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Twelve months to turn round the Renewable Heat Incentive

ImageHowever well-intentioned the RHI may be it overlooks one crucial element – there is no incentive to turn off the heat or make sure heat is not escaping through leaky, old windows

Next April, the new Renewable Heat Incentive begins. As currently proposed, it will expand twelve-fold during the decade the amount of heat generated from renewable sources. But as currently proposed, it will simultaneously also cause untold damage to the drive to the policy to improve the overall efficiency of our building stock.

The scheme will guarantee payments for up to 23 years for those who install technologies such as ground or air-source heat pumps, biomass boilers, or bio-methane or bio-diesel projects.

The sums involved are huge. According to the published cost-benefit analysis, the cumulative gross resource costs of all these payments. It is hoped that the scheme will help deliver 17m tonnes of carbon dioxide savings by 2020, though 2m of these are already accounted for by the European emissions trading scheme. Around 85 per cent of the 73 terawatt hours of savings anticipated will be from non-residential buildings. Conversely of the 1.87m installations, some 1.72m – or 1 in 14 -households will participate; just 144,000 installations will be made in the commercial and public sector.may reach £26.7bn. Officials are quoting publicly even higher figures,of £36bn.

And once you are into half hour metered buildings? No question, energy profligacy rules. You will have every incentive to run your equipment just as much as possible: the scheme is currently designed precisely so that the more your meter ticks over, the more money you make.

So 1 in 14 households, predominantly those with spare cash to invest, will get a 12 per cent tax free return on investment. While the remaining 13 out of 14 will just see their fuel bills rise that much more.

Of course, all these figures are “best guesses”. The scheme is not cash limited. Anyone can participate. If more do, it will just add to the gross resource costs. These will not be found by the taxpayer but will be amortised by inclusion onto all fuel bills, not just those of participants. Some estimates are that this RHI alone will add 20 per cent to everybody’s fuel bills.

The official rhetoric talks about turning all these buildings into mini power stations. The problem is that there is no requirement that the building in question has an efficient fabric. Unlike earlier schemes like the Low Carbon Building Programme, there is no “conditionality” proposed at all. You can have single glazed windows. You can have no thermostats. Your walls and floors may remain entirely uninsulated. You will still collect your money.

There is some constraint in the domestic sector, where the anticipated rewards will diminish (a bit) if you haven’t put insulation into any cavity wall. Or don’t have 125mm of loft insulation (a figure curiously less than half of that recommended by government). But it will be a very honest boiler or heat pump salesman who bothers to point this out.

Proprietors will have a perverse incentive against being energy efficient. Strip out the insulation, jettison the TRVs, stick with single glazed windows.

The official government statement emphasises the new incentive’s benefits for “thousands of consumers who are off the gas network” who could “gain a cash reward for greening their heating supply”. Certainly if they are the landlord of rural properties, collecting an annual untaxed 12 per cent reward just for installing such measures, that is undeniable.

If you are a tenant? Your reward may well be just as high consumption levels as ever. Plus a cost per kilowatt hour,which has itself been increased via the massive overall cost of the incentive.

But the scheme is just as available to those on the gas network. High efficiency replacement condensing boilers have been mandated since 2004. These have often been distress purchases, installed without improving the insulation or the windows. These boilers could be torn out, and replaced by heat pumps. Without better insulation, the change would mostly decrease SAP ratings and increase fuel bills. And given the likely carbon intensity of the grid, switching from gas to electric heating will almost certainly increase overall emissions.

This undermines the entire ecological justification for this scheme – already publicly acknowledged to be “not necessarily the most cost-effective way of saving carbon.” It is driven entirely by a commitment made to the European Union to increase the percentage of renewable energy in the UK to 20 per cent.

Although we know that the cheapest way to reach such a percentage is to reduce the overall size – by cutting out the amount of fuel consumed – nobody in government seems to have even stopped to consider whether investing in energy demand management might be a better bet.

It has long been acknowledged that, if you want to save carbon, the best bang for your buck is not by increasing supply. But by reducing demand. Despite this, the proposed RHI will overtly discourage investment in energy-saving measures, and encourage profligacy.

The RHI is not due to begin for 12 months. There is still time to improve it radically so that we can indeed increase the amount of renewable heat used. But we can minimise its costs by ensuring it happens in the most energy efficient buildings.

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