Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/879860
8 | 29TH SEPTEMBER - 5TH OCTOBER 2017 | UTILITY WEEK Policy & Regulation Analysis S eptember has been a busy month for the Renewable Heat Incentive (RHI). The government published more pro- posals to streamline the scheme, its response to a previous consultation on biomass com- bined heat and power (CHP), research and data. In addition, several changes proposed last year, including some tariff restructuring, came into effect. The latest consultation mainly centres on introducing more safeguards to ensure that the non-domestic scheme is not misused, or overspent. The government is proposing to limit the heating purposes that are eligible for RHI payments. Currently, heating space or water, or carrying out an industrial pro- cess inside a building, or drying something outside a building, can all claim payments under the scheme. But the government is concerned that there could be cases where materials are being dried with the sole purpose of gaining or maximising RHI payments, rather than displacing fossil fuels that would otherwise have been used if there had been a genuine need to dry the material. It is therefore pro- posing to remove all types of drying from the scheme, including wood fuel, animal bed- ding and feed and waste materials. Equally, it plans to ask applicants for the RHI to provide more evidence that a heating use is genuine and has not been manufactured to earn money from the subsidy scheme. Limiting plant size The consultation also outlines plans to limit the size of plant that would be supported under the scheme. Currently, payments are tiered according to the capacity of the heat plant, but there is no upper limit on plant size. The government is proposing a cap of 250GWh a year for all technologies. This will ensure that a small number of very large plants will not swallow a substantial part of the RHI's budget, leav- ing little for smaller projects, or even trigger- ing closure of the support scheme. The limit is far higher than the size of any scheme seen so far, but is intended to pro- vide a backstop should such schemes come payments by accrediting multiple installa- tions at the most advantageous tariff band. There is evidence that this is taking place, the government says, citing the example of someone installing two medium-sized bio- mass plants instead of one large one. Pros and cons Reaction to the proposals was mixed. Frank Aaskov, policy analyst at the Renewable Energy Association (REA), says the consul- tation was mostly about streamlining the scheme and ensuring it met its policy aim, which was to lower carbon emissions in a cost-effective way. The proposal to make drying materi- als ineligible for support could make the scheme less attractive to businesses that were energy-intensive or involved in indus- trial processing, he believes. But Aaskov agrees the government was right to address concerns that the RHI could be misused, as that would damage its reputation, as well as efforts to reduce carbon emissions. Thom Koller, policy officer at the Anaero- bic Digestion and Bioresources Association (ADBA), says the restriction on plant size was "very sensible" as it would prevent large projects swallowing up the budget. Anaerobic digestion plants do not have capacities anywhere near what the govern- ment is proposing, he says. But Tim Rotheray, director of the Asso- ciation for Decentralised Energy, points out that, while the logic of limiting the size of plant is understandable, it would be more efficient to have a few larger-scale plants rather than multiple small-scale plants, because larger ones receive a lower tariff per unit of energy. Large-scale projects have struggled to be developed under the RHI scheme so far, he says. "Members have had to drop several larger schemes over recent years because they didn't have clarity over the RHI," says Rotheray. Taken together with existing safeguards, such as tariffs that degress over time, the new proposals mean the likelihood of overspend on the scheme is very small, Aaskov says. A rethink for renewable heat The government has tweaked the Renewable Heat Incentive to streamline the scheme, but the industry is still waiting for more radical changes to be implemented, says Catherine Early. Changes implemented as of 20 September Domestic RHI: • Upli to the tariff rates for biomass (3.85p/ kWh to 6.54p/kWh), air source heat pumps (7.63p/kWh to 10.18p/kWh) and ground source heat pumps (19.64p/kWh to 19.86p/kWh). • Limit to the financial support that can be received each year: biomass (25,000kWh); air source heat pumps (20,000kWh) and ground source heat pumps (30,000kWh). Non-domestic RHI: • The tariff boundary between Tier 1 and Tier 2 for small, medium and large biomass is rising from 15 per cent to 35 per cent. Changes agreed but not yet implemented Domestic RHI: • Degression of tariffs will not take place if growth of a particular technology has slowed down. • Households will be able to assign rights to RHI payments to investors who fund renew- able heat technology on their properties. Non-domestic RHI: • Power efficiency threshold of 20 per cent for biomass CHP. • Reset of tariffs for biomethane and biogas. • Introduction of tariff guarantees. Proposals under consultation • Make drying ineligible. • Limit maximum size of renewable heat plant to 250GWh a year. • Payments calculated based on the total capacity based at a single site. Source: Ofgem forward in the future, according to the con- sultation document. In addition, payments will be calculated based on the total capacity based at a single site, in order to stop people increasing their