Saturday 23 August 2014

Is RHI More Trouble than it’s Worth?

To get support from the domestic Renewable Heat Incentive (RHI), there are some hoops it’s necessary to go through, but how much do these add to the cost of a solar thermal installation?

If you install a solar thermal system in the UK you can receive financial help from the government’s Domestic Renewable Heat Incentive (RHI).  RHI payments vary depending on factors such as the size of the solar panels, their location and orientation and especially the hot water demand of the house (which is taken from the number of people who live there).  It can be worth between £1,500 and £3,500, paid out over the first seven years.  In addition to the payments householders also benefit from savings on energy bills, the value of which are much higher the RHI payments over the long life of the solar heating system.

In order to qualify for the RHI, the solar panels must be of a certain quality - achieving accreditation with the Microgeneration Certification Scheme (MCS) or SolarKeymark, the installation company must also be MCS accredited and the household needs to demonstrate that it has taken straightforward energy efficiency measures such as insulating the loft and filling cavity walls (where there are cavity walls to fill).  The way that this last requirement is proven is to produce a Green Deal Advice Report that doesn’t show loft insulation or cavity wall insulation as a recommended measure.

In recent weeks it has come to light that some solar installation companies are advising customers that there’s so much cost and bureaucracy associated with installing a solar thermal system that qualifies for the domestic RHI that they are better off avoiding the scheme.

Let’s have a look at whether this argument stacks up.

Extra Costs for the Installation

Let’s assume that the installation is of identical quality both with and without the RHI.  The installer cuts no corners on the installation standard and that the equipment that is used is registered with the MCS or Solarkeymark.

The installer must log the installation onto the online MCS database for the customer to be able to claim the RHI. There is a charge from MCS of £15 to do this.  Let’s add £20 to that to pay for the time for someone to fill out the online forms.  Total £35

In addition, the household needs to pay a Green Deal Assessor to visit and produce the Green Deal report.  You don’t need to undertake any of the recommended measures unless they include loft insulation or cavity wall insulation.  The report costs between £150 and £250. 

So the total Variable Costs (cost per installation) are between £185 and £285

Annual Costs for the Installer

For an installer to be MCS accredited, there are annual fees to pay and administrative time required.  Let’s take a look at the costs for a smaller company, as it is generally thought that the burden is highest for these.

The solar installer must pay a fee to join the scheme and be audited each year.  For a solar installer with less than 10 employees the MCS annual registration and audit fee comes in at around £470 (see NAPIT fee sheet). 

In addition there is an MCS requirement that the solar installation company must be a member of an approved renewable energy consumer protection code.  Joining RECC depends on the number of staff, but for 1-6 employees it’s £250/year

Let’s assume the company wouldn’t operate a formal quality system if it wasn’t going to be MCS accredited and add £1,000 of admin time to these figures to pay an office administrator to maintain the paperwork that the scheme requires each year and make sure the document handover packs and quotes remain compliant with the scheme.

Both the fees and overhead costs fall (per technology) if the company installs other MCS renewable energy technologies as well as solar thermal, but let’s assume it doesn’t.

For this small company then, the total annual Fixed Costs of maintaining an MCS solar installer registration is £1,720.   

Total Cost

The total additional cost per installation of being RHI compliant is found by dividing the Fixed Cost by the number of installations the company does each year and adding this to the Variable Cost per installation.

This is where the costs of accreditation can start to look very high – it depends enormously on how many installations the installer does each year.  See the table below.

How the admin costs of an RHI compliant solar system varies with the number of installations
the installation company does each year

If the installer does only one or two solar installations a year then, yes the costs of RHI compliance is high compared to the benefit in claiming the RHI, but even at only one system a month the extra costs start to become really quite small compared to the RHI payments. 

The more installations that the company can do each year, the more the costs trends down towards the cost of the Green Deal Report.   Nor will every customer see this as a valueless piece of paper; some may value the guidance on further measures they could take to improve their energy efficiency.

The problem for the RHI is that until the scheme starts to drive demand for a reasonable number of installations, then for small companies that perhaps combine general plumbing with a very occasional solar installation the barrier costs of being MCS registered don’t look worthwhile. 

An excellent time to encourage a customer to consider solar heating is at the same time that a hot water cylinder is being replaced, but the plumbing company standing in front of the customer won’t offer this option if it isn’t MCS registered  If they do offer solar they might encourage the customer to ignore the RHI.  This is, of course, a classic chicken/egg situation.  Unless this plumbing company starts to offer more customers solar under the RHI, they’ll never see enough demand to justify MCS accreditation.

It would be good if there was a way to encourage this plumber to promote solar thermal to customers, perhaps in cooperation with a local accredited solar installer.  For any installation company that’s doing more than a handful of solar thermal installations each year, the cost of the RHI requirements are small relative to the RHI payments.

However this is not to say that MCS couldn’t do something to reduce the burden on smaller installers to meet the ever-increasing demands of the scheme.