Government proposes action to prevent Renewable Heat Incentive exceeding its budget

In a consultation the Department for Energy and Climate Change (DECC) proposed  the cut-off, which it said will operate with a one-month notice period, as an "interim cost control" measure. This would operate until the Government is able to introduce a more flexible system which will lower tariffs as take-up of the scheme grows, it said.

DECC intends to have the temporary measure in place by the summer, and said that it would publish "regular updates" on its RHI spending to "ensure the industry is not taken by surprise".

"Current application levels are low relative to the available budget and if these levels continue the proposed interim cost control measure is unlikely to be needed," the DECC said. "However, there is a high degree of uncertainty about how the market will respond to the RHI and to ensure [its] continued success we must learn the lessons from other schemes and maintain budgetary control."

The Government intends to formally consult on different policy options to ensure the RHI stays within its budget in the summer, and hopes to have a long-term mechanism in place by the end of the 2012-13 financial year.

A further consultation aimed at increasing the number of eligible technologies under the RHI will take place in September, it said. DECC also confirmed that   the RHI will not be open to domestic users before summer 2013.

An extended Renewable Heat Premium Payment (RHPP) scheme, which gives households money towards renewable technologies such as biomass boilers, heat pumps and solar thermal panels, will begin on 2 April. In addition, DECC will launch a heat strategy setting out its long-term plans to decarbonise the heat sector shortly.

Under the RHI long term financial incentives and support are available to successful applicants that use eligible and qualifying renewable technologies such as heat pumps, biomass boilers or solar thermal panels to generate heat. The first phase, which was introduced for non-domestic users in November 2011, will make payments on a quarterly basis over a 20-year period.

"Putting in place cost control measures for the Renewable Heat Incentive is the prudent thing to do, given this is millions of pounds of taxpayers' money at stake and taking on board the lessons learned from the Feed-in Tariff scheme," said Energy Minister Greg Barker. Last week the Government was refused leave to appeal to the Supreme Court over "legally flawed" cuts to feed-in tariffs (FiTs) for solar. The falling cost of the technology has put a "huge strain" on the Government's financial support package, it said.

Ofgem is currently hosting a series of industry events, which Barker said were likely to increase demand for the scheme. "It is right for us to be cautious and have the ability to act should we need to," he said. The regulator told industry publication BusinessGreen earlier this month that it was dealing with 300 projects at the application stage.

"There has to date being very poor uptake under this scheme" said environmental law expert Linda Fletcher of Pinsent Masons, the law firm behind Out-Law.com. "So it is rather surprising that the Government has chosen to consult on budgetary matters so soon but it is hoped that this will mean no sudden and unexpected reductions to tariffs as we have seen with feed in tariffs for solar. With further consultation looming in the summer business will have to dedicate more time and resources to responses with no guarantees"

Fletcher said that the expansion of the RHI to encompass more eligible technologies is a positive development. "There have been calls by business for the RHI to cover cooling technologies as these often consume higher levels of energy," she said.

Greater clarity of how the RHI and other schemes will work with the Green Deal is needed sooner rather than later, Fletcher said. "The practicalities of just how the RHI will interrelate with the Green Deal is a must as the upfront cost has undoubtedly been a barrier to uptake but there seem to be no reasons why a business cannot claim both incentives, subject to eligibly criteria being met under both schemes once the Green Deal comes on line."