06 September 2017

Last December, the government laid out its plans to restructure the scheme, altering the tariff boundaries for many technologies. However, the announcement of a general election in April 2018 put those plans on ice, and with the ‘cash for ash’ scandal continuing to wreak havoc in the Northern Ireland executive, it became clear that the RHI in Great Britain would be examined for similar risks.

Earlier this week, the government confirmed the timetable to make the changes outlined in December's consultation response and yesterday launched a new consultation making a large number of changes to the detail of how the non-domestic scheme operates. The government also released their response to the Renewable Heat Incentive: Support for biomass combined heat and power consultation, that ran from 10th February to 10th March 2017.

We have set out the key points from all three documents below. You can read the full details of the:

  • RHI tariff changes coming into force here
  • 'Further amendments to the Non-domestic RHI' consultation document here
  • 'The RHI: support for biomass CHP' consultation here

The consultation on the non-domestic RHI amendments runs until 31st October 2017, although some elements regarding ‘eligible uses’ that were previously consulted on must be responded to within one month.

The RHI: a reformed and refocused scheme (response)

Following the government consultation on changes to the RHI published in December 2016, the first set of changes are due to come into effect this month.  It is intended that (subject to parliamentary approval) the remaining changes will follow later in 2017/2018, in addition the RHI’s budget mechanism will be extended until 2020/2021.


Non - Domestic RHI - September reforms 
Amendments to the Non-Domestic RHI tariffs for biomass are being introduced from 20th September 2017 as shown in the following table:



[‘Threshold’ is the maximum percentage of annual running hours that attract the higher tier 1 tariff. 15% equates to 1314 hrs, 35% equates to 3066 hrs.]

Owners of large biomass schemes with an accreditation date between 14 December 2016 and 19 September 2017 will automatically receive an uplift to the new tariff, other systems that are already registered will see no changes.  Ofgem has made a clear statement that they will be taking a ‘zero tolerance’ approach to any potentially fraudulent applications that are being made immediately prior to these changes.

The following table shows the relative change in tariff, with small and large systems being the clear beneficiaries whilst a significant reduction is made to the tariff for medium systems.

As we have said in previous updates, this shift clearly aims to direct the market towards larger and more strategic biomass projects. The uplift in the tier threshold is intended to prevent oversizing of plant.

In addition, 'Tariff Guarantees' (as discussed in the December 2016 consultation response) are planned to be introduced in 'Autumn 2017' as part of a separate tranche of RHI reforms.

Tariff guarantees are intended to provide more certainty to larger, more cost-effective projects. Any applicant that is granted a tariff guarantee will not be affected by any degressions that may take place whilst they make their full application.

Domestic RHI - September reforms 
Amendments to the Domestic RHI tariffs for biomass and heat pumps are being introduced from 20 September 2017 as shown in the following table:



The uplift in tariffs comes hand in hand with a new annual heat demand limit, this will put a cap on the maximum annual payment available to an installation in order to prevent large and inefficient properties consuming disproportionate amounts of the available RHI budget.

As with the Non-Domestic RHI, further significant reforms are expected in the 'autumn of 2017', these cover metering for performance for heat pumps, changes to degression, assignment of rights.

Further reforms planned for 2017 


Assignment of rights
'Assignment of rights' will enable third parties to own domestic technologies eligible for RHI support, with the homeowner able to assign the RHI rights to those third parties. This concept has important implications for the domestic scheme, where one of the key criticisms is the high upfront capital costs.

Domestic heat uses
The government are proposing a maximum proportion of eligible heat that can be used to heat a single domestic property.  This is to prevent schemes that primarily provide heat to a single domestic dwelling but have entered the Non-Domestic RHI by inclusion of a small but eligible Non-Domestic use.  The consultation is proposing a maximum proportion in the range of 30-50% of domestic to non-domestic demand.

This sits alongside the introduction of a maximum heat demand cap of 25,000kWh to the domestic RHI to effectively shut very large domestic properties out from all forms of the RHI. The consultation suggests that overall the proposed changes to eligibility could reduce overall biomass deployment by 15% with a corresponding reduction in scheme spend up to 2020/21 by £10m.

Impact
The changes outlined above are not new, having been announced back in December 2016. Clearly these changes are intended to not only rebalance the budget, helping to encourage an increase in heat pump deployment, but also to introduce protections against ‘gaming’, a key criticism of the scheme in Northern Ireland. These amendments should help to keep the scheme economically viable until it’s proposed end date of 2021, but questions remain over whether the domestic scheme is able to deliver installations at scale.

Consultation on further amendments to Non-Domestic RHI 

BEIS issued a consultation on 5 September 2017 regarding further proposed amendments to the Non-Domestic RHI, the full consultation document can be found here.  There are two deadlines for responses to the consultation – 3 October 2017 and 31 October 2017.  Some of the proposals were part of the 2016 consultation and so have a short window for responses and will likely be implemented sooner than the other proposals which receive the typical circa 3 month consultation window.

BEIS is clearly tidying up the RHI rules to reduce the opportunity for artificial inflation of payments or creation of new heat requirements that do not in reality offset fossil fuel use.  The consultation puts forward detailed proposals for amendments and simply asks for agreement, indicating that these proposals will more than likely come into force by the end of 2017 or early 2018.

Responses can be made via the online consultation platform here.

Changes to 'eligible use'
Eligible heat uses were consulted on in 2016 and the responses received have clearly driven further work investigating whether the inclusion of certain heat uses offer value for money.
Payments are only made for heat uses that have been classified as ‘eligible’ under the scheme rules, these are:

  • Inside a building – heating a space, water or carrying out a process
  • Outside a building – carrying out a commercial cleaning or drying process

The consultation proposes to remove all forms of drying; aquaculture; and domestic swimming pools as eligible uses.  In addition, it is proposed to limit the proportion of a system's heat that can be used to heat a domestic dwelling and that applicants should be required to provide additional evidence that the scheme genuinely displaces fossil fuel use.

Multiple installations
Alongside the confirmed removal of tariff bands for biomass, the consultation document proposes closer scrutiny of applications where multiple installations take place on the same site but are included under separate applications.  Making applications for multiple smaller installations rather than a single larger one maximises income from the RHI by exploiting tariff banding and tier thresholds.  Due to the changes being introduced on 20 September 2017 this will no longer be possible for biomass but would still be possible for biogas combustion applications.  It is therefore proposed that multiple installations will be aggregated as a single installation for payment purposes where multiple plant have common or shared: ownership; purpose; planning permission; or equipment.  Other factors may also be considered to determine the classification of a installations as multiple or single.  For sites with existing RHI-accredited plant there are some examples in the consultation (pages 27) showing how additional capacity would be considered in determining the appropriate tariff.  

Registering to inject biomethane 
The production and injection of biomethane into the gas grid is a rapidly developing area of the renewable heat market and has a significant long-term role to play in decarbonising the gas grid.  There are a couple of issues with the current RHI policy where the government wishes to clarify policy intent and close loopholes. 

At present, it is possible to register for biomethane injection using gas purchased from a third party, allowing early registration and safeguarding against tariff degressions during the installation and commissioning of a scheme.  The introduction of tariff guarantees should remove the incentive for this activity, however it is proposed that either the use of third party gas is disallowed or that the specific biogas production plant is identified and confirmed as commissioned prior to registration on the scheme.

It is possible at present to exploit the tiered structure of the biogas injection tariff by taking biogas produced at a single plant and injecting it at separate sites or under separate RHI registrations up to the maximum tier 1 threshold.  A number of proposals are put forward to prevent this activity including: preventing multiple RHI registered biomethane producers from using the same physical equipment; permitting sharing of equipment but basing tariff payments on total volume produced by that equipment.

The RHI: Support for biomass CHP (response)

Changes to the biomass CHP tariff were introduced in late 2016 restricting access to the full tariff to systems with a power generation efficiency of over 20%.  This threshold was reduced to 10% in January 2017 for a transitional period (which is still in effect).  Systems with efficiencies below the threshold receive a proportional mix of the CHP tariff and the heat only tariff.  Between February and March 2017, the government ran a consultation on this change and have now published their response.

This threshold was introduced because a  number of small biomass CHP schemes had been  accredited with the full biomass CHP tariff (currently 4.29p/kWh) despite having very low levels of power generation.  It is understood that for systems with such low power generation efficiencies there is a low marginal cost difference between biomass CHP and heat only systems (which would be eligible for the heat only tariff, currently 2.71p/kWh for systems <200kWth).  This meant that schemes that could be classed as CHP got a higher tariff, even if they were producing only small amounts of electricity.

In response to the consultation, the government has decided to proceed with the implementation of the 20% threshold towards the end of 2017.  This will still allow systems with lower efficiencies to be supported by the CHP tariff but in a way that is proportionate to power generation efficiency.  A detailed breakdown of how the mixed tariff will work is included in pages 7-8 of the consultation response.

We will be exploring the future for low carbon, sustainable heating at our Renewable Futures conference, taking place in Bath on 28th November

For more information contact Olly Frankland: ofrankland@regensw.co.uk