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Consultation Response

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The Renewable Heat Incentive: A reformed and refocused scheme Date: 26 April 2016

Introduction The CLA is the membership organisation for owners of land, property and businesses in rural England and Wales. We help safeguard the interests of rural businesses and those with an economic, social and environmental interest in rural land. Our members own or manage around half the rural land in England and Wales and represent more than 250 different types of business as well as wide range rural domestic property types. The CLA recognises that heating makes up around half of the UKs total energy demand and so is an important part of achieving targets on renewable energy. CLA is also aware that significant growth is required within the sector to deliver on the UKs target of delivering 12% of heat from renewable sources. With many rural areas having no access to mains gas and reliant on more carbon intensive fuels for heating homes and businesses, renewable heating systems have potential to make a significant contribution to reducing emissions and potentially fuel costs in rural areas. Rural areas are well suited to delivery of renewable heating with access to local supply chains of biomass as well as having the space required for many of the technologies which are not well suited to some more urban situations. Many CLA members have undertaken or are involved in renewable heating projects including biomass boilers, heat pumps and anaerobic digestion at all scales as a result of the RHI. These range from systems heating individual homes or businesses, to heat networks supplying local communities or large projects efficiently supplying clean gas to the gas network. CLA members are also involved in the supply of wood fuel either as woodland owners or in the production and supply of wood fuel, as well as being growers of bioenergy crops either for self consumption or supply to others. General comments CLA welcomed the government’s commitment last November to extend the RHI until 2021 which reflects the importance of renewable heating in addressing the UKs energy targets. We recognise the need for the RHI to deliver value for money and agree that a review of the scheme to ensure it continues to achieve its objectives cost effectively is sensible. However, we are concerned by a number of the proposals contained within the consultation and the uncertainty that any change creates. It is important that government make clear their decisions for the RHI from 2017 onwards as soon as possible to avoid stalling the deployment of renewable heating technologies some of which have long deployment time frames.

RHI: A Reformed & Refocused Scheme Response to DECC

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Of particular concern is the reduction in support for biomass boilers and the very low objectives for deployment set out in the consultation. While the focus for support on large industrial size boilers may offer better value for money, the reduction in support for smaller biomass systems in rural businesses means a significant opportunity for carbon reduction is missed. Equally the reduction in support will mean an opportunity to deliver growth in the rural economy and improved woodland management through local wood fuel supply networks could be overlooked. We would urge government to consider how support for mid scale boilers can be retained. We recognise that heat pumps have an important strategic role in the supply of heat and to date have been under deployed and therefore fully support the objective to increase deployment of heat pumps. However, we disagree with the approach taken in the consultation which seems to be to encourage use of heat pumps by reducing support for biomass heating. It is important to ensure that consumers continue to have the full range of technologies at their disposal and that incentives provide a level playing field so that consumers are incentivised to select the most appropriate technology for their circumstances which, in our view, the current proposals do not provide. Whilst we support the government efforts to encourage deployment of heat pumps this should not be at the expense of the economic viability of other technologies. Heat pumps are not suited to all circumstances and in many existing rural properties biomass may be a more appropriate choice. Government should therefore focus on reducing the barriers to heat pump uptake rather than diminishing the uptake of biomass heating. By focusing support so heavily towards one technology DECC risks skewing the scheme towards heat pumps which could result in underperforming heat pumps installations being installed in unsuitable properties which will do nothing for the long term benefit of the sector. It should also be noted that the reduction in deployment objectives for biomass will seriously restrict the market and will undo much of the good work that has been done using public money to build up a buoyant biomass heating sector. This boom and bust policy does not offer good value for money and risks the future cost effectiveness of renewable heating. The CLA see an important role for anaerobic digestion in delivery of the UKs heat targets and in particular biomethane injection which has seen significant growth under the RHI. Biomethane injection provides a highly efficient use of biogas and is one of very few means of reducing the carbon intensity of the UKs gas supply which remains the UKs main source of heating. We are therefore concerned by proposals to restrict the use of crop feedstocks which we feel could lead to reduced overall deployment. If government intends to restrict the use of crop feedtsocks then more effort must be put into increasing the availability and addressing the barriers associated with waste feedstocks. Simply restricting the use of crop feedstocks will not in itself achieve the government’s objective of increasing the use of waste feedstocks unless. Questions Degression and trigger setting 1. Do you agree with the proposed policy approach for degression and trigger setting? No, we do not agree with the proposed approach to trigger setting and degression. Whilst the degression system is now reasonably well understood, the trigger setting has diminished returns


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from heating systems too quickly especially as oil prices have fallen. The triggers should be amended to provide a more gentle cost reduction trajectory and avoid the boom and bust profile of deployment which has characterized the RHI to date. Budget Control 2a. A budget cap introducing the ability to close the scheme to new deployment is necessary to ensure we can protect the budget. Do you agree that the budget cap should be kept as a final backstop with minimal notice periods for the implementation of closure? Government should be aware that a budget cap introduces a significant risk element to the RHI for investors and could lead to many projects not being brought forward given the low levels of confidence in government energy policy currently. However, if a cap is necessary in order to protect the budget then yes we would agree that the budget cap is kept as a final backstop. Whilst minimal notice periods are not desirable from a consumer perspective we recognise that providing more notice could be complicated and could perhaps increase the chance of a budget being hit as installers respond to forecasts expenditure. We would like to see weekly RHI data in addition to the monthly data currently provided with commentary specifically on progress towards the cap. 2b. Do you agree that the budget cap should only be deemed likely to be hit, and closure only be deployed when we assess that it is likely RHI commitments from plants commissioned or plants in the immediate pipeline on the verge of commissioning would consume available budgets? Yes we would agree that this is fair. We would expect DECC to use the information on estimated completion date supplied as part of the tariff guarantee to calculate spending commitment. 2c. Do you agree that a 21 day notice period will allow only those plants on the verge of commissioning to proceed? Yes we would agree that the 21 day notice period would allow only those on the verge of commissioning to proceed. However, a notice period this short will be seen as too great a risk for many larger projects and mean some beneficial projects are not brought forward. We feel the tariff guarantee may help to address this to some degree especially if tariff guarantees are protected from the cap. 3a. Do you agree with the proposal from 2017/18 onwards for discretion to close the Non-Domestic scheme only, noting that this would mean that that scheme could be closed before it was assessed that 100% of overall budget was committed? Yes we would agree that it is sensible to allow the non domestic scheme to be closed independently if necessary. Overspend in the non domestic RHI would seem more likely and it would seem sensible to allow continued deployment in the domestic sector where renewable heating remains under deployed since they are very different market segments.


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3b. Do you have any suggestions as to how best to manage any additional uncertainty from this proposal? The additional uncertainty caused by this proposal should be managed by the provision of more regular deployment data which specifically focuses on progression towards the budget cap. The proposed tariff guarantee could also help to manage this risk for some projects. However, if the cap is hit government should not close the scheme to applications entirely, but just stop new accreditations. Instead DECC should continue to allow applications with the introduction of a queue system whereby applications are treated on a first come first served basis in regard to the allocation of the following years budget..There may also be some consideration of closing the tariff guarantee mechanism if the cap looks likely to be hit. This would help to avoid implementation of the cap and also ensure heating systems are deployed at best value. 4a. Are there any other features of the budget cap policy that could be improved? We would suggest that in the event of the non domestic RHI being closed early a process is put in place to ensure that any under spend remaining in the domestic sector after Q.3. can be reallocated to the non domestic scheme to allow further deployment of renewable heating and maximise the use of budget. Alternatively we would like to see any unspent budget added the following year’s budget. 4b. Do you have any suggestions of how these improvements could be delivered? No. Cross cutting Issues

5. Can you provide any compelling evidence as to why RPI would be a more appropriate measure of inflation than CPI for all technologies across the RHI? No answer. 6. Do you agree simplifying the rules for additional capacity as proposed will help achieve better value for money? We would agree that this will deliver improved value for money and make the scheme rules clearer and easier to follow. 7a. Are there any potential heat uses which the Government should consider not supporting for new applicants to the scheme? No. As much flexibility to make good use of heat should be retained to allow innovation within the sector and enable the wider use of heat. Applications which are not necessarily directly displacing fossil fuel heating should be allowed provided they are enabling delivery of a further output or reduces emission elsewhere. For example digestate drying may reduce fuel use and emissions used in transport of digestate for use on farms and may help tin the establishment of


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a stronger market for digestate. Some consideration should also be given as to whether any increase in market value as a result of the drying process is achieved i.e. if the price paid for the product once dried is increased does this process require public subsidy or is the additional cost of drying covered by the increased income? 8a. Will the requirement to obtain and maintain appropriate permissions for new plant in order to be eligible for and continue to receive RHI support pose any barriers to deployment under the scheme? We agree that it is reasonable to expect that a heating plant has all of the permissions required for it to operate in order to be eligible for public support. However, where it is required planning permissions is a separate issue for planning authorities consideration and so inclusion within the RHI would represent a repetition of regulation. It is also complex and not always straightforward to evidence whether planning permission is required or has been achieved. We do not think there are significant numbers or plants claiming RHI without having the required permissions. We do not think that introducing a planning requirement is therefore justified and potentially creates another somewhat artificial barrier to deployment at a time when the attractiveness of the scheme is also questionable. Responsibility for the application of planning regulations should remain solely with the local planning authority. If a requirement for planning permission were to be introduced it should be a simple applicant declaration form, and should not require supporting evidence as part of the application process (except when evidencing for pre accreditation). The RHI already has a complex application process and further requirements for supporting evidence should be avoided especially as planning permission is often highly complex and will be difficult for Ofgem to assess. 8b. Are there particular permissions which it may be difficult or impossible to obtain ahead of applying to the scheme? There are none that will be impossible to obtain as far as we are aware, however, some consents around listed buildings can be very slow to obtain and could mean that the heritage sector faces a greater barrier to uptake and more exposure to degression risk than non heritage sector. This would be a concern given the significant opportunity for renewable heat within the heritage sector. GSHP systems with shared ground loop 9. Do you think that an owner of a shared loop system should be able to apply to the Domestic RHI? While we have no issue with owners of shared loop systems being able to apply to the domestic RHI we feel that the non domestic RHI with deeming will be more appropriate. Enabling access to the domestic RHI for shared ground loop owners could provide maximum flexibility to enable deployment and would probably be necessary of share ground loops in owner occupied properties is to be achieved. Domestic RHI may be more attractive sto some types of shared found loop for example third party installations.


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10. Do you think that an owner of a shared loop system should be able to apply to the Non-Domestic RHI with deemed heat demand? Yes we would agree that owners of a shared ground loop should be able to apply to the non- domestic RHI with deemed heat demand. The non domestic RHI over comes some of the barrier posed by the domestic RHI e.g. access to new build properties, provision of tariff guarantees and adding properties to a ground loop. While deemed tariffs provide the income certainty needed for an investor in a shared ground loops system. We also think the 20 year non domestic RHI would reduce the risk of low quality installations since the owner of the ground loop will need to maintain operation for 20 years. 11a. Do you agree that: If shared loop systems become eligible on the Domestic RHI, they should receive the same tariff as individual GSHP systems under the Domestic RHI? We think this could risk over compensation in some instances as a significant proportion of the costs associated with GSHP is likely to be in the ground loop. For larger ground loop systems or third party ownership models economies of scale may deliver lower overall costs. We would therefore suggest that a tariff reduction is applied for ground loops supporting over a set number of properties. For example, the owner of the ground loop should get a higher rate for the first 5 properties connected and a lower rate thereafter where the capital cost might be lower. DECC should seek robust evidence on the costs and savings of such projects. This said given the current under deployment some over compensation to ensure these projects are brought forward can be justified. 11b. Do you agree that: If shared loop systems remain eligible on the Non-Domestic RHI but with deemed heat demand, they should receive the same tariff as individual GSHP systems under the Non-Domestic RHI? Yes we would agree that this approach is fair given the lower level of heat pump tariff under the non domestic system and the low level of uptake currently. The non domestic tariff rate was based on economies of scale achieved by installing larger heat pump systems. Shared ground loop systems will have multiple smaller heat pumps and so will not achieve the same cost per unit as the larger systems meaning there is less likely to be over compensation. 11c. Do you agree that: The heat demand limit proposed for individual GSHP systems on the Domestic RHI should be applied (25,000kWh/yr per household on the shared ground loop)? We do not agree with the idea of a cap on RHI payments for heat pumps (see response to question 16). A payment cap for shared ground loop systems with over a certain number of properties may be reasonable. 12a. Do you think that the proposals relating to shared ground loops result in an increased risk of overcompensation? We think there is some risk of over compensation particularly under the domestic RHI scenario.


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12b. How could we develop our policy to best mitigate these risks? Metering and monitoring packages could be an important part of mitigating risks. Government might want to consider reserving powers to make changes to tariffs outside of the degression methodology or withdrawing tariff guarantees if uptake of these systems increases dramatically. 12c. Do you think that new-build properties should be treated differently to avoid overcompensation? Given the governments objectives on housing we think it is vital for new build properties to be incentivized to include heat pumps. Heat pumps are well suited to new build properties due to the thermal efficiency and the fact that they can be integrated into the design and build from an early stage leading to both highly energy and cost efficient systems. Whilst there are efficiencies of scale and design which might lead to a lower tariff being offered in new builds there is also a significant barrier to be overcome with regard to consumer attitudes towards heat pumps. In order to have shared ground loops systems taken up there may be a need for a higher tariff early on. In new builds there is also a complication over ownership of the ground loop. Consideration might be given to whether heat pumps in new builds might be better incentivized by some form of one off cash back incentive off the purchase price. 12d. Do you think the number of dwellings is one of the risk factors which may contribute towards overcompensation? Yes, given that the ground loop is a significant proportion of the cost of a GSHP system economies of scale will likely accrue according to the number of dwellings linked to the system. 12e. Do you think there should be a specific limit to the number of dwellings? No we do not think there should be a specific limit to the number of dwellings as scenarios will vary and it would be a shame to exclude some larger applications. However, it would be sensible to tier payments according to the number of dwellings attached so that tariffs drop once a certain numbers of properties are connected to a single ground loop. Government should seek robust evidence on the cost of shared ground loop systems. 13a. Do you agree that these proposals should apply to social and private landlords only? No.

13b. Do you think private homeowners who are collaborating together should be able to apply?

Yes we would like to see homeowners being able to bring forward collaborative shared ground loop systems, although we think the use of such projects is likely to be limited due to difficulties arising from ownership of the ground loop. It may be possible in new build properties for homeowners to benefit from a shared ground loop system.


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14. Do you agree that if deeming is introduced to the Non-Domestic RHI scheme for this type of project, metering and monitoring service packages should be mandatory to allow performance data to be reviewed by Government/user/owner?

Yes. We think this would be fair although the added cost of metering packages may reduce the attractiveness of such projects. It would be sensible for heat metering to be available for end customers to enable them to fully understand their heating use and contribute to the long term aim of reducing energy demand where possible.

15. Do you agree that the proposal to introduce heat demand limits will contribute to achieving the aims of the reform of the RHI?

Whilst we recognise that it is important that larger properties are not over compensated, we do not agree that payment caps are a proportionate means of doing this and we do not think this will contribute to uptake.

The caps are extremely arbitrary and do not take any account of actual heat demand or deployment costs in individual properties. Introducing caps would likely disincentivise heating systems for larger properties while failing to incentivise smaller systems. It could also lead to larger properties being inadequately heated due to payment limits. Larger heat pumps may require work to upgrade the power supply to a property which can have a high cost meaning that there is not always an economy of scale with large heat pumps. We would prefer to see payments based on actual heat load and heat loss calculations especially for heat pumps.

16a. What are your views on the level of the proposed limits: 20,000kWh for AWHP; 25,000kWh for GSHP and biomass?

In our view the limits for biomass and GSHP are too low and will prevent uptake of renewable heating as they do not reflect the capital cost or actual heat demand of properties. They will limit the deployment of heating technologies to a very narrow band of properties. These limits seem to have been based on the average heat demand of urban properties which are not reflective of rural areas where properties are typically larger and with higher heating demand where biomass is particularly well suited.

We would suggest that if a cap is to be introduced it is increased to 30,000 kWh for biomass to reflect the typical heat demand of a rural properties where the technology is most suited.

There should be no limit for GSHP. The payment caps suggested for heat pumps fail to recognise the higher power demand requirements of larger heat pumps which can lead to higher install costs. Large heat pumps often require larger power loads beyond that which can be supplied by a typical domestic, single phase power supply. For larger heating loads there may therefore be a need to upgrade the power supply to the property which can cost many thousands of pounds. Alternatively the customer can install multiple smaller systems which again has a higher capital cost. DECC should not therefore introduce payment caps to the domestic RHI for heat pumps.


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16b. What would be the merits of higher/lower limits?

If heat limits are set too low then it is likely that deployment will decrease. There is also the risk that once any payment cap is reached any additional heat requirement will be met with fossil fuel alternatives especially while fossil fuel energy prices are comparatively low, or a property may be under heated.

In heritage buildings in particular where heating use tends to be higher and installations are more costly because of the limitations of the buildings construction, the threshold may need to be higher still to enable deployment.

17. In light of the issues raised in para 5.20, do you have any alternative proposals to heat demand limits which would achieve the same aims and which would be simple for potential applicants to understand, deliverable and applicable across the GB-wide scheme?

We would suggest that a tiered approach would be more appropriate. Consideration might also be given to accrediting larger domestic properties with higher heat demand under the non domestic scheme as their heat demand can bear more resemblance to non domestic projects in some instances.

We would again highlight that there should be no restriction to payments on domestic heat pumps.

18. Do you have alternative proposals for further changes, beyond those summarised in the consultation document 'The RHI: A reformed and expanded scheme', which may help increase deployment among those less able to pay?

NA.

19a. (i) Do you agree with reviewing the tariffs available within the range of 7.42 -10.0p/kWh for AWHP?

We do not have a view on this.

19a. (ii) Do you agree with reviewing the tariffs available up to a maximum of 19.51p/kWh for GSHP? We do not think that a higher tariff will help to significantly incentivise further deployment. Non price factors are as important in encouraging deployment and we do not think that changing the tariff alone will be sufficient to improve deployment significantly. Increasing the tariff further will just offer less value for money.


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19b. How would an increase to current tariffs impact heat pump deployment? Please provide evidence to support your response.

We do not think that an increase in the GSHP tariff alone would significantly increase deployment. The existing tariff is already attractive, but deployment remains low. In our view factors which affect GSHP deployment as much as tariff are:

Suitability for retrofitting - although heat pumps can work well when retrofitted into some existing properties, there are circumstances where it is not financially or practically viable to do so and a biomass boiler is the more suitable option. This may be occasions where the distribution system is not suited to a heat pump, the space available or ground conditions are not suited to a ground loop installation or power supply is insufficient, some buildings will require improvements to the building fabric before heat pumps can be installed effectively.

Understanding of the technology & quality of installers- there remains limited understanding of heat pump technology amongst and its application amongst UK consumers and therefore a lack of uptake. Examples of poor performance and low quality installations have also contributed to this.

20a. Do you agree further Government and industry action is required to drive up the performance of heat pumps and tackle underperforming installations on the RHI?

Yes, we would agree that heat pump performance in general needs to be improved as well as the image of heat pumps and heat pump installers.

20b. How can the RHI best be developed to tackle under-performance of heat pump installations and drive up deployment?

Tackling heat pump under performance will be difficult. Heat pump performance is significantly influenced by the system design rather than anything that the user does. Poor performance does not necessarily show up until sometime after installation leaving the consumer exposed to risk. Anything to tackle performance should be based on installers and designers rather than penalising consumers. While we recognise the idea of providing a bonus for high performing heat pumps we think this would leave consumers open to miss-selling and could draw in lower quality installers to the market.

Given the propensity of renewable energy companies to go out of business, we think an industry backed performance guarantee scheme which provides a long term warranty might be useful. The MCS already partially fulfils this role, however, we do not believe that it is adequate for the heat pump sector. The man difficulty is in identifying who is responsible for under performance.

Proper heat demand and heat loss profiling is required at heat pump design stages to get the best results.

We also think government should put more effort into highlighting good applications of heat pumps.


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21. In your recent experience, what are the main financial barriers to the deployment of heat pumps in the domestic sector?

In particular, what are the main reasons why the current tariffs have not achieved higher deployment levels?

Access to capital and financing are the man financial barriers in the domestic sector.

We do not think the current low levels of deployment are related to the tariff rate.

22. In your recent experience, what are the main non-financial barriers to the deployment of heat pumps in the domestic sector and how can they best be overcome? Please consider how they compare to the financial barriers in terms of impact on uptake. As already discussed the main non financial barriers relate to the understanding of the technology and suitability for retrofit into existing properties. Those properties currently heating with oil which are targeted by the RHI are not necessarily best suited to use of heat pumps or may be equally or more suited to biomass use which remains a more straight forward and cost effective retrofit. Government should target the roll out of heat pumps in the new build sector where they are most suited and can be incorporated into design most straightforwardly. This might be done by providing a cash back for home buyers purchasing a new property with a heat pump. Some consideration would need to be given to how performance and warranty could be ensured. In situations where heat pumps are in competition with biomass boilers the tariff degression which has already occurred in the biomass sector has made heat pumps the more attractive option. For larger heat pumps with high power demand grid connection can be a barrier to deployment due to the cost of upgrading single phase supplies.

23. Is there a way to link payments to actual performance which balances consumer confidence with incentives for higher performing systems?

As already discussed under performance may not be down to the system operator, but instead down to system design and installation. It is therefore difficult to incentivise higher performing systems.

24a. Performance monitoring can play a key role in driving up heat pump performance. What can we do to make the RHI’s metering and monitoring service package more attractive?

We would suggest the monitoring service package is made compulsory and that tariffs are increased as per the review suggestion to overcome any additional cost. As the UK moves to a smart energy system and with objectives to improve efficiency it is important that consumers have regard to operational performance of heating systems.


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24b. Are there alternatives to incentivise the monitoring of heat pump performance?

NA.

25. Do you agree that we should withdraw support for new solar thermal systems in the Domestic RHI from 2017?

We would agree that the domestic RHI is not currently incetivising solar thermal uptake and is unlikely to do so in the future. It therefore does not make sense to continue allocating funds to the technology through the RHI.

However, solar thermal does provide a low carbon, sustainable and cost effective heating solution especially when designed to provide a pre heat function for existing boilers. It is also important that all options remain available to householders. Therefore we would suggest that funding is allocated to provide small capital grants to install systems on existing buildings instead of the current system. This high level of certification currently restricts cost reductions and consequently uptake.

26a. Do you agree that limiting the use of some feedstocks will deliver more cost-effective carbon abatement? While we recognise the benefits of using waste feedstock’s we do not agree that the limiting of the use of crop feedstock for RHI payments will deliver more cost effective carbon abatement. Crop feedstocks are currently preferred by many developers due to their relative availability, consistency of energy generation and the relative ease of regulation. By limiting RHI support for Biomethane produced from crop feedstock’s government risks impacting on the overall viability and deployment of biomethane injection, which is one of only a few ways of greening the gas supply which remains the main source of heating for the UK. This could stall the industry which has been built over the past 5 years. Instead government should properly analyse the reasons why waste feedstocks and residues are not more widely used and address these short comings. If restrictions on crop feedstock’s are to be introduced then it is important that more waste feed stocks, suitable for use in AD are made available to the sector and that regulation of low risk feed stocks is reduced. We also note that the impact assessment has a heavy focus on maize which is just one of a number of crop feedstocks. We would therefore question the evidence and assumptions made which are unclear and whether it is acceptable to apply them more widely to non maize feedstock. In our view this policy change alone will not drive increased use of waste feedstock’s, and will simply stagnate the deployment of AD plants.


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26b. Apart from wastes and residues, are there other feedstocks which should not be subject to payment restrictions? There is considerable scope for innovation within the AD feedstock sector with a variety of agricultural outputs showing potential for use as feedstock. We would like to see grass silages exempt from the restrictions as well as ensure that other outputs such as spent grains, screenings, discards, unsellable crops and pack house trimmings can continue to be used without restriction. It would be useful for crops grown on land unsuitable for human consumption to also be unrestricted. 27. Do you prefer option 1 or 2 as a method of limiting payments in respect of biogas / biomethane derived from crops? We prefer option 2. As recognized in the consultation some types of waste particularly manures and slurries have relatively low energy content and as a result limited gas yields despite there digestion delivering wider benefits. As such these are often co digested along with crops in order to make plants financially viable and operationally reliable. As such the use of crop feedstock’s can help to enable the digestion of an increased proportion of slurry and manure wastes. The proportion of crops required will depend on the feedstock being co digested, we would suggest that the proportion of crop feedstock allowed be increased to 75% which will allow greater flexibility in plant management. It is also important that the accounting system for determining the proportion of crop feedstock utilised is on an annual basis rather than quarterly to reflect seasonal variations in feedstock supply. For example livestock slurries may only be available in winter months when animals are housed being replaced by a larger proportion of crop feedstock in summer months. 28a. Do you agree that from spring 2017 the tariffs for new biome thane installations are likely to require resetting to bring forward new deployment? Yes we would agree that a tariff reset will be required to enable continued deployment. The current tariff degression has been largely driven by deployment of crop fed AD which is lower risk and quicker to deploy, therefore if crop use is to be restricted tariffs will need to be increased to enable continued up take. 28b. Do you agree this should not include resetting the tariffs for biogas? We would agree. The biogas tariff is complicated by its availability to some types of biomass CHP sector which can qualify as gasification technology. We would therefore suggest that the deployment data which degression is based on is segregated between the two technologies so it can be properly interrogated. If biomass CHP uptake increases as is expected there will be increased degression which could undermine the development of other beneficial biogas heating applications.


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29a. Do you agree that adding capacity to existing biogas and biomethane installations could result in payments which are not targeted towards the most cost effective biogas and biomethane production? Whilst we recognise that there is potential for diversion of waste feedstocks as outlined in the consultation we do not think this is likely to occur in practice. A company which has taken the decision to establish a plant using waste feedstock’s is unlikely to then switch to using crops, given the regulatory work which will have been undertaken to enable a waste plant to operate. Switching feedstocks could also be highly disruptive to plant biology thus risking gas production and income. 29b. If yes to question 29a, how can the risk be mitigated? The best way to mitigate against this would be to increase the availability of good quality sources of organic waste available to the AD sector. 30a. Do you agree with proposals to increase auditing requirements? We recognise the need for auditing in order to implement this proposal, but would highlight that further auditing will have an impact on the cost of running small plants in particular. Auditing requirements must be kept to a minimum, appropriate to the scale of operation and be workable in practice. 30b. Do you think there are any wastes which should not be subject to unlimited payments? No. 30c. Is there additional evidence that could be used to demonstrate that a generator intends to use waste? Not that we are aware of. 31. Do you agree with the proposal to remove support for heat used to dry digestate for new installation? We agree that this is reasonable; however, government should be clear in what the objective of the RHI is. Whilst drying of digestate is not directly replacing a fossil fuel use, it is reducing the energy and emissions associated with transport and use of digestate and increasing the usefulness of digestate as a product. Delivery of a digestate market is required in order to deliver cost effective AD plants in future the long term and digestate drying can help to increase the usefulness of digestate in some scenarios. 32. Are there other uses of biogas heat which you do not consider a good use of the RHI payment? There are not. However, DECC should be aware that stopping payment for digestate drying use may lead to the uses of heat for drying to be explored.


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Non Domestic Heat pumps 33a. Do you agree that the current tariff levels for heat pumps in the non-domestic sector strike the right balance between value for money for the tax payer and providing sufficient returns to drive deployment? Yes we would agree. 34. In your recent experience, what are the main financial barriers to the deployment of heat pumps in the non-domestic sector? In particular, what are the main reasons why the current tariffs have not achieved higher deployment levels? We are not aware of any financial barriers to the uptake of heat pumps in the non domestic sector. The low price of oil and cost of grid upgrading work can have financial implications. Lender uncertainty over renewable heating technologies and policy changes is also likely to be a factor. 35. In your recent experience, what are the main non-financial barriers to the deployment of heat pumps in the non-domestic sector and how can they best be overcome? Please consider how they compare to the financial barriers in terms of impact on uptake. In our view the main non financial barriers to uptake of heat pumps are:

Awareness and understanding of the technology – consumers tend to opt for technologies which they understand, can install quickly with limited complication and perceive as low risk

Suitability for retrofit to existing properties – building location, construction, fabric and designation can restrict the use of heat pumps

Access to suitable grid capacity – larger heat pumps have high peak power demands which can require upgrading of power supplies at high cost in some instances

Consumer confidence in installer quality and assurance

Oil price

We disagree with the assertion that the attractiveness of the biomass tariff is hampering deployment of heat pumps. Heat pumps are not suitable for every scenario and in some instances biomass is the correct choice. Whilst biomass was at one stage the more attractive choice financially, tariff degression means that the heat pump tariff is now as attractive and no price factors play a greater role in determining consumer choice. 36a. Do you agree we should amend the scheme rules to allow heating and cooling AWHPs (paying on the renewable heat generated only)? Yes we agree that this might help to increase uptake under the scheme as it provides greater flexibility, however, it is unlikely to drive significant increase in uptake on its own. 36b. What other scheme rules could be eased which would drive deployment? No answer.


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37a. Do you agree further Government and industry action is required to drive up the performance of heat pumps and tackle underperforming installations on the RHI? We would agree that this is an area for improvement. 37b. How can the RHI best be developed to tackle this issue and drive deployment? Government guidance on good practice heat pump design aimed at consumers could be helpful. 38a. Do you agree the proposals set out in this document will be sufficient to drive an increase in deployment of efficient heat pump systems in the non-domestic sector in this Parliament? Although we welcome the proposals on heat pumps we do not think these alone will drive a significant increase in uptake. 38b. If no (in answer to Q38a), what else do you believe Government should be doing consistent with its overarching objectives for RHI reform and energy policy? We would like to see provision of government guidance on the use of heat pumps in non domestic properties. An extension to the MCS assurance scheme should also be considered to address concerns over the long term performance of heat pumps and to mediate between installers and customers where a heat pump is under performing to give an independent view of the fault and remediation. There may also need to be some form of industry backed guarantee scheme to overcome concerns about installation quality. Government support to undertake some demonstration sites in existing buildings might help to drive awareness. The biggest impact could be delivered in giving greater consideration to the use of heat pumps in the new build sector which could increase deployment and drive down costs 39a. Do you agree that the proposed single biomass boiler tariff should be tiered? We recognise that the move to a single, tiered biomass tariff could deliver improvements in boiler sizing, greater efficiency and value for money. However, as they stand the proposals would rule out the majority of boiler installation below 500kW and mean that many opportunities to introduce renewable heating will be missed. We strongly believe there is merit in providing a tariff to support biomass at this scale and that biomass must remain a viable option for all properties under the RHI to achieve its goals on heating targets. Whilst we agree that heat pumps offer an excellent heating option for some property types they are not appropriate in every scenario. Evidence from other countries would suggest that biomass boilers in the range of 100-1000kW are the main growth area with limited opportunities for larger systems.


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Consideration also needs to be given to the impact on biomass fuel supply of incetivising larger biomass installations over small systems and whether these will be fuelled by UK produced wood fuel. Smaller scales of biomass boiler are likely to be based around more localised wood fuel supply delivering additional benefits to the rural economy and UK woodlands. If a single tariff for all scales of biomass is to be used we would prefer to see a three tiered tariff. We would prefer to see the RHI payment based on actual heat load assessments which would ensure that boilers were appropriately sized and avoid the need for tiering. 39b. What is the appropriate tiering threshold at which participants should move from the Tier 1 to Tier 2 tariff? We agree that the 35% load factor is a reasonable point to move from tier 1 to tier 2 and should encourage improved boiler efficiency and more appropriate sizing. 40a. Do you agree that the appropriate tariff level for Tier 1 support for biomass boilers is in the range of 2.03 – 2.90p/kWh? As recognized in the consultation the tariff in this band will leave many smaller scales of biomass boiler as unviable, which we do not think is acceptable. There may be some risk that larger boilers are over compensated especially with the introduction of tariff guarantees which removes a significant risk barrier for larger boilers and could lead to rapid uptake and degression. We would likes to see a three tiered tariff introduced which would better cater for all scales of boiler. 40b. Within the range 2.03 – 2.90p/kWh what is the appropriate Tier 1 level of support for biomass boilers? See above response. 41a. Do you agree that the appropriate tariff level for Tier 2 support for biomass boilers is in the range 1.80 – 2.03p/kWh? No answer. See above response. 41b. What is the appropriate level of Tier 2 support for biomass boilers, within the range 1.80 – 2.03 p/kWh? See above response. 42a. Do you agree we should maintain a 4.17/kWh CHP biomass tariff (please consider the below question on tiering when providing your responses)? Yes we would agree that a 4.17p/kWh tariff is maintained for CHP since it remains an early stage technology with very low deployment to date. If encouraged it offers significant carbon and energy benefits.


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42b. Are there any types of plants (e.g. heat-led, power-led plants, plants of certain capacities) that may be overcompensated through the receipt of the 4.17p/kWh tariff? No answer. 43a. Do you agree with the introduction of tiering for all new biomass CHP participants? Please provide any available evidence in support of your response. In particular, this should indicate why the arrangements for CHP should be set differently to those proposed for biomass heating-only systems (where we are proposing that Tier 1 could be set at a level equivalent to a 35% load factor and Tier 2 would be set between 1.8 – 2.03p/kWh). We do not agree there is a need for tiering in CHP currently. CHP design needs to be based around high heat loads in order for it to be effective. Use of a tiering system based on load factors is therefore not appropriate since CHP should be operating to a high load factor. The technology is unlikely to be cost effective unless there is a useful output for the heat generated and so the risk that tiering is designed to combat should not materialise in biomass CHP. 43b. Do you agree with the proposed tier threshold of a 35% load factor? No answer. 43c. What is the appropriate level of the tier 2 tariff, within the range 1.8 – 2.03p/kWh? No answer. 44. Do you agree with our proposal to retain the existing tariff level for deep geothermal plant? Yes. 45. Do you agree that we should withdraw support for new solar thermal systems in the Non-Domestic RHI from 2017? No we do not agree. Business consumers should have the widest array of technologies available to select from. Whilst uptake is likely to be minimal there may be applications for solar thermal where solar thermal may provide the most appropriate solution either as a single technology or integrated with others heating systems. Consideration should be given to reducing the budget allocated to solar thermal but it should remain eligible. 46a. Our policy on tariff guarantees is that they should only be available to projects with long-lead times and which involve high capital expenditure. Do you agree installed capacity is a reasonable proxy measure for these criteria? Yes, whilst capacity is not the sole factor in determining the length of time it takes to deploy a technology, it is a straight forward proxy to use.


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46b. If No to question 46a, what alternative proxy would you suggest? We would also like to see heating systems in listed buildings able to benefit from a tariff guarantee. This is justified on the basis that projects in listed buildings are likely to be higher cost with longer lead times due to additional permissions required and that works may be slower to undertake thus increasing the risk posed by tariff degression. Historic buildings are often larger with higher heat loads and associated carbon emissions, they are also often well suited to renewable heating in particular heat pumps where consistent levels of low temperature heating are required for conservation purposes. Due to the protections placed on them there are often few alternatives to reducing emissions form historic buildings. Listed buildings should therefore represent a key target for the RHI as an opportunity to deliver significant carbon savings and providing a tariff guarantee could help achieve this. 46c. Do you agree with the suggested capacity limits for eligibility for tariff guarantees as set out in paragraph 11.15? Yes we would agree that these capacity limits seem reasonable. However, we would raise a concern over the provision of tariff guarantees for biomass boilers in excess of 2MW. Industrial biomass boilers in this scale are likely to be cost effective, but currently under deployed due to the risk posed by tariff degression. There is a risk that large biomass deployment could increase rapidly and use up available budget quickly. 47a. Please provide your views on the application process outlined in paragraphs 11.27 – 11.56, specifically: i. Can this process work for industry (i.e. does it fit with business planning and management of projects)? ii. What modifications could be made to improve it? The application process seems appropriate and we agree with the principal of financial close being used for a tariff guarantee. There may be instances that financial close cannot be provided until a tariff is guaranteed so this may need to be addressed. 47b. We propose to award the tariff guarantee at stage two of the application process, as described in paragraphs 11.33 – 11.36, but are interested in stakeholder views and evidence which may support the awarding of a tariff guarantee at stage one instead. Provided all the required information is provided at stage 1 we see no reason why a tariff guarantee could not be provided in a single application. DECC should pay attention to industry responses to confirm that 8 weeks will be sufficient to achieve financial close following pre accreditation. 48a. It will be critical to the success of the tariff guarantee scheme that plant owners are able to provide accurate maximum plant capacities and reliable expected annual eligible heat output or injection rates. We therefore invite stakeholder views on the approach described at paragraphs 11.48 – 11.49 which proposes limiting the level of RHI payment based on the declared maximum capacity of plants. No answer.


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48b. We also invite views on the proposals to require applicants to provide separate evidence that substantiates heat loads; as well as alternative approaches to this issue. No answer. 49a. We require a high degree of certainty that a tariff guarantee for large Ground and Water Source Heat Pumps can operate within the proposed framework. We welcome evidence of whether the requirement to reach financial close as it is currently proposed can work for Ground and Water Source Heat Pumps. No answer. 49b. Please suggest any alternative approaches to financial close, or minor modifications to the application process to improve its operation with regard to large heat pumps. Any approach would need to provide DECC with sufficient assurance that large Ground and Water Source Heat Pump projects will go ahead and commission. No answer. 50a. Do you agree with the suggested capacity limits for Air to Water Heat Pumps and to Ground and Water Source Heat Pumps who wish to apply for preliminary accreditation? No answer.

51. Do you agree that a plant granted a tariff guarantee should be protected from the cap (described in Chapter 3) if it is activated, meaning that it will still be able to commission and be accredited or registered onto the scheme? Yes since the methodology for determining whether the cap has been reached will take into account spending forecast under the pre accreditation tariff guarantee process. DECC will presumably be using the expected date of accreditation supplied as part of the tariff guarantee process to determine when the plant will start receiving RHI payments and therefore when it should start contributing to the cap. Unless the tariff guarantee is protected from the cap it would not overcome the additional risk

introduced by the cap and so would not help to bring forward projects. 52. Do you have any thoughts as to how to minimise the above risk of counting committed spend from plant awarded a tariff guarantee and the potential this has to result in premature scheme closure? We think the requirement to achieve financial close as well as requesting regular feedback on project progress and completion date is sufficient to overcome the issue. 53. Does your interest in the RHI relate to the operation of the scheme in a particular geographical area? England & Wales.


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54a. We are interested in stakeholders’ experience of our regular RHI deployment statistics publications. Do you use these statistics? Yes from time to time. 54b. If yes to question 54a, to what purpose? To advise member son likelihood of degression and analyse deployment data. 54c. Is there any information within the statistics that you find especially useful? The summary table and comments with regard to degression are most useful, but access to all of the data is helpful in analyseing trends No answer. 54d. Is there any information not provided in the statistics that you would find useful? Generally the data is sufficient. I think the data under biogas will need to be further broken down into applications from biogas from wood fuel and biogas from AD fir future interrogation. 55. Do you have any further comments or suggestions on the proposals included in this consultation, or on the RHI in general? Thought could be given to requiring demonstration of compliance with the heat network metering and billing regulations as part of the RHI application. Whilst this would add a further layer to the application process there is significant cross over between the RHI application and the network regulations and therefore it would seem sensible to have them combined. This would also benefit consumers in that they would be ensuring compliance with all requirements rather than having to consider a separate area of regulatory compliance. This would seem to be a sensible area of regulatory streamlining and could reduce the work for the NMO.

For further information please contact: Tom Beeley Renewable Energy Adviser CLA, 16 Belgrave Square London SW1X 8PQ Tel: 020 7235 0511 Fax: 020 7235 4696 Email: [email protected] www.cla.org.uk

CLA reference (for internal use only): A2432002

http://www.cla.org.uk/

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