State aid for large-scale biomass heating installations has been cut to one pence per kilowatt-hour (kWh) due to European Commission advice that the original planned tariff of 2.6 pence per kWh was too high to be compliant with state aid rules.
The Department of Energy and Climate Change's (DECC) wranglings with the commission has meant a two-month delay for the Renewable Heat Incentive (RHI), which finally opened for applications last week.
The 20-year scheme, which is being rolled out in two phases, will provide government support for green heating systems including biomass boilers, solar thermal and heat pumps installed since 15 July 2009. The government has so far pledged £860 million over the 2011-15 spending period to the initiative.
The first phase is aimed at the big industrial, commercial and public sector heat users that contribute 38 per cent of the UK's carbon emissions. Energy regulator Ofgem will make quarterly payments to heat generators over 20 years from the date they join the scheme.
DECC predicts that the RHI will result in 126,000 installations of renewable heat technologies by 2020 and cut 43 million tonnes of carbon dioxide a year, equivalent to the annual carbon emitted by 19 typical modern gas power stations. The government's aim is for 12 per cent of the UK's energy demand to come from renewable heat by 2020.
There is also support of around £15 million for households through the separate but related Renewable Heat Premium Payment scheme, which subsidises the cost of buying and installing renewable heat systems.
DECC said the second phase of RHI would give long-term support for renewable heat produced by households and expand the range of renewable heat technologies for which households and large-scale users would be subsidised. The department said it would confirm the timing of this phase early next year.
Energy and climate change minister Greg Barker said the RHI will "support thousands of green jobs, reduce our dependency on imported fossil fuels, reduce our carbon emissions and help us meet our (overall) renewable target".
But the reduction in support for large biomass schemes has been a "nasty shock", according to Paul Thompson, head of policy at trade body the Renewable Energy Association. He said it will result in fewer of these projects being built. "But, overall, the incentive will still drive a significant uptake in renewable heating systems," he said.
The government has also tweaked the RHI to cut unnecessary pollution from burning biomass for heat in small and medium-sized commercial systems. It has done this by splitting the tariff for such boilers into two tiers to remove the incentive for owners to burn more fuel than is required in order to make money. Once they have reached their allocation under the higher tier 1 payments, further payments are at the lower tier 2 rate (see table).
The government also plans to introduce emissions limits on biomass schemes below 20MW in the next set of RHI regulations in 2012.
Renewable Heat Incentive scheme can be viewed via PlanningResource.co.uk/go/referencesection
Subsidies for renewable heat schemes
Type of renewable Tariff rate
Small commercial biomass* Tier 1: 7.9 (less than 200kW)
Tier 2: 2.0
Medium commercial biomass* Tier 1: 4.9 (200kW to less than 1MW)
Tier 2: 2.0
Large commercial biomass
(1MW and above) 1.0
Small commercial heat pumps
(less than 100kW) 4.5
Large commercial heat pumps
(100kW and above) 3.2
Solar thermal (less than 200kW) 8.5
Biomethane and biogas combustion
(less than 200kW) 6.8
* Tier 1 payments are made for up to 1,314 hours of heat generation at
peak output, tier 2 payments are made above this level