News and Publications

After RHI: what support comes next for low carbon heat?

Posted: 02/06/2020


With a legally binding target of net zero greenhouse gas emissions by 2050 and one third of such emissions coming from heating homes, business and industry, lower carbon heating remains a key policy objective.

The Renewable Heat Incentive (RHI) has had an important role in providing financial support to low carbon heating and to the production of biomethane for injection into the gas grid. However, the non-domestic RHI scheme will close on 31 March 2021 and the domestic scheme on 31 March 2022.

On 28 April 2020 the Government set out its proposals for what comes next.

The Future for Low Carbon Heat Support is seeking consultation responses until 7 July 2020. This is a policy consultation on the RHI replacement, not detailed legislative or regulatory proposals (which will come later). It is also important to note that other policies and schemes to decarbonise heating are being developed: a number of policy papers, consultations and regulatory proposals have either been recently released or are expected in the coming months.

Biomethane

The Green Gas Support Scheme will run from autumn 2021 for four years and aims to increase the proportion of low(er) carbon gas in the grid, through supporting biomethane injection produced by anaerobic digestion (views are sought on mechanisms for other long term “green” gas support, for example the potential for supporting hydrogen and the use of Contracts for Difference). It will not provide support for other heat production.

Key features of the proposed scheme include:

  • tiered support of 4.9-5.5 p/kWh for the first 60,000 MWh of eligible biomethane, 3.25-3.75 p/kWh for the next 40,000 MWh and and1.5-2.0 p/kWh for the remainder. This means the upper threshold for tier 1 of support will be 20,000 MWh higher than under RHI;
  • support will be available for 15, or perhaps only 10 years, rather than the 20 offered under RHI and the tariff guarantee mechanism will be replicated, with minor changes;
  • there is a proposal to increase the minimum percentage of waste feedstock above 50% (so reducing the potential energy crop percentages) and to amend reporting requirements as compared to those existing under RHI.
  • eligibility requirements will be generally as for the RHI (as relevant to biomethane), but there is a proposal to allow for changes in scheme participants (not currently allowed under RHI).

Spending on the scheme will be managed through an overall annual budget cap and a tariff guarantee budget cap to temporarily halt new approvals, a degression mechanism based on that used for RHI tariff tiers.

Building heat

The Clean Heat Grant will begin offering support in April 2022. In place of the RHI tariff model, up-front flat-rate capital grant funding of £4,000 will be available to households and small non-domestic buildings for two years to enable the installation of ground, water and air-source heat pumps (and in limited circumstances biomass; but no other technologies), to provide space and water heating.

A 45kW capacity limit per installation will apply. Where multiple installations under 45kW are used to heat one building unit, then only one installation will be eligible for funding. However, individual installations used to heat individual units within a building (for example flats in a block), will be eligible. Individual pumps installed as part of shared ground loop systems will also be eligible for support.

The Government is proposing a two-stage voucher system which it sees as achieving aims including relative simplicity, consumer protection and fraud avoidance. In the first stage, the voucher will be applied for – probably by the consumer - ahead of installation. In the second stage, the voucher would be redeemed (and the grant paid to the installer), on proof of installation.

Eligibility criteria proposed are:

  • for heat pumps, the system efficiency, with no requirement for heat metering but metering of electrical power for the pumps;
  • for biomass heating, air quality (biomass will not be eligible in urban areas) and building energy efficiency;
  • consumer protection, via MCS (the existing Microgeneration Certification Scheme) “or equivalent” for products and installers, with installer membership of a consumer code also required.

Budget control for the scheme will involve a pre-agreed budget cap with quarterly grant windows, each with a budget cap.

The devil will be in the detail

As with the RHI, the Government intends to appoint Ofgem as administrator for both schemes. It seems likely Ofgem will have very similar powers as under the existing RHI.

As so often with these schemes, the details will be important. The Government is asking for proposals from consultees on much of the (very important) detail. Potential respondents should review what elements there are in the present consultation, take the opportunity to express their views, and continue to watch for further proposals from the Government.

And what about RHI?

RHI will run in its domestic and non-domestic forms until the dates at which the replacement schemes are planned to start.

For non-domestic RHI, a flexible third allocation of tariff guarantees has been made available and there will be an extension to commissioning deadlines for projects with existing tariff guarantees under the second allocation in order to aid these projects in light of Covid-19 related delays.

The Government is consulting on this and enduring arrangements for the RHI once it otherwise closes (since tariff support will continue to be paid for many years). The consultations on these are available here and here.

In respect to the enduring RHI arrangements, there are a number of detailed proposals. These include allowing the transfer of registration for the production of biomethane, as is allowed for other non-domestic RHI accredited installations, which may be important for the owners (or potential buyers) of installations with many years of support left. Another proposal that may be of long term importance is a plan to amend the non-domestic RHI payment calculations to allow producers of biomethane to decide how much they claim under the scheme in a given quarter, thus providing the flexibility to claim under other support schemes instead.


Return to news headlines

Penningtons Manches Cooper LLP

Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority.

Penningtons Manches Cooper LLP