Clean Heat Grants to Replace the Renewable Heat Incentive (RHI)

Clean Heat Grants to Replace the Renewable Heat Incentive (RHI)

26th May 2020

The government has announced that the Clean Heat Grant will replace the Renewable Heat Incentive (RHI) scheme in 2022.

The UK’s commercial and domestic building stock accounts for approximately 40% of the UK’s carbon emissions.

The RHI scheme has been in place since April 2014 in an effort to incentivise UK households and businesses to embrace low-carbon heating systems in support of the nation’s mission to reach net-zero carbon emissions by 2050. Under the scheme, owners of renewable heating systems such as air source heat pumps and biomass boilers are paid
a set amount per kWh of heat energy generated. The payments are made on a quarterly basis over a 7 years period after the system has been installed.

The non-domestic RHI scheme which pays businesses for their renewable heat energy is due to close to new applications from April 2021, but the domestic RHI (which is open to UK homeowners) will be open to applicants until the end of March 2022.

What will replace the RHI scheme?

The government has now launched a consultation to formalise the replacement for the RHI. Specifically, the government is proposing a Clean Heat Grant scheme which would offer grants of up to £4,000 for households and businesses wanting to install eligible renewable heating technology.

While the RHI scheme was intended to reimburse people over time for much of the cost of installing renewable heating, these grants will fund the installation upfront. The final list of eligible heating systems has yet to be outlined but it is likely to include air source heat pumps and, in some circumstances, biomass boilers.

The government is also proposing a Green Gas Support Scheme to try and increase the amount of biomethane gas available on the grid thereby reducing our reliance on natural gas.

How will the new grant scheme work?

The Clean Heat Grant scheme will take effect in April 2022 enabling households and small non-domestic buildings to install heat pumps and biomass in some circumstances. Currently systems with a capacity of up to 45kW will be eligible for the scheme but hybrid systems will not.

The grant scheme is intended to encourage home and business owners to install the technology which will be the most cost-effective for the property, to remove the barrier of high upfront costs and to increase the level of confidence in renewable technology.

The grants will be capped on a quarterly basis to ensure the budget is not depleted more too quickly. It is expected that the grants will be given via a voucher system on a first come, first served basis, but the government is reserving the right to review the grant levels in response to unforeseen market changes or “if uptake falls substantially outside the expected range”.

Funding for the Clean Heat Grant has been committed for two years to March 2024.

How has the heating industry reacted?

The RHI was put in place by the Government as a means to convert 12% of UK homes to renewable heat by the end of 2020. At the moment, it looks like the UK will fall short of this target reaching only 8-10%. The RHI scheme has been criticised as although it reimbursed participants for some of the costs involved in installing renewable technology, the Public Accounts Committee (PAC) concluded in 2018 that the RHI had failed to provide value for money for the £23bn it was set to cost taxpayers.

In 2019 the Science and Technology Committee published a report called ‘Clean Growth: Technologies for meeting the UK’s emissions reduction targets’ which stated that the lack of a replacement for the RHI was one of the major shortfalls of the government’s strategy to reach net-zero emissions by 2050.

Commenting on the consultation, Frank Gordon, head of policy at the REA said: “Overall, these are mixed announcements for the renewable heat industry. On the one hand, they have provided much-welcomed clarity on the completion of projects currently underway, the prospect of new projects and the Government’s commitment to green gas. This is a step in the right direction for the sector, providing the certainty needed to increase investor confidence and deploy much needed renewable heat technology.

“On the other hand, we were disappointed by the lack of extension for new Non-Domestic RHI projects and the implications the cap on the future grant scheme will have. Both of which could result in business’s being unable to finish their projects or continue to operate at a time when the industry needs to be bolstered to achieve our legally binding Net-Zero targets.”

Jess Ralston, analyst at the Energy and Climate Intelligence Unit, said: “Facing up to the trickier aspects of getting on track for the UK’s climate targets is vital if the government is to get net zero done.”

“Grants to help with up-front costs of installing heat pumps will offer more certainty than schemes that repaid costs over years, while re-committing to energy efficiency spending is the minimum needed to make good on promises to cut carbon from British homes.”

The government’s ‘Future support for low carbon heat’ consultation closes on 7 July 2020.