The Renewable Heat Incentive (RHI) was launched last month by Energy Secretary Chris Huhne. It is the first of its kind to encourage renewable heat installations and is intended to reduce the UK’s carbon emissions by 44 million tonnes by 2020. Currently around half of the country’s carbon emissions come from the energy used to produce heat – over 95% of heat in the UK is produced by burning fossil fuels, the majority of which is gas. The Government is aiming for 12% of the UK’s heat demand to come from renewable sources by 2020, a major increase from the current level of 1.5%. Of the 12%, it is anticipated that just 1% will come from the domestic sector and so the initial focus of the RHI is on business users.

RHI tariffs are anticipated to be available for the non-domestic sector from July 2011 (Phase 1) and for domestic installations from October 2012 (Phase 2). Non-domestic sector includes industry, business and commercial, charities and not-for-profit organisations, public sector organisations, as well as a renewable heating installation serving multiple residential dwellings, and residential premises that have been converted for non-residential use.

The non-domestic installations cover solid biomass & municipal solid waste, ground source & water source heat pumps, deep geothermal, solar thermal, biomethane injection & biogas combustion (except from landfill gas). Air sourced heat pumps have been excluded at the moment and there is a requirement for the RHI payments to be metered rather than deemed heat output.

The RHI will be funded from a total budget of £860m (rather than a levy on heating bills) over the period 2011-2014. The RHI will last until 2020 with payments guaranteed for 20 years from entry to the scheme. Like the Feed-in Tariffs, tariff rates will be adjusted annually in line with inflation and the Government plans to introduce degression in 2012. Payments will be made quarterly, have to be paid to the owner of the equipment and cannot be assigned to anyone else. Tariff rates for non-domestic installations range from 2.6p per kWh to 8.5p per kWh.

Anyone who has installed renewable heat since 15th July 2009 will qualify for RHI payments, provided they meet the eligibility criteria. In order to appease the domestic sector, from July 2011 to October 2012 a one-off direct payment, the ‘RHI Premium Payment’, will be paid to subsidise the cost of qualifying renewable heat installations for eligible domestic properties only. Likely levels of these Premium Payments are £300 for solar thermal, £950 for biomass boiler and £1250 for ground source heat pump. Domestic RHI payments are likely to coincide with the Green Deal in October 2012 to allow a more ‘whole house’ approach to heat production and energy saving.

We will keep you updated of developments with the RHI. Further details are available from DECC (Department of Energy & Climate Change) at http://www.decc.gov.uk or the Carbon Trust at http://www.carbontrust.co.uk.