Tariff levels depend on the cost of technologies at different scales. They have been calculated to compensate for the extra cost of renewable technology over fossil fuel heating and to provide an incentive to overcome non-financial barriers to the development of renewable heat technologies.
They should also provide a return on the additional capital invested. The rate of return assumed is 12 per cent for all technologies and fuels, apart from solar thermal; at present, solar thermal is more costly per unit of energy than other technologies and therefore has a lower rate of return.
In November 2011, the European Commission gave State aid approval to the RHI scheme with the proviso that the tariff for large biomass schemes be reduced from 2.7p per kWhth to 1p per kWhth. (The Regulations were accordingly amended to take this into account.)
The tariff rates - set out below - reflect prices that apply in each year of the scheme. For each following year, commencing on 1 April, the rates will be adjusted automatically by a percentage increase (or decrease) in line with the UK retail price index for the previous calendar year (with rates rounded up to the tenth of a penny).
(pence/ kWhth) to 31 March 2012
(pence/ kWhth) 1 April 2012 to 31 March 2013
|Small biomass||Solid biomass, Municipal Solid Waste (including CHP)||Less than 200 kWth||Tier 1: 7.9||Tier 1: 8.3|
Tier 1 applies annually up to the Tier Break, Tier 2 above the Tier Break.
The Tier Break
Installed capacity x 1341 peak load hours
|Tier 2: 2.0||Tier 2: 2.1|
|Medium biomass||200 kWth and above|
Less than 1 MWth (megawatt thermal)
|Tier 1: 4.9||Tier 1: 5.1|
|Tier 2: 2.0||Tier 2: 2.1|
|Large biomass||1MWth and above||1.0||1.0||As metered|
|Small heat pumps||Ground-source heat pumps, water-source heat pumps, deep geothermal||Less than 100 kWth||4.5||4.7||As metered|
|Large heat pumps||100 kWth and above||3.2||3.4||As metered|
|Solar thermal||Solar thermal||Less than 200 kWth||8.5||8.9||As metered|
|Biomethane||Biomethane injection and biogas combustion (not landfill gas)||Biomethane all scales|
Biogas combustion less than 200 kWth
Different methodologies are used to determine the level of support payments depending on whether an installation is in a simple or a complex heating system.
A simple system is one in which an installation:
- generates and supplies heat solely for one or more eligible purposes used in one building;
- does not deliver heat by steam; and
- is not a CHP system.
If any one of these criteria is not satisfied, the system is deemed to be complex.
The support payment for a simple system is calculated by multiplying the tariff rate by the heat generated in the relevant period. A generator in a simple system does not, as a result, take the risk of heat loss.
Where a system is complex, the support payment is calculated by multiplying the tariff rate by the total heat used by the heating system in the relevant period (for eligible purposes).
Where a number of generators supply one heating system, each generator is entitled to payment in proportion to the heat that it has generated compared to the heat generated by all generators supplying heat to the same system (in each case, in the relevant quarterly period).
Calculations differ again for generators of heat from the combustion of biogas.
Support levels are expected to fall over time for new projects, as the cost of renewable heat technologies comes down. The Government published (in March 2011) two methods for this reduction in support: reviews and degression. These are expected to work in tandem.
Degression will provide for automatic reductions in tariff levels when trigger points are reached (such as megawatt hours of generation or megawatts of installed capacity). This will provide an incentive for developers to get into the scheme early to benefit from the higher tariff levels at the start of the scheme. The rate of degression and triggers will be technology-specific.
Scheduled reviews will take place every four years, starting in 2014 (for implementation in 2015). There may also be additional “early reviews” where specific circumstances arise. Any aspect of the scheme may be reviewed, not just the tariff levels. The UK Government will also reserve the power to initiate early reviews in specific circumstances (as with the Renewables Obligation).
These cost control measures are planned for phase two, so further details are due out later in 2012. The legislation does not provide any details at the moment.
The Government may base its final cost control measures on its earlier proposals, as set out above. It has reiterated its commitment to “grandfathering” support for existing installations; and the Regulations clearly state that tariff levels are fixed as at the date of accreditation by Ofgem. This commitment should provide certainty for investors.
Installations seeking to accredit on or around a scheduled review date may be delayed until tariff rates are confirmed.