The New Testament

Barely have we got used to the idea of Feed-in Tariffs (FiTs) – known as the Clean Energy Cashback scheme – then another incentive comes along offering self-builders and renovators large dollops of money for installing new heating kit. This one is called the Renewable Heat Incentive (RHI) and it is due to come into effect in April 2011, though anyone installing relevant kit after July 2009 will be eligible to receive the grants (in theory — more on this later). Whereas Feed-in Tariffs pay money to producers of renewable electricity – principally photovoltaics (PV) and wind turbines – the RHI awards homeowners with renewable heating technologies — heat pumps, thermal solar panels and biomass boilers.

Whilst PV and wind turbines will probably remain optional extras, space and water heating are essential for all new homes and renovations, and so the RHI will have a huge bearing on the choices we are set to make. This is how the tariffs look:

Source: DECC

How will this work in practice? The RHI consultation paper – published in March 2010 – gives us a worked example of a three-bed semi which ditches its gas boiler and fits a biomass boiler and a solar hot water panel on the roof. The solar panel is ‘deemed’ to produce around 2,200kWh of heat annually (x 18p = £400), whilst the biomass boiler produces 11,500kWh each year (x 9p = £1,035). An important fact to grasp here is that the payments are made on an annual basis – there is no installation grant – which reflects what happens with Feed-in Tariffs. But unlike Feed-in Tariffs there is no metering of the output: instead, the amount paid out is calculated from what a typical output might be. In the worked example, the solar panel payment will continue for 20 years (thus set to gross £8,000) whilst the biomass boiler payments will continue for 15 years (set to gross £15,525). That’s over £23,000 for ditching your oil- or gas-fired boiler. Do I detect interest here?

It gets better. Like Feed-in Tariffs the intention is for the payments to be inflation-linked and tax-free as well. Indeed, you may not even have to pay any capital costs upfront, because it is hoped that innovative financial arrangements will be in place so that you effectively take out a loan for the work, and the loan will be repaid from the RHI payments. So, what’s the catch?

The consultation paper is putting forward a remarkably generous scheme. It may well be just a bit too generous and how much of it makes it through to the scheme in April 2011 remains to be seen. The incentive is also very much a leap into the unknown. The up-and-running Feed-in Tariffs scheme is an idea borrowed from the Germans, who have had them for ten years: in this respect we are johnny-come-latelies, following a well-trodden path. But no one has tried anything like the RHI before — the UK is in uncharted territory here. And there are almost as many critics as there are supporters, who cite:

• The people who are going to benefit from these generous subsidies will be mostly middle-class and wealthy — not many one-bed flats have space for a heat pump or a biomass boiler.

• The scheme cost is enormous — it could add as much as 35% to our gas bills in the next ten years.

• The benefits are questionable — it weans us off gas and oil, but onto electricity (which may well be running short by 2020) and biofuel (which many argue we should be eating, not burning).

• There are also doubts about which technologies should be eligible for the scheme. At the moment, a heating technology is either ‘in’ (and fully funded relative to the cost of the kit, rather than the carbon saved) or ‘out’. So just where the line is drawn becomes a crucial determinant of which technologies will succeed and which will be abandoned.

Nowhere is this more muddy than in trying to define the difference between a biomass boiler (in) and a woodburning stove (out). The consultation paper puts it thus: We propose excluding woodburning stoves, air heaters, open fires and similar applications from the RHI. These present practical difficulties as it is extremely difficult to monitor how much they are used (they are usually a secondary source of heat, the use of which will be optional), and to what extent they are used with renewable fuel rather than, for instance, coal.

Well yes, but what about a woodburning stove with a back boiler? The only essential difference between this and a biomass or pellet boiler is that you might want the stove in your living room. Are they going to be able police just where you put your boiler?

Like Feed-in Tariffs, they also want the RHI to extend only to the kit and installers passed by the Microgeneration Certification Scheme (MCS). Which may be a bit of a problem for people who have already installed qualifying plant using equipment or installers who weren’t qualified at the time. Expect lots of hassle here if you try to claim the RHI retrospectively.

But despite the criticisms and the expected teething troubles, the RHI has the financial clout to completely transform the way we heat our homes. In the meantime, it’s going to be hard to plan ahead…