Baseload, Bioenergy

UK Seeks Compromise on Biomass Heat and Power Tariffs

The UK government has outlined plans that seek to make amends for widely condemned changes made in July to the Renewable Heat Incentive (RHI) tariffs for biomass combined heat and power (CHP) plants.

The government’s latest actions aim to lessen the financial impact of tariff reductions made to the RHI scheme earlier in the year by limiting the number of plants to be affected by the reductions.

Frank Aaskov, renewable heat analyst at the Renewable Energy Association (REA) told Renewable Energy World: “Those earlier amendments came under considerable criticism from the renewable energy industry, including REA, largely because they were introduced without formal consultation with industry and because of their timing — they gave developers only 21 days’ notice before coming into force.”

July’s changes were directed at biomass CHP plants with a so-called power efficiency of less than 20 percent (i.e., those that use less than 20 percent of their fuel for electricity production and the remaining for renewable heat).

REA research highlighted that the government’s amendments implied an overall reduction in support of up to 35 percent of the anticipated tariff, and would put over £140 million (US$175 million) of low-carbon investment at risk.

James Court, head of policy and external affairs at the REA, stated at the time: “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 203 MW heat and 20 MW 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,” Court said.

In turn, REA had called for the government to either withdraw the amendment, or “introduce a grace period for those who can demonstrate that they have already made a significant financial commitment.”

With the latest news, it is the latter request that has been granted via a so-called “transitional period” that will be place through March 2017.

With the compromise, tariff reductions will only apply to plants with 10 percent power efficiency (not 20 percent); thus limiting the scope of reductions to a smaller proportion of plants in operation or under development. REA reported that “the intention is that the threshold will revert to 20 percent after” March 31, 2017.

Additionally, plants will be entitled to tariffs for a larger proportion of the heat they produce.

The various amendments seen this year are reflected thusly:

  • Within the original CHP tariff scheme: A plant of 1.5 MW that uses 6 percent of its fuel for electricity production would have received a CHP tariff of 4.22p kWh for all heat generated.
  • With amendments in July: The same 1.5 MW plant would only receive the CHP tariff (4.22p/kWh) for 30 percent of their generated heat and the large biomass tariff (2.04p/kWh) for the remaining 70 percent heat — a 36 percent reduction in support.
  • With transitional period: The same 1.5 MW plant will now receive the CHP tariff (4.22p/kWh) for 60 percent of their generated heat and the large biomass tariff (2.04p/kWh) for the remaining 40 percent heat — a 21 percent reduction in support. Meanwhile, plants with a power efficiency of 10 percent or above will continue to receive the CHP tariff for all heat produced. 

The changes are anticipated to restore some degree of investor confidence in the sector and ensure that many biomass CHP projects under construction — but which came under threat as their financial standings changed with July’s amendments — will be completed.

“From the perspective we have, and speaking with stakeholders and groups who stood to be affected greatly, these changes could make a difference,” Aaskov said.

He added that, “even considering those still affected by tariff reductions — projects with power efficiencies below 10 percent — the impacts would be lessened, as the tariff reduction would be less harsh.”

Although the compromise made by the government has been well-received, there remain contentions over the RHI scheme — with stakeholders calling for reform in an effort to see the UK pick up the pace towards its renewable heating target.

On this point, Aaskov said, “we’re now looking towards autumn for outcomes on wide-scale reform to the RHI. This could include further changes to CHP tariffs. We’ll have to wait and see.”

Lead image: One of the largest biomass CHP plants in the UK. Credit Drax