The government has tweaked the Renewable Heat Incentive to streamline the scheme, but the industry is still waiting for more radical changes to be implemented, says Catherine Early.

September has been a busy month for the Renewable Heat Incentive (RHI). The government published more proposals to streamline the scheme, its response to a previous consultation on biomass combined heat and power (CHP), research and data. In addition, several changes proposed last year, including some tariff restructuring, came into effect.

The latest consultation mainly centres on introducing more safeguards to ensure that the non-domestic scheme is not misused, or overspent. The government is proposing to limit the heating purposes that are eligible for RHI payments. Currently, heating space or water, or carrying out an industrial process inside a building, or drying something outside a building, can all claim payments under the scheme.

But the government is concerned that there could be cases where materials are being dried with the sole purpose of gaining or maximising RHI payments, rather than displacing fossil fuels that would otherwise have been used if there had been a genuine need to dry the material. It is therefore proposing to remove all types of drying from the scheme, including wood fuel, animal bedding and feed and waste materials. Equally, it plans to ask applicants for the RHI to ­provide more evidence that a heating use is genuine and has not been manufactured to earn money from the subsidy scheme.

Limiting plant size

The consultation also outlines plans to limit the size of plant that would be supported under the scheme.

Currently, payments are tiered according to the capacity of the heat plant, but there is no upper limit on plant size. The government is proposing a cap of 250GWh a year for all technologies. This will ensure that a small number of very large plants will not swallow a substantial part of the RHI’s budget, leaving little for smaller projects, or even triggering closure of the support scheme.

The limit is far higher than the size of any scheme seen so far, but is intended to provide a backstop should such schemes come forward in the future, according to the consultation document.

In addition, payments will be calculated based on the total capacity based at a single site, in order to stop people increasing their payments by accrediting multiple installations at the most advantageous tariff band. There is evidence that this is taking place, the government says, citing the example of someone installing two medium-sized biomass plants instead of one large one.

Pros and cons

Reaction to the proposals was mixed. Frank Aaskov, policy analyst at the Renewable Energy Association (REA), says the consultation was mostly about streamlining the scheme and ensuring it met its policy aim, which was to lower carbon emissions in a cost-effective way.

The proposal to make drying materials ineligible for support could make the scheme less attractive to businesses that were energy-intensive or involved in industrial processing, he believes. But Aaskov agrees the government was right to address concerns that the RHI could be misused, as that would damage its reputation, as well as efforts to reduce carbon emissions.

Thom Koller, policy officer at the Anaerobic Digestion and Bioresources Association (ADBA), says the restriction on plant size was “very sensible” as it would prevent large projects swallowing up the budget. ­Anaerobic digestion plants do not have capacities ­anywhere near what the government is ­proposing, he says.

But Tim Rotheray, director of the Association for Decentralised Energy, points out that, while the logic of limiting the size of plant is understandable, it would be more efficient to have a few larger-scale plants rather than multiple small-scale plants, because larger ones receive a lower tariff per unit of energy.

Large-scale projects have struggled to be developed under the RHI scheme so far, he says. “Members have had to drop several larger schemes over recent years because they didn’t have clarity over the RHI,” says Rotheray.

Taken together with existing safeguards, such as tariffs that degress over time, the new proposals mean the likelihood of overspend on the scheme is very small, Aaskov says. “We’re not just wearing belts and buckles, we’re also wearing a parachute,” he adds.

Delay to reforms

The renewable energy industry is more concerned that earlier reforms to the RHI have not yet been implemented. These were first proposed in early 2016, but have been repeatedly held up by political upheaval. They were not confirmed until December, then legislation tabled in the spring had to be withdrawn when the election was called.

Now, the Department for Business, Energy and Industrial Strategy (BEIS) has split the legislation into two parts. Some came into effect on 20 September, including resetting the tariff for biomass plants to a previously higher level.

However, measures to raise the tariffs granted to biogas and biomethane projects to previous levels, and introduce tariff guarantees, where a tariff can be secured before it is commissioned, have not materialised. According to BEIS, these need to go through a more lengthy parliamentary process.

The ADBA says the changes are crucial to further development of biomethane plant. Development of up to 25 plants has stalled until the regulations are implemented, it estimates. “Our industry has been ready for more than a year to respond to the changes. We’re aware of around 20-25 plants, or £130 million in investment that is waiting to go ahead. With the delay, some of these projects are at risk or will have to renegotiate finance,” Koller says.

BEIS stalling policy

Shadow energy and climate change minister Alan Whitehead MP has been pressing the government to implement the new regulations. “BEIS is absorbed in what is happening about Brexit and neglecting other areas that need attention simply because its mind is on other things. There’s a lack of capacity, a lack of co-ordination and urgency,” he says.

Even once the government implements the regulations, another delayed policy is pressing on the industry’s mind: the Clean Growth Strategy. Renewable heat is vital to the country’s future decarbonisation plans under the fifth carbon budget, which envisages these technologies providing supply for around 13 per cent of homes and more than half of business use by 2050. Currently there is no policy for renewable heat after March 2021, when the RHI ends.

Aaskov points out that the government needs to start consulting soon on post-2021 policy for renewable heat to avoid stalling projects with a lead time of three to four years.

But Whitehead fears the government will not prioritise renewable heat. “The RHI urgently needs very considerable expansion in its scope and underwriting. All the signs at the moment are that the government is not taking that seriously,” he says.

Focus on electricity

Many advocates of low carbon heat, including Rotheray, complain that government has ignored its potential in favour of a focus on low carbon electricity. Government funding towards decarbonising electricity dwarfs that for heat, he says.

He points to the contrast with the offshore wind sector, where ever larger projects are being developed and massive cost reductions have been achieved through a combination of policy certainty from government and innovation from industry. “A very clear policy has been set out over a significant trajectory in timescale and there has been constructive working between industry and government. The RHI has been the opposite of that.”

Brexit opportunity

Richard Lowes, researcher at the University of Exeter Energy Policy Group, says all the recent changes to the RHI have been “tinkering around the edges” rather than addressing the main issue, which is that the scheme has overwhelmingly supported small-scale biomass over other technologies.

Biomass plants make up 86 per cent of projects supported by the non-domestic RHI, according to the latest data from BEIS (see below). The fuel source has a higher carbon content, so is less effective at decarbonising heat than other technology, Lowes says.

The design of the RHI has been skewed towards meeting EU renewable energy targets, which has prioritised biomass because it is a cheap technology to develop in the short term. Once the UK leaves the EU, it could redesign the scheme to target financial support more towards longer-term, more sustainable technologies such as heat pumps and solar thermal, Lowes says.

Rotheray believes a fundamental rethink of renewable heat policy is needed. He claims the definition of renewable heat under the RHI can be quite restrictive, giving the example of heat pumps, which are not counted as a renewable technology if they take heat from waste, but are if they take heat from the ambient air – even though this is less efficient.

“The first thing we need to think of is the greenhouse gas content of heat. That’s where the focus needs to be, and the artificial definition of what is renewable and what isn’t is not helpful.

“The fifth carbon budget is very clear – if you want to achieve it, you have to decarbonise heat. The government needs to be ambitious. The UK has successfully led on other areas of the energy sector and it could lead on this.”