Heating and Ventilating

A new report released today by the environmental consultancy Renewable Energy Forum, urges a government rethink on what the authors, Dr John Constable and Dr Lee Moroney, describe as the irresponsible plan for a Renewable Heat Incentive (RHI).
Using the Department of Energy & Climate Change's (DECC) own charts and figures, the report – The Renewable Heat Incentive: Risks and Remedies – assesses the cost-effectiveness and impact on consumers.

The report claims that the RHI policy is an expensive leap into the dark relying on a major deployment of renewable heat technologies that are new to the UK and untested in the UK context.

On the government's own calculations, the costs of the Renewable Heat Incentive (RHI) exceed the energy benefits by a wide margin, ranging from £1.2bn to £13.4bn.

It is again government's own estimates which show the RHI would increase the average domestic gas bill by 14% (£94) per annum by 2020, pushing more people into fuel poverty, and the average medium sized commercial gas bill by 19% (£86,000) by 2020.

The carbon savings in 2020 resulting from the RHI are estimated to be the equivalent of 3% of current emissions - a small saving for a large and uncertain cost.

Reasoning from Department of Energy and Climate Change own charts and data, the study estimates funding the RHI could in practice consume around 2% of the annual income of the poorest households – funds that will go directly towards reducing the bills of the richest households, which are able to benefit from the RHI subsidies.

'The funding mechanism for the RHI is as yet undetermined,' says the report. 'The options are either a levy on fossil fuel sold for heat, or a direct draw from general taxation.

'A levy on fossil fuel would fall on all users of fossil fuels for heat, including off-grid gas and oil consumers. This would almost certainly mean a significant proportion of poorer members of society would bear a disproportionate share of the costs and is very likely to increase fuel poverty in certain sectors, particularly rural areas. DECC's own analysis suggests that government is aware of this.'

In March 2007, the European Union's leaders committed Europe to transforming itself into an energy-efficient, low-carbon economy, and set a series of demanding climate and energy targets to be met by 2020: including that 20% of final energy consumption to come from renewable energy resources, Greenhouse gas emissions (CO₂) reduced to at least 20% below 1990 levels and a 20% reduction in primary energy use compared with projected levels, to be achieved by improving energy efficiency.

The UK was therefore tasked with achieving 15% of its energy from renewables by 2020, one of the largest proportional increases of any major European state.

The RHI is designed to incentivise domestic, commercial and industrial customers to switch from fossil-fuelled heating to a specific set of renewable technologies, including ground-source heat pumps, air-source heat pumps, and solar water heating. The RHI aims to overcome the additional costs of switching to renewable heating.

The REF report notes government's admission (in DECC's Renewable Heat Incentive Consultation, February 2010) that 'low income households may find it difficult to meet the upfront costs' and promised a further consultation on this aspect of RHI.

'This is a serious admission,' says the report, 'and suggests that the authors were concerned that RHI would not in practice be beneficial to the fuel poor.'

A report for the government by its own consultant, NERA Economic Consulting, indicated that heat pumps are projected to receive 46% of the RHI subsidies. Yet, there are very limited studies of the efficiency of heat pumps.

The latest, published by the Energy Saving Trust earlier this month, revealed that only one of 22 sites with ground source heat pumps and nine of the 47 sites with air source heat pumps achieved standards likely to meet the minimum EU directive requirements.

The Renewable Energy Forum's report concludes that the actual costs and outcomes of the proposed RHI are so uncertain that it would be irresponsible to proceed in the current form since it will expose consumers subsidising the scheme to the risk of high costs without adequate assurances of any compensating benefits.

There is reason to be concerned that the RHI might actually be counter-productive to encouraging the long-term development of the renewable heat sector.

Renewable Energy Forum observes that by rethinking its policies government can encourage the extremely promising renewable sector in ways that are less risk prone for consumer and industry alike.

The Renewable Heat Incentive: Risks and Remedies was commissioned by Calor Gas Ltd.