The Renewable Heat Incentive is changing

On Wednesday 20 September 2017, there were some important changes to the domestic Renewable Heat Incentive (RHI).

The domestic RHI is the government scheme to get more people installing green heating technologies in their homes.

For those considering installing a ground source heat pump (GSHP), air source heat pump (ASHP) or a wood-burning central heating system (biomass), it may be time to consider it a little more seriously, as tariff payments for using those technologies are going up.

Better rates for three technologies

Annual payments are rising. A typical house with a biomass system could see an increase from £700-£1,195 to £1,190-£1,635. For air-source heat pumps, it’s a rise from £870-£940 to £1,140-£1,235, while for ground-source heat pump models there’s a smaller increase, from £2,355-£2,555 to £2,380-£2,585.

These calculations are based on average-sized four bedroom houses with 250mm of loft insulation, cavity wall insulation, and solid wall insulation for properties with heat pumps. Cavity and loft insulation, of course, being essential for getting the best performance out of a green heating system.

The changes have come about following a government consultation on domestic RHI, which aimed to give more certainty to the renewable heat market and improve value for money and consumer support.

Improving the investment

Renewable heating technologies are by no means cheap to install. Biomass heating typically costs from £8,000 to £15,000 to install. Typical air source heat pumps are in the £6,000-8,000 range, but can cost significantly more for larger models. Ground-source models, which require the installation of a ground loop as well as the pump itself, cost around £10,000-18,000.

With this in mind, the new tariffs offered through the Renewable Heat Incentive could make the paybacks more attractive. It’s also good news for anyone who applied to install a technology through the scheme since 14 December 2016, as the increase will automatically apply to them too.

Energy Saving Trust analyst, Aled Stephens, said: “A tariff increase makes investing in renewable heating more lucrative. As we’ve seen in the past, such as with solar PV under the Feed-in Tariffs, when tariffs have been high there has been an increase in the number of installations.

“It’s also likely that the cost of these renewable heating systems will come down in the longer term due to the increased demand.”

Getting warmer – but only so warm

But the changes aren’t just about tariff increases. Payments are calculated based on the annual heat demand of properties as stated on their Energy Performance Certificate (EPC), and there will also now be a limit placed on annual heat demand for these technologies.

For biomass, that will be 25,000 kWh, for air-source heat pumps 20,000, and ground source pumps 30,000. To put these figures into perspective, the typical household uses around 80 per cent of its energy on space heating and water heating, which would be around 13,000kWh.

Aled explained: “The heat demand caps are quite a bit higher than the typical domestic heat demand, so it’s unlikely that most typical households heat demands will reach the limit.

“However, the heat demand limits may affect some larger and less energy efficient households. You can check the heat demand on your EPC to know the amount that you will be paid under the RHI.”

Sticking with solar

It’s notable that tariffs for solar thermal technology have stayed the same. Aled thinks this is logical.

He said: “Tariff support is already high for solar thermal, at 20.06p per kilowatt hour. The government consulted on how to change the tariff, even considering whether to remove support for solar thermal altogether.

“Following the consultation it was determined that they should continue to support the technology, as they realised it has the potential to incentivise more installations and drive the cost down further than was previously thought.”

More change coming

Later this year, or early next, further changes are on the way. There will a new requirement for electricity metering on heat pumps, so that consumers can better understand how their technology is performing. Changes to how tariffs decrease as technologies become cheaper over time will also be announced.

It’s not just about up-front cost

When considering how good an investment renewable heat technologies might be, it’s important to also consider the potential fuel bill savings. The savings vary considerably depending on what fuel you’re replacing.

For example, installing a biomass system will save you money if you replace a coal fired system, an old gas boiler or old electric heating system – the latter could see an annual £400 to 800 saving in heating bills. However, it’s unlikely to be a money-saving option if replacing a modern gas or oil boiler. Likewise, with heat pumps, replacing older and electric systems is usually the best route to considerable cuts in energy bills.

Aled added: “The changes reflect the Government’s recognition that heat pumps and biomass heating are important technologies in the transition to low carbon heat, particularly in areas that are not on the gas grid.

“When you’re considering return on investment for renewable heating options, along with the cost of the technology, a lot depends on the household heat demand and current heating system.”