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EC approves State aid for RHI

Published: 26 October 2011 - 00:00
The European Commission has given State aid approval to the Renewable Heat Incentive (RHI) subject to the large biomass tariff being reduced.
EC approves State aid for RHI
The Renewable Heat Incentive will open for applications from November following Parliamentary approval.

The Department of Energy and Climate Change (DECC) was planning to launch the RHI for non-domestic generators on 30 September 2011. However, there was a delay because State aid had to be approved before the scheme could go ahead.

The European Commission expressed concerns that the large biomass tariff was set too high so the large biomass tariff will be cut by almost two thirds, from 2.7p per kWh to 1p per kWh. The revised regulations have been re-laid before Parliament to reflect the required amendment to the tariff for large scale biomass.

Responding to the news Tim Minett, chief executive of biomass wood pellet supplier CPL Distribution, said: “After last month’s delay to the Renewable Heat Incentive, today’s news is a much-needed injection of confidence for the UK’s renewables sector. But it is even better news for those businesses and organisations wishing to take advantage of this scheme. Our view has always been that the Renewable Heat Incentive, and the financial ‘carrot’ it represents for businesses and organisations, will be a game-changer for the UK’s transition to a low-carbon economy.

“The overwhelming majority of businesses will be unaffected by the revision which affects only the largest biomass installations of more than 1MW, which is sufficient for the heating needs of major users like hospitals and prisons. Most will be comfortably under this and able to take advantage of their published tariffs of up to 7.9p/kWh. Our calculations show that the owner of a commercial office block of 5,000 m2 could receive more than £25,000 a year through the RHI, while insulating their balance sheets from inevitable future price rises in oil and gas.

“While the tariff reduction for larger users might seem to be a negative, the incentive will remain and they will still benefit. We calculate that with a revised tariff level of 1p/kWh an average sized hospital could still save more than £140,000 per year, alongside a fuel saving for biomass compared to oil of £190,000, giving an overall benefit of £330,000 every year for 20 years.”

Viessmann managing director Graham Russell said: “We agree with the European Commission's concerns over the unnecessarily generous ‘large’ biomass tariff level, and [the company] believes that even 1 p/kWh is disproportionately high compared to the end-user benefits from proposed levels for smaller biomass boilers and other renewable technologies. It is hard to see what category of commercial heat consumer would be tempted to switch from fossil fuel-burning boilers to biomass by such an incentive. There are only certain sites for which it makes financial, logistical and environmental sense to operate a 1 MW-plus biomass boiler e.g. farms, woodworking industries or where there is a need to dispose of large amounts of combustible material. Where there is already a negative cost of fuel, the consumers probably already have one. The UK's carbon emissions reduction efforts are not going to benefit from these operations receiving a cash boost.

“For the small number of operations for which a 1 p/kWh would incentivise purchase of a large biomass boiler, we should ask if the RHI should be encouraging the transportation of vast amounts of material for burning around the country. Carbon savings through renewable heat generation would surely be considerably negated by fuel emissions from trucks. The RHI will have most positive environmental impact by converting the sub-1 MW mass commercial market to renewable heating technologies and this is where incentives can make a real difference.”

'Green economy deniers'

Speaking at the Renewable UK's annual conference, the Energy and Climate Change Secretary Chris Huhne put a spotlight on the economic benefits to Britain of investing in green energy by making an outspoken attack on 'green economy deniers.'

He called critics of the green economy an 'unholy alliance of climate sceptics and armchair engineers who are selling Britain’s ingenuity short'.

He focussed on the tough targets ahead which mean the UK must hit the EU renewable energy target to generate 30 per cent of electricity from renewables by 2020, and the clear commitment over the last financial year, which has seen nearly 4,500 new jobs created in the low-carbon sector, which has grown by 4.3 per cent.

He added: 'At a time when closures and cuts dominate the news cycle, next-generation industries are providing jobs just as in the recovery after the last deep depression in 1929 to 1931. It is new and innovative industries that grow fastest.

'Yes, climate change is a manmade disaster. Yes, the UK is only 2 per cent of global carbon emissions. But if we grasp the opportunity now our businesses and economy can be much more than 2 per cent of the solution. We are not going to save our economy by turning our back on renewable energy.'

The scheme will be administered by Ofgem E-Serve. To follow further RHI developments on the DECC website click here.

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