Switch to renewables now to avoid uncertainty - Yorkshire Heat Pumps

With RHI scheme changes due to be announced in the spring we know there are changes afoot which will impact on the amount anyone can receive in RHI payments, so we'd advise anyone considering a move to renewable energy heating to act now to avoid missing out.

Changes to the government’s Renewable Heat Incentive (RHI) – the scheme which offers financial rewards for switching to green heating – are due to be announced in spring 2017. We don’t know the detail of what these will be, but caps and limitations to the scheme are highly likely, given previous indications, and especially against the background of the current economic climate.

The only way to be sure of making the most of the incentive is to act now, to make the most of today’s rates.

Generous incentives on offer now

Under the RHI scheme homeowners and businesses can receive generous incentives for switching to green energy heating systems. They’re paid a set tariff per kilowatt hour of energy required to heat their home or business. Designed to neutralise the cost of switching, domestic RHI is paid over seven years and non-domestic RHI paid over 20 years.

The domestic RHI scheme currently covers ground source and air source heat pumps, biomass boilers and solar thermal panels, but this is set to change.

Tariffs are currently as follows:

_{Tariffs effective from 1^st October 2016. The next tariff announcement will be made on 1^st December for any changes due to degression which will come into effect on 1^st January 2017.}

These are reviewed quarterly and a degression mechanism is in place to help manage the RHI budget, with automatic reductions in tariff when specific triggers are hit.

The faster the uptake of a particular technology, the faster the tariff drops, and biomass has clearly been a victim of its own success. It’s the only technology to see its tariffs drop - the biomass tariff has fallen from a generous 12.2p/kW hour when the scheme launched in 2014 to today’s meagre level of just 4.68p/kW hour.

In reality, many people, including early-adopters of biomass, actually see a positive return on their investment. With interest rates at rock-bottom, that looks an even more attractive proposition just now.

When the reforms are announced next year we expect to see domestic RHI payments capped. This will stop people in larger properties taking too much of the RHI pie.

Solar thermal faces the axe

It’s already been announced that RHI support for solar thermal will be withdrawn altogether in April, so anyone wanting to capitalise on RHI payments for this technology needs to get their skates on.

Tariffs may be changing

There are rumours of tariff changes as part of the package of reforms, which could extend the payback period.

However, with lower ongoing operating costs compared with a fossil fuels system, a renewable heating installation will still pay for itself over time, but potentially not within the seven years of domestic RHI payments, so acting now makes sound economic sense.

5% VAT rate may not last

Yet more uncertainty exists around VAT rates on renewables - currently 5%.

There was the threat of a return to 20% VAT in August this year, after the European Court of Justice ruled that our special 5% rate on renewable energy heating equipment was unlawful. This didn’t happen and homeowners can still capitalise on the special 5% rate which can take off hundreds or even thousands of pounds from the installation cost, depending on the size of the system.

We remain optimistic a special rate will continue for some time to come, as Brexit will ultimately put control back in the hands of Treasury rather than the European Council, so we will be free to set our own VAT agenda once more, but there are no guarantees in this respect.

In or out, carbon reduction will remain a priority, but just how much?

While Britain is still in the EU, it is legally bound by its Carbon Reduction targets and faces massive fines if they are missed. As we expect the process of leaving will take some time, the government can’t afford to take its foot off the carbon reduction pedal.

Indeed it doesn’t appear they intend to do that at all. The UK’s fifth carbon budget, which was recently accepted by Parliament, pledges to cut emissions by 57% by 2030, compared to 1990 levels – and that’s significantly more ambitious than the current EU target!

This clearly demonstrates the government’s long term commitment to tackling climate change, but we do not yet know how Westminster intends to go about making it happen.

It’s estimated we will need to be installing 6.8 million domestic heat pumps by 2030 to hit this new target. Clearly, encouraging people to move to renewable energy heating systems on this scale will require a significant education programme, which really hasn’t been the case with the RHI scheme to date. Understandably, people will also be looking for reassurance about the long-term future of initiatives such as the Renewable Heat Incentive scheme or its successor, so both the industry and potential beneficiaries of the scheme await the announcements with bated breath. 

While we can’t be sure what the package of RHI reforms will bring in the spring, or what future green incentives might look like post-Brexit and post-RHI, we remain confident there will be ongoing support for renewables. Just how generous this will be is uncertain, so, for anyone contemplating a renewable energy heating system for their home, there are some clear benefits to switching now.

Come and see us at the Harrogate Homebuilding & Renovating Show

All the signs are that we can’t know what’s around the corner, but we do know what costs and incentive schemes look like today and we would advise anyone considering switching to renewable heating to do it now, before anything changes, so if you have a project you’d like to discuss, or are just setting out on your renewables journey and want to know a little more, why not call in to see us at our showroom just outside Harrogate, or come and visit the Yorkshire Heat Pumps stand at the Harrogate Homebuilding and Renovating Show between 4^th and 6^th November.