Summary
• The incentive has boosted demand.
• RHI approvals have been slow.
• The RHI has created a two-tier market.
• Westbury Windows & Joinery is now receiving RHI payments.

The much talked about Renewable Heat Incentive (RHI) is out of the blocks, with the first “approved” new biomass boiler installations now earning regular payments from the government.

In principle it’s simple – any new water-heating biomass burner (warm air units aren’t eligible) installation fitted with a heat meter can apply to the RHI scheme. Installations fitted since July 15, 2009 are eligible, though they will need a heat meter fitted.

In doing so, timber companies can earn regular payments for generating their heat using renewable energy.

While removing wood waste disposal costs remains the primary reason to invest in a biomass burner, RHI payments add icing to the cake, promising guaranteed earnings for 20 years, with payments quarterly for each kWh of heat used.

Biomass boiler suppliers agree that the RHI has boosted demand. It has also had a stamp duty-like effect on the structure of the market around certain threshold levels where tariff payments reduce.

Smaller installations under 200kW can earn a tier one payment of 8.3p/kWh. From 200kW-1MW the payment is 5.1p (including a 0.2p increase for inflation in March) and above 1MW the tariff is just 1p/kWh. As a result, “everyone is looking at 190kW to stay under the 200kW threshold,” said George Fletcher, technical sales manager (wood boilers) of Viessmann UK.

“Or you move up to a 400kW boiler. If you decide you need a 300kW boiler it would not be as viable a project as a 190kW.

“Installers will need to help those middle ground [200-400kW] customers find the right balance between capital expenditure, RHI payments and fuel costs,” he said.

Essex-based Westbury Windows & Joinery was the second UK company to receive RHI approval. It has just received an RHI payment of over £2,000 for its 300kW Ranheat boiler’s first three months of operation, with annual payments predicted to be over £8,000.

“I won’t mislead anyone, to gain access to the programme was not easy,” said managing director Jonathan Hey.

“It was a long process and the forms and administration required a great deal of data and effort on our part. However, the benefits to the company are well worth the effort. This, combined with a sense of well-being achieved by improving our carbon footprint for both us and our clients, is immeasurable.”

This effort perhaps explains why only about 15 of more than 300 RHI applications have so far been approved. This equates to just £2m out of a £53m annual RHI allocation.

Chris Franklin, director of Ranheat Ltd, blames complex criteria for the slow approval rate. “We are getting some very, very strange interpretations from Ofgem [RHI scheme administrator] as to what constitutes a simple system and what is deemed a complex system,” he said.

Basically, if the boiler is in the main factory then approval is an easier process. But if it’s in a separate building, even if just a metre from the factory it heats, it becomes a “complex” system and requires a report by an independent consultant, which can cost £1,000.

But Mr Franklin also thinks some companies are just too busy or can’t be bothered to make RHI applications, with some content to have made major savings in skip costs.

“We’ve been telling the government for the last five years that the uptake of an RHI scheme will be nothing like they expected it to be,” said Mr Franklin.

Holding back

He thinks the omission of warm-air biomass heaters from the RHI is holding back scheme take-up. These units make up the majority of biomass burners in the timber industry, but the government has deemed them too difficult to monitor – something Mr Franklin contests.

“But it is a great scheme for anybody in the woodworking industry because you already have the waste wood. Everybody in the woodworking trade should be in there chewing their arms off to get into it.”

About 60% of Ranheat’s installations in the past 10 years have been warm air but, because of the RHI, most recent projects have been boilers.

Marc Lyon, of Energy Innovations, which supplies Austrian-made Gilles biomass boilers in the UK, said the RHI was a welcome initiative.

Previous grant schemes, he said, had created a case of “feast or famine”, according to when available grant money was used up.

“The actual RHI application process has been a bit slower than anticipated. You need independent heat metering reports and it takes time to get used to something new.”

He hopes the cash-starved government does not cut back on the scheme.

You would think this would be unlikely with a much-heralded scheme, but the government has been stung by the feed-in tariff and in March announced plans to “manage” the RHI budget for commercial, public sector, industrial and community-scale installations.

“We will ask industry for its views in the summer and in the meantime will arrange for interim measures to be in place to manage the scheme’s budget,” said climate change minister Greg Barker.

Budget policy options include lowering tariffs as the scheme grows. Consultation also includes RHI amendments covering air quality and biomass sustainability issues, which the government hopes to bring to parliament in November.

Government consultation

The government has launched consultation on short-term measures to keep the RHI in budget, including giving industry one month’s notice to temporarily suspend the scheme to new entrants if 80% of the available budget is expected to be spent.

However, Mr Barker said short-term measures were unlikely to be used, judging by the current low level of RHI payments.

“In the long term the RHI will help the biomass industry develop,” added sawmiller and Brites pellets manufacturer Balcas.

It said the scheme would also help to move wood pellet boilers from being fringe technology to more mainstream technology.

To calculate how much you might earn through the RHI click here