Renewable Heat Incentive: proposals for a domestic scheme

We are consulting on proposals for a subsidy scheme aimed at helping households replace their existing fossil fuel-based heating systems with renewable-based ones. Broadly speaking, we are proposing to support the installation of Microgeneration Certification Scheme (or equivalent) certified ground- and air-source heat pumps, biomass boilers and solar thermal panels.

Our lead proposal is that the subsidy would be provided through tariff-based payments over a 7-year period. Payments would be made on the basis of deemed amount of renewable heat generated, taking into account the circumstances of the property, with the rate paid varying according to the type of renewable technology installed. We are inviting views on what alternatives approaches to support might also be appropriate and on our current methodology and assumptions that form the basis of the indicative tariff ranges that we are presenting.

As part of our core proposal, RHI payments would start after the renewable heating system had been installed. Householders would therefore need to finance the upfront installation costs themselves through personal funds or a loan. The tariffs we propose take into account the additional costs of installation and running the renewable system and non-financial barriers (such as disruption in the home). They also build in compensation on the additional upfront installation costs of 7.5% to cover the cost of financing.

The scheme will be for individual domestic properties and is open to all. We are proposing that, provided their properties meet certain energy efficiency criteria (meaning a key interaction with the Green Deal), owner-occupiers and private landlords would be eligible, together with householders who have installed renewable heating systems since 15 July 2009, including those who received the Renewable Heat Premium Payment. We are also considering having bespoke tariffs for the registered social landlord and new build sectors, recognising their potential contribution to the roll-out of renewable heat, but taking into account the possible lower installation-related and other costs they might benefit from.

We propose introducing the domestic RHI scheme in the summer of 2013 and for it to be run initially by Ofgem with a view to offering the role on competitive tender for the long-term.

The spreadsheet tool sets out the cost, performance, lifetime and technical potential data on which the consultation stage impact assessment (IA) analysis has been based, along with the methodology for calculating the tariffs. This should be viewed in conjunction with the IA annexes which offer a full explanation. This evidence base is under review and will be updated.

The addendum below provides updated information about our policy proposals for the application of the cap on tariffs as set out in the consultation document.