RHI trends. Domestic RHI, one year on. RHI trends Domestic RHI, one year on April 2015

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1 RHI trends The domestic Renewable Heat Incentive (RHI) was introduced in April 214, with the aim to increase renewable heat generation by home owners, private landlords, social landlords and selfbuilders. The incentive based scheme provides financial support to encourage participants to generate and use renewable heat. It is part of the wider Renewable Heat Incentive scheme, which includes the non-domestic Renewable Heat Incentive aimed at commercial buildings. The domestic RHI (henceforth DRHI) is targeted towards single domestic dwellings, with a focus on homes off the gas network, which have the greatest potential to save on fuel bills whilst decreasing carbon emissions. The scheme is open to single domestic dwellings, but not new build properties other than self-build ones. Different payment tariffs are available to participants on the scheme, dependent on their chosen renewable heat technology. The scheme is implemented by the government as part of a long term strategy to meet UK emission reduction targets. The domestic scheme pays a set tariff to users per unit of heat generated for seven years. The tariffs are set at different rates for different technology types. As of, users of airsource heat pumps (ASHP) receive a tariff of 7.42p/kWh, ground- and watersource heat pumps (GSHP) receive 19.1p/kWh, biomass-only boilers and biomass pellet stoves with integrated boilers receive 8.93p/kWh, whilst solar thermal panels receive 19.51p/kWh.

2 p/kwh RHI trends 1. Tariff levels Tariffs levels in the DRHI scheme were calibrated to attract rates of return of 7.5% against an off-gas grid counterfactual. These tariffs can be altered through time to manage the scheme s budget, account for inflation and reflect new cost evidence. The budget management mechanism employed is degression, whereby the tariffs are lowered for new applicants as estimated spend reaches certain triggers. The only technology to have undergone degression so far is biomass 1 ; tariffs fell 1% for the quarter beginning January 215, then 2% for the quarter beginning after a super trigger - around double the normal trigger - was exceeded 2. All tariff levels were adjusted in line with retail price index in ; current and historical tariffs are shown in Figure /215 Domestic RHI tariffs Air source heat pump Ground source heat pump Biomass Solar thermal 9/4/14-31/12/14 1/1/15-31/3/15 1/4/15-3/6/15 Figure 1 Tariff level changes for domestic RHI technologies 2. Accreditations by renewable technology Accreditation under the DRHI is available to owners of eligible renewable heating technologies installed from the 15 th July 29. In the first year of the DRHI, 3,695 renewable heat installations were accredited, including 9,78 which were installed after the launch on the 9 th of April 214. Therefore, legacy installations i.e. those installed prior to the 9th of April, make up 7% of all accreditations. Further details of RHI accreditation numbers are found in Table 1. 1 Degression is measured on new installations only 2 March 215 finance updates suggest that the biomass tariff may be degressed from July 215. April 215 finance update will confirm whether the degression will be activated. 2

3 Accreditations RHI trends Table 1 RHI accreditations by technology type as at March 215 Technology Accreditations for new Accreditations for legacy All accreditations installations installations ASHP 2,571 1,195 12,766 GSHP 555 3,728 4,283 Biomass 4,81 3,6 7,861 Solar Thermal 1,151 4,634 5,785 Total 9,78 21,617 3,695 ASHPs hold the largest share of all accreditations, at 42%, followed by biomass at 26%. GSHPs see the smallest share, comprising 14% of accreditations, while solar thermal systems sit at 19%. As seen in Figure 2, these shares have remained fairly consistent throughout the first year of the RHI. The growing market share of biomass can in part be attributed to high levels of deployment since the 9th April , 3, DRHI Accreditations by technology (including legacy) 25, 2, 15, 1, 5, Air source heat pump Ground source heat pump Biomass Solar thermal Figure 2 Growth in accreditations for both new and legacy installations 3 At the one year anniversary of the DRHI, accreditations to legacy installations are closed meaning the trends shown in Figure 3 may better represent how the future of the technology mix will look under the DRHI 4. 3 All accreditation values and figures use DECC s Non-Domestic RHI and Domestic RHI monthly deployment data. Available from: 4 Please note that tariff degression may impact single technology deployment 3

4 Accreditations Comitted heat generation (GWh) Accreditations RHI trends 1, DRHI Accreditations by technology (new installations) 8, 6, 4, 2, Air source heat pump Ground source heat pump Biomass Solar thermal Figure 3 Growth in accreditations for new (after 9 April 214) installations While accreditations paint a picture of the changing technology mix of renewable heating systems, the volume of heat generated by technology does not necessarily follow the same distribution, as seen in Figure 4. Biomass systems account for around a quarter of all accreditations, yet Ecuity estimate they will deliver 82% of all committed heat generation. 14, Accreditations and committed heat generation Apr-214 to Mar , 25 1, 8, 6, 4, , 5 Air source heat pump Ground source heat pump Biomass Solar thermal Accreditations Committed heat generation Figure 4 Accreditations of DHRI technologies & their calculated committed cumulative generation by March calculation using tariff levels provided by Ofgem and estimated annual DRHI expenditure data from DECC s Monthly forecasts for the domestic RHI scheme 4

5 3. Accreditations by fuel type Across all DRHI technologies, oil is the most common previous fuel type, at 36% followed by other (i.e. not one of the six listed or a custom new build), electricity and gas at 21%, 2%, and 13% respectively. Excluding Other, 83% of DRHI accreditations were made in off-gas grid properties. Figure 5 shows breakdown by technology. Figure 5 The charts describe which fuels are being displaced by DHRI technologies 5

6 4. Accreditations by house type All four technologies covered by the scheme seem to have been installed in similar proportions in the house types covered below. Detached houses are by far the most likely property type to have had a domestic renewable heating system installed, with 55% of systems accredited under the DRHI operating in detached properties. Conversely, flats and maisonettes are under-represented by DRHI installations, with a sum total of just 1% of total accreditations. Figure 6 shows the pattern of take up of DRHI technologies between these five different property types. Figure 6 The charts illustrate where RHI accredited systems are being installed by property type 6

7 5. Accreditations by tenure Figure 7 illustrates the tenure distribution for DRHI technologies. Owner occupiers dominate DRHI accreditations, accounting for 79% of all accreditations. Both private and social landlords represent between 17% and 18% of the national housing stock, and while accreditations for social landlords are in line with this figure at 18%, just 2% of accreditations are made for private landlords. Figure 7 The charts show the tenures into which the DRHI technologies are being installed 7

8 6. Accreditations by region Table 2 provides the number of DRHI accreditations within each region of the United Kingdom, as well as how many households in that region. London is the least represented region in terms of DRHI accreditations relative to proportion of the total housing stock. Meanwhile the south west is over represented, accounting for nearly a fifth of all accreditations, yet around a tenth of all households. Figure 8 illustrates the regional distribution at a higher spatial resolution. Table 1 DRHI Applications by region (as at ) Region DRHI Households % of total accreditations in millions % of total South 4,513 18% % West, West 1,525 6% % Midlands Yorkshire 2,44 8% % and the Humber N.W. 1,447 6% % South 3,247 13% % East, East 2,54 8% 1.9 7% Midlands East of 2,892 12% % N.E % 1.9 4% London 321 1% % Scotland 4,15 17% % Wales 1,855 7% 1.3 5% Total 24,766 1% % Figure 8 DRHI accreditation numbers, April 214 March 215 (New & Legacy) For a more comprehensive analysis and interpretation please contact: Gaia Stigliani Edwin Tammas-Williams Gaia.stigliani@ecuity.com Edwin.tammaswilliams@ecuity.com Or call Ecuity at +44 ()