EU state aid rules delay Renewable Heat Incentive launch

The government's flagship scheme for encouraging businesses to install low carbon heat technologies has suffered a last minute setback, after delays in securing state aid approval forced the Department of Energy and Climate Change (DECC) to put back the launch of the Renewable Heat Incentive (RHI) scheme until November.

The scheme mirrors the feed-in tariff renewable electricity incentive mechanism, and offers companies and households guaranteed payments for the heat they generate using low carbon technologies such as ground source heat pumps, biomass boilers, anaerobic digestion systems and solar water heaters, and had been scheduled to launch for business applicants from the start of October.

But a DECC spokeswoman confirmed that the launch has been delayed by at least a month as the department is still waiting on formal state aid approval from Brussels.

"We understand the EU will grant approval for the scheme as a whole, but it may be subject to reductions in the tariff available for large biomass installations," she said, adding that the department will have to wait for formal notification from Brussels on precisely which installations may be affected.

She added that the delay is "frustrating", but insisted that the government had no choice but to postpone the scheme or risk breaching EU law.

Paul Thompson, head of policy at the Renewable Energy Association, said that the delay is a major blow to the renewable heat industry given that suppliers had been anticipating a significant increase in interest from business customers as a result of the scheme.

"This last minute announcement is desperately disappointing. The industry has been gearing up over the last six months to deliver on the government's ambitious plans for renewable heat," he said.

"As heat demand is seasonal, delaying until the end of November will mean many customers will either put off a decision until next winter or buy a new fossil fuel boiler now, locking them in to higher carbon heat for years to come."

Thompson's comments were echoed by William Worsley, president of the Country Land and Business Association (CLA), who warned that the delay could result in major problems for farmers and rural businesses preparing to invest in biomass and anaerobic digestion systems.

"Many CLA members have been gearing up to launch projects on 30 September, while others have already taken the plunge and will face cash flow problems as a direct result of the Commission's intervention," he said.

"The announcement for RHI funding was made in the Comprehensive Spending Review last October, so the UK government should have ironed out the wrinkles well in advance of the launch date."

According to experts, the tariffs available for approved renewable heat technologies through the RHI will deliver rates of return of between nine and 15 per cent, and should make many low carbon heat systems more competitive than many conventional alternatives.

The DECC spokeswoman said that the department is confident of launching the scheme in November, and insisted that the delay does not in any way herald a potential u-turn on the policy.

She added that the RHI Premium Payment grant scheme is still available to domestic customers installing renewable heat technologies, and that the government is still planning to launch the full RHI scheme for households next year.

However, Thompson said that the delay represents a further blow to green investor confidence, adding to levels of uncertainty fuelled by the upcoming feed-in tariff review and an anticipated delay to the government's decision on the future of the Renewables Obligation scheme.

The development also highlights the extent to which EU rules could disrupt the UK's forthcoming green policies, after experts warned this week that the planned launch of the Green Investment Bank could similarly fall foul of state aid rules.