Press release

New tariffs for world first renewable heat scheme

This news article was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

New tariffs for Renewable Heat Incentive scheme (RHI) proposed

Press notice: 13/055

Review of tariff levels for non-domestic Renewable Heat Incentive

Office blocks, factories and community centres could be among a number of buildings across Great Britain to benefit from more cash for renewable heat under proposals set out by the Department of Energy and Climate Change (DECC) today.

DECC is consulting on increasing the tariff levels for heat generated by ground source heat pumps, large biomass and solar thermal kit accredited under the Government’s Renewable Heat Incentive scheme (RHI).

The RHI is a world first and is designed to revolutionise the way homes and businesses across the nation are heated, cut carbon emissions and help meet renewables targets. The scheme was launched for the non domestic sector in November 2011.

Energy and Climate Change Minister Greg Barker said:

“Over 1,300 innovative renewable heat technologies have already been installed under this scheme and are generating cash for the heat they produce.

“The Renewable Heat Incentive has been running for nearly eighteen months, so now is a timely moment to look again at the tariffs.

“We need to make sure they are set at the right level to continue bringing forward investment and growth and at the same time keep costs to the taxpayer to a minimum. That’s what our proposals set out today are designed to do.”

The proposed levels follow on from a review of the evidence base used to set tariffs earlier this year and are designed to increase uptake of heat pumps, large biomass and solar thermal technologies by increasing the tariff on offer. DECC is not proposing to increase the tariffs for small and medium biomass as part of this review, based on the current high level of demand for these technologies. Biomethane and biogas combustion are outside the scope of this review.

Current and proposed tariff levels

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The consultation will run for four weeks and will close on 28 June 2013.

Managing the Renewable Heat Incentive Budget

As part of a wider approach to ensuring the RHI scheme stays within its budget and continues to provide value for money, DECC has today confirmed that the medium commercial biomass tariffs will be reduced by 5%. The revised rates, available to new applicants from 1 July 2013 are:

Current rates New rates (from 1 July 2013)
Tier 1: 5.3p/Kwh Tier 1: 5.0p/Kwh
Tier 2: 2.2p/Kwh Tier 2: 2.1p/Kwh

As set out in February this year, DECC has introduced a degression based approach similar to the regime adopted for the Feed-in Tariffs scheme, reducing tariffs available to new applicants if uptake of the technologies supported under the scheme is greater than forecast. All technologies supported under the RHI are subject to this budget management regime.

Today’s announcement is the first to be made under the new budget management approach. Future announcements on potential tariff reductions under this regime will be made online by the 1st of September 2013, December 2013 and March 2014. Uptake data will be published online on a monthly basis so progress towards the pre-determined trigger points can be assessed.

Notes for editors:

  1. Consultation on RHI tariffs and accompanying technical annex

  2. Sweett Group report

  3. It is DECC’s intention that where tariffs increase as a result of the consultation and subject to State Aid requirements and other approvals, installations with a date of accreditation from 21 January 2013 would benefit from that increase for heat generated after the new tariffs come in to force. 21 January 2013 was the date DECC announced its review of the evidence base used to set the non-domestic RHI tariffs. It is intended that legislation implementing any new tariffs will take effect from spring 2014.

  4. The biomass tiering system is designed to prevent the production of heat solely for the purpose of claiming the RHI tariff. Tier 1 is based on a minimum reasonable use of biomass heating installations, which is for 1314 hours in the year, and is calibrated to compensate for the additional capital investment in renewable heat. Tier 2 is set to compensate only for the additional running costs of an installation, and is paid out on all heat after the first 1314 hours.

  5. DECC intends that tariffs will be paid on the full amount of heat generated by all heat pumps when the heat is used for the purposes set out in the Renewable Heat Incentive Scheme Regulations 2011 and is working to identify how best to bring stored heat into the scope of the RHI. This will ensure that the RHI supports ground source heat pumps used for both heating and cooling, which will improve performance, reduce electricity consumption and create carbon savings.

  6. The tariff range being consulted on for the ground source heat pump tariffs is equivalent to 10.0 p/kWh to 11.3p/kWh of renewable heat in 2014/15 prices. The minimum proposed level for the solar thermal tariff, 10.0p/kWh, is equivalent to an updated estimate of the value for money cap (the equivalent cost of offshore wind) for 2014/15.

  7. Any decision on tariff levels following the consultation will be taken in light of affordability constraints in relation to the RHI as a whole (including the proposed extensions to the scheme), State aid requirements and necessary approvals. Any change to tariffs may also require changes to the current budget management arrangements.

  8. There is a fixed annual budget for each year of the RHI and it is essential that appropriate controls are in place to ensure the scheme remains financially sustainable and offers good value for money for the tax payer. The RHI degression mechanism involves tariffs available to new applicants being gradually reduced if uptake of the technologies supported under the RHI is greater than forecast. This will be done by monitoring uptake on a quarterly basis against a series of ‘triggers’. Monthly updates on progress towards triggers will be published online and one month’s notice will be given before any reductions are made to the tariffs for new applicants. The regulations came into force on 30 April 2013.

  9. DECC consulted on expanding the non domestic RHI scheme to include further technologies in September 2012 and will confirm the way forward in Summer 2013.

  10. More details on how the RHI works

  11. Over 2,100 applications have been submitted to date under the non-domestic scheme and around £27 million is expected to be made in payments for renewable heat produced in 2012-13.

  12. Following on from the consultation on scheme design in September last year, the Government will confirm how a RHI for householders would work and publish the tariff levels in Summer 2013. It is expected that any householder scheme would be up and running for householders in Spring 2014.