Renewable Heat Incentive

Renewable Heat Incentive – RHI – Clean Energy Cashback for heating

After a very long gestation period the Renewable Heat Incentive started on 28 November 2011. The First Phase of the RHI applies to non-domestic buildings only.

In the First Phase of the Renewable Heat Incentive, the owner of Renewable heat installations commissioned since 15 July 2009 will receive a cashback subsidy, based on the metered heat use of a building (from the date that the RHI starts, without backdating), of around 4.5 pence per kilowatt hour used – for the first twenty years of use.

RHI table of tariffs – Phase One for non-domestic sectors

The RHI tariff table below shows the technologies eligible for RHI, the subsidy to be received over the first twenty years. The RHI provides a major incentive for owners to invest in ground source heat pumps, solar thermal and other renewable heat technologies. The tariffs are based on pence/kWh of renewable heat delivered. The rates vary with the technology and scale used as follows:

RHI non-domestic	Scale	RHI tariffs pence/kWh	Tariff lifetime in years
Ground source heat pumps	up to 100 kW	4.5	20
Ground source heat pumps	over 100 kW	3.2	20
Solar thermal	up to 200 kW	8.5	20
Solid biomass	up to 200 kW	7.9	20
Solid biomass	200-1,000 kW	4.9	20
Solid biomass	over 1,000 kW	1.0	20
Biomethane	All scales	6.8	20

Rates published by Ofgem June 2011 – rates will change with inflation each year.

There is no RHI for the use of air source heat pumps in the First Phase of RHI.

Phase Two of RHI for non-domestic sectors

The Second Phase of the RHI, including long term tariff support for the domestic sector, was due to start in October 2012 to coincide with the launch of the Green Deal for Homes. The list of eligible renewable technologies may be extended in Phase Two, and may include use of air source heat pumps.

Renewable Heat Premium Payment – RHPP

Installations supplying a single domestic premise will not be able to apply for the full Renewable Heat Incentive – RHI – until autumn 2012, at the earliest.

In the meantime, DECC launched the Renewable Heat Premium Payment (RHPP) for domestic renewable heat generators. This limited scheme (only £12m available) will provide householders, whose homes are not heated by mains gas, with a one-off payment towards the cost of installing an eligible renewable heat technology for a limited period:

GSHP – £1,250 – for homes without mains gas heating
ASHP – £850 – for homes without mains gas heating
Biomass – £950 – for homes without mains gas heating

All householders can also obtain a £300 time-limited voucher towards the cost of installing solar thermal panels.

RHI Background

Renewable Heat is a subset of the wider category of renewable energy, which includes the generation of electricity from wind turbines and photovoltaic cells.

According to BERR (the new name for the DTI), almost half of the final energy consumed in the UK is in the form of heat. Its generation accounts for 47% of UK CO2 emissions. Renewable Heat currently satisfies less than 1% of heat demand.

DECC (the new name for part of BERR) is encouraging Renewable Heat as part of the Government's commitment to aim for 15% renewables by 2020 and is introducing the Renewable Heat Incentive.

For the Renewable Heat technologies included, the energy ultimately comes from the sun. The sun provides planet earth with more energy each hour than human civilization uses over a whole year. The challenge is how to make use of this vast supply of incoming radiation to provide solar space heating and hot water.

The DECC press release of 10 March 2011 said: The Renewable Heat Incentive (RHI) will support emerging technologies and businesses in the UK, strengthening security of supply by reducing dependence on fossil fuel heating and emissions.

* Currently around half of the UK's carbon emissions come from the energy used to produce heat – more than from generating electricity. The RHI will reduce emissions by 44 million tonnes of carbon to 2020, equivalent to the annual carbon emitted by 20 typical new gas power stations.

* over 95% of heat in the UK is currently produced by burning fossil fuel but with North Sea supplies now in decline leading to an increase in imports, low carbon alternatives are needed.

* The new financial incentive will encourage installation of equipment like renewable heat pumps, biomass boilers and solar thermal panels to reduce emissions and support the existing 150,000 jobs in the heating industry.

Chris Huhne said: Renewable heat is a largely untapped resource and an important new green industry of the future. This incentive is the first of its kind in the world. It will help the UK shift away from fossil fuel, reducing carbon emissions and encouraging innovation, jobs and growth in new advanced technologies.

The purpose of the Renewable Heat Incentive

The aim of the RHI is to increase heat generation from renewable energy to 12%. This could save up to 60 million tonnes of CO2 by 2020. Heating currently accounts for 47% of the UK’s CO2 emissions and 60% of average domestic energy bills.

The UK has one of the lowest contributions from renewable heat of all EU countries. Sweden produces half of its heat from renewables and the EU average is over 10%.

The Renewable Heat Incentive has received strong backing from MPs from all political parties, including Caroline Lucas, Zac Goldsmith and Alan Whitehead.

Comment on the Renewable Heat Incentive

From the DECC website: To meet our 2020 15% renewable energy target, we need to develop new ways of generating renewable energy in all sectors, including heat. Heat generated from renewable sources accounts for approximately 1% of total heat demand – this may need to rise to 12% to hit our binding EU targets. We will not be able to expand renewable heat without some form of financial assistance because other forms of heat are currently cheaper. Such support will enable more people to afford renewable heat and, by expanding the market, help bring costs down more quickly.

An investment in renewable energy usually means payment of a higher capital cost to achieve lower annual running costs (and also a lower carbon emission for the benefit for the community at large). The RHI will reduce the annual running cost of Interseasonal Heat Transfer to a very low level and allow owners to reduce the payback period from their investment to a few years.

Owners of IHT installations will benefit from the RHI for using ground source heat pumps and the RHI for using Solar Thermal when IHT is used to provide domestic hot water.

The RHI is calculated to offer a good return on initial investment

The introduction of the RHI offers a financial reward for lower carbon emissions over the twenty year life of the renewable heating technology installed. The tariffs for the Renewable Heat Incentive have been calculated to offer a rate of return of 12% on the initial investment across the tariff bands.

The introduction of the RHI coincides with a time of increasing wealth and demand for fossil fuels from an increasing world population: many pundits expect the price of oil and gas to increase much more sharply than general inflation over the next three years.

While there are a number of renewable energy options to be considered, ICAX believes the most practical and affordable answer to generating Renewable Heat is to use Interseasonal Heat Transfer.

The RHI provides a positive step change in the business case for delivering on-site renewable heat, not only to reduce energy bills and carbon emissions, but also to deliver a energy related cash flow into your building.

Tony Grayling, head of Climate Change and Sustainable Development at the Environment Agency said: Ground source heating is a rapidly growing technology that has the potential to produce at least 30 per cent of the country’s renewable heat needs, but it needs financial support in order to grow. We would like to see this technology given adequate financial support through the new renewable heat incentive to meet its full potential in the UK.

RHI Administration by Ofgem

The RHI is administered by Ofgem. Owners of renewable heat technologies included apply to Ofgem who pay tariffs, on a quarterly basis, over 20 years. Owners need to provide information on the metered heat generated and satisfy Ofgem that the equipment is used to provide space heating or hot water and that the equipment is maintained according to the manufacturer's instructions. For installations rated up to 45 kW capacity the equipment and the installers will need to be MCS certified, or equivalent.

For the full DECC Renewable Heat Incentive publication (90 pages) of 10 March 2011: Renewable Heat Incentive.

For the full Ofgem RHI Guidance Consultation publications (202 pages) of 24 June 2011: Ofgem RHI Volume 1 and Ofgem RHI Volume 2.

Hybrid Renewable Energy Systems

With each renewable energy technology being only marginally economic on its own, the industry is searching to complement the strengths of different renewable technologies into hybrid renewable energy systems. Interseasonal Heat Transfer is an example of a hybrid renewable energy system: IHT combines the merits of solar thermal collection in summer, heat storage in ThermalBanks over the autumn and heat delivery with ground source heat pumps in winter.

Feed-In tariffs for microgeneration of electricity

DECC also introduced Feed-In tariffs for microgeneration of electricity from April 2010. The tariff levels for the electricity financial incentives were calculated to offer between 5-8% return on initial investment. The tariff levels for photovoltaic were reduced twice in 2011 as the cost of PV installations fell, and the returns were seen as overgenerous as the price of energy rose sharply. Nevertheless, the tariff levels for photovoltaic (up to 21 pence per kWhour) and wind (up to 36 pence per kWh) are set at a higher level per kWh than for the RHI to compensate for the high capital costs and lower efficiencies of these technologies. The tariffs for the Renewable Heat Incentive have been calculated to offer a rate of return of 12% across the tariff bands.

RHI Tax free income

RHI tariffs are exempt from income tax. This means that domestic users and other income tax payers will not be taxed on any income received from the Feed-In Tariffs or the Renewable Heat Incentive.

For those using IHT, the annual clean energy cashback for heating will normally be larger than the annual running cost.

Enhanced Capital Allowances

The capital cost of IHT is also reduced by Enhanced Capital Allowances for tax paying organisations.

Recent ICAX projects eligible for the Renewable Heat Incentive:

Merton IGC | Suffolk One College | Tesco Greenfield Supermarket | Wellington Civic Centre

Financial Incentives for installing Renewable Heat – RHI

Clean Energy Cashback of 4.5 pence/kWh delivered

RHI Phase One focus on commercial, schools, supermarkets, offices, sports centres

Gas free heating