RHI reform cover

The 2016 non-domestic RHI reform and biomass heat

I think any comments about the RHI reform should start with the point that we are very lucky to have a 20 year output-based, state funded support mechanism for renewable heat.  Whatever its foibles and whatever our quibbles; its better than not having state funded support; it has made a major difference and will continue to do so.

The background to the reforms was that in November 2015 Government renewed its commitment to the ‘transition to a low carbon economy’ by confirming a continued budget for the RHI out to 2020/21.  This left the biomass industry hanging, and it wasn’t until March 2016 that Government set out its initial proposals for RHI reform.  Then finally on 14th December 2016, it published proposals for reform of the scheme following its consultation. These reforms will be implemented in April 2017.

Those 12 months of uncertainty have been unhelpful to say the least.  But as Government puts it :

By confirming the available budget up to 2020/21 and setting out a number of reforms to how the scheme will operate, the RHI now provides the level of certainty needed for consumers and industry to invest in renewable heating and for the market to transition towards being sustainable without Government support in future’.

It is of course most welcome that the proposed RHI reform is published and uncertainty has been removed.  This in itself will probably stimulate new investment and no doubt activate some dormant projects.  Although it is ironic that a scheme designed to grow renewable heat created uncertainty and reduced investment for a whole year.

The final comment ‘without Government support in the future’ is a clear signal that the RHI is not likely to be around after 2021, but as even mature biomass sectors elsewhere in Europe still benefit from support, there will need to be something post 2021.

In more specific terms, the reforms offer two things of note in terms of biomass heat :

  • Tariff guarantees, offering investors greater certainty regarding their tariffs earlier in the project cycle;
  • The three current biomass tariff bands will be replaced with a single tariff, which will be subject to tiering.  The Tier 1 tariff will be set at 2.91p/kWh and the Tier 2 tariff at 2.05p/kWh. Each plant will have a tier threshold equivalent to a 35% load factor.

My own immediate reaction was these reforms spell would spell the end of smaller biomass projects in mains gas areas and that only projects above 1MW would be strongly viable. But the 35% load factor is a more significant change than is first apparent.

Under the new single tariff and a 35% load factor the capacity of the biomass boiler is not such a good indicator of the viability as it was under the three bands of payments.

What will matter now is higher stable heat loads that get to the 3,000 full load hours. For example a 200kW scheme providing 600MWh of total annual heat (a small or medium sized secondary school for example) will get £17,500 a year RHI income.  Remember under the old scheme a 199KW scheme delivering 1,314 run hours got £8,106 a year RHI income: its all about ‘sweating the asset’.

It will be interesting to see how designers and installers go about getting to 3,000 run hours, and this will have significant implications for the sizing and specification of equipment that is capable and warrantied for longer harder working hours.  But actually it feels a sensible move in terms of directing investment and design/specification choices to make the most difference.  It will certainly be better than the 3 bands it replaces.

Furthermore the impact of the reforms above 1MW is unambiguously positive compared to before, so despite my initial reaction, I find myself wishing to congratulate the team who delivered the RHI reform.  Maybe there is even scope for a little focus of quality standards as we move forward?

 

The full RHI reform document is available to download here.