The development of renewable heating policy in the United Kingdom
Peter M. Connor*, Lei Xie, Richard Lowes, Jessica Britton, Thomas Richardson
Corresponding author: +44 (0)1326 371870, P.M.Connor@exeter.ac.uk
All authors: University of Exeter, Penryn Campus, Treliever Road, Penryn, Cornwall, TR10 9EZ
Abstract
The historical focus of renewable energy policy in the UK, as in most nations, has
been on supporting deployment in renewable energy sources of electricity. The
adoption of ambitious EU wide targets for renewable energy has forced greater
consideration of renewable energy sources of heat (RES-H). The UK pushed ahead
rapidly in considering different policy options and legislating a new instrument, the
Renewable Heat Incentive (RHI) to support RES-H, a form of tariff mechanism
designed with the specifics of RES-H in mind, though translation into application has
been slow. The evolutionary process which led to the current policy instrument is
considered, along with the need to consider other elements to work with it. This
represents a new and novel application of policy to an area where there are few
examples of large-scale policies which go beyond direct capital subsidy.
Keywords
Renewable Heat Policy; Renewable Energy Policy; UK Energy Policy; Renewable
Heat Incentive
Introduction
While the UK is relatively rich in some of the resources necessary for generation of
renewable energy, the level of exploitation is low, with renewable energy sources of
electricity (RES-E) accounting for only 15% of electricity generated in 2013. The UK
ranked 25th out of 27 EU Member States at the end of 2012, with only 4.4% of all
primary energy requirements met from renewable energy sources [1,2,3].
1
The UK was one of the first nations to adopt policy to stimulate renewable energy
sources of electricity (RES-E) [4]. As with most states however, it has been less
active in supporting renewable energy sources of heat (RES-H). The need for a new
RES-H support instrument became more strongly apparent with the EU’s 2009
Renewable Energy Directive. This ratified an EU wide target of 20% of all energy to
come from renewables by 2020, with a legally binding 15% overall target for UK
energy consumption [5].
The UK’s 2009 Renewable Energy Strategy gave a breakdown as to how the overall
15% national target might be met. The primary scenario suggests that by 2020 over
30% of electricity, 12% of heat, and 10% of energy used in transport should come
from renewable sources [6,7].
The UK looked set to take a pioneering approach to RES-H, moving relatively rapidly
to adopt the Renewable Heat Incentive (RHI), a form of tariff mechanism modified to
meet the specific characteristics of RES-H and on a par with the RES-E support
instruments used across Europe. RES-H characteristics are substantially different
from those of RES-E and attempts to design and redesign the RHI have emphasised
the need to consider different approaches and the additional difficulties. This paper
details the evolving solutions that the UK has considered for RHI design in order to
inform future design efforts. Attempts at its practical application have required a
move beyond the theoretical work so far carried out (for example, [8,9,10]) and
consideration of the approaches taken in its design and of the problems that have
emerged may usefully assist in informing development of instruments elsewhere.
The RHI was introduced in law in late 2008 and though delayed on multiple
occasions, the pathway to its adoption has highlighted many of the issues and
2
difficulties faced in designing support for the incentivisation of large-scale RES-H
deployment. It represents an early attempt by a European government to develop
and apply a financial instrument at the national-level that derogates from the grant
style mechanisms which has been the mainstay of the expansion of RES-H to date.
The decisions as to what to attempt and the evolution of the instrument that has
emerged is an interesting one for all policy makers attempting to stimulate adoption
of renewable energy technology.
Further, the adoption of the RHI also represents a key element in a wider shift in
policy from the UK’s historical focus on quota based mechanisms. This shift was not
inevitable when the process to determine the choice of instrument began, and has
been influenced by the lessons derived from the UK and wider RES-E policy
experience. It is argued that this represents a significant exemplar of policy learning
as regards renewable energy policy.
However, before either of these can be considered it is important to lay out how the
UK currently sources heat.
1
1.1
Architecture of the Market for Heat in the UK
Heat use in the UK
The UK consumed 746TWh of heat energy in 2012, accounting for 47% of total UK
energy consumption [3]. Gas accounts for around 80% of this figure [11] and the
displacement of fossil fuel heating thus represents a major element of any
meaningful climate change mitigation strategy, or a holistic renewable energy policy
strategy. Heat consumption contributes around one third of UK CO2 emissions [11].
Domestic sector heating accounts for more than half of all heat consumption, with
space heating being the dominant element of this demand [12]. Heat energy
3
accounted for ~79% of energy use in domestic dwellings in 2009; while this fraction
remained largely stable in the period 1990-2007 the total amount of energy used
across all dwellings rose by 20% in the period, reflecting both increased personal
consumption and an increase in the number of dwellings from 22.7 million to 26.0
million [11,12,13]. While, average weather corrected domestic gas use in the UK has
been reducing over the last five years [14] the high proportion of total energy used
for heat emphasises the importance of addressing both reduction in domestic heat
demand through energy efficiency programmes and the need for more sustainable
heat energy. Similar action is also required for the service and manufacturing
sectors.
Gas is the dominant fuel in the domestic heating sector, accounting for 81% of total
heat energy consumption. Around 7% of domestic heat comes from electricity with
nearly 9% from oil [11]. The UK service sector has much lower heat energy
consumption than the domestic sector and the fraction produced from gas is also
lower, at ~66% [12], with the difference accounted for by greater reliance on
electricity for heating purposes (24% share of the total).
The manufacturing sector shows further variance, with gas accounting for just over
54% of total heat consumption, electricity for 24%, an oil share of 14%, and with
solid fuel accounting for the remainder. The sectoral differences are likely to be the
result of the different economics of energy supply to the industrial sector, by the less
rapid turnover of energy systems in the manufacturing sector and by the
requirements for industrial process heat, higher temperatures and other qualities
[12]. These different demands will have implications for RES-H uptake and policy
design.
4
Gas is dominant in the UK heating due to its relatively low cost, aided by its relative
abundance in recent decades as the UK exploited its own fields. Switching from gas
to renewable heat must overcome substantial cost hurdles, and if RES-H is to
achieve significant deployment it will require support to try to reduce it below the cost
of gas. This will mean financial support for RES-H and possibly other measures
concerning environmental externalities relating to gas. This paper will focus on initial
attempts at provision of financial support for RES-H in the UK. Despite the barriers,
the large volume of carbon associated with heat means there are few alternatives.
The introduction of district heating, currently a negligible technology in the UK, may
offer further potential and needs to be considered, both as a partner technology to
RES-H and to exploit waste heat.
1.2
Significant Stakeholders in the UK Heat Energy Market
The dominance of gas in the heat market, and particularly in the domestic sector,
means gas supply companies are the major stakeholders in the heat market. While
there are more than 20 gas and electricity suppliers active in the UK market, the
market for both is dominated by six major utilities: British Gas, EDF Energy, E.ON,
RWE Npower, Scottish Power, and SSE. Both are relevant since 7% of domestic
heating, 23.5% of heat used in industry and 24.5% of heat used in the service sector
comes from electricity [15]. In 2013 the previously state owned monopoly supplier
British Gas still supplied 40% of connected households with gas [16].
No specific body has responsibility for oversight of the supply of heat energy and
heating fuels in the UK. However, in so much as a majority of heat comes from
networked gas then the Office of Gas and Electricity Markets (Ofgem) have some
relevant responsibility. The role of regulation relating to UK RES-H is discussed in
section 5.
5
Ofgem are responsible for administrating the RHI, taking responsibility for payments,
auditing and enforcing the scheme. Clearly it is necessary for some agency to take
on this responsibility and Ofgem were the obvious candidate in a field with few
alternatives. Ofgem are also the likeliest body to take on responsibility for any
additional RES-H regulatory provision that may be needed.
2
Current Renewable Energy Sources of Heat in the UK
The UK Government estimates that 20.1TWh of renewable heat was generated in
the UK in 2013, or about 2.8% of heat demand, with the proportion increasing from
2006 to 2012 after steady decline from 1994.Heat from renewable sources increased
by 19% in 2013 [2]. The relatively larger share of primary energy consumption
associated with heat means that the total fraction of energy consumption met by
renewables rose to only 3.0% in 2009 and then 4.1% by 2012 [2,17]. This
emphasises the need for effective RES-H policy if overall RE targets are to be met.
Figure 1 shows the steady increase in RES-E deployment and generation in the
period 1990-2013 and the decline from 1995-2005 and then relatively gentle
upwards gradient as regards RES-H.
The main sources of renewable heat generation in the UK in 2010 were direct
biomass combustion (nearly 90% of the total renewable heat generated in the UK),
active solar thermal systems (8%), and heat pumps (2%) [2].
6
Figure 1: Trends in the use of renewable energy for heat, electricity and transport [2]
The increase in the period from 2006 – 2012 can be attributed to a number of smallscale support instruments which are described in section 3. It can be noted that it is
not seen as desirable to continue to rely on these to drive the scale of RES-H
technology that is required for the UK to meet its targets. There are various reasons
for this. Some of the instruments do not default to driving renewable energy but can
prefer energy efficiency which makes strategic planning difficult. Some are intended
as pilot projects and not for large-scale application. Some, but by no means all, of
the 19% increase in 2013 is likely to have been driven by the development of the
RHI and the Renewable Heat Premium Payment (RHPP) with the percent of
renewable heat supported by the RHI increasing from 1% to 3% between 2012 and
2013 [2].
2.1
Biomass
Biomass is the most significant source of renewable heat in the UK, generating 84%
of total renewable heat generated in 2013 [3]. The primary biomass used in the UK is
woody biomass and waste with high biomass content, such as municipal “black bag”
7
waste. Comprising around 35% of the renewable heat total, domestic use of wood is
the biggest contributor of renewable heat. Further significant growth is anticipated in
the short to medium term [3]. Industrial combustion is a much smaller contributor,
though a number of policy initiatives are in place to expand the use of wood in this
sector, including targeted support for supply chain development and investment in
technological R&D. The RO has driven considerable increases in biomass use since
2002, subsidising biomass co-firing for electrical generation. However, there has
been little (or no) emphasis on co-production of renewable heat.
The UK has made some effort to drive biomass in particular, though as Jablonski et
al note, this has met with limited success. The authors focussed on residential
heating from biomass and conclude that the sector can actually be segmented and
that different segments can be expected to respond differently to different policy
instruments. [18]
The Biomass Task Force estimated potential for biomass heat in the range 47.756.1TWh [19]. The central scenario of the UK’s Renewable Energy Roadmap [20]
suggests a range of RES-H generating potential of 35-50TWh in non-domestic
biomass use (largely biomass boilers and biogas) by 2050, with even the most
pessimistic scenario suggesting 27TWh.
The Biomass Task Force [19] outlined the barriers to the general growth of biomass
use in the UK. These include:

Ignorance of the potential of biomass as an energy source

Heavy emphasis on RES-E, with little value attached to the carbon emission
reduction potential of RES-H
8

Issues related to the designation of waste and the implementation of waste
regulation

A fragmented approach by national and regional government

Planning issues

Lack of a robust supply chain

Past market conditions undermining CHP project viability

The lack of an effective single voice for the industry
DEFRA’s ‘Renewable Heat Initial Business Case’ and ‘Renewable Energy Roadmap’
set out a similar set of barriers impacting multiple RES-H technologies, whilst also
emphasising the costs associated with retrofitting of existing infrastructure with RESH technologies. Both reports highlighted the need for long-term financial support to
address the high initial capital costs of RES-H [19,21] and argued for effective policy
initiatives for RES-H on a par with those existing for RES-E. The Biomass Task
Force also highlighted several regulatory barriers specific to biomass for RES-H
production [19].
2.2
Solar Thermal
A domestic solar thermal system is generally held to require around 5m2 of panels to
meet the needs of a typical UK home, though there is significant variation due to size
of dwelling and location. This size of installation would cost around £4800, though
domestic systems are available in the range £1000-£8000. The Energy Saving Trust
(EST) suggests typical household savings of £55/year if switching from gas, and
£80/year if switching from an electrical immersion heater. Clearly, this does not allow
for a return on investment and significant expansion of this sector will require
9
financial support. Estimated carbon savings for this typical system are 230kg
(switching from gas) and 510kg (switching from electricity) annually. [22]
The Renewable Heat Initial Business Case suggested a figure for solar thermal
production of 0.3 TWh/year generated in 2005 [21]. UK Government statistics record
an increase to from 1.13TWh in 2010 1.78TWh 2012 [2] indicating an annual rate of
increase of 25%, albeit from a very low base. Total installed capacity was estimated
at 0.5GW th by the end of 2012 [23]. DECC’s Initial Business Case suggests the
potential for solar thermal energy in the UK in three scenarios up to 2020. The first,
‘business as usual’, suggests a potential of 1.2 TWh/year by 2020, a figure which is
likely to be exceeded. The second, based on low market potential against total
technical potential, suggests 4.9TWh/year by 2020, while the third, ’high market
potential’, projects 17.1TWh/year by 2020. The latter would represent a very
substantial increase and would require a significant change in prevailing conditions.
The document suggests that solar thermal will require support in the range £3 £51/MWh if deployment outlined in the two market potential scenarios is to be
achieved [21]. High initial capital costs and installation costs are cited as the key
financial barriers to solar thermal deployment.
These documents emphasise other barriers including public perception issues,
particularly noting that solar thermal technology is seen as “complicated, unproven
and of dubious benefit” by the general public [21]. These are issues that have been
actively addressed in the successful design of RES-H policies in other countries [24].
Planning delays are also raised as an area for attention, along with building
regulations [21].
10
2.3
Heat Pumps and Geothermal Energy
Ground source heat pumps (GSHP) and air source heat pumps (ASHP) offer
significant future potential to UK RES-H generation, though currently only a limited
amount of installation has taken place. [25]
Heat pumps are commercially less mature in the UK than either biomass or solar
thermal. As of the end of 2013 DECC estimated total installed capacity of 963MW
(approximately 60,000 installed heat pumps) mostly from the domestic sector [20].
However a number of recent reports and scenarios concerning future UK energy
provision have presented electrification of domestic heating as a key feature, with
heat pumps as a key technology [26].
NERA/AEA [27] estimated that GSHP and ASHP could produce 19.7 TWh/year by
2020. More recent figures in the Renewable Energy Roadmap [20] suggest nondomestic heat pumps might contribute 16-22TWh, rising to 50TWh in the most
optimistic scenario. It should be noted that a significant fraction of the potential
highlighted in these projections comes from ASHPs however ASHPs have only been
included under the non-domestic scheme since 4 December 2013. Both the
domestic and non-domestic schemes therefore now support air-to-water heat pumps
but air-to-air heat pumps are not supported under either scheme. [28, 29]
3
Historical and Ongoing Policies Applied to the Support of RES-H in the
UK
The UK has been developing a RES-H support policy which has gone far beyond the
programmes that have previously existed. This section reviews historical support for
RES-H beyond those mechanisms already discussed.
11
3.1.1
Grants
Historically the UK, as with other EU Member States, has tended to apply grants as
its RES-H key support mechanism. The primary target groups for grants/loans have
been RES-H system manufacturers, developers and homeowners installing their
own RES-H systems. Policy initiatives relevant to the sector have been relatively
small-scale and tended to be technology specific. These policies have begun to be
introduced since 2000 and include [30,31,32]:

Community Energy Programme (£75M grant, biomass, 2001-2007)

Bio-energy Capital Grants Scheme (£25M, grants, biomass, 2002-)

Community Renewables Initiative (£2.5M, small-scale, limited funds, 20022007)

Clear Skies Initiative (£10M, grants, biomass & solar, 2003-2006)

Bioenergy Infrastructure Scheme (wood and straw supply chain, £3.5M, 20052008)

Biomass Heat Accelerator (£5M, grants, biomass heat, 2006-2011)

Low Carbon Buildings Programme, (£48M, grants, small scale RE including
RES-H, 2006-2010)

Energy Crops Scheme (Grants to establish energy crops, 2007-2009)
Generally, financial support has been unstable and characterised by short time
horizons and often limited and sometimes fluctuating budgets. Grants help to relieve
the burden of upfront capital costs - a major barrier across all renewable energy
technologies, but particularly to residential sector uptake. However, it has been
suggested that the intermittent and limited nature of funding availability within some
12
programmes can become a constraint, owing to a lack of surety of support [33].
There is no guarantee that desired targets can be achieved in practice. Connor et al
[10] suggest that effective foresight for efficient planning of production and
investments is made very difficult by the resulting demand fluctuations. It has also
been argued that grant schemes alone are not sufficient, and need to be
supplemented by loans to provide more stable deployment, improved market
demand stability and better support for the innovation process. [34]
The most recent grant programme linked to RES-H, the Low Carbon Building
Programme (LCBP), typifies some of the problems. The LCBP started as a £30
million programme providing capital grants of 30%- 50% of the capital cost of small–
scale installation of renewable technology. However, initial funding ran out rapidly
and the programme had to be re-launched with additional support and a new method
for allocating funding. [25,35]
Many previous UK RES-H policy instruments have focussed on the development of
biomass as an energy source, reflecting both the dominant role of bioenergy in the
UK RES-H sector, and recognised difficulties in its uniquely complex supply chain.
The UK’s experience with the LCBP particularly indicates the need for a long term
commitment to a support mechanism, and that it must be transparent and as
predictable as possible in the long term. It also emphasises the need to get a support
instrument right first time, if the mechanism is to provide the stable conditions that
favour investment. [9,10,31]
3.2
Other instruments
A number of other policies have been introduced with the potential to provide
incentivisation for the adoption of RES-H, although this might not be their primary
13
purpose. These additional mechanisms may all produce more attractive conditions
for RES-H in the UK by making the alternatives more expensive. These include:
The Climate Change Levy is a tax on all fossil fuel use by all commercial entities
without a specific exemption, applied via gas and electricity consumption.
Renewable generation is exempted. One study suggests the levy is equivalent to a
carbon tax of £10/tonne, but notes that this was not enough to overcome the cost
disadvantage of most RES-H systems alone. [36]
The Carbon Reduction Commitment Energy Efficiency Scheme, introduced in
2010, is now a carbon taxation scheme for large non-energy intensive businesses
and public sector organisations.
The Renewables Obligation (RO) is the UK’s central mechanism for the financial
support of renewable electricity sources. It does not provide direct support for RES-H
but since it does support electrical production from biomass, CHP systems are
effectively subsidised, potentially accelerating deployment. Changes to the RO mean
that biomass-fired CHP receives higher subsidies than systems without CHP for their
electrical generation [37]. Clearly, the application of this form of support for electrical
generation using biomass also drives competition for biomass resource.
The RO will be phased out over the period 2014-2017 in favour of Contracts for
Difference, a mechanism aiming to operate with similarities to a feed-in tariff. [38]
The Energy Companies Obligation, (from 2013, formerly the Carbon Emissions
Reduction Target - CERT, 2008-13 and the Energy Efficiency Commitment – EEC,
2002-2008) is an obligation on large electricity supply companies to reduce domestic
consumer emissions. It requires the utilities to invest in home improvements which
can include energy efficiency and microgeneration (RES-E and RES-H). The
14
scheme incentivises utilities to achieve reduction goals at minimum cost which has
driven funding to energy efficiency over RES [39]. This was estimated to require
investment of £3.5billion by the utilities [40,41]. The mechanism allowed the
regulator to remove technologies from eligibility should the market become
saturated. Thus, in theory, RES-H might eventually become more attractive within
the ECO.
The Government gave some consideration to the interaction of the ECO/CERT with
the RHI. The most notable concern was that since utilities could install RHI eligible
technologies, and also count the associated carbon savings towards CERT
obligations, this would effectively result in “double incentivisation”. Although it was
noted that this might be justified if it drove sufficient growth in deployment [42]. This
willingness to apply incentives through multiple instruments was perhaps always
unlikely to survive in a policy environment demanding significant cuts in public
support. In this instance, the time extended version of the CERT limited support for
deployment of renewables to customers in a group defined as ‘Super Priority’
(essentially consumers most likely to be most vulnerable to fuel poverty), effectively
avoiding duplication of effort as regards the RHI and RES-E specific financial support
[43]. While the delineation of the incentives makes sense, the problem with this
separation is that it then places all the emphasis on the RHI, where significant delays
for domestic premises left the technology under-supported. The ECO Obligation has
been reduced after a Government consultation of 2014 [44].
The Green Deal provides loans to assist householders in improving their property’s
energy performance. Introduced in October 2012 it is an attempt to overcome the
problem of access to capital for improving energy efficiency in dwellings. Loans are
15
provided only where likely to provide an overall saving to the homeowner, with the
loan paid back against the reductions in bills – the consumer bears the risk if savings
do not materialise. The Green Deal Oversight and Registration Body (GD ORB)
manages authorisation of providers, auditors and installers on the Government’s
behalf. The Green Deal was intended to complement the ECO. Some small-scale
RES-E and RES-H technologies are eligible Green Deal loans, dependent on
economic merit [45].
Notably, all domestic RHI applicants will have to make a Green Deal Application
(GDA) to ensure premises are sufficiently energy efficient to warrant a RES-H
subsidy. Those installing RES-H under the Green Deal will be eligible for RHI
subsidy. Third parties who contract to provide RES-H systems may also be eligible
to receive RHI payments.
It is the adoption of a Renewable Heat Incentive that marks the UK’s pioneering
move in providing a policy instrument intended to be able to provide the huge scaling
up that will be required if the UK is to meet its RES-H and overarching EU renewable
energy targets.
4
The Renewable Heat Incentive
The Renewable Heat Incentive (RHI) is the first major step taken by the UK towards
its aspirational 12% RES-H target. The RHI represents a major new application of a
tariff mechanism, specific to RES-H – this remains a relative rarity and thus is an
important renewable energy policy development. The process of instrument design
has highlighted the specific challenges of supporting RES-H, and given
consideration to different approaches to meeting these challenges. This is significant
since it represents a very early attempt to do so and the process has revealed
16
substantive problems that will need to be considered in designing instruments for
other jurisdictions.
Germany has previously made efforts to adopt a bonus mechanism (similar to the
RHI, but German policy used the term bonus to make it clear no ‘Feed in’ to a
network was happening) to support RES-H but this was withdrawn after being
declared unconstitutional and after misgivings over the complexity of its application
as proposed [8,46,47]. The mechanism proposed in Germany would have
applicability elsewhere and might not encounter the same legal barriers to adoption.
It is not clear whether the UK gave consideration to adopting a mechanism similar to
the one considered in Germany.
The RHI was introduced into UK legislation RHI in the 2008 Energy Act, though
without any operational detail. It has since moved a process of repeated consultation
combined with multiple delays to adoption. The original proposal and the story of the
development of the instrument and its current form are considered below.
4.1
General RES Policy Context of the UK
To understand the factors that have shaped the adoption of the RHI, it is important to
understand the UK’s historical approach to renewable energy. UK RES-E policy has
been rooted in using mechanisms which mimic the application of markets to as great
an extent as possible, with a desire to minimise interference with the wider energy
market strongly influencing instrument design.
The focus on competition continued with the UK’s current primary financial support
mechanism for large-scale RES-E. The Renewables Obligation (RO) is a fairly
typical example of a quota mechanism, albeit with some novel features [48,49]. It
places an obligation on all electricity supply companies to purchase an annually
17
rising fraction of electricity from renewable sources. Supply companies demonstrate
compliance by submitting certificates; these are awarded to registered RES-E
generators who sell them to supply companies either with or separately from their
electrical output. The mechanism aims to create a RES-E market to incentivise
supply companies and RES-E generators to compete to drive down prices, rooted in
a belief that this will deliver RES-E most cost effectively. Additionally this minimises
interference with the electricity market. However, problems have manifested since
the RO’s introduction. Growing experience with operational RES-E feed-in tariffs
around Europe has undermined the argument as to superior cost effectiveness on
the grounds of risk and this now appears to be accepted by even economically
conservative commentators [50,51,52]. This has led to calls for its replacement, and
the UK is now adopting a Contracts for Difference, with some tariff-like qualities
[38,49]. This debate over the relative merits of support provision for renewable
electricity, and the conclusions over comparative cost shaped the process which led
to the selection of the RHI.
4.2
The Route to the RHI
The first serious effort to push for the adoption of a non-grant based RES-H financial
support instrument began around 2003 with renewable energy trade associations
and NGOs campaigning for a heat equivalent of the RO. Support for a quota style
instrument represented an acceptance that this was at the time the most politically
acceptable option. While this was not regarded as ideal it was seen by many as far
more likely to win political approval due to the political capital already invested in the
RO. Supporters regarded any mechanism as better than a complete absence of any
significant financial support. This effort led to the proposal of a Renewable Heat Bill
18
in January 2005, its progress ending when it was pushed out of the parliamentary
calendar by the 2005 general election, [53].
A number of reports assessing the relative merits of different options for RES-H
support were produced which together considered the barriers to RES-H growth and
qualitatively and quantitatively assessed the relative costs and benefits of different
potential instruments [21,33,36,54].
The UK preference for quota mechanisms continued to influence government
through 2007 and 2008, reflected in a number of high level assessments
recommending such a mechanism [33,36]). Perhaps the most notable was an
assessment which suggested a tariff support might be more economically attractive
but that a quota mechanism might be preferable on the grounds of ‘cultural
compatibility’ [33]. That is, the UK’s greater familiarity with quota style mechanisms
(specifically the RO) should determine the RES-H support mechanism. This
contradicted a core justification for the initial adoption of the RO (and other UK RE
support), as well as being at odds with established good practice in renewable
energy policy in the UK and elsewhere (e.g. [55,56,57,58]).
Essentially, there appears to have been a conflict here which impacted the UK
Government’s position. On one side the then Government was responsible for
devising and adopting the RO, and had a political commitment to the justification for
its adoption. This might have meant a loss of political capital if the Government
declined to select a quota mechanism since this would acknowledge a quota might
not be the most effective for growing RES and thus that the Government had erred in
adopting the RO. On the other hand, the RES-H modelling demonstrated that a tariff
would be cheaper than an RO/quota style mechanism. [33]
19
The debate at this stage may have been influenced by a couple of factors. Firstly,
the growing evidence concerning the relative costs of quotas and tariffs noted above.
Secondly, the UK had made efforts to apply the RO to domestic scale RES-E, with
results that suggested very high transactional and administrative costs due to the
large number of generators and low volume of energy produced by each generator.
Data for the RES-E micro-generation element of the RO suggested the regulator’s
administrative costs alone (excluding participants’ transactional costs) were
substantially higher than the actual subsidy; £650,000 against £400,000 for only
~2000 systems [59]. Since applying a quota to RES-H could be expected to require a
much greater concentration of small-scale applications than the RO had supported,
and given the lower energy value for heat, then it could be expected that applying a
quota to RES-H would also be expensive, potentially with an even greater ratio of
costs to subsidy.
This debate was effectively terminated in November 2008 when the Government
surprised much of the sector with the unexpected addition of the RHI to the 2008
Energy Act. This was announced as an intended tariff-based instrument. While this
Act established the RHI as a legal requirement, it provided no details of the RHI’s
operation, but simply placed an obligation on the relevant Energy Minister to develop
the instrument over the subsequent twelve months.
4.2.1
The Initial Proposal
The RHI as originally proposed suggested fixed payments for heat generated from
eligible technologies. Eligibility of technologies within this proposal was widely cast
[60] and included: air, water and ground source heat pumps; geothermal energy;
solar thermal; biomass boilers; biogas supply; bioliquids; biomethane; and combined
20
heat and power using renewable fuel stuffs. This list was later reduced for the initial
offering and then expanded upon after the scheme’s introduction.
Subsidies varied by technology and scale of application, typically set to provide an
estimated typical rate of return of 12% [6]. The UK Government suggesting this
represented “a return on...investment that reflects the opportunity cost of capital and
the level of risk and effort involved” [61]. The exception was solar thermal, initially set
to typically provide a 6% rate of return on the grounds that the technology was better
known and that a higher rate might have resulted in it dominating programme costs
[60]. It seems likely that the latter might have been the more significant – though only
perhaps a partial – explanation. A 12% rate for solar thermal would tend to imply
higher uptake, leading not only to domination but to higher overall costs arising from
the mechanism (and higher RES-H deployment). It seems likely that the lower rate
was set to limit these costs.
The initial consultation document proposed that payments be made on a metered
basis for large-scale applications and on a ‘deemed’ (or estimated) basis for small
and medium-scale applications (see section 4.2.3 below). Checks would also be
needed to ensure that the heat was being used gainfully and that the fuel used was
genuinely renewable. Payments were proposed to be paid as an annual lump sum.
[60]
Issues with the Initial Proposal
The use of deeming as a tool for estimating the appropriate heat needs of a building
was intended to deal with a number of problems. Firstly, it was rooted in the desire to
avoid subsidising excessive volumes of renewable heat in non-energy efficient
homes. It attempted to do this by setting the subsidy at a level that would make
21
systems economic only where they were being installed in buildings with a
reasonable level of energy efficiency – the scheme would only be available where a
building met a minimum level of efficiency or where specific action was taken to
improve home energy efficiency. This has remained a key element of the RHI as it
has developed.
The mechanism did not try to account for spatial factors. There is significant variation
in energy usage on a geographical basis across the UK, for example, with much
greater heating demand in Scotland and northern England than in the southern UK
(e.g. heat accounts for 58% of all energy use in Scotland, compared with ~47% for
the UK as a whole). This seems likely to significantly influence performance, and
thus uptake, of some technologies; most notably solar thermal but potentially also
with regard to biomass supply. Uptake in major population centres is also likely to
vary significantly, with restrictions relating to air pollution from biomass, population
density against available roof space and access to areas to install heat pumps all
having potential to limit deployment in cities, particularly London. [27]
Off-gas grid properties would be likely to see a much higher rate of return than the
intended one. This might be argued to be both an advantage and a disadvantage.
Such properties would seem to be the ideal ones to target since they would be likely
to see new RES-H systems displace more fossil fuel emissions as a result of a direct
switch to RES-H from oil, coal or electricity heating systems. However this may imply
rates of return that might be regarded as excessive.
4.2.2
The Amended Proposal
Following a change in Government in May 2010 introduction of the RHI was divided
into two phases: (1) commercial and industrial and (2) domestic. Adoption of the
22
commercial phase was postponed until 30th September 2011, delayed again one day
prior to that date, eventually introduced on 28th November 2011. Adoption for the
second (or domestic) phase was delayed until October 2012, then to summer 2013
and final introduced in spring 2014 [62]. The delays have been criticised by industry
representatives as undermining new markets by reducing the perceived security of
the mechanism. The last minute announcement of the phase 1 delay in late 2011
was particularly criticised, as key technology providers and developers could be
expected to have prepared for new demand only to have income streams delayed
with little warning. This sudden and unexpected change should be seen in the
context of a number of changes applied to renewable energy policy in the UK
following the 2010 election. The incoming Coalition Government have sought to
make savings in renewable expenditure, with cuts to the level of a number of RES-E
tariffs and other instruments and substantive changes to the RHI as it was initially
proposed. The RHI was initially left out of the agreement setting out Government
plans, suggesting a low level of priority [63], and the continued delays to the
mechanism tended to reinforce this. This combination of low prioritisation, the desire
to reduce spending as part of a fiscal austerity programme and the potential difficulty
of devising a novel mechanism in a workable form can be seen as the major
contributors to the ongoing delays to the RHI. The ongoing delays in phase two of
the RHI are perhaps more complex.
The phase 2 delays led the Government to introduce a transitional alternative
support mechanism, the Renewable Heat Premium Payment (RHPP), which
provided a subsidy for the installation of new domestic systems via a one off
payment. The aim was to reduce the cost of purchase of new systems and ensure
that domestic demand was not totally disincentivised in the period up to the
23
introduction of phase two. The RHPP was initially limited to support for a maximum
of 25,000 systems with a budget of £12m made available from August 2011 to March
2012, though this was underspent by £4.5m. The delays to the domestic RHI meant
the RHPP was extended to March 2013, with additional expenditure of £7m and
again until March 31st 2014 [64] with the additional total of approximately £12m.
RHPP Payments are specifically linked to the recipient making data on energy output
from installed systems available to DECC for aggregation, which will inform further
policy development. This codicil can be regarded as potentially offering substantial
benefit in an area where little operational data is available and can be regarded as
an example of good practice for future policy design [61]. (The need to gather good
data is further recognised with domestic RHI payments for those who install
appropriate metering technology of £230 per year heat pumps and £200 per year for
biomass boilers. [62])
The RHPP had limited availability for most technologies, and all systems supported
had to be Microgeneration Certification System (MCS) approved to be eligible. Any
solar thermal system installed on a domestic dwelling in the 2012-13 period was
eligible for up to £300. Other technologies had to be installed in off-gas grid
properties to qualify and could receive the following: Air source heat pump, £850;
ground source heat pump, £1250; biomass boiler, £950. The 2013 extension of the
RHPP increased this to £2,300 for ground source heat pumps, £2,000 for biomass
boilers, £1300 for air source heat pumps and £600 for solar thermal systems. [65]
The final tariff rates for RHI phase 1 (non-domestic) were set to allow a typical rate of
return of 12% (with the exception of solar thermal to limit its domination of funding).
The solar thermal tariff is instead set to be “roughly equivalent, in terms of financial
24
support per unit of energy output, to the level allocated to what is currently
considered to be the marginal cost effective technology required to deliver the UK’s
15% renewable target, offshore wind.” [61] This figure appears to have been
selected on a somewhat arbitrary basis; and no explanation has been forthcoming as
to why this figure is meaningful in meeting the specific needs of solar thermal or as
regards achieving a particular overall target.
The phase 2 (domestic) tariff is set based on an estimated typical rate of return of
7.5%. [66]
4.2.3
Metering and Measurement
The RHI aims to provide a subsidy to RES-H based on generated output. The RHI
as originally proposed assessed the output of RES-H qualifying for subsidy on two
bases. Output from sufficiently large installations (i.e. were the costs would not be
too great a burden) would be metered while in smaller installations output would be
‘deemed’. ‘Deeming’ was to pay out against the estimated ‘reasonable heat
requirement (or heat load) that the installation is intended to serve’ [60].
Phase 1 of the RHI in its applied does not feature any ‘deeming’ and all technologies
need to be metered to qualify for payment. Payments made under phase two are on
a ‘deemed’ basis, as detailed below.
4.2.4
Levels of Support within the RHI
The technologies eligible for RHI support all qualify under the 2009 EU Renewables
Directive, emphasising compliance with the Directive as the focus of UK RE policy.
The tariffs are calculated to compensate only for the additional cost of renewable
heat. That is, they do not compensate for the “full cost either of the renewable heat
equipment or any fuel used by the renewable heat equipment, but only for the
25
additional cost of such equipment and fuel above that of the fossil fuel alternative”
[61]. Payments for eligible technologies within the non-domestic RHI are made on a
quarterly basis and extend over a twenty year period. Payments are linked to
inflation (measured as UK Retail Price Indices) in order to remove inflationary risk for
investors and as a result tariffs for both existing and new developers change
annually.
The levels of support currently available within the non-domestic part of the RHI are
shown in table 1. Since the start of the non-domestic scheme the tariffs have been
updated several times including a reduction in the tariff for small and medium
biomass, an increase in large biomass, GSHP and solar thermal tariffs and new
tariffs for Air Source Heat Pumps (air to water systems), biogas combustion,
biomass CHP and deep geothermal.
Tariff Name
Eligible
Technology
Small commercial
biomass
Medium commercial
Biomass (accredited on
or after 1 July 2013)
Eligible
Sizes
Less than 200
kWth
Solid biomass
including solid
biomass contained in
waste
200 kWth and
above & less
than 1MWth
Large commercial
Biomass
1MWth and
above
26
Tariffs
applicable
from
01/07/2014
(kWh)
Tier
8.4
Tier 1
2.2
Tier 2
5.1
Tier 1
2.2
Tier 2
2
(accredited on or after 21
January 2013)
Solid biomass CHP
systems (commissioned
on or after 4 December
2013)
Solid biomass CHP
systems
all capacities
Ground-source heat
pumps
Ground-source heat
pumps & Water
Source heat pumps
Deep geothermal
8.7
Tier 1
2.6
Tier 2
all capacities
(accredited on and after 21
January 2013)
Air source heat
pumps
4.1
Air source heat
pumps
all capacities
2.5
Deep geothermal
all capacities
5
Solar collectors
Less than 200
kWth
10
Biomethane
all capacities
7.5
Less than 200
kWth
7.5
200 kWth and
above & less
than 600kWth
5.9
600kWth and
above
2.2
All solar collectors
(accredited on or after 21
January 2013)
Biomethane injection
Small Biogas
combustion
Medium Biogas
combustion
Biogas combustion
Large Biogas
combustion
27
Table 1: Levels of support within Phase 1 (non-domestic) Renewable Heat Incentive at of 11/09/14
[67]
Levels of support and technologies eligible under phase 2 of the RHI are shown in
table 2. Payments for domestic systems will be made on a quarterly basis and an
installation will receive them for seven years, though they are intended to be
reflective of the costs of support over a twenty year period.
Technology
Tariff (p/kWh)
Air
source
heat
pumps
7.3
Biomass-only
boilers and
biomass pellet
stoves with back
boilers
12.2
Ground (and
water) source
heat pumps
18.8
Solar
thermal
panels (Flat plate
and
evacuated
tube for hot water
only)
19.2
Table 2: Levels of support within Phase 2 (domestic) Renewable Heat Incentive [62]
Deeming
To reduce the complexity of the scheme for domestic participants, encourage
efficient energy consumption and minimise administration costs, phase 2 of the RHI
does not require heat metering equipment to be installed. Instead domestic RHI
payments are based on a ‘deemed’ calculation which estimates a property’s
expected annual heat usage. For biomass and heat pump installations heat use is
based on the properties Energy Performance Certificate (EPC), which is a
prerequisite of applying for the domestic RHI. Multiplying this deemed figure by the
published technology tariff rate determines the level of payments. Where a heat
pump is installed, the heat use figure is to be combined with the heat pump’s
expected efficiency to estimate total renewable heat generated. The deemed figure
for solar thermal will be the estimated contribution of the system to a property’s hot
28
water demand (in kWh), calculated during the MCS approved installation process.
[62]
Properties with a back-up heating system (such as an oil boiler) or properties that
are a second home are required to install heat metering. In addition, domestic
householders who have installed a wood pellet-fuelled biomass boiler or a heat
pump can also volunteer to install heat monitoring and metering equipment and
obtain a further annual financial incentive of £200 and £230 respectively. Despite this
Ofgem highlight that there are currently very few companies offering heat metering
and monitoring services with the hope being that the market will grow as the
domestic scheme progresses [68].
Compliance
Eligible technologies access payments by registering with Ofgem, providing proof of
installation and then providing an annual update to confirm continuing eligibility.
Presented evidence must include details of the installing company, date of
installation and a serial number. Additional evidence might include receipts or
invoices for the installation, a commissioning certificate and/or report or a
photograph of the installation showing the serial number.
Burden of Payment
The Government figures for the total cost of the RHI as it is currently planned vary
from £4.8bn to £18.6bn, with a best estimate of £14bn over the projected thirty year
lifespan of the RHI. Phase 2 is estimated to cost from £2.41bn to £6.16bn [66]. The
major variance is likely to stem from differences in energy prices, with high extant
energy prices likely to drive more consumers to switch to RES-H, creating more
demand for subsidy. [66]
29
The Labour Government in power until May 2010 had intended the cost to be met
from a premium on energy consumers per unit of general energy consumption, paid
via energy bills, as is typical for UK RES-E support. The Coalition Government
however has decided costs will be met directly from the public purse. It can be
assumed this is to avoid additional costs on energy bills leading to political criticism.
While this is at odds with the polluter pays principle, it is possible that it will mean
fewer political barriers to the adoption and long-term stability of the RHI. The UK has
political groups who protest against the tax burden in general but this seems less
likely to be a significant barrier to the RHI.
The Government also gave consideration to the introduction of a cap on the total
spend allowed within the RHI and briefly introduced a cap whilst in the process of
designing a longer term budget management system for the RHI. While there is an
obvious political attraction to limiting the budget should demand prove unexpectedly
high this does open the risk of investors being discouraged by the possibility of tariffs
being cut unexpectedly at short notice when a fixed figure was achieved. Instead of
risking this kind of cut off the Government ramped up the criteria for degression from
the original proposals. [69,70]
Price Reduction: Degression
It is increasingly common to include degression mechanisms in tariff-style
instruments which reduce subsidy over time to try to reflect reductions in the cost of
technologies; a process which the UK government and others regard as good
practice [71,20]. This was additionally needed as concerns the RHI because the
scheme is funded directly by DECC which itself has a pre-determined annual budget.
The latter is somewhat unusual as regards tariff-type support. The desire to control
30
spend is an understandable one and an unfettered tariff mechanism opens up the
possibility of open ended costs, which is politically undesirable. Indeed, this
contributed significantly to the selection of the quota-style RO (and rejection of a
tariff) for large-scale RES-E in 2002 [48]).
In the case of the RHI, the scheme is monitored on a quarterly basis and if
predetermined levels of deployment are reached tariffs are reduced, the amount of
this reduction being made clear as far ahead as possible to allow developmental
planning to be as informed as possible [9,10]. Reductions will apply only to new
applications.
Degression ‘triggers’ apply across the RHI as a whole as well to individual
technologies however a particular technology will only have its tariff reduced if the
total scheme spending has reached a certain level. If the scheme’s total budget is
exceeded all technologies will have their tariff levels reduced however if specific
technologies are overspending these can have their tariffs reduced even if the
overall scheme is not overspending. The level of reduction can vary depending on
whether previous degressions have reduced deployment levels as well as depending
on the overall scheme spending. Although complex, it is possible to assess the
likelihood of degression happening and Government release monthly deployment
data [72]. The initial trigger for individual technologies was set at 150% of the desired
level for that technology however that has since been reduced to 120%. [73]
The tariffs introduced in phase 1 were reviewed in 2013 – earlier than expected –
with a view to raising the tariffs for large-scale biomass, ground source heat pumps
and solar thermal systems for non-domestic premises. This reflected projections
which suggested that these technologies had failed to be sufficiently stimulated by
31
the RHI to deliver the levels expected at the adoption of the mechanism [74]. Phase
2 of the RHI will be reviewed in 2015 and 2017, with any changes in the respective
following year.
The Government reserves the right to carry out reviews more quickly if necessary.
This proposed timeline of relatively rapid reviews can perhaps be traced to the
experience with the reduction in the costs and increase in demand for PV and
associated tariff payments in recent years, which led to unexpectedly high costs from
small-scale RES-E following the introduction of the Feed-In Tariff in 2010. The
Government has recently carried out an emergency tariff review of the biomethane
support level amid concerns that large projects were likely to be over-compensated
[75].
The Government has substantially reduced RES-E subsidy tariffs to avoid excessive
payments and ensure taxpayer value for money. While degression is supposed to
address this, it only approximates of ‘real-world’ cost reductions and has struggled to
keep up. The Government intends to avoid a similar situation with the RES-H
technologies should demand exceed projections. Reviews might also offer the
opportunity to raise support where technologies are not responsive to initial levels of
subsidy or to introduce higher qualifying standards for the operational performance
characteristics of eligible technologies (for example, heat pumps), though it is
debatable whether there would be sufficient political support for this in the current
climate. [20]
5
RHI performance to date
Initially the rate of installation under phase 1 of the RHI was slow, with a large
number of early applications refused due to confusion regarding the application
32
process and metering requirements. More recently installations have been steadily
increasing, as illustrated in figure 2, with biomass installations dominant,
representing 93.9% of installations and 98.8% of installed capacity up to July 2014.
This suggests the dominance of biomass combustion in renewable heat has
increased since the launch of the RHI as biomass combustion accounted for 85% of
renewable heat generated in the UK in 2012. [2,78]
Prior to the launch of the RHI, DECC’s illustrative scenario suggested that biomass
systems would account for 49% of overall RHI installations by 2020 [76]. While
significant growth of more novel technologies (such as heat pumps) is more likely to
occur closer to 2020, RHI accreditations of both heat pumps and solar thermal
systems have been increasing steadily since the start of the RHI. However these
increases are from a very low base and these technologies currently represent a
small proportion of total renewable heat capacity. The recent changes to the
biomass tariffs may address the dominance of biomass boilers somewhat, however it
remains to be seen if the current tariffs incentivise significant uptake of heat pumps
and other emerging technologies. The complexity of the scheme at installation level
is also considered as a potential barrier to the growth of more innovative
technologies such as ground source heat pumps [77].
The UK Government estimates RES-H generated in the UK increased from 16.4TWh
in 2012 to 20.1TWh in 2013, representing a growth rate of 22.6%. This compares
with an average annual growth rate of nearly 17% from 2006 to 2012 suggesting
there has been a small but significant increase since the start of the RHI [2]. An
average annual growth of 19% or above is required from 2012 – 2020 in order for the
UK to meet the 12% RES-H target by 2020.
33
Figure 2: Non-domestic RHI applications and accreditations
4,500
4,000
Number of accreditations
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Nov-12
Feb-13
May-13
Aug-13
Dec-13
Mar-14
Jun-14
Small solid biomass boiler (< 200 kW)
Medium solid biomass boiler (200-1000 kW)
Large solid biomass boiler (> 1000 kW)
Solar thermal (< 200 kW)
Source: DECC (2014) RHI and RHPP deployment data: July 2014 [78]
While it is still rather early to evaluate progress regarding the domestic scheme as of
July 2014 there had been 7,418 applications and 4,961 accredited installations.
While this is positive for such as new scheme the vast majority (86%) of applications
relate to legacy installations which were in place before the scheme launched [78].
The coming months will reveal the impact of the RHI on the domestic sector,
however there are some concerns that uptake will not meet expectations due to a
high number of heat pumps and solar thermal installations performing below
estimates [79]. In addition, only the building owner can currently claim the domestic
RHI, which excludes the potential of tenants or other third parties (such as Energy
34
Service Companies) funding and installing renewable heat technologies in order to
claim the RHI.
Throughout the design stages of the RHI, concerns have been raised about the
potential to ‘game’ the scheme and receive income for heat which has been
produced unnecessarily or not produced at all. This results from the fact that unlike
electricity feed in tariffs which are required to feed-in to a network, in many RES-H
systems, there is no grid for the renewable heat to feed into.
In phase 2 (domestic) this issue has been overcome by the use of deeming heat
demand which takes into account the house’s energy efficiency and its local weather
rather than metering [80].
In phase 1 (non-domestic), as mentioned previously, all heat is metered which
means than actual heat generation is known and there is also the financial incentive
to not waste heat as all heat has an intrinsic value. Ofgem guidance for the scheme
also explains that based on the regulations, only heat used for eligible purposes of
space heating, water heating and carrying out processes can receive RHI payments
and if any participant knowingly provides incorrect information in order to defraud the
scheme, they will be referred to the relevant authorities for potential prosecution.
This is supported by an RHI audit and compliance team [28].
6
Concluding Remarks
The UK’s 2009 adoption of a target of 15% of all energy to come from renewables by
2020 caused the then Government to realise the need for large-scale deployment of
RES-H alongside other renewable technologies. A process to identify policy options
for enhanced financial support of RES-H was initiated to select, design and adopt a
35
mechanism with the potential to offer significant financial support efficiencies. The
adoption of the RHI has placed the UK at the forefront of efforts as regards RES-H
support.
Devising the introduction of an effective instrument has undoubtedly been a difficult
task and may have warranted some delay, particularly as there was little practical
experience of tariff based heat support mechanisms in either the UK or
internationally. However the repeated delays in the adoption of the domestic phase
of the RHI meant the policy took over five years to be adopted. While the transitional
RHPP mechanism provided some funding to domestic system deployment it has
generally failed to use its full budget, and the high degree of uncertainty has
undermined the creation of supply chains. This has significantly undermined the
emergence of a UK RES-H industry and may mean that cost reductions that could
have been achieved have been lost or delayed, with implications for sectoral growth
and the meeting of the 2020 RE targets. The creation of uncertainty in this manner is
directly at odds with the lessons learned from the experience in growing RES-E;
evidence suggests it tends to lead to higher costs and to reduced deployment rates
[57]. Abu-Bakar et al [81] specifically link the uncertainty over the RHI to a drop in
the number of installations of solar thermal systems in 2011. Other initiatives to
facilitate the regulatory, societal and other changes which will make high levels of
penetration possible or cheaper may still be required.
Alongside the Feed-in Tariff adopted in April 2010, and the ‘Contract for Difference’
mechanism replacing the RO from 2014 onwards, the RHI represents a significant
break with the UK’s historical preference for quota based mechanisms [50]. It might
be argued that this exemplifies a learning process in practice, with the UK
36
Government coming to acknowledge the increasing body of evidence which
undermines the economic performance of its previously preferred quota-style
mechanism. Further elements of the learning process are reflected in the stages of
consideration as to the selection of a heat support mechanism and the change is a
notable one in the UK context, and potentially in the wider context. However, the
delays to the RHI’s adoption suggest RES-H has a low priority, though poor timing
as regards the UK’s austerity programme has not helped. It might also be argued
that there has been a loss of the learning concerning renewable policy under the
previous government, though this is something that would need to be investigated
further.
Perhaps the most interesting element of the UK experience from a policy perspective
is the effort to design a new form of support mechanism to support RES-H. The
RES-E tariff typically sees a fixed sum paid per unit of energy generated. Applying a
tariff to heat carries more complexity; the UK Government is aware of this and has
investigated how this might be addressed. The generic problems of applying a bonus
or tariff mechanism to RES-H are discussed elsewhere [8,9,10]. Particularly relevant
issues include:

Minimisation of the costs of efficiently providing subsidy to large numbers of
separate small-scale generators. Care must be taken to identify the relative
transactional and administrative costs of mechanisms which are to be applied
to support large numbers of installations. This links to the next point:

The basis for any process of consolidation of generated output to minimise
costs and at the same time to ensure accurate linking of generator output to
subsidy availability;
37

The application of standards to try to ensure subsidy does not lead to
installation of low quality equipment. It can be assumed that this will link into
the provisions for standardisation relating to micro-generation in the current
draft of the new renewables directive. The UK is already addressing this
through the MCS.

The encouragement of RES-H support which defers to improved energy
efficiency. That is, policy which acts to improve energy efficiency as a first
resort on the grounds of reduced cost to the taxpayer/consumer and on
maximising reduction in carbon emissions against public investment.
The RHI represents a novel approach to modifying and applying a mechanism
proven to be effective in supporting RES-E to the different challenges of supporting
RES-H [10]. The struggle to apply the estimated methodology of deeming
represented an experimental approach to the problems arising from the challenges
of dealing with approximated heat demand while protecting public funds.
The UK’s 2009 Renewable Energy Strategy [6] suggested that the Government
would take additional action to identify and address other barriers to RES-H,
identification of barriers was set out in 2008 but specific strategies for dealing with
them are not apparent [54,82]. Planning issues have been addressed to some extent
for solar thermal, though more could be done at the domestic scale to ensure growth
of installations is less hindered than previously. Given the rapidity with which RES-H
needs to be expanded in the UK if there is to be any chance of hitting its RES-H
target (and the overall 15% RES target), there is a real need to get RES-H policy
right and to do so early – five years of delay has not served this well. There are
already limits on the upper rate of expansion due to limits on natural growth such as
38
equipment availability, rapidity of scale up, and availability of trained personnel.
Delaying policy instruments further limits the growth rate for expansion of the RES-H
technology supply chain and knowledge base and could seriously undermine the
long term ability to expand deployment to hit a very ambitious target. The
prevarication of the Government in declining to earlier commitment to the RHI
threatens to undermine efforts in both the short and long-term.
The repeated delays in introducing the RHI, alongside continuous reviews and tariff
reductions for energy generation in the UK threaten to undermine confidence in the
UK RES-H sector amongst both consumers and investors by creating high levels of
policy uncertainty. There is a clear need to build on further elements of the learning
process and root expansion in the stable growth conditions that derive from support
instruments which are sufficiently powerful to produce favourable economics for
RES-H systems, but which are also predictable in their application. This is a key
lesson of the RES-E experience and one that has not so far been applied to UK
RES-H policy. This is a lesson that needs to be heeded to better serve UK RES-H
efforts and to effectively stimulate RES-H elsewhere.
Since the UK’s introduction of the RHI in 2011, Italy and Northern Ireland have also
announced that they would introduce similar policies. Italy’s ‘Conto Termico’
supports small-scale RES-H, including solar thermal, heat pumps and biomass as
well as energy efficiency measures [83,84]. This is supplemented by loans and by
tax reductions for systems retrofitted into buildings.
The development of these
mechanisms, the paths followed in the policy making process and the pathways
selected and rejected would be an interesting topic for further consideration.
39
7
Acknowledgment
This work is a development of outputs from the ‘RES-H Policy’ project. The authors
acknowledge the support of the EU Framework 7 programme, Intelligent Energy Europe in funding this work.
8
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