Interested in the Renewable Heat Incentive (RHI)?

The Renewable Heat Incentive (RHI) is a new incentive introduced by the government to encourage people to generate more of the heat they need from renewable sources, like solar power, heat pumps or anaerobic digestion and so use less fossil fuels. Currently 99% of the heat we need is generated using fossil fuels and the government has a target of reducing that figure to 88% by 2020.

The scheme involves people installing renewable heat technologies in their homes or businesses in return for an annual payment for the heat those systems produce. The scheme is due to commence from 01 April 2011.

How Does the Renewable Heat Incentive Work?

Under the scheme, you must first install some form of renewable heat technology, such as solar thermal panels, air source heat pumps, biomass boilers or other eligible technology and then register it with Ofgem, the energy industry regulator. Once registered, you will be eligible to receive payments for the heat generated by the system. Though the details have yet to be finalised it is anticipated that the payments will be paid by Ofgem by way of an annual lump sum payment direct to your bank account.

How Much Could I Receive via the Renewable Heat Incentive?

This depends on the type of system you choose to install and the size of the property; see the table below for details. You will be paid per kilowatt hour of heat produced. As an example, for an average household using 15,000kWh of heat in a year which installs, say, solar thermal panels and a biomass boiler which could generate 13,700kWh, the payment via the renewable heat incentive would be around £1,400. The fuel for the biomass boiler (a wood burning boiler) would need to be purchased at a cost of around £575 so the net profit would be £825, not to mention the money saved on gas or oil would have needed to have been purchased to fuel a conventional boiler.

How is the Renewable Heat Incentive Calculated?

For domestic installations the renewable heat incentive will be calculated on a “deemed” basis, that is, an assessment will be made as to how much heat, in kilowatt hours (kWh), the system should produce in a year and you will be paid x pence per kWh, limited to the amount of heat actually needed (you won’t be paid for producing heat you don’t need). When calculating the amount of heat needed it will be assumed that the property meets a minimum heat efficiency standard, even if in practice it does not. The actual standards have your to be finalised but the important point here is that if you need to produce more heat than would be required if your property met the minimum standard, you will not be paid for any “excess”. It makes sense therefore to invest in some energy efficiency measures, such as insulation, as well as the renewable heat system itself.

Is the Payment Guaranteed?

Depending on the type of system the payments are guaranteed for between 10 to 23 years once the system is registered and will only alter in line with inflation. This means they may decrease or stay the same but most likely they will rise over time.

The expectation is that the annual rate of return for the average user will be somewhere between 8% – 12%. This means the initial cost of installing the system should be recovered with 8.25 – 12.5 years, though obviously it will take longer if finance is used. This does not include money saved on fuel bills so the real rate of return could be considerably higher. Once the initial investment is recovered you will benefit from the incentive payments for the remainder of the term as well as of course lower fuel bills for the life of the system.