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Domestic or not? Where's the divide for the Renewable Heat Incentive?

Posted by Cathy Debenham on 8 November 2012 at 9:03 am

Businesses that run from home can experience complications when claiming the renewable heat incentive. Do they count as  domestic or commercial for the purposes of the RHI?

It's an important question, as the two versions of the scheme are quite different. The non-domestic renewable heat incentive pays pays annually for 20 years; the domestic scheme for just seven.

The former is where DECC expects the serious carbon savings to come from; so it gives a return on investment. The domestic scheme is intended as a 'boiler replacement scheme'; to put the renewable options onto a more equal footing with their fossil fuel alternatives. It is designed to be more beneficial for properties that can't use mains gas, as the oil, LPG or electricity they use are more expensive, and emit more cabon dioxide.

Say, for example, a bed and breakfast wanted to install a biomass boiler for heating and hot water, and its heat load is 30,000kWh.

Non-domestic RHI (rate 7.9p/kWh)

30,000 x 0.079 = £2,370 per year
Total income: £2,370 x 20 = £47,400

Domestic RHI (indicative rates, 5.2 - 8.7p/kWh - let's assume for this example that it's 7.9p)

30,000 x 0.079 = £2,370 per year
Total income: £2,370 x 7 = £16,590

A difference over the lifetime of the tariffs of £30,810.

So, obviously you want to be counted as non-domestic, but the £30,000 question is how does Ofgem decide which way to jump. The answer is by whether or not you pay business rates. If you do, you're ok to get the non-domestic.

If not, you'll have a fight on your hands, unless you have distributed heat. This is where your boiler (or source of heat) supplies more than one building - to stick with the tourism analogy, this could be a bunch of holiday cottages on a small district heat system. This should count as non-domestic.

Photo by Gary Tanner

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Comments

4 comments - read them below or add one

Cathy Debenham

Cathy DebenhamComment left on: 21 March 2013 at 9:24 am

Hi Tim

Thanks for the compliment, we aim to be both user friendly and comprehensive, so it's great when someone tells us it is!

Scenario 1 is definitely the correct interpretation. Unlike FITs, the RHI isn't designed to give a return on investment. It has been designed as a boiler replacement scheme, so it compensates for the difference between replacing your current boiler and getting a renewable technology instead. So, the benefits to the consumer are the ongoing fuel cost savings (and, for those who care about it, carbon reductions), rather than a return on investment.

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Minel Energy

Minel EnergyComment left on: 20 March 2013 at 10:04 am

Sorry to resurrect an old thread;

The RHI FAQ on YouGen is by far the most user friendly and comprehensive I have come across.

However, I am confident that Lai's interpretation of the payments for domestic RHI is correct in that the tariff payments relate to a 20 year period and but are 'front loaded' and paid over 7 years (index-linked). Otherwise, the investment decision wouldn't be compelling.

To take an example;

24kW domestic pellet boiler in a domestic house (heat load 20000kWh) using the lowest tariff rate in the consultation (5.2p per kWh);

Scenario 1;

If it is a 7 year tariff, annual payment would be £1,040 (20,000 x 0.052p) per year for 7 years, total £7,280

Scenario 2;

If it is a 20 year tariff (but payments 'front loaded' over 7 years), payments would be £2,971 (20000 x 0.052 x 20 / 7) per year for 7 years, total £20,800.

Given that a decent quality 24kw pellet boiler will be coming in around £9k and upwards, then only Scenario 2 would be worthy of (investment) consideration.

Tim

 

 

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Cathy Debenham

Cathy DebenhamComment left on: 8 November 2012 at 5:19 pm

Hi lai - you are right that the domestic RHI pays for 20 years worth of heat, but that has been included in the calculation of the tariff rate, so you just multiply by 7. I've checked with DECC to make sure that interpretation is correct.

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Iai

IaiComment left on: 8 November 2012 at 5:02 pm

Hi Cathy

My understanding is that the domestic phase of the RHI pays for 20 years' worth of heat over 7 years - shouldn't the 7 in the second calc. in fact be 20 ? In which case the domestic option arguably looks the better bet as the return on investment would be quicker and the cash available sooner to use / reinvest,  notwithstanding the fact the non-domestic RHI rate is now 8.3p.

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