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What will changes to the Renewable Heat Incentive mean to homeowners?

Further changes to the Renewable Heat Incentive have been announced to commence at the end of March, 2016, but what do they mean?

What is the Renewable Heat Incentive?

The Renewable Heat Incentive, more commonly referred to as the RHI scheme, is a government-led incentive scheme for renewable heating technologies. Similar to how the solar PV Feed-in Tariff provides benefit for rooftop solar installations, the RHI scheme provides financial incentive to customers making the switch to a renewable heating technology, such as a heat pump or biomass boiler.

Launched in 2014, the scheme pays customers at a set rate for each kilowatt of renewable heat energy generated by their system, over a period of seven years. The aim of the Renewable Heat Incentive scheme is to bridge the gap between the costs of installing a traditional heating system and a renewable alternative.

To break it down further, Renewable Heat Incentive payments can make the cost of a renewable heating technology cost neutral.

What changes are being made to the Renewable Heat Incentive in 2016?

As of April this year, the following alterations to the RHI Scheme will be implemented:

– Renewable Heat Incentive to be supported until at least 2020

The government has committed to supporting the uptake of renewable heating technologies until at least 2020/21. This is positive news for customers and installers alike, following significant changes to the solar Feed-in Tariff, showing commitment to the renewable heating industry. This announcement should breed trust in customers considering a renewable heating installation.

– Green Deal assessment no longer required

Since the scheme’s initiation, customers have been required to produce a Green Deal Assessment Report (GDAR) and an Energy Performance Certificate (EPC) in order to register for Renewable Heat Incentive payments. The changes being implemented mean installing customers need only produce an EPC in order to apply to the RHI scheme. This change will save customer approximately £50-75 on their installation costs and reduce the hassle and disruption a renewable heating installation may cause.

– New inflation indexing

Current scheme rules state that the RHI payments customers receive would rise in accordance with the Retail Price Index (RPI). However, inflation will now be shifted to follow the Consumer Price Index (CPI). Although only a small change that could be seen by many as a trivial matter, this change will mean incremental increases in payments are likely to be lower as CPI is usually lower than RPI.

– Removal of the 183-day occupancy rule

Self-builders looking to register their new build property’s renewable heating technology for RHI payments will no longer have to wait 183 days before making an application and will be able to do so as soon as a build is signed off. This removes the uncertainty in a self-builder’s mind when installing a renewable heating technology that tariffs might change or drop between the time they install their renewable technology and the time they can apply to enter the scheme. Furthermore, this alteration will mean the self-builders will start to see money returning on their investment sooner.

What changes to the RHI are expected in 2017?

In addition to the changes listed above, the government also announced a period of consultation to assess and evaluate a host of other potential reshapings to the Renewable Heat Incentive to be implemented in 2017. Some of the main proposed changes are as follows:

– Assigning third party rights

One of the biggest barriers for customers looking into installing a renewable heating technology has been the need for upfront capital. By executing third party rights, a company will fund, or part fund, an installation in exchange for the right to the RHI payments. In effect, the customer receives a new, renewable heating system and reduced running costs and the third party earns the right to the government incentive.

– Increase to RHI rate on heat pumps and removal of solar thermal

The consultation proposes to remove solar thermal as an eligible technology for RHI payments. However, it’s stated that budget could be reallocated to provide higher rates of payment on more popular, efficient technologies, primarily heat pumps. This could make air and ground source heat pumps a more lucrative investment but won’t come as good news to advocates of solar thermal.

– Heat demand capping

Proposed 2017 changes to the Renewable Heat Incentive mean that larger homes with higher heating and hot water demand will not be guaranteed to receive incentive payments on their entire renewable heating generation. Instead, capping will be introduced that limits eligible heat units to 20,000kWh for air source heat pumps and 25,000kWh for ground source and biomass systems. Changes as a result of the consultation will not impact customers already entered into the RHI scheme or typical, domestic dwellings where annual heat demand rarely exceeds 15,000kWh per annum, but will reduce the financial viability of installations for customers with larger heat demand, typically in older, traditional properties.

– Annual Budget Limitations

The RHI scheme is dependent on the number of installations undertaken over a set period of time. The new plans for the Renewable Heat Incentive would mean that if the RHI’s budget allocation is used up the scheme can be suspended.

What do these changes mean to the homeowner?

Upcoming changes are likely to mean a few different things to homeowners and builders.

Firstly, the future of the RHI has been secured and customers looking to enter into the scheme should now find it easier to do so. Removing the requirement for a Green Deal assessment and scrapping the 183-day occupancy rule has removed two of the larger barriers associated with applying to the scheme. Furthermore, proposed plans to encourage third-party installations of renewable heating technologies might open the scheme up to a wider range of customers. Despite this, customers will need to await terms and conditions of how third-party installations and ownership will function to confirm its viability.

Secondly, planned alterations of the scheme are likely to benefit self-builders, typical domestic homeowners and heat pump technologies, but will be detrimental to solar thermal installations and owners of larger homes. Removal of incentive payments for solar thermal installations throws the investment viability of such systems into jeopardy but could provide an insight into how a renewable technology would cope in a subsidy-free world. The other side of the coin is that an increase in heat pump technology tariffs could make air source and ground source solutions more interesting as financial investments. Smaller, modern properties installing such a technology with higher energy efficiency and lower heat demand could be set for the biggest benefit with higher rates of payment predicted.

Want more information on the changes to the Renewable Heat Incentive?

Whether you’re a current owner of a renewable heating technology and member of the RHI scheme or a customer considering making the switch to a renewable alternative, these changes to the Renewable Heat Incentive could impact you.

If you have any questions or are considering installing a renewable technology and want further information, our team of renewable experts are here to help. Enquire via the form found at the bottom of this page or phone the office on 0800 093 3299 to have your questions answered.

Alternatively, visit our page on the Renewable Heat Incentive or visit Ofgem’s Domestic RHI website for more information.

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