7 Mar 2010

On the Renewable Heat Incentive

If ever an idea was half-baked, it's the Renewable Heat Incentive. On Feb 26, I was at a briefing in London, given by the civil servants who have designed the scheme, and the more I heard, the more worried I became. "It's a world first in policy terms" we were told, "we are truly in uncharted territory and we need your help." Hmmm. The nice gent from the Country Landowners Association was beside himself with thanks to the men from the ministry. Need I say more?

The most revealing conversation that I had took place during the lunchbreak when the man from British Gas talked to me about the funding of this scheme. It's big. By 2020, if it goes ahead as designed, it will add something like 35% to everyone's gas bills, as it seems that's where the levy to pay for it all will be drawn from. It's designed to pay for as many as 1.7 million subsidised renewable heat installations by then, at which point it's going to be paying out over £2 billion a year.

Make no bones about it, this is a carbon tax, but one being introduced by stealth, as it will creep into our fuel bills without it ever appearing as an additional item. I don't have any objections to a carbon tax — quite the opposite — but I would like the money raised to be used wisely, and the RHI really doesn't tick that particular box.

Why not?

Put very simply, it's subsidising the wrong people to put in the wrong kit.

As it stands there are a number of iniquities in the RHI, which I think will prove to be irreconcilable with logic or fairness.

• Arbitrary barriers between competing technologies. The technologies supported are biomass, heat pumps and solar thermal. Anything to do with fossil fuel is unacceptable. This however hides a very inconvenient fact that electricity is itself mostly derived from fossil fuels, and that unless your heat pump is set up really well, there is every chance that you will end up burning more fossil fuel (indirectly) if you switch from oil or gas to an electric heat pump. And the biomass offering is inconsistent. It seems some forms of biomass burning will receive a subsidy whilst others will not. Most clearly shown over the distinction between wood stoves, wood stove-boilers and pellet boilers. And whether or not they can (or should) have back-up boiler systems in place. As it stands, it looks like pellet boilers are IN but wood stove-boilers are OUT. It's not as if pellet boilers are fundamentally better than wood stoves with backboilers: many people can incorporate wood stoves in the homes, but have nowhere to put a pellet boiler (which needs utility space, and lots of it - QED you have to be wealthy to have a pellet boiler - it's not just a question of cost, it's also having the space).

• Deeming. Unlike the equipment being installed under the Feed-in-Tariffs (the output of which can all be metered), you can't meter the output from home heating appliances. So you calculate what it might be (using SAP, a home energy estimator). But deeming is really nothing different to a capital grant spread out over a number of payments. The crucial link between performance and reward, which is a key feature of Feed-in-Tariffs is broken. Therefore mediocrity is rewarded the same as excellence.

• The supported technologies are rewarded on a financial basis. The more expensive an installation, the more money gets thrown at it. Whether or not it actually saves any carbon, or even saves any money to the end user, is not part of the calculation. So if it's IN, its paid for at full market rate plus a calculated return of 12% (though only 6% for solar panels - a distinction I remain puzzled by). If it's OUT, then no money is available.

• Thus it stops dead any innovation in technologies that lie outside the grant-aided scheme. It also stops innovation involving a more complex interaction of techniques - cf heat recovery ventilation that incorporates an air source heat pump.

• It's not at all clear why biomass should receive a subsidy. Is it truly a renewable fuel? It pumps just as much CO2 into the atmosphere as gas. It's only renewable in the sense that we can grow more of it, which we can't with gas. If biomass is to receive a subsidy, it should be for delaying the point in the cycle where it gets burned, not for burning it. Plus biomass boilers are only ever going to be available to a very small minority of people (who just happen to have large houses!).

• Switching from fossil fuel to electricity for home heating. Again, it's none too clear that this is a wise move. Until the grid becomes much greener, the net result of the RHI may well be to push up carbon emissions. With large question marks hanging over the future of electricity production in this country, and whether we will have an infrastructure that can cope with the current demand in a few years time, why are we loading yet further demand onto the system?

• Which leaves solar thermal. The one technology here which is truly renewable. But it only gets a subsidy worth half as much as heat pumps and biomass, despite it being much cheaper to install, and despite it being open to a far wider section of the population. A strange decision if ever!

• It all points to a failure on the part of central government to introduce a clear and structured carbon tax on fossil fuel consumption, which is the logical way to approach this problem. OK, I know the reason for this: it is said to be politically impossible, and no other country has tried to do it either, and now the electorate don't believe in global warming in any event. All good points. But if you don't address it, then you end up with half-baked incentives like this, which are dressed up to look progressive but end up being very expensive to administer and yet they don't begin to tackle the problem facing us.


  1. carbon tax = will always hurt the poor more than anyone else.

    We should be trying to aleviate fuel poverty, not increase it.

  2. I really don't want to say anything too positive about the scheme because I think it is ill-concieved from the start. Someone high up probably decided to DO something about this 'renewable energy thingie' before engaging their brains or even getting a clear idea of what they intended to happen and this is what the poor sods from the ministry came up with.

    The clue is in the name. It is the RENEWABLE Heat Initiative, not the Low Carbon Heat Initiative, it's not even the Sustainable Heat Initiative. Once that is taken on board there is some glum logic to it. I have no doubt that the scheme is half-baked and it is more or less certain that governemnt intervention at this early stage, before it has really become clear what technical approaches work well for the UK, will make for a contradictory and inflexible system. However, the scheme you describe does attempt to get the most renewable energy used.

    "It's not at all clear why biomass should receive a subsidy.......... It's only renewable in the sense that we can grow more of it....."

    Well, how much more renewable can you get? You plant a coppice and in a couple of years you can start harvesting firewood and go on forever. We did it from the time we moved out of the caves until the early 20th century. I think you can even make a case for saying the biomass is the most satisfactory way for the UK to use solar energy. There might be air quality and carbon concerns but it is definitely renewable.

    For me the big unanswered question is why we have to subsidise any of this at all. I guess the answer is that unless we do, renewable energy makes little economic sense. So, it seems to follow that devices that already sell well, like woodstoves, don't need a subsidy, solar HW, which as you say is fairly cheap, only needs a small one, but heat pumps, etc need a bigger one. This approach is absolutely cock-eyed if you want best value for money but has a sort of Sir Humphrey logic to it if you just want the highest take-up of anything that could be labelled 'renewable'.

    "Plus biomass boilers are only ever going to be available to a very small minority of people (who just happen to have large houses!)."

    Ditto. Large houses take a lot of heating so from a 'max renewable' viewpoint this makes sense, though perhaps not in terms of social justice.

  3. Great post.

    Building Stoat - absolutely agree with cockup theory of how these ridiculous schemes come into being (zero carbon, CSH, water neutrality in Thames Gateway etc - too many bars i the Houses of Parliament).

    However I disagree re biomass being worth supporting. Working on an article on this so don't want to give away the punchline. I do wish it was a good thing as we heat our house with it and I stand to make some enemies debunking it.

  4. Stoat,

    You are right in that biomass is inherently 'renewable' and a 'renewable' heat incentive may be logical in promoting it (though the same logic does not apply to heat pumps, unless you include the 'partly renewable'). It's just that it doesn't necessarily make it right to encourage it to be grown just to burned.

    We have already seen the big power stations queing up to add biomass plant in order to harvest the subsidies. If Drax and co come on stream quickly, they will easily abosrb all the timber we can grow, and we'll start importing it.

    The whole biomass question is immensely complex and shows just how difficult it is to make sensible long term policy decisions against a very unknown future.

  5. I really don't want to support the RHI and I am certainly not asking for subsidies for biomass, I just wanted to point out that it tries to do what it says on the tin.

    I gather that you both think it is an answer to the wrong question, and you could well be correct. The problem is that there is no obvious consensus about what, specifically, needs to be done, or by whom, or with what resources. This makes it a political problem - a wide open one, in an election year, with lots of other people's money on the table. Not usually a happy situation likely to produce good policy.

    I agree with the theory that "There is no situation so bad that government intervention cannot make it worse" and the whole green energy subsidy farm seems to prove it.

    My preference would be for HMG to just butt out. No cash subsidies. Just relax planning constraints, give capital allowances against income (conditional on publishing results) on anything connected with non-fossil energy and see what happens. See what the real life effects of different approaches turn out to be, not what this week's favorite pressure group says it will be.

    The present approach comes from the view that HMG knows best what has to be done when they actually know less than the cat.

  6. Hello,

    Trying to comment on the RHI and not knowing where to start as they probably only want tweaks and tweaking something compleatly topsy turvy just seems pointless. I might try a new idea: renewable technology saves x% CO2 emmissions (compared to modern gas boiler) and costs £Y. Grant for X% x £Y available.

    Any thoughts?

  7. Biomass does not need to be for large houses only. Boilers start at around 8kw and can be inside living rooms as well as in utility rooms. Please contact me if you want details.

    Biomass - ie wood - when growing absorbs carbon - encouraging more trees to be grown commercially (on land unsuitable for crops) is a good thing.

    Energy2burn.co.uk reclaim wood from recycling companies. The waste is going to release carbon anyway - why not recycle it? They are not the only company doing this. You can see their lab reports online - and see they make a good pellet.

    Pellet boilers are generally more efficient than wood. The fuel is more compact and can be controlled to a greater degree than wood stoves.

    The point on "the more expensive an installation the more money gets thrown at it" is simply wrong. Biomass boilers - some start at £2500, some at £10,000. You will receive the same amount which ever one you install.

    There is space for new technologies to be included.