Industry downplays reports of cuts to Renewable Heat Incentive
The renewable energy industry has today downplayed reports the government is planning to cut payments made through its Renewable Heat Incentive (RHI) scheme, insisting it is working with ministers on plans to implement a "cost-control mechanism" designed to ensure the scheme does not exceed its £860m budget.
Citing sources within the Department of Energy and Climate Change (DECC), the Telegraph today reported that ministers were planning to "rein in" subsidies made available through the RHI amidst fears high rates of adoption of renewable heat technologies, such as biomass boilers and ground source heat pumps, could see the scheme exceed its budget.
The paper drew parallels with the feed-in tariff scheme, where a surge in solar panel installations has seen the scheme exceed its budget, prompting the government to controversially propose a second round of deep cuts to incentive payments.
A source told the Telegraph that any cuts to the RHI tariff rates would "not be on the scale of solar", but admitted DECC was looking at how to stop the scheme going over budget.
Any rapid cuts to incentives would represent a blow to the scheme, particularly given that following the launch of the RHI for businesses late last year there is still no firm deadline for the full launch of domestic part of the scheme. The government had originally signalled it wanted to launch the RHI for households this autumn, but the consultation on the planned scheme has yet to be launched and some industry insiders are sceptical the scheme will be launched this year.
However, both the Micropower Council and the Renewable Energy Association (REA), which represent firms that develop and install renewable heat technologies, said they were already aware of the government's plans to introduce a "cost-control mechanism" for the RHI.
"When the government published its original plans for the RHI in March last year it always said there would be a cost control mechanism," Paul Thompson, head of policy at the REA told BusinessGreen. "The next consultation, which is due later this year, will set out those proposals - there has been absolutely no change in the government's plans."
His comments were echoed by Dave Sowden, chief executive of the Micropower Council, who said that DECC officials had recently met with industry representatives to begin discussions on how an RHI cost control mechanism could work.
He added that many renewable heat firms would welcome a well-structured policy that avoids a gold rush of installations similar to the solar boom that led to abrupt changes to the feed-in tariff scheme.
"We would prefer to see a cost-control mechanism that is predictable than get into the same mess we got into with solar," he said. "We want to see a predictable policy framework that gives investors confidence and does not lead to a gold rush and cliff edge cuts to incentives like we have seen with the solar feed-in tariffs."
However, Thompson counselled that the government had to be careful not to implement a cost control mechanism that results in cuts to incentives that are too frequent and deep.
"It needs to be very carefully tailored," he said. "People need to be confident that when a project starts they know what the rate is going to be when the technology comes online. Similarly, if cuts are too frequent it will be difficult to give investors the certainty they need to invest in developing new technologies."
David Symons, partner at consultancy WSP Environment and Energy, agreed that proposals to automatically reduce incentives for both the RHI and the feed-in tariff scheme would have to be well structured so as not to undermine confidence in the market.
"It will need to be communicated so that busy installers and households are always aware what the rate is," he said. "That should be achievable, but if there is uncertainty over the rate then that could undermine the main goal of the schemes, which is to accelerate the roll out of these technologies."
A DECC spokeswoman confirmed that the government was "looking to introduce cost control measures under the RHI scheme and we are working with industry on how this can best be achieved".
The RHI has proved popular with businesses since its launch last autumn. Under the scheme, firms receive payments based on how much energy they generate using approved renewable heat technologies.
Suppliers maintain that in many circumstances the incentives make renewable heat systems such as biomass power units, solar water heaters, and ground source heat pumps more financially attractive than conventional boilers.
Source: Business Green
