UK Domestic RHI - A Step Forward, But No Certainty Over Tariffs

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Delta Energy & Environment

20 Sep, 2012, 18:24 GMT

EDINBURGH, Scotland, September 20, 2012 /PRNewswire/ --

Today (20th September 2012) DECC launched the consultation on the proposals for a domestic Renewable Heat Incentive (RHI) scheme. While it is positive that the scheme is now being consulted on, DECC has been unable to provide the clarity many in the industry would liked regarding the RHI tariff levels.  

DECC has proposed broad 'illustrative' tariff ranges of 6.9 -11.5p/kWh for Air Source Heat Pumps (ASHP), 12.5 - 17.3p/kWh for Ground Source Heat Pumps (GSHP), 5.2 - 8.7p/kWh for biomass pellet boilers and 17.3p/kWh for Solar Thermal. It is currently proposed that the final tariff would be fixed over a payment period of 7 years.

Early analysis by Delta-ee has found that at the upper end of the band, the proposed tariffs will deliver attractive paybacks[1] for renewable heat technologies, summarised as follows:

                     Payback without    Payback with RHI
      Technology       RHI (Years)           (Years)             Impact
                    Off gas   On gas   Off gas    On gas

                                                             Potentially huge,
                                                             ASHP are the only
      Air source                                               technology with
      heat pump                                            potential to really
      (ASHP)           13         34        2         4        compete on-gas.

                                                             Positive but high
    Ground source                                                 upfront cost
    heat pump               Does not                        remains a critical
    (GSHP)             29   pay back        6         9                  issue

                                                                  Positive but
                                                             biomass is poorly
    Biomass pellet                                           perceived by many
    boiler             16        85         4         7              customers

                                                             Mildly positive -
                                                             but solar thermal
                                                                  will have to
                                                            compete with solar
    Solar thermal      33        63        17        33                     PV

Source: Delta-ee, 2012

At the upper end of the tariff band, ASHP technology would be a clear winner.  A typical household will get an annual RHI payment of around £2,000 - enough to pay back the marginal costs within 2-4 years.  However, even at this tariff level, an uncontrolled 'heat pump' boom is unlikely:

  • Renewable heat is not the same as PV: installing PV is a discretionary decision about 'adding' a technology into a home - in contrast, heat pumps usually replace existing heating systems.  For most existing homes, the decision to change a heating system is complex, and usually happens when the current system becomes obsolete.  
  • Upfront capital cost remains a critical barrier for uptake of renewable heat[2]: While these tariffs could give attractive paybacks, the upfront cost for many potential customers may still be prohibitive unless the market is able to deliver financing solutions.
  • The 'customer journey' is long: To be eligible for the RHI customers must have completed all of the Green-Deal "green ticks" on their Green Deal assessment that relate to thermal efficiency (excluding solid wall insulation). This adds extra steps to the customer journey - and some customers could be put off by the potentially lengthy process.
  • RSLs could be a missed opportunity: RSLs may not be eligible for the domestic RHI tariffs proposed by DECC - however, they represent a core market for low carbon heating (over 40% of 2011 retrofit installs were in social housing[3]).  
  • What happens after year 7?:  if the RHI payments suddenly stop in year 7, customers could see a risk of higher energy bills from year 8 (eg if they have switched from gas to electric heating)

Stephen Harkin, GB Microgeneration Research Service Manager at Delta-ee stated: "Today's announcement is a step forward on the long journey to define the domestic RHI.  Our analysis shows that the scheme could kick-start the domestic market for renewable heat, but the lack of clarity about RHI tariffs remains frustrating".

For further information, or to receive a copy of our full briefing document, please email Jan Hughes, Business Development Executive at jan.hughes@delta-ee.com or call 0131 625 1011.

Notes:

  1. Paybacks are calculated on the marginal cost of installing a low carbon heating solution, compared to the fossil fuel boiler that would otherwise have been installed.
  2. Delta-ee / Accent customer research of 1000 owner occupiers identified up-front cost as a primary barrier to microgeneration
  3. Delta-ee GB Microgeneration Service 2012

About Delta-ee

Delta-ee (http://www.delta-ee.com) is an Edinburgh-based energy consulting company specialising in decentralised energy and low carbon strategies.  The GB Microgeneration Research Service evaluates customer attitudes, analyses technology performance & economics, and forecasts market development of microgeneration technologies in Great Britain. Delta-ee supports clients through providing commercial insight, market expertise, technology and product analysis, policy analysis and forecasts.  Clients include many of the major heating equipment manufacturers, energy companies, and technology developers from around the globe.

Contact Information
Jan Hughes
Business Development Executive
Delta-ee
Registered offices: Edinburgh, Scotland
Contact: jan.hughes@delta-ee.com, +44-131-625-1011