Renewable Heat Incentive explained

What is the Renewable Heat Incentive?
The Renewable Heat Incentive (RHI) was launched in March by the Government as part of its drive to cut carbon emissions and reduce the country’s reliance on fossil fuels. Under the scheme, property owners will receive an index-linked quarterly payment for every unit of heat energy that they produce using eligible renewable technologies. The payments will begin later this year and last for 20 years.
 
Why is it so important?
From an environmental perspective, it is estimated that around half of the UK’s carbon emissions are created by the production of heat for domestic and commercial use. The RHI could cut emissions by as much as 44million tonnes, the equivalent of 20 new gas-fired power stations. From the property-owner’s perspective, whatever their views on climate change, fossil fuels such as oil, coal and gas are becoming more expensive, with larger houses costing tens of thousands of pounds to heat each year.
 
Who is eligible to claim the RHI?
Initially, the scheme will apply to commercial properties, including farm buildings, community projects and rural businesses. Domestic properties used as a base for running a business will not qualify, but houses converted to a business use, such as bed-and-breakfast, will be eligible. From around October 2012, home owners will also be able to join the scheme. In the meantime, a one-off incentive called the RHI Premium Payment will be available to help cover the cost of installing renewable heating technology in 25,000 houses prior to claiming the RHI. Participants will agree to help test the measurement and delivery of the RHI. Those who have installed eligible equipment since July 2009 may also be able to apply for the RHI.
 
What renewable heat system is best for me?
The RHI is available for a wide range of renewable technologies. Choosing the right system will depend on many factors including the age, type and size of the property, how well it is insulated and access to fuel stocks. Not all technologies are suitable for all types of property, and expert advice is needed for older and historic buildings (see our table for pros and cons). Biomass boilers will be of particular interest to those estates with woodland as they can run on waste woodchips or pellets (traditional log-burning boilers will not be efficient enough to qualify). Ground source heat works by extracting latent heat from the ground and cleverly multiplying it up to a sufficiently high temperature. Water is either pumped vertically around a deep borehole or horizontally through a shallower looped network of pipes buried in the soil (this approach can also be used on a lake bed). Solar thermal systems are roof-mounted and can provide useful supplementary hot water, but additional conventional heating is often required to attain the desired temperature, especially in the winter.
 
How much will I get paid?
Generally, smaller schemes will attract higher rates as the cost of equipment is proportionally more expensive. Although payment rates are guaranteed once somebody joins the scheme, they will probably decrease for future applicants as installation costs fall. The tariff rates have been set to deliver about a 12% return on the difference in cost between installing a renewable heat source and its fossil fuel equivalent, which would tend to be cheaper. Units of heat produced over a certain threshold will receive a much lower payment to discourage people from generating unnecessary heat. This means it is vital to install the most efficient system.
 
How much can I save?
Savings will vary widely depending on the price of the fuel currently being used and the renewable system used to replace it. Once installed, ground source heating costs are limited to the electricity required to pump water around the system. Biomass boiler savings will depend on the cost of the woodchips. The ideal scenario would be to produce them using a property’s own forestry resources. As an example, the owner of a 10-bedroom period house currently heated with oil (assuming a cost of 50p/litre) could save almost £16,000 a year by installing a 100kW woodchip biomass boiler using brought-in woodchips (assuming an annual consumption of 65 tonnes at £110/t). The saving drops to £12,500 if the house is being heated with cheaper mains gas at 3.3p/kWh. These figures will, of course, vary widely depending on future variations in the cost of conventional and renewable fuels.
 
And how much will the renewable equipment cost?
Every scheme will be different, but costs will start from around £10,000 to install a small ground source heat pump or woodchip boiler to heat a modest house or cottage. Installing a biomass boiler to supply a very large property could cost hundreds of thousands of pounds. A woodchip boiler for our 10-bed house would be around £50,000.
 
I’m interested. What should I do now?
The key thing is to take expert advice as most rural properties will have specific individual requirements, especially if they are listed or relatively old. If you have a commercial property start taking advice now so that if you decide to go ahead your scheme is in place for when the RHI payments start later this year. As with any new initiative there could be a waiting list for the most popular equipment. If you are looking to heat a domestic property you can either install your equipment now and claim the RHI Premium or wait until 2012 when the domestic tariff kicks in. The RHI Premium on its own will not go far towards paying for a new system, but if you are having to replace something that is no longer fit for purpose it could be an option worth exploring. Even if you wait until 2012, it makes sense to plan ahead so you are ready to move quickly if you decide to join the scheme.

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0 thoughts on “Renewable Heat Incentive explained

  1. Michael Moggeridge

    The article makes reference to the schemes that are only currently being considered are commercial but talks about a private domestic residence for which tarrifs have not been set. Therefore, I can’t see how you can predict savings going forward. Further, the tarrifs are set for a 12 year payback, but the article states £50,000 cost for the woodchip boiler with annual savings of >£16,000. This equates to a far quicker pay back surely. Could the calculations be shown to clarify?