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Renewable Financial Incentives – Update

Funding

The popularity of replacing fossil fuel heating systems with biomass continues to gather pace with total installations exceeding government expectations and targets on both non-domestic and domestic fronts.  The result is that the RHI biomass tariffs are to fall for both schemes as part of their respective “degression” mechanisms.

Following 10% drops in the Non-domestic biomass tariff in both July and October there is to be a similar reduction from 1st January 2015 lowering the Tier 1 tariff for small biomass installations (>200kW peak output) down to 6.8p/kWh. All other non-domestic RHI Tariffs are to remain unchanged with the exception of biomethane injection.

The “biomass bubble” appears to be replicating itself in the domestic sector too.  The number of biomass installs DECC predicted at the reference date of 31 October exceeded the expenditure threshold by 38% and a long way towards implementing a further 10% drop in April 2015.  The result is that there is to be a reduction in the Domestic biomass tariff on 1 January 2015 from 12.2p/kWh to 10.98p/kWh.

By comparison both air source and ground source heat pumps are yet to achieve 20% of the predicted installations that would merit a reduction in their tariffs.

The fact biomass tariffs are falling on both schemes, with little sign of abatement, shows the attractiveness of replacing fossil fuel boilers with a clean wood burning system, especially for older poorly insulated properties off the gas grid.

The position we are currently in with biomass is similar to the “solar PV bubble” experienced in late 2011/2012 where the level of the Feed in Tariff (FiT) made it a “no brainer” for property owners with a south facing roof.  FiT tariffs have now been reduced to a level where by the heat has been taken out of the market – there is to be a further reduction in the tariff for installations up to 4kW peak output on 1 January 2015 – yet for suitable properties returns remain attractive.

With the RHI and FiT schemes providing tax free indexed linked payments to property owners the early entrants will gain the most.  To find out more about the schemes and how you can benefit please contact us.