United Kingdom
The Government publishes the details of the Renewable Heat Incentive – Michael Ware
Some product launches are so eagerly awaited that fans spend days in advance queuing outside the shops. The launch of Apple’s new iPad saw a tent appearing outside a shop in Texas a week ahead of time. Government policies don’t tend to attract a similarly fanatical following as electronic gadgets, but there are few industry sectors that pin as many of their expectations on a single Government policy as the renewable heat sector on the Renewable Heat Incentive (RHI).
Last week the Department of Energy and Climate Change finally published its decisions on what the RHI will look like, including the support levels (www.decc.gov.uk/rhi).
If this was an iPad, it’s doubtful that even the fan in the abovementioned tent would have held out to wait for it. The RHI publication is about nine months late. The actual start date when the RHI will go live (June this year) will be over a year later than the original expectation of introduction together with the Feed-In Tariffs in April last year. Investment in renewable heat has been largely on hold since last Spring’s elections, waiting for the new Government to clarify its position on the RHI. Of course, the renewable heat sector is pretty much the epitome of a captive market: it didn’t really have anywhere to go or anything to do other than wait.
If you’ve made it till today and your renewable heat project or business is still alive – congratulations, it looks like the news is (mostly) pretty good.
Compared to the initial RHI proposals - published for consultation over a year ago - a number of technologies have done well:
- The final tariff for injection of biogas into the gas grid has gone up from 4p per kWh to 6.5p;
- Large ground-source heat pumps will get 3p, up from the proposed 1.5p, though small pumps see the final tariff drop from 5.5 to 4.3p;
- Solid biomass tariffs also get a small boost at 2.6p-7.6p per kWh (depending on size), compared to 1.6p-6.5p in the consultation.
All tariffs will be paid for 20 years. Importantly, the RHI will, like the Feed-In Tariffs, include index-linking, where tariffs increase each year in line with the RPI.
On the other hand, compared to the last Government’s ambitions for the RHI, in many respects this looks like half a loaf, with a long list of things that got missed this time round:
- The domestic sector remains in limbo. The Government says it will provide domestic RHI tariffs from 2012; as an interim solution there will be “Renewable Heat Premium Payments”, but we won’t know what that means until May.
- Air source heat pumps, bioliquids, large biogas combustion, landfill gas, waste other than municipal solid waste, and large solar thermal are all out for the moment.
- The possibility of an uplift for district heating to cover the infrastructure costs of district heating has also been dropped for the time being.
As a sweetener, the Government promises that it will consider introducing support for all these around 2012: the Government seems to be adopting Apple’s marketing strategy of keeping us hooked by holding out the prospect of further exciting developments just around the corner.
Among the technologies that do get support from the start, solar’s brief place in the sun may be coming to an end before it has started. Compared to the consultation proposals where solar thermal was due to get up to 17p per kWh, the final tariff for solar thermal is half that at 8.5p. The RHI publication concedes that this tariff does not provide an adequate rate of return for solar thermal, and justifies this on grounds of cost-effectiveness.
But at least and at long last there’s some clarity for renewable heat. The renewable heat market can now go to work.
BDO will be part of that market, advising on the financial viability of renewable heat projects under these RHI tariffs, and providing access to the money needed to make them happen. BDO has been active in recent years financing projects in those heat-related niches that were still doing business pending RHI development, predominantly anaerobic digestion and waste. BDO’s focus on mid-size projects and companies also neatly matches the scale of typical renewable heat projects.
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