Renewable Heat Incentive – could do better?

The October 2012 report on the commercial RHI from Ofgem, responsible for the administration of the scheme, revealed an uptake that can only be described as disappointing.

By the end of September, a total of 348 renewable heat installations had been accredited under the scheme, not a huge amount after ten months of operation. Having said that, bearing in mind that only 20 of these were accredited in the first four months of the scheme, the upward curve is encouraging with the initial slow start surely an inevitable result of the large size and long development periods of the projects concerned.

Part of the reason for the slow take-up has been the complexity of the application process, with around 500 applications so far having been returned to the applicant for the inclusion of additional information. To help applicants through the process, Ofgem has produced a guide to applying, entitled ‘The Renewable Heat Incentive Application Process – An Overview and Key Guidance Applicant Guidance Note 3’, available on the Ofgem website. If you are thinking of making an RHI application, it’s time well spent reading through this document beforehand.

Out of balance

But looking closely at the figures, of the successful accredited applications so far, biomass  projects account for 98.9% of capacity, compared with a mere 0.65% of total accredited capacity contributed from heat pump installations. Is there something in the mechanic of the scheme in need of tweaking? How have things got so far out of balance?

Possibly the thinking was that only minimal RHI support for heat pumps was sufficient to make them an extremely cost effective option in the right scenario. As a quick example, a 50kW ground source project displacing an oil-fired boiler would cost around £90k to install, including boreholes. With annual fuel savings of around £4,000 and RHI income of around £4,300 per annum, payback takes just 11 years, after which RHI payments and fuel savings continue to stack up, year after year.

But it certainly appears at first glance that the support available for heat pumps is inadequate compared with biomass, and unlikely to drive take-up of heat pumps on the scale that will be required to meet the UK’s carbon reduction requirements.

Looking at why the heat pump support has been pegged at its current level, an analysis of the facts and figures that DECC used to generate the tariffs in the first place has shown some significant flaws, and DECC itself has admitted this, acknowledging that: “The existing tariff for ground source heat pumps has not brought forward the number of installations of this technology we expected”. These inaccurate assumptions are most noticeable where heat pumps are compared with biomass in terms of typical system costs, expected annual operation hours (meaning the actual RHI return to the user is lower than calculated by DECC) and typical load factors.

Changes to the scheme

The good news is that DECC is open to discussion on amending the RHI to make it more effective and is currently working through responses to a consultation on changes to the scheme. As an industry, we have been lobbying hard to get DECC to look at some of the intricacies of how the RHI applies to heat pump systems, which can take myriad forms.

For example, we believe that there should be a banded tariff for ground source installations, to differentiate between systems that use vertical boreholes for ground collectors, compared with horizontal ground loop systems. At present there is no additional support available for borehole systems, which is needed to make the scheme attractive where these additional costs exist.

Another issue is that systems returning ‘waste’ heat to the ground from space cooling applications have previously been deemed as ‘not renewable’, meaning that many systems using heat pumps to provide both heating and cooling are not eligible for RHI support, which is a bizarre interpretation of how these highly efficient systems function.

Importantly, one major shift in the RHI is that commercial air source heat pumps are now set to be included in the scheme, with the industry pushing for this to happen sooner rather than later. Air source systems are cheaper and simpler to install than ground source, making them more attractive for retrofit installations, and widening the RHI’s scope to include these should make the scheme more accessible for more organisations, which is good news.

So although the commercial RHI could be viewed as a bit of a damp squib so far, there are changes afoot to support ground source heat pumps and the introduction of air source, which could make the scheme more effective and a good deal more accessible and financially rewarding to building services managers across the board.