Briefing on Consultation outcomes: Non-Domestic RHI early tariff review and additional technologies

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1 Briefing on Consultation outcomes: Non-Domestic RHI early tariff review and additional technologies Summary of Announcement Today DECC announced the outcome of the Early Review of existing tariff levels for the non-domestic RHI and introduced tariff levels for some New Technologies; these New Technologies were consulted upon in September This is first change to tariff levels since the Non-Domestic scheme launched in November The focus of the Early Review was to drive up deployment of underperforming technologies. The new tariff levels will come into effect in April 2014 and are as follows: Large scale biomass increases to 2.0p/kWh GSHP increase to 7.2p/kWh av. (one single band for all sizes, tiered at 8.7p/kWh for tier 1 for the first 15% of output and 2.6p/kWh for tier 2 for the remainder of the output) Solar Thermal increased to between 10.0p/kWh The Consultation also confirms the inclusion of the following technologies under the RHI. The tariff payments for these additional technologies will be available in April 2014: AWHP: 2.5p/kWh Biogas combustion: 5.9p/kWh for kW, 2.2p/kWh for >600kW (subject to state aid approval) Biomass CHP: 4.1p/kWh Deep Geothermal Heat: 5p/kWh

2 As part of the announcement DECC has also confirmed changes to the RHI budget management mechanism in line with new expenditure estimates as a result of the increased tariff levels. The budget will now be based on refreshed market intelligence rather than expectations modelled prior to the schemes introduction. The trigger points for biomass under 1MWth and bio-methane injection will be reduced from 150% to 120% of expected deployment. The triggers for the lower deploying technologies; Solar Thermal, Deep Geothermal and all biogas will be set at 2.5% of the overall budget rather than the previous 5%. These changes will apply from spring 2014 and the aim is that all technologies supported under the scheme will have significant room for sustainable growth from current levels over the remainder of this spending review period, even though some technology triggers will be lower than those set out in the current regulations. The eligibility date for new technologies and new technology specific tariffs will be and the tariffs will be available under the non-domestic RHI in spring 2014, subject to state aid approval. For those tariffs changed as part of the tariff review the eligibility date will be 21 January A further review of the tariffs for all technologies is due in Detail of Announcement Tariff Proposals - Overview of Changes The graph below gives an overview of the changes to the tariff levels under the nondomestic RHI. Full details of the tariff ranges can be found in table format in the Appendix to this briefing note: 2

3 Budget management Estimates show that the spending envelope for 2015/16 of 430m, should be sufficient to accommodate the likely potential of the market for each RHI technology. Whilst it has been concluded that much of the existing RHI degression mechanism should be retained, three areas have been identified which need to be adjusted: Basis of triggers these will be set on the basis of updated deployment estimates, so for example, where deployment for certain technologies has been low to date, the new triggers will reflect the likely state of the markets from spring 2014 onwards. Although triggers may be lower they still allow for significant growth in these markets compared to current deployment. Conversely, for small and medium biomass expected deployment levels will increase which reflects the potential of these technologies evidenced by strong deployment of these technologies to date. In addition, there will be one trigger for GSHP now all installation sizes receive the same tariff. Approach to scaling triggers the approach of scaling up tariff triggers will be retained to ensure that if a deployment scenario emerges that differs from our forecast data, but does not threaten the overall budget then the mechanism does not reduce tariffs too soon. To account for uncertainty in deployment of new technologies and tariff review technologies and ensure growth 50% scaling will be retained. Given the relative stability of small and medium biomass and biomethane the scaling of these technology triggers will be reduced to 20%. 3

4 Budget for technologies with low forecast deployment solar thermal, deep geothermal and all three biogas combustion bands are assigned a fixed percentage of the budget. However, the percentage will now reduce from 5% to 2.5%. Table 1: Impacts of budget management changes on scaled triggers Status Technology Current April 2014 scaled trigger No change in tariff Tariff review technologies New technologies and tariffs Small Biomass (< 200kWth) Medium Biomass (200kWth 1MWth) Biomethane (all scales) Large Biomass (> 1MWth) Small GSHP (< 100kWth) Large GSHP (>100kWth) Solar Thermal* (< 200kWth) Biogas* (all scales combined Updated April 2014 scaled trigger 34m 49.9m 32.7m 55.5m 46.1m 44.4m Difference 15.9m 13.4m m 61.8m 14.1m m 89.5m 9.6m Scaling 20% 50% 8.8m m 50% 9.6m 3.1m - 6.5m N/A N/A 3.1m N/A N/A CHP Biomass N/A 25.5m N/A 50% Deep Geothermal* N/A 3.1m N/A N/A AWHP N/A 15.6m N/A 50% * assigned a fixed % of overall budget Changes to budget management will come into force when the amended regulations come into force in spring Other points Value for money cap There was wide support for an increase to the cap in responses to the consultation. However, to ensure that the scheme offers good value for money compared to other forms of renewables, as of spring 2014 tariffs across the RHI will be capped at 10.0p/kWh renewable heat (with annual RPI adjustment). 4

5 Tariff guarantees To reduce uncertainty for projects with long lead times government intend to introduce a form of tariff guarantee for the largest installations (for example, those over 1MW), initially available for plant due to be commissioned by 31 March Subject to further policy development in 2014, State Aid and Parliamentary approval this measure will be in place from April 2015 to March 2016 and thereafter factored into the next spending review discussions on the RHI so that it can be available from Spring 2016 for plant due to commission by 31 March Biomass sustainability criteria The response to Providing Certainty, Improving Performance set out Government s intention that from 1 April 2014, recipients would be required to demonstrate they had met the greenhouse gas lifecycle emissions savings target to be eligible for RHI payments. Compliance with land criteria would be enforced no sooner than April 2014 and no later than April It has been decided to postpone implementing mandatory compliance with GHG lifecycle emissions savings to autumn 2014, so that industry and participants can monitor their processes in light of the sustainability criteria and build the audit trail necessary to demonstrate compliance. The Biomass Suppliers List should be open for applications from suppliers of biomass in spring In addition, RHI policy has been amended so that sustainability standards are not grandfathered and subject to the availability of Parliamentary time, government intend implement land-use sustainability criteria by 1 April Public grants The RHI currently prevents applicants that have benefitted from a public grant for the installation of a renewable heat system from accessing the scheme. The exception to this rule is plant completed and first commissioned between 15 July 2009 and 28 November In these cases the grant must be repaid to the granting authority before RHI payments can be made. After two years of the non-domestic RHI Government think a more flexible approach to the interaction between public grants and the RHI could encourage more renewable heat installations to come forward. Further work will be carried out alongside the 2014 review to 5

6 look at the interaction between public grants and the non-domestic RHI, with the intention of introducing some additional flexibility next year. Biogas CHP QA requirement It has been decided not introduce a requirement that biogas combustion installations are CHPQA accredited in order to receive the RHI. Although CHPQA ensures a level of efficiency, heat generation is more efficient than electricity generation in biogas systems. Adding in a requirement for CHPQA in order to receive the RHI could have the opposite impact of dis-incentivising the more efficient use of energy that CHP systems offer. Energy efficiency Energy efficiency proposals were outlined for three main users of heat, users of process heat, district heating networks and commercial and public space and water heating. No energy efficiency measures will be implemented at this time because of a need for further work to establish a range of effective but not unduly burdensome efficiency measures. Seasonal performance factor (SPF) for Heat Pumps (Air and Ground source) The following will apply: A design SPF of 2.5 is required as the minimum for an installed heat pump to be able to claim the non-domestic RHI. A minimum COP of 2.9 is being retained and applied it to all heat pumps in the scheme. mandatory electricity consumption measurement and reporting requirements for all heat pumps are being introduced. Metering and monitoring will not affect payments, even if it does show that individual systems are failing to meet a measured SPF of 2.5. Technologies that will not receive support Bioliquid CHP Bioliquids are not currently supported in the RHI but are supported for electricity generation under the RO. With the RO CHP uplift ceasing, without RHI support, from April 2015, there will be no Government incentive for the use of CHP bioliquid over electricity only. However, the ROC uplift is still available for new CHP plants up to 31 March Therefore there will be no support for bioliquid CHP in the RHI at this time however this will be assessed again as part of the scheduled 2014 non-domestic RHI review. 6

7 Air to air heat pumps (AAHP) Due to difficulties in finding a practical methodology to determine payments, the potential for large rents, concerns around value for money and the evidence that AAHP are already able to compete with traditional fossil fuel heating technologies, there will be no support for reversible AAHPs at this time. We will be conducting further however this will be assessed again as part of the scheduled 2014 non-domestic RHI review. Consultation feedback was split over whether or not to introduce support for heating only AAHPs. Government believes introducing support for heating only systems and not reversible systems would lead to perverse incentives and an unsustainable market. Therefore there will be no support for heating only AAHPs at this time. Biomass direct air heating Due to a lack of a methodology to determine payments that is accurate, consistent, commercially viable and testable against standards there will be no support for biomass direct air heating systems in this spending review period. RO/RHI interaction for biomass CHP The RO CHP uplift remains available until 1 April 2015 and new dedicated biomass CHP installations will be eligible to make a one-off choice about whether to (i) receive the RO (1.5 ROCs per MWh electricity generated) on their electricity generation plus the RHI CHP tariff for their renewable heat generation, or (ii) the RO amount (1.5 ROCs per MWh electricity) plus the 0.5 ROC CHP Uplift if accredited under the RO as a biomass CHP. Therefore participants will be able to claim the RO on their electricity generation and the RHI on the eligible heat use provided they have not received the ½ ROC uplift under the RO. GSHP tiering The GSHP tariff is tiered, with a higher tariff 8.7p/kWh applying to the initial heat, and 2.6p/kWh applying to the rest. Initial heat is the amount of heat, in kwh, that would be generated by the installation if running at capacity for 15% of the year (1,314 hours). Table 2 summarises this. 7

8 Table 2: GSHP tariff (p/kwh for all heat output) weighted average of tier 1 and 2 Tier 1 (initial heat) Tier 2 (any remaining heat output) Min The average tariff remains the same as the consultation but DECC has altered the balance and reduced the tier 1 tariff and increased the tier 2 tariff. The setting of the tariffs in this way is intended to remove any incentive to overproduce heat. Non-domestic RHI review 2014 Government are currently working to define the scope of the review and would welcome views from all stakeholders involved in the non-domestic RHI. An information gathering exercise is taking place in autumn winter 2013 to include a review of the evidence base on individual issues and engagement with industry stakeholders and colleagues across government. Current thinking is that the review will cover three themes: Developing the market: Evaluating the case for government support for other renewable heat technologies, including whether they are suitable for RHI support. Improving performance and efficiency: Looking for ways to monitor and meter the performance of non-domestic installations with a view to making them more energy efficient over time. Simplifying the regulatory burden: Where possible, working with Ofgem to streamline the application and accreditation processes. For questions about today s announcement or about the RHI scheme, please contact Anna Livesey at Ecuity on or anna.livesey@ecuity.com 8

9 Appendix 1. Tariff Proposals - Full Table of Changes Existing Technologies Technology Old tariff (pence per kwh) New tariff (pence per kwh) Small biomass <200kwth 8.3 (tier 1) or 2.1 (tier 2) n/a Medium biomass 5.0 (tier 1) or 2.1 (tier 2) n/a 200kW to 999kWth Large biomass >1,000kWth Small GSHP <100kWth Large GSHP av. 8.7 (tier 1) or 2.6 (tier 2) >100kWth Solar thermal <200kWth Biomethane/ <200kW biogas 7.1 n/a New Technologies being introduced: Tariff (pence per kwh) AWHP 2.5 Biogas combustion kW or 2.2 >500kW (subject to state aid approval) CHP (biomass) 4.1 Deep geothermal 5 9