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Renewable Heat Incentive: yes please, but with changes

Posted by John Barker-Brown on 9 July 2010 at 11:16 am

First let's get something straight. I think the renewable heat incentive (RHI) is a good idea. Rewarding people for their contribution to reducing carbon emissions is great and will stimulate the market. However, in its current form the RHI may not reduce emissions, and due to lack of Government clarity is already causing issues and mis-selling of technology.

Of course, DECC is attempting to develop the world’s first incentive scheme which rewards renewable heat technologies. Unlike feed-in tariffs, there are no existing templates to provide any guidance. Instead, they are starting from scratch. Without doubt, there are many issues, not least how it will be financed, administered and regulated.

There are also considerable challenges in establishing the ‘deemed’ energy consumption at any property, all as detailed in the consultation document.

No doubt, DECC is looking at these issues, but so far much of the attention in the market has focussed on the tariff levels included in the Consultation document. Are they right?

Probably not.

Most people would suppose that the tariff is influenced by the efficiency of the technology; this is the case but not in the way you might expect. The lower the assumed efficiency of the technology, the greater the tariff payment because, it is argued, a greater incentive will be required to displace the (assumed) gas boiler since the running cost savings will be more modest.

This cannot survive closer scrutiny.

Indeed, there are a number of important issues to be considered.

1) Supporting installations which increase a property’s carbon footprint.

Taking some simple CO2 figures from the Carbon Trust (Electricity 0.533 kg CO2, Gas 0.184kg CO2) and efficiencies from SAP (250% for air source) it can be shown that replacing a modern A rated gas boiler with an air source heat pump actually increases the CO2 emissions. The incentive rewards people for doing this, by giving them an annual payment. Without the renewable heat incentive the running costs actually are higher, but with the RHI, clients will have their fuel bills paid and have approximately £400 a year for their trouble. I’m already aware of a client who has just installed a new gas boiler, but if the RHI is launched in its current form they will remove this and replace with an air source heat pump.

It could be argued that the carbon intensity of electricity will decline over the next 10-20 years but surely the time for incentivising the displacement of efficient gas boilers will come later?

2) Ground source heat pumps will show a reduction in CO2 emissions against an A rated gas boiler, yet the tariff for this is lower than for air source, so you are rewarded less for installing a higher efficiency technology, which will reduce carbon emissions.

The tariff is lower because the data used to establish the capital cost per kilowatt is highly questionable. DECC officials have suggested that the cost to install a 6kW air source heat pump is only marginally less than an 11kW ground source heat pump. There is plenty of robust data on installation costs included on the many LCBP grant applications so, surely, DECC will investigate this further.

3) Heat pumps will be sold in to the wrong application by unscrupulous installers, mainly into un-insulated buildings on the basis of the RHI payment.

Remember, the higher the heat loss that the building has, the higher the renewable heat incentive payment if they proceed with the use of an EPC as the measure of energy consumption. Lots of people will simply compare what they are currently paying for energy with the amount of money they receive from the RHI, not the actual cost of running the heat pump. (Different forms of energy do not cost the same). Heat pumps do not suit every building and in poorly insulated buildings or incorrectly installed situations the heat pump will be less efficient and produce higher emissions. There are checks in place, such as minimum insulation levels and the installer has to be MCS approved, but do these go far enough and do the governing bodies actually have the resources and teeth to police this effectively?

As I said at the beginning of the blog, I’m in favour of the principle of the renewable heat incentive. However, it does need its current format looking at. The Government has received over 700 responses to the consultation. Some are supportive; some are not. There needs to be a debate - assuming, of course, that the RHI survives the imminent spending review.

Meantime, the demand for the FiT technologies continues to grow, suggesting that the Government may have made the incentive more attractive than it needed to be! Difficult challenges for DECC but no reason to believe they cannot deliver an RHI which contributes towards their wider ambitions of hitting the renewable energy target, reducing emissions and removing people from fuel poverty.

Photo by Jenny Downing

About the author: John Barker-Brown is special projects manager at British heat pump manufacturer Kensa Engineering.

If you have a question about anything in the above blog, please ask it in the comments section below.

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5 comments - read them below or add one

Kensa Heat Pumps

Kensa Heat PumpsComment left on: 4 October 2010 at 1:44 pm

I think Cathy hits the nail on the head here, up-front costs are the key. Due to the high initial cost of installing any renewable technology, this will be a barrier to a large majority of people. I believe what will happen is with the existing high returns in the consultation document, Financial Companies will start to get involved which will provide the initial cost of the equipment and who will be paid back by the RHI payments. This seems to be already happening in PV with 'Rent a roof' schemes. 

Still until any announcement is made (hopefully on the 20th October) I think we are all guessing.

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malcolmcroComment left on: 1 October 2010 at 5:45 pm

I suppose you have to look at it from the perspective of a government strapped for cash but needing to stimulate eco-investment. What better way than doubling the return on your investment? Costs nothing in 2010 and little before 2012 when we hope the economy will have recovered.

When they offered grants they were oversubscribed. Don't want to do that again when we are short of money.

Pensioners have nowhere to earn a good return so this will help get builders employed and the country back to work. Good old Gordon! ......on this one only.

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Cathy Debenham

Cathy DebenhamComment left on: 9 August 2010 at 1:51 pm

Good point Bob. I think that the up-front cost is key. There's talk of the market providing, but I haven't seen any evidence of it yet... Hopefully the Green Deal will cover capital costs of microgeneration.

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Bob Irving

Bob IrvingComment left on: 9 August 2010 at 11:53 am

I think that the RHI is a bad idea overall. The main problem with installing all this kit is the up-front cost, not the running cost. This means that the original LCBP grants were the right way to go, rather than on-going payments. Further, at the moment, the grants should only be made when they actually make serious reductions in CO2 emissions. So, make grants for people to replace night-store heaters or oil-fired heating with air-source or ground source HPs or with biomass heating. Then, when we have a low-carbon electricity supply, start giving grants to replace gas with heat pumps.

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malcolmcroComment left on: 4 August 2010 at 11:06 pm

I think the government deserves more credit for the RHI than is given here. Whatever the weaknesses it is a remarkable initiative and a great incentive making investment in eco-vation a viable investment.

I too am disappoined that the larger investment in ground source heating is not rewarded much more than air source. However it gets the ball rolling with low initial government investment and the details can be refined later.

It is the very best way to stimulate a faltering industry. Well done Gordon!

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