Renewable Heat Incentive Scheme (Amendment) (No. 2) Regulations 2013

Baroness Verma Excerpts

Wednesday 10th July 2013 Grand Committee

Moved by

[Baroness Verma]

That the Grand Committee do report to the House that it has considered the Renewable Heat Incentive Scheme (Amendment) (No. 2) Regulations 2013.

Relevant documents: 4th Report from the Joint Committee on Statutory Instruments.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, I am pleased to open the debate on the Renewable Heat Incentive Scheme (Amendment) (No. 2) Regulations 2013. Before focusing on the detail of these amendments, I will take the time to provide some background on the renewable heat incentive scheme, or RHI.

The scheme was introduced to improve our approach to using energy in the UK. Since the scheme launch in November 2011, more than 2,200 applications have been received to date, with around £27 million-worth of RHI payments expected to be paid out in 2012-13. By this time next year, we expect to have paid out more than £53.8 million through the non-domestic RHI, and 280 gigawatt hours of reported renewable heat have been produced through the RHI to date.

The recent spending review has reinforced our commitment to long-term support for renewable heat. The agreed budget for 2015-16 of £430 million enables us to continue to work to stimulate and achieve ambitious growth of renewable heat and, in turn, to create new jobs in the green sector.

The UK is legally bound to achieve a set 2020 renewables target of 15%, with interim targets between now and 2020. Our most recent interim target is to reach 4.04% of total energy from renewables as an average across 2011-12. Today’s statistics show that we achieved 3.94% across those years, short by just 0.1%, but within the margin of error for a statistical estimate. This means that we are currently on track for our 2020 target, but we must continue our work to ensure that this remains the case.

Heat is the single biggest use of energy. We use more energy for heating than for either transport or the generation of electricity. Therefore, it plays an important role in the UK being able to achieve this target. At the point of opening the RHI scheme, renewables produced less than 2% of our total demand. We are aiming for this to increase to 12%. In addition to achieving the renewables targets, the RHI will help to reduce greenhouse gas emissions, providing a platform on which to build towards eliminating greenhouse gas emissions from our buildings by 2050.

Ofgem administers the scheme and provides financial, tariff-based support for commercial, public sector, industrial and community renewable heating installations for the 20-year life of their tariff. The scheme has already provided financial support to a range of technologies, including biomass, solar thermal, heat pumps and biogas combustion. Applicants to the scheme are also spread across various sections of the non-domestic sector—small businesses, and public sector and community projects. The uptake of renewables is increasing but needs to be increased further for us to achieve our 2020 targets.

As with all taxpayer-funded schemes, all expenditure must be justified and provide good value for money. I should like to take a moment to reflect on the last time that I spoke to your Lordships about the RHI, which was back in March.

We discussed the introduction of a budget management system for the RHI. Following the March debates, in April, the degression-based approach to managing the RHI was introduced. This mechanism ensures that the RHI does not overspend while providing clarity and assurance to the industry about how the budget will be managed. Since those debates, we have seen the first degression take place, against medium biomass.

Medium biomass has deployed to the level that a trigger point has been met, which resulted in a 5% tariff reduction. Gradual deployment-led managed decreases like this will allow us to direct deployment so that we achieve an affordable, good mix of technologies in the scheme and ensure value for money in tariffs paid. It is important that we continue to evaluate the RHI scheme so that we ensure that it is incentivising uptake while ensuring value for money.

Before moving on to the main topic of today’s session, I will update the Committee on wider change and additions to the RHI. These regulations form part of an ambitious and busy schedule for renewable heating policy. The importance of low carbon and renewable heat in the long-term energy mix for the UK, and the “world first” nature of RHI, necessitates an ongoing programme of improvements, expansions and enhancements. For instance, the Government expect to be announcing the details of a domestic RHI very soon. We have also just concluded, on 28 June, an early tariff review consultation for the non-domestic scheme, proposing revised tariff levels for technologies where we have not yet seen the levels of deployment that we need. Initial feedback from industry is positive, and we are really pleased with the level of response to the consultation. We will analyse the consultation responses and further develop the policy before announcing our decisions in the autumn.

We are not only focusing on improving the existing scheme; we are also working on introducing support for other exciting renewable heating technologies through RHI. Our consultation last September made proposals for the introduction of support for air source heat pumps, large-scale biogas combustion, biomass direct air and expansions in the forms of waste that are eligible for the scheme. We also consulted on introducing new specific support for deep geothermal heat and for biomass and bioliquid combined heat and power. We are now considering whether we need to adjust any of our plans as a result of the spending review announcement on 26 June, and will publish an update on progress on the extensions to the non-domestic scheme and tariff review alongside our announcement of the domestic policy.

The regulations before us bring in a number of amendments delivering several distinct and wide-ranging changes, protecting the quality of the air that we breathe through the introduction of emissions limits for new biomass installations supported through the scheme; increasing the uptake of renewable heat by reducing the burden associated with metering; extending the scheme to commercial drying and cleaning, which takes place outdoors; and allowing the relocation of accredited installations. We are also using this opportunity to provide greater clarity to some areas of the regulations. It is our intention that these regulations will be made on 23 September, coming into force on 24 September.

The amendments in these regulations are predominantly based on the outcomes of the RHI Providing Certainty, Improving Performance consultation published in July last year. This consultation attracted 100 responses, and the final policy outcome was published in the Government’s response on 27 February this year. We proposed a method of demonstrating compliance with the air quality emissions limits announced in March 2011. More than 70% of respondents supported the proposals, and therefore the compliance regime detailed in these regulations remains very similar to the consultation proposals.

The simplification of metering requirements involved a number of proposals. These were aimed at reducing the number of heat meters required and driving down the cost of participating in the RHI, while protecting the public purse by ensuring that only eligible heat is paid for. More than 90% of respondents were in support of our proposed changes. Following this high level of support, we have moved to revise the RHI metering requirements, with the resulting requirements being very similar to our original proposals.

In addition to these headline changes, four smaller scheme improvements are included in these regulations and have been made with the intention of increasing uptake to the scheme. Two improvements were included in the July consultation: relocation of an installation and allowing certain processes to occur outside. Both were supported by those respondents who commented on them. These regulations will make it possible for an RHI accredited installation to be relocated and to continue to receive tariff payments for the remainder of the 20 years, provided that, on relocation, the system meets the necessary requirements. It will also be possible to receive RHI payments for commercial cleaning and drying processes that occur outside. Both these changes were supported by those respondents who commented on the proposed amendments.

Finally, two further amendments to the scheme were included to provide clarity to the regulations. The first is the addition of ground water as an eligible heat source for ground source heat pumps. The second is a minor word change to allow renewable installations that are used as the assessment installation—for an installer to join the microgeneration certification scheme —to be eligible for the RHI.

As these amendments show, the performance of the RHI is constantly under review. The need to increase uptake of renewables through this scheme is paramount to achieving our 2020 renewables target. Improvements to the scheme are focused on increasing uptake while still ensuring best value for money.

As I am sure the Committee will agree, good air quality is vital to our health, and it is essential that the RHI scheme does not have a negative impact on our environment. Since the announcement of the scheme in March 2011, we have made it clear that we are committed to introducing air-quality emissions limits for solid biomass boilers. The main pollutants which can be increased through increased combustion of biomass are particulate matter and oxides of nitrogen.

Currently, combustion of biomass contributes only a very small proportion of these harmful emissions. However, to date, biomass has made up a significant proportion of RHI accredited installations, and we expect this to continue. Where biomass replaces either heating oil or coal, there is no increase in the emissions levels of key air-quality pollutants. However, when replacing gas or electricity, the emissions are higher, meaning that it is important to limit the air-quality implications of burning biomass. The emissions levels to be introduced for biomass boilers producing heat from solid biomass are set at 30 grams per gigajoule of thermal heat input for particulate matter and at 150 grams per gigajoule for oxides of nitrogen.

New participants will be required to demonstrate that they meet the emissions limits by providing emissions certificates to Ofgem. These certificates will be provided to participants by the manufacturers of biomass boilers. When producing the certificates, manufacturers will be required to test their boilers and to show clearly through the certificate what types of biomass fuel their boiler can combust without exceeding the emissions limits. Participants will not be permitted to use types of biomass fuel that are not listed as being compatible with their boiler on their emissions certificate, and they will be required to demonstrate to Ofgem that they are meeting this requirement.

We are keen that that does not prove to be overly burdensome for manufacturers of boilers and we are therefore introducing flexibility through type-testing. This will mean that, when there is a “family” of boiler models which are identical apart from their capacity, only a limited number of them will need to be tested. Also, plants which have had to obtain an environmental permit will not be expected to provide an additional emissions certificate.

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The regulations are necessary to allow the RHI scheme to evolve and achieve the take-up for renewable heat that is needed for the UK to achieve its 2020 renewable target. From this side of the Committee, I am content to agree to the regulations today as another step forward. I anticipate a further statement extending the RHI to the domestic market before the recess.

[Baroness Verma]

My Lords, I am grateful to my noble friend Lord Teverson and the noble Lord, Lord Grantchester, for their warm welcome to the regulations. I am also grateful for the quality, rather than the quantity, of the debate. In this House, the one thing that we do well is contribute with quality. A number of questions have been asked and I will try to go through them as much as I can. If there are any questions that I fail to answer today, I will undertake to write after reading Hansard.

My noble friend Lord Teverson asked what “properly insulated” means. I am advised that it means that it is a section of external piping that does not exceed the maximum permissible heat loss outlined in British Standard 5422. I am sure that means a lot more to the noble Lord, Lord Teverson, than it does to me. “Properly insulated” is defined in Regulation 3 of these regulations.

My noble friend also asked about relocation. I think that I referred to that in my opening remarks. However, I am quite happy to repeat myself if the noble Lord wishes me to. Basically, if any plant is relocated the participant will be entitled to the remainder of the existing tariff for the remainder of the tariff lifetime. The plant does not have to meet air quality requirements, for example, as it is not a new accreditation, provided that the original accreditation is provided.

My noble friend also asked whether air quality emissions limits will apply only to future installations. The RHI emissions limits in these regulations are more stringent than those that apply to the highest-emitting boilers currently in the market. As a result, we will be encouraging the use of lower-emitting boilers.

On the question of which technologies have not met their potential, the currently supported technologies that have been subject to the tariff review are large biomass—that is, with a capacity of over 1 megawatt—ground source heat pumps and solar thermal.

The noble Lord, Lord Grantchester, asked why we were using degression so early in the process. The deployment of medium biomass has exceeded the rate that we had expected when the tariff was originally set, which suggests that the tariff is higher than is necessary to incentivise installers. Therefore, we may be overcompensating further installations if we do not adjust our tariffs downwards. Although we encourage biomass through its size, we do not want to support one type of technology in particular when there are other technologies out there that may do as well and provide equal value for money—and it is value for money that we are really keen to get. I hope that that has answered the noble Lord’s question.

[Lord Grantchester]

I am listening very carefully to the noble Baroness. Following the wise words of the noble Lord, Lord Teverson, my concern is that it is quite a big ask to reach our limits by 2020. I am concerned that, if the degression totals are set too soon and too early, we may choke off from coming forward those who could potentially help to meet these quite stringent targets.

[Baroness Verma]

The difficulty is achieving a balance between value for money and ensuring that we meet our targets. However, as I said, I think that we are managing to provide some encouragement and there is a great deal of interest. What we do not want is for one energy source to have an unnecessary advantage over another.

My noble friend Lord Teverson asked about the limits on boilers outside the RHI scheme. There are no emission limits for boilers outside the scheme but other measures may apply—for example, where environmental permits are required or where a boiler is within a smoke-controlled area under the Clean Air Act.

The noble Lord, Lord Grantchester, asked some other questions but I may have to respond to him in writing because I am finding it slightly difficult to read the responses. However, I shall finish with a response that I can read concerning a question from the noble Lords, Lord Teverson and Lord Grantchester, on the urgency of the domestic scheme. Details of the domestic scheme will be announced before the Recess—that is, in a matter of a few days rather than months.

I hope that, on that note, noble Lords will support these regulations and I commend them to the Committee.

Motion agreed.