Switch2 Blog

Renewable Heat Incentive

Posted by Ian Allan on 14-Jan-2016 10:00:00

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The government’s overall commitment to green energy and renewable heating came under scrutiny at the end of last year but, in the event, the promise of additional funding for heat networks came through the pipeline. Could 2016 be a year when the conversation around community heating really gathers momentum?

Community heating was one of the winners in the government’s shake up of energy policy late last year. While other forms of low carbon development, such as onshore wind, have seen subsidies removed altogether, renewable community heating was referred to as a central plank in the government’s strategy to meet its carbon reduction targets, and received substantial additional funding.

Plans were announced  to provide over £300 million of funding for up to 200 heat networks over the next five years. The investment should generate enough renewable heat to support the equivalent of over 400,000 homes, while leveraging up to £2 billion of private capital investment. The additional funding is likely to be focussed on local authorities to build on the work of the Heat Network Delivery Unit (HNDU). Until now the HNDU funded just heat mapping and feasibility studies, but the new money is expected to widen this to include the detailed design stage, and possibly the procurement of suitable energy partners in order to kick-start the delivery of heat networks to deliver renewable energy.

In addition, the government will increase funding for the Renewable Heat Incentive to £1.15 billion in 2021. It said this will ensure that the UK continues to make progress towards its climate goals - heat accounts for around 45% of our energy consumption and a third of all carbon emissions. At the same time, reforming the scheme should improve value for money, according to the government, delivering savings of almost £700 million by 2020-21. 

It’s an ambitious environmental initiative with plenty of blue-sky thinking - the Renewable Heat Incentive is the world’s first long-term financial support programme for renewable heat.

Many private installers and operators are able to help private developers, housing associations and local authorities assess the eligibility of a project for public funding. Traditionally, funding has also been available through the Community Energy Network Fund and the Low Carbon Infrastructure fund. Loan finance can also be obtained from the UK’s Green Investment Bank, which the government plans to privatise, giving it greater access to capital and operational freedom. 

According to UK Chancellor, George Osborne, in his Autumn Statement: “The government will increase funding for the Renewable Heat Incentive to £1.15 billion by 2020-21, while reforming the scheme to deliver better value for money. By the end of the Parliament the government expects to have incentivised enough additional renewable heat to warm the equivalent of over 500,000 homes.” 

Commenting on the new energy measures, Secretary of State for the Department of Energy and Climate Change, Amber Rudd, said: “My priority is to deliver secure, affordable, clean energy supplies that hardworking families and businesses across the country can rely on, now and in the future.

“As we transition to a low-carbon economy as cost effectively as possible, finding new sources of energy that are cheap, reliable and clean is essential, which is why we are boosting our spending on innovation and backing the industries of the future.

“We will also double our spending on renewable heat and electricity over the next five years as we invest in new infrastructure fit for the 21st century to ensure our long-term energy security.”

“Nowhere in the energy system is the need for innovation more acute than in how we use heat to keep warm in our homes and for industrial processes… Progress to date has been slower here than in other parts of our economy. There are technologies which have great potential, such as district heating… We need a long-term plan that will work and keeps down costs for consumers. We will set out our approach [in 2016], as part of our strategy to meet our carbon budgets.” 

In terms of penalties, the possible adoption of a carbon price could provide further encouragement to move to district heating. In addition, local authorities and utilities are encouraged to invest in community heating to help meet low carbon targets and obligations.

With such firm support - from a government prioritising austerity - the immediate future for community heating development in the UK appears secure. As a key element in its carbon reduction plans, developers are in a strong position to invest with the assurance the government is fully committed to the sector.

Takeaways

  • Government sees community heating as an important part of its low carbon strategy.
  • £300 million of funding for up to 200 heat networks over the next five years.
  • An increase in funding for the Renewable Heat Incentive to £1.15 billion in 2021.
  • Targeted efficiency savings of almost £700 million by 2020-21.
  • Private specialists can help developers assess the eligibility of a project for public funding. 

Time to Deliver - How to run and manage a successful community heating scheme for residents

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Ian Allan

Head of R&D at Switch2