Sowing the seeds of change

Sowing the seeds of change

Following the announcement of the new Domestic Renewable Heat Incentive (RHI) tariffs, Eleanor Fox explores what these new figures will mean in terms of pay back and how this can benefit installers wishing to sell to end users.
The long-awaited announcement of the Domestic RHI tariffs was finally made on 12 July 2013. The announcement has planted the seed for regaining market trust and re-igniting hopes to finally progress and fulfil the growing demand for renewable heat throughout the UK.
The RHI framework is the result of significant industry engagement with the Department of Energy and Climate Change (DECC) to launch a scheme that will support the industry to develop the renewables market. It is quite clear from previous months that without Government support, the market will struggle to grow. DECC expects 750,000 renewable installs to be completed by 2020 through the RHI, equating to approximately 125,000 renewable technology installs a year (the current average estimated at around 50,000 a year). This equates to over a 100% increase in installations with the RHI Tariffs.
The proposed RHI tariff rates have been set at 7.3p/kWh for air source heat pumps, 12.2p/kWh for biomass boilers and biomass pellet stoves with back burners, 18.8p/kWh for ground source heat pumps and 19.2p/kWh for solar thermal technologies. The tariffs, which will be paid quarterly in arrears by Ofgem for seven years, are due to rise annually in line with the retail price index (RPI) and changes will come into effect on 1 April each year. Despite paying over a seven-year period, the rates have been calculated on the expected 20-year life of the systems.
To put it simply, tariffs are paid per kWh of the renewable heat generated. Subsequently, the property’s expected annual heat usage can be estimated by multiplying the amount of heat generated from an installation with the tariff rate to calculate the annual payments.
For biomass, hybrid systems and heat pumps the estimated heat use of a property will be calculated after the required energy-efficiency measures have been installed. This figure is taken from the energy performance certificate of a home (EPC) and is made as part of a Green Deal assessment.
For heat pumps, the heat-use figure is combined with the heat pump’s expected efficiency to estimate how much renewable heat should be generated, while the figure for solar thermal is the estimated contribution of the solar thermal to the property’s hot water demand. This calculation is part of the MCS installation process.
A degression scheme (similar to the one introduced for the Feed-in Tariff scheme), will be put in place to manage the RHI budget, meaning that tariff levels for new applicants will decrease by a set percentage once specified levels of deployment have been reached. Formal reviews are planned for 2015 and 2017, but, importantly, the Government reserves the right to hold a review of the scheme at any time.
Of course, with so many differing products, technologies, installation locations and standards of existing systems to contend with, the task of measuring and categorising renewable energy gain is not an easy one. The unenviable responsibility of ensuring that the new tariffs not only incentivise end-user investment and deliver worthwhile paybacks, but also prevent a boom-bust style market (if tariffs are set too high) in a now wary market is a tough call for any government, let alone one that is still picking up the pieces of the post-FIT fiasco.
As an industry, we should at last feel encouraged by the proposed tariffs levels, which will, if all goes to plan, enable customers to achieve payback periods in a few short years and, in turn, deliver the much-needed reduction in fuel usage and carbon emissions.
The RHI is designed to work alongside the Government’s flagship policy, the Green Deal.  According to Greg Barker, the Minister of State for DECC, ‘reducing the size of the heating demand from each house means we can support more households through the RHI. Together, the RHI and Green Deal should offer those off the gas grid in particular a way to a warmer, cheaper, lower carbon home.’
At Vokèra, we have high hopes that 2014 heralds a new crop of opportunities that will not only blossom for previously despondent installers but also deliver a fruitful return on investment for customers to ultimately restore market confidence.
The seeds have now been planted, so let’s do what we can to help the Domestic RHI grow.