The Northern Ireland Renewable Heat Incentive: viable option?
Craig Reddin weighs up the scheme’s pros and cons.
Effective in Northern Ireland since 1 November 2012, the Renewable Heat Incentive (RHI) was implemented as a means of encouraging the use of renewable fuel sources for non-domestic heat production. The purpose of the scheme is to increase the uptake of renewable fuels in Northern Ireland to 10 per cent by 2020 (compared to baseline of 1.7 per cent in 2010). For energy users it can be viewed as an opportunity to change their fuel source from conventional fossil fuels to a more sustainable alternative in a cost effective manner. But is it suitable for all users and does it make financial sense?
The RHI mechanism works by offering participating heat producers a payment (tariff) for kWh of heat produced each quarter (measured through suitable metering). The size of the tariff varies depending on the size and type of technology implemented. Tariffs are paid to the heat producer over the life of the equipment installed (maximum 20 years) and are adjusted annually in line with the RPI of the previous calendar year. A list of current RHI tariffs can be found at: www.detini.gov.uk/rhi.pdf
The purpose of this financial incentive is to offset any costs incurred by the investor (heat producer) over the life of the equipment. The tariffs are designed, through a levelised costing methodology, to incorporate additional costs associated with fuel, capital investment, increased operation and maintenance, financing and other cost barriers. Tariffs also include a rate of return (12 per cent for most technologies, less for solar thermal) in order to provide an incentive for investors entering into an unknown market.
However, the issue that may arise for many prospective participants of this scheme is that, unlike the rest of the UK, the tariffs calculated for energy users in Northern Ireland are set against heating oil as a counterfactual alternative. The reason being that heating oil is the dominant fuel in Northern Ireland (used for over 75 per cent of heat produced). Natural gas is used as the counterfactual for tariffs offered in the rest of the UK where gas is the dominant heating fuel (used in over 70 per cent of heat production). This ‘heating oil baseline’ is used for all potential RHI participants in Northern Ireland, regardless of what fuel they actually use.
As heating oil is a more expensive fuel than natural gas, less incentive is required to encourage oil users to change to a renewable fuel source and, as a result, tariffs offered in NI are considerably lower than those offered in the rest of the UK.
Because of this, non-domestic heating oil users in NI are likely to find advantage in participating in the RHI scheme. However, gas users in NI hoping to avail of the RHI are likely to find that the financial incentive offered by the scheme will be insufficient to offset the additional costs (particularly fuel costs) that they will incur from changing away from fossil fuels to a renewable alternative.
At present, tariffs are paid for heat generated from the following technologies: biogas injection, biomass boilers, ground source heat pumps and solar thermal. Any of the equipment listed above and commissioned after September 2010 is eligible for the RHI scheme provided suitable metering is in place. Again, tariffs paid (per kWh heat produced) will vary for each technology.
The following technologies are not yet included: bioliquids, air source heat pumps and biomass boilers over 1MW. According to the Department of Enterprise, Trade and Investment, a better understanding of the costs of these technologies is required and they are expected to be in consideration for Phase 2 of the scheme. In particular, the inclusion of air source heat pumps as a replacement for oil fired heating would be a welcome addition considering a recent energy efficiency and conservation policy advisory report by the Irish Academy of Engineering recommending a similar approach.
The RHI is planned to remain open until March 2020 with a review in 2014-2015.
By Craig Reddin, Dalkia Energy
Co-ordinator.
For more information email infoni@dalkia.co.uk
