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DECC Consultation: The proposed RHI financial support scheme

ACE has submitted a written response to the Department for Energy and Climate Change consultation: “Consultation on the proposed RHI financial support scheme”

To read our full response please click here

Response Summary

1. ACE strongly supports Government’s move towards a low carbon economy, and European policies such as the Energy Performance of Buildings Directive (EPBD) and the Renewables Directive that help to achieve this. Any credible policy to promote renewable energy, which necessitates financial support, must at its heart ensure that energy is used as efficiently and effectively as possible. This ensures that only the renewable energy that is required is supported, keeping costs low, energy affordable, businesses productive and improving our security of supply.

2. Government currently has several priorities to tackle in this arena, including climate change, energy security, fuel poverty, and energy costs and productivity, and several objectives to achieve including meeting the carbon budgets, the 15% renewable energy target, alleviating fuel poverty by 2016, and delivering 7 million ‘eco-upgrades’ by 2020 and 25 million by 2030. Renewable Energy and Energy Efficiency can work effectively together to tackle these problems and achieve the objectives but when designed poorly, policies involving renewables can have a hugely detrimental effect.

3. Unfortunately the Renewable Heat Incentive, as proposed in this consultation, embodies an ill thought through policy that exclusively pursues one target – that in the Renewables Directive – hindering (or worse, reversing) progress towards others. In its present form, the policy will not cut carbon to anywhere near its potential, will do very little to improve the UK’s security of energy supply, ignores the opportunity to twin with ‘eco-upgrades’, may actually reduce the energy performance of the building stock, and has the potential to hugely increase the number of households in fuel poverty. ACE strongly warns Government of the adverse effect that introducing the RHI in this form will have, and urge them to look at the design of the policy again, particularly at the four main issues below.

4. Firstly, it is ludicrous that the policy will allow efficient gas boilers (potentially subsidised recently by the taxpayer as part of the scrappage-scheme) to be replaced by heat pumps or biomass boilers. This replacement of heating technology reduces the energy performance of a property – lowering its EPC rating, saves a relatively small amount of carbon but increases fuel bills for the building in question, not to mention the costs borne by the taxpayer or energy consumers. Allowing gas boilers to be replaced in this way will create a hugely inefficient and ineffective scheme. Heat pumps and biomass boilers have a role to play, but if Government is serious in cutting carbon, their role should be in properties that are not on the gas network where expensive carbon intensive fuels are currently in use.

5. Secondly, the consultation rejects a requirement for mandatory energy efficiency standards in buildings that receive the RHI. Relying on ‘deeming’ to incentivise energy efficiency investment is unlikely to succeed and sends entirely this wrong message to householders: ‘You’ll be paid for the important renewables but the energy efficiency measures are optional’. Instead, ACE strongly favours a voucher scheme which takes the place of the initial years’ RHI payment and can only be redeemed against the installation cost of the lower cost energy efficiency measures. Government must also require that properties requiring more expensive insulation measures like solid wall insulation are insulated if beneficiaries are to receive the RHI payment, since these properties should receive insulation over the coming years as part of Governments HEM strategy. To assist these households to afford the insulation, ACE suggests the RHI payment be based on the heating requirement without insulation, but that the system installed is appropriately sized based upon an insulated property. This will give these households a greater ROI and a lower upfront capital cost, both which can be used to cover the cost of the insulation. Households that fail to implement this within two years will have their RHI payment revoked.

6. Thirdly, for the larger non-domestic recipients of the RHI, ACE is astonished that Government sees the risk of payment based on metering leading to over-generation as ‘low’. It will be in the interests of any profit-seeking business to run their systems as long as possible to maximise their returns. Such a situation must be avoided: whilst it will notionally still contribute to the 15% renewables target, it clearly brings no security of supply or carbon saving benefits, but merely increases the overall costs of the scheme.

7. Finally, but most importantly, it is absurd that Government is consulting on a proposal without setting out how they intend to pay for it. Here the choices are stark: fund a programme through general taxation and have a programme that is generally progressive in nature (albeit with little access to those on low incomes); or through the costs being passed on in energy bills. If the latter option is chosen, the impact assessment estimates the increase in domestic energy bills up to 21% within the decade. This would be unacceptable, given the fact that few fuel poor households are likely to have the capital to be able to access the scheme but will pay for it in their bills, unless the RHI is accompanied by a credible national fuel poverty programme that fuel poverty proofs all homes.

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