Government 'Providing Certainty, improving performance’ RHI July Consultation Report

The introduction of the Renewable Heat Incentive (RHI) over a year ago was a major step change towards the transformation of heat generation and heat use necessary if we are to achieve our ambitious emissions reduction targets and avoid dangerous climate change.

The scheme is already encouraging accelerated uptake of renewable heating across small businesses, industry and the public sector, as well as supporting innovation and growth. To date, we have received over 1200 applications and rising and we expect to make around £24million worth of RHI payments with respect to this financial year.

Last year we consulted on proposed improvements and extensions to the RHI, proposals for the domestic scheme and launched the Government’s strategic framework for low carbon heat in the UK. This year will see us putting in place the improvements and extensions to the RHI that we believe are needed to drive uptake and achieve greater technology diversity, whilst still ensuring value for money for the taxpayer. We will also be publishing a heat policy delivery plan which will set the RHI in the context of a broader range of measures needed to transform heating systems across the UK.

The first of our plans for the RHI’s development are set out here in our response to the July 2012 consultation. Managing the RHI on a finite budget means it is essential that it is financially sustainable and that deployment of renewable heat continues to be good value for money to the taxpayer. We need to encourage continual growth in renewable heat but we must ensure the RHI provides the support for that growth to be steady. In July I asked your views on proposals for longer-term budget management and how we aim to provide market certainty alongside budgetary control. In light of wide-ranging support, we are adopting a degression–based approach to the budget management of the non-domestic RHI which would gradually reduce the tariffs available to new applicants if uptake is great er than forecast, but in a way that is intended to prevent over-corrections that could be damaging for the market.

Respondents continue to call for clarity and certainty in order to aid investment and we recognise the potential for the prospect of tariff changes to hinder investment decisions. However this needs to be balanced against the need to act when there is persuasive evidence on the case for change. Last year we commissioned Sweett group to consider the data and assumptions which underpin the existing tariffs in light of on-going concerns from stakeholders about tariff levels and the RHI uptake to date. We have concluded there is a case for reviewing existing tariffs and aim to consult on proposed changes in the Spring. We also continue to work on our responses to the consultations on extending the non-domestic scheme and on including domestic installations in the RHI and will clarify as soon as possible when we expect these to be finalised.

We acknowledge that, as your responses to the consultation made clear, any mention of changes to tariff levels for whatever reason is likely to create uncertainty within the market. However overcoming the challenges associated with the design of a robust enhanced preliminary accreditation policy requires further consideration, for example we have not yet fully resolved the question of whether the additional implementation costs to avoid gaming and speculative applications would be worth the benefits. Given this complexity we intend to monitor the scheme in light of other changes being brought in and will continue to work on measures to improve certainty during 2013

The RHI is essential to help us meet our legally binding renewables targets and is crucial as we move towards our goal of reducing our carbon emissions from heat. The action we will take on biomass sustainability and air quality will provide the transparency, longevity and certainty needed to secure investment in biomass heat at a ll scales while ensuring that we deliver real greenhouse gas reductions and protect our environment, both at a global and local level. Further details of the biomass sustainability require ments will be announced in conjunction with the response to the consultation on proposals to enhance the sustainability criteria for the use of biomass under the Renewables Obligation in Spring 2013. Air quality requirements will form part of the RHI by autumn 2013, subject to Parliamentary process, but no later than the end of 2013; biomass sustainability requirements will come into force in April 2014.

Clearly it is essential that over time the RHI adapts to changing circumstances and that we learn lessons from its early operation. In this current economic climate, it is also paramount that we do not unduly stifle business and growth. Hence we are reacting to feedback from RHI applicants and reducing the administrative burden on industry by simplifying the metering arrangements, providing more clarity on the biomethane injection application requirements and by introducing some other regulatory adjustments to improve the functioning of the scheme. These changes will be introduced as soon as possible, subject to availability of Parliamentary time.

Finally, as we move forward it is also right that we consider how to expand the scheme to ensure that the market for renewable heat can grow further. This is essential if we are to build the capability and supply chains that our Heat Strategy identifies as crucial for the decarbonisation of our heat supply in the coming decades. We will make a further announcement when we publish our response to the September consultations “ Air to Water Heat Pumps (AWHPs) and Energy from Waste” and “Renewable Heat Incentive: Expanding the non domestic scheme” due later this year. At that point I also hope to be able to announce our firm plans on how we will expand the RHI into the domestic sector.

Download the Non-Domestic RHI Consultation document here

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Published by the Department of Energy and Climate Change (DECC)