The Renewable Heat Incentive (RHI) is coming to an end. What’s next for the renewable heat industry?

March 31, 2021

What is the RHI?

The Renewable Heat Incentive (RHI) was a domestic and non-domestic government incentive to help organisations and homeowners meet the costs of installing onsite renewable heat technologies. In this piece, we are focussing on renewable heat for non-domestic properties.

Multiple onsite, renewable and low-carbon heating technologies were included in the non-domestic scheme such as heat pumps, deep geothermal, solar thermal, combined heat and power (CHP) systems, biomass heat, biomethane and biogas. The non-domestic RHI offered 20 years of funding, which was provided through a pence per kilowatt-hour tariff depending on the installed technology and its capacity. The non-domestic RHI has helped thousands of businesses, as well as public sector and non-profit organisations, install renewable heat and achieve large energy cost savings as a direct result.

Sadly, the RHI is closed to new applicants from the 31st of March 2021. However, there is the option of an extension until the 31st of March 2022 if the project was already in the pipeline by the end of March 2021 but was delayed due to the pandemic.


What funding will replace the RHI?

With the RHI ending, some people are questioning whether installing onsite renewable heat will be a worthwhile investment, due to its proposed replacement funding being a fraction of the size and not covering as many technologies.

It is anticipated that the Clean Heat Grant will replace the RHI from April 2022 to April 2024, offering a one-off grant of £4,000 for domestic and small non-domestic properties wishing to install a heat pump or biomass system up to a 45kW capacity.

For some business sites, the Clean Heat Grant will contribute only a small percentage to the overall installation costs, never mind the long-term operational and maintenance costs. However, renewable heat installations can still be affordable without significant funding and should not be ruled out as a great source of onsite generation.


Why should you still consider installing onsite renewable and low carbon heat?


1. In many cases, the energy cost savings can still amount to a significant value without funding initiatives.

Biomass combined heat and power (CHP) is very efficient and can produce a large percentage of both the site’s heat and electricity demand. These factors result in this technology having a strong return on investment, as both heating and electricity costs are saved.

Air source and ground source heat pumps can offer overall financial savings, especially if the heat pump is powered by a renewable electricity source, such as solar PV. Some energy suppliers are beginning to innovate around heat pumps too; Good Energy has launched an electricity tariff specifically for running heat pumps to make heat pumps more cost-effective.

Furthermore, if a property’s domestic hot water and space heating is being provided by grid-supplied electric radiators and an immersion heater, heat pumps may be a more cost-effective option in the long run.

A well-designed heat pump installation may have a coefficient of performance (CoP) of 3.5 or better. This means that for every unit of electrical energy it uses, it produces 3.5 units of heat. The CoP can be affected by the temperature of the heat source. For example, a high temperature at the heat source will require a smaller temperature lift to reach an appropriate heating temperature, resulting in less electricity being used and a larger CoP. The higher the CoP, the lower the volume of electricity is required to suitably heat a building, saving electricity costs.

Solar thermal works out as a low-cost technology due to a mix of the panels being highly efficient, resulting in fewer panels being required to meet the hot water demand, low installation costs and little maintenance required. These factors help this technology offer a significant financial return.

Another renewable heat option that may offer a strong financial return is a water source heat pump (WSHP). A WSHP can be more efficient than air or ground source heat pumps due to water being a better medium for heat transfer and water having a higher capacity for heat gain and storage. These factors result in a WSHP requiring a lower temperature lift to heat a building, therefore, requiring less electricity to operate. Furthermore, the installation costs for WSHPs tend to be lower than ground source heat, as the digging of trenches is not required.


Heating technologies assessable with our software, the OnGen Expert.



2. Installing renewable heat can significantly reduce carbon emissions.

Heating fuels, from natural gas to LPG, emit a large volume of carbon emissions, contributing to climate change and resulting in catastrophic outcomes for the planet. As people become more aware of the carbon emissions that they are releasing, it is crucial that we act by finding the best ways to reduce them.

By installing onsite renewable heat technologies, carbon emissions can be significantly reduced, with some renewable heating options emitting no or minimal emissions. Also, as the electricity grid continues to become less carbon-intensive, renewable heating options such as heat pumps that run on electricity will emit even lower carbon emissions. Therefore, installing onsite renewable heat can be an ideal way to reach net-zero emissions and climate targets.


3. Onsite renewable heat provides resilience to changes in grid heating costs.

Within the past decade, the average commodity price for heating a non-domestic building with natural gas has increased by 13.45% (BEIS). Furthermore, as the UK moves towards a net-zero future, it is expected that, for non-renewable heating options, the Climate Change Levy (CCL) will rise for non-domestic properties. The CCL is a non-commodity charge applied to both electricity and many heating fuels as an additional charge for each kilowatt-hour used. The CCL for natural gas will rise by 14.5% from April 1st, 2021 and is estimated to increase on a yearly basis. If the commodity charge for natural gas continues to increase, the CCL for heating fuels becomes larger and additional climate taxes are added, purchasing gas from the grid could become more expensive than renewable heat.

Generating your own renewable heat means that non-commodity charges, including the CCL, are not owed by non-domestic heating users. This is because the heat is generated directly onsite rather than purchased from the grid. By not paying non-commodity charges, renewable heat could provide long-term heating cost savings compared to traditional heating fuels.


Yearly price increase percentage for the natural gas Climate Change Levy for non-domestic properties (UK Government).



Is installing renewable heat a good idea without the RHI?

There is definitely still a case for installing onsite renewable heat technologies at non-domestic properties, with many ways to make the installation financially viable long-term. However, additional government funding would still be appreciated to help mitigate initial installation costs for larger properties.

If you are interested in finding out if your non-domestic building has a strong business case for installing renewable heat, try the OnGen Expert. Our software allows for the financial and practical assessment of an array of renewable heating technologies, including ground and air source heat pumps, solar thermal and biomass CHP. The latest software feature also allows for assessing the pairing of a heat pump with solar PV. Get in touch for the free software demo of the OnGen Expert.

Read our previous blog post here for further information on building a business case for onsite renewable energy generation.