Draft Domestic Renewable Heat Initiative Scheme Regulations 2014
The Committee consisted of the following Members:
† Aldous, Peter (Waveney) (Con)
† Baldwin, Harriett (West Worcestershire) (Con)
† Barker, Gregory (Minister of State, Department of Energy and Climate Change)
† Binley, Mr Brian (Northampton South) (Con)
Cooper, Rosie (West Lancashire) (Lab)
† Cunningham, Sir Tony (Workington) (Lab)
† Donohoe, Mr Brian H. (Central Ayrshire) (Lab)
† Evans, Graham (Weaver Vale) (Con)
† Hames, Duncan (Chippenham) (LD)
† Mann, John (Bassetlaw) (Lab)
O'Donnell, Fiona (East Lothian) (Lab)
† Phillipson, Bridget (Houghton and Sunderland South) (Lab)
† Randall, Sir John (Uxbridge and South Ruislip) (Con)
† Reynolds, Jonathan (Stalybridge and Hyde) (Lab/Co-op)
† Shannon, Jim (Strangford) (DUP)
† Skidmore, Chris (Kingswood) (Con)
† Ward, Mr David (Bradford East) (LD)
† Wollaston, Dr Sarah (Totnes) (Con)
Fergus Reid, Committee Clerk
† attended the Committee
Fourth Delegated Legislation Committee
Wednesday 2 April 2014
[Sir Alan Meale in the Chair]
Draft Domestic Renewable Heat Incentive Scheme Regulations 2014
2.30 pm
The Minister of State, Department of Energy and Climate Change (Gregory Barker): I beg to move,
That the Committee has considered the draft Domestic Renewable Heat Incentive Scheme Regulations 2014.
I am grateful to serve under your chairmanship today, Sir Alan. The regulations are largely technical, but, before focusing on their content, it might be helpful to provide some background to the renewable heat incentive, particularly as the regulations are the final piece of the legislative jigsaw that needs to be put in place before the domestic RHI scheme goes live before Easter.
May I also take this opportunity, Mr Meale, to thank the Opposition for the constructive way in which they have scrutinised the legislation? There are areas where we do not see eye-to-eye—not least those being dealt with down in the Chamber right now—but I am delighted that we have strong cross-party support for this landmark legislation.
The RHI is indeed a unique and innovative scheme: it is the world’s first long-term financial support programme for renewable heat. We are all familiar with feed-in tariffs supporting microgeneration of electricity, but this is the first time that any major economy has attempted to do the same to support renewable heat. We already support business and the public sector in generating renewable heat through the non-domestic RHI, and I am delighted that we are now extending that support to domestic consumers, private and social landlords. It is another significant milestone on our journey towards transforming this country’s heating sector and moving to a cleaner, greener economy. The scheme will help us meet our 2020 renewables target and pave the way for a radical reshaping of how we heat our homes, to enable us to reach our statutory 2050 climate change carbon goal. It will also provide consumers, especially those who live off the gas grid, with the choice of reducing their heating-related costs by switching to cheaper, renewable heat.
The UK is leading the way globally. The domestic RHI will join a suite of initiatives that help consumers to take control of their energy use. I have mentioned the feed- in tariff, where we now have more than 500,000 domestic- scale installations supporting about 2 GW of installed electrical capacity. We have also introduced the green deal and the energy company obligation, which help consumers to keep their homes warmer for less, with more than 160,000 green deal assessments having taken place and more than half a million homes benefiting from measures installed from the green deal and ECO. We will soon be implementing smart meter programmes, which will allow householders to monitor and take
more control over their energy use. Working hand in hand with the green deal in particular, the domestic RHI will support our vision of a whole-house approach to ending high energy bills.I am pleased to report that the non-domestic RHI, launched in November 2011, has made good progress to date: we have seen in excess of 4,700 applications and paid out more than £38 million in RHI support. Almost 800 GWh of heat has been generated from renewable sources for business. We have also helped about 18,000 renewable heating installations by householders and social landlords through the renewable heat premium payment grant, a precursor of the domestic RHI, with more claims to be processed in the coming months.
I will now go through the details of the draft regulations. The domestic scheme will extend RHI to support renewable heating systems that heat individual homes, provided they have been installed on or after 15 July 2009, making good on the promise that the coalition made not to penalise early adopters. Home owners, private and social landlords and their tenants will all be able to benefit; that includes people who choose renewable heating when they build their own homes. Those who live off the gas grid, who have high heating costs, will gain the most from making the switch.
The scheme will support four key renewable heating technologies to begin with: air source heat pumps, biomass boilers and stoves with back boilers, ground and water source heat pumps, and solar thermal panels. To ensure that consumers get good-quality installations, all heating systems must be certified by the microgeneration certification scheme or an equivalent scheme. Heat pumps will need to meet a minimum efficiency requirement to ensure that they are genuinely renewable, and biomass systems will be required to meet air quality standards to mitigate the potential harmful impact of emissions of particulate matter and oxides of nitrogen.
Renewable heating technologies work best in an energy-efficient home and we know that improving energy efficiency means a warmer property that is cheaper to heat. That is why people replacing existing heating systems will need to undertake a green deal assessment and, where appropriate, install loft and cavity wall insulation before they apply for the RHI. Self-builders will have built their homes to recent building regulations standards, so that requirement does not apply to them.
RHI support will be in the form of tariff payments for seven years, based on a set rate per unit of renewable heat produced. Each technology has its own tariff rate. The rate for biomass is 12.2p per kWh; air source heat pumps, 7.3p per kWh; ground source heat pumps, 18.8p per kWh; and solar thermal panels, 19.2p per kWh. The tariffs compensate consumers for the additional costs of installing a renewable heating system compared with a fossil fuel system such as an oil boiler. The payments will be made quarterly by Ofgem, the scheme administrator, and adjusted to reflect inflation.
For biomass and heat pump systems, the amount of renewable heat produced will be based on an estimate of the amount of heat the home needs in a year, known as deeming, and this will be taken from the property’s latest energy performance certificate. Heat pumps use electricity to run, so the heat pump calculation will therefore also take into account the efficiency of the system, to estimate the renewable proportion of heat produced. Payments for solar thermal systems will be
based on the estimate of system performance produced as part of the installation. In some cases, metering will be required and payments will be based on meter readings—for example, in second homes. Any payments based on meter readings will be capped at the amount set by the deeming approach.The domestic RHI will also offer consumers the option of an extra incentive if they enter into metering and monitoring service agreements. Those work like service contracts and allow the installer and consumer to view detailed information about the heating system in order to improve its performance. Only heat pumps and pellet-only biomass boilers will be eligible for those additional payments. For heat pumps, they will be £230 per year, for pellet-only boilers, £200 per year. A random selection of applicants will be required to have meters installed to assess the performance of technologies, but that will be paid for by the Department of Energy and Climate Change.
Finally, the domestic RHI will have a robust budget management framework in place. That will ensure that the scheme allows sustainable growth of the renewable heating market but that, crucially, it is also affordable for the consumer. The tariffs will be gradually decreased as quarterly thresholds of spend, known as triggers, are reached. Any reductions will be announced in advance, with one month’s notice, and the reduced tariffs will apply only to new applicants. There will be no retrospective decrease in tariffs for people already on the scheme. We will also publish monthly updates of spend and progress towards triggers, which will allow future applicants and installers to determine the likelihood of a future decrease to any tariff.
In conclusion, we are delivering on our coalition agreement pledge on renewable heat. This scheme is an exciting and momentous step in driving our heating market towards a greener, cheaper and more sustainable future. We have already seen the incredible success of small-scale electricity generation through the feed-in tariff scheme. I firmly believe that, with the backing of the domestic RHI, renewable heating will enjoy the same success. In the past weeks we have spoken to thousands of consumers and installers at events up and down the country who share this view. I am delighted that my hon. Friend the Member for Suffolk Coastal (Dr Coffey) has agreed to act as parliamentary off-grid champion, to build networks to promote and champion the cause of off-grid customers, and particularly to promote the RHI.
Jim Shannon (Strangford) (DUP): I am loth to intervene because I do not want to prolong the debate longer than necessary, but I have a question. In the last month, I have visited a local college where a number of students are doing the certified installer course. At the end of the course, they will have a proficiency certificate enabling them to install the new boilers and so on in Northern Ireland, but does that certificate apply in the rest of the United Kingdom? In other words, if someone gets the certificate at Newtownards college of further education, will it be valid in England, and vice versa?
Gregory Barker: They must be accredited by the MCS or an equivalent scheme. If they have gained the appropriate accreditation in Northern Ireland, I see no reason why it should not be valid UK-wide.
Clean energy is a key part of our long-term economic plan. It is good for consumers, good for the UK supply chain and good for the planet. The RHI marks a big step forward, so I commend the draft regulations to the Committee.
2.41 pm
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): This is a genuinely exciting moment for all fans of renewable heat—[ Interruption. ] People may underestimate the excitement that renewable heat can generate. The challenges of decarbonising our heat supply are generally much underestimated, compared with the power generation challenge with which people are more familiar. We are all particularly keen to see the success of the renewable heat incentive in off-grid areas, where fuel poverty remains stubbornly high—it is very high in England and even higher in Scotland and Wales. The RHI will be a key tool we can use to combat that.
It is fair to say that the industry has been eager for the Government to make their proposals, and the Government have obviously taken their time to try to get it right and learn some of the lessons from the experience of feed-in tariffs. I am pleased that we are able to take the scheme forward today, and the Opposition will of course be supporting the draft regulations. Nevertheless, as ever, I would like to ask the Minister a number of questions while I have the opportunity.
My first question is about the long-term investment picture that the RHI will provide. It will be funded through spending review periods rather than as a levy on bills, and although that is clearly an advantage in terms of the burden on bill payers, there will perhaps be less certainty for longer-term, larger-scale investment projects. Typically, such projects have a long build-in time, so on a five-year spending period, really they will have only the first year to get RHI support in order to proceed. I know that the Government plan to have that support accredited at the time of commission, but ideally such projects would need to receive that at financial close. What plans has the Minister considered for pre-accreditation of larger schemes, such as biomass combined heat and power and boilers or larger heat pumps, in order to ensure that the projects supported by the RHI are those that represent the best value for the taxpayer? Bigger projects will be within the remit of the RHI but will not be working to a time scale that the RHI spending periods support.
Secondly, the Minister made specific reference to the supply of microgeneration certified engineers to install RHI projects. The MCS register currently shows that there are only 500 biomass installers in the UK—a frighteningly low figure compared with the anticipated take-up. What assurances can the Minister give us that, if demand for domestic RHI takes off, there will be sufficient accredited engineers to follow up that success? It would be most disappointing if the scheme were delayed because there are not.
Thirdly, the Minister referred to the interplay between RHI and the ECO. If people are to be able to take advantage of what heat pumps in particular can offer, they must live in well insulated homes. The changes the Government have made to the ECO are such that people in hard-to-treat properties are now far less likely to get the support they need. Has the Minister modelled
that change in support for insulation measures on the take-up of the RHI? Without support, it might be difficult for people in hard-to-treat properties to take up what the RHI may offer.A significant issue is the lack of incorporation of a third-party feed-in tariff model for the RHI. Many of the large roll-outs of solar photovoltaics have come from third parties fronting up the capital cost of solar PV and receiving the feed-in tariff in exchange, with tenants of properties where solar PV is fitted receiving the resulting free electricity. There is no such mechanism in the RHI. Was that given consideration and why did Ministers decide not to implement it? Did they anticipate that the inclusion of such a mechanism would increase the take-up of the scheme beyond what the Department could manage?
What long-term picture does DECC envisage for the RHI? The impact assessment for RHI suggests a cumulative spending envelope for the domestic scheme by 2028 of £3.1 billion on low deployment and £7.95 billion on high deployment. That is clearly a great deal of money, even allowing for the long time frame. What thoughts does the Department have on the long-term trade-off between the current subsidy for renewable heat and the regulatory picture that would allow, for instance, new build to proceed only with renewable heat solutions?
There is a great deal of cross-party agreement on all those issues, and the Minister and the Secretary of State clearly support the RHI. I am not sure that that is always the case in some other Departments, particularly the Department for Communities and Local Government, which seems a little more reluctant to embrace the opportunities that decarbonisation can offer. We cannot subsidise renewable heat for ever: subsidy will eventually have to be replaced by greater regulation and greater incorporation of renewable heat into new build. Has the Department considered when that trade-off comes into play and what the long-term picture will be? I look forward to the Minister’s reply.
2.47 pm
Dr Sarah Wollaston (Totnes) (Con): I fully support the RHI, and I absolutely see that its primary purpose is to ensure that 15% of energy generation comes from renewable sources, and to contribute to the reduction in emissions. Given that that is the primary purpose, will the Minister explain a provision that may have unintended consequences? I draw his attention to part 1, on page 5, which states that a biomass boiler must be of a type that
“is not designed to generate heat for the purpose of cooking food”.
A constituent of mine has long experience, having worked in this area for eight years, and he has found that of all the pellet boilers supplied to customers, by far the most popular are the two kitchen models. Although the primary purpose of many of those models is to produce heat and hot water, some have a hot plate as well. That does not mean that they could reliably be used as someone’s main source of cooking, but they are particularly attractive to customers. The difficulty is that many people who use biomass boilers have the luxury of a large outhouse, but we want to encourage people who do not have that luxury to use them. Many of my constituents are in
hard-to-heat houses, are off the gas grid and do not have an outhouse, but they passionately want to make a difference to climate change and they want to change over to such boilers from very polluting models of heating.In the experience of the constituent I have mentioned, most customers prefer to use the kitchen models, but the wording of the regulations suggests that those customers may lose out. Will the Minister address that, looking specifically at those models and at the fact that they are not primarily for cooking and, indeed, could not be relied on as a main source of cooking? There is a serious unintended consequence, not only for the customers who would miss out and will not choose this route, but for the suppliers around the country who have invested heavily in such models because they were the most popular, simply because the paragraph was introduced at a late stage. Will the Minister reassure all the people around the country who are following the debate that models that are not primarily used for cooking will be included?
2.50 pm
John Mann (Bassetlaw) (Lab): Before there is too much cross-party consensus, let me quickly distance myself from any suggestion that I will be voting for this puny and measly Tory measure other than reluctantly. In constituencies like mine, which is highly rural, many houses have only just changed from coal. The regulations are all about wealthy people getting a subsidy to go green—they are the ones who can afford to put in the systems. I will vote in favour of the regulations, because wealthy people should have the chance to go green; it will be good for the planet, and it will be good for them and their energy bills. Over time, because energy is going up 10% a year, they will make money out of it, and that is fair dos, but what about fuel poverty?
Loads of people in my constituency—pensioners, but not only pensioners—would love to go green. They would love to be given solar panels and ground source heat pumps, like those the council, with the tiny amounts of money it has been able to use, has put into some of the pensioner bungalows. The pensioners love it, because they are saving the planet and their bills are coming down. I can sell to them all the argument that there can be free heating and free hot water in a pensioner bungalow, but they have to be able to afford it to pay for it. There is a danger that the regulations will exacerbate fuel poverty because the wealthier will benefit, but those who have no money will struggle. Will the Minister confirm that? How will he address that problem?
To reiterate the point my hon. Friend the Member for Stalybridge and Hyde rightly made, the Government and everyone seem to want all these houses built—everyone except me and my constituents, that is. We do not want any, but the Government are trying to foist about 4,000 new houses on us. Those new houses can be any old rubbish, with cheap Chinese bricks, poor levels of construction, and using gas not renewables. We have the opportunity to build all the houses well and force the developer, who wants to put all those houses we do not want in my area, to make them entirely eco-friendly—facing the right way, with air source heat, ground source heat and solar panels—but none of that is happening. They are lumping us with a load of houses that we do not want and that are not going to contribute. In a few
years’ time, we will come back here and, whoever is here, the MPs will say, “We need to deal with those houses. We should have done it at the time.” Why are we not doing it?Duncan Hames (Chippenham) (LD): Perhaps the hon. Gentleman will enlighten the Committee on whether the houses, which he says he and his constituents do not want, will be constructed off the gas grid or will benefit from access to much cheaper sources of heat than the homes of many of our constituents, whose properties are not connected to the gas grid at all?
John Mann: My constituency has both. Thankfully you, Sir Alan, would not allow me to talk about fracking wells surrounding the housing estates, so the houses probably would not be sold in the first place. That is a separate issue.
Gas is also carbon polluting. If we are going to have new houses, I want solar panels and ground source heat pumps for them all. If the developer wants to make a quick buck on all those houses, he can put the lot elsewhere, because no one in my area wants them, but if we have to have them, they ought to be green houses with all the clobber built in, and preferably bungalows, because they would be more popular. Why are we not doing that, instead of sticking in gas and running around sinking wells to frack for gas we can afford because we do not trust the Russians to give it to us via Ukraine? By the way, if my Front Bench adopted that policy, it would be an election-winning, decisive policy that I strongly recommend: green energy for all the pensioners and all new houses. If we give it to the pensioners for free, we will walk the next election.
2.54 pm
Gregory Barker: I apologise, Sir Alan, that I failed to recognise in my opening remarks your distinction for services to Parliament.
To respond to that last statement by the hon. Member for Bassetlaw, we expect social housing to be among the key groups taking up the RHI. Under the RHPP, the precursor of the RHI, nearly 4,500 installations were installed in the social housing sector, garnering very strong reviews. Aspire Housing told us:
“We have found that installing renewable energy systems that will be supported by the RHI has cut energy bills for customers by up to 50 per cent, particularly where homes were off the gas network”.
That is absolutely right. There is an upfront cost for some people, but it will also be working for the fuel poor and less advantaged as well.
My hon. Friend the Member for Totnes quite rightly raised the point that cooking stoves are not eligible for the domestic RHI. The RHI was designed to support installing entire heating or hot water systems, not cooking appliances. That is the purpose of the regulations. However we recognise—as my hon. Friend points out—the need for innovation. We have deliberately framed this to be permissive, to encourage innovation. I would hate to think that in 10 years’ time we will still be using the same technologies. I want to pull in fabulous British innovation. We have set out the criteria that new technologies need to meet and the process to go through
in order to become eligible for the RHI in future. We intend to begin this process for new technologies following the launch of the scheme, and my officials would be delighted to meet my hon. Friend to discuss the eligibility of any individual’s products which her constituents think could be benefit the scheme.The shadow Minister asked a number of sensible questions. First, he asked about larger projects under the RHI. Primarily, most of the systems that he talks about would be covered by the non-domestic RHI, which is already up and running. We have plans for pre-accreditation and are now in the process of developing policy options and engaging with important investors and stakeholders ahead of an informal consultation in spring. Our December RHI publication, “Improving Support, Increasing Uptake” confirmed our aim to introduce a tariff guarantee for the largest installations, subject to successful demonstration that a tariff guarantee is affordable and good value for money and, of course, to securing parliamentary approval.
The hon. Gentleman, echoed by the hon. Member for Strangford, also asked about training, which is very important. We have run a training voucher scheme. The coalition has anticipated that training will be an important ingredient in the successful roll-out of the RHI. This year, £500,000 has been spent to encourage installers on to the MCS. We are working closely with industry to promote the scheme and its opportunities to individual installers. It is worth noting that about this time in the roll-out of the green deal, we had less than 1,000 green deal installers; we now have more than 3,000 and there is no problem about finding certified installers. We expect the market to do its job and respond, and the initial signs are very encouraging.
In terms of green deal finance, the shadow Minister asked where the finance would come from for the energy efficiency installations that are necessary, potentially, to take up the RHI. Of course, green deal finance is there, and although the finance plans are still in their infancy in terms of take-up, the trends are there and green deal funds are very suitable for the types of insulation that would be needed in those properties.
The hon. Gentleman also touched on the regulation of new build. The RHI is primarily designed to address the vast majority of homes that will be with us in 2050, which have already been built. While I share some of the concerns, even those of the hon. Member for Bassetlaw, about the need for high standards in new-build properties, the fact is we live in a country with many old houses, and the vast majority will still be standing, lived in and valued family homes in 2050. It is the retrofit that presents the biggest challenge and the RHI is part of rising to that challenge.
Regarding the future, the hon. Member for Stalybridge and Hyde is absolutely right that no Parliament can bind its successor. However, the Chancellor of the Exchequer has set out clearly, with all the authority that goes with our plans for the levy control framework, our programme of intended spend up to 2020. No Government will be able to meet our statutory climate change objectives unless they decarbonise heat ambitiously, and the RHI is critical to that. We will look at how it delivers value for money. We will continue to iterate and improve the scheme to pull in innovation. What we are launching today has transparency, certainty and longevity.
Jonathan Reynolds: I would like to push the Minister on the point about third-party financing of RHI schemes—a solar PV-style arrangement, where a third party pays the capital costs and receives the feed-in tariff in exchange for the recipient of the work receiving the renewable heat. Why has that not been included in the regulations before us?
Gregory Barker: That is slightly difficult. The European Commission has granted state aid approval for the domestic RHI, but I am afraid that third-party owners of renewable heating systems were not included in that decision.
A third-party owner is anyone who does not owner-occupy the property for which the renewable heating system provides heat. Rather than risk further delay to
the launch of the domestic RHI, we will proceed on the basis of the Commission’s decision, which will mean that third-party owners will not be eligible to apply when the scheme opens this spring. However, it is still our intention to include them in the scheme. We are currently looking at options as to how best to achieve that and when we will be able to make the change.I commend this excellent, world-first scheme to the Committee.
That the Committee has considered the draft Domestic Renewable Heat Incentive Scheme Regulations 2014.