The proposed Renewable Heat Incentive (RHI) is designed to encourage the adoption of heat pump installations that significantly reduce carbon footprints and help the Government meet the carbon reduction committment that it is bound by. The RHI has completed its consultation phase and responses are being reviewed currently.
The reason why addressing the UK's heating installations is so important is that heating accounts for 47% of the UK’s CO2 emissions and 60% of average domestic energy bills. In order for the UK to meet its carbon reduction obligations, 12% of UK heat is required to come from renewable sources. The RHI could save up to 60 million tonnes of CO2 by 2020.
Main features of the RHI:
- Tariff levels are proposed to provide a rate of return of 12% on the additional cost of a renewable installation, with a lower rate of return of 6% for solar thermal - Better than almost any other investment in the current business climate.
- RHI will remain open to projects until at least 2020 although it will be reviewed from time to time to adapt to changes in technology/costs.
- Ofgem will operate the scheme. Annual payments will be made for installations below 45kW and quarterly for those above this.
- The number of years of support depends on the technology. Air Source – 18-20 years, ground source 20-23 years.
- The issue of tax on the payments is still to be determined by the treasury however the feed-in tariff for electricity was confirmed as being exempt of income tax. We expect the same for the RHI - yet to be confirmed.
- The sooner the installation the better the return, meaning that a project installed in year 1 continues to receive payments at the level set in year one, tariffs are reduced for new projects installed in later years.
- On day one of the scheme all qualifying installations after 15th July 2009 will be seen as a ‘new installation’ and eligible for the RHI. Systems installed before this date will currently need to be replaced or increased in size - but this could change.
- Only heat pumps with MCS Product accreditation and installed by an MCS Accredited Installer will be eligible.
- RHI is not conditional on planning permission requirements, these are to be obtained by the owner outside the RHI.
- The equipment will be required to be maintained by approved / qualified persons during the tariff lifetime.
- For domestic installations payments will be claimed by the owner of the property and in the event of a sale would remain with the property (potentially increasing the sale price). Payments can also be claimed and paid to the owner of the equipment in larger scale developments such as those of Housing Associations/Councils. If an installation has been paid for by a loan, HP agreement or similar, the RHI payment is still made to the recipient of the loan, even if they are not the legal owner.
Calculating Payments
- In order to prevent wasteful heat production, a basic minimum level of energy efficiency will be assumed for existing homes when the heat load is deemed:
- At least 125mm loft insulation
- Cavity wall filled where applicable
- Payments will be based on a deemed heat load for domestic installations. This will prevent the costs associated with metering, and also the possibility of “heat dumping”, whereby homeowners purposefully waste heat in order to receive more RHI payment. Each installation's tariff entitlement is established by multiplying the proposed tariff per kWh with a deemed heat requirement (number of kWh per year). This is established through an assessment process based on SAP at the beginning of the project.
- For larger installations the heat output will be metered and the annual payments are to be calculated from the actual heat generated x tariff level.
Eligibility
Houses and buildings which currently use conventional fossil fuel for heating, such as gas, heating oil or coal, will be able to claim the RHI if they switch to renewable technologies. The RHI will be available to householders, local authorities and social landlords as well as the public, industrial and commercial sectors. The RHI is applicable to the whole of the UK except for Northern Ireland.
Only MCS accredited units that have been installed by an MCS accredited installer will qualify for RHI payments.
The RHI will be funded by a levy on fossil fuel suppliers pursualt to the powers vested by The Energy Act 2008.
Tariff
Proposed tariff scale (p/kWh) and Tariff lifetime
- Air source heat pumps (Up to 45kW) 7.5p per kWh for 18 years
- Air source heat pumps (Over 45kW) 2p per kWh for 20 years
The tariffs will be linked to inflation and payment guaranteed by the Government. |
