Why is the RHI important?

HVCA Head of Sustainability David Frise explains why the RHI could be a “game changer” for members.

At a time when the Government is focused on cutting the deficit, it is a major bonus for our industry that it has been able to create a £860m fund to subsidise renewable heating.  

The overall aim is to grow the market by 700 per cent by 2020 with an estimated 110,000 commercial installations being supported in that time. The potential business benefit for HVCA firms is huge.Why? 

Your clients will be paid up to 8.5p / kWh by the government for heating their buildings if they use renewable technology including biomass, solar thermal, ground source and water source heat pumps and energy from waste

Installations can be backdated to 15 July 2009

From July this year the government will offer domestic users a special RHI ‘premium payment’ to encourage them to install renewable heating. This is expected to deliver 25,000 new installations 

A tariff scheme for domestic installations will start in the Autumn of 2012, but you must be a member of the Microgeneration Certification Scheme (MCS) for your clients to qualify – this also applies to backdated installations.

The HVCA has reduced the MCS administration burden for members by creating its own scheme in partnership with NICEIC. Read more here.

The Background
Centrica’s recent announcement of an imminent jump in domestic energy prices has rightly set alarm bells ringing across our industry.

By letting it be known that it is paying 25 per cent more for wholesale gas than this time last year, it is clearly softening up the country for more big price hikes.

British consumers are very vulnerable to volatility in the energy markets because of the poor energy efficiency of their homes.  75 per cent of total household energy consumption is used for heating and hot water, according to the Department for Energy and Climate Change (DECC). If various financial analysts are right and gas and electricity bills rocket by as much as 50 per cent in the next four years, we could have a serious social problem.

Deutsche Bank predicts that the average dual-fuel bill could rise by between 30 per cent and 50 per cent to a high of £1,600 by 2015. This will simply be unaffordable to many people and the amount of ‘fuel poor’ families will reach unprecedented levels. To avoid the worst long-term impacts of rising fuel costs we simply must develop a viable alternative energy sector.

Currently, less than five per cent of UK heating is generated by renewables. The Renewable Heat Incentive (RHI) is being introduced to help address this situation.

Two phases
It is being introduced in two phases starting with the industrial/commercial sector this November. The domestic scheme will begin in October 2012. It is particularly focused on biomass, solar thermal, ground source and water source heat pumps and energy from waste. Air source heat pumps are currently excluded from the commercial scheme, but will be included when the domestic scheme comes on stream next year.

The Government has allocated a total of £860m to finance special tariff payments available through the RHI for users of these technologies and it hopes this will increase investment in renewables by around £4.5bn between now and 2020. 

In the first phase, the Government estimates that the RHI will bring about 13,000 new renewable installations in industry and 110,000 installations in the commercial and public sector by 2020. Together this could produce up 25 per cent of the heat demand in these areas.

The tariffs will be paid for 20 years to eligible technologies that have been installed since 15th July 2009. The commercial tariffs have been set, but we urgently need confirmation of the domestic scheme, although the commercial figures published do give us some strong clues. 

Tariffs
The highest tariffs will be paid to solar thermal water heating (8.5p/kWh); small biomass schemes (7.6p/kWh or 1.9p/kWh), and biomethane (6.5p/kWh). Small ground source heat pump schemes will receive 4.3p/kWh, and large schemes 1p/kWh.

Municipal solid waste schemes including Combined Heat and Power (CHP) will receive 4.7p/kWh or 1.9p/kWh; and large biomass schemes 2.6p/kWh.For the domestic sector, there will also be a ‘premium payment’ available for 25,000 installations from this July to help with the purchase price of renewable heating systems before the RHI ‘proper’ begins in 2012.

The premium payments will be £300 for solar thermal; £850 for air source heat pumps £850; £950 for biomass boilers and ground source heat pumps will receive £1,250.

It is arguable whether these payments will be attractive enough to really stimulate the market, although the rising energy bill factor should also have an impact on householders’ thinking.

Efficiency
However, the scheme is also linked to energy efficiency. The domestic RHI (phase two) will launch at the same time as the Green Deal in October 2012. The building receiving the RHI benefits will have to be properly insulated and made energy efficient before the renewables are installed – so better insulation; double glazing; draught proofing etc, which can be paid for by the finance offered through the Green Deal, will have to be in place before the RHI work begins.

It is always more efficient to save energy than to generate it and any energy wasteful home will simply continue to waste energy even if it is from a renewable source. Recipients of RHI funds will also have to measure and monitor the performance of their renewable and pass that information on to their local authority. This will provide the industry and the Government with hugely useful 'actual' performance information, which can help us deliver even better solutions in the future.