Domestic RHI - 5 years on - Yorkshire Heat Pumps

Yorkshire Heat Pumps takes a look at the current status of the domestic Renewable Heat Incentive scheme and considers what the future might hold for us and our customers

What is the Renewable Heat Incentive?

The domestic Renewable Heat Incentive (RHI) scheme was launched in April 2014, three years after its non-domestic sibling. The aim of both of these government-run schemes is to encourage uptake of renewable energy heating solutions, with a view to making a sizeable reduction in the country’s carbon emissions.

Under the non-domestic scheme, incentive payments are made over a 20 year period and are based on the metered output of the heating system. For the domestic scheme, payments are made over a 7 year period and are based, in most cases, on the deemed heat demand for the property. This figure is taken from the home’s Energy Performance Certificate.

The domestic Renewable Heat Incentive scheme

When launched, the aim of the domestic scheme was to neutralise the cost of switching to renewables, with most if not all of the cost of installation recouped over 7 years. Coupled with lower operating costs over the long term (when compared to fossil fuel alternatives) and the scheme is a very attractive one to homeowners, whether they are interested in reducing their carbon footprint or finding the most cost efficient way to heat their home.

Domestic RHI payments

Under the domestic RHI scheme (dRHI), payments are calculated at a set tariff, paid in pence per kilowatt hour (kWh) of heat deemed necessary to heat the home, and are calculated as follows:

Tariffs and degression

The tariff varies by technology, and tariffs are reviewed quarterly and adjusted periodically.

There is a tariff degression mechanism in place, whereby high uptake of a particular technology automatically triggers a tariff reduction for future applications for that technology. To date, only the biomass tariff has been reduced through this mechanism.

Domestic RHI tariffs are as follows:

If any tariff changes are to be made due to degression for the period 1.7.19 – 30.9.19, BEIS will make the announcement by 1.5.19.

The effect of the biomass tariff reduction has meant that in some cases, particularly bigger properties requiring larger systems, not all of the installation cost will be recouped over 7 years, and the payback period will be longer. We have certainly seen reduced interest in biomass as a result.

Annual RPI/CPI adjustments

In addition to the quarterly reviews, tariffs are adjusted annually in line with RPI for accreditations pre-April 2016 and in line with CPI for accreditations after April 2016, so increase a little each year of accreditation.

Limiting domestic RHI payments

In September 2017 a number of dRHI scheme amendments were announced, including the introduction of heat demand limits which cap the heat demand as follows:

Payment is now made based on whichever is the lower of the heat demand on the EPC or the heat demand limit listed above.

This move has prevented applicants in larger properties, with high heat demands, from taking what might be seen as an unfair share of the RHI budget, and is helping spread the domestic RHI budget more widely.

Uptake of the scheme

By the end of January this year 66,317 installations had been accredited, of which 53% were air source heat pumps, 19.1% were biomass boilers, 14.6% were ground source heat pumps, with solar thermal bringing up the rear representing 13.4% of installations. Looking back to a year after the scheme was launched, the split was significantly different.

This split has changed over time, with biomass being the biggest loser, due in no small part to tariff degression. Biomass had been an easy retro-fit solution for many of our customers in the early months of the scheme as it works well with existing radiators and as a high temperature heating system had been popular particularly for rural, less well insulated properties.

RHI budget caps – what are they and what might they mean for you?

The Government has committed budget for new accreditations to be accepted under both the non-domestic and domestic RHI schemes up until 2021, but on 1^st April 2016 new budget caps were introduced which could limit the life of RHI. This may cause some concern to anyone considering, or in the throes of installing, a renewable energy heating system and hoping to benefit from the RHI scheme.

The budget cap would allow the Government to close the scheme at short notice, to new applications, where it determines there is a risk of the scheme overspending in the current or future financial years, should the scheme remain open.

Any decision to close the scheme to future applications would be a matter for ministerial discretion, and would be subject to parliamentary approval which could take some time. It would be based on spending forecasts informed by the latest RHI data, market intelligence and modelling.

The Department for Business, Energy and Industrial Strategy now provides monthly updates of estimated in-year expenditure using data from the previous month, so installers and prospective applicants can monitor whether there is a risk of the cap being reached, but this is a somewhat fluid situation with levels of uptake and accreditations varying month by month in number and in size, so it’s nigh on impossible to predict with total accuracy.

The Total RHI committed spend and budget cap 2018/19 – 2020/21 using data to 31 January 2019:

This does make the future of RHI somewhat uncertain for us and for our customers and clearly, we can offer no cast iron guarantees about what the next two years will bring. To mitigate the risk of missing out we would urge our prospects and customers not to delay, to commit to an installation if they are considering one, and to complete their RHI application as soon as they have their EPC and MCS certificate in hand.

If you'd like to know more about RHI or to discuss which technology might be most suitable for you and your home, give us a call on 01423 788699, fill in our Contact form on the website or call in and see us at our Harrogate HQ.