There has been “woefully low” takeup of the Renewable Heat Incentive (RHI) scheme run by the Department for Business, Energy and Industrial Strategy (BEIS), says the Public Accounts Committee (PAC), and it has failed to provide value for money by developing a supply chain. The Committee also said it was concerned about the scheme’s effect on air quality and the possibility of users ‘gaming’ the scheme.
According to a new report from BEIS forecasts of take-up of the Renewable Heat Incentive (RHI) were wildly optimistic. It originally expected to install 513,000 new heating systems, but it is unlikely to support much more than a fifth of that, at 111,000, and investment will be half that planned (£23 billion instead of £47 billion).
BEIS did not understand the needs of consumers and buyers were faced with high capital costs for installation and uncertainty over the level of subsidy. “The RHI simply does not work for households and businesses unable to pay the high upfront costs of renewable and low-carbon heating equipment—particularly as gas and oil boilers are cheaper and remain popular heating choices across the country,” said the PAC. Only 60,000 domestic renewable appliances were installed under the Domestic RHI, compared to 6.2m gas boilers.
In developing a supply chain, only the biomethane and biomass sectors had made progress. The PAC noted that BEIS had failed to develop the “strategically important” heat pump sector. Despite the scheme having a clear objective to develop Great Britain’s supply-chain for renewable and low-carbon heat, the Department has no specific goals, measures or milestones to assess progress, the PAC found.
The PAC also said the Department has no estimate of the amount of money overpaid to participants who have manipulated the scheme’s rules.
“This means the actual cost-effectiveness of the RHI is likely to be significantly worse than is currently estimated”. The Committee said the rate of overpayment (estimated at 4.4% and 2.5% of spending in the non-domestic and domestic schemes, respectively) was too high and the regulator does not estimate the financial impact of gaming.
In addition, neither BEIS nor Ofgem understands the RHI’s impact on air quality. The Committee said, “Air pollution from sites funded by the RHI is a serious public health issue. Ofgem told us that they require biomass boilers which have been funded as part of the RHI to have an emissions certificate. However, Ofgem undertakes no monitoring of actual emissions from boilers in use, even when non-compliance is suspected or detected. It relies on Local Authorities.
The committee called on BEIS to set out by September 2018 how it will address systematic optimism bias across all its major projects.
Frank Aaskov, policy analyst at the Renewable Energy Association, said: “The RHI was a world first and has been critical to kick-starting the UK’s decarbonisation of its heat supply.
“The scheme could have been more accessible to consumers if payments had been upfront rather than spread over 7 to 20 years, however, the government is implementing new policy for consumers to access the RHI with little or no upfront cost this spring. It is now crucial that the Government confirms what will follow in the 2020s, when the RHI funding ends, as the industry needs clarity so it can plan ahead.”