The Renewable Heat Incentive (RHI) will be limited to £70 million in its first year and will be frozen with just one’s week notice if it looks as though it is going to breach its annual budget, the Government has announced.
Setting out the measures yesterday, Energy Minister Greg Barker
said they would protect the £860 million RHI
budget and avoid the same mistakes that were made with the Feed-in Tariff
"We have learnt from our previous experiences and want to provide assurances to the market and the public that we are spending money on the RHI in a sustainable way," he said in a written Ministerial Statement to Parliament.
Setting an upper limit of £70 million on the RHI for the 2012/13 period would ensure the 2013/14 budget of £251 million would be enough to pay for existing installations and new installations, Barker said in response to a Government consultation on an interim cost control measure for the RHI, launched in March.
"A higher limit for 2012/13 would leave insufficient funds available in the following year for new installations and therefore could be very damaging to the renewable heat industry," he said.
And in the event of having to freeze the budget, Barker said the market and consumers would get a notice period of one week. Barker said the short notice period would allow for "a much higher trigger point for suspension of the scheme" of 97 per cent of the £70 million limit – the equivalent of £67.9 million worth of payments. In comparison, one months’ notice would mean a trigger point of just 80 per cent of the £70 million limit (£56 million).
The RHI is a Government subsidy to encourage take up of renewable
heat technologies in the UK, such as heat pumps, biomass boilers and thermal solar panels. The non-domestic RHI launched last year, but the domestic RHI is not expected to launch until summer 2013. Instead, take-up of the scheme is being tested through a system of vouchers called Renewable Heat Premium Payments.
Ministers have devised the RHI 'stand-by mechanism’ as a short-term measure to avoid the fiasco of the FiT, where a budget overspend fuelled a 'boom and bust’ in the solar photovoltaic market and damaged the Government’s credibility after it lost a high profile court case when it was challenged over FiT cuts it tried to rush through.
Damaging to marketplace
Yesterday’s announcement, which follows months of delays for the renewable heat subsidy scheme, is being welcomed for bringing certainty to a policy area that has been beset by delays and changes. But experts were yesterday predicting the one week’s notice period is likely to be damaging to the marketplace.
"It takes much more than a week from planning to commissioning of these projects. One week means that we are likely to see high activity levels early in the year which will then quickly decrease as spending nears the upper limit and potentially ceases until the following year," commented Daniel Guttmann, director, renewables and clean tech at PwC.
According to the RHI cost control consultation, which received 53 responses, 30 per cent of respondents said they preferred a one-month notice period compared to only 19 per cent who said they would prefer a one-week notice period.
But Barker said that as well as meaning more of the budget would be released, the one-week notice would "reduce the chances of scheme suspension being triggered unnecessarily".
And he added that the Government would provide a publicly-available weekly information update on forecasted expenditure on the RHI and if required would provide an "estimated date of suspension prior to the formal notice period" should there be an "unexpected surge in uptake" that could trigger a suspension.
Barker said Ministers would consult on longer-term proposals for protecting the RHI budget next month.
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