Budget cuts for renewable heating scheme

12th Jun 2012

Do you want the good news first, or the bad news? The delivery timetable for the Renewable Heat Incentive (RHI) is apparently on track. But the bad news is that the budget for the first year has been severely cut.  

The publication of yesterday’s ministerial statement has revealed that despite initially proposing a budget of £133 for the first year of the renewable heating scheme, the Department of Energy and Climate Change (DECC) has now cut that figure dramatically, down to just £70 million for the 2012/13 period.

Commenting on the publication of his ministerial statement yesterday, Minister of State for Climate Change Greg Barker said: “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.”

By halving the RHI budget by almost half  for the upcoming year, DECC says the lower budget will help to make sure there will be enough money left in the pot for the subsequent two years. The 2013/14 budget remains unchanged and has been set at £251 million.

“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,” said Barker.

Aside from a budget reduction, the Minister also revealed a stand-by mechanism which would be triggered if spending in the 2012/13 budget was forecast to reach £67.9 million. This mechanism, designed to ensure the sustainability of the scheme would be subject to a shorter period of notice, down from 1 month to 1 week. Barker said that given the current uptake figures it would seem unlikely that the stand-by mechanism would actually need to be implemented.

Reacting to the news, Daniel Guttmann, Director for Renewables and Clean Tech at PricewaterhouseCoopers told EnergyLiveNews: “This approach will lead to slower growth in the industry than many would want, but it hopefully avoids a start/stop profile over the next few years, which would be unsustainable for the industry.”

The Renewable Heat Incentive addresses the heating needs of both the commercial and domestic sectors by encouraging the uptake of  renewable heating technologies such as solar water heating or switching to a biomass boiler as opposed to more conventional central heating systems. The scheme opened for business applications in November 2011 and the domestic RHI is due to launch next year and installations of renewable heating technologies such as biomass boilers and solar water heating.

The Government wants to increase the uptake levels of heat pumps, solar hot water and biomass wood fuelled heating because switching to renewable heating will help to reduce the UK’s carbon emissions and meet its EU renewable energy targets. And drive down rising energy bills.