DECC consults on RHI cost control mechanism

The Department of Energy and Climate Change has published a consultation on a proposed cost control mechanism for the Renewable Heat Incentive (RHI). The proposed measure would suspend the RHI scheme once the annual budget is breached until the next financial year.

Minister of Energy and Climate Change, Greg Barker, said: “The RHI is funded from Government spending and we have to ensure that we maintain value for money for the taxpayer and do not spend more than the annual budgets allocated to fund it. We have to learn lessons from the feed-in tariffs and ensure that we maintain budgetary control whilst providing appropriate certainty to stakeholders about how we will do this.”

DECC has made it clear that only new applications would be affected by the proposed cost control mechanism, applications submitted to Ofgem prior to an announced suspension would be processed as normal.

Uptake of the RHI scheme is currently very low relative to the available budget and therefore the cost control measure is unlikely to be needed. DECC maintains that: “Having this interim approach set out in advance will ensure that Government is able to respond quickly if required and that stakeholders will be sighted on future action.”

DECC has committed to publish the data used to monitor the RHI’s progress at regular intervals to help the market make informed decisions about the likelihood of suspension.

DECC’s proposals are only an interim measure to protect themselves from a similar breech of budget that the Department oversaw with the feed-in tariffs. DECC will consult on a longer-term flexible degression-based mechanism, similar to FiTs, that would automatically reduce tariffs should spending against the overall budget or deployment of certain technologies exceed forecasts.    

Commenting on the news, Cheif Executive of the Reneewable Energy Assosciation, Gaynor Hartnell, said:  “To launch an official consultation on bringing the shutters down, having only just fired the starting gun on the RHI, is premature to say the least.“The renewable heat market isn't going to flare up like solar did. If anything were concerned about an underspend.

“We’re totally supportive of getting effective cost control measures in place. Done properly this will be reassuring to the industry. In our opinion this consultation on interim cost control is unnecessary and unhelpful, but it’s certainly not a reason for lenders to become alarmed - particularly as Government intends to remove this power when longer-term control measures are in place.”

Stuart Campbell, Assistant Director at Ernst & Young commented:"It is disappointing that once again this will mean uncertainty for project developers in this area. Just at the point when developers are ready for operations they may be faced with a delay in receiving RHI payments until next year if the RHI Interim Cost Control measure has been activated.

“The good news is that accredited installations receiving the RHI will be unaffected and the change in RHI Interim Cost Control will only impact new applications. Current uptake predictions from DECC suggest the RHI Interim Cost Control measure will not be needed throughout 2012/13 as take up rates are low. By which point the longer term degression based mechanism, that DECC intends to consult on this summer, will come into force replacing the RHI Interim Cost Control measure.”

DECC concludes that: “We recognise that suspending the scheme is likely to have a negative short-term impact on the renewables market. However, putting a protective measure in place will preserve the sustainability of the scheme and the renewable heat industry.”

The consultation closes on April 23, 2012 and can be found here. Responses to the consultation should be sent to rhi@decc.gsi.gov.uk.

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