The RHI and the bigger picture
How effective is the Renewable Heat Incentive? Sophie Chisholm of CBx shares some thoughts.
The RHI scheme (Renewable Heat Incentive) is designed to financially reward those who use renewable energy to heat their buildings with an aim to help the UK achieve its target of producing 12% of its heat from renewable sources by 2020.
In particular, it is intended to move the off-gas-grid market to renewable heat by increasing the uptake of renewable heating systems — including ground-source heat pumps, air-source heat pumps, water-source heat pumps, biomass boilers and solar thermal. It is an incentive scheme, one of many developed by Government to stimulate the Green Economy and sitting within a hierarchy of other energy targets.
Under the European Commission, the UK is bound to energy-efficiency and carbon-reduction targets of 15% generation from renewables by 2020 and 80% emissions reduction by 2050. Upon investigating the carbon economy as a whole system, the Committee on Climate Change identified the built environment as the low-hanging fruit, and has recommended that a target should be set at zero emissions by 2040 in order to meet these.
A strategic framework for low-carbon heat in the UK is a Department of Energy & Climate Change (DECC) report produced in March 2012 which indicates that 46% of the final energy consumed in the UK is used to provide heat. Of this heat, around three quarters is used by households and in commercial and public buildings, with the remainder used for manufacturing materials, chemicals and goods in the industrial sector.
The first observation here is that the three sets of targets are not well-aligned. If there is a need for the built environment to produce zero emissions by 2040 and half of the total final energy in the UK is consumed to provide heating, a target of 12% of heat from renewable sources in 2020 is not going to address the big picture.
There has been a suite of financial incentives and grant schemes developed since 2011 which are designed to support the move to a low-carbon economy. Each of these policies works well as a standalone incentive, but market forces are yet to drive a logical solution for a homeowner looking to perform a whole-house retrofit.
As a first priority a homeowner should look to upgrade the building fabric, thermal performance, air tightness and other energy-efficiency measures. Secondly, the RHI should be utilised to provide renewable, cost-effective heat. Only after these measures should FiTs (Feed-in Tariffs) be considered.
However, having performed fabric upgrades for free for a number of years, it is now sold to the homeowner with no rate of return, the RHI has a small rate of return under current tariffs, and the FiT has the largest rate of return — thereby contradicting the process. Furthermore, the financing works differently for each scheme, adding a layer of complexity for a building owner and skewing the incentives for scheme uptake. The RHI is a post-paid tariff scheme, whereas there is an upfront grant for energy-efficiency measures under the domestic Green Deal.
Unlike the feed-in tariff (FiT), which is designed to provide income, RHI payments are instead meant to help offset the cost of running a renewable-heating system. There have been many documented cases, particularly in schools, where conventional back-up plant has been used as the lead system for heating, and renewable technologies have never been switched on. As the RHI incentivises of the use of the system, as opposed to awarding a capital grant, this may go some way to addressing the issue.
As the RHI is not a capital-cost grant scheme, the owner of a property must undergo a credit check in order to finance the installation. In examples where fuel poverty are most prevalent and the RHI would be most useful, these prospective participants are unlikely to pass a credit check. One must ask if the scheme is reaching the right demographic. Where credit checks are failed, participants will instead revert to the installation of a conventional boiler system and become locked into using fossil fuels for another 15 years.
While the Energy Companies Obligation (ECO) successfully tackles issues of fuel poverty and pays parts of a homeowner’s high bills, it reduces the incentive to tackle the problem and also means that a percentage reduction in bills would have a smaller effect. It does seem that the ECO fund would be much less short-termist if it were to be paid through RHI technology grants.
Culture is also a major factor in the success of this scheme. The 85% of UK homeowners that are on-gas are used to their heating system comprising a boiler in a cupboard that needs servicing periodically. This makes the leap to a biomass boiler, a perceptually more uncertain technology requiring fuel deliveries, a large one. Culture change must go hand-in-hand with the right technological solutions and incentives to encourage widespread uptake. A market economy will serve to stack up policies by financial gains. so it is imperative that Government takes responsibility for correctly weighting incentives to the environmental benefits of a policy.
Sophie Chisholm is programme and technical manager at CBx
To read more about the renewable heat incentive, read the CBx white paper, ‘RHI decoded: What is its role in the UK carbon economy?’ See link below.
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