New finance reforms give RHI a future

Nick Shenken explains why there's reason to be optimistic about recent reforms to the Renewable Heat Incentive

With energy efficiency, cost and security of supply dominating political and energy industry debate, UK Government's drive to ramp up efforts to boost efficiency and refine flagship efficiency schemes has begun to gather pace.

With reforms to the Renewable Heat Incentive unveiled last week one could be forgiven for thinking progress has been made to boost take up of the scheme designed to encourage the update of renewable heat technologies for households and businesses.

But while measures including a rise in the tariff for air source heat pumps (ASHP) will be a welcome change, such a move is unlikely to yield a surge of take up following years of relatively slow progress. Indeed, pressure is mounting on Government to do more to make genuine change to boost deployment in earnest.

If RHI is to make a meaningful impact, the biggest hurdle that must be addressed is the lack of a coherent, structured and well-executed third party financing model. Tackling this is the key to ensuring volume deployment over a shorter period.

Put simply without a structured financing model to aid low cost and free installation the entire initiative rests on the end user stumping up the cash to pay for the kit before any of the benefits are realised and with return on investment recouped over a seven year period. As consumer and businesses alike are under increasing pressure to reduce costs and curb spending, this is often a tough sell even if you can demonstrate ultimate savings on energy bills in the interim.

The decision to outline such a model has been deferred until next year. Indeed, the initial consultation to discuss such measures launched and closed in 2015 with actionable outcomes yet to be announced. The result? Renewable heat is behind the curve in the context of the smart and efficient energy agenda. It's safe to say we need some decisive action and fast.

In an ideal world financing of RHI would emulate the system that underpinned the Feed-in-Tariff (FiT) initiative with the ability to transfer the entitlement to the subsidy to the third party funding the installation. This is a tried and tested win-win model with the company selling the pump providing the kit for free but gaining return through the subsidy in a secure manner. The rapid rise of solar as a thriving indigenous UK energy industry is testament to the benefits of this approach.

You could argue that the latest set of reforms amounts to nothing more than tinkering around the edges with real substantive change yet to be seen. While there is some truth in this perspective the boost to the tariffs does lay the foundation for what is required to drive deployment through third party financing.

One has to wonder though, had third party financing been made easier more immediately, whether the increased tariffs would have proved necessary at all or whether that alone would have been sufficient to galvanise deployment levels

There are therefore clearly some positives to be taken from the latest review. The RHI, if successful, could become a cornerstone of UK energy efficiency. Set against the backdrop of strain on energy supply and the continued threat of blackouts, taking the bull by the horns and driving forward transformational change is an opportunity we can't afford to miss.

It's down to us as an industry to demand more from Government to facilitate change and innovation for RHI. 

Author: Nick Shenken, energy partner, Pinsent Masons LLP,
Channel: Policy & Regulation , Finance & investment

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