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DECC announces details of Renewable Heat Incentive

Emily Smoucha
10th March 2011
The Department of Energy and Climate Change (DECC), today, announced details of its long-awaited Renewable Heat Incentive (RHI) scheme, which aims to expand the market for renewable heat generation and supplies in the UK.
The RHI will reward households and businesses that install technologies such as biomass, solar thermal, and ground source heating, through a system of tariffs. It will do this by providing £860 million in Government funding over the next four years. It is expected to increase investment in renewable heat technologies by £4.5 billion over next decade and support 150,000 jobs in the heating industry.

Heating is responsible for 46 per cent of UK carbon emissions and the RHI aims to cut that by 10 per cent by 2020.

"This is a really significant part of our whole attempt to reduce carbon emissions," said Chris Huhne, Secretary of State for Energy and Climate Change. "If this works on our estimates, it’s equivalent to taking 20 gas-fired power stations off the National Grid."

How it will work
Buildings will have meters installed to measure the amount of heat generated, and the owner will be paid for the amount of usable heat generated. Solar thermal projects under 200 kilowatt hours (kWth) in size will receive the highest tariff at 8.5 pence per kWth.

The target rate of return for those taking up the subsidy has been set at 12 per cent. Businesses and public sector organisations are expected to benefit most from the scheme at first with households taking advantage of it from October 2012 when the Government’s flagship energy efficiency scheme the Green Deal comes into force.

Driving demand

In the current market, renewable heat technology is expensive, limiting people’s ability to install technology such as solar thermal, biomass boilers, biogas and other systems. The Government hopes that the tariffs will help make this technology more affordable, and thus drive demand for the products.

"When you’re producing at scale, you’re getting economies of scale, and prices come down very substantially," Huhne said. "The key part of our to move the industry along so that it’s producing at scale and the costs come down accordingly."

If the market becomes competitive, the prices for such technology will decrease. The Government will then be evaluating the market to adjust the incentives accordingly.

"An incentive that is appropriate this year is going to look quite a lot more generous next year and the year after," Huhne said.

Subject to review

As such, the target rate of return of 12 per cent will be subject to review as the market changes. In October, the Government will publish its proposal for the 'automatic deferral of deployment based digression', and there will be a comprehensive review in January 2014, according to Climate Change Minister Greg Barker.

"If there’s a massive uptake, then the automatic digression system will kick in," Huhne said. "That will be a sign of success, not a sign of failure because it will mean we are jump starting the industry very effectively."

Benefiting businesses
Up to 123,000 industrial, commercial and public sector renewable heat installations could be up and running within the next decade, because of the scheme, according to the Government.

"In the modeling work we’ve done, the assumption is the vast majority of the benefit will come out of the bigger scale projects rather than the domestic," Huhne said.

This is because more technology is available on the larger scale projects. However, the Government sees this as an opportunity for businesses to scale down their production of technology to meet the rising market within the domestic sector. This way, more people will be able to take advantage of the scheme for their homes.

"We still need to see further innovation to bring down the cost for small scale renewables," Barker said.

Industry reaction

The Renewable Energy Association (REA) is enthusiastic about the new policy.

"This novel policy should be much more effective than capital grants, as it rewards the production of renewable heat not just the installation of equipment," said Gaynor Hartnell, REA chief executive. "It is a revolutionary approach, but absolutely the right one. We don’t expect the scheme to be 100 per cent perfect from the outset, but we will work with Government to iron out any teething problems. However it is essential that the support levels published today are sufficient to drive rapid expansion when the scheme goes live in July."

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DECC announces details of Renewable Heat Incentive
The Renewable Heat Incentive aims to cut the CO2 emissions of heat by 10 per cent by 2020.
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