As part of its framework for achieving clean growth and affordable energy for businesses and households, set out in its Clean Growth Strategy, the Government is intent on sharpening its focus on long-term decarbonisation through greater uptake of technologies such as heat pumps and bio methane.

To this end it published its Non-domestic renewable heat incentive: Eligible heat uses in January. This delayed policy document follows a consultation which originally launched in December 2016, but was put on hold following last year’s General Election

The changes to the eligibility for claiming Renewable Heat Incentive (RHI) payments will have repercussions for farm and estate managers and owners, as well as those operating aquatic and waste recycling businesses. It is being largely welcomed by the majority: uncertainty does not provide for effective business planning and the long-awaited response finally gives some clarity. Further, it is very encouraging that a blanket rule for all drying practices has been avoided.

There are around 13,000 RHI projects in the UK (generating 4.73GW of heat), and the changes will affect those who are planning on adding additional income streams to an investment. For example, a farmer drying grain with a biomass boiler will no longer be able to rely on additional income from drying woodchip in the off season. Similarly those operating in the waste sector will no longer be eligible for the RHI payments to reduce gate fees by drying waste before sending it to landfill.

While the UK Government does not intend to remove all drying practices as eligible heat uses it does intend to remove wood-fuel drying as an eligible heat use, other than where the renewable heat installation is replacing a fossil fuel heat source. The proposals also remove drying, cleaning or processing of waste as an eligible heat use. In addition, only swimming pools that are used for a municipal or commercial purpose will receive non-domestic RHI support.

It is very important to bear in mind that these changes will apply to new projects, rather than retrospectively. While it will affect projects in the early stages of planning and installation, there will be a six-month grace period for those that are already at the advanced stages of development to allow them to be completed and submitted for accreditation.

The key objective of the RHI was to provide financial incentives to increase the uptake of renewable heat by businesses, the public sector and non-profit organisations. RHIs were never meant to be used to prop up projects that were solely dependent on them for economic viability and understandably the Government had concerns that some arrangements did not represent either value for money for the taxpayer, nor would they contribute to carbon reduction.

The changes will undoubtedly cause concerns for some businesses, however the principle of limiting eligible heat uses to ensure the RHI scheme is used responsibly makes good sense: entrepreneurial companies should not be deterred as the changes should mean that there will be a secure pot of money available to support viable, profit-making renewable heat-generating projects.

While the Government has said there are no immediate plans to introduce further changes, the RHI scheme is continually monitored to ensure it makes the best use of funds and those considering an RHI project should take advice before investing.

Further information

Contact Savills Rural Energy