Renewable Heat Incentive Update
The Renewable Heat Incentive (RHI) is the mechanism which the government are introducing to transform the way in which the UK is heated and which gives customers a strong financial incentive to switch to biomass heating. There have been two important documents published in relation to the RHI over the past 10 days.
1. The finalised text of the RHI legislation which will now be laid before and approved by the UK Parliament.
2. RHI - Draft Scheme Guidance, published by OFGEM who are going to administer the RHI and make the payments.
The RHI will be a fundamental driver to taking biomass heating mainstream and many of the projects we have reviewed over the past 3 months are showing a rate of return of between 10% and 20% when the RHI is considered. It is therefore important that clients and other stakeholders understand what is contained within these two documents (circa 300 pages.) We have summarised our initial thoughts on these documents on our website (click here) and the key messages are:
The RHI will be paid quarterly based on the heat produced by the boiler for a period of 20 years and the payment rate will be uplifted for inflation on the 31st March each year.
The inflation uplift for 2010/11 has now been applied to the tariff rates which further improves the return on investment for projects that we have reviewed to date.
There are no significant “nasty surprises” contained within the documents and on this basis we broadly welcome them.
The 20 years for which a project will be paid commence on whichever is later of the commissioning date or the date OFGEM receive a completed application form. In practice, for our projects this will mean the date the fully completed application is received.
OFGEM will be open for applications (web based) on the 30th September 2011. This suggests that the first payment will be received 3 months after this date.
There is a significant amount of information to be supplied to OFGEM both on initial application and on an ongoing annual basis.
Customers who installed after the 15th July 2009 will be eligible and their 20 years will start on the date that OFGEM receive the completed application.
Grant funding will need to be repaid – we expect further clarification over the coming months from grant issuing bodies as to which elements of the grant will need to be repaid and the mechanism for undertaking this repayment.
You can go to our website for a more detailed summary and we also recommend that you review the documentation yourself. Links to the key papers can be found on our website.
June was a very busy month on the project order side with a number of projects being confirmed in the Rural Property and Public and Community Sectors. Given their ability to make decisions it is the Rural Property sector who have been quickest to react to the RHI and as they are often heated by oil and have the ability to produce or process their own woodfuel the business case feasibility is very strong. We have now helped more than 65 Estates and other large rural properties to switch to biomass and use their own woodfuel which represents around 40% of the projects we have completed to date. This will remain a key sector for us in future and we had a very enjoyable 3 days at the Scottish Game Fair speaking with existing clients and meeting potential new ones.
On the Biomass Heat Trail
Our July open event has been very heavily subscribed so we will aim to run another event that shows a broad range of biomass systems in a variety of settings. This event is designed to allow potential customers or those interested in biomass heat the chance to see a range of solutions in operation to determine the most appropriate and relevant one for their project. Please contact Louise McMillan, on email@example.com, if you would like to attend a future event likely to take place in September. .