The next step

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Time to upgrade the old boiler?

What is the RHI?

In the Spending Review, the Chancellor announced that a Renewable Heat Incentive (RHI) will be launched in June of this year (see The next step). This will bolster the government’s commitment to ensuring that 12% of all heat generated is from a renewable energy source by 2020. The RHI is a fixed payment for every kilowatt of heat you generate yourself, e.g. with a solar panel, or a wood burner rather than from a gas or electric fired system.

What’s involved?

There are three steps to the RHI:

Step one. You install renewable heat systems in your property, e.g. solar thermal panels, heat pumps or a biomass (wood burning) boiler.

Step two. An estimate is then made about how much heat your renewable energy systems will produce.

Step three. You are paid a fixed amount (tariff) based on that estimate.

Tip. Initially, only the following heat and combined heat and power technologies will be supported: biomass boilers; biogas combustion; deep geothermal; ground source heat pumps; solar thermal and water source heat pumps.

How long will the tariffs last for?

The tariff levels are fixed for the term of repayment and last between ten and 23 years. Once you start at a given tariff, it’s guaranteed for the full period and will compensate for inflation. It’s estimated that most businesses will earn enough money from the tariffs to pay off their installation costs in about seven to nine years.

Note. According to the government, which has set the tariff levels, the average user will earn a return of around 8% to 12% per annum, with higher band taxpayers seeing almost double that amount.

How much money will it save you?

First of all, you will save money by not needing to use any gas or oil, both of which are becoming increasingly expensive. Secondly, you’ll be paid up to 18p/kWh for the hot water and heat you generate and use yourself. It depends on exactly what systems you use and how large they are as to what the exact tariff level will be.

Example. For the average property using 15,000kWh of heat a year, the RHI will provide the following benefits if solar thermal panels and a biomass boiler were installed: 13,700kWh of heat generated paying the owner £1,400 per year (the kWh difference being made up through energy efficiency measures such as insulation). Biomass fuel costs could be as much as £575 per year. Total annual benefit = £825 per year.

Tip. To register for the RHI, you will need to provide proof of installation to Ofgem. The RHI is only available if renewable technologies are installed by competent installers. Once that has been established, Ofgem will begin making the tariff payments quarterly.

For further information on the RHI, visit http://environment.indicator.co.uk (EN 05.11.05).