RHI Policy Announcements

Date added: 28 March 2012

Introduction

DECC has published on a number of announcements concerning the UK’s Renewable Heat Incentive (RHI).

Across the UK, thousands of consumers and a great many companies have been awaiting details on RHI Phase 2 which they hope will provide financial support for domestic properties wishing to install renewable heating systems and the inclusion of further technologies within the commercial scale scheme.  Many are likely to be disappointed with today’s announcements which state that proposals on RHI Phase 2 (including the addition of further commercial technologies such as Air to Water Heat Pumps) will not be consulted upon until September 2012, with proposals for the scheme to be up and running by Summer 2013.

The new estimated timescale represents substantial slippage on the original intention for RHI Phase 2 to be up and running by October 2012. One possible upside of this announcement is that commentators have forecast slippage for a number of months so confirmation of this and some commitment to a revised timetable may provide greater certainty for industry.

The announcements do provide welcome additional stop-gap funding for domestic renewable, through a continuation of the RHPP scheme, and significant policy developments for those wishing to participate in the commercial scale RHI. Details on this are set out below.

The Renewable Heat Premium Payments Scheme (RHPP)

The RHPP scheme provides small one-off payments to individual domestic customers and social housing providers who wish to install renewable heating systems. The original scheme was introduced as bridge funding for small scale Renewable between the announcement of RHI Phase 1 (which domestic consumers cannot access) and the introduction of RHI Phase 2. The original scheme, which is due to close on 31st March 2012, has substantially under-spent.

A series of workshops were held with companies and trade associations to determine an appropriate way forward for the RHPP. Today’s announcements reflect the conclusions made within Government following those discussions, and are summarised as follows:

• A second phase of RHPPs will start on 2nd April 2012
• The value of each individual voucher will remain the same as the original scheme, despite views from some within industry that a much greater level was required to encourage consumer interest.
• £25 million has been set aside to support RHPP Phase 2 which is a larger sum than was provided for the initial scheme
• £8m of this set aside for a competition for communities to apply for grants to encourage community groups to install renewable heating
• There will also be a £10m competition for social landlords.
• Vouchers are still focused at off gas grid for primary renewable heating systems

RHI Commercial (Phase 1)

DECC has also published proposals (for consultation closing 23 April) for an interim budget control mechanism for the RHI Phase 1 covering commercial technologies. The key aspect of DECC’s proposal is that:

‘The RHI would be suspended until the next financial year should estimated spending – based on applications and accreditations - reach a level where the budget could be breached’

This move may have been prompted by concerns to avoid a repeat of the Feed in Tariff scheme where Government intervened twice to reduce tariffs – a move which ended up with DECC being defeated in court on this issue.

Introducing this interim cost control mechanism is an interesting step as evidence to date suggests that uptake so far is below Government expectations. In reality, a solar PV type run on the budget is much less likely for the RHI due to a number of structural factors in the market, including the reality that the cost of renewable heat systems is much less dependent on a single commodity price (i.e. silicon) and also a much more intrusive and complex installation process for the consumer and installer.

Other key points to note:

• The terms of suspending the scheme will be set out clearly in advance, including the timing and use of any triggers. Accredited installations would not be affected and the owners of accredited installations will continue to receive their RHI tariff at the same tariff rates (adjusted for RPI).
• Applications submitted to Ofgem prior to the suspension would be processed as normal
• The table below shows the budgets for each year. This includes budget for the Renewable Heat Premium Payment (RHPP) in 2011/12 and a spend of up to £25m for the second phase of the RHPP (expected to be spent primarily in 2012/13 but with flexibility for some spend in 2013/14).

DECC state that the budgets set out above are not flexible and thus spending less than the allocated budget in one year does not permit that under spend to be transferred to future years.

This cost control proposal is a short-term solution. Over the summer DECC plan to consult on a longer-term flexible digression-based cost control mechanism which would automatically reduce tariffs should spending against the overall budget or deployment of certain technologies exceed forecasts.