Last week DECC launched a consultation to reform the Renewable Heat Incentive, which supports the uptake of renewable heat systems.
DECC is proposing to rafts of changes in the Consultation; the first set of changes are unlikely to be subject to change and are to be implemented now (April 2016). The second set of changes will be subject to more extensive consultation (although there is a clear message as to where these are going) and will come into effect in 2017.
Proposals to take effect from April 2016 include the implementation of a budget cap linked to the annual budgets assigned to the RHI. Mandatory degression triggers are also to be extended from the final trigger points currently set out in regulations across all technologies.
Future installations (those with a tariff start date on or after 1 April 2016) will switch future annual tariff inflation adjustments (beginning on 1 April 2017) from the RPI to the CPI index.
Biomass is in particular coming under increased scrutiny as a result of the levels of deployment which have exceeded government expectations (most notably in Northern Ireland where the scheme was suspended in February). Here DECC is proposing to cut Biomass tariffs by up to 61% by 2017.
The implementation of budgetary caps, accelerated degression and a switch to CPI indexation are of themselves not a great surprise. What is of concern is the immediacy of the April implementation which will gives the industry little time to react. Projects ‘in build’ but not yet accredited may also be affected and whilst for smaller domestic projects there is still the potential to commission and accredit prior to the 1 April deadline, for larger projects (Anaerobic Digestion in particular where build times can be up to 12 months) it will not be possible to accelerate build times and commission prior to implementation.
From April 2017, amongst other amendments, DECC is proposing to reduce or remove subsidies for the use of energy crops in Anaerobic Digestion and for digestate drying. Whilst we are no overly surprised by the removal of support for digestate drying the removal of support for energy crops (if implemented) will effectively call a halt to the deployment of on farm digesters. It is also likely to affect deployment of biomethane to grid where in order to deliver grid standard gas quality and consistency in feedstock is requisite (something not always possible with waste feedstock).
There is however a glimmer of good news for heat pumps where, in response to lower than expected deployment, DECC is proposing to increase tariffs. DECC propose to review the tariffs for both AWHP and GSHP; the AWHP tariff will be set in the range of 7.42-10.0p/kWh (currently 7.42p/kWh) and GSHP could be adjusted, with the maximum possible tariff of 19.51p/kWh (currently 19.10p/kWh).
The proposed changes add to existing concerns about the direction of UK renewable energy policy. Also published by DECC on 3 March 2016 was a report into investor confidence in the UK energy sector which adds further weight to industry concerns, concluding that the UK government’s energy policy lacks long-term vision and this has “clearly had an impact on the confidence of many investors”.
The full list of proposed reforms can be viewed online at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/505972/The_Renewable_Heat_Incentive_-_A_reformed_and_refocussed_scheme.pdf