Proposed DECC reforms set to change the renewable heat landscape

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Proposed DECC reforms set to change the renewable heat landscape

March 2016

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The DECC has published a consultation document which could reduce the viability for biomass and anaerobic digestion projects from April 2017 and remove all support for solar thermal.

The government confirmed its ongoing support for the RHI (Renewable Heat Incentive) scheme in the November Spending Review announcing that spending would rise from £430m in 2015/16 to £1.15bn in 2020/21. They also stated that the scheme would have to deliver “better value for money” and save £700 million over the five year period.  
 
The subsequent DECC consultation document clarifies what funding will be available and outlines plans to reform both the domestic and non-domestic schemes. The government hopes this will promote wider access and support technologies which are “likely to be strategically important in the longer-term”. 
 
Tighter budget limits are being brought in from the start of next month with a single cap across both RHI schemes. This will allow the schemes to be closed early in any financial year, but monthly updates will be published to help reduce uncertainty for potential investors.  If the schemes were prematurely ended, a date would be set giving installers 21 days’ notice, in order to get their system commissioned before the closure takes effect. 
 
From April 2017 a second phase of changes are being proposed, most noticeably the introduction of a single tariff for biomass ranging 2.03 – 2.90p/kWh. Dan Thory of Fisher German comments “this represents a significant drop in support of up to 61% for small and medium biomass installations up to 1MWth, which currently receive up to 5.18p/kWhth.  This is intended to stall growth of smaller-scale biomass, which up until now has dominated overall deployment in both the domestic and non-domestic sectors”. 
 
In other plans designed to encourage “strategically important” technologies and larger systems with long lead-in times, tariff guarantees are being proposed from 2017.  These will enable developers to fix tariffs prior to commissioning, so long as the project has reached financial close and other requirements (including installation capacity) are met.  Plant which has been granted a tariff guarantee would be protected from any subsequent closure of the scheme.  
 
Other significant changes proposed for 2017 include the removal of all support for solar thermal technologies, which currently receive the highest RHI tariffs. The government states that half of those who had installed units said they would have done so without RHI support, and therefore it represents “poor value for money for taxpayers”.  
 
Dan Thory continues “from 2017 the government also wants to restrict RHI support to new biogas and biomethane plants using crop-based feedstocks, to encourage use of waste feedstocks in Anaerobic Digestion (AD). In addition, the removal of support for heat used to dry digestate is likely to mean that many AD developers look to invest in other technologies, unless a reliable source of waste feedstock and a viable use for the heat is available locally”.   
 
Dan concludes “the UK is already behind on its renewable heat targets and these proposals clearly represent major challenges to the renewable heat sector. Most biomass projects would become unviable under these reduced tariffs unless a local source of low cost wood fuel is available.  DECC’s own calculations suggest that the number of small to medium biomass installations will drop by up to 98% by 2021, based on current levels.  In attempting to rebalance spending under the RHI, the government risks stalling further growth in these successful and essential sectors. We would strongly advise those considering biomass, solar thermal or AD projects to move quickly to avoid the changes scheduled in April 2017”. 
 
For further information, please contact Dan Thory on 01858 411226, or email here
 
Further information on our Renewable Energy services can be found here
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