Renewable Heat Incentive - safe from degression (for the time being)

Following the most recent check on uptake Ofgem has announced that the commercial RHI tariffs will remain unchanged.

This was the first serious 'degression test' for the commercial RHI. DECC's figures show that both the small and medium commercial biomass tariffs had exceeded their degression trigger points:

• Small commercial biomass: Forecast spend over the next 12 months is £32.3m. This is £4.3m over its individual technology trigger.

• Medium commercial biomass: Forecast spend over the next 12 months for is £26.5m. This is £0.2m over its individual technology trigger.

However, because spend for all other tariff categories were considerably below their individual tariff thresholds for this quarter, and overall spend was within budget, Ofgem has decided to leave all tariffs unchanged.

Commercial RHI - total spend (Nov 14 2013)

Total forecast expenditure for the scheme (as of October 31st) was £70.3 million. 

As the £70.3m figure does not exceed either threshold (see below) the scheme has been left unchanged:

• The “50% trigger” for the scheme as a whole as at 31 October is £71.6m.

• The “100% trigger" for the scheme as a whole as at 31 October is £143.3m.

Biomass heating is clearly the biggest 'winner' from the commercial RHI. In contrast to the feed-in-tariff (FiT) for renewable electricity, which grew exponentially, RHI growth has been far more linear (and thus more predictable).


But as you can see the commercial RHI was very close to its degression trigger in October - for some tariffs - and we suspect that things may get even tighter in the near future.

Uptake of commercial RHI Source: KDAONB

The forecast spend for the small commercial biomass tariff means that it is already above its next quarters individual technology trigger (£30.9m on January 31st 2014).

This means that there is enhanced risk of degression in this tariff.  However, this would only occur if next quarter’s 50% trigger for overall expenditure of £83.2m was also exceeded.

RPI (%) Source: ONS

The good news is that the scheme overall is nearing its third 'inflation point' on April 1st 2014.  

The commercial RHI tariffs have already been increased by the Retail Prices Index (RPI) twice (4.8% in 2012, 3.1% in 2013) and the increase may help offset degression  if it happens.

However, the latest figures from the ONS show that the RPI is falling so the cushioning effect may not be so marked in April '14.