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UK’s Renewable Heat Incentive audited, cost-effectiveness questioned (updated)

While the scheme is on-budget, it has drastically reduced its goals for participation and emissions savings. The responsibility for these savings will now fall to other policies like the Clean Growth Strategy as the initiative focuses on combating non-compliance and other means of exploiting its financial incentives.

The National Audit Office (NAO) has released its report on the Renewable Heat Incentive (RHI), a scheme introduced by the Department for Business, Energy and Industrial Strategy (BEIS) to increase the use of low-carbon heat in homes and businesses. The emissions savings from the RHI from 2017 to 2018 totalled an equivalent of 4.5 million tonnes of CO2, representing about 1% of the UK’s carbon emissions.

Technologies supported by the incentive include biomass boilers and anaerobic digestion.

The Office said that BEIS and the energy regulator Ofgem had performed well in some areas, but that there were fundamental weaknesses in the initiative, including the lack of relevant progress trackers and in the overall cost-effectiveness of the policy to reduce emissions.

The inability to hold up the scheme to any defined milestones stunts any effort to measure progress, says the NAO report. It also says that, while the Department is confident with its cost-effectiveness estimates, the assumptions that it makes to reach those estimates are overly optimistic.

The report concludes that the Department is likely exceeding its goal of £51 per kilowatt hour of energy produced under the scheme. This discrepancy stems from the Department not taking into account installations of renewable heat facilities that would have happened regardless of the RHI.

The Department’s estimates of cost-effectiveness in terms of carbon savings are affected by its assumption of large ‘upstream’ carbon savings from biomethane and biogas technologies. Upstream savings result from the use of food as a feedstock in anaerobic digestion, saving it from landfills. Using BEIS’ assumptions, the NAO found the one tonne of CO2 saved cost the scheme £142. Using more pessimistic estimates about upstream savings, that cost went up to £160.

Cost-effectiveness has also been hindered by the Department’s lack of reliable estimates on the amount it has paid to participants that are not complying with the terms of the initiative, or those who are, but mine the Department for tariffs through loopholes like having multiple small boilers, rather than having one larger one that is fit for purpose.

Participation is also a point of concern. Take-up of the scheme has been lower than expected, with the RHI reaching only 22% of its initial 2020 goals by March 2021 if current take-up rates continue. BEIS had previously planned to have 513,000 participants in the initiative by 2020, by the NAO’s estimates it will have less than 111,000. To reflect this, BEIS has reduced the ambition of the scheme by cutting its lifetime expenditure from £47 billion (€53 billion) to £23 billion (€26 billion).

The NAO report did conclude that the Department is at least learning from the RHI’s shortcomings and has shown flexibility as circumstances reveal themselves, but says flatly that the initiative has not achieved cost-effectiveness.

In a statement commenting on the report, Anaerobic Digestion & Bioresources Association CEO Charlotte Morton said: “With support for the RHI due to end in 2021, we’re calling on the government to put in place long-term support for renewable heat to help give certainty to the green gas industry. The government should also set an effective carbon price that would better demonstrate green gas’s excellent value for money in reducing emissions and producing home-grown renewable heat.”

A change to the RHI is currently being debated in Parliament that would allow potential facilities to get a tariff rate prior to commissioning (but is still subject to an Ofgem compliance inspection). The reform is an effort to boost investor confidence in non-domestic renewable heating facilities.

Meg Hillier MP, Chair of the Committee of Public Accounts, said on the publication of the NAO’s RHI report: “The government faces a huge challenge in cutting harmful carbon emissions. The NAO report shows how the government has massively cut back its ambitions for this scheme, and that as a result it will have to work even harder elsewhere.”

“[R]ight now the government doesn’t know how it is going to cut carbon from heating systems in millions of homes and businesses around the country. There is a limited amount of time to work with, so it needs to start making real progress now.”

In response to the NAO report, a BEIS Spokesperson said: “The Renewable Heat Incentive (RHI) is playing a crucial role in reducing carbon emissions from heat and helping to make progress towards our legally binding renewable energy and carbon targets with UK investment producing the fastest emissions reduction on a per person basis than any other G7 nation. We have already taken major steps to prevent people from cheating the system, and we now welcome this further advice from the National Audit Office to stamp out these practices.”

 

This article was updated on 23 February to include the response from the BEIS spokesperson.


 





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