It's been over a year since we last updated you on the Renewable Heat Incentive but that is because there have only been piecemeal developments since…until now.  A new set of Regulations will finally implement the remaining outcomes of the 2016 consultation.

A reminder of the context

The non-domestic RHI scheme began in 2011 and the domestic RHI scheme in 2014.  Both schemes were designed to incentivise the take-up of renewable heat (and production of biomethane in the case of the non-domestic RHI).  This article concentrates on the non-domestic scheme.

There was a major consultation in 2016 called The Renewable Heat Incentive: A Reformed and Refocused Scheme. This closed in April 2016 but the Government did not publish its response until December 2016. Our article RHI Reforms – The Latest sets out the main outcomes of the consultation.

Some of the reforms have already been brought into law, but most will be enacted by the new 2018 Regulations which we discuss in detail below.  

First though; a brief recap of the main developments in 2017:

September 2017 reforms to biomass tariffs

The Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) (No.2) Regulations 2017 brought the first part of the reforms into law.  The main change was to the small, medium and large biomass tariff rates, which were merged into one tariff and tiered so that the first 35% load factor is paid a Tier 1 tariff of 2.91p/kWh, then the rest is paid a Tier 2 tariff of 2.08p/kWh.

The 2017 Regulations also simplified the degression mechanism and set the degression triggers up to 2020-21 and amended the technology groupings for budget allocation and degression.

Biomass-CHP power efficiency requirement

A 20% power efficiency requirement for new biomass-CHP plant came into force on 1 August 2017.  BEIS reduced this to 10% as from 1 January 2017 for a transitional period.  The new 2018 Regulations will increase this back to 20% for all applications made after the date the new Regulations come into force.

September 2017 consultation

The Non-domestic RHI: further proposed amendments consultation covered eligible heat uses, subsidy limits on very large plant (250GWh annual limit), multiple installations at a single site, commissioning of biomethane plants, and some other issues.  The Government responded on the eligible heat uses point in January 2018 but has not yet responded on the other issues.  The eligible heat uses are set out in the new 2018 Regulations.

The 2018 Regulations

The Renewable Heat Incentive Scheme Regulations 2018 are still in draft as at the time of writing, but have been considered by both Houses of Parliament so should be due to be passed any day now.  They revoke and replace the 2011 Regulations which were the original set of regulations underpinning the non-domestic RHI scheme.  The 2011 Regulations had been amended many times, making them difficult to follow, so the 2018 Regulations consolidate all the amendments to date, and also implement (almost) all the changes resulting from the 2016 and 2017 consultations.

Tariff guarantees

This is the key change in the new Regulations.  A tariff guarantee allows RHI applicants to secure a tariff rate before their installation is commissioned and fully accredited – a useful way to "lock in" a tariff at an earlier stage in a project, to protect against possible degression.

Installations eligible to apply for a tariff guarantee are:

• Deep geothermal – all sizes
• Biomethane – all sizes
• Biogas – 600kWth and above
• Biomass – 1MWth and above
• Biomass CHP – all sizes
• Ground and water source heat pumps – 100kWth and above

There is a three stage process of applying for a tariff guarantee, which is set out in this Ofgem Guide to Tariff Guarantees.

Stage 1 – submit application (including evidence that planning permission has been granted or a connection agreement for biomethane).

If there is available budget, Ofgem will proceed to full review of the application.  If there is not available budge, the application will be placed in a queue.  It is not a case of first come, first served: smaller applications which don't exceed that year's budget might "jump the queue" if they are submitted after a bigger application that has been queued.  The Guide gives some helpful examples.

Once Ofgem has reviewed the Stage 1 application and approves it, the guaranteed tariff rate will the rate on the date the application was submitted.  Ofgem will send a Provisional Tariff Guarantee Notice (PTGN).

Stage 2 – financial close

Within 3 weeks of the Stage 1 application approval (Ofgem will specify the exact date in the PTGN), the applicant must submit evidence of financial close.  This must prove:

• funds are available to cover the complete construction of the proposed project; and
• these funds are formally committed to the project.

This evidence must be verified and supported by a report from an independent auditor.

If the financial close information is ready, applicants can submit it together with the Stage 1 application information and Ofgem will review both together.

Ofgem will issue a Tariff Guarantee Notice (TGN) if it approves the Stage 2 information.  The TGN will state the guaranteed tariff that will apply if the installation is accredited/registered within 6 months (183 days).

Stage 3 – full application

The installation must be commissioned within 183 days of (but not before) the estimated commissioning date stated in the Stage 1 application and before 31 January 2020 and then the applicant must complete the final details in the application form, as for any RHI application.  Once accredited/registered, the installation will receive the tariff set out in the TGN.

Ofgem can revoke the tariff guarantee if the Stage 3 application is materially different from the information provided when the tariff guarantee was granted, and also if it looks like the installation will not be commissioned on time.

The guaranteed tariff rate will only apply to the first 250GWh of heat produced/biomethane injected in each 12 month period.  Heat/gas in excess of this will get the tariff rate that applied on the date the full Stage 3 application was submitted.

Other key changes 

The 2018 Regulations also:

• Reverse previous tariff degressions for biomethane and biogas BUT require that at least 50% of the biofeedstock is derived from waste/residue – any non-waste/residue feedstock above this threshold will receive reduced support (these reforms were proposed in the 2016 consultation)
• Change the definition of eligible heat use to exclude the drying of digestate, the drying of wood fuel except in specified circumstances, the drying, cleaning or processing of industrial, commercial or municipal waste, or the heating of domestic swimming pools (this came out of the September 2017 consultation)
• Increase the power efficiency requirement for new biomass CHP installations back to 20% (ending the interim 10% threshold)
• Allow systems where a ground loop is connected to two or more heat pumps to be classified as a shared ground loop system (see Ofgem's Easy Guide to Shared Ground Loops). 

What's next?

The 2018 Regulations will come into force on the day after the day they are made, which is due to be any time now.  They give welcome clarity after a year of piecemeal changes to the RHI scheme and finally implement the reforms agreed on in the 2016 consultation.

There are still a few issues outstanding from the September 2017 consultation and we will continue to monitor developments.

Looking to the longer term, the RHI comes to an end in March 2021 and is not going to be extended.  The Government is instead looking at a wider heat decarbonisation policy and will issue a review on future support for renewable heat as part of this autumn's Spending Review.  It does feel that the 2018 Regulations have been a long time coming (they were originally put before Parliament last year but then fell at the end of the last session and had to be reintroduced) and that they finally offer welcome clarity – albeit there is now less than two years to take advantage of the scheme.