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Is the Renewable Heat Incentive finally dead?

The domestic RHI has been delayed yet again and will now be at least three years late, but should we be counting on public subsidies at all? Sue Sharp has an answer
Amid the predictable expressions of outrage about the latest delay to the domestic Renewable Heat Incentive (RHI), one sentiment kept being repeated: 'It would actually be better if the Government just left us alone completely'.

Being promised something that never arrives is always worse than never having been promised it at all. As John Cleese so memorably put it in the film Clockwise: 'It's not the despair, Laura. I can take the despair. It's the hope I can't stand...'

The domestic RHI will be three years late by the time it does launch next spring - if it ever does actually launch. It was originally due to come into effect in April 2011. This delay follows the cut in Feed-in Tariffs (FiTs) that undermined the solar market two years ago and the less than vigorous launch of the Green Deal in January. Perhaps we should take the hint that the Government has no serious intention of underpinning the renewables market with meaningful subsidies.

Market is bitterly disappointed
Dave Sowden, chief executive to the Micropower Council, said the market was 'bitterly disappointed with this delay'. He added that this and the lack of direction on how the country was expected to deliver the Government's zero carbon homes policy would force industry to question 'whether the coalition is serious about promoting domestic renewable heat during this Parliament'.

In its defence, the Department of Energy and Climate Change (DECC) probably feels this is one area where it can safely rein back spending because we have not taken full advantage of the commercial version of the RHI, which has been in place since late 2011. The latest report from RHI operator Ofgem shows that less than 1,000 installations have been approved for funding of which just 36 are heat pumps and 45 solar thermal projects. The vast majority are biomass boilers.

The industry is struggling to spend the £70m set aside for commercial RHI payments so DECC probably feels the domestic scheme will not be missed much either. The commercial scheme is starting to pick up as it overcomes its early problems with the complexity of the accreditation process and poor understanding of heat metering, but progress has been very slow.

Public subsidies always help to pump prime a market, but we do seem to have reached a point where the whole foundation of this approach is in some doubt. The stagnant economy means the Government is constantly looking for areas where it can pull back on expenditure. Use it or lose it is a 'strategy' familiar to anyone who has had to negotiate a budget with an employer - and we must be close to losing all public subsidy for renewable heat.

There is also considerable doubt in business circles about the return on investment from public spending on renewables.

Despite the billions of pounds spent on developing and promoting renewables the International Energy Agency (IEA) estimates that by 2035 the world will only get 2.4 per cent of its energy needs from wind and just 1 per cent from solar. Fossil fuels will still be responsible for 79 per cent of total worldwide energy.

Bjorn Lomborg - the author of 'The Sceptical Environmentalist' - has analysed vast amounts of international research on the topic. He says that fossil fuels drive economic growth and 'green' alternatives are too expensive at the moment. They require public subsidy or expensive electricity tariffs. The same applies to nuclear where EDF are still pushing our government to give them a guaranteed tariff double the present cost of electricity before they will agree to build the new nuclear plant at Hinckley Point.

The economic backdrop is binding us to a fossil fuel future, but the problem with that is the implication for carbon emissions. In the 20 years since the Kyoto Protocol was signed global emissions have risen by more than 45 per cent. The Kyoto signatories hoped to limit rises to about 36 per cent based on 1990 levels - we have missed all our environmental goals by miles.

Assuming there is some modicum of strategic thinking behind the Government's current approach to energy, they might well argue that spending more on the RHI is going to achieve next to nothing in the bigger global picture. UK emissions are pretty much stable, but not falling, while the developing world is driving its own economic growth with massive fossil fuel consumption that continues to push up emissions. If we keep spending on renewables we risk losing out economically without any environmental payback.

However, the cost of energy is rocketing. The arrival of two supertankers at our main gas storage facility at Milford Haven during the extended cold snap demonstrates what we are facing. These massive ships, carrying liquefied natural gas (LNG) from Qatar, were diverted here because we had a potential gas shortage and so were prepared to pay the highest price on the market. There is gas out there for us to use, but we are going to have to pay through the nose for it.

Energy efficiency is, therefore, the real key to growth and cutting business overheads. If government economists and policy makers simply ignore everything and go for growth at all costs they will miss the opportunities to invest in new energy infrastructure that will generate jobs and reduce energy costs for UK homes and businesses. Spending on renewables needs to be focused on making it more affordable and, in the meantime, our industry can be busy cutting energy waste.

However, we have to accept that the language has changed. We must put everything in economic/business terms. If there are going to be public subsidies we have to make sure we spend them on driving market growth and, whether subsidies are there or not, we must also be able to justify our technology and engineering choices in financial terms.

Huge job to be done
Renewables will play a key role, but in the shorter term there is going to be a huge job to be done with conventional gas-fired technologies to deliver energy efficiency on a grand scale.

Where government subsidies do come into play they depend on operational costs being at or close to predicted levels so energy efficiency is at the heart of every system. The RHI promises building owners generous payments for any heat they generate from renewable systems like biomass boilers and heat pumps. However, to gain these payments the data gathered from the systems must be accurate and usable - this, therefore, also requires the skilled installation of heat meters.

If heat meters are not being correctly installed or calibrated, it will lead to erroneous data that could undermine the RHI payment system. The Building & Engineering Services Association (B&ES) has produced guidance on this subject in partnership with the regulator Ofgem. If the systems do not perform as promised then the right level of payments will not be forthcoming and the whole premise of the RHI will collapse.

In many cases, rather than installing renewables yourself, it will often prove more cost-effective and practical to link your building to shared systems like large-scale renewables that supply multiple buildings and which are more cost-effective than the individual building-by-building approach.

Using off-site renewables in tandem with thermal storage could overcome the problem of renewables not always producing energy when it is most needed i.e. if the sun isn't shining on your solar thermal system when you need hot water; or the wind blowing when you want electricity from your turbine. In simplistic terms, bigger is always better with renewables.

This is just one of the issues our sector will be expected to address in support of building clients. Our role is to ensure appropriate choices are made; low energy options are chosen every time and the whole thing is underpinned by integration strategies that allow end users to extract the best possible performance from their technologies so they get a return on their investment - subsidy or no subsidy.

The author is president of the Building & Engineering Services Association
13 May 2013

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