Monday, 31 December 2012

Just What's Wrong with the Commercial RHI?

Just over one year in, how’s the commercial Renewable Heat Incentive doing?

In November 2011, the Department of Energy and Climate Change (DECC) scored a world’s first, launching a kind of Feed in Tariff for heat.  Called the Renewable Heat Incentive (RHI), the scheme pays out for each kilowatt hour (kWh) of useful heat generated by a range of low carbon heating technologies including solar thermal, heat pumps and biomass boilers.

In its first phase, the scheme is open only to non-domestic installations, with a scheme for householders to follow in summer 2013.

(For more on the domestic RHI, read my earlier article: “The Domestic Renewable Heat Incentive for Solar”)

How’s it doing?

So, are civil servants from other countries going to be beating a path to the UK to learn how its done?  On the basis of the performance to date, we don't need to worry about putting more border agency staff on at Heathrow.

OFGEM are administering the scheme, and you can get hold of performance data here.

And the winner is...

The chart shows the number of installations of the three most popular technologies, although it can be seen that the scheme is having mixed success.

The scheme has supported 679 installations of biomass boilers, but only 36 ground source heat pumps and 33 solar thermal systems since it began over 12 months ago.

In terms of eligible heat generated, the skew towards biomass is even more marked with 65.5 GWh of biomass heat generated, compared to a total of 0.9GWh from all other technologies.

To put this in context, the Feed in Tariff stimulated 30,000 installations in its first year.  According to DECC's heat strategy, electricity for lighting and appliances is only 8% of final energy use whereas heating is 46%.  

So the problem isn’t so much runaway take up of biomass as the unpopularity of the scheme as a whole.

How to Fix It

Beyond the obvious first response of making the tariffs higher, is there anything else that OFGEM and DECC could do to improve the success of the scheme?

Here are some suggestions.

  • Increase Awareness  - develop case studies with businesses that have benefitted from the scheme and work with the trade associations to disseminate the case studies to other potential customers.
  •  Streamline the application process – one of the most common problems with applications has apparently been the quality of the schematic drawings showing the location of heat meters.  OFGEM could develop standard schematic layouts, which applicants could select from, rather than commissioning their own drawings. 
Do you have any comments on the scheme or how it could be improved for solar thermal and heat pumps?  Perhaps you have direct experience of making an application?  Please make a comment below.


  1. I think there are probably a number of reasons why solar thermal is doing so badly, but I think the root cause could probably be narrowed down to a single issue: the tariff rate itself.

    The bottom line is that if it was more attractive then more people would take it up. However I think it is interesting to consider what the "sticking points" are. In itself, financially speaking, I can see payback periods as low as 6 or 7 years on commercial systems when I price them up: that's as good as PV has ever been. So the question is why are people not taking it up in the same volume?

    In economic terms, this must mean the barriers or complications are considered significant enough to outweigh the financial benefit being offered. If I were to hazard a guess at the sticking points I would say:
    Unfamiliarity: PV's success was "exponential" once it had caught on, and when some critical point of market penetration is reached the same will happen with Solar Thermal, we just aren't there yet
    The need for maintenance: removes a significant portion of the benefit of the tariff
    Perception that it is less reliable (which is fair enough given it does need maintenance)
    Poor history with cowboy installers
    Competition with PV in that it is still more hassle free and financially rewarding to do PV vs ST once the maintenance is taken into account
    Retro-fitting ST is often more difficult than PV.

    I totally agree with the increased awareness, and streamlining the application process points you make. I also find some customers just aren't even aware the RHI exists, and some even consider the application process so onerous they would rather just not bother.

    Ultimately there are less buildings / businesses that can make solar thermal work for them than PV (schools or farms where huge volumes of PV have been taken for example), so the tariff needs to reflect this and better incentivise ST where it is a no brainer: domestic hot water use where loads are seasonally constant or higher in summer (hotels etc), process heating (this should be an enormous resource), food preparation businesses and laundries, or best of all: swimming pools

  2. What do people think of the idea of bringing the 20-years of payments forward into the first 7 years just like has been proposed for domestic RHI? Would this help unlock innovative financing options? The risk that people switch off after 7 years is really low for solar thermal since the cost is all upfront, with no expensive fuel to reimburse people for in the tariff payments.

    I recently met a company that replaces light bulbs in large institutions such as hospitals. They do this for a fee over the first few years after the work completes. The fee is less than/equal to the savings. Solar PV works under this model when you include the FIT. Solar thermal was close, but not quite there...

  3. yes I always thought that aspect of the domestic RHI was a pretty shrewd idea. I have come across some regional (county level) Welsh funding which ultimately amounted to a grant that was slightly less attractive than the commercial RHI, but given a choice I know many would probably plump for £10,000 in the hand in one lump sum vs £12,000 spread over 20 years

  4. The interesting thing about the huge support to biomass is that it does not have necessarily a dramatic impact on the RES 2020 target. Biomass is counted as primary energy for statistical purpose, meaning that replacing an old ineffective system by a modern one actually reduces the quantity of biomass (RES) used.