The Renewable Heat Incentive (RHI) was due to open for applications today. It promised long term financial incentives and support to applicants such as schools, hospitals and large offices choosing qualifying technologies over traditional fossil fuel heating systems.
The Department of Energy and Climate Change (DECC) said in a statement that the European Commission had expressed concern that the tariff for those using large biomass burners was set too high.
The Commission generally prevents governments granting advantages or incentives to selected businesses. This is 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.
"State aid approval is a necessary condition for the scheme to go ahead. As part of that process, the European Commission has expressed concerns that the large biomass tariff is set too high," DECC said. "We understand that the Commission has given state aid approval for the RHI, subject to a reduction in the large biomass tariff, and we expect to receive written confirmation of this very soon."
Energy law expert Simon Hobday of Pinsent Masons, the law firm behind Out-Law.com, said that the RHI was one of a number of low carbon incentives that the Government is considering offering to businesses.
Its White Paper on Energy Market Reform, published earlier this year, proposed a guaranteed price for power generated from low carbon sources. The Government is also consulting on potential subsidies for a range of renewable electricity technologies for the period 2013-17 under the Renewables Obligation.
"RHI is going to go ahead but its economic balance is being altered. Quite what the Commission's concerns are and the extent of that rebalancing remains to be seen," Hobday said. "However this still throws into question the extent to which the Government can support renewable energy on the scale and to the levels it is currently anticipating."
The DECC said that the regulations covering the RHI would now have to be amended and submitted to Parliament for reapproval before the scheme could begin.
"We are committed to launching the scheme as soon as possible to minimise disruption to stakeholders," it said.