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Spending review: what it means for home owners

Posted by Cathy Debenham on 20 October 2010 at 4:27 pm

Given the dread with which most of the renewables world has anticipated the comprehensive spending review, it has been quite a good day. The Chancellor confirmed that there will be a renewable heat incentive and that he (probably) won't be tinkering with the feed-in tariff before the first scheduled review.

Renewable heat incentive

The chancellor announced £860 million funding for the Renewable Heat Incentive which will be introduced from 2011-12. This is 20% less than Labour's proposals. DECC says this will drive a more-than-tenfold increase of renewable heat over the coming decade, "shifting renewable heat from a fringe industry firmly into the mainstream".

The renewable heat incentive will be funded from DECC's budget, and not through the levy on energy companies that Labour proposed. However, DECC doesn't say whether it will adopt the proposals Labour consulted on earlier this year, or plans to rejig things. So, while breathing a big sigh of relief that the government sees renewable heat as important, I'd want to see more detail of the plans before going ahead with an installation at home. A policy statement is expected at the end of November.

Feed-In Tariffs

Happily, all the speculation and rumours in the media about reduction in the feed-in tariff have come to nothing, and the Goverment will not be tinkering with the feed-in tariff before the first scheduled review (changes arising from the review will be implemented in 2013). DECC does give itself a get-out-of-jail free card with the rider that "the changes will be implemented at the first scheduled review of tariffs unless higher than expected deployment requires an early review".

In this review the feed-in tariff will be "refocused on the most cost-effective carbon abatement technologies saving £40 million in 2014-15" whatever that means. Interestingly DECC's press release drops "carbon abatement", and only says "cost effective", so again, it's a matter of wait and see for what the impact of that is. 

In the meantime though, this is good news for people who are thinking of investing in microgeneration, such as solar PV panels, a wind turbine or a micro hydro scheme. The feed-in tariff will continue to offer 6-8% returns on investment for the next couple of years at least, and the industry has some stability.

The Green Deal

The spending review didn't give us any more information about the Green Deal, which is the Government's flagship programme to improve the energy efficiency of the existing housing stock. It will allows people to borrow money for insulation measures and pay it back through savings on their energy bills. An Energy Security and Green Economy Bill will be introduced this autumn, and the Green Deal is expected to start in late 2012.

Between now and then, DECC will fund a pared-down (and more targeted) Warm Front programme for people in fuel poverty and on low incomes. From 2013, support for heating and insulation for the most vulnerable will be delivered through the Green Deal and a new obligation on energy companies. At the same time, from April 2011, energy suppliers will provide greater help with the financial costs of energy bills to more of the most vulnerable fuel poor households, through Social Price Support.

My advice

So what does this all mean for consumers? Is it safe to invest in microgeneration and / or renewable heat? I'd say yes to the former - as the feed-in tariff seems pretty safe, especially over the next year. But just to be sure you get the best rates, if you're thinking of investing in microgeneration, then I'd get on and do it sooner rather than later. Once you've got the good rate, you should keep it for the whole 20 (25 for solar) years of the feed-in tariff.

It's still wait and see on the renewable heat. There's no detail available on the heat incentive - and whether or not the rumours that they might drop it for the domestic market are true. So my advice would be to wait for the government's response to the consultation before making any firm decisions - so that's everyone still in limbo. 

Photo by Alan Dean


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

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6 comments - read them below or add one


GlenfenderComment left on: 22 October 2010 at 2:27 pm

I agree with Cathy about the need for a swift statement from Chris Huhne that the 15 July 2009 cut off for elegibility for the RHI will be maintained. We are having customers wavering about installing biomass boilers at the moment.  If they have any doubts about the financial viability of their installation if they were not to get the RHI, we cannot recommend that that they go ahead and install.  We are hoping that this uncertainty will be cleared up sooner rather than later.

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Mark Brown

Mark BrownComment left on: 21 October 2010 at 4:46 pm

I also looked through this in detail and the statements remain puzzling. Firstly the RHI was paid for by cross-taxation ("levy") on fossil fuel users, ie, an indirect carbon tax, collected by the Utilities themselves. The very fact it was in the spending review earnt the wrath of Tim Yeo MP who had asked in Parliamentary Committee what was going on. The Treasury could only admit it was a "power grab", ie, it made them nervous that the money wasn't really going through their coffers, it was distributed by Ofgem. So what has happened is that the Treasury has kind-of-renationalised the RHI so that THEY will now pay for it. Which seems odd as they didn't have to pay for it before. The only comment this raised officially is that they believed the levy planned by Labour was somehow "too complex". Yeah mate, but it was "free". This is paradoxical.

Likewise I am similarly puzzled by inclusion of FITs in this conversation. I don't recall much talk about this prior to the cuts announcement. FITs were funded in a way even clearer than the RHI as Ofgem didn't even have to raise a levy on the Utilities. The Utilities paid for it themselves. So why has the Treasurey decided to tinker with an arrangement where the money never went to them anyway. Exactly how is the Treasury saving any money with FITs? This is mystifying. Can anyone explain?

By the way, pay close attention to the Press release under a section on Defence that says this "saving electricity from reducing unnecessary lighting across the Defence Estate". I spoke recently to local RAF staff who were so frustrated at how Military Procurement policy prevented them from making any decisions on fitting renewables or investing in insulation for their extensive Crown Estate. Our local RAF base has such a high Carbon Footprint it is inside the ETS. Let's hope this will change.

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Yorkshire Solar

Yorkshire SolarComment left on: 21 October 2010 at 4:21 pm

The EST are stating that the RHI will be open to domestic properties and backdated to 15th July 2009 


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Cathy Debenham

Cathy DebenhamComment left on: 21 October 2010 at 3:52 pm

My guess is that the EST page mentioned below hasn't been updated since the comprehensive spending review yesterday, so although it's pretty likely that they will stick to the 15 July 2009 cut off, I'd like to hear a member of the coalition government confirm it (given the broken promises on early adopters and feed-in tariffs) to be absolutely sure.

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Cathy Debenham

Cathy DebenhamComment left on: 21 October 2010 at 2:59 pm

I've just been asked the following:

Thanks for your e-mail on the latest news following the spending review. I was disappointed that the government didn't, at the very least, confirm that any installations carried out now would be eligible for the RHI. The thing is that I NEED a new heating system for THIS winter so I was going to commit on the basis that, so long as I got the benefit (whatever it ends up being), I would proceed with an Air Source Heat pump system now.

So far we don't know the detail of the RHI, but my guess is that the government won't renege on the promise Labour made that anyone installing after 15 July 2009 (with the right MCS accreditations) will be eligible. Obviously we won't know for sure until the government responds to the consultation (expected in November), so it's a risk installing before then.

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Barry Johnston

Barry JohnstonComment left on: 20 October 2010 at 11:19 pm

Renewable Heat Incentive: Does the RHI includes solar thermal (eg solar water heating) as being eligible, and if so at what level? DECC’s reference to “prioritising the most cost effective technologies” is unclear on this matter. What do they mean by cost-effective?  Will they prioritise (a) just money in terms of cost efficiency, then solar thermal is not that great: just a bit better than PV (solar electricity). But if DECC instead prioritise (b) environmental efficiency then solar thermal is streets ahead of almost every renewable heat technology!

Stopping "runaway potential” overspend in the RHI is one big cuts issue. The government should start off by targeting off-gas-grid areas first since such homes offer the best value for money sometimes 2-3 times better)  in carbon saving terms per £ spent. Such carbon/geographical targeting can always be widened later. It is far better than some kind of capping mechanism which would bring the whole industry to its knees if it implemented.

How will the RHI be funded? DECC say from Annually Managed Expenditure (AME), and not from a (controversial) levy on fuel bills, as was originally planned. I wish they had been bolder and applied 17.5% VAT  to dirty domestic fuel – to fund the RHI (and fuel poverty alleviation) and to deliver general energy market rebalancing. Is this political timidity? Maybe they will go part way.. Will fuel VAT will go up to 10% in January 2011 while general VAT goes up to 20%. There is no new carbon tax – even one which is gradually increased over time either. That's the coal lobby I suppose, again suggesting again constrained government vision - and potential green taxation loss.

Green DIY is still sidelined again. It is dreadful that there is still no support for DIY energy saving measures is given such as DIY loft insulation and DIY solar – via VAT reduction to 5%. Another missed opportunity. B&Q must be furious. So will our DIY solar heating custumers.

Stable feed in tariffs (FIT’s)? If PV's become a runaway success there may in fact be some cuts ie microgeneration market rebalancing on the way - sooner than we plan: some technologies might even be cut out of eligibility subsidy all together. Which? Scary! Look at the runes: DECC say that feed-In Tariffs will be refocused and rebalanced on “more cost-effective carbon abatement technologies” saving £40 million in 2014-15 (OK a year or so later than the industry had expected, which is at least encouraging). Hopefully any FIT funding / scope changes will only be implemented only “at the first scheduled review of tariffs” unless higher than expected deployment (ie runaway success!) requires an early review. That’s the downside. This “unless” is significant. I suspect that Feed in Tariffs for PV’s at their current level may not last for the full three years they were initially planned to last for.

It is pitiful that statistical fuel poverty “gaming” is now on the political agenda. Currently defined as where over 10% of household income is spend on fuel, it seems that the government quietly plans to “redefine” fuel poverty downwards very soon! DECC say “To ensure the available resources are focused most effectively in tackling the problems underlying fuel poverty, the Government intends to initiate an independent review of the fuel poverty target and definition before the end of the year.” How do clever governments solve tricky problems? Well, they redefine them to make them shrink. Aha!

Sleepy matey quango problems. It is great to hear that the Government will review the work delivered by the Carbon Trust and the Energy Saving Trust. The moribund Carbon Trust are not delivering suitable incentive schemes for zero carbon solar water heating and the Energy Saving Trust are also sometimes short of lucid thinking in this sector. I have a business issue with these sleeping giants. One failure attributable to the Carbon Trusts’ famous matey opacity is that business users of Solartwin are not eligible for tax breaks because old fashioned component efficiency rules for “enhanced Capital Allowances” (ECA) do not support the installation of superior low and of zero carbon solar water heating systems, such as ours, into businesses. (The ECA rules specify, in effect, single glazed solar panels so in fact our doubled glazed ones (which lose less heat when heat is actually needed) are overlooked.

It beats me why DECC plans to implement new and apparently needless duplication? DECC will adopt the following idea, suggested through the "Spending Challenge" process: DECC will issue guidance to re-emphasise best practice on heating, cooling and lighting Government buildings. This sounds like wasteful duplication in at least some areas because already UK Building Regulations offer hundreds of pages of detailed compliance guides for heating etc, even if some are backward looking and technically flawed and need revision. An example of one such issue is plumbing safety. Even though actual level of risk increase is hotly debated at present, it is clear that the Microgeneration Certficiation Scheme which is owned by DECC  flouts Health and Safety Executive Guidance on Legionella safety by exempting tens of thousands of state subsidised renewable energy systems from UK health and safety guidance by their promotion of “twin coil solar cylinders” ahead of much safer hot water storage methods when it comes to Legionella safety.

Energy Minister Chris Huhne claims: “... to deliver on our promise to be the greenest government ever.” DECC's overt green emphasis is also supported by DEFRA who, despite cuts of over 30%, say “DEFRA will reprioritise its spending, focusing tax payer’s money on British farming and food production; enhancing the environment and biodiversity; and supporting a green economy resilient to climate change.” These brave commitments also look like joined-up government at last. At least there is a green light shining in the general gloom. Cheers!

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