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RHI Degressions in April

Tuesday 3 March

Degressions in April
We now have confirmation of the tariff reductions, degressions, coming in April for the Renewable Heat Incentive (RHI). There’s no change in the trend for biomass rate reductions and below are the only tariff changes announced:

  • Biomass under the domestic RHI will see a 20 per cent rate reduction
  • Small commercial biomass under the non-domestic RHI will see a 15 per cent reduction

As mentioned in this month’s analysis bulletin, the strong take-up of biomass means government are predicting very little underspend for the RHI schemes, a concern earlier in the financial year. The future of the RHI strongly depends on the new government.  The hustings at this year’s Renewable Energy Marketplace gives you the opportunity to find out which way the main parties are leaning.

The domestic RHI quarterly budget forecasts can be found here and the non-domestic here.

Domestic RHI analysis
The rate for domestic RHI biomass will be reduced to 8.93 pence per kWh for all installations accredited on or after the 1 April.  This will make March a busy month for the sector but we expect not as hectic as December.  In that month we saw forecast expenditure for biomass double on the month before.  The knock-on effect was a very quiet January.

Biomass budget spend is way over the levels set for a degression to occur, referred to as ‘trigger’ levels. As of January 2015, biomass is over it’s super trigger level (resulting in a 20 per cent degression) but this doesn’t mean we will definitely see another tariff reduction in July.

DECC have said that in a quarter following a degression the growth in forecast spend will be compared to the growth between triggers for that quarter.  Only if forecast spend growth is higher or equal to trigger level growth will a degression will occur.  Therefore forecast spend growth for the next quarter will need to be 29 per cent for a degression to occur.

Non-Domestic RHI analysis
The rate for non-domestic RHI small commercial biomass will be reduced to 5.87 pence per kWh for tier 1 and 1.56 pence per kWh for tier 2. Although degressions are affecting take-up of this technology it isn’t bringing expenditure forecasts below the degression trigger levels.

Normally forecasted expenditure drops in the month following a degression but it actually rose in January 2015 compared to December 2014.  This may well be simply down to December’s festive break hitting the supply chain and pushing a lot of installations over into January.

January’s increase and the continuing healthy return on investment for small commercial biomass means a further degression is likely. We wait to see February’s figures and any local factor corrections until we can start to predict the actual percentage.

Third-Party Ownership models in the RHI consultation
As discussed in this month’s sector analysis, DECC have announced a call for evidence on third party ownership models in the RHI and we ran a members event in Bristol last week.  In brief, Regen believes provision for third party ownership could benefit the sector but a key priority must be that any scheme is as simple as possible. Please see the sector analysis for more detail and we urge you to respond to the consultation.

If you have any questions please get in touch.