Grants & Incentives (RHI)

In recognition of the environmental and wider benefits associated with the uptake of biomass heating there have historically been a range of capital grants and other incentives available to support its uptake.  Capital Grant Funding has mostly been superceded by the Renewable Heat Incentive which will not be available for customers taking grant funding from April 2011 onwards. 

Renewable Heat Incentive

The UK Government published the details on the Renewable Heat Incentive (RHI) on the 10th March 2011. This is the mechanism which will deliver a dramatic increase in the proportion of renewable heat used in Scotland, England and Wales from around 1% of total heat consumption to at least 12% by 2020. This is the heat sector equivalent of the Feed In Tariffs (FiT) and the Renewable Obligation Certificates (ROCs) that are currently available for renewable electricity projects. The RHI is effectively a fixed government annual revenue payment that will be paid quarterly for the lifetime of renewable heat installations.  This is the first financial support scheme for renewable heat of its kind in the world.

The govermment are clear that, "At a time when we can see many problems with relying on a rapidly changing world and continuous reliance on oil and gas, we are proposing to put in place a key foundation stone of our energy future where both carbon reduction and energy security are assured."

The government are aiming for the regulations which underpin this scheme to be approved by Parliament in summer 2011 and anticipate the scheme will be introduced shortly thereafter.

The RHI has been simplified considerably compared with the previous proposals and we believe that for Biomass Heat it offers a pragmatic, reasonable, proportionate and sustainable approach that will deliver a significant uptake in renewable biomass heat in a cost-effective manner. The proposals aim to ensure maximum carbon savings are achieved per £ of subsidy. It will be paid directly from treasury funding and £860m has been allocated until 2014/15 to cover the expenditure.

The key aspects of the RHI for Biomass Heating are:

  • The incentive payment will be paid to the owners of biomass heating equipment for a period of 20 years. (Compared with 15 years under the previous proposals.)
  • The RHI applies to all commercial buildings, community buildings, public sector buildings, industrial users and groups of houses.
  • At this stage single boilers installed to heat individual domestic properties will not be eligible for the RHI. The Goverment aim to bring forward proposals for domestic customers that will apply from 2012 onwards.
  • At this stage there will be no uplift available for district heating schemes.
  • Projects installed after July 15th 2009 will be eligible for the RHI.
  • For installations below 1MW there are two different tiers of payment. A higher payment for the first 1,314 hours of operation each year (15% of annual load) and then a lower payment for any kWh's produced after this.
  • For installations above 1MW there is a fixed rate of payment based on heat produced.
  • All installations will require to be heat metered. (The deeming approach previously proposed has been discarded.)
  • ESCO projects (where HWEnergy own and operates the system and sells heat to clients) will be eligible for the RHI. These provide a no capital outlay option for clients.
  • The RHI scheme will be adminstered by OFGEM.
  • Biomass systems above 1MW will be required to report quarterly on the sustainability of their feedstock.
  • The incentive payment will receive an RPI uplift each year. 
  • The RHI rates are:
  1. Below 200kw boiler size. Tier 1: 7.9p per kW of boiler size for  the first 1,314 hours per annum.  Tier 2: 2p per kWh for every kWh produced after that. 
  2. 200kw and above boiler size.  Tier 1: 4.9p per kW of boiler size for the first 1,314 hours per annum.  Tier 2: 2p per kWh for every kWh produced after that.
  3. For systems 1MW and above 2.8p per kWh. 

To illustrate how this works a 150kw boiler will receive a tier 1 payment of £15,570.90 per annum for the first 197,100kWh and 2p per kWh for every kWh produced after this.

The total RHI payment over 20 years will more than cover the capital cost of equipment ensuring that renewable biomass heat will become a mainstream option in the non-domestic setting.

The detailed information in relation to the RHI can be found on the DECC website.

OFGEM update August 2011

We were asked to provide feedback to OFGEM on their proposals for administering the RHI, you can view our response below:

Dear Sirs, HWEnergy are a leading installer of biomass heating equipment in the sub 1MW sector and we also supply renewable heat to customers either through our own woodfuel business or using partner suppliers. We have completed around 160 installations across Scotland in the commercial sector across a range of buildings and customer types. We employ around 40 staff who all specialise in biomass heating.
Below are our comments and observations in relation to the Draft Scheme Guidance based on our interpretation of the documentation and attendance at the consultation event in London on the 26th July.

In general terms we welcome the clarification that the documentation brings and feel that this provides a strong foundation for the implementation of the RHI. We came away from the event on the 26th feeling that within the OFGEM team there was a good range of skills, a realistic understanding of the complexities of the process and a pragmatic willingness to work with stakeholders to ensure the rollout is successful.

Our main points of feedback are:

1. Transferring location of equipment


We are concerned about the proposal that the location of equipment cannot be transferred. Clause 3.28 states: “If you want an installation to remain accredited under the RHI the installation must not be moved. Accreditation is awarded for the installation at the location that is provided at application. This is not transferable.“ We understand and support the stance that 2nd hand equipment be ineligible for the RHI. However, there are three important points in relation to the impact that this clause will have in relation to the uptake of renewable heating and the ability of the government to deliver their renewable heat targets. These are predominantly related to how the roll out of the RHI will be commercialised in a practical setting.

1. Capital financing will be a key barrier to the uptake of renewable heating. Banks will be much more likely to lend to the projects where the asset has a high residual value and can be transferred. This clause undermines this approach. BUS003V1.6 08.08.2011 Page 2 of 3

2. The RHI paper published in March outlined that the ESCO model would be supported. (I.e. where a 3rd party finances the equipment, retains ownership and sells heat to the client). We are undertaking a project to a community group who own and operate a swimming pool but who were unable to raise the required capital for a biomass scheme. This project will help the pool to remain viable in the face of rising fossil fuel costs. Financing of ESCO schemes will be extremely challenging and viewed as very high risk if there is no ability to redeploy assets and claim the remaining RHI lifetime payment in the event of contract termination or unforeseen circumstances at the client end (they go bust or the building closes or goes on fire etc)

3. Many potential clients operate buildings that face an uncertain future over the next 20 years. This could be a hotel chain assessing demand across their portfolio, a care home provider looking to invest in a new facility and close an existing one, a local authority with a number of schools that may require rebuilding in 5, 10 or 15 years time or an NHS Trust who are unsure of the long term future viability of a community hospital site. In many cases these clients currently opt for a “packaged” unit which contains boiler, fuel store and the key plumbing and electrical components. The rationale for this is that they can potentially redeploy 60% - 80% of the value of a project to an alternative site. These clauses threaten this approach and therefore undermines the commercial realisation of the RHI.

We understand that OFGEM are sympathetic to this viewpoint but are of the view that their hands are tied in relation to the DECC legislation and the OFGEM consider this matter can only be amended in approximately 1 years time with an updating of the legislation. However, our conclusion would be that OFGEM have interpreted the DECC legislation unnecessarily severely.

Section 12 of the DECC legislation states that: “Other eligibility requirements for technologies

12.—(1) The requirements referred to in regulation 4(b) are—

(a) installation of the plant was completed and the plant was first commissioned on or after 15th July 2009;

(b) the plant was new at the time of installation; “

If OFGEM interpret part b of the above to mean that equipment is new at the time of initial installation then there is nothing within the legislation to prevent equipment being transferred and the RHI payment being continued in the new location. The administration of this change of interpretation would not be any more complex than that which is associated with the change of ownership and would simply be a case of asset tagging.

2. Heat Meter Security


We have concerns around the robustness of the approach to ensuring that heat meters cannot be tampered with and feel this is an area requiring greater consideration. We would be happy to discuss these more fully with someone if required. BUS003V1.6 08.08.2011 Page 3 of 3

3. Complex Metering and Significant and Insignificant Heat Loss


In general terms it would appear to be excessive to define any project heating more than a single building as complex for metering purposes. The additional expense to meet the complex requirements (independent review etc, etc) and the ongoing complexity of reporting may act as a disincentive for smaller projects to progress with a renewable installation. This will be exacerbated given the uncertainties in relation to what will be defined as significant and insignificant heat loss. Similarly, the requirement to have independent verification of all projects heating more than one building is likely to act as a significant bottle neck in the process without delivering any real benefit. Without compromising the credibility, integrity and aims of the guidance this area could be simplified significantly by adopting alternative criteria.

We would propose that a project should be defined as simple where:

Boiler size is less than 1mw
All uses of heat are “eligible”
Number of different buildings connected < 10
High quality underground heating mains are utilised (appropriate U value performance of pipe could be defined in W/mK e.g. <0.40 W/mK)
Total distance of underground heating mains < 1000m This would ensure that straightforward projects are treated with a relatively light touch and maintain the administration burden from both OFGEM and customer perspective at appropriate and manageable levels.


4. Eligible Properties


The proposed definition: ““Domestic premises" means single, self contained premises used wholly or mainly as a private residential dwelling where the fabric of the building has not been significantly adapted for non-residential use;" leaves some uncertainty as to whether a house with outbuilding would be eligible. We would propose that this be clarified to emphasise that for buildings where the use is solely domestic then at least two separate houses must be connected and each of these must have an individual council tax eligibility. The other area that is currently uncertain is a standalone property used for self catering holiday accommodation. For example a large castle or lodge house which is rented out on a weekly basis.

5. Air Quality Standards


Given the uncertainty around this area and forthcoming standards it would be useful to have clarification within the guidance document that any installation completed ahead of the publication of finalised standards will be considered eligible and that standards cannot be applied retrospectively.

I trust that you find this response useful and would be happy to discuss further as required. I can be contacted on stuart.reid@hwenergy.co.uk

Kind regards,

Stuart Reid

Head of Sales and Marketing


Loans & Capital Financing

With the Renewable Heat Incentive providing an attractive quarterly payment for 20 years one of the key issues around undertaking a biomass project is the requirement to find the upfront capital funding. HWEnergy can advise on several options for how this can be sourced. We are a preferred partner of the Carbon Trust who offer loans, we have the ability to finance projects ourselves on an ESCO basis, we have a relationship with the Co-operative Bank who are supportive of renewable energy projects and in certain instances the Energy Savings Trust may be able to offer interest free loans. Please contact us to discuss which of these options is the most appropriate for you.

Enhanced Capital Allowances

For businesses the installation of biomass heating equipment can be eligibile for Enhanced Capital Allowances which can offer significant taxation advantages. Contact us to discuss how this can apply to your project.