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  4. DECC announce RHI cost-control mechanism

DECC announce RHI cost-control mechanism

13 Jun 2012

Greg Barker MP: Minister of State for Climate Change

The Renewable Heat Incentive (RHI) is the first of its kind in the world and provides long term support for renewable heat technologies such as heat pumps, biomass boilers and solar thermal panels.

On 26 March 2012 I reaffirmed Government’s commitment to growing the UK market for renewable heat technologies by announcing further support for the domestic sector under a second phase of the Renewable Heat Premium Payment Scheme (RHPP). At the same time I set out our delivery timetable for providing longer term support for households, expanding the non-domestic scheme and transparent plans for staying within our budget for this year.

I am pleased to report that we are on track to meet the RHI delivery timetable and have met our first milestone.

In March we consulted on a mechanism for more effectively managing the RHI budget in the short term. Today, I am pleased to publish our response which will ensure we have a stand-by budget management mechanism in place this summer, enabling the sustainability of the scheme by allowing us to keep within the budgetary limits set by the Comprehensive Spending Review (CSR). Further, I can confirm that we are on track to consult on longer term proposals in July 2012 as planned.

To ensure the supply chain can be maintained with the available funds in this spending review period, we have set an upper limit of £70m for 2012/13. However, it is important to note that the funding amounts announced in the spending review for 2013/14 and 2014/15 are unchanged.

The upper limit of £70m ensures that the 2013/14 budget of £251m would be enough to pay for existing installations and new installations, were the 2012/13 limit to be reached. A higher limit for 2012/13 would leave insufficient funds available in the following year for new installations and therefore could be very damaging to the renewable heat industry.

In the event of having to use the stand-by mechanism, a notice period of one week would allow for a much higher trigger point for suspension of the scheme (£67.9m, 97% of the £70m limit) compared with one months’ notice (£56m, 80% of the £70m limit) and would also reduce the chances of scheme suspension being triggered unnecessarily.

We recognise the need to provide comprehensive information on current and forecast scheme expenditure and make it publically available. To do this we will provide a weekly information update on our website, tracking our committed expenditure. If required we will also provide an estimated date of suspension prior to the formal notice period, in the event of an unexpected surge in uptake such that suspension is likely to be triggered.

I would like to thank all those people who helped us develop these plans. I can confirm that after careful consideration, should we need to use the stand-by mechanism, this will be done when the spend in 2012/13 is forecast to reach £67.9m with a formal notification period of one week. Given current uptake figures, we do not currently envisage having to use this mechanism. However, we have learnt from our previous experiences and want to provide assurances to the market and the public that we are spending money on the RHI in a sustainable way.

Government remains committed to the deployment of renewable heat and as such we are continuously looking at innovative ways of supporting it across all sectors.