, support will be available to biogas that is injected into the national gas grid, as well as to that which is used at the site of production. The reasoning being that the injection of such biogas will displace natural gas that would otherwise have been used for heating.
However, the RHI does not support wood burning stoves or passive solar heating. Nor does the RHI support cooling technologies - only heating. Projects in receipt of central Government grants may have to re-pay these before they are entitled to receive support.
The RHI only applies in Great Britain, and does not apply in Northern Ireland.
2. Will existing projects be eligible?
The RHI is intended to support the development of new renewable heat installations, and as a result is not available to installations made before 15 July 2009.
The consultation also states that the refurbishment or conversion of pre-existing installations will not qualify. However, this appears odd in the case of plant converted from fossil fuels to renewables, and may be re-considered as part of the RHI's further development.
3. What level of support will projects receive?
The Government has set the levels of support with a rate of return of 12% (6% for solar) in mind. In all cases, the RHI will pay a pence per kWh tariff, which tariff will be adjusted annually for inflation.
The tariffs vary by technology and size. Full details are set out in the table at the end of this article. Tariffs range from 1.5 pence to 19 pence. These will apply in addition to any income the generator receives from selling the heat to an end-user.
These tariffs will either be paid on the basis of metered heat usage or deemed usage. Deeming generally applies to the smaller-scale projects, and metering to the larger-scale.
The Government is considering an uplift payment in respect of district heating schemes - to recognise the additional capital investment required for pipe networks.
The heat aspects of combined heat and power (CHP) projects will be supported at the same level as heat-only projects. There will be no requirements for CHP projects to meet the 'good quality' requirements of the CHP Quality Assurance Scheme.
In respect of projects generating heat from municipal solid waste, there will be the opportunity to claim a 50% biomass-derived energy content where there is external evidence to support such a claim (adopting the same approach as the Renewables Obligation).
4. How long will such support last?
Applying experience from the development of the Renewables Obligation and the Feed-In Tariff, each project will receive support under the RHI for a specified period.
The period of support varies depending upon technology and size, and ranges between 10 and 23 years. Again, full details are set out in the table at the end of this article.
The Government has also made clear that it will revise support levels for particular technologies in the future, but that these revised levels will only apply to new projects after such revision (and will not affect the support received by existing projects). This concept of degression again adopts experience gained from developing the Feed-In Tariff and recent amendments to the Renewables Obligation.
5. How does a project gain accreditation?
Ofgem will oversee the accreditation process, replicating its role in respect of the Feed-In Tariff and the Renewables Obligation.
Small and medium-sized generators will need to use an installer who is certified under the Microgeneration Certification Scheme. The Government hopes that the Microgeneration Certification Scheme will cover installations up to 300 kW by the time the RHI is launched.
It is expected that all other projects will be subject to an individual-project accreditation process similar to that currently used in respect of the Renewables Obligation.
For projects to which deeming (rather than metering) of heat applies, the level of deeming will be set so as to generally support only useful heat production and to encourage insulation and other heat conservation measures. Where metering applies, it is likely that there will be accreditation requirements concerning the use of the heat. The consultation refers to the following as useful heat: space heating, water heating, cooking, industrial processes, drying and separating.
For biomass boilers below 20 MW, maximum emissions standards are also likely to be applied, as there are currently no regulations that would otherwise apply across Great Britain.
6. Who's paying for it?
Worryingly, this has not yet been established. This is the one area of the policy that clearly needs considerable development and thought.
When the RHI was first conceived under the Energy Act 2008, it was mooted that the RHI would be funded via a levy on those that supply fossil fuels for use in heating. However, it is apparent that the number and range of such suppliers has caused a re-think. It would also be impossible for Ofgem to regulate suppliers other than gas suppliers without a radical change to its statutory remit.
The consultation offers little guidance as to how the Government intends to resolve this fundamental matter - though assurances are made that it will not delay the introduction of the RHI.
A levy on licensed gas suppliers would be the easiest option, but would unfairly disadvantage gas against other fossil fuels (many of which are more polluting). Some have suggested that the Government might even have to rely on general taxation, though the Treasury would clearly resist such an approach.
7. Is there any impact on the Renewables Obligation?
The Renewables Obligation currently provides indirect support for renewable heat. Electricity generated from renewable sources generally receives more support under the Renewables Obligation where it is generated by a 'good quality' CHP station, as compared to electricity generated by an electricity-only station.
The Government has clearly stated for sometime now, that this is only an interim measure, and that (in the long term) the RHI is expected to support renewable heat and the Renewables Obligation only renewable electricity.
The consultation envisages a transitional period until 2013, during which existing projects accredited under the Renewables Obligation could opt to transfer to the RHI, and during which new projects could either seek accreditation under the Renewables Obligation or the RHI.
After 2013, however, the Renewables Obligation would no longer provide any heat incentive to new CHP projects, which would receive support for electricity on the basis of the Renewables Obligation and support for heat under the RHI.
This approach appears generally sensible. However, there is some confusion over the treatment of waste-incineration CHP projects. The consultation states that the Renewables Obligation provides an additional 0.5 ROCs per MWh for CHP stations, and suggests that it is this 0.5 ROC uplift that will be lost by projects that opt for (or become obliged to accept) support under the RHI. Therefore, a 'dedicated biomass with CHP' project would receive 1.5 ROCs per MWh (rather than 2), but would receive the RHI instead.
However, 'energy from waste with CHP' projects currently receive 1 ROC per MWh, whereas waste-incineration projects without CHP receive no support under the Renewables Obligation. It is not clear whether the Government intends 'energy from waste' projects to receive any support under the Renewables Obligation once the RHI has been introduced, and if it does whether this support will only be available to CHP projects. Clarity on this important point is necessary in the near future.
8. What's next?
The Government's consultation closes on 26 April. The Government's response to consultation responses, and certain further questions for consultation, can then be expected over the summer.
The implementing legislation will need to be laid before Parliament early next year, and so drafts are likely to be published towards the end of this year.
9. Table of support levels and support periods
Click here for table.