Surprise cut to renewable heat support puts over £140m of low-carbon energy investment at risk
- Without public consultation, changes to the support scheme for renewable Biomass Combined Heat & Power (CHP) have been laid in Parliament,
- BEIS to cut support with only 21 days’ notice for Biomass CHP units that use less than 20% of their fuel for electricity production,
- No indication of the sudden cut was formally given to the industry beforehand,
- Over £140m worth of investment is put at risk by this decision1
- The surprise cut will further damage investor confidence in an already fragile industry,
- WHA survey of companies operating in this space details the potential impacts.
The Department for Business, Energy & Industrial Strategy (BEIS, previously the Department of Energy and Climate Change) laid an amendment in Parliament to the Renewable Heat Incentive on 7th July 2016 to reduce the support for Biomass Combined Heat & Power (CHP) systems2.
The changes in support are specifically targeted at Biomass CHP plants that use less than 20% of their fuel for electricity production (with the other 80% being used for renewable heat). This change will affect all plants applying on or after 1st August 2016, giving industry only 21 days’ notice. Neither DECC or the new BEIS had formally consulted with relevant trade associations or directly with industry on this specific change prior to laying the new amendment in Parliament, surprising many in the industry and putting a number of projects at risk.
The REA surveyed thirty-six companies that are developing biomass CHP projects in the UK. Thirty-four of those companies had already made major equipment orders for the construction of their facilities or put down non-refundable deposits. Twenty-five companies have reported that the changes laid before parliament will have a “very negative” impact on their project, and additional eight reporting “negative” impact.
REA discussions with member companies involved in the Biomass CHP industry (unrelated to the survey) indicate many companies are facing up to a 35% reduction in their anticipated tariff.
James Court, Head of Policy and External Affairs at the REA, said:
“Despite the amendment claiming ‘no impact on the private or voluntary sectors is foreseen’, the abrupt cut in support significantly impacts the biomass CHP industry. It is the suddenness and the lack of consultation that is the core issue here. Over £140m worth of investment is affected by this change, with a planned renewable energy capacity totalling 203MW heat and 20MW power.
The industry was preparing for a new tariff structure from spring 2017, as outlined in the recent RHI consultation, but no one was warned about this change. The industry has invested in good faith in these projects, some which have been in preparation and construction for up to 2 years. Over £22m has been paid in non-refundable deposits.
This unexpected cut will prove damaging to investor confidence. Of the companies surveyed, 92% stated that the changes will a negative or very negative impact on their projects. This significantly reduces the likelihood that many companies and investors will be keen to invest in this low-carbon technology in the future.
We are therefore calling on BEIS to withdraw the amendment until a proper consultation has been launched to examine the impact on these projects, or introduce a grace period for those who can demonstrate that they have already made a significant financial commitment.”
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Notes to editors
1. The WHA has surveyed 36 companies that are actively developing biomass CHP projects in the UK. The survey showed that before the tariff changes were laid before Parliament:
- 59% have already placed orders
- 61% paid non-refundable deposits worth a total of £22.2m
- 92% of projects were scheduled to be commissioned between 1 August 2016 to 1 April 2017
- The overall size of investment in the affected projects totalled to £148,950,367 with a combined capacity of 202.7MW heat and 20.2MW power.
As a result of the changes,
- 89% said they were unlikely to invest in this technology in the future.
- 33 of 36 companies reported that the changes would have a “negative” or “very negative” impact on their projects.
2. The amended regulations can be found here.
3. The renewable CHP plants will only receive the higher CHP tariff for certain parts of the generated heat, with the remainder of the heat receiving the relevant biomass (non-CHP) tariff.
- For example, a plant of 1.5MW that uses 6% of its fuel for electricity production (known as power efficiency) would previously have received the CHP tariff (4.22p/kWth) for all of the heat generated. It will now only receive the CHP tariff (4.22p/kWth) for 30% of their generated heat and the large biomass tariff (2.04p/kWth) for the remaining 70% heat, leading to a 36% reduction in support.
About the Wood Heat Association (WHA)
The WHA is the UK trade association for the modern wood heating and related biomass heating industry including wood fuel suppliers, biomass boiler and stove installers and distributors, and anyone involved in the supply chain. The WHA is a fully owned subsidiary of the Renewable Energy Association. Members range in size from major multinationals to sole traders.
About the Renewable Energy Association (REA)
The Renewable Energy Association represents renewable energy producers and promotes the use of all forms of renewable energy in the UK across power, heat, transport and renewable gas. It is the largest renewable energy trade association in the UK, with around 700 members, ranging from major multinationals to sole traders. For more information, visit: www.r-e-a.net.