environment magazine

Renewable Heat Incentive: Why, What and How?

By Gregory Barker, MP

Fossil fuel gas currently supplies around 70% of the UK’s heat.It has proved a cheap and reliable source in the past, but with rising and volatile prices and increased dependence on imports the need to move to cleaner forms of heat is clear.

That is why we have decided to bring in the Renewable Heat Incentive (RHI), aimed at dramatically increasing the amount of heat we get from renewable sources. We are putting £860m into the RHI and the scheme is expected to increase green capital investment by £7.5 billion up to 2020.

The scheme, to be administered by the gas and electricity market authority Ofgem, is the first of its kind in the world, providing long term financial support to encourage the uptake of renewable heat for householders and local communities as well as the commercial and industrial sectors.

We want to encourage the installation of a range of technologies across the country, including ground source heat pumps, biomass boilers and solar thermal, to move away from a reliance on fossil fuels, reduce our carbon emissions, meet our renewable targets and stimulate green growth.
Why the RHI?

Current estimates indicate that the RHI could lead to a reduction in gas demand equivalent to a 10% reduction in net gas imports against what they would have been in 2020. That’s significant at a time when more and more people are worried about energy security.

Not only do we need to consider the price implications of fossil fuel gas, we must also think about the impact our current heating set up is having on our carbon emissions. Currently around half of the UK’s emissions come from the energy used to generate heat, more than from generating electricity. In our transition to a low carbon economy, the RHI therefore has an important role to play, with cumulative savings of 4 million tonnes of carbon to be made up to 2014, increasing to 44 million tonnes of carbon in 2020. That’s equivalent to the annual carbon emissions of 20 typical new gas power stations.

What does the RHI hope to achieve?
The RHI represents a serious investment in our future. It will not only help reduce our carbon emissions by shifting away from fossil fuels and help us meet our renewables targets, it will also support the 150,000 existing manufacturing, supply chain and installer jobs.

How will it work for business and industry?
The RHI will be introduced in phases. The first phase will allow anything from a pub to a public library, a chemical plant to a brewery, to get support to install technologies such as biomass boilers, heat pumps and solar thermal and get paid for the heat they produce. Community projects will also be eligible provided they aim to provide heat to more than one house.

RHI tariffs for commercial, industrial and community heating will start this year and will compliment other renewable incentives already in place; the Renewables Obligation and the Feed in Tariffs.
The tariffs will be paid to the owner of the heat installation (or producers of biomethane for injection) for 20 years for eligible technologies that have been installed since 15th July 2009, based on each kWh of renewable heat produced. Once in the scheme, the level of support will be fixed (although we will adjust these annually with inflation), however we do expect the levels of support available for new entrants to the scheme to decrease over time as the costs of equipment and installation decrease through economies of scale.
What’s in it for householders?

For householders there will be ‘Renewable Heat Premium’ payments from July this year, in place until the Green Deal comes in, later in 2012. This will help families to cover the purchase price of green heating systems, supporting up to 25,000 installations over this time frame.

This scheme will enable us to gather vital data on how these renewable heat technologies work in the home and how efficient they are. It will also ensure we understand what works best for manufacturers, installers and householders and what provides best value for money for the consumer, in a new and emerging market place.

The second phase of the RHI will then kick in for householders when the Green Deal starts later in 2012. Those who take up the Premium Payment should also be able to receive the new RHI tariffs in 2012.
Phasing the support for householders will allow us to align with the Green Deal, creating a more joined up approach for those wishing to take action on energy efficiency and carbon reduction in their homes. There will be £15 million of ring fenced funds available specifically for the domestic sector under the Renewable Heat Premium Payment because we want to ensure there is money available specifically for householders and support for a range of technologies in homes across the country.

Details of the Premium Payment scheme will be set out later this month, including how the payments will be allocated and how to apply. The first payments will be available from July. Details of the RHI tariff for householders from 2012 onwards will be consulted on later this year.

The RHI is an historic turning point that will transform the way our homes and businesses are kept warm. But it’s also a great chance for Britain to lead the way in a fast growing industry, which is why we must work together to capture the economic benefits of this new emerging economy.