DECC downgrades RHI budget for 2012/13

The Department of Energy and Climate Change (DECC) has announced the results of its consultation over the proposed cost-control mechanism for the Renewable Heat Incentive (RHI) scheme.

Announcing the news, Greg Barker, the Climate Change Minister, said: “I am pleased to publish our response which will ensure we have a stand-by budget management mechanism in place this summer, enabling the sustainability of the scheme by allowing us to keep within the budgetary limits set by the Comprehensive Spending Review (CSR).” 

DECC has revealed that it has set an upper limit of £70 million for 2012/13, down from the initial proposed budget of £133 million. The department believes that the lower proposed year one budget will ensure that 2013/14’s budget of £251 million will support both existing and new installations should the budget be reached the prior year.

Justifying the decision to lower the 2012/13 budget, Barker said: “A higher limit for 2012/13 would leave insufficient funds available in the following year for new installations and therefore could be very damaging to the renewable heat industry.”

The Minister also explained changes to the notice period should the department have to trigger the stand-by mechanism. Instead of giving one months’ notice as proposed initially, DECC has decided to implement a notice period of one week. A one week notice period will allow for a much higher trigger point for suspension of the scheme and ensure that the maximum number of installations are available without unduly triggering the suspension of the scheme.  

Barker added: “We recognise the need to provide comprehensive information on current and forecast scheme expenditure and make it publically available.  To do this we will provide a weekly information update on our website, tracking our committed expenditure.

“If required we will also provide an estimated date of suspension prior to the formal notice period, in the event of an unexpected surge in uptake such that suspension is likely to be triggered.”

The Minister added that he did not expect to have to use the new mechanism but was wary of the need to have one in place in order to “learn from our previous experiences and provide assurances to the market and the public that we are spending money on the RHI in a sustainable way.”

A DECC spokesperson clarified that: “the upper limit of £70m applies to the RHI non-domestic scheme in 2012/13 and excludes the £25m allocated to the RHPP2.”

She added: “We remain committed to the deployment of renewable heat and are exploring whether it is possible to spend unused 2012/13 RHI funds left over from the available £108m on other renewable heat projects which deliver good value for money to the taxpayer.”

Neil Lawson, Head of Renewable Heat at Ardenham Energy, lambasted the proposals, stating:“These are artificial mechanisms conceptualised in an ivory tower. The Treasury is seeking to control a budget at all costs and DECC is responding with a tsunami of destruction throughout the RHI industry.

 “This will stop the development of a specialist renewable heating sector in its tracks. The only way that businesses will be able to survive a peremptory suspension of the RHI will be to ensure that RHI-based work is only ever a minority of their work stream.

“Nor can I see how customer expectations can be managed. It will be like playing Russian roulette. As each month passes with a dull click, the chances of the next month reaching the threshold increases. And when the upper limit is hit and DECC’s  bullet blows the plans apart, what happens to the hapless installer who told the client that they would benefit from the RHI? What happens to the client? Do they decide not to turn their heating on until the next financial year and commission it then?"

Lawson concluded: “It’s time to go back to the drawing board and start from the basics with a simpler scheme.”

DECC’s full response to the consultation can be found here.