The Renewable Heat Incentive: renewed interest?


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The Renewable Heat Incentive (RHI) scheme was launched in 2011, with the aim to encourage investment in renewable heat technologies. Although RHI payments have been available since then, the level of take- up has been disappointing (particularly when compared to installations supported by the Feed-in Tariff). To help address this lack of progress, the Government has introduced several amendments to the scheme that came into force in May this year.

The RHI scheme is run by the Government and aims to encourage applicants to utilise heating systems that generate heat from renewable sources. The applicant will receive quarterly payments from Ofgem based on the heat produced by the renewable system. There are multiple heating technologies that can qualify for RHI payments but the technologies most relevant for landlords of residential properties are likely to include air source heat pumps, ground source heat pumps, biomass boilers and stoves, solar thermal panels or shared ground loop systems.

Changes to the Domestic RHI Scheme

The amendments to the Domestic RHI scheme (which deals with installations heating a single domestic property) have been introduced in two stages under the Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018. The first stage came into effect in September 2017 and the second stage came into force on 22 May 2018. Of particular interest are the new rules allowing the Assignment of Rights (AOR) in the RHI payments. This deals with one of the most significant limitations under the Domestic RHI scheme, and should provide a suitable platform to support third party investment in RHI funded systems.

In order to protect building owners from engaging in risky arangements with unverified parties, Ofgem have incorporated several consumer protection measures into the AOR rules. Only 'registered investors', who are members of specified consumer codes (either RECC or HIES), and whose RHI funding contracts have been approved by Ofgem, will qualify for AOR. The changes dealing with AOR will come into effect on 27 June 2018 and some providers are already in the process of applying to achieve 'registered investor' status in anticipation of these new rules.

Changes to the Non-Domestic RHI Scheme

The amendments to the Non-Domestic RHI Scheme (for installations heating commercial premises or multiple domestic properties) were introduced under the Renewable Heat Incentive Scheme Regulations 2018 and came into force on 22 May 2018.

The key change is the introduction of tariff guarantees which seeks to increase investor confidence by allowing applicants to be granted a guaranteed RHI tariff at the point of application to the scheme (instead of having to wait for date of the commissioning of the installation). This will help ensure that investors are not left with a lower tariff than expected once the installation is commissioned.

The new regulations also seek to provide clarity on how shared ground loop systems are dealt with (e.g. where multiple properties are serviced through ground source heat pumps that are connected to one shared ground loop system). If a shared ground loop system serves multiple domestic properties, it will be able to qualify for Non-Domestic RHI payments, therefore receiving payments over a 20 year term as opposed to the 7 year term that applies to Domestic RHI. The regulations state that when these systems serve multiple domestic properties, the RHI payments will be made on the basis of the estimated heat demand of each property as opposed to the applicant having to comply with the metering requirements set out for Non-Domestic RHI payments. This should increase the appeal of shared ground loop systems.

As a response to criticisms of participants taking advantage of the rules, the regulations also restrict the 'heat uses' that are eligible under the scheme, for example, it will no longer cover heating for swimming pools, drying wood-fuels or heat used in the processing of waste, unless specific circumstances apply.

New rules, new interest?

It is clear that these new amendments are seeking to address some of the criticisms that have been aimed at the scheme over the years, especially in relation to the low uptake of the scheme. By introducing concepts such as assignment of rights, tariff guarantees and clarity on shared loop systems, Ofgem is seeking to remove some of the barriers to third party investment. It remains to be seen if the market responds, but landlords should consider the potential for RHI- financed installations as part of their wider asset management plan and as part of any programme that seeks to reduce fuel poverty.

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