Government proposes changes to renewable heat tariffs

However, the tariffs available to operators of medium-sized biomass systems with 200kW to MW of generating capacity under the renewable heat incentive (RHI) programme will be cut, due to the relatively high uptake of the technology. Under previously-announced cost controls, tariffs for these projects will fall from 2.2-5.3p/kWh to 2.1-5.0p/kWh from 1 July.

"The RHI has been running for nearly eighteen months, so now is a timely moment to look again at the tariffs," said Energy Minister Greg Barker. "We need to make sure they are set at the right level to continue bringing forward investment and growth and at the same time keep costs to the taxpayer to a minimum."

Barker has stated that the Government has "initiated an early review of the non-domestic RHI tariffs as a result of our consideration of the uptake in the first year of the scheme. This short consultation sets out our proposals for improving the support that the non-domestic RHI offers," he said.

Under the RHI, long-term financial incentives and support are available to successful applicants that use eligible and qualifying renewable technologies to generate heat. The first phase was introduced for non-domestic users in November 2011, with payments made on a quarterly basis over a 20-year period. Qualifying technologies include ground source heat pumps, biomass boilers and solar thermal panels.

According to the Department of Energy and Climate Change (DECC), over 1,300 renewable heat technologies have already been installed under the scheme. DECC consulted on expanding the scheme to a wider range of technologies, including air source heat pumps and a broader range of energy from waste technologies, last year. It is due to respond to this consultationthis summer.

In its latest consultation DECC is proposing to increase the tariff levels for heat generated using ground source heat pumps, large biomass and solar thermal kit accredited under the RHI. It is not proposing to increase the tariffs for small and medium biomass due to the high level of demand for these technologies.

Subject to state aid approval, any increases in RHI tariffs will apply to installations completed after 21 January 2013, DECC said. The new tariffs would apply from Spring 2014, subject to legislation, DECC said.

The proposed new rates would see an increase in the tariff for large biomass boilers of more than 1MW generating capacity from 1p to 2p/kWh. Tariffs for ground source heat pumps would rise from 3.5p-4.8p/kWh to 7.2p-8.2p/kWh, while tariffs for solar thermal panels up to 200kW in capacity would rise from 9.2p/kWh to 11.3p/kWh.

Due to the fixed annual budget for support under the RHI, all tariffs are subject to a degression mechanism.  The level of available subsidy under tariffs is gradually reduced over time  depending on the uptake of each technology. Uptake is monitored on a quarterly basis against a series of 'triggers', with monthly updates published and one month's notice given before any cuts are made. The cut to the tariffs for medium-sized biomass systems will be the first time the degression mechanism has applied since the regulations came into force in April.

"DECC says that it is keen to drive more widespread deployment of large scale biomass," said environment and energy law expert Fiona Ross of Pinsent Masons, the law firm behind Out-Law.com. "However, some of the statements in the consultation are less than confidence-inspiring – in particular, words to the effect that once the spending review for the period has been taken into account, as well as the 'full portfolio of RHI support', including domestic, there is no guarantee that any increase will be within the ranges set out in the consultation."

"However, one area where DECC has been listening to the industry is in relation to the assumptions underlying the tariffs. These have been the source of controversy on numerous occasions in relation to Renewables Obligation bands, and DECC has changed its approach in this instance to take into account market intelligence, stakeholder view and expert opinion, as well as the usual modelled outputs," she said.

Ross added that it was "worth noting" that DECC used the phrase 'accreditation date' to refer to the later of the dates when a complete application was received by energy regulator Ofgem or the date of commissioning. This meant that some projects that could expect to benefit from the increased tariffs set out in the consultation, if approved, would not, she said.

"Accreditation date in this sense does not refer to the date when Ofgem actually takes the decision to grant accreditation," she said. "Those who made a preliminary application prior to 21 January 2013, or those whose plant was commissioned prior to that date, will not be eligible to benefit from any increased tariffs."