Biomass RHI Background

Renewable Heat is a subset of the wider category of renewable energy, which includes the
generation of electricity from wind turbines and photovoltaic cells.

According to BERR (the new name for the DTI), almost half of the final energy consumed in the
UK is in the form of heat. Its generation accounts for 47% of UK CO2 emissions. Renewable Heat
currently satisfies less than 1% of heat demand.

DECC (the new name for part of BERR) is encouraging Renewable Heat as part of the
Government’s commitment to aim for 15% renewables by 2020 and is introducing the Renewable
Heat Incentive.

For the Renewable Heat technologies included, the energy ultimately comes from the sun. The
sun provides planet earth with more energy each hour than human civilization uses over a whole
year. The challenge is how to make use of this vast supply of incoming radiation to provide solar
space heating and hot water.

The DECC press release of 10 March 2011 said: The Renewable Heat Incentive (RHI) will
support emerging technologies and businesses in the UK, strengthening security of supply by
reducing dependence on fossil fuel heating and emissions.

* Currently around half of the UK’s carbon emissions come from the energy used to produce heat
– more than from generating electricity. The RHI will reduce emissions by 44 million tonnes of
carbon to 2020, equivalent to the annual carbon emitted by 20 typical new gas power stations.
* over 95% of heat in the UK is currently produced by burning fossil fuel but with North Sea
supplies now in decline leading to an increase in imports, low carbon alternatives are needed.
* The new financial incentive will encourage installation of equipment like renewable heat pumps,
biomass boilers and solar thermal panels to reduce emissions.

The purpose of the Renewable Heat Incentive Scheme

The aim of the RHI is to increase heat generation from renewable energy to 12%. This could
save up to 60 million tonnes of CO2 by 2020. Heating currently accounts for 47% of the UK’s
CO2 emissions and 60% of average domestic energy bills.

The UK has one of the lowest contributions from renewable heat of all EU countries. Sweden
produces half of its heat from renewables and the EU average is over 10%.

The Renewable Heat Incentive has received strong backing from MPs from all political parties,
including Caroline Lucas, Zac Goldsmith and Alan Whitehead.

Comment on the Renewable Heat Incentive

From the DECC website: To meet our 2020 15% renewable energy target, we need to develop
new ways of generating renewable energy in all sectors, including heat. Heat generated from
renewable sources accounts for approximately 1% of total heat demand – this may need to rise
to 12% to hit our binding EU targets. We will not be able to expand renewable heat without some
form of financial assistance because other forms of heat are currently cheaper. Such support will
enable more people to afford renewable heat and, by expanding the market, help bring costs
down more quickly.

The RHI will reduce the annual running cost to a very low level and allow owners to reduce the
payback period from their investment to a few years.

The RHI is calculated to offer a good return on initial

Investment

The introduction of the RHI offers a financial reward for lower carbon emissions over the twenty
year life of the renewable heating technology installed. The tariffs for the Renewable Heat
Incentive can offer a rate of return of 27% on the initial investment across the tariff bands.
The introduction of the RHI coincides with a time of increasing wealth and demand for fossil fuels
from an increasing world population: many pundits expect the price of oil and gas to increase
much more sharply than general inflation over the next three years.

The RHI provides a positive step change in the business case for delivering on-site renewable
heat, not only to reduce energy bills and carbon emissions, but also to deliver an energy related
cash flow into your building.

RHI Administration by Ofgem

The RHI is administered by Ofgem. Owners of renewable heat technologies included apply to
Ofgem who pay tariffs, on a quarterly basis, over 20 years. Owners need to provide information
on the metered heat generated and satisfy Ofgem that the equipment is used to provide space
heating or hot water and that the equipment is maintained according to the manufacturer’s
instructions. For installations rated up to 45 kW capacity the equipment and the installers will
need to be MCS certified, or equivalent.