Significant changes to the RHI scheme – April 2016

While the government took the decision to cut FIT payments drastically as a means of cost saving, when it comes to the Renewable Heat Incentive, it appears they are very keen to expand it. DECC announced earlier this month that they are looking to increase funding from £430 million in 2015/16 to £1.15 billion in 2020/21, an increase of over two and a half times.

As keen as this increased spending seems, the government are looking to get more bang for their buck. Therefore, they are proposing various changes to the RHI that we discuss in a bit more detail below. If you want to read all 89 pages of the government’s report, you can download it by clicking here.

The DECC wants to make this RHI scheme more accessible for families that are less able to pay. Renewable heating technologies are expensive to install and as such, these technologies are out of reach to many households. The government hopes that the changes to the scheme will make these technologies more accessible.

Long live the RHI – but changes are imminent!

The proposed changes are taking place in two stages – the first will be introduced in just a couple of days – on 1st April 2016. The second set of stages will be implemented sometime in 2017.

Under the RHI, spending is controlled by degression. Degression operates by applying an automatic tariff reduction once the budget (for a technology and/or the whole scheme) has reached pre-determined trigger points. This mechanism is not changing, however the digression assessments and potential reductions in tariffs have been announced right up until 2017.

There is a proposal to bring in a budget mechanism, which serves as a backstop to the degression mechanism, whereby the RHI scheme would close to new entrants if a certain level of spend was reached in a particular quarter. This was introduced for the Feed-in Tariff so it makes sense that the government would be keen to roll this out for the RHI scheme too, to protect itself and prevent massive overspends.

The government is also keen to change the way the RHI is linked to inflation. Previously the scheme has been been linked to RPI, however from 1st April 2016 the RHI will now be linked to the Consumer Prices Index (CPI). This will only be for new entrants – existing participants in the scheme who have signed up prior to 1st April 2016 will still be paid the RHI linked to RPI.

Under the existing legislation, renewable heating systems installed in second homes under the Domestic RHI have to be metered. This is to ensure value for money for the taxpayer, as the deeming methodology used to calculate payments for the majority of properties would result in overpaying homes that are not occupied all the time. Ofgem determines whether a property is a second home by asking whether it was occupied for at least 183 days in the 12 months before application. However, previously this has unintentionally captured self-builders who have only recently moved into their homes. This means they are either required to install a meter at additional cost, or wait six months to apply for the Domestic RHI – in the new proposed changes to the scheme, the application process for self-builders has been changed to prevent this issue from occurring.

Heat demand for different renewable techs will now be limited

Under current RHI legislation, there is no limit to the heat demand that is eligible for the RHI payments. This means that for bigger properties, the RHI payments could be far higher than the cost of installing the renewable heating technology. This is particularly true with biomass boilers, with some households making over £10,000 per year from their renewable heating system, resulting in a payback of just 2-3 years. Under the proposed changes, DECC are recommending that heat demand limits are introduced – and the limits would be as follows:

By putting these limits in place, the financial return from the RHI is capped. This means that regardless of the size of your property, once you reach the limit, your quarterly RHI payments will be capped. Bigger properties tend to have higher heat demands, but insulation and age of heating system also have a big impact.

Helping encourage those in energy poverty to install renewable heating systems

To help encourage the take-up of renewable heating technologies for those lacking the initial capital to cover the install costs, the government is proposing allowing householders to assign their right to RHI payments to a company that has financed their renewable heating technology. Householders would still own the system. The government is also proposing third party ownership as a possibility, where a company that has financed the renewable heating system would be able to apply for the RHI payments. Both of these mechanisms would help open up these technologies for those lacking the initial capital.

The end for solar thermal? RHI support withdrawn from 2017

Perhaps the biggest reform the government is looking to implement is removing RHI support for solar thermal. This would start in 2017, but would effectively kill demand for this technology. This seems an interesting decision considering that the government is looking to increase RHI budgets over the next 5-6 years.

If you have any thoughts on the RHI, or have any questions, please get in touch below and we will come back to you as soon as we can!

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