What is the UK Renewable Heat Incentive (RHI)?
As set out in the UK Governments “UK Low Carbon Transition Plan” and “Renewable Energy Strategy”, July 2009, the Government is to introduce a “Renewable Heat Incentive” (RHI) in June 2011 to encourage the installation of renewable heat technologies throughout the economy. The RHI is very similar to the FIT scheme for renewable electricity, but applies to technologies that generate heating in a renewable fashion. Heat production is responsible for 49% of UK final energy demand and the aim is to have nearly 12% of all heat generated to be done so from a renewable source by 2020. The RHI is due to come into effect in June 2011 (delayed from April 2011 as announced in the October 2010 spending review), and details have now been announced to confirm this.
The RHI is being put in place to encourage the take-up of renewable heat technologies that remain more expensive to install and run than traditional fossil-fuel heating systems. It is for this reason that the Government is setting up a cash incentive scheme whereby under the RHI you will be paid quarterly on the total amount of renewable heat generated, expressed in kWh. The scheme aims to generate a return on investment of 12% for all technologies and 6% for Solar thermal. This is more than the investment return the FIT scheme attempts to achieve and this is because the technologies available are less well known, more expensive to purchase and run on a standalone basis (i.e. there is no grid connectivity to allow the generator to sell excess production). Solar thermal gets a lower rate of return as it is a widely known technology with lower barriers to entry and cheaper installation costs.
The scheme is being brought in over two Phases:
Phase One: this starts in June 2011 and sees the Renewable Heat Incentive introduced for the non-Domestic sector. This includes Corporates, Public Authorities, Schools and Hospitals. In fact, the Government describes the domestic sector as being:
“…where a renewable heating installation serves a single private residential dwelling only. This does not include multiple residential dwellings served by one renewable heating installation (e.g. district heating) nor residential dwellings which have been significantly adapted for non-residential use. For example, a house where someone works or runs a business from home would be considered domestic whereas a house converted to be a shop or bed & breakfast would be considered non-domestic and could receive RHI support. This means that if a company, private landlord or registered social landlord installs single renewable heating units, in one or multiple residential dwellings, this would constitute a domestic installation and they will not be able to receive RHI tariffs from the outset, but will be able to claim from 2012.”
Phase Two: this will see the inclusion of the domestic sector in October 2012 when the Green Deal is introduced.
Included Technologies:
Air Source Heat Pumps: ARE NOT INCLUDED IN PHASE ONE
Ground Source Heat Pumps: similar to Air Source Heat Pumps although they take their heat from the ground.
Solar Thermal: Collects heat from the sun which transfers the heat to the building. All solar systems contain a storage element in the form of a hot water tank that ensures the hot water/heat can be supplied at the desired time rather than just when the sun is shining.
Biomass Boilers: boilers that generate heat through burning organic matter.
Biogas: biogas can be burned to generate heat.
Biomethane: similar to biogas, but involves removing the carbon dioxide and other impurities.
Bioliquids: biomass turned into a liquid and used for heat generation.
Combined Heat and Power (CHP): this is the simultaneous generation of electricity and heat from a fuel. It uses the fuel more efficiently as it captures the heat and transfers it to where it is needed, whilst also using the fuel for its primary objective of generating electricity.
Note that wood burning stoves, air heaters and open fires are NOT included under the scheme. Only technologies that are MCS accredited, and installed by MCS accredited installers, will be eligible for the RHI payment.
The MCS accreditation scheme is in place to ensure that purchasers of systems have peace of mind that they are getting a system that really will last and produce the amount of energy they say they will.
Eligibility:
From June 2011 the scheme is open to all non-domestic properties. The Government defines a domestic property as being:
“…where a renewable heating installation serves a single private residential dwelling only. This does not include multiple residential dwellings served by one renewable heating installation (e.g. district heating) nor residential dwellings which have been significantly adapted for non-residential use. For example, a house where someone works or runs a business from home would be considered domestic whereas a house converted to be a shop or bed & breakfast would be considered non-domestic and could receive RHI support. This means that if a company, private landlord or registered social landlord installs single renewable heating units, in one or multiple residential dwellings, this would constitute a domestic installation and they will not be able to receive RHI tariffs from the outset, but will be able to claim from 2012.”
Local authorities, housing associations, hospitals and schools can all partake in the scheme, as can Community Heat Projects.
Note that the scheme is NOT open to installations of systems before July 2009, which have received the Low Carbon Buildings Programme Government grant. Systems installed after this time are eligible under the scheme and the scheme remains open until 2020.
Tariff Rates:
Different tariffs are set for different technologies to reflect differing costs, benefits, installation costs, expected lifetimes, annual maintenance costs etc. The tariff for each technology is set to give an expected rate of return of 12% (or 6% for Solar thermal).
The tariff system is as follows:
The Renewable Heat Incentive Premium Payment:
To counteract the postponing of the RHI for the domestic sector, the Government has announced a grant scheme for households whom can apply for a one-off payment to help with the cost of installing renewable heating technology. The scheme has £15m set aside for it and it is expected that up to 25,000 households across the UK will apply for the funding. This means that there is an average of £600 per household – which will account for approximately between 5 and 10% of the system cost. As a condition of receiving this payment, the householder will have to provide feedback to the Government about how the system performed and how much money they saved! They suggested payment schedule for individual technologies is given by the DECC as:
Solar Thermal: £300 per unit
Air Source Heat Pumps: £850 per unit
Biomass boilers: £950 per unit
Ground Source Heat Pumps: £1250 per unit
More details about this scheme are to be announced in the next two months, with a view to it starting with Phase One of the RHI in June 2011.
Cash Flow Analysis:
Let us take an example of a typical small business in the UK and use the following assumptions:
- Energy demand per annum is 15,000kWh
- Space heat requirement is 10,000kWh and hot water is 3,700kWh (assuming some energy saving measures are applied under the “deeming” process)
- A Solar Thermal system is installed to provide 60% of the hot water requirements (2,200kWh) and a biomass boiler system installed to provide the other 11,500kWh required
- The annual running cost of the biomass boiler is 4,000Kg of pellets at a cost of £200 per ton +5% VAT (equating to £840)
- The cost of annual heating bills (heat space and hot water) is £1,200 per annum.
Thus, we can work out the following cost-benefit schedule for this house:
| Solar Termal | Biomass Boiler | Total | Heating | Total | Incme+Saving | |||||
| Year | Cost | Tariff | Income | Cost | Tariff | Income | Cost | Bill Savings | Income | - Cost |
| 1 | -£4,000 | £0.18 | £396 | -£7,500 | £0.09 | £1,035 | -£12,340 | £1,200 | £1,431 | -£9,709 |
| 2 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 3 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 4 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 5 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 6 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 7 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 8 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 9 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 10 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 11 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 12 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 13 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 14 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 15 | £0 | £0.18 | £396 | £0 | £0.09 | £1,035 | -£840 | £1,200 | £1,431 | £1,791 |
| 16 | £0 | £0.18 | £396 | £0 | NA | £0 | £0 | £400 | £396 | £796 |
| 17 | £0 | £0.18 | £396 | £0 | NA | £0 | £0 | £400 | £396 | £796 |
| 18 | £0 | £0.18 | £396 | £0 | NA | £0 | £0 | £400 | £396 | £796 |
| 19 | £0 | £0.18 | £396 | £0 | NA | £0 | £0 | £400 | £396 | £796 |
| 20 | £0 | £0.18 | £396 | £0 | NA | £0 | £0 | £400 | £396 | £796 |
| -£24,100 | £20,000 | £23,445 | £19,345 | |||||||
Thus, for both systems, the expected rate of return would be:
| Initial Investment | -£28,300 | ||
| Total return over 25 years | £47,445 | ||
| Net Profit over 25 years | £19,145 | ||
| Percentage Return over 20 years | 167.65% | ||
| Annual Percentage Return | 8.10% |
How to Proceed:
To apply for the RHI it is very simple. All you need to do is call an MCS accredited installer who will recommend a product and install it for you. After this the installer uses your EPC or SAP rating to give you your “deemed” factor on the installation certificate. The installer will then send this certificate to OFGEM who will then process your payments (once the scheme begins!). Simple!
More Information:
RHI: Revealed, Reviewed & Reduced
An Overview of Announced Legislation
