The Renewable Heat Incentive: A reformed scheme
Launched back in 2011, the Renewable Heat Incentive Scheme was introduced to help kick-start the transition to low carbon heating in the UK by providing subsidies to incentivise individuals and non-domestic customers to move from conventional forms of heating to low-carbon alternatives. The Scheme has been through a number of iterations since its introduction but on the whole, the majority of installations have been small-scale and it has largely struggled to inspire the step change that was hoped.
In November 2015, the Government confirmed its continued support for the scheme to 2020-21 with a budget rising to £1.15bn, but acknowledged that significant change was required to boost uptake and deliver value for money. The Government consulted on proposed changes in March/April 2016 and published its response in December 2016.
The reformed scheme
The reformed scheme proposes changes both to the domestic RHI Scheme which is available to households heating a single domestic property and to non-domestic RHI which is open to renewable heat installations that provide heat to buildings and for purposes other than heating a single domestic property (i.e. public buildings or commercial properties, for industrial or agricultural uses, or to landlords of blocks of flats). The changes include revised tariff bands to promote deployment of supported technologies, simplification of the biomass tariff and additional feedstock requirements.
The most radical change to the non-domestic RHI Scheme is the introduction of tariff guarantees. This is aimed at providing new levels of certainty for potential investors in larger projects and aims to incentivise uptake while balancing the Government's spending commitments. This article focusses on the introduction of tariff guarantees to the non- domestic RHI Scheme and the renewed opportunities that we are seeing emerge for owners and investors.
Tariff guarantees will be introduced in the non- domestic RHI scheme for:
• Large biomass boilers (above 1MW in capacity);
• large biogas plant (above 600kWth);
• Ground Source Heat Pumps (above 100kW including shared ground loop systems with a total installed capacity above 100kW);
• all capacities of biomethane, biomass-CHP and deep geothermal plant. According to the Government's response to the consultation, there is likely to be a three-stage approval process as follows:
Stage 1: Provisional approval for a tariff guarantee: Applications can be made once plants are sufficiently advanced and a declaration that financial close is imminent can be provided. The bulk of the application data will be required at this point. If approved, the applicant will be awarded provisional approval.
Stage 2: Applicants that have been awarded provisional approval will have up to three weeks to submit proof that full financial close has been reached on the project. If approved, the scheme administrator will award the tariff guarantee. The tariff that is guaranteed will be the tariff that prevailed on the date that the Stage 1 application was received.
Stage 3: Application for full accreditation: Once the plant has been commissioned, the applicant will be required to apply for full accreditation. If approved, the applicant will receive the tariff confirmed at stage 2. Tariff guarantees mean that investors will be able to secure a guaranteed tariff significantly in advance of commissioning and with no proposed time restriction on conversion to full accreditation, investors (and those seeking investment) will have greater flexibility in structuring proposed arrangements. This marks a change for the RHI Scheme which the Government will need to monitor carefully, but which should inject a level of confidence and certainty that the renewable heat sector has not previously seen.
The future of RHI
The Government had previously indicated that the proposed changes (including tariff guarantees) will be introduced in Spring 2017. Although the run up to the General Election has delayed implementation, the budget commitment to 2020-21 gives comfort that the reformed scheme may finally yield a transformation in renewable heat.