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Energy Act 2008

Summary and Background

563.Renewable heat is heat generated from renewable sources such as the sun, the heat in the ground and in the air, and biomass fuels such as wood from sustainable sources or biogas produced from biogenic waste. At present such heat meets only 0.6% of UK heat demand. The Renewable Energy Strategy (“RES”) consultation document published in June 2008 suggested that this may need to rise to around 14% in 2020 if the UK is to meet the projected overall renewable energy target of 15% for UK. Historically in the UK there has been little impetus for a renewable heat sector to emerge, due to the availability of large reserves of indigenous oil, coal and gas. The analysis which underpinned the RES consultation showed that without financial support very little renewable heat can be expected to come on line before 2020.

564.Renewable electricity generation has long been supported by existing financial support instruments in the UK, such as the Renewables Obligation. However, there have been no equivalent mechanisms to support renewable heat. This section of the Act gives the Secretary of State power to introduce a financial incentive mechanism for renewable heat – the Renewable Heat Incentive (“RHI”).

565.The purpose of the RHI is to stimulate a market for renewable heat by making support payments to the owners of renewable heat generation systems, proportionate to the amount of measured heat output delivered. It would essentially be a ‘feed-in-tariff’, though this is a shorthand way of describing it. In the UK heat is usually produced for immediate local use, and as there is no national heat network, it is not generally ‘fed in’ to a network and certainly not a nationwide one. The RHI will be funded via a levy on designated suppliers of fossil fuels supplied for the purpose of generating heat.

566.The RHI would be the only mechanism of its kind across Europe. A delivery framework and administrative and financial systems will need to be established to enable the RHI to be deployed. The enabling powers are broad enough to allow the detail of the scheme to be developed fully at a later stage following consultation. The provisions also allow flexibility to determine payment processes, levels of payments and to further identify who will be eligible to receive RHI payments.

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