Green policy news – by Louise Bateman

27th February 2013

The Government is to look at changing the tariffs for its subsidies to encourage homes and businesses to switch to renewable heating systems, such as solar thermal and biomass, following a significant underspend in its annual budget and concerns raised by industry that current proposed levels will not incentivise take-up.

DECC also confirmed today that it would introduce a ‘degression’ mechanism to control spending on the RHI, similar to the regime adopted for the Feed-in Tariff (FiT) scheme, and announced it would hold two further reviews of the RHI, probably in 2014 and 2017.

New tariff review

A spokeswoman for DECC said the early review of RHI tariffs aimed to “drive increased uptake and ensure the scheme continues to provide value for money”. She did not provide details of which tariffs the Government is looking to change, but last September the renewable heat industry raised concerns over the tariffs levels being proposed for solar thermal and biomass.

“We are continuing to explore whether the tariffs we offer are set at the best levels to encourage further uptake, looking at how we can open up the scheme to new technologies, and considering the right approach to encourage householders to invest in renewable heat,” Energy and Climate Change Minister Greg Barker said.

The RHI launched for non-domestic customers in 2011 and so far has received 1300 applications, but only around £24 million worth of RHI payments are expected to be paid out in this financial year. And there are concerns when it launches for domestic customers in the summer take-up could be subdued. The Government has spent the last year and half testing the domestic RHI through a system of vouchers called the Renewable Heat Premium and published its proposed tariffs last September. It suggested domestic tariffs for biomass boilers should be set at 5.2-8.7 pence per kilowatt hour (p/kWh), while solar thermal technologies should be set at 17.3p/kWh.
But the Micropower Council warned at the time these tariffs were not attractive enough to stimulate take-up of these technologies among householders.

Degression mechanism

DECC said the degression-based approach to managing the RHI budget would ensure the scheme remained “financially sustainable” and that the taxpayer got “value for money”. The same approach was introduced for the FIT for renewable electricity following the solar FiT fiasco. Under the system, tariffs available to new applicants will be gradually reduced if uptake of the technologies supported under the RHI is greater than forecast, using a trigger system on quarterly basis. DECC said trigger points for most RHI technologies will be set at 150 per cent of DECC’s expected levels of uptake, but will be set differently for solar thermal and large ground source heat pumps “due to forecasted uptake”.

“I am fully committed to ensuring our Renewable Heat Incentive helps as many organisations as possible get on board with a range of exciting sources of renewable heat, and at the same time stays within its means. That’s why we are introducing a new, flexible way to control spending, alongside some further improvements to the scheme,” said Barker.

Industry reaction
Today’s announcement on the RHI was broadly welcomed by the renewable heat industry, but concern was raised about setting new reviews for the scheme and on the lack of decision on ‘enhanced preliminary accreditation’, a system whereby developers of projects with long lead times would be able to ‘lock in’ tariff rates to guard against subsequent falls in tariffs.

“We are pleased that Government has published its response to this consultation on the Renewable Heat Incentive,” said Charlotte Morton, chief executive, Anaerobic Digestion and Biogas Association. “We are, however, concerned that today’s announcement does not give developers the certainty they need. With tariff degression in place, preliminary accreditation is important and it is disappointing that it has not been brought in at this point.”

Morton added: “Further scheme reviews are a clear risk to certainty, and we believe the RHI instead needs to be given the chance to bed down so that developers can get projects off the ground,” she said.

But a spokesperson for DECC said the planned reviews intended to provide certainty. “Reviews will allow us to make more directed and considered changes to tariffs and tariff structures, outside of those changes that can take place through the degression mechanism. Reviews will also allow us to take account of changes in the evidence and assumptions on which tariffs are based. This will ensure that the non-domestic RHI is able to respond to changing market conditions while maintaining good value for money and managing budgets,” she said.