Domestic RHI – Tax free income – index linked – paid over seven years
RHI for domestic buildings applies from 9 April 2014: RHI Domestic: d-RHI. Renewable heat installations commissioned since 15 July 2009 can now receive a cashback subsidy of 19 pence per kilowatt hour used – for the first seven years of the equipment used.
The RHI tariff table below shows the technologies that are eligible for Domestic RHI and the tariffs for each technology. The RHI provides a major incentive for owners to invest in ground source heat pumps and solar thermal renewable heat technologies. The tariffs are based on pence/kWh of deemed renewable heat delivered. The rates vary with the technology used as follows:
Domestic paid over 7 years
|Ground source heat pumps||18.80||19.10||19.10||19.10||19.10||19.33||19.33||19.55||19.86|
|Air source heat pumps||7.3||7.42||7.42||7.42||7.42||7.51||7.51||10.02||10.18|
Tariffs increase with inflation each April, although the biomass tariff may be degressed.
To receive RHI for a domestic building, each system must be installed by an MCS certified installer.
Each domestic building must show an Energy Performance Certificate to evidence its energy use.
Deeming of heat used for Domestic RHI
Although metering of heat used is required for RHI payments for Non-Domestic buildings, for the Domestic RHI metering is seen as uneconomic and inappropriate: there is a danger that additional heat generated and wasted would increase RHI payments. Instead DECC plans for Ofgem to pay RHI on the basis of the deemed heat used by a property, as evidenced by an Energy Performance Certificate.
However, second properties and those with fossil fuel heating alternatives will have to install meters and be paid on heat generated (up to the limit for deemed heating).
RHI Domestic – Background
Renewable Heat is a subset of the wider category of renewable energy, which includes the generation of electricity from wind turbines and photovoltaic cells.
Greg Barker, the minister at DECC, introduced the RHI by saying: The heat used in our homes, public buildings, businesses and factories is responsible for around half of all the energy consumed in the UK, and accounts for roughly half of all UK carbon emissions. Taking action now to switch from fossil fuels to cleaner and more sustainable green sources of heat will reduce the impact that our heat requirements have on the environment and help ensure the UK has an energy supply that is safe, secure and reliable.
It is for this reason that we are introducing the Renewable Heat Incentive, making renewable heat not just an environmentally sound decision, but also a financially attractive one. This support can help drive take-up of renewables now, stimulate the renewables industry, encourage further innovation and ultimately, bring down the cost of renewable heating.
Almost half of the final energy consumed in the UK is in the form of heat. Its generation accounts for 47% of UK CO2 emissions. Renewable Heat currently satisfies only 1% of heat demand.
DECC is encouraging Renewable Heat as part of the UK's commitment to aim for the rather ambitious target of generating 15% renewables by 2020 and is introducing the Renewable Heat Incentive.
For the Renewable Heat technologies included, the energy ultimately comes from the sun. The sun provides planet earth with more energy each hour than human civilization uses over a whole year. The challenge is how to make use of this vast supply of incoming radiation to provide solar space heating and hot water.
Domestic RHI – Administration by Ofgem
The RHI is administered by Ofgem. Owners of renewable heat technologies included apply to Ofgem who will pay tariffs, on a quarterly basis, over seven years. For installations rated up to 45 kW capacity the equipment and the installers will need to be MCS certified, or equivalent.
Comment on the Renewable Heat Incentive
An investment in renewable energy usually means payment of a higher capital cost to achieve lower annual running costs (and also a lower carbon emission for the benefit for the community at large). The RHI will reduce the annual running cost of Interseasonal Heat Transfer to a very low level and allow owners to reduce the payback period from their investment to a few years.
The RHI is calculated to offer a good return on initial investment
The introduction of the RHI offers a financial reward for lower carbon emissions over seven years for the renewable heating technology installed. The tariffs proposed for the Renewable Heat Incentive have been calculated to offer a rate of return of 12% on the initial investment across the tariff bands.
The introduction of the RHI coincides with a time of increasing wealth and demand for fossil fuels from an increasing world population: many pundits expect the price of oil and gas to increase much more sharply than general inflation over the next three years.
The RHI provides a positive step change in the business case for delivering on-site renewable heat, not only to reduce energy bills and carbon emissions, but also to deliver an energy related cash flow into your building.
Tony Grayling, head of Climate Change and Sustainable Development at the Environment Agency said: Ground source heating is a rapidly growing technology that has the potential to produce at least 30% of the country’s renewable heat needs, but it needs financial support in order to grow. We would like to see this technology given adequate financial support through the new renewable heat incentive to meet its full potential in the UK.
Domestic RHI Tax free income – index linked – paid for seven years
Tariffs are exempt from income tax. This means that domestic users and other income tax payers are not taxed on any income received from the Feed-In Tariffs or the Renewable Heat Incentive.
RHI payments are also index linked – they are adjusted for inflation on 1 April each year.
For those using IHT, the annual clean energy cashback for heating will normally be larger than the annual running cost.
See also: How Ground Source Heat Pumps work
See also: Ground Source Heating