Understanding the tiers and tariffs of the Renewable Heat Incentive

The Renewable Heat Incentive for commercial properties has existed since 2011 but to date the up-take of the scheme has been minimal and the UK government hopes to increase the attractiveness of the scheme by increasing the payments participants receive.

The recently published Renewable Heat Incentive: Non-Domestic Scheme Early Tariff Review consultation puts forward the suggested increases and which technology they apply to. The technologies allowed under the scheme have remained the same but some of the technologies have received increased tariffs, whereas other technologies have retained their current tariff.

Understanding the tariffs

All tariffs are measured by the amount of kilowatt hours produced within one year. For example, a small ground source heat pump (GSHP) produces 60KW (or 60,000 kWh) over the course of a year, with a tariff of 4.8p for every kWh the amount paid back to the organisation will be £2880 (60,000 x 4.8p) for that year.

If the proposals are accepted, all technologies – aside from small and medium biomass boilers – will come with a higher tariff. However this increase in tariffs will only affect businesses that decide to install these technologies after the proposals have been accepted. Any commercial property that already has one of the above technologies installed will continue to receive the current tariff until they either install a new technology or once 20 years have passed, which ever happens first.

Understanding the tiers

Under the proposed changes the two technologies not set to change are small and medium biomass boilers. However the installation of these can result in an organisation earning one of two tariffs, split in to two ‘tiers’. All installations of either boiler will start off on tier one, and then after a certain amount of heat has been produced, they will move on to tier two. The moment that a tariff switches from tier one to tier two is calculated by multiplying the boiler capacity by 1314 peak load hours. For example, a 100kw boiler would switch from the 8.3p tariff to the 2.1p tariff after 131,400kWh of heat has been produced.

The two tiers exist in order to divert organisations away from generating excess heat when the only interest is to receive more payments. Tier one is designed to help pay off the cost of installation and the tariff is higher than the typical cost of biomass fuel, whereas tier one is an incentive not to produce more heat than required and the tariff is lower than the typical price of fuel.

The release of these proposed changes clearly show a problem for the DECC’s plans to increase the use of renewable heat whilst still balancing the books. The commercial RHI has received a low uptake and the domestic plans are continuously delayed, however the Government hopes higher tariffs will increase the uptake and make the more scheme more attractive to home owners when the domestic version is finalised.