A press release from Government (30.06.20) announcing a tariff extension to the Non Domestic Renewable Heat Incentive (RHI) has brought market confusion and threatened the financial support for thousands of shovel ready low carbon schemes, as the true nature of the announcement has been revealed by industry.
Described as a ‘boost for renewable heat projects as government confirms tariff extension’, the reality of the extension is only applicable to those in receipt of tariff guarantees or to those that apply for a tariff guarantee and are able to provide evidence of Stage 2 Financial Close before March 2021, earning the applicant one extra year – until 31st March 2022 – in which to get the installation work completed. The deadline of March 2021 however remains for all other applicants to the Non Domestic RHI.
Experts at the Kensa Group, a ground source heat pump manufacturer and installer partner, have been quick to identify the announcement has been widely miss-reported as an extension to the Non Domestic RHI scheme (which remains due to close in March 2021), leading to widespread confusion, as David Broom, Sales Director of Kensa Contracting comments:
“Miss-interpretation of the Government’s announcement has understandably led to clients wrongly assuming the Non Domestic RHI has been extended, and thus taking the pressure off applications. The truth is the Non Domestic RHI has not been extended – the extension only applies to tariff guarantees, which will not be applicable to the majority of our clients due to tariff guarantees eligibility criteria for projects in excess of 100kW capacity; many social housing schemes will fall below this threshold.
“With the Non Domestic RHI on course to end in March 2021, the confusion surrounding the tariff guarantee extension could be significantly damaging to pipeline schemes in the renewables industry, which would otherwise bring immediate carbon savings, vital if we are to achieve our 2050 objectives. Any delay now could be financially and environmentally damaging.”
Presently there is a hiatus between the end of the Non Domestic RHI on the 31st March 2021 and any future scheme of at least one year. In two recent Consultations with industry the Department for Business, Energy & Industrial Strategy (BEIS) has proposed a narrow range of options for low carbon heat support beyond the Renewable Heat Incentive and it is seeking views on its proposals in a consultation that is due to close on 7 July 2020. The Future Support for Low Carbon Heat, proposes a £2.2bn Green Gas Support Scheme (GGSS) and a £100m Clean Heat Grant to support the installation of Heat Pumps. Parallel to this Government is seeking opinions on a series of reforms to the NDRHI scheme, prior to its closing in March 2021, “in order to deliver ongoing value for money to the taxpayer”.
Karl Drage, Director of Business Development at the Kensa Group comments:
“A follow-on scheme to the RHI is an opportunity to ensure that the transition to renewable heat is appropriate, cost effective and achieves the aims of getting closer to net zero across the building stock. Government led schemes, to date, have failed to make significant progress, and this is a critical time on the path to 2050.
“All stakeholders in the heat sector are looking towards the transition to low carbon, renewable heat. Which will entail the large-scale replacement of fossil fuel burning boilers by heat pumps powered by an electricity grid with a low carbon factor.”
Future Support for Low Carbon Heat: Kensa Commentary
Introduction
The Domestic Renewable Heat Incentive (DRHI) scheme will finish in March 2022, having fallen well short of its initial aims. The government has stated its ongoing support to facilitate change in the Energy sector and, among a number of promised offerings, has shared proposals of a “Clean Heat Grant”, a scheme which it has stated will be available for two years beginning in April 2022.
In two recent Consultations with industry the Department for Business, Energy & Industrial Strategy (BEIS) has proposed a narrow range of options for low carbon heat support beyond the Renewable Heat Incentive and it is seeking views on its proposals in a consultation that is due to close on 7 July 2020.
A follow-on scheme to the NDRHI is an opportunity to ensure that the transition to renewable heat is appropriate, cost effective and achieves the aims of getting closer to net zero across the building stock. Government led schemes, to date, have failed to make significant progress, and this is a critical time on the path to 2050.
All stakeholders in the heat sector are looking towards the transition to low carbon, renewable heat. Which will entail the large-scale replacement of fossil fuel burning boilers by heat pumps powered by an electricity grid with a low carbon factor.
RHI Finishing
The Renewable Heat Incentive (RHI) was originally due to finish on 31 March 2021. The Domestic RHI has been extended until 31 March 2022, to “provide for a smooth transition to future support schemes for low carbon heat.”
The Non Domestic RHI (NDRHI) has not been extended. An additional allocation of Tariff Guarantees (TG3) has been opened up. Any applicant wishing to start or complete a heat pump project in excess of 100kW capacity that relies on the non-domestic RHI should secure a Tariff Guarantee for the project before 31st March 2021 next year. That would earn the applicant one extra year – until 31st March 2022 – in which to get the installation work completed. Payments are also capped, with no payments to be made beyond 2041. The application for Tariff Guarantees is lengthy, and there is a risk of further “degression” of tariffs on large heat pump installations beyond the 28% degressions already announced. This financial uncertainty does not work towards the Government’s intended aim. The majority of Social Housing projects applicable to the NDRHI are below the TG level of 100kW, and are therefore not eligible for an extension to March 2022.
The Government has therefore created a gap between the close of the NDRHI on 31st March 2021 and any future scheme, of at least one year. A gap which is likely to be detrimental to the development of a steady flow of projects.
Government Objectives
One third of the UK’s greenhouse gas emissions are generated by heating homes, businesses and industry. The UK government is legally bound to have zero emissions from buildings by 2050, which means we have 30 years to eliminate all emissions from heat within the built environment. The Government’s overriding objective is to comply with the legally binding target to achieve net zero greenhouse gas emissions. The recent progress report to Parliament by the Committee on Climate Change demonstrates that “Buildings and heating policy continues to lag behind what is needed.”
Consultations
The Government has engaged in two consultations regarding the future of renewable heat.
Future Support for Low Carbon Heat, proposing a £2.2bn Green Gas Support Scheme (GGSS) and a £100m Clean Heat Grant to support the installation of Heat Pumps. The consultation refers extensively to Value for Money, but fails to achieve this in its proposed application of both the GGSS and the inequitable Clean Heat – Heat Pump Grant, which is woefully inadequate in scale and application.
The Kensa Group have proposed to Government that a further Shared Ground Loop Support Scheme grant be made available to enable and encourage the installation of shared ground loop arrays, achieving significant value for money, and future proofing renewable heat installations.
Non-domestic Renewable Heat Incentive
“In order to deliver ongoing value for money to the taxpayer”, the Government is seeking opinions on a series of reforms to the NDRHI scheme, prior to its closing in March 2021. Of note, the consultation follows reforms to the scheme aimed to encourage greater deployment of shared ground loop systems, which can help to deliver carbon savings across multiple premises.
Responding to these two consultations is challenging without the context of anticipated complementary policy; the Future Homes Standard yet to be released and changes to part L expected to come in before 2025. The long awaited Energy White Paper to outline the roadmap to net zero was due to be published in the spring and has been delayed. We are unable to comment on the full gamut of Government strategy, and they are asking for comment on the Clean Heat Grant scheme in isolation.
Conclusion
The Clean Heat Grant scheme proposed in the Future Support for Low Carbon Heat consultation is inadequate and will not contribute to approaching Net Zero by 2050. There is also a damaging hiatus between the end of the NDRHI and the proposed new scheme.
There is a huge disparity between the proposed “Green Gas” support mechanism and the proposed Heat Pump Grant Scheme, which works against the Government’s intended aim of achieving value for money.
In order to achieve net zero across all building sectors: On Grid Retrofit, Off Gas Retrofit, New Build Housing, and Commercial, the Government will need to provide substantial additional wide ranging long-term policy support.
About Kensa:
Established in 1999, privately-owned, and headquartered in Truro, Cornwall, the Kensa Group is a fast-growing collection of award-winning businesses involved in the manufacture and installation of ground source heat pumps and the ownership of associated underground infrastructure.
Now employing over 90 people the Kensa Group wholly owns Kensa Heat Pumps Limited and Kensa Contracting Limited.
Kensa Heat Pumps remains the UK’s only manufacturer of ground source heat pumps and is the long-established market leader according to BSRIA annual reports. It provides products and technical support to an extensive network of plumbing contractors.
Kensa Contracting is a specialist installation business which focusses on large-scale new build and social housing retrofit programmes. It benefits from unrivalled experience and expertise and has delivered the UK’s largest installations in the residential sector.
Kensa Utilities is an infrastructure asset company which funds, owns and maintains shared ground loops that serve heat pump installations. It utilises subsidy support to provide these assets at zero cost to the housebuilder or social landlord.
The Kensa Group is partly owned by Legal & General Capital, part of Legal & General PLC.
