Where is the incentive?

The Renewable Heat Incentive (RHI) received mixed reviews when it was introduced by the former Labour Government, but it was generally seen as a step in the right direction by the heating industry. However, with public spending cuts becoming a regular theme under the new coalition, who’s to say if it will live up to its potential or even get off the ground?

The RHI was designed to provide financial support that encourages individuals, communities and businesses to switch from using fossil fuel for heating, to renewables. The scheme was devised by the former Government’s Department for Energy and Climate Change, so it remains to be seen if we will get what we were promised with the new coalition. It is clear we need an initiative like this to stand any chance of meeting our 2020 renewables targets, but it must be fit for purpose.

At present, the scheme is due to come into play in April 2011. When it does, if homeowners or businesses use a renewable technology, such as solar or heat pumps, to provide heating or hot water they could get paid a set amount every year for up to 20 years as an incentive for reducing CO2 emissions and helping to prevent climate change.

The plan is not proposing to measure the heat generated from small or medium sized installations. Instead, an estimated or deemed figure will be used to work out payments. It is proposed that payments would be made annually to householders or organisations.

As it currently stands air-source and ground-source heat pumps, solar thermal, biomass boilers, renewable combined heat and power, use of bio-gas and bio-liquids and injection of biomethane into the natural gas grid would be eligible under the scheme

The last Government was proposing that projects where an installation was completed before 15 July 2009 will not be entitled to RHI support. Anything installed after this date is eligible to receive the incentive as long as the equipment meets the required criteria and the contractor is MCS registered by the time the scheme comes into effect.

To meet the UK’s 2020 15% renewable energy target, we need to develop new ways of generating renewable energy in all areas, especially heat.

At present, heat generated from renewable sources accounts for less than 1.5% of total heat demand in this country, which is clearly not acceptable and leaves us lagging behind much of Europe, including the likes of Bulgaria, Hungary and Slovenia.

We need our current number of renewable installations to increase tenfold over the next decade, but we will not be able to expand renewable heat without some form of financial assistance because of the costs involved with renewable technologies. Such support will enable more homeowners and businesses to afford renewable heat and, by expanding the market, help bring costs down more quickly.

An investment in renewable energy usually means payment of a higher capital cost to achieve lower annual running costs. The RHI will reduce the annual running cost of heating significantly allowing those who have renewables installed to reduce the payback period from their investment to a few years.

The introduction of the RHI will offer a financial reward for lower carbon emissions over the life of the renewable heating technology installed. The tariffs for the Renewable Heat Incentive have been calculated to offer a rate of return of 12% on the initial investment across the tariff bands.

The RHI would provide a positive step change, especially on the commercial side for delivering on-site renewable heat, not only to reduce energy bills and carbon emissions, but also to deliver an energy related cash flow into your building. If the new Government is committed to meeting these renewable targets and can get this right we can make real progress.

The new Government has been extremely quiet on the RHI, presumably because of the need to finance this proposal at a time of deep cuts in expenditure. The emergency budget on 22 June did give a clear signal of their commitment to increasing the amount of energy from renewable sources. The commitment to fund a Green Investment Bank may mean that providing low cost capital for investment in renewable energy projects may be an alternative to schemes like the RHI. In either case, it is clear that there will be support for renewable technologies and those businesses which are involved in the heating industry or who are large users of heat will have to be ready to take advantage of this support.

Our hope is that the Government moves quickly to clarify this situation as uncertainty leads to inaction. If investors and businesses have no clarity they will not invest; making the achievement of long term carbon saving even more difficult.

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