RHI Budget Cap prediction and Heat Networks

The new RHI budget cap has created significant uncertainty in the market – in this update we have analysed how the new RHI budget cap could bite. We have also provided updates on £320 million Heat Networks Investment Project (HNIP), and our community-led heat network toolkit.

RHI budget cap prediction

On the 1 April 2016 a new overall Renewable Heat Incentive (RHI) budget cap came in to force. If the cap is breached the government could close the scheme to new applicants. Below we have analysed when the budget for this year would be spent if RHI expenditure continues to grow on recent trends.
The overall budget cap for the year 1 April 2016 to 31 March 2017 is £640 million. Figure 1 (below) shows the proportion of this cap that DECC has forecast will be spent by existing projects and those that have applied (£554.4 million) and what remains for new projects.

1

This leaves £85.6 million for the upcoming year. In the year 15/16 new projects led to expenditure of 275.13 million. Plotting all the previous DECC forecasts of RHI expenditure and following the trend, suggests forecast expenditure could exceed the £640 million overall budget cap for 2016/17 within months, potentially triggering a closure of the scheme to new applicants. How DECC considers this forecast and informs their decision is uncertain. Following a closure reopening of the scheme could occur at the start of the next financial year, subject to sufficient budget being available.

2

There are a number of uncertainties related to this prediction:

  • DECC says that their budget forecast figures are a ‘conservative (high) estimate’
  • We do not know how the market will react to tariff degressions
  • We do not know the decision making mechanisms for any closure of the scheme
  • There are an extensive range of changes proposed in the recent government proposals, including a new tariff guarantee system. We don’t yet know the outcome of these proposals or the impact on the market.

Despite these uncertainties it would clearly be prudent for companies to build this risk of the RHI being closed early into business plans.

In our RHI consultation response we recommended scrapping the cap, as well as a number of other points.

Heat Networks Investment Project

The process of consulting industry on the £320 million of new funding for heat networks that was announced back in the comprehensive spending review in November 2015 – named the Heat Networks Investment Project (HNIP) – has started. DECC has been informally discussing the project with some in the sector and will announce formal consultation events very soon. We are close to confirming details of a consultation event in Bristol in early June – details to follow shortly. The scheme is due to launch in Autumn 2016, with the first payments in March 2017.

Community-led heat network toolkits for DECC

Regen SW has been working on behalf of DECC to develop an introduction to Community-led heat projects and a toolkit for heat networks. These guides aim to help community energy groups and local authorities understand some of the opportunities, and challenges associated with community-led heating projects. The toolkit is designed to de-mystify some of the aspects of community heat network projects, as well as provide signposting and links to additional resources.

As always we are keen to hear the views of our members. So please get in contact on 01392 494399 or ofrankland@regensw.co.uk.