MT Expert - Finance: The Renewable Heat Incentive - A hot offer for the taking

Fancy 15 years of free money from the Government? Grab the Renewable Health Incentive while you can, says this week's expert.

by Tim Minett
Last Updated: 24 Jun 2011
One thing's certain: companies are having to pay more than just lip service to the sustainability agenda these days. Research this June from the British Council for Offices, shows that environmental regulation has now become a key concern among commercial property professionals. With the increasing demand for low carbon offices, the worry is that ‘legislative changes place existing stock at risk of obsolescence’ and there is a ‘lack of Government incentives to refurbish existing stock’. It’s not often that I spring to the Government’s defence, but there is a scheme from the Department of Energy & Climate Change (DECC), kicking off in July, to help install renewable heating technologies – the Renewable Heat Incentive (RHI).  Of course, it doesn’t answer all of the refurbishment issues - you’ll still have to look at glazing and insulation among other things to have a carbon neutral office - but it’s a great incentive that will even leave you, once all costs are taken into account, thousands of pounds better off by the end of the scheme.

An incentive that all businesses can get their teeth into, the RHI encourages the switch from heating based on fossil fuels to those powered by eligible renewable technologies.  These include biomass, solar thermal, and heat-pumps among others.  It will provide a guaranteed payment for each unit of heat (kilowatt hour) produced for a 20 year period.  
But there is a need to get your act together. The tariffs currently set by the DECC won’t last forever. They will be subject to degression as renewable heating becomes more commonplace.  We’ve just seen that with feed-in tariffs for large-scale solar power installations.  Whilst the first formal review of the RHI will not take place until Jan 2014, the DECC states that an ‘early review may be called so that adjustments can be made to a part or a whole of a scheme... for example, particular uptake of a technology or a significant change to the relative cost of renewable and fossil fuels’. So, my estimate is that businesses have about 18 months to get locked in at the best tariffs.  Even if you have already installed renewable technologies don’t assume you have been too quick off the mark - eligible technologies that have been installed since 15th July 2009 are included.

So what’s the deal?  Firstly, you’ll need to decide which renewable technology is right for your building – if there’s space and you like the idea of minimal running costs, solar thermal or heat pumps might be the right choice.  Don’t forget to factor in their heat source, however.  Wintry days and snow-covered panels may mean you need a back-up system.  Wood pellet boilers do have running costs – you need to buy the pellets – but they give consistent, efficient heat and require minimum space.  

Let’s take a medium size office as an example – this office houses 50 people and requires a 100kw wood pellet boiler to meet the annual heating requirements of 300,000Wh. It will cost about £60,000 plus VAT for the boiler, the chimney and the installation. The wood pellets will cost you about £16,000 per year but for those on heating oil that’s a saving of approximately £7500 on their fuel bills. Based on the Tier 1 and Tier 2 calculations stipulated by DECC, the annual RHI payment is likely to be in the region of £13,200. The installation itself will therefore be paid off in about 5 years, and thereafter for the next 15 years, companies will have the £13,200 RHI payment available to reinvest:  whether into other environmental improvements that’s up to you. And if you have much smaller or greater requirements rest assured that regardless of installation size you will get a similar level of return on your investment.

Tim Minett is chief executive of CPL Distribution, a leading supplier of wood pellets. 

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