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Renewable Heat Incentive (RHI) details

In part 2 of our aticles regarding the renewable heat incentive we explore some of the finer points and practicalities of the scheme. We look at some of areas you may require clarification and answer some frequently asked questions.

Be sure to check out part 1 if you havent already read the article; ‘Interested in the Renewable Heat Incentive (RHI)?’

What are “Renewable Heat Technologies”?

Renewable heat technologies are systems which produce heat using fuel from renewable sources, such as solar power or ground heat. To qualify for the renewable heat incentive, one of the following renewable heat systems must be installed:

  • Air source heat pumps
  • Anaerobic digestion to produce biogas for heat production
  • Biomass heat generation and CHP
  • Ground source heat pumps
  • Liquid biofuels (but only when replacing oil-fired heating systems)
  • Solar thermal heat and hot water

These are the technologies for which tariffs have already been proposed. The details of the scheme have yet to be finalised and it may be that others are added in future. Whatever the system, it must be MCS certified and evidence of this will need to be produced to Ofgem.

I Can’t Afford the Installation Costs; Can I Get a Grant or Finance?

Unfortunately grants are no longer available toward the installation costs. As for finance, it has been suggested in respect of the Feed-In Tariffs scheme (a scheme very similar to the renewable heat incentive but concerning renewable electricity) that a special type of mortgage might be introduced for residential properties, whereby the homeowner obtains a loan for the costs of purchasing and installing the system which is secured against the property but unlike a traditional mortgage, if the homeowner then sells the debt passes to the buyer. The reasoning behind this is that it would not be practical for the system to be removed on completion of a sale and installed in a new property so if the original installer moved home just a few years after installation the financial benefit he received would probably be less than the cost of repaying the loan, which would put many people off installing the system in the first place.

As an alternative a standard remortgage or additional advance could be used, or possibly even a personal loan (though of course the higher interest rates would mean it would take longer to see a profit on the investment). If the property was to be sold and any of the loan remained outstanding this could be added to the purchase price. A sensible buyer should be happy to pay the extra since they would get all the benefits of lower fuel bills and incentive payments without the hassle of having to install and set up the system.

Is There a Deadline for Installing a Renewable Heat Technology?

For any system to qualify for the incentive payments it must have been installed after 15 July 2009. The scheme is due to “go live” from 01 April 2011. Payments will not be made retrospectively so regardless of when the system was installed you won’t start accruing earnings until 01 April 2011.

Systems can still be installed after the commencement date but you should be aware that the tariffs will be reviewed on 01 April 2013 and may be reduced for new registrations after that date. This reduction is known as “tariff degression” and the theory is that as with any new technology it will become cheaper over time. Since the idea of the incentive payment is to cover the cost of purchasing and installing the system, the payments should reduce accordingly. Note that reductions in the tariffs will only apply to new registrations. Anyone who has already registered before a reduction will not be affected by it.

Maintaining the Renewable Heat Technology

The payments will be made based on an estimate of how much heat the system will produce rather than on a metered basis therefore it is important for Ofgem to know that a system is operating correctly while ever the tariff is being paid.

The fine details have yet to be clarified but it is likely that the owner of the property will need to sign an annual declaration that the system is operating correctly and is being properly maintained. It may also be that periodic inspections need to be carried out by MCS certified installers with evidence produced to Ofgem.

What if I Move Home?

This is a common concern. What if you spend thousands of pounds on a renewable heat generating system then decide 2 years later that you want or need to move? You will not have recovered your investment by this time and if you have funded the system with a mortgage or loan there will still most likely be a large balance outstanding.

As mentioned above there are proposals to introduce a new type of mortgage specifically for the installation of renewable heat and electricity systems which will become the responsibility of the new owner when the property is sold, which would solve this problem. If you have paid cash for the system or used some other form of finance then provided the benefits of the system are pitched properly to potential buyers you should be able to add the cost of the system to the sale price. As with anything new many people will be sceptical at first, but as more and more people join the scheme and people can see the benefits in action the value which a good system adds to a property should be recognised. It may even be the case in a few years that the lack of any renewable heat technology actually devalues a property, just as lack of double glazing or central heating would today.

Is This Scheme Compulsory?

It is not presently compulsory and there is no evidence to suggest that plans exist to make it so, however the Government does need to meet its emissions reduction targets and it is not inconceivable, particularly if there is a groundswell of public support, that this type of scheme could become compulsory in the near future. In fact, if laws are passed to obliged homeowners to install these systems then there must be a question mark as to whether the tariff payments will continue to be offered for new installations, the incentive being the avoidance of a prosecution.

Is the Income I’ll Receive Taxable?

At present, no. The payments received via the Feed-In Tariffs are exempt from tax and the proposals are that the same should apply to the renewable heat incentive, though this could change by the time the scheme is implemented. There was however no mention of this in the 22 June 2010 emergency budget.

Does the Coalition Government Intend to Continue With the Scheme, Which Was a Labour Idea?

This is a good question, and when it was asked in the Commons the government’s response was that an announcement will be made shortly, however the Liberal Democrats are probably the greenest of the three major political parties and we all remember the fuss David Cameron made of his bike ride to work so it seems unlikely that either party will want to cancel a scheme which has such obvious environmental advantages.

1 Comment to Renewable Heat Incentive (RHI) details

  1. July 29, 2010 at 10:24 pm | Permalink

    It’s good to finally see a scheme like this arrive in Britain. However, as you say, it’s a shame this replaces the installation grants altogether, as the majority will find it difficult to afford the £10k+ required for most of these systems. The Green Deal scheme is being discussed quite a lot, and recent news seems to hint that the government will provide ‘green loans’ for microgeneration, which can be paid back through savings in an energy bill.

  1. By Energy Efficiency to Increase Property Prices
    October 26, 2011 at 3:32 pm | Permalink

    […] of and take into account legislative factors. This would include for example the feed in tariff and renewable heat incentive and whether a property is currently receiving these […]

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