Renewable heat incentive rewards solar water heating but will increase air pollution

Chris Huhne has finally announced much-awaited details of the Renewable Heat Incentive (RHI) scheme.

It covers such technologies as solar water heating, using wood, wood pellets and woodchips, air and ground source heat pumps, energy from waste, on-site biogas, deep geothermal and injection of biomethane into the grid.

36% of the UK’s overall energy is used for heat, creating 175 million tonnes of carbon emissions a year.

The industry had originally hoped that the scheme would start at the same time as the Feed-In Tariffs for renewable electricity a year ago, then it was expected this April, but now payments won't be be available to households until October 2012.

The scheme has become a victim of government cuts and will be smaller in size than originally thought and introduced in phases.

Importantly, because of criticism of the potential impact on fuel bills, the RHI will not be funded by an RHI levy but from general Government spending.

As a result, it will be introduced in two phases. In phase 1, more than a quarter of the first year's budget, around £15 million, is to be guaranteed up to 25,000 household installations through a premium payment scheme.

Phase 1 will focus on people living off the gas grid, who typically spend more on their heating and whose fuels, like coal, have a higher carbon content.

Participants will then provide feedback on how the scheme works to help design the second phase.

In this phase, coinciding with the introduction of the Green Deal, the scheme will expand so that by 2020 there will be an estimated 13,000 installations in industry, 110,000 in the commercial and public sector supply 25% of this sector is demand, and creating 150,000 jobs.

Carbon savings and air pollution

It is hoped that the scheme will help deliver 44 million tonnes of carbon dioxide savings by 2020, though 8 million of these are already accounted for by the European Emissions Trading Scheme. Those emissions within the emissions trading scheme will cost £35/tCO2 and those outside the scheme a further £12 per tonne.

However, there are concerns about the impact on air quality of a lot of new biomass combustion, particularly from particulates such as PM10. The final RHI proposals could lead to 28TWh of biomass burned. and assessment by Defra of the proposals shows that this could lead to up to £2.6 billion of potential lifetime social cost.

This is a staggering amount.

The Tariffs

The highest tariffs will be paid to solar thermal water heating (8.5p/kWh) small biomass schemes (7.6p/kWh or 1.9p/kWh - see below why), and biomethane (6.5p/kWh). Small ground source heat pump schemes will receive 4.3p/kWh, and large schemes 3p/kWh.

Municipal solid waste schemes including Combined Heat and Power (CHP) will receive 4.7p/kWh or 1.9p/kWh, depending on which tier they are in, and large biomass schemes 2.6p/kWh.

Solar water heating was by far the most popular renewable energy technology under the previous renewable energy subsidy schemes like Clear Skies. It works very well in the UK and can supply between 40 and 50% of domestic hot water requirements, so it is good that it receives the most support.

Because of doubts about their efficiency air source heat pumps will not be eligible at the start of the RHI. Nor will heat pumps that deliver the heat to air as opposed to water. Some will consider this unfair, but it is to do with the difficulty of metering this kind of heat.

Heat meters will need to be installed at the point of generation and, where appropriate, at the point of usage in order to claim payments.

Bioliquids also will not be eligible from the start because of the complexity of the market and their uses in transport etc. They can also have a high energy density.

RHI support will only be available if the installation in question has not received (and will not receive) any other public funding.

The tariffs will be paid for 20 years to the eligible technologies that have been installed since July 15, 2009 with payments for each kilowatt of renewable heat produced.

Payments, which will be administered by Ofgem, are to be claimed by, and paid to, the owner of the heat installation or the producer.

These payments will be fixed for the lifetime of the scheme, once a measure is installed, adjusted in line with inflation. But the levels of support available for new entrants as time goes on may decrease.

Rewards linked to energy conservation

Following criticism that there might be no requirement that the building in question has an efficient fabric, by being introduced with the Green Deal, homes must be insulated to reduce demand, as with earlier schemes, such as the Low Carbon Building Programme, because everyone knows is more cost efficient to save energy than to generate it.

There has been a worry about what happens when some smart meters enter into the market. When buildings are metered on a half hourly basis energy the incentive will be to run your equipment as much as possible because the more your meter ticks over, the more money you make.

This has to some extent been met by introducing a two-tier tariff system for biomass boilers to reduce incentive to over-generate. Upon reaching a prescribed level of heat generation, the tariff drops to a lower tier 2 tariff. For solar thermal, once the equipment is installed, the amount of heat generated is not controlled by the owner.

The RHI has been a long time coming. There are many in the industry raring to get installing, and there is a huge potential market. But most will have to wait a good while yet before they can take advantage of the scheme.