1. Introduction to the RHI
The Renewable Heat Incentive (RHI) is a long-term financial support programme for renewable heat designed to increase the uptake of renewable heat technologies and reduce carbon emissions.
The scheme provides a subsidy per kWhth of eligible renewable heat generated from accredited installations and a subsidy payable to producers of biomethane for injection into the grid.
It was launched in November 2011 through the Renewable Heat Incentive Scheme Regulations 2011 (RHI Regulation) with a scheme for the non-domestic sector that provides payments to industry, business and public sector organisations.
The following renewable heat technologies are currently supported:
- solid biomass;
- ground and water source heat pumps (GSHP);
- solar collector / solar thermal (at capacities of less than 200 kWth);
- small scale biogas combustion (at capacities of less than 200 kWth); and
- biomethane injection.
Biomethane injection involves the production of biogas through anaerobic digestion of waste, crop, slurries or sewage feedstock. The biogas is then ‘upgraded’ to remove the carbon dioxide and other impurities in a process know as scrubbing, and propane is added to ensure the calorific value, or energy content, closely matches that of natural gas in the network. The resulting gas can then be odorised and compressed, and the processed biomethane injected into the gas grid.
RHI Payments for biomethane producers are based on the eligible volume of biomethane produced for injection.
When the Government first introduced the ‘one size fits all’ biomethane to grid tariff in November 2011 there were no full scale biomethane to grid plants in operation. The tariff was based on a 1MW waste feedstock plant.
The RHI has kick-started the market for biomethane to grid as there are currently three plants registered to the RHI and it is understood many plants of much higher capacities are planned or in the pipeline.
DECC is now concerned that larger biomethane plants will benefit from economies of scale which may not justify RHI support at current levels, i.e. that at current levels large biomethane would be overcompensated.
As a result of DECC’s concerns, on 30 May 2014, DECC published a consultation seeking views from industry on proposed adjustment to the biomethane to grid tariff. The consultation closed on 27 June 2014 and DECC plan to lay any amended regulations as soon as possible after Parliament returns from Recess in Autumn 2014.
The consultation presents two tariff structures: banding and tiering.
Tiering operates by paying a higher tariff for the first designated amount of kilowatt hours of biomethane injected into the grid (the “tier 1” tariff), and a lower tariff for any subsequent biomethane injected (the “tier 2” tariff), over a period of 12 months. All installations would receive the higher tier 1 tariff payments for a set volume of biomethane injected into the grid, regardless of size of plant. This is a ‘2-tier’ tariff structure – tariff structures with higher numbers of tiers could be developed following the same approach.
Tiering provides for a gradual reduction in the average tariff earned as capacity increases – unlike banding where the average tariff falls in large steps. This reduces the likelihood of operators sizing plant for maximum financial benefit.
Banding works by defining capacity bands for the technology and paying an appropriate tariff for each band. In this case, DECC are proposing higher tariffs for the lower capacity bands and lower tariffs for higher capacity bands.
The biomethane industry cannot be overly surprised at the proposed introduction of banding or tiering as these have been implemented for other developing RHI technologies such as biomass and, indeed, in other renewable schemes such as the Feed in Tariff. As ever with tariff reviews, a fine balance needs to be reached between providing value for money for the tax payer while continuing to promote a relatively immature and growing industry.