Wednesday, 1 August 2012

Renewable Heat Incentive: Providing certainty, improving performance

Here at Woodfuel Pathfinder Towers we have been trying to decipher the recent slew of information on the Renewable Heat Incentive and related matters.  

Just as we got our collective heads around the review of the Clean Air Act, new Ofgem guidance on heat metering and scheme administration and announcement of DECC’s budget management mechanism yet another consultation on the RHI has been issued.

The “Renewable Heat Incentive: Providing certainty,improving performance” sets out a series of proposals for the non-domestic RHI (Phase I) relating to longer-term budget management and scheme improvements, including biomass sustainability, air quality and changes to the metering requirements.

Needless to say the document is long and technical so we have attempted to extract the salient points from the executive summary.  

The proposals are important and anyone considering investing should set aside a some to read the document and familiarise themselves with the proposed changes, particularly as we may have missed something.

Before we get going we thought we would highlight the following tables that show the latest position on RHI uptake and payments (England only, see Ofgem web site for full report).

Renewable Heat Incentive: Providing certainty, improving performance

Executive summary – key points:

  • Controlling spend while providing certainty and transparency is a far greater challenge than simply keeping within a pre-determined budget.
  • The consultation sets out proposals for longer-term budget management and how DECC will aim to provide market certainty alongside budgetary control.
  • These proposals would only apply to new applications and only to the RHI scheme as it currently stands (i.e. non-domestic). Proposals would be extended to other technologies brought into the non-domestic scheme, which will be consulted on from September 2012.
  • Budget management proposal is to use a flexible degression-based system. Under this system tariff reductions for new applications would occur if deployment was approaching pre-determined triggers, at which point a small tariff reduction would occur automatically.
  • Proposed triggers for each technology and for the RHI overall will be based on the level of deployment required to keep us on a trajectory to deliver the 2020 renewables target.
  • Degression announcements would be made quarterly, with one month’s notice being given for any reductions.
  • Triggers for tariff reductions will be set out in advance and progress towards those triggers will be monitored and made available monthly on the DECC website.

  • The size of possible reductions would also be set out in advance, with a small reduction if deployment is slightly above that needed, and a larger reduction if deployment is significantly higher than that needed for the 2020 renewables targets.
  • In addition, DECC is proposing to carry out periodic reviews of the RHI, starting in 2014, to take stock of the evidence on the operation of the scheme and consider ways of improving it further. These reviews will provide an opportunity to recalibrate tariffs and if necessary, make changes to the tariff structure.
  • DECC has set out a potential option, enhanced preliminary accreditation. This would allow applicants to develop and accredit an installation that, when built, would receive a tariff guaranteed at the point of application for enhanced preliminary accreditation. Applications would be subject to time and size limits according to each technology.
  • It is equally important that the RHI is sustainable in the wider sense, so DECC will put forward proposals for biomass sustainability criteria.
  • The proposals are that biomass used for heat will have to achieve a lifecycle greenhouse gas (GHG) saving of 60% against an EU fossil heat average. The lifecycle assessment would take account of emissions from cultivation, processing and transport of the biomass, and reflect the conversion efficiency of the boiler plant. This would ensure a significant GHG saving relative to the use of coal, oil or fossil gas for heating.
  • Furthermore, for wood-fuel, we propose that the land criteria correspond to meeting the UK public procurement policy on wood and wood products. This approach requires that suppliers should have available documentary evidence demonstrating the wood supplied is from legal and sustainable sources or is from a licensed Forest Law Enforcement, Governance and Trade (FLEGT) partner.
  • For installations below 1MWth capacity, DECC proposes that, from April 2014, they have to purchase their biomass from an approved supplier list. For larger installations DECC proposes that RHI participants would provide reports on the sustainability of their fuel to Ofgem.
  • In the March 2011 RHI policy document DECC committed to introducing limits on the emissions of particulate matter (PM) and oxides of nitrogen (NOx) from biomass installations up to 20MWth capacity. This consultation proposes what the compliance regime should be for those emissions limits.
  • The consultation sets out proposals for simplifying the metering arrangements. DECC proposes that, in most cases, heat transported in external pipes insulated to a specified standard will be eligible heat use and will not be deducted from RHI payments. Therefore, where all heat uses are eligible, only the metering of eligible renewable heat generation would be required.

Other improvements:
  • clarifying the eligibility around ground source heat pumps
  • allowing renewable heat plants to be moved under the RHI
  • clarifying eligible heat use
  • simplifying the rules for biogas metering
  • ensuring biomass boilers are not oversized specifically to claim the tier 1 tariff
  • dealing with how the Retail Price Index (RPI) applies to low tariffs, such as large biomass

With regard to boiler sizing Biomass DECC has anecdotal evidence that there may be installations of biomass boilers which are inappropriate for the heat demand they are intended to serve but have been sized in order to claim the tier 1 tariff only. DECC considers this to be poor practice and is likely to have a detrimental long-term financial impact on the owner of the installation. DECC intends to introduce an eligibility requirement to prevent such installations from benefitting from the RHI.

For all the proposed changes, apart from those on sustainability, within this consultation grandfathering will apply; only applications which are accredited after these changes come into force will be affected. All those installations accredited currently or before these changes, will have to meet current eligibility requirements.

1 comment:

  1. Thanks for sharing your thoughts on this matter. You make some interesting points.