Out-Law / Your Daily Need-To-Know

UK forced to compromise on RHI support for large biomass installations

28 Oct 2011, 2:00 pm

The EU has granted state aid approval for a subsidy which will enable organisations to claim financial incentives for using renewable energy sources to generate heat, the Government has confirmed. One of the tariffs involved in the scheme has been reduced, it said.

The Renewable Heat Incentive (RHI) is now expected to come into operation at the end of November 2011, subject to Parliamentary approval of the revised RHI regulations, which will, once in force implement an agreed revised tariff for large biomass. The revision will reduce the rates that are available from 2.7p per kilowatt hour (kWH) of energy generated to 1p per kWH.

The RHI promises long term financial incentives and support to applicants that use eligible and qualifying renewable technologies to generate heat such as schools, hospitals and large offices. It was due to become operational in September with applications for support to be made to Ofgem E-Serve from 30 September 2011.

The European Commission had expressed concern that the incentive for those using large biomass burners was set too high. The Commission generally prevents governments granting advantages or incentives to selected businesses to ensure fair competition inside the EU. So-called 'state aid' from the Government can, however, be approved on a case by case basis by the Commission.

Last month the Department of Energy and Climate Change (DECC) announced that the Commission would have to give state aid approval to the RHI for the scheme to go ahead.

The reduction in the rate will only apply to the largest biomass burners, with a generation capacity of greater than 1,000kWH. Users of smaller biomass burners will be able to take advantage of rates of up to 7.6p per kWH.

The RHI is being introduced in two phases, with the first phase targeting the non-domestic sector from 2011 onwards. Payments will be made on a quarterly basis over a 20 year period, designed to match the operational lifetime of the qualifying technology.

Domestic consumers will have access to approximately £15 million of ring fenced support under the Renewable Heat Premium Payment, which is a one off payment to cover the costs of installing new heating equipment, until phase two brings the domestic sector into the RHI in 2012 in line with provisions to introduce the 'Green Deal' set out in the 2011 Energy Act.

Speaking at the annual conference of industry body Renewable UK, Energy Secretary Chris Huhne described the RHI as the "world's first" such project.

"It will create a whole new market in renewable heat. Not just big industrial and commercial installations, but also homes and businesses too," he said.