Tuesday, 9 February 2010

Make Money by Going Green - Better than an ISA!

Here is some more information about the new government scheme to enable us to move away from our dependence on non-renewable energy sources. It is from the Ice Energy website.

Ed Miliband on-behalf of the Government published the consultation for the Renewable Heat Incentive, which is intended to be launched in April 2011. Heating accounts for 47% of the UK’s carbon dioxide emissions and 60% of average domestic energy bills. In order for the UK to meet its carbon reduction obligations 12% of UK heat is required to come from renewable sources. The RHI could save up to 60 million tonnes of carbon dioxide by 2020. The RHI is not only intended to reduce carbon dioxide emissions, but also to increase the security of supply of UK energy – in 2008 the UK imported around 25% of its natural gas with a projected increase to 60% by 2020.

Funding the RHI
The RHI powers in the Energy Act 2008 enable the introduction of a new levy on fossil fuel suppliers who supply fossil fuel to consumers for the purpose of generating heat.

Who can receive the RHI
Houses and buildings which currently use conventional fossil fuel for heating, such as gas, heating oil or coal, will be able to claim the RHI if they switch to renewable technologies. The RHI will be available to householders, local authorities and social landlords as well as the public, industrial and commercial sectors. The RHI is applicable to the whole of the UK except for Northern Ireland, which will have its own powers to enable a similar scheme.

Ofgem will play a leading role in administering the scheme and will be making the payments to owners. Domestic heat pumps will require an installer who is certified under the Microgeneration Certification Scheme. Once the system has been installed and commissioned, proof will need to sent to Ofgem so that the applicant can be formerly registered. Ofgem will begin paying the incentive, in the form of an annual lump sum credited to the owners bank account.

Useful heat generation is supported by the RHI i.e. space heating and water heating for the home. All installations after 15th July 2009 will be seen as a “new installation” and will be eligible for the RHI. Systems installed before this date will need to be replaced (or increased in size). Only heat pumps with MCS Product and Installation accreditation will be eligible.

Energy Efficiency and Deeming
In order to prevent wasteful heat production, a basic minimum level of energy efficiency will be assumed for existing homes when the heat load is deemed:
- At least 125mm loft insulation
- Cavity wall filled where applicable

Payments will be based on a deemed heat load for domestic installations. This will prevent the costs associated with metering, and also the possibility of “heat dumping”, whereby homeowners purposefully waste heat in order to receive more RHI payment. Each installations tariff entitlement is established by multiplying the proposed tariff per kWh with a deemed heat requirement (number of kWh per year). This is established through an assessment process based on SAP at the beginning of the project.

Tariffs have been designed to cover the costs of:
- Upfront capital cost
- Non-financial barriers
- Return on investment (12% for heat pumps – better than an ISA!!)

The proposed tariff levels for domestic installations are the following:

Scale Proposed tariff (p/kWh) Tariff lifetime
Ground source heat pumps (Up to 45kW) 7p/kWh for 23 years
Air source heat pumps (Up to 45kW) 7.5p/kWh for 18 years

The feed-in tariff for electricity was confirmed as being exempt of income tax. We expect the same for the RHI although this is yet to be confirmed.

The tariffs will be linked to inflation and Guaranteed for18/23 years.

Interaction with other policies
The Government has confirmed that grants received at the domestic level will not be required to be repaid. We are therefore in a window of opportunity at present!

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