Isra-Mart srl:Government warms up green power sector with £860m Renewable Heat Incentive

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After months of delays, the government this morning launched its Renewable Heat Incentive (RHI), promising guaranteed payments for 20 years to those businesses and households producing heat from renewable sources.

The coalition said the scheme, which is the first of its type anywhere in the world, will provide £860m of incentives over four years and is expected to increase investment in the renewable heat technologies by £4.5bn over the next 10 years.

It also predicted the RHI would cut emissions by 44 million tonnes of carbon by 2020, equivalent to 20 typical new gas power stations, by accelerating adoption of green heat technologies such as biomass boilers, air and ground sources heat pumps and solar thermal heating systems.

Currently around half of the UK's carbon emissions are produced through heating, 95 per cent of which is generated by burning fossil fuels.

The incentive will tie in with the Green Deal, the government's flagship energy efficiency scheme, and as such will be introduced from October 2012. Eligible technologies installed since 15th July 2009 will receive payments made for each kWh of renewable heat produced for 20 years, with levels ranging from 1.9 pence per kWh for small biomass, to 8.5p/kWh for solar thermal.

In addition, up to 25,000 installations will be supported by a £15m 'RHI Premium Payment' pot, if properties meet certain eligibility criteria such as already maintaining a well insulated building and agreeing to give feedback on the equipment. The Premium Payment will also look to ensure there is a "fair spread of technologies" across the country. More details will be published in May.

For new build homes, a special RHI tariff will be considered for the 2012 phase.

The scheme will also be available to businesses and commercial properties. By 2020 the government expects the RHI to be directly responsible for 13,000 renewable heat installations at industrial sites and 110,000 installations in the commercial and public sector, supplying a quarter of all heat demand. This is seven times the number of anticipated installations in 2014, the Department of Energy and Climate Change (DECC) said in a statement.

DECC also predicted the scheme will create 150,000 existing manufacturing, supply chain and installer jobs to be supported in the heating industry.

"Renewable heat is a largely untapped resource and an important new green industry of the future," said energy and climate change secretary Chris Huhne in a statement to Parliament. "This incentive is the first of its kind in the world. It'll help the UK shift away from fossil fuel, reducing carbon emissions and encouraging innovation, jobs and growth in new advanced technologies."

The announcement was immediately welcomed by industry groups who praised the level of ambition demonstrated by the scheme, despite noting there were a number of details that still needed to be finalised before the initiative is launched.

"This scheme marks a world-first, long-term, commitment to a rapid growth in renewable heating with £860m of public funding in the first four years," said Dave Sowden, chief executive of the Micropower Council, in a statement. "We are delighted that the Government has largely shielded the residential sector's early months of the scheme from the budget cuts brought about in the Comprehensive Spending Review, with a quarter of the first year's funding being reserved exclusively for the household sector.

His comments were echoed by Gaynor Hartnell, chief executive at the Renewable Energy Association, who said the policy provided "real evidence of 'the greenest government ever' delivering on its pledge".

"This novel policy should be much more effective than capital grants, as it rewards the production of renewable heat not just the installation of equipment," she said. "It is a revolutionary approach, but absolutely the right one."

The scheme is likely to appeal to businesses and will deliver significant opportunities to green firms, according to Kieran Allen, technology acceleration manager at the Carbon Trust.

"The biomass market as a whole is a key green growth market for the UK and is currently estimated to be worth some £5bn a year and is predicted to grow at around four per cent per year out to 2015," he said. "Our own analysis shows that new onsite biomass heat projects could deliver double digit returns for business end users with the help of this new financial support."