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RENEWABLE HEAT INCENTIVE FOR NORTHERN IRELAND

A REPORT FOR THE DEPARTMENT OF ENTERPRISE, TRADE AND


INVESTMENT (DETI)

28 June 2011
Final Report

Submitted by:

Cambridge Economic Policy Associates Ltd and


AEA Technology

Project part financed by the European Regional Development Fund under the European Sustainable
Competitiveness Programme for Northern Ireland

CONTENTS
Executive Summary ..............................................................................................................5
1.

2.

3.

Introduction ................................................................................................................ 15
1.1.

Approach ................................................................................................................................... 15

1.2.

Supporting policies................................................................................................................... 15

1.3.

Report structure........................................................................................................................ 15

Context ........................................................................................................................ 17
2.1.

Renewable heat technologies .................................................................................................. 17

2.2.

Specifics of each renewable heat technology ....................................................................... 18

2.3.

Technology comparison .......................................................................................................... 24

2.4.

The policy context and drivers for renewable heat ............................................................. 26

2.5.

The Northern Ireland context for heating ........................................................................... 33

The need for Government intervention....................................................................... 41


3.1.

4.

5.

6.

7.

Impact of no Government intervention ............................................................................... 41

Objectives and funding ............................................................................................... 45


4.1.

Objectives .................................................................................................................................. 45

4.2.

Funding ...................................................................................................................................... 45

Option development.................................................................................................... 47
5.1.

Option parameters and framework ....................................................................................... 47

5.2.

Further issues to consider when developing options ......................................................... 54

5.3.

Conclusions ............................................................................................................................... 55

Detailed option design ................................................................................................ 56


6.1.

Eligible technologies ................................................................................................................ 56

6.2.

Inclusions and exclusions........................................................................................................ 57

6.3.

Options ...................................................................................................................................... 57

6.4.

Do nothing option ................................................................................................................... 57

6.5.

Challenge Fund ......................................................................................................................... 58

6.6.

RHI options .............................................................................................................................. 61

6.7.

NI RHI subsidy levels ............................................................................................................. 64

6.8.

Renewable Heat Obligation .................................................................................................... 69

Option assessment ...................................................................................................... 70


7.1.

Assessment criteria ................................................................................................................... 70

7.2.

Model ......................................................................................................................................... 71

7.3.

Assessment of the shortlisted options .................................................................................. 72

7.4.

Segment analysis ....................................................................................................................... 75

7.5.

Carbon savings ......................................................................................................................... 78

7.6.

Monetisable costs ..................................................................................................................... 79

8.

Sensitivity analysis and risks ....................................................................................... 84


8.1.

Quantitative sensitivity analysis .............................................................................................. 84

8.2.

Qualitative analysis of risks ..................................................................................................... 85

9.

Non-monetary impacts ............................................................................................... 87


9.1.

Employment and capacity building, particularly in green sectors ..................................... 87

9.2.

Job displacement ...................................................................................................................... 89

9.3.

Open to all (special consideration to fuel poor) .................................................................. 89

9.4.

Reduction in oil imports ......................................................................................................... 89

9.5.

Impact on the gas network ..................................................................................................... 90

9.6.

Displacement effects in other sectors ................................................................................... 92

9.7.

Air quality .................................................................................................................................. 93

10.

Summary of costs and benefits ............................................................................... 94

10.1.

Monetisable costs and benefits .............................................................................................. 94

10.2.

Value for money ....................................................................................................................... 96

11. Funding, management, monitoring and evaluation ................................................... 97


11.1.

Funding ...................................................................................................................................... 97

11.2.

Administration costs ................................................................................................................ 97

11.3.

Options for management ........................................................................................................ 97

11.4.

Monitoring ................................................................................................................................ 98

11.5.

Evaluation and review ............................................................................................................. 98

12.

Summary, conclusions and recommendations ......................................................101

12.1.

Summary ..................................................................................................................................101

12.2.

Conclusions and recommendations ....................................................................................103

12.3.

Other recommendations .......................................................................................................106

Annex A: Cost and Performance Data .............................................................................. 108


Annex B: Use of Bioliquids................................................................................................115
Bioliquids considered ..........................................................................................................................115
Feedstocks.............................................................................................................................................115
Northern Ireland resource ..................................................................................................................115
Costs ......................................................................................................................................................116
Sustainability .........................................................................................................................................117

GHG emissions savings......................................................................................................................118


Demand for heating oil in NI ............................................................................................................119
Annex C: Fuel cost assumptions ...................................................................................... 120
Electricity ..............................................................................................................................................120
Gas .........................................................................................................................................................121
Heating oil .............................................................................................................................................122
Biomass .................................................................................................................................................123
Bioliquids ..............................................................................................................................................125
Biogas ....................................................................................................................................................126
Annex D: Administering renewable heat grant programmes .......................................... 127
Scheme initiation/preparation phase: ...............................................................................................127
Project Assessment phase ...................................................................................................................127
Scheme initiation phase.......................................................................................................................127
Project monitoring ...............................................................................................................................128
Project Completion..............................................................................................................................128
Other costs............................................................................................................................................128
Annex E: Alternative rate setting methodology ............................................................... 129
Characteristics ......................................................................................................................................129
Assessing subsidy levels required ......................................................................................................129
Selecting the bands ..............................................................................................................................130
Selecting the reference installation ....................................................................................................130
Tiering....................................................................................................................................................130
Differences from DECC methodology ............................................................................................131
Annex F: Details of renewable heat technologies ............................................................ 132
Air Source Heat Pumps (ASHPs)......................................................................................................132
Ground Source Heat Pumps (GSHPs).............................................................................................134
Solar Thermal .......................................................................................................................................136
Biomass Boilers ....................................................................................................................................138
Bioliquids ..............................................................................................................................................140
Biogas ....................................................................................................................................................142
Bio-methane Injection into the Gas Grid ........................................................................................143
Renewable Combined Heat and Power (CHP) ...............................................................................144

EXECUTIVE SUMMARY
This report was commissioned by the Department for Enterprise, Trade and Investment (DETI)
in Northern Ireland to produce a recommendation on the most appropriate form of a Renewable
Heat Incentive (RHI) for Northern Ireland. This RHI would help to deliver the target of having
10% of heating in Northern Ireland from renewable sources by 2020.
Our approach
Our approach follows the Northern Ireland Guide to Expenditure Appraisal and Evaluation
(NIGEAE) guidelines. We therefore start by setting out the context for renewable heat. This
includes a discussion of the available renewable heat technologies, the cost gap between them
and the oil and gas counterfactuals, and an initial assessment of those that it would be most costeffective to install. This showed that the conversion costs were in all cases thousands of pounds,
a significant outlay for most households.
We went on to look at the strategic and policy drivers. This leads on to the rationale for
Government intervention. This rationale is then set alongside DETIs specific objectives and
constraints, including funding.
Our consideration of options follows. To guide our analysis, we set out a framework for
classifying and thinking about policy options. This focuses on the key decisions that define a
policy for subsidising technologies, such as who will receive the subsidy, what the profile of the
subsidy will be and which technologies will be supported. As well as the possible RHI options,
we consider capital grants for comparison purposes. This includes administratively allocated
grants (with equivalent support to the preferred RHI option) and competitively allocated grants
(a Challenge Fund). The latter in particular, since it is assumed to subsidise renewable heat in
order of cost-effectiveness, indicates the limits of what is possible within the constraints.
However, while grants have some benefits in terms of reducing capital barriers, they can be seen
as only providing a short-term incentive. Grants also, because they cover the costs of renewable
heat upfront, can deliver renewable heat more slowly than an RHI, for the same funding, as the
degree of financial leverage is lower than for an RHI payment structure. This has to be taken into
consideration in deciding between an RHI, which can leverage the funding to accelerate
deployment, and the increased lifetime cost of doing so.
The RHI that we consider is along the lines of the Great Britain (GB) model, but with
appropriate modifications to fit Northern Irelands specific circumstances. Modifications are
necessary since previous work1 has shown that the GB RHI would be sub-optimal for Northern
Ireland. Moreover, since an RHI would require long term funding, we have at DETIs request,
considered two possible long term funding scenarios. We also consider the scenario where DETI
only has the existing committed funding of 25m, although we understand from DETI that HM
Treasury has agreed that funding beyond 2014/15 will be available for those installations that are
installed within the Spending Review period (i.e. up to 2014/15). This is subject to funding being
basically flat beyond 2014/15, and initial payments being affordable within the Spending Review
1

AECOM/ Pyry, 2010, Assessment of the Potential Development of Renewable Heat in Northern Ireland: Final Report

funding profile. The 25m funding scenario should therefore be considered as being for
comparison purposes only.
We then analyse the options, taking into account efficiency and several constraints on
deployment. Our quantitative assessment of the options uses the economic model we have
developed for DETI, which is outlined in Section 7.2; however, since any model can only be a
partial representation of reality, we also assess options qualitatively. Consideration of risks and
key sensitivities ensures that our analysis is robust to possible future developments. We focus on
risks that would lead to relatively low uptake in particular in the domestic sector and on the
impact on the gas network.
Section 10 summarises the preceding analysis of costs and benefits and draws them together.
After considering the administrative and funding issues in Section 11, we present our overall
conclusions and recommendations in Section 12. These include recommendations on the
appropriate form of an NI RHI, as well as recommendations for complementary or supporting
policies.
Options considered and overall assessment
We consider the following options:

Do nothing.

An administered capital grant scheme

A Challenge Fund (competitively allocated grant).

Three possible RHIs (long term funding scenarios only):


o GB RHI, which uses the rates proposed for the GB RHI.
o NI RHI DECC, which uses the same methodology as DECC used for the
GB RHI rates, but using our data for NI.
o NI RHI Alt, which uses a slightly modified methodology2 (see Annex E for
details).

We conclude that the Challenge Fund delivers the most renewable heat, at the lowest cost, and
delivers 10% under both long-term funding scenarios. Grants tend to deliver renewable heat
more slowly than an RHI with the same rates - our modelling suggests that an administered grant
scheme with grants equivalent to the present value of subsidy under NI RHI Alt would
deliver 10.69% in Funding 2. This is one key advantage of an RHI approach in that, as for
FITs for renewable electricity, it allows for the available subsidy to be leveraged to increase the
speed at which renewables are deployed (although it is likely to be significantly more expensive
over the long term). However, the fact that the Challenge Fund is competitively allocated (and is
2

The main difference between the method used to calculate the rates in this report and that used by DECC is that
positive and uniform discount rates are used to value costs in future years and recover of upfront costs across heat
output in all years. In each case this results in rates that are less than one penny per kWh different except for solar
thermal. Solar thermal incentives would be over 15 pence less per kWh using the DECC methodology as their
approach assumes investors place a high value on ongoing fuel savings.

neutral between technology types) means that it is much more efficient than an administratively
allocated grant, and this overcomes the funding disadvantage of grants compared to an RHI.
The 10% target can be delivered by any of the RHI options under Funding 2, but the NI RHI
Alt rates deliver more renewable heat than the NI RHI DECC rates, at a similar cost per
unit. The GB RHI rates perform poorly. None of the RHI options delivers the 10% target
under Funding 3 (and so equivalent administered grant schemes would not either).
We also conclude that delivering the cost-effective renewable heat (that delivered under do
nothing) will be crucial to achieving the target.
Details of assessment
Table 1 below shows the heat estimated to be delivered by each approach as a percentage of the
projected overall heat demand for Northern Ireland in 2020.
Table 1: Level of renewable heat in 2020, by funding level and policy, as % of total heat demand
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

7.65%

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

8.47%

8.05%

11.69%

10.69%

10.23%

10.84%

11.14%

11.19%

8.90%

8.73%

9.49%

9.42%

The Challenge Fund delivers the most renewable heat of any option. As noted, this is because it
is competitively allocated and is technology neutral. A Capital Grant delivers less than the NI
RHI options, as expected, but more than the GB RHI applied to Northern Ireland, reflecting
the tailoring of the approach to the Northern Ireland context. Of the RHI options, the NI
Alt approach delivers more renewable heat than any other RHI in Funding 2 and about the
same in Funding 3.
Table 2, which shows the net monetisable cost/ benefit), shows the grant options to be best on a
pure monetisable cost-benefit basis (with the competitive allocation of the Challenge fund
providing additional benefits).

Table 2: Overall monetisable (cost)/ benefit, compared to do nothing (m, 2010 prices)
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16

Funding 3 - Long term


funding: 25 m to 2014/15,
12m per year thereafter

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

14

-11

-24

-74

-394

-217

-242

50

-48

-128

-98

-87

Of the RHI options, the NI RHI DECC and NI RHI Alt rates are comparable, with
both doing significantly better than the GB RHI rates. An important message from the table is
that all options do worse at the higher level of funding. To deliver high levels of renewable heat,
the more expensive technologies must be subsidised and installed, but this inevitably pushes up
the cost per unit of heat. This points to the importance of acting to reduce any non-financial
barriers to the deployment of the cheaper technologies, such as awareness, the supply chain and
the availability of suitably qualified installers.
This is illustrated in Table 3 below, which shows the average cost in per unit of additional
renewable heat deployed in 2020.
Table 3: Average cost, in , per kWh of additional3 renewable heat deployed in 2020
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

n/a

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

0.16

0.36

0.24

0.33

1.06

0.57

0.57

0.13

0.41

0.90

0.51

0.52

That is, beyond the heat that would be deployed under do nothing.

In all cases, the move to Funding 2 increases the average cost per unit. Overall, the picture is
very similar to that in Table 2 above - the Challenge Fund does best, while the NI RHI DECC
and NI RHI Alt rates are similarly cost-effective, and significantly better than the GB RHI rates
applied to Northern Ireland.
We have also considered the cost-effectiveness of the options in terms of their impact on carbon
dioxide emissions. As Section 10.2 shows, our recommended NI RHI option is roughly as costeffective as offshore wind. The Challenge Fund is significantly better.
Main recommendation
On a monetised cost-benefit basis, a Challenge Fund or other grant therefore appears more
attractive than an RHI; this would also be likely to be the case for the rest of the UK. Part of this
will be driven by the technology neutral approach of the Challenge Fund. However, there are
other factors in the decision between an RHI and a grant scheme which need to be considered.
These include the fact that an RHI is less expensive upfront than an administered grant scheme,
that it provides a long-term signal for the generation (as opposed to simply installation) of
renewable heat and the benefits of consistency/ administrative simplicity across the UK. On the
other hand, a capital grant scheme can help to overcome upfront financing costs, particularly for
domestic consumers, and is as noted likely to be less expensive over the long term.
On balance, these factors could indicate that an RHI should be pursued for commercial
installations, with their ability to access finance and their relatively lower discount rates. This will
also have the advantages of consistency and administrative simplicity with the rest of the UK.
The picture is less clear for domestic consumers. Our results are shown on the basis that
domestic consumers are included in any RHI, and that they take up renewable heat based on its
lifetime costs and benefits. While this is sensible from an economic point of view, it does not
fully consider the financing issues that domestic consumers face, in particular their ability to
borrow. There are significant concerns about the upfront capital costs of renewable heat
equipment, and their potential to be a barrier to households installing them. This barrier can be
overcome by adopting a grant-based approach for households.
That said, the evidence from other RHI-type schemes (i.e. FITs) is that energy service companies
come forward with ways of reducing or removing the upfront costs for consumers. We also note
that the GB approach for domestic consumers beyond 2011 is not yet clear, and it would be
unwise for DETI to commit firmly to an approach before GB does.
We therefore recommend that DETI reserves any final decision on the inclusion of domestic
consumers in an RHI until after the final GB approach is clearer. If it is decided that the
inclusion of domestic consumers in an NI RHI is not appropriate, DETI should introduce a
grant scheme. The evidence from our analysis in that particularly in the Funding 2 scenario, the
available subsidy is not the limiting factor, which reduces the advantage of an RHI over grants.
DETI should in any event explore the possibility of domestic NI consumers participating in the
GB RHI Premium Payments scheme. We provide below a table showing possible NI Premium
Payment levels, based on the value that consumers would receive from the first year of an RHI.
The table also includes a figure for suggested one-off grants, which represent the same support as

domestic consumers would receive under our RHI proposals, but over the full 20 year period, in
present value4 terms; however, our results strongly suggest that a Challenge Fund would be
preferable to a fixed grant payment.
Table 4: Suggested Premium Payment and one-off grant levels, by technology
Technology

Premium Payment

Detached

Other houses

One-off grant

Detached

Other houses

ASHP

620

390

3,700

2,300

Biomass

860

540

5,100

5,100

GSHP

750

470

4,500

2,800

Liquid biofuels

280

170

1,600

1,000

Solar Thermal

160

160

930

930

RHI recommendation
We recommend that any NI RHI should be structured as in Section 6, and use the NI RHI
Alt rates. These are shown below in Table 5. Following the table, we discuss a number of the
rates in more detail.
Table 5: Recommended NI RHI rates, in pence per kWh5
Technology, by size
ASHP Small
ASHP Medium

NI recommended levels
3.3
-

Biogas injection All

2.5

Biomass boilers Small

4.5

Biomass boilers Medium

1.3

Biomass boilers Large

GSHP Small

4.0

GSHP Medium

0.9

Liquid biofuels Small

1.5

Liquid biofuels Medium

Liquid biofuels Large

Solar Thermal Small

8.5

Solar Thermal Medium

8.5

At domestic consumers assumed discount rate of 16%.


For example, suppose that a commercial property installs a biomass boiler of 50 kW. This is eligible for the
medium rate of 1.3p per kWh, from the table above. Following our technology assumptions (Annex A), a typical
boiler of this size produces around 30,000 kWh per year. This gives a total annual subsidy of around 390, or four
quarterly payments of 97.50.

10

Solar Thermal
The rate for solar thermal is significantly below the raw rate given by our methodology of 32.5p
per kWh. If the rate is set at this level, the heat deployed in funding scenario 2 increases by 13
GWh (from 1,860 GWh to 1,873 GWh) but at an additional subsidy cost of 175 million6. It is
difficult to justify that level of support on cost-benefit grounds. We therefore recommend a
lower level of support for solar thermal, at the same level as the GB RHI. In any case, support
for solar thermal carries the risk of funding being diverted away from less expensive technologies.
This suggests that a cap on the annual subsidy paid to solar thermal should be considered in all
funding scenarios.
Comparison with GB RHI rates
The rates we propose are lower than those for the GB RHI7. The main driver for this difference
is the different counterfactual fuel assumed. More concretely, the GB RHI provides an incentive
to switch from gas, the main fuel in GB, while our proposed rates provide an incentive to switch
from oil, the main fuel in NI. Since the cost of oil is generally higher than that of gas (see Annex
C for our assumptions), less subsidy is required to make renewable heat economic compared to
oil than compared to gas.
Large industrial sites
There are 17 industrial sites in Northern Ireland which are sufficiently large to be covered by the
EU Emissions Trading System. We have considered the case for providing support through an
RHI for these sites.
Some of the sites have heat requirements for which renewable heat is not suitable. The majority
of the others are either on gas or near the gas grid. If they were to switch to renewable heat, this
could conflict with DETIs objective to extend the gas network. For the remaining sites, our
analysis suggests that biomass is likely to be cost-effective for them later this decade without
additional subsidy. We recognise that this is driven by the relative costs of biomass and fossil
fuels and the cost of carbon, and so recommend that DETI keeps this conclusion under review.
However, our conclusion is that it would not be appropriate to subsidise renewable heat in the
large industrial sector on current evidence.
Tariff bands
Table 6 below sets out our suggested tariff bands. In most cases these are close to those in the
GB RHI consultation, which included the domestic sector.

6
7

In funding scenario 3, the heat deployed decreases, as subsidy is diverted from more cost-effective technologies.
With the exception of solar thermal, where we propose the same rate.

11

Table 6: Proposed sizes for subsidy bands


Technology Group

Investor groups

GB
RHI GB RHI Proposed NI
consultation proposal
range
8
9
ranges
rates
Lower Upper
bound bound

ASHP

All domestics and small


commercial/public sector

0-45

Small

*10

Less
than
45

45

No
upper
limit

Medium Large commercial/public


sector (but not large enough
for industrial)

45-350

Biogas
injection

All

All

All

All

All

All

Biomass
boilers

Small

All domestics and small


commercial/public sector

0-45

0-200

Less
than
45

Medium Large commercial/public


sector (but not large enough
for industrial)

45-500

200+

45

No
upper
limit11

Small

0-45

0-100

Less
than
45

Medium Large commercial/public


(but not large enough for
industrial)

45-350

100+

45

No
upper
limit

Liquid
biofuels

Small

All domestics (but not large


enough for small
commercial/public sector i.e.
50kW)

0-45

*12

4513

Solar
Thermal

Small

All domestics and small


commercial/public sector

0-20

0-200

20

GSHP

All domestics and small


commercial/public sector

Other recommendations
We include a number of other recommendations, which are made at appropriate places in the
report. These are:

http://www.decc.gov.uk/assets/decc/consultations/rhi/1_20100129161148_e_@@_designoftherenewableheatinc
entivenerareport.pdf These rates are included for comparison purposes, since they include domestic installations,
unlike the current GB RHI proposed bands.
9
These rates do not include domestic installations. There are also no rates given for a number of technologies that
we suggest are included in the NI RHI. A direct comparison is therefore difficult.
10
Not eligible in phase 1, under review for inclusion in phase 2.
11
Based on our analysis, we recommend a zero rate for large industrial sites, and so recommend that they are
excluded from this band.
12
Not eligible in phase 1, under review for inclusion in phase 2.
13
If non-domestic schemes are to be included, then we recommend a separate band above 45kW.

12

To look at how DETI could support the renewable heat industry, and supply chain, in
Northern Ireland. Our analysis shows this to be a significant barrier to high levels of
deployment, with an increase in deployment rates of 50% leading to our recommended
RHI delivering 12.58% compared to 11.14% with the standard constraints.

To explore with Ofgem whether there is scope to use the GB Premium Payments
processes for NI domestic consumers.

To engage with industry to look at how the energy service company (ESCO) model could
help deliver renewable heat in Northern Ireland, particularly for those on lower incomes.

To explore with the relevant large industrial sites what the barriers to uptake of renewable
heat might be, and how they could be overcome. This includes consideration of the
biomass supply chain. DETI should also keep the policy of no subsidy for industrial
consumers under review, to allow for movements in the relative cost of biomass and oil
or gas.

To work closely with the Green New Deal team in the Department for Social
Development, reflecting the recommendation, following the Reconnect programme, of
the importance of considering a whole house approach to renewables. This should
include informing those benefiting from the Green New Deal about the incentives
available for renewable heat.

To explore the option of contracting out the management of an NI RHI to a third party.

To monitor uptake of any renewable heat incentive on an on-going basis, and to do a


periodic monitoring of a selection of installations to ensure that they are operational and
continue to generate.

To undertake a review of any scheme after two to three years.

Uncertainties
We recognise that information on renewable heat technology and on its likely uptake has
significant uncertainties, particularly in the domestic sector14. Section 8 looks at the results of
sensitivities around the uptake rates and barriers, to assess the robustness of the policy options.
In summary, an RHI is quite sensitive to upfront capital barriers. A Challenge Fund is more
robust to this uncertainty, partly because it is a grant scheme.
Impact on the gas network
We also considered the impact of the renewable heat target on future demand for gas, which
could affect the rollout of the gas network. Under the assumptions in our modelling, the impact
is small, and this is borne out by our sensitivity analysis. Nevertheless, our view is that risks
remain and we recommend this issue is considered as part of an overall review of any NI RHI
14

This is consistent with the conclusion in the recent proposal from DECC for an RHI for Great Britain.

13

after two to three years. Such a review will take into account lessons from experience of
operating an RHI that cannot be captured by a modelling exercise.

14

1.

INTRODUCTION

This report was commissioned by the Department of Enterprise Trade and Investment (DETI)
in Northern Ireland, to consider the options for a Renewable Heat Incentive (RHI) for Northern
Ireland and to make a recommendation.
1.1.

Approach

This final report is structured around the steps in the Northern Ireland Guide to Expenditure
Appraisal and Evaluation (NIGEAE) guidelines. We begin by considering the strategic, policy
and technological context within which the RHI is to be applied. After a brief introduction to
renewable heat technologies, we turn to the EU and UK legislation that will provide the driver
for renewable heat. We consider the current heating situation in Northern Ireland, and also the
GB and Republic of Ireland context. Issues surrounding the roll-out of the gas network are
specifically considered.
Following this, we look at a framework for developing options, based on the what, who and
how of subsidy design, in terms of technologies supported, eligible beneficiaries and the
different ways in which support might be awarded. We then settle on possible options, and
analyse them in more detail using our project model. This is supplemented with qualitative and
policy advice to arrive at our final recommendations for DETI.
In all this, we have discussed our conclusions with DETI, but the recommendations remain our
own.
1.2.

Supporting policies

There are a number of supporting polices that could be introduced alongside an RHI, such as:

the introduction of building standards such that new buildings would have to justify not
having renewable heating;

a requirement on fuel suppliers to source at least a certain percentage of their fuel from
renewable sources (at DETIs request, we discuss this briefly in Section 6.8);

building the technical capacity of heating engineers to install and inform on the benefits
of renewable heating, perhaps through subsidised training courses; and

a requirement for public sector to convert buildings either with or without subsidy.

The focus of this report is an RHI and so we do not consider further the specifics of these
potential policies. That said, our later analysis suggests that policies to build capacity could be
very useful, as the ability to deploy renewable heat appears to be the binding constraint.
1.3.

Report structure

Following this introduction section:

15

In Section 2, we introduce the available renewable heat technologies, and discuss costs
and technology-specific issues for each. We also cover the strategic and policy framework
within which the RHI is being developed.

In Section 3, we set out the rationale for Government intervention, including a


consideration of technology costs and the implications of doing nothing.

In Section 4, we look at the overall and secondary objectives for renewable heat policy,
and the potential funding.

In Section 5, we develop a framework for developing options.

In Section 6, we set out the details of the shortlisted options.

In Section 7, we set out the framework that we have assessed the options under, and
presents the results of our analysis.

In Section 8, we look at the risks to delivery, and the impact of sensitivity analysis.

In Section 9, we look at the non-monetary benefits of renewable heat.

In Section 10, we summarise the costs and benefits of the options.

In Section 11, we look at the funding, management, monitoring and evaluation of any
renewable heat support mechanism.

Section 12 contains our overall recommendations.

In addition:

Annex A gives cost and performance data for the renewable heat technologies
considered.

Annex B discusses the detailed cost issues associated with bioliquids.

Annex C sets out the fuel price assumptions that we have used in our analysis.

Annex D looks at the tasks needed for administering a typical renewables capital grant
scheme.

Annex E sets out the methodology for calculating the rates for the NI RHI Alt
approach.

Annex F gives more details about the technologies considered, including an assessment
of their suitability for particular uses and how their deployment might affect the delivery
of other policies and objectives.

16

2.

CONTEXT

Before going into the detail of policy design, it is important to understand the overall strategic,
policy and technological context for renewable heat, as well as the specific circumstances of
Northern Ireland. That is the purpose of this section.
We start with a brief introduction to renewable heat technologies, looking at those that might be
deployed in Northern Ireland. Knowledge of the technological options is crucial for full
understanding of the implications of the policy drivers. More detail on the technologies can be
found in Annex F.
We then turn to the legal and policy drivers for renewable heat, first at a European level and then
focusing on the UK and NI context. A particular driver here will be the proposals announced for
an RHI in GB.
We then move on to look at the current circumstances of Northern Ireland, both in terms of
overall heat demand and the current levels of renewable heat deployed.
2.1.

Renewable heat technologies

In this sub-section, we briefly present the available renewable heat technologies that might be
deployed by any subsidy. Each of the technologies has a range of costs, and there are technologyspecific issues to consider. For instance, some technologies are not suitable for particular
applications, and some may be relatively more appropriate to the Northern Ireland context. The
costs and characteristics will help determine the most appropriate form and level of subsidy.
Table 2.1 below lists the technologies that have been included in this study.
Table 2.1: Technologies included
Technology

Description

Heat Pumps

Ground, air or water source heat pumps, used for space or water heating.

Solar Thermal

Solar panels for water and space heating.

Biomass combustion

Biomass boilers used for the combustion of wood and other biomass. Used
for space heating, hot water or process heat.

Bioliquids

Bioliquids are liquid fuels produced from biomass materials.

Biogas

Production and use of a fuel gas derived from a biomass feedstock.

Biomethane in the gas Upgrading of biogas.


grid
Renewable CHP

Combustion of biomass to generate electricity and heat, only when from


renewable sources.

17

2.2.

Specifics of each renewable heat technology

2.2.1. Air Source Heat Pumps


Air Source Heat Pumps (ASHPs) use an electrically-driven vapour compression cycle to extract
heat from ambient air. The vapour compression cycle is shown in Figure 2.1 below and is
comprised of four components (evaporator, compressor, condenser and expansion valve).
Figure 2.1: Operating Principle of a Heat Pump

A refrigerant that has a low boiling point is circulated in the heat pump unit. Electricity is used as
an input to the system to compress the vapour before the heat is extracted to a heating medium
(typically water) via a condenser. An air conditioning system typically operates in reverse with
some heat pumps termed as reversible able to operate in either heating or cooling mode.
A critical metric of efficiency for a heat pump is the Coefficient of Performance (CoP). This is
the ratio between the heat output and electricity input. For example an ASHP with a CoP of 3
would be expected to generate three units of heat for each unit of electricity consumed. The CoP
is a measure of the efficiency of the heat pump equipment and is strongly dependent on the
difference in temperature between the heat source (ambient) and the heat destination (the heating
system). The CoP is normally measured with a standard temperature difference under test
conditions.
A further measure of efficiency is the average efficiency of a heat pump over a year of operation
that takes into account the inherent seasonal variation in ambient temperature. This is termed the
Seasonal Performance Factor (SPF). If the efficiency of a heat pump is lower than 2.875 then it is
not classed as renewable (the same applies for Ground Source Heat Pumps). Typical sizes of
ASHP are between 2kW to 100kW.
ASHPs are best suited to residential and commercial applications that do not have access to the
gas network and that do not have access to land needed for ground source heat pumps (discussed
elsewhere). Disadvantages are that the CoP for ASHPs falls with lower air temperatures. They are

18

also limited by the low temperatures they can deliver into the heating system which normally
require an upgrade to the surface area of the emitters.
2.2.2. Ground Source Heat Pumps
Ground source heat pumps (GSHPs) use the same operating principles as an ASHP. The main
difference between the technologies is that a GSHP extracts heat from the ground, which
maintains relatively constant temperatures through the year. Extraction is achieved by installation
of a ground loop (through which refrigerant circulates) acting as the evaporator. The ground loop
can be installed either as a horizontal slinky system in a trench (see Figure 2.2 below) or a
vertical pipe (boreholes) varying in depth depending upon the ground type (typically depths are
75m to 100m). A horizontal ground loop requires a considerable area and therefore is best suited
to rural domestic installations while a vertical loop is more suitable with constrained land
availability. A further option for schemes with land constraints is the extraction of heat from
groundwater via a borehole.
A GSHP is illustrated in Figure 2.2.
Figure 2.2: Ground Source Heat Pump Horizontal Slinky Ground Loop

Typical sizes for GSHPs are between 5 and 50kW although utility scale units exist in other EU
countries utilising water from aquifers or lakes with capacities of several megawatts. Advantages
of GSHPs are that they do not experience the same performance loss as ASHPs in cold weather
due to ground temperatures remaining constant through the year. However, installation can
require significant disruption associated with installation of the ground loop and this adds
additional cost.
2.2.3. Solar Thermal
A solar (thermal) water heating system uses solar collectors (panels), normally mounted on a roof,
to capture the energy released by the sun to heat water. These collectors contain liquid, which

19

once heated travels to a coil in the hot water cylinder and transfers heat to the water store. So
over a period of time a full tank of hot water is created. The time period will depend on the
intensity of the sun, the size and efficiency of the collectors and the size of the hot water tank. A
properly sized solar thermal installation will provide 60% to 70% of annual domestic hot water
needs which generally equates to 100% of the demand in summer months and around 20% of
demand in winter. A typical solar thermal for hot water will occupy an area of approximately 5m2
and will need to be mounted on a south-facing surface. The two main types of solar collector are
evacuated tube and flat plate collectors as shown in Figures 2.3 and 2.4 below.
Figure 2.3: Evacuated Tube Solar Collector15

Figure 2.4: Flat Plate Solar Collector

15

Both figures sourced from www.solarworks.co.uk

20

Systems will typically not be designed to meet space heating requirements as this will normally
require a larger collector area than would be available for a single residence. Solar collectors can
only be deployed where the user has access either to a south facing roof or an unshaded area of
land on which collectors can be erected. As a result solar thermal installations may not be well
suited to high density residential accommodation. Furthermore, the effectiveness of solar
collectors will be dependent on the level of incident solar radiation, which diminishes with
increasing latitudes.
2.2.4. Biomass Boilers
This refers to the combustion of biomass material within a boiler for the production of heat. This
technology covers a wide range of scales, from domestic wood boilers of about 15kW heat
output to industrial-scale boilers producing high pressure steam with capacities of several
megawatts. Biomass can be derived from virgin sources or as the biomass element of waste
streams from municipal, commercial/industrial or construction/demolition sources.
The most common form of virgin biomass used (on the basis of installed capacity) is wood,
which can be provided in a variety of forms including chips, pellets, briquettes or logs. Other
forms of virgin biomass that can be used include short rotation coppice (normally willow or
poplar) or miscanthus16, both of which can be cultivated as energy crops.
Waste-derived biomass may either be in the form of biomass recovered from a waste stream (e.g.
wood recovered from demolition waste) or the biomass element of a mixed waste stream that
includes non-biomass material such as plastics. Where a mixed waste stream is used, the
renewable heat output is limited to the output attributable to the biomass content of the input
fuel. In the majority of cases, facilities utilising biomass derived from waste sources will be
required to comply with the EU Waste Incineration Directive17. The biomass content of wastederived biomass streams typically vary depending on the nature of the waste stream and the
extent of any processing to separate biomass and non-biomass material however values will tend
to be between 50% (e.g. unprocessed municipal solid waste) and 90% (e.g. waste wood extracted
from construction/demolition waste) on the basis of energy content.
Biomass boilers can be developed at scales that make them suitable for the provision of
renewable heat via a district heating network. A key constraint in the deployment of biomass at
all scales is the requirement for space for fuel storage. Furthermore, transport connections will be
an important consideration for large-scale biomass projects due to the potential need for frequent
fuel deliveries and the removal of combustion by-products (e.g. furnace bottom ash and fly ash)
generated.
2.2.5. Bioliquids
Bioliquids are liquid fuels produced from biomass materials, including waste such as used
cooking oil and tallow. Examples include bio-ethanol or biodiesel. Within Northern Ireland it is
16
17

Miscanthus giganteus is a perennial tall grass.


European Community (EC) Directive 2000/76/EC on the Incineration of Waste

21

expected the principal role that can be played by bioliquids is as a replacement for heating oil
within a domestic context.
Given the high proportion of oil used for heating in Northern Ireland, we have looked
specifically at the possibility of using bioliquids to replace some of the fossil fuel-based oil
currently used. In summary:

Greenhouse gas emissions savings are low relative to a wood-fired boiler:


o

using 100% biodiesel from waste oils/tallow in domestic heating boilers


potentially has good GHG emissions savings, about 82%. However, if the
biodiesel component is limited to 30%, for operational reasons, then the GHG
emissions savings in each installation are reduced to 25%;

for comparison, a B30 blend of biodiesel meeting the minimum GHG emissions
savings to meet the requirements of the Renewable Energy Directive (RED) of
35% yields a GHG emissions saving per installation of 10.5%;

the GHG emissions savings may be further reduced if the converted boiler has a
lower efficiency than modern oil boilers; and

for comparison purposes, a pellet boiler using clean waste wood as feedstock
has a GHG emissions saving of about 92% for each installation.

B30 is not a drop in fuel. The boiler must be adapted to use B30, and cannot then be
easily changed back to operation on 100% fossil oil.

There will be stiff competition for biodiesel from the road transport sector. In particular
biodiesel from UCO/tallow will be in demand because of its good sustainability
characteristics and high emissions savings. There is therefore likely to be a problem with
availability of biodiesel from UCO/tallow at an acceptable price in the heating market.

If applications using bioliquids are eligible for inclusion in the RHI, then a scheme to
monitor and verify sustainability and greenhouse gas emissions savings will be required to
comply with the RED. The current model in the transport sector places the responsibility
for these issues with the fossil fuel supplier.

Our initial conclusion is that the issues, advantages and disadvantages of supporting bioliquids do
not differ markedly between NI and GB. The higher proportion of oil fired equipment in NI
does, however, offer the prospect of a rapid take up at minimal initial cost which would support
the fuel poverty alleviation and social inclusion policies by allowing poorer households to share
the benefit and participate. The greenhouse gas savings are critical to value for money however
and a method of ensuring that only waste derived materials are used is needed to prevent very
high costs of abatement and potential negative impact. There is more detail in Annex B.
2.2.6. Non-domestic technologies
The following technologies - biogas, biogas grid injection and renewable CHP - are expected to
be larger scale in supply and given the nature of biogas provide the same quality of heat as natural

22

gas. Renewable CHP will again be suitable for providing heat and power to all sectors aside from
those with exceptionally high grade heat requirements.
Biogas
This refers to the production and use of a fuel gas derived from a biomass feedstock. Biogas can
be used as a replacement for natural gas and so can be used in gas boilers for the production of
heat, or gas engines for heat and electricity.
Processes for the production of biogas can be split into thermal or biological processes. Thermal
treatment options cover technologies such as gasification and pyrolysis, while biological
processes refer principally to anaerobic digestion.
Gasification refers to the process where a feedstock is heated in the presence of an oxidising
agent (e.g. oxygen) whereas pyrolysis refers to the application of heat to a feedstock in a reducing
(i.e. oxygen-free) atmosphere. Both processes cause the feedstock material to chemically degrade
to form a synthesis gas (syngas) composed of carbon dioxide, hydrogen, carbon monoxide,
methane and steam. Pyrolysis processes may also utilise a liquid mixture of oils, tars and waxes
known as pyrolysis oil. Gasification and pyrolysis processes can be divided between those that are
required to burn the biogas immediately following its production and those that are capable of
storing the gas for later use.
Anaerobic digestion (AD) refers to processes where biomass material is broken down by
microbial action within a sealed vessel to produce a biogas composed principally of methane and
carbon dioxide. AD-derived biogas will usually require treatment before use to remove impurities
such as sulphur compounds.
In the short-to-medium term, biogas production is expected to be centred upon AD processes.
The deployment of AD is widespread in the treatment of sewage and is becoming increasingly
common in the treatment of high moisture content biomass wastes from agriculture, food
production or municipal food waste collections.
Bio-methane Injection into the Gas Grid
Biogas can also be upgraded (removing carbon dioxide and other impurities from the gas) so
that the biogas closely matches the properties of natural gas. This bio-methane gas can then be
odorised and compressed before being injected into the natural gas transmission network for
supply to consumers.
Deployment of bio-methane injection is currently limited in the UK, with only a small number of
evaluation projects taking place. However capacity is expected to expand should these projects
prove successful, with anaerobic digestion plants a major potential contributor to this. There is
one project that has been commissioned in late 2010 in Oxfordshire which will supply enough
gas for 200 homes. This project run by Thames Water utilises sewage waste to generate biogas
which is upgraded and injected in the gas grid18.

18

http://www.thameswater.co.uk/cps/rde/xchg/corp/hs.xsl/10982.htm

23

Renewable Combined Heat and Power (CHP)


Combined heat and power (CHP) refers to a range of technologies that simultaneously provide
electrical power and heat at much higher efficiencies than can be achieved by the separate supply
of electricity and heat. Examples of CHP based on renewable fuels include:

Biomass boilers providing heat and generating electricity by means of a steam turbine,
where the heat is then extracted from the turbine for useful purposes.

Reciprocating gas engines fuelled by biogas or bioliquids to generate electricity and where
heat is recovered from the engine jacket or exhaust gases.

Cases of renewable CHP schemes already exist in Northern Ireland such as Balcas plant at
Enniskillen.
Some of the barriers facing Renewable CHP will depend upon the feedstock, i.e. biomass, energy
from waste19 or bioliquids.
2.3.

Technology comparison

Table 2.2 below provides a comparison of different renewable technologies in respect of the
forms of heat that can be generated.
Table 2.2: Grades of Heat achievable by Different Technologies20
Technology

Space Heating

Hot Water Services

Process Heating

Form of Heat Provided

Wet system

Hot water

Hot Water or Steam

Air Source Heat Pumps

Ground Source Heat 


Pumps

Solar Thermal

Biomass Boilers

Biogas

Bio-methane Injection

21

Bioliquids

Renewable CHP

Table 2.3 on the following page provides an overview of the suitability of different technologies
and their typical applications. This table seeks to reflect the technical feasibility of the technologies
for each application taking into account factors such as planning and environmental consent
issues; it does not reflect the likely economic viability, which we consider later.
19

Energy from waste is likely to be fully considered during phase 2 of the GB RHI. In the interim, it will receive
support for the biomass proportion; we suggest that NI could adopt a similar approach for now.
20
Direct heating via hot air is not supported under the GB RHI and so is not considered here.
21
Bioliquids have been excluded from the GB RHI phase 1. This will be reviewed in 2012.

24

Table 2.3: Suitability of different technologies

Single detached, semi-detached or terraced residence with gas connection

Single Residence in a multi-storey high density housing development

Renewable
CHP

Bioliquids

Biomethane
Injection

Biogas

Biomass Boilers

Ground Source
Heat Pump

Single rural residence with no mains gas

Solar Thermal

Air Source Heat


Pump

Technology

Residential

Multiple residences supplied by a community heating network

Commercial Property and Public Buildings


Single commercial property or public building, town/city centre location

22

Single commercial property or public building, sub-urban or edge of town location

Multiple commercial properties / public buildings supplied by a district heat network


Agricultural Operations
Agricultural operation with no mains gas connection

Agricultural operation with mains gas connection

Industrial operation with no mains gas connection

Industrial operation with mains gas connection

Industrial Operations

22

GSHPs may be possible in central locations for major new developments where there is the opportunity to install a ground loop or borehole.

25

2.4.

The policy context and drivers for renewable heat

The previous section discussed the what of renewable heat. We now turn to the question of
why what is driving the desire to support the deployment of renewable heat? To answer this
question, we need to look at the policy and legal context for renewable heat, at a European, UK
and NI level. We will also consider the context in the Republic of Ireland.
2.4.1. The European requirement for renewable energy
Through European Directive 2009/28/EC23 (the Renewable Energy Directive) the EU has
committed itself to sourcing 20% of its energy needs from renewable sources by 2020. The
Directive requires Member States to achieve mandatory overall targets, but allows this to be
achieved in any combination across three sectors:

energy from renewable sources for heating and cooling;

electricity from renewable energy sources; and

energy from renewable sources in transport.

The UKs overall target is set at 15%. While the Government has not committed to a particular
sector mix, the lead scenario in DECCs Renewable Energy Strategy24 envisages the overall
target being met through renewables fulfilling:

12% of heating and cooling needs;

more than 30% of electricity demand (29% large and 2% small-scale electricity
generation); and

10% of transport energy needs.

The Renewable Energy Directive is not directly binding on devolved administrations but
renewable deployment in all regions contributes equally to the requirements placed on the UK
under the Renewable Energy Directive and each region will be expected to implement a plan for
delivery. In September 2010, DETI committed to achieving a renewable heat target of ten25% by
2020 in its Strategic Energy Framework26, subject to an economic appraisal and a decision on the
best means of support.
While achieving the 2020 target will require a significant change in how our energy needs are
met, it is only a small part of the way towards the target of reducing greenhouse gas emissions to
80% below 1990 levels by 2050, as required by the 2008 Climate Change Act.

23

Directive 2009/28/EC, on the promotion of the use of energy from renewable sources http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:140:0016:0062:EN:PDF
24
DECC, July 2009, Renewable Energy Strategy,
http://www.decc.gov.uk/en/content/cms/what_we_do/uk_supply/energy_mix/renewable/res/res.aspx
25
While this target is two percentage points below that for the UK as a whole, the Northern Ireland commitment to
40 percent renewable electricity generation is ten percentage points higher than DECCs commitment for the UK as
a whole.
26
DETI, 2010, A Strategic Framework for Northern Ireland, http://www.detini.gov.uk/deti-energy-index/deti-energystrategic-energy-framework.htm

26

2.4.2. Renewable heat policy in the UK and Republic of Ireland


We now turn to what is being done to deliver the targets, particularly the 15% renewable heat
target for the UK. We look at GB, NI and the Republic (which has a 16% target) in turn.
Great Britain
The previous UK Government committed to a GB Renewable Heat Incentive (RHI) starting in
April 2011 that would subsidise new renewable heat installations sufficient to achieve the level in
the lead scenario in the Renewable Energy Strategy (i.e. 10%). The Energy Act 200827 set the
parameters for renewables heat incentives in GB but not NI28. The current UK Government
announced in the October Spending Review29 that the incentive would start in Summer 2011,
would be funded from DECCs budget, and would represent over 860m of investment
between now and 2015. Proposals appeared on 10 March 201130, with further details to be
published later in the year.
DECCs RHI has been presented as a clean energy cash-back scheme paid to the owner of
new renewable heat equipment31. It is designed to encourage take-up of renewable heat
technology by bridging the financial gap between renewable and conventional methods of
heating. The tariff payments, to be administered by Ofgem, will be paid periodically over the
expected useful life of the equipment. These will be contingent on evidence of the continued use
and maintenance of the equipment. It is likely that once installed, a particular installation will
receive a guaranteed stream of payments, with levels changing over time for new projects based
on new information on costs and take-up rates.
Most tariffs proposed are set at a level to cover the difference with conventional heat at different
scales plus an annual investment return to reflect the effort, risk and opportunity cost of capital
involved. A 12% return will be paid on most32 technologies. Details of the current proposed
tariffs and banding are shown in Table 2.4 below.

27

Energy Act 2008, Part 5, Renewable Heat Incentives,


http://www.legislation.gov.uk/ukpga/2008/32/part/5/crossheading/renewable-heat-incentives
28
While a number of sections of the Act apply to Northern Ireland, the section on Renewable Heat does not.
29 http://www.hm-treasury.gov.uk/spend_sr2010_documents.htm
30
www.decc.gov.uk/rhi
31
Installations completed since 15th July 2009 as if installed on the first day of the scheme going live.
32
Biomethane support is set based on parity with feed-in tariffs rather than a specified rate of return. The rate for
solar thermal is set to be equivalent to that for offshore wind.

27

Table 2.4: DECC RHI consultation table of tariffs

DECC will also be providing a Premium Payments scheme for the domestic sector from June
2011, to assess likely levels of take-up in that sector. The proposed payments, by technology, are
set out in Table 2.5 below.
Table 2.5: DECC proposed Premium Payments by technology, for the domestic sector
Technology

Proposed payment per installation

Solar Thermal

300

Air Source Heat Pumps

850

Biomass boilers

950

Ground Source Heat Pumps

1,250

Northern Ireland
As shown in Figure 2.5, HM Treasury has ring-fenced 25m over 2011/12 to 2014/15 for
DETI for the sole purpose of funding a renewable heat incentive. Energy minister Arlene Foster
28

indicated that if one is shown to be economically viable, a Northern Ireland RHI will be put in
place.33
Figure 2.5: HM Treasury funding profile for RHI for Northern Ireland
14
12
10
8
m
6
4
2
0
2011/12

2012/13

2013/14

2014/15

A Northern Ireland RHI would not be the first policy to support the roll out of renewable
technology in the country. Previously, grants for installing renewable heating were available
through the Reconnect and the Low Carbon Buildings 34 programmes. Both of these have
now closed.
The Reconnect programme was the subject of an assessment report35 for DETI, which noted
that although virtually all users of the programme were either satisfied or very satisfied, the
administrative complexity and the cost of renewable energy did put off householders. Many of
the applications were also for more expensive technologies. A list of the key recommendations
from the report can be found in Box 2.1 below. A report by the Northern Ireland Assembly
suggested that The Department's reason for discontinuing the Scheme was that it was mainly taken up by
more affluent rural households and did little to help those in fuel poverty.36

33

http://www.utilityweek.co.uk/news/news_story.asp?id=177206&channel=0&title=Northern+Ireland+minister+
supports+Renewable+Heat+Incentive+as+report+uncovers+potential
34
www.lowcarbonbuildings.org.uk
35
KPMG, December 2008, Evaluation of the Reconnect Programme
36
http://www.niassembly.gov.uk/enterprise/2007mandate/reports/2010/Report_14_10_11R_v1.htm#5,
paragraph 27

29

Box 2.1: Recommendations from the Reconnect Assessment


Recommendation 1: Given its cross cutting nature and in the context of wider energy policy
development, we recommend that before deciding whether or not to introduce any follow-on support
for domestic micro-generation that DETI seeks Executive agreement on future policy objectives for
micro-generation support.
Recommendation 2: The Executive should only agree to provide follow-on support for domestic
micro-generation if such support is found to be more cost-effective relative to potential support for
other types of renewable energy installation.
Recommendation 3: If the Executive agrees that future funding for domestic micro-generation
projects is a necessary intervention, then it is recommended that any future support for microgeneration should be in the context of a whole house approach and therefore minimum standards of
energy efficiency must be attained either before or, in conjunction with the installation of domestic
micro-generation technologies.
Recommendation 4: In order to allow sufficient time to install their renewable device, the responsible
Government Department and/or delivery agent should co-ordinate with householders in relation to
specific planning issues. As a result, the Letters of Offer from any potential future programme should
be variable (within a reasonable timeframe) based on the type of technology being installed.
Recommendation 5: The focus of any potential future support should be on those devices that have
demonstrated the greatest Value for Money for government spending. In broad terms, the level of
support that individual technologies attract should be linked to the benefits that those technologies
bring (whether in terms of environmental benefits or in terms of security of supply).

The Low Carbon Buildings Programme was a UK-wide programme supporting microgeneration technologies. It was open to applicants for three years from 2006, providing a total of
86m of grant funding to householders, the public sector and charitable organisations.
Qualifying recipients were required to take steps to ensure that they met energy efficiency
standards before funding was provided, potentially up to 200,000 in grant funds per site.37
As well as its target for renewable heat, Northern Ireland has a target of 40% of electricity from
renewable sources by 2020. Achieving the 40% electricity target is likely to both increase
electricity bills and reduce the carbon intensity of electricity. The former effect will make electric
heating, and heat pumps, relatively more expensive, while the latter will make them more
attractive from a carbon dioxide emissions point of view.
Republic of Ireland
The EU Renewable Energy Directive requires the Republic of Ireland to meet 16% of its energy
needs from renewable sources by 2020. This target is one percentage point greater than the UKs
requirement, partly reflecting the higher starting level (3.1% in Ireland compared to only 1.3% in
the UK). As show in Table 2.6, the Republics 2020 renewable heat targets were set at 12
percent, in line with the UK, but slightly above the level targeted in Northern Ireland.

37

www.lowcarbonbuildings.org.uk

30

Table 2.6 Sector targets and trajectories


2010

2015

2020

Heating and cooling

4.3%

8.9%

12.0%

Electricity

20.4%

32.4%

42.5%

Transport

3.0%

5.9%

10.0%

Overall

6.6%

11.8%

16.0%

The Republics support for renewable heat has been split across two policies managed by the
Sustainable Energy Authority of Ireland (SEAI) utilising upfront grants, rather than a stream of
payments as in the draft GB RHI. These are:

Greener Homes, targeting the household sector; and

the Renewable Heat Deployment Programme (ReHeat), targeting larger consumers and
groups.

Greener Homes provides grant support to households purchasing renewable energy heating
systems for existing homes. This five year programme supported 31,560 installations from 2006
to the end of 2010. Installation inspections are made on a random basis and verification
inspections are a prerequisite for receiving the grant. Solar, biomass and heat pump installations
may receive grants up to the levels in Table 2.7.
Table 2.7 Greener Homes Grants38
Technology

Typical Lower Price


including VAT

Typical Higher
Price including
VAT

Maximum
grant

% of Indicative
Cost

Biomass
boiler

10,000

16,000

3,000

18.8 - 30.0

Biomass
stove

2,000

5,000

1,100

22.0 - 55.0

Biomass
stove with
integrated back
boiler

4,000

8,000

1,800

22.5 - 45.0

Heat Pump
vertical ground

18,000

21,000

3,500

16.7 - 19.4

Heat Pump
horizontal
ground

13,000

15,000

2,500

16.7 - 19.2

38

SEAI, Greener Homes Scheme Phase III (Existing Dwellings only) Application Guide Version 3.4,
http://www.seai.ie/Grants/GreenerHomes/Homeowners/How_to_Apply/Greener_Homes_Application_Guide.p
df

31

Technology

Typical Lower Price


including VAT

Typical Higher
Price including
VAT

Maximum
grant

% of Indicative
Cost

Heat Pump
water to water

12,000

14,000

2,500

17.9 -20.8

Heat Pump
air source

12,000

13,000

2,000

15.4 - 16.7

Solar flat
plate

800/m2

1,300/m2

250/m2
(to max of
6m2)

19.2 - 31.3

Solar
evacuated tube

800/m2

1,300/m2

350/m2
(to max of
6m2)

26.9 - 43.8

Wood
gasification
boiler

10,000

16,000

2,000

12.5 - 20.0

The ReHeat programme, launched in March 2007, was open to applicants intending to retrofit or
install new renewable energy heating system in buildings owned or operated by industrial,
commercial, services or public sector or community organisations. Energy Supply Companies
(ESCOs) were also eligible to apply, although in practice only a tiny percentage of applications
were from them.
This programme provided grants for feasibility studies or capital investment grants. The former
grant is capped at 40% or 5,000 (whichever is less) per study with an overall allocation of
300,000. Capital investment grants were limited to wood chips and/or wood pellets biomass
boilers, solar thermal heating systems and heat pumps. Funding for these projects was limited to
the lower of 30% of the submitted costs or 30% of the maximum capacity cost range. The
maximum capacity cost range differs depending on the plant scale and technology used.39 Grants
were paid directly to the applicant once contractors were paid and the satisfactory inspection of
documentation; all applications meeting the criteria were funded. As with the Greener Homes
Scheme, SEAI reserved the right to verify and/or make technical inspections at its discretion (in
practice it focused on the larger installations). SEAI did comment on proposals including
offering advice on suitable technologies.
Conversations with individuals involved in the programme suggest that it was successful in
stimulating renewable heat in the Republic. It attracted a wide range of interest, and led to some
organisations actively targeting potential users of renewable heat, such as hotels. Latterly, ESCO
type models appear to have been particularly successful. Anecdotal evidence suggests the scheme
was most successful in areas off the gas grid, where payback times were shorter. The programme
highlighted the importance of a pool of well-trained and experienced installers and engineers,
39

http://www.seai.ie/Grants/Renewable_Heat_Deployment_Programme/ReHeat%20Application%20Guide%20V
er1_5.pdf

32

and of having a guaranteed supply of high-quality fuel. Planning and permitting requirements
also need to be considered carefully. In common with many programmes that only use upfront
grants, there are questions about whether all the installations were fully maintained, and used to
their expected potential40.
While 65m was committed in 2006 and a further 4m in 2007, the programme received no
funding in the 2011 budget and thus was closed to new applicants. Despite the lack of direct
support for renewable heating, policies are currently in place to encourage the use of biofuels
across all sectors although primarily in industrial use. The Renewable Energy Feed-In Tariff
(REFIT), Bio-Energy Establishment Scheme, and Combined Heat & Power Scheme all provide
support for the use of biofuels. In 2009, around 1.5 TWh of renewable heat was consumed by
industry, which represents around 66% of overall renewable heat consumption41.
2.5.

The Northern Ireland context for heating

Renewable heat is of course only one heating option, and needs to be considered in the context
of Northern Irelands existing and future use of other sources of heat, such as oil and gas. NIs
existing mix is shown in Figure 2.6 and Table 2.8 below. As shown, most of the existing
renewable heat in Northern Ireland is from biomass, with small additional contributions from
heat pumps and solar thermal. Around 1.7% of heat is from renewable sources; for the UK as a
whole, the figure is 2%.
Figure 2.6: Estimated 2010 heating fuel mix (MWh)42
Biomass, 267
Economy 7
Electricity, 217

Coal, 547

Other
renewables,
23

Gas, 2,964

Oil, 13,344

40

http://maps.seai.ie/bioenergy/
A map showing the locations and types of installation can be found on the SEAI website at:
http://www.seai.ie/Publications/Statistics_Publications/SEI_Renewable_Energy_2010_Update/RE_in_Ire_2010u
pdate.pdf
42
AECOM/ Pyry, 2010, op. cit. Figures represent heat delivered.
41

33

Table 2.8: Estimated 2010 heating fuel mix


Fuel

Percentage

Biomass

1.5%

Coal

3.2%

Electricity

1.2%

Gas

17.1%

Other renewables

0.1%

Oil

76.9%

Total heat demand in Northern Ireland is currently 17.4 TWh per year, of which 61% is from the
domestic sector and 22% is from the large industrial sector. This is expected to fall by 2020 to
around 16.7 TWh per year.
Northern Irelands specific current circumstances must be taken into account, particularly the
current fuel mix for heating, in which over 80% of heating is from oil. This mix varies by region,
and could affect both the carbon benefit of shifting to renewable fuel and the cost of doing so,
because for example of the relative cost of converting existing oil-fired heating equipment to use
biofuel, compared to the cost of converting gas-fired heating. This fuel mix is quite different to
that in the rest of the UK which relies largely on natural gas for heating.
In addition, there could be some implications for renewables policies associated with the extent
of fuel poverty in Northern Ireland. However, given the expected funding arrangements for an
RHI (from general Government revenues) there should be no upward pressure on bills. Indeed
if renewable heat installations reduce the amount consumers spend on gas, oil and electricity,
they could help to reduce fuel poverty.
2.5.1. The gas network in Northern Ireland
As noted, oil supplies the majority of the heat demand in Northern Ireland, but there has been
an increasing deployment of gas since it was first introduced to Northern Ireland in 1996,
triggered by the conversion to natural gas of the Ballylumford power station. The development
of Northern Irelands gas infrastructure is an ongoing process, and there are now opportunities
to further extend gas transmission and distribution areas in the North-West and West of
Northern Ireland, to towns such as Strabane, Omagh, Magherafelt, Cookstown, Dungannon,
and Enniskillen.
As mentioned in the Strategic Energy Framework, DETI is also aware of interest in extending
the gas network into East Down. How, when or whether this infrastructure is rolled-out, is
dependent upon the technical feasibility of bringing gas to these towns, as well as there being a
suitably strong economic case to warrant the investment.
We consider the impact of renewable heat on the gas network in Section 9.5.

34

Current situation
There are now about 138,000 gas customers in the Greater Belfast, Lisburn and Larne
distribution area operated by the Phoenix Natural Gas Group (PNG) who developed the original
pipeline system via the Scotland to Northern Ireland (SNIP) transmission pipeline. Belfast Gas
Transmission Limited (BGTL) is now the licensed transmission operator to convey gas from the
Ballylumford power station to the PNG Greater Belfast and Larne areas, while Premier
Transmission Limited (PTL) operates the SNIP pipeline.
Outside Greater Belfast, Firmus Energy (which currently has around 10,000 customers) is rolling
out the gas distribution network from the North-West and South-North gas transmission
pipelines constructed by BGE (UK), a subsidiary of Bord Gis Eireann, in 2004 and 2006
respectively.
Gas volumes and demand
Historical Northern Ireland gas demand is summarised in Table 2.9. The distribution category
includes the gas demand of PNG and Firmus Energy, while the power sector includes the
Ballylumford and Coolkeeragh power stations. The total Northern Ireland annual demand has
grown by 31.7% over the period 2002/03 2008/09 (or 4.5% p.a.).
Table 2.9: Historic NI annual demand summarised by sector
Sample

Unit

2002/03

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

Power

GWh/y

9,880.9

9,902.8

13,769.6

14,921.6

15,695.6

14,248.8

12,488.9

Distribution

GWh/y

2,766.2

3,040.4

3,208.8

3,326.9

3,393.8

3,923.3

4,161.3

Total NI

GWh/y

12,647.2

12,943.2

16,978.4

18,248.5

19,089.4

18,172.1

16,650.2

Power

mscm/y

889.3

891.2

1,239.3

1,342.9

1,412.6

1,292.4

1,128.4

Distribution

mscm/y

249.0

273.6

288.8

299.4

305.4

355.9

376.0

Total NI

mscm/y

1,138.3

1,164.8

1,528.1

1,642.3

1,718.0

1,648.3

1,504.4

Energy

Volume

Source: CER/NIAUR (2010): Gas capacity statement

2.5.2. Overall potential for renewable heat in Northern Ireland


DETI recently commissioned a study of the potential for renewable heat in Northern Ireland.
This report presented statistics on both the current status and future potential for renewable heat
compared to other countries. This study provided the basis for the subsequent commitment to a
ten percent target and laid the groundwork for options to incentivise this rollout. Table 2.10
provides the summary of conclusions from that report.

35

Table 2.10: Summary of the potential and costs of delivering renewable heat through the various delivery
mechanisms
Renewable
heat delivery

Potential
(percentage Renewable
Heat by 2020)

Impact on targets

Annual incentive
required
(m per one percent
renewable heat target)

Large industrial
sector

Further analysis required


but possible a significant
potential.

The small number of


applications and unknown
viability means these
applications should not be
included in setting targets.

Unknown. Large scale


energy consumers could
mean that some of these
applications are cost
effective in the 2020
period.

Building scale

10% or more.

The analysis demonstrates


that a 10% RH target is
achievable using building
scale technologies.

2.5m per % to achieve


10%. 8.8 m per 1%
above 10%. No cost
below 6%.

District heating

Further analysis required


but preliminary
assessment suggests circa
30%. Potential by 2020
extremely limited unless
significant shift in policy
and regulation.

Potential for district


heating should not
contribute to setting a
2020 target due to long
term development and
barriers.

Up to 9.4 - 11.5 m
Some areas may be cost
effective if sufficient
uptake can be achieved.

Biogas

0.8% - 1.4% depending on


biogas or CHP. Further
potential in the longer
term by approx 10 times.

Potential for circa 1%


contribution to target
setting depending on
further analysis.

8.2m per 1% for


biogas. 11.8 million per
1% for AD CHP.

New
development

0 4.9%

Other drivers will be more


important in this sector. It
is important that building
regulations are consistent
with other renewable heat
policies.

Zero cost in terms of


incentives if driven
through regulation.

Source: AECOM & Pyry43

As well as the analysis in that report, we have considered the ability of the current NI supply
chain to deliver renewable heat installations and fuel. This is captured in our model input
assumptions, set out in the Annexes.
Renewable Heat Potential in the Large Industrial sector
The first row of Table 2.10 above suggests that there may be potential in the large industrial
sector, but that the size of this potential is unknown and that further analysis is required. We
43

AECOM/ Pyry, 2010, op. cit., page 5

36

have done a site by site analysis of this potential; the previous report identified 17 large
industrial44 sites with a historic annual heat demand totalling 3,828 GWh. Of these one site has
since closed and another, Balcas Wood to Energy, is already using biomass. To determine the
technical potential of this sector it has been excluded from the modelling to ensure the scale of
industrial applications considered is not skewed by Balcas which is already delivering renewable
heat.
The annual demand for the remaining 15 sites totals 3,718 GWh and the suitability for renewable
heat is as summarised below.
Only the technologies involving combustion (biomass, biofuels or biogas injected into gas grid)
would be suitable for industrial heat loads as the others could not generate Steam or High
Temperature (flame/hot gas) requirements.
The Renewables Obligation (RO) will be attractive to large industrial sites through the
installation of biomass CHP. There are three sites currently using oil that AEA believe are likely
to install renewable CHP over next nine years purely on the basis of the RO. This will lead to
about 185 GWh of renewable heat being delivered by biomass CHP incentivised by the RO.
We consider each category of site in more detail below.
High Temperature off-grid sites
The three sites (Lafarge and Quinn cement factories and the Quinn glass factory) have a total
heat demand of 2,654 GWh per year (71% of the large industrial total heat demand). They are
not on the gas grid so this demand is currently met by oil or coal. Their heating application is
high temperature (i.e. in excess of 1,000C) direct heat (i.e. using hot air) which would not be
supported under the GB RHI. Technically, of the renewable technology options considered in
this study, these temperatures can only be achieved using bioliquids. However, given the low
bioliquids resource and future market uncertainty it is highly unlikely that this would be
considered as a solution.
Biomass is currently being trialled in cement works co-fired with coal to deliver direct heating.
The trials have not yet reported, and if such applications are to be supported in NI, a different
approach to the GB RHI metering would have to be introduced to accommodate direct heating
as mentioned above. In the glass sector, biomass would not be suitable for glass melting due to
the requirements for even temperature distribution. Bio-gas injected into the grid would not
apply as the sites are not connected to the gas network.
Low Temperature off-grid sites
One existing coal-fired site with CHP (which has already trialled burning small quantities of
wood) and three other sites off the gas grid have a total heat requirement of about 527 GWh/Yr.
These sites are likely to be suitable for biomass or biofuels.

44

Defined as being sufficiently large to be covered by the EU Emissions Trading System

37

Low Temperature on-grid sites


There are eight on/near-gas grid sites with a total heat requirement of 537 GWh/Yr, which
could use biogas injected into the gas grid. Technically they could be suitable for solid biomass
but this is less likely to be taken up as they are on the gas grid and therefore tend to have
relatively new boilers and to be located in urban areas where the air quality, space and transport
barriers exist.
This categorisation of large industrial for renewable heat suitability is summarised in Table 2.11
below. For confidentiality reasons, we do not show exact figures for individual sites.
Table 2.11: Summary of industrial renewable heat potential in Northern Ireland
Category

Sites

Heat demand in GWh


per year

Not suitable (Very high temperature


requirement)

2,654

of which Quinn Cement


Lafarge Cement
Quinn Glass
Less Likely (near/on gas)

537
of which Bombardier Aerospace
Michelin Tyre plc
Armaghdown Creameries
Pritchitts
Gallaher Ltd
Huhtamaki (Lurgan) Ltd
Glanbia Cheese Ltd
Ulster Farm Byproducts
Ltd

Potential sites

527
using coal Invista (Coal CHP)
using gas Dalefarm Ltd
TMC Dairies
Moy
Park
Dungannon

TOTAL

Ltd

3,718

One large industrial site (Invista) is currently using coal. At current market prices for coal, this is
a cheaper fuel source than gas. However, with a rising carbon price over the next decade under
38

the Carbon Price Support mechanism, our initial analysis suggests that towards the end of this
decade, the switch from coal to biomass would be economic or would require very low subsidy
relative to other renewable heat technologies. We have therefore included this site in the category
of those that do not appear to require further subsidy to switch to renewable heat.
This is only an initial analysis; we understand that a detailed analysis of the sites costs is
underway in conjunction with the Carbon Trust. We recommend that DETI discusses this
assessment further with Invista and reconsiders the question of subsidy for it and for other large
industrial sites at the time of the first review of the RHI in 2013 or 2014.
Of the less likely locations many will have installed new gas boilers within the last ten years.
Incentivising a switch to renewables from gas would not fit with the wider DETI objectives of
promoting the gas grid. Given these two factors, we have assumed that these sites will not switch
to renewable heat.
Large industrial interaction with the Renewables Obligation
While any discussion of the RO needs to be considered in the context of the proposed changes
in GB, and possible implications for Northern Ireland, Table 2.12 below shows the level of
renewable heat that we expect could be delivered by an unmodified Northern Ireland
Renewables Obligation (NIRO) by 2020. Most of this is industrial biomass (as discussed above),
but there is a relatively smaller contribution from anaerobic digestion.
Table 2.12: Renewable heat contribution per annum from NI RO by 2020
Type of CHP

Expected Renewable heat contribution in 2020 (GWh/ year)

Biomass

185

Anaerobic Digestion

TOTAL

192

The NIRO is introducing four Renewable Obligation Certificates (ROCs) for AD plant up to
500kW from 2011, with three ROCs for plant between 501kW and 5MW45. This is expected to
kick start the AD sector in Northern Ireland. AD can provide electricity only, heat and electricity
(CHP) or heat only. At present there is only one AD plant in Northern Ireland, but 30-50MW of
electrical capacity is expected to be installed by 202046. In our analysis we have assumed 40 MWe
will be installed. To determine the types of AD plants that will be installed in Northern Ireland
we have used the existing types of UK AD plants as a proxy.
Based upon the current ratio of installations in the UK for every MWe of AD capacity installed
175 MWh of renewable heat is delivered. This low heat factor arises as there are more electricity
only schemes (56) compared to AD CHP (28), based upon UK installations up to the end of
2010.
With three or four ROCs available for AD from the RO in NI, it would not make economic
sense to operate a heat only AD plant. Any sites considering AD that also have a suitable heat
45
46

DETI, April 2011, NIRO banding table, http://www.detini.gov.uk/niro_banding_table_-_6_april_2011.pdf


Personal communication with DETI, April 2011

39

load will look to install AD CHP and supply heat as an additional benefit alongside the main
driver which is electricity with the four ROCs. Given this situation renewable heat from AD will
be stimulated by the current RO incentives where possible. It is likely that many AD installations
will be electricity only due to the lack of a suitable heat load, particularly on small rural farms.

40

3.

THE NEED FOR GOVERNMENT INTERVENTION

The previous section set out the policy drivers that lead to the requirement for renewable heat in
Northern Ireland. In summary, as set out in Section 2.4, the two key drivers at a European level
are the need to reduce greenhouse gas emissions, and the binding targets for renewable energy
imposed on each European Member State. Within the latter, DETI has committed to having
10% of heating from renewable sources by 2020.
There are other drivers for renewable heat which relate to security and diversity of energy supply.
Northern Ireland is, as shown in the previous section, highly dependent on imported oil (and to
a lesser extent imported gas). Increasing the proportion of renewable heat will lessen this
dependence. While there will be some increase in dependence on imported biomass, the
increased diversity of fuel supply should improve security. We return to this in Section 9.4.
An additional consideration, and risk associated with no Government intervention, is the fact
that GB is taking action to support renewable heat through a Renewable Heat Incentive. This is
likely to have a number of associated benefits which would not accrue to NI if it did not
implement its own renewable heat support scheme, such as the economic activity associated with
renewable heat installation.
In considering the options later in the report, we have taken care to look at the extent to which
the renewable heat they deliver is additional in other words, that it would not have happened in
any case. We assess carefully the likely heat delivered under the do nothing option, and use this
as a baseline in assessing the net impact of our options.
We will also consider the extent to which increased activity in the renewable heat sector displaces
activity elsewhere. This is likely to be mainly in the rest of the heating sector (see section 9).
3.1.

Impact of no Government intervention

Previous analysis for DETI estimated the mix of fuels used for heating purposes in Northern
Ireland in 2010. The same study examined a baseline scenario where no financial support was
provided to support the roll-out of renewable heat. This showed that while the share of
renewables will expand of its own accord as technologies become viable in their own right, it will
fall short of 10% without government intervention.
In part this is driven by the relative cost of renewable heat technologies discussed in the previous
section. Figure 3.1 and Figure 3.2 below shows the relative gap between the levelised cost of key
renewable technologies and the relevant counterfactual, whether this is heating oil or gas. In
other words, it shows the additional expected lifetime cost, per kWh, of each renewable
technology compared to oil or gas.

41

Figure 3.1: Gap between levelised cost of renewables and counterfactual (domestic)

0.40
Solar Thermal

Liquid biofuels

GSHP

Biomass boilers

ASHP

0.35

/ kWh (2010 prices)

0.30

0.25

0.20

0.15

0.10

0.05

0.00
42

Figure 3.2: Gap between levelised cost of renewables and counterfactual (non-domestic)

0.40
Biogas injection

Solar Thermal

Liquid biofuels

GSHP

Biomass boilers

ASHP

0.35

/ kWh (2010 prices)

0.30
0.25
0.20
0.15
0.10
0.05
0.00
-0.05

43

The main point is that most technologies are more expensive than oil or gas. In many cases, they
are more than twice the cost of oil or gas heating, although it should be noted that the costs
below do not take the cost of carbon emissions into account. This cost difference means that
significant uptake is unlikely without some form of subsidy.
It is also clear that solar thermal is very expensive compared to other technologies, in part
because it does not remove the need for a gas or oil heating system. We return to this point in
our discussion of possible NI RHI rates.

44

4.

OBJECTIVES AND FUNDING

Having set out the context and the need for Government intervention, we need to consider the
specific objectives of any policy. The overall objective is to deliver the maximum possible
renewable heat in Northern Ireland, but this has to be delivered in a way that is consistent with
other DETI policies and objectives. The final trade-off must be for DETI to decide, in
conjunction with other Departments. We list below the directional objectives that could be
appropriate. In doing so, we also need to consider the level and profile of available funding, as
this will be major influences on the choice of appropriate policy.
4.1.

Objectives

Table 4.1 sets out the policy objectives which policy on renewable heat has to either support, or
else be consistent with.
Table 4.1: Objectives for renewable heat support
Area

Directional objective for 2020

Indicative objective for 201347

Carbon
emissions

Reduce emissions against counterfactual

Emissions reduced by 30,000 tonnes

Oil imports

Reduce oil imports against


counterfactual

Imports reduced by 40,000 barrels

Gas use

Minimal reduction against


counterfactual

No reduction against current projections

In fact, all these objectives will be achieved to the greatest extent when renewable heat displaces
oil, rather than current or future gas consumption. This is clearly true for the oil imports and gas
use objectives, and is true for the carbon emissions objective because oil produces more carbon
dioxide per unit than gas. Our suggestions on subsidy design and policy to DETI reflect this.
4.2.

Funding

The appropriate RHI for NI must be developed with the available funding in mind. At present,
DETI has 25m from the Treasury for renewable heat. The money is allocated for the period
2011/12-2014/15 and cannot be used for any other purpose than renewable heat in Northern
Ireland. We understand from DETI that HM Treasury has agreed that funding beyond 2014/15
will be available for those installations that are installed within the Spending Review period (i.e.
up to 2014/15). This is subject to funding being basically flat beyond 2014/15, and initial
payments being affordable within the Spending Review funding profile. The 25m funding
scenario should therefore be considered as being for comparison purposes only.
Since any policy based on the GB RHI would be long term, it would not be compatible with
funding only for the period to 2014/15. We therefore consider two longer-term funding streams,
as set out in Table 4.2 below.

47

Based on the expected levels under our recommended policy option, rounded to one significant digit. These
figures should only be taken as indicative rather than as firm targets, and as inputs to the first review of any RHI.

45

Table 4.2 Profile of subsidy, m (nominal) per year


2011

2012

2013

2014

Funding 1: Short
term
Funding
term

2:

Long

Funding
term

3:

Long

12

2015

2016

2017

2018

2019

2020

17

22

27

32

37

42

12

12

12

12

12

12

In calculating Funding 2, we have started with the subsidy proposed for the GB RHI and prorated it to determine what the subsidy level for an NI equivalent might be, assuming the same
subsidy per head of population. Specifically, we have taken the relative populations of NI and
GB (1.8m48 and 60m49 respectively, in mid 2009) and applied them to the figures in Table 5 of
the GB RHI Impact Assessment50, which shows a present value of subsidy to 2020 of 5.4
billion, and a lifetime present value of subsidy of 22 billion. Pro-rating these by the respective
population sizes, gives corresponding subsidy figures for NI of 162m and 660m respectively.
The question then becomes how to profile this subsidy. For the NI RHI, we have assumed
smooth growth in annual subsidy levels to 2020, and then subsidy as necessary beyond 2020 to
provide the required on-going stream of payments for installations to 2020. This gives a present
value to 2020 of 157m, and a lifetime present value of 518m51 (assuming funding continues to
2039 to give 20 years of support for all installations).
We also show (and analyse) a funding profile which assumes that funding is maintained at 2014
levels (Funding 3).
It should be noted that our model considers deployment constraints when determining the
funding used as subsidy. As a result, not all funding is used under all policy options.

48

Source: NI Statistics and Research Agency.


National Statistics figure for UK, less figure given above for Northern Ireland.
50
DECC, 2011, Impact Assessment for Renewable Heat Incentive,
http://www.decc.gov.uk/assets/decc/What%20we%20do/UK%20energy%20supply/Energy%20mix/Renewable
%20energy/policy/renewableheat/1381-renewable-heat-incentive-ia.pdf
51
These figures do not match exactly the pro-rated subsidy levels calculated in the previous paragraphs, as we have
rounded off the increase in annual subsidy levels to the nearest m.
49

46

5.

OPTION DEVELOPMENT

From the discussion up to now, it is clear why DETI is considering a renewable heat policy, and
the policy, financial and broader context in which it is working. We are therefore in a position to
start considering the options that might deliver DETIs renewable heat objective.
We start by considering a framework for developing options, comprising a number of primary
and secondary parameters. It is the different combinations of the primary parameters, and to a
lesser extent the secondary, that largely determine potential options. We then move to a
discussion of how an RHI and a capital grant scheme could be designed for NI.
5.1.

Option parameters and framework

At a detailed level, there are perhaps hundreds of possible options that could be developed, but
considering them all is unlikely to be fruitful. Instead, we believe it is more insightful to develop
options within an overall framework. In doing so it is important to distinguish between the
primary design parameters - that is, the factors that create the most significant differences
between options - and then secondary considerations.
5.1.1. Primary design parameters
These high level or primary design parameters can be determined by answering questions about
how any payments under a subsidy for renewable heat would be made, when, to whom, and
whether they would be fixed or variable. Issues regarding the supporting administration are dealt
with in the next sub-section.
The first set of design parameters is therefore effectively the what, who and how of the
support regime:

What are the technologies eligible.

Who are the beneficiaries eligible and targeted for support; and

How is subsidy awarded.

As we will show, it is the different combinations of these parameters that give rise to different
options. In discussing these different parameters we will also consider the rationales for given
approaches as well as any Northern Ireland specific implications of a given approach.
5.1.2. Technologies supported
As well as deciding which technologies should be supported at all, we need to consider whether
or not different types of technology might have different degrees of support. A scheme in which
all qualifying technologies are treated the same, without any differential support, can be said to
be technology neutral. Alternatively, a scheme which has different bandings according to the
type of technology in question is not. The Renewables Obligation scheme is an example of this,
where different technologies receive different levels of support.
The rationale for different Renewable Obligation Certificate (ROC) bands is to recognise the
different cost profiles of different technologies and the differing amounts of subsidy required to
make a given technology viable. One aim of this is to promote such technologies, helping to
47

drive down cost curves over time, as a result of learning. The risk associated with this is that it is
possible to end up trying to pick winners, and to lose sight of the overriding objective of hitting
the target. On the other hand, a purely neutral subsidy can end up supporting only the cheapest
technologies. While this might be best from the perspective of heat delivered per , it can run up
against deployment barriers (see for example the GB experience with support for onshore wind).
Given the size of the Northern Ireland market, it is unlikely that the implementation of this
approach would have much direct impact on technology cost curves, although there may be
some scope to support particular technologies in certain situations; for instance, where it was
particularly suited to a given opportunity. Deployment constraints would however be a real issue
with a purely neutral subsidy.
5.1.3. Beneficiaries
The second primary parameter is who beneficiaries might be and whether any sub-sets within
qualifying beneficiaries should prioritised over others, through either the allocation or level of
subsidy provided. At the highest level, this might distinguish between households, commerce
and industry. There is also a question of whether any intermediaries might also benefit from the
subsidies, as well as the ultimate users of the technology.
Households, commerce and industry
Within the three main groups - households, commercial businesses and industry there are
potential sub-groups in terms of community groups, or cooperatives. There are significant
differences between these sectors, which include:

Number of potential recipients whereas the industrial sector will have relatively few
potential beneficiaries, the household sector will have many.

Scale and nature of applicable technologies the nature of industrial opportunities


will be significantly different to household and commercial technological applications,
potentially with greater economies of scale; that is, a declining subsidy requirement for
every kWh of renewable heat generated.

Nature of linkages with other policies income/equity issues in the case of


households, and potential employment/investment issues in the industrial sector.

Such differences between the sectors will have implications as to how the support regime might
be constructed.
Intermediaries
Intermediaries, such as energy service companies (ESCOs), would be entities that sought to act
for households or even small commercial businesses. The rationale for allowing intermediaries
such as energy service companies to benefit is that they may be required to promote wider takeup. Box 5.1 below shows a case study of how this can work for renewable electricity.

48

Box 5.1: Case Study on intermediary offering free solar panels


Homesun
Homesun are able to offer solar panel installation services for free and also provide free
maintenance for 25 years. The energy produced from the system is free to be used by the
household. The requirements to be eligible for this offer is that roofs need to be south
facing, unshaded and with 30 square metres or more, with a more southern location
preferred.
For less than perfect roof sites, a solar share scheme is offered where the initial costs and
running costs are shared between the company and household. The cost is initially 500
and 5 a month for maintenance.
The homeowner also has the option to buy the system outright.
5.1.4. Approaches to subsidy award
At a high level, subsidy can be awarded in three main ways, assuming that there is a limited pool
available. The first of these is to do so, on a first-come, first-served basis. The second is to
award the subsidy competitively; and the third is to do so, on a negotiated basis. Again, there
are allocation issues and questions of whether the level of subsidy should be variable or fixed.
First-come, first-served
In a first come first served approach, potential beneficiaries would apply for subsidy. This would
be awarded until the amount available was exhausted. Potentially, this subsidy could be allocated
into different pots or pools for different types of beneficiary to recognise differences between
groups.
The amount or level awarded per project or application might be fixed at a single level or else at
different levels for example, to compensate for the different costs of technologies or possibly
even for different household income levels. To do this, it would be necessary to calculate what
the scale of the gap was that the subsidy was being used to address.
Table 5.1 illustrates how this approach might be applied in practice.
Table 5.1: Examples of per-unit subsidies
Type of subsidy
Administrated per unit subsidy

Description
Using a renewable heat supply curve (or similar), pick the subsidy
level required to reach the renewable target. All technologies would
receive the same subsidy per unit of renewable heat.

Tariffs calculated to give each technology an equivalent cost per


Levelised cost and investment
unit, plus an investment return. This can be tailored to incentivise
return
the take up of specific technologies that are not currently efficient,
and to the risk involved in the development of the supporting
supply chain.
Levelised cost and investment

Same as levelised cost and investment return so long as the per

49

Type of subsidy
return below threshold:

Description
unit subsidy is below a cap. More costly technologies could either
be subsidised, but not to a level where they are economic, or
excluded from the programme altogether.

Competitive award
Optimising the allocation of funds will determine both the efficiency and effectiveness of the
inventive. One way to do this is to award the support competitively, based on a ranking or
rankings. Again, there could be one pool or else pools split between types of beneficiary,
reflecting their different characteristics. Competitions would take place regularly over the period
in which the subsidy was being made available. This approach is often referred to as the
Challenge Fund approach.
The rationale for awarding subsidy competitively is to obtain best value for money, in situations
where it is not clear how much subsidy might be required to achieve a given aim. A problem
with fixing subsidy levels in order to address a technology viability gap is that even where there is
a banding it is not possible to be completely certain that the award will be sufficient to lead to
the desired level of investment (and conversely, not excessive and so tending to over-subsidise).
This reflects the differing situations of given applicants within a group and what might be
required. For instance, a set level of subsidy may not have the same impact among households
with, say, differing levels of income. Poorer households may not be able to invest because they
cannot raise the upfront capital.
When we look at the modelling which has been used by DECC to calculate a required rate of
return for a household to invest, we see that this tends to work on the basis of levelised costs
and revenues. As well as the significant uncertainties about the costs of renewable heat
technologies, this approach does not take into account the cost and liquidity issues surrounding a
projects actual up-front costs and delayed benefits. The costs are likely to include borrowing
costs to finance the investment with the liquidity constraints involving the ability to borrow.
However, a variable level of subsidy, albeit with a maximum cap, might help address this
constraint.
Ranking could be based on a single evaluation metric specifically subsidy cost or a range of
other non-cost considerations; for instance, how the award may contribute to a range of policy
objectives. Ideally, however, the ranking metric could be set to underpin the overall objective(s)
of the scheme for instance, least cost of subsidy per kWh of heat generated, subject to a
maximum subsidy cost per kWh. If desired, in order to ensure a greater distribution of support,
the amount awarded to any one project in any one competition might be capped. In such an
approach, applications for subsidy would be ranked on this basis (as long as an application did
not breach the maximum per kWh cap) until all the available subsidy funds were allocated.
There are variations on this approach in which there can also be different pools or divisions
where the desired objective is different or where the playing field is uneven because of very
different cost structures. The most likely way to structure such pools would be around either
sector - households, commercial and industrial applications or technology potentially based
around cost or other differences.
50

Table 5.2 provides some illustrations of how different applications could be ranked in a
competitive Challenge Fund approaches.
Table 5.2: Competitively allocated subsidies the Challenge Fund approach
Allocation
Lowest subsidy per unit
Highest accepted
subsidy per unit

A fixed pot of subsidy could be allocated based from the lowest bids per
unit of renewable heat upwards until the pot is exhausted. The subsidy is set
for each project at its per unit bid.
Same as above, but bidders receive the same per unit subsidy, set at the
highest accepted bid for the funds.

Lowest bid investment


return

After setting a base subsidy per technology to make them equivalent,


subsidies allocated based on the lowest required investment return.
Investment return components of the subsidy set at own bid.

Highest accepted
subsidy per unit

Same as above, but bidders receive the same percentage investment return,
set at the highest accepted bid for the funds.

Where many uncertainties on uptake of subsidy exist, such approaches can help establish what
the required level of subsidy might be better. They might be used, for instance, where fixed rate
return approaches do not work.
Negotiated
A more interventionist focus on the more challenging, yet fruitful heating projects may provide a
hedge against unproven broader-based incentives. Some large projects may benefit from
government coordination, negotiation and tailored subsidy. A major project pipeline could be
followed and project development assisted. This approach may be suited to large industrial and
community scale projects
An alternative means of subsidy award is therefore to negotiate the amount, using calculations of
likely subsidy requirements as a starting point. This approach would only be appropriate to more
bespoke, larger industrial opportunities, although it might have to be applied to smaller
opportunities in the event that either of the first two approaches to award were not successful in
generating the required degree of uptake.
Table 5.3 summaries the main choices for support regime design which arise as a result of
combining and applying these three high level parameters.
Table 5.3: Primary parameters
High level parameter

Technologies

Beneficiaries
Households

Eligibility

Different technologies

Approaches to
Award

Commerce

First come-first
served

Industry

Competitive

Intermediaries

Negotiated

51

High level parameter

Technologies

Beneficiaries

Approaches to
Award

Allocation rule

Neutrally or
differentially by
technology

Neutrally or
differentially by
beneficiary group or
intermediary

Neutrally or
differentially by
approach to award

Determination of level of
subsidy

Fixed versus variable


amounts by technology

Fixed versus variable


amounts by beneficiary

Fixed versus
variable by approach

Implications for option design


Either one or a mix of the above approaches could be used across a number of pots divided by
investor type (e.g. household, industrial/commercial, industrial process heat or community-level
projects), technology, or allocation technique. These segments can then be prioritised in terms of
where there is the most cost efficient reduction or other considerations. This could involve for
example allowing all claims from households up to a certain level, with the balance of the budget
being allowed for other types of users. Setting a cascade of budget priorities, where if there is
insufficient take-up in one category, remaining funds are allocated to the next group, would
support a diversity of policy tools and maximise the use of available funds should there be low
take-up in any particular area.
5.1.5. Secondary design parameters
The more general considerations include the specific of the payment mechanism and the
monitoring and verification regime.
Payment profile and mechanism
What is the payment profile?
This involves whether the subsidy to be paid upfront or whether it is to be spread over the life of
the project. Capital grants are a form of subsidy paid up-front in order to cover the capital costs
of a project, whereas an RHI is paid in instalments over the life of the project.
Are subsidy payments to be linked to outputs?
This typically means that a payment is performance-based; that is, it is withheld until particular
outputs have been verified in order to ensure that payments are only made once the underlying
objectives have been achieved. With a capital grant, this might withholding payment until the
project has been completed. In the case of an RHI, payments can be tied to particular outputs;
for instance, energy/heat generated. Both instances involve the requirement to pre-fund the
subsidy, thus producing a financing requirement that needs to be borne by the beneficiary or
other third party. This can create issues depending upon who the beneficiary is. Poorer
households, in particular, might not be in a position to borrow the money to prefund,
irrespective of the return available to them.

52

Can the subsidy be redeemable in certain situations?


Grants can also be made redeemable in certain situations. Where they are being provided ex-ante
due to an envisaged lack of project profitability and/or affordability, but the context
subsequently changes such that these issues are addressed over the life of the project, a portion
of the initial grant might be repaid. In case of renewables, projects are to some degree not viable
due to the fact that the cost of carbon emissions is not taken into account. However, the
implementation of a carbon tax or levy would reduce this anomaly. In the absence of a claw-back
mechanism, there would be an over provision of subsidy, relative to what might be required,
creating wind-fall gains to the owners of the subsidized assets.
A portion or all of a redeemable grant is repaid when particular metrics are met, which trigger
this repayment. However, an element of the grant might remain in all circumstances to provide
an investment incentive. Such an approach is most applicable for larger subsidy payments.
Are early adopters eligible?
While the GB RHI will not go live until mid-2011, all installations completed since 15th July
2009 will be treated as if they were installed on the first day of the scheme going live. This has
the advantage of encouraging those at the margin to install renewable capacity on the basis that
there will be an incentive, rather than waiting until all details are finalised, at which point their
window of opportunity may have passed. In Northern Ireland, a commitment has been made to
support new installations from 1st September 201052. Installations operational before these dates
are assumed to have been installed without the expectation of any subsidy and so subsidy to
them would have no benefits.
Means of verification
In order to ensure that renewable heat is actually being produced, some form of verification is
needed. The degree of oversight must be driven by the cost associated with verification, the
materiality of the heat being produced and the incentive on the owner of the renewable heat
equipment not to use it. The latter is generally related to the level of ongoing cost; in other
words, an appliance that has significant running costs such as fuel is less likely to be used than
one that has only minimal maintenance costs associated with it. Verification at a small number of
sites is also generally easier.
Possible methods of verification include a periodic audit or site visit, some form of metering, or
even a deeming approach as in the GB RHI, where equipment with low running costs is
assumed to produce heat at some reasonable average rate without the need for further
verification.
Delivery agent
An RHI could be administered by a number of bodies; the precise choice will depend on those
expected to receive the subsidy and the extent to which the RHI is similar to or co-ordinated

52

http://www.northernireland.gov.uk/index/media-centre/news-departments/news-deti/news-deti-september2010/news-deti-200910-foster-recognises-importance.htm

53

with another policy (either the GB RHI or another NI policy such as household energy
efficiency).
5.2.

Further issues to consider when developing options

We set out below some of the other generic issues to consider when developing options for
supporting renewable heat.
5.2.1. Fairness
This could turn out to be solely a subsidy to wealthier households, paid for by everyone, unless a
way can be found to ensure more equal access to the available subsidies that takes into account
the disadvantages that poorer households are likely to confront.
5.2.2. Profile of subsidy
Grants can provide little incentive to select the most efficient technology or ensure optimum
installation and ongoing operation if the grants or incentive payments are awarded for the
installation of renewable technologies, rather than the generation of renewable energy (which is
the ultimate aim of the support mechanism).
Policies which provide long term incentives for the use of renewable heat may be more effective
in giving long term signals to the renewable heat market, and preventing a boom and bust
outcome.
5.2.3. Interactions with other renewables policies
Northern Ireland has ambitious targets for renewable electricity as well as renewable heating.
There are at least two issues to consider, therefore: the degree to which scarce resources such as
biomass should be prioritised for one use over another, and the implications of the
decarbonisation of electricity for the emissions associated with electric heating such as air-source
heat pumps.
The first issue has been discussed in previous work53 for DETI. The second issue will be taken
into account in our detailed analysis of options. We have assumed that renewable electricity
targets are delivered in line with the Strategic Energy Framework, and that the renewable
electricity target for 2020 is met.
5.2.4. The gas grid
Section 2.5.1 set out our understanding of the gas network in Northern Ireland today. The future
of the network is important for our purposes, since in assessing the support required for
renewable heat technologies, it is important to understand what these technologies would be
competing against (what is the counterfactual). The extent to which this counterfactual is gas,
rather than say oil, is likely to have a major impact. We analyse this in section 9.5.

53

E.g. AECOM/ Pyry, 2010, op.cit.

54

5.2.5. State Aids


Any subsidy is potentially subject to State Aid funding if it goes to commercial or industrial
organisations. We note that the GB RHI is ...subject to receiving State Aid clearance from the European
Commission54. The question of State Aid compatibility is therefore, not one that distinguishes
between policy options.
5.3.

Conclusions

We took the theoretical framework outlined above and worked with DETI to identify the
characteristics of desirable options. This included looking at alternative approaches to supporting
renewable heat, and targeting specific sectors.
We concluded that approaches focused on specific sectors for example, the large industrial
sector fell short because of the limited potential in specific sectors, or because the factors
affecting uptake are not fully understood (domestic sector). Options which focused on specific
technologies such as bioliquid boilers also ran up against deployment or resource constraints.
We therefore concluded that an approach that supported renewable heat across sectors and
technologies was needed.
Approaches which did not target renewable heat installations directly, but which looked at
supporting the supply chain, looked helpful in terms of overcoming the barriers to deployment
identified in our analysis. However, because they did not target renewable heat directly they are
likely to score worse on the quantity of renewable heat delivered. While they are likely to be
helpful adjuncts to a direct subsidy, they are not a replacement for it in the context of needing to
deliver a 10% target by 2020.
We therefore concluded that a subsidy that directly supported the installation and operation of
renewable heat technologies, across the economy, was needed. Subsidy can either be long term
(as exemplified by the GB RHI or some other form of Feed in Tariff) or short-term (as
exemplified by capital grants). We concluded that we would examine both; other forms of
subsidy can be considered as being somewhere between the two. Our specific proposals for
each, outlined below, will take the issues identified earlier into account.

54

GB RHI proposal, page 13

55

6.

DETAILED OPTION DESIGN

Having decided to focus on an RHI and on capital grants that apply across technologies and the
economy, we need to move to the next level of detail in specifying the options.
A first step in this is to determine which technologies and which groups are eligible for support
and in addition whether conflicting objectives with the roll-out of the gas network should place
any restrictions on eligibility.
As regards the provision of subsidy, there are several ways in which either a capital grant or an
RHI could be structured. To avoid unnecessary complexity, we focus on the most important
design feature for each: how the level of subsidy is set. For grants, the subsidy can be set either
administratively or competitively (Challenge Fund). For an RHI, this could be set using the GB
approach or some other approach which is more adapted to NI. For other design choices, we
choose one possible design, based on the policy context.
A key difference between an RHI and a grant scheme is the use of available funds. Since a grant
scheme must cover the full cost of renewable heat on installation, while an RHI spreads the cost
over 20 years, the RHI should tend to bring renewable heat on faster, given the same funding
envelope. In the right circumstances, the available subsidy allows leveraging of debt and equity
resources, the commitment of which increases the quantum and speed at which renewable heat
technology brought on line (other constraints aside e.g. the ability of installers to deploy
renewable heat). An RHI can also be more expensive in the long run, depending on the discount
rates used.
6.1.

Eligible technologies

We have considered carefully whether the technologies proposed for the GB RHI would be
suitable for NI. It is clear that there are issues with all technologies:

Any use of solar thermal is at a very high cost per unit of renewable heat.

Air source heat pumps, as noted in the GB RHI document, suffer from difficulties
including performance and noise issues and a lack of suitable methodology for measuring
heat delivered for air to air heating.

Ground source heat pumps are relatively expensive.

Bioliquids are limited by available resource.

We have followed the GB RHI approach, except on bioliquids and ASHPs. We consider that
there is a case for support for domestic bioliquids, particularly once the current OFTEC/
Northern Ireland Housing Executive field trials have concluded in 2012. These trials will
demonstrate and inform guidance on how bioliquids could be used in the domestic sector55. We
also provide subsidy rates for small ASHPs; larger ASHPs are cost-effective, in many cases.

55

Personal communication with David Blevings, Oftec April 2011.

56

Geothermal
We also note that the GB RHI will be supporting geothermal in the form of GSHP and deep
geothermal at the same level of support. DECC defines deep geothermal as: if it generates heat
utilising naturally occurring heat located at least 500 metres beneath the surface of solid earth. The
development of deep geothermal in Northern Ireland will be very case specific with perhaps one
or two individual sites. DECC have recently run a Deep Geothermal Challenge Fund which is
supporting three projects in GB. The lessons learnt from these projects should hopefully provide
better cost and performance data upon which any specific incentives for Deep Geothermal can
be reviewed. Indeed DECC have announced in their RHI policy document that they will
consider whether specific tariffs are needed for deep geothermal in 2012. Further research on the
potential, costs and barriers in Northern Ireland would also be useful.
6.2.

Inclusions and exclusions

Excluding the domestic sector from the main part of the scheme, as currently in GB, seriously
reduces the potential to address over 60% of heat demand, and could prevent consumers
receiving the benefits of reduced on-going energy bills, for some renewable heat technologies.
On the other hand, the domestic sector is due to be fully included in the GB RHI from 2012, so
the difference in practice is likely to be small.
We have previously discussed (Section 2.5.2) why we do not believe there is a case at this stage
for subsidising renewable heat in the large industrial sector.
6.3.

Options

The options we have considered56, following discussions with DETI are:

Do nothing.

An administratively allocated Capital Grant.

A Challenge Fund.

An NI version of the GB RHI:


o With the same rates as the GB RHI.
o With the rates calculated for NI using the same methodology as for GB.
o With rates calculated using an alternative methodology.

We consider the likely impact of the do nothing option first, and then consider the others.
6.4.

Do nothing option

Under this option, only the renewable heat that would be delivered without any additional
subsidy is brought forward. Our model suggests that this would be around 7.65% of total heat
56

Some of these options are not applicable in certain funding scenarios. In particular, an RHI is not applicable
where funding only runs to 2014/15, and we therefore do not consider it in this scenario. In the long term funding
scenarios, our analysis shows that the administratively allocated grant does worse than the Challenge Fund, and so
for clarity we have not included it in our tables of results.

57

demand. This is consistent with previous analysis (see Table 2.11), which suggests that around
6% could come from cost-effective building-scale heating, and that there could be additional
cost-effective potential in the industrial sector (see Section 2.5.2).
6.5.

Challenge Fund

In this section we present the outline of a Challenge Fund approach to delivering the
maximum quantity of renewable heat for the funding available. An administrative grant scheme
would have similar eligibility rules but would not involve any rankings.
6.5.1. Competition rules options
As Challenge Funds are competitions they need rules. The starting point for these rules is the
basis on which the availability might be allocated and to whom that is, who qualifies for entry
into the competition. The rules can then be structured so that the subsidy is distributed in the
desired way and in allowed amounts. They can also be structured so that subsidy is distributed at
regular intervals, whether to reflect government budgeting cycles or for some other reason.
An important point to note is that repeated competitions allow for learning to take place, both
by those running the competitions and by those bidding. This can help with economic efficiency.
In the sub-sections below we set out some of the competition rule options that might be
considered.
Evaluation metrics
It is important to be clear about how bids will be evaluated, and to make the evaluation criteria
consistent with overall objectives. These can be a combination of technical and financial
evaluation criteria (complex and expensive to administer) or a single clear metric such as subsidy
cost per kWh of output achieved.
Caps
While the main advantage of a Challenge Fund approach over that of an administered scheme, is
the flexibility it provides in achieving a required return for investors, there should clearly be a
limit or a maximum level of subsidy pay out, say per measure of output (such as cost per kWh of
renewable heat generation). This might be set in an absolute sense, at a margin over what
calculations show it might have to be to achieve the desired investment, or in a relative sense,
such a margin over the next bidder, or indeed as the lower of absolute and relative margins.
However structured, the caps implemented can reflect what the providers of the Challenge Fund
are willing to tolerate as regards subsidy award, while providing a degree of flexibility that is
greater than in fixed rule, administered schemes.
Maximum allocations
It is also possible to set maximum allocations to a given bid. This might be invoked in order to
ensure a fairer distribution of the available funding. This can be set on a lifetime or per
competition basis; the latter being most relevant to a situation where intermediaries were regular
bidders in regulator competitions.
58

Table 6.1 illustrates how such an approach could work in terms of ranking based on per kWh
of renewable heat generated for an assumed single subsidy pool of 1.5m, where bids are not
allowed to be 25% more expensive on the chosen measure than the best bid.
Table 6.1: Illustrative Challenge Fund 1.5m competition
Bid
rank

Bidder
category

Subsidy
bid ()

Cumulative
awarded
()

Annual
output
(kWh)

Ranking
(/kWh)

Excess
over
best bid

Comments

ESCO

25,000

25,000

950

26.32

n/a

Qualifying bid

Household

2,650

27,650

95

27.89

6.0%

Qualifying bid

ESCO

25,500

53,150

900

28.33

7.7%

Qualifying bid

Household

1,500

54,650

52

28.85

9.6%

Qualifying bid

Housing
scheme

100,000

154,650

3,450

28.99

10.1%

Qualifying bid

OTHER

1,272,850

1,427,500

500

ESCO

30,000

1,457,500

930

32.26

22.6%

Qualifying bid

501

ESCO

42,000

1,500,000

1,299

32.33

22.9%

Qualifying bid

502

Household

3,000

1,503,000

92

32.61

23.9%

Exceeds
available
amount

503

Household

5,000

1,508,000

150

33.33

26.7%

Exceeds cap

Qualifying bids

Automatic re-entry
A further rule is whether or not to allow bids that failed to secure funding in one competition, to
be automatically re-entered for the next competition. The advantage of this is that there will
always be bidders. If all the other competition rules set out above are followed, there would not
appear to be any major disadvantages in allowing this to happen.
6.5.2. An option for Northern Ireland
Having looked at the competition rule options above, we now turn to how an initial competition
might be structured in Northern Ireland, which is tailored to specific policy objectives. The
resulting rules are summarised in Table 6.2 below.
Table 6.2: Summary of proposed competition rules
Competition
rules

Recommendation

Options/ variants to Comments


be considered

Frequency

Bi-annually

Quarterly

More frequent competitions to be


considered where administration
process has capacity to handle more
frequent competitions

59

Competition
rules

Recommendation

Options/ variants to Comments


be considered

Sector
eligibility

All households and


businesses57, including
ESCOs. Industrial58
applications to be dealt
with outside the
competition

Could limit to houses


meeting insulation
criteria

Technology
eligibility

All household and


commercial business
based.

Initial focus on households and


smaller businesses rather than
commercial sector

Evaluation
metric

Annual kWh of heat


produced per of
subsidy

Evaluation metric takes into account


grant based nature of the Challenge
Fund

Cap

25% greater than


calculated cost

Reduce if found to be
excessive

This should provide a reasonable


degree of flexibility whilst not being
excessive

Maximum
payment

None initially

Limit to no more
than 10% of any
competition

Limits can be imposed where it is


deemed not acceptable for a single
beneficiary to receive large
proportion of funding available

Separate
divisions

None initially

Consider single
household versus
intermediary

Any divisions need to be based on a


firm rationale. Intermediaries should
be considered where there is a
potential for much greater take-up or
where cash poor customers might be
assisted.

Automatic reentry

Yes

To begin with, best to maximise


potential take-up in target areas.

There are unlikely to be any issues


that flow from this

57

Includes small and medium size industrial sites


That is, those large industrial sites covered by the EU Emissions Trading System. This is discussed in more detail
in section 2.5.2.
58

60

6.5.3. Administration
There are two main issues regarding administration59 - how applications might be processed and
on what basis actual payments would be made.
On the whole, much of the bidding and other processes could be web-site based. Administration
of the scheme should not be necessarily much more complex than an administered grant
scheme. The main difference is that bids are ranked which involves dividing one number by
another; that is, heat generated by subsidy cost. Bidders could be required to do this, or the
scheme administrator could do so. If the scheme used more complex evaluation criteria,
administration costs would of course increase.
6.5.4. Timing of payments
Ideally, any payments from the fund should only be made once the actual technology has been
installed. For reasons discussed later, any approach should also aim to minimise any pre-funding
costs to the beneficiary as this could act as a barrier to take-up. By pre-funding, we mean the
beneficiary having to pay for the technology before the subsidy is received.
A way of structuring this is for the supplier of the technology to install it and then to receive
payment from the Challenge Fund administrators. The beneficiary of the subsidy (say, a
household) would receive a notification from the Challenge Fund administrators that it had a
winning bid. On the basis of this, it would contract with a supplier for installation, most likely
making a down payment on the purchase. Once the equipment was installed, the beneficiary
would pass the notification letter / subsidy voucher to supplier / installer who would then seek
reimbursement from the Challenge Fund administrators. There is a question as to whether full or
random physical verification processes would also be part of the process; for instance, the period
between submission of the voucher and receipt of the payment might allow time for a
verification which may or may not occur (but the supplier / installer would have to assume that
this was highly likely).
6.6.

RHI options

In this section we set out how the GB RHI approach might be modified to better reflect the
circumstances of Northern Ireland. We have started with the GB RHI scheme, at the level of
detail discussed in the March 2011 DECC publication60, and adjusted as appropriate. Table 6.3
sets out how our proposal compares to the GB RHI on key dimensions and includes a brief
justification for each difference.

59

See annex D for more detail.


It is important to note that more details of the GB RHI are expected in summer 2011, after this report was
completed. Once these details are known, it may be appropriate to revisit some decisions.
60

61

Table 6.3: Proposed structure for NI RHI


Aspect
Duration of
payments

Proposed NI
RHI

GB RHI

Comments, including reasons for difference


if any

20 years

Sectors
covered

As GB except
excluding large
industrial
consumers

Domestic
supported by
grant
payments in
2011 and
included fully
from 2012.
Other sectors
included fully
from 2011

Adopting a different approach for domestic


consumers for 2011 would require NI to take its
own view on deeming, ahead of GB risking
incompatibility later for questionable benefit
(total funding in 2011 is 2m). Our expectation
(which can only be tentative, since it is made
before sight of the GB deeming approach) is
that it is likely to make sense for DETI to
follow the GB deeming approach once
introduced.
Our analysis (section 2.5.2) suggests that for
large industrial sites, biomass is either costeffective without additional subsidy, or
unsuitable.

Technologies

As GB, except
with domestic
bioliquids allowed
and rates for small
Air Source Heat
Pumps

Full list in GB
RHI
document

The existence of oil boilers in NI can make


bioliquids relatively cost effective. On balance,
we recommend that DETI delay the decision on
this until after the completion of existing NI
bioliquids trials, since our analysis does not
show any bioliquids uptake in the short term.

Payment
levels

Different tariffs to Deliver 12%


GB (see Table
return for each
6.4)
technology61 see Table 6.4

A previous study for DETI showed that the GB


RHI applied to NI would be inefficient.

Payment
profile
Metering/
deeming
Delivery
body62
Treatment of
energy
efficiency

Flat, quarterly
Deemed for domestic, metered for
industrial and commercial
Ofgem
Buildings receive incentive based
on the heat requirement of a
reasonably efficient building of that
type

Our first principle has been to recognise the benefits of policy simplicity and consistency across
the UK, and so to avoid suggesting differences from the GB RHI without a sound justification.
In some cases, there could be benefits to NI in adopting a slightly different approach, but the
61

Except solar thermal and biomethane injection.


We understand that DETI is confirming with Ofgem that Ofgem is content to be the delivery body for a possible
NI RHI. We understand that the process would be that DETI would place a duty on NIAUR, the utility regulator in
Northern Ireland, which would then contract with Ofgem for Ofgem to administer the NI RHI alongside the GB
one.
62

62

administrative and policy costs mean that the benefits are unlikely to be justified. In other cases,
the benefits to NI of a different approach are large, and we consider that these benefits would
outweigh the cost of any additional complexity. We consider that there should be differences in
sectors covered, subsidy levels, and in the technologies supported.
6.6.1. Payment profile
A payment profile which is front-loaded, or covers a relatively short period, has some potential
advantages compared to one that covers a relatively long period, particularly for domestic
consumers. It helps to overcome the large upfront cost of renewable heat equipment, and reduce
the net outlay at the start. This can be of particular benefit for low-income households, which
have limited savings and ability to borrow.
On the other hand, a long term stream of payments, made conditional on the continued
operation of the renewable heat technology, can help to overcome the problem with pure
upfront subsidy that operation can be discontinued shortly after installation. It also helps to
reduce the initial subsidy payments required to deliver a certain level of renewable heat (although
the lifetime cost is greater).
We recommend that DETI should say that its current intention is to include domestic
consumers in an RHI from 2012, and to make flat, quarterly payments to them. This should be
subject to the final GB approach and to further evidence on domestic uptake under FIT-type
schemes. In the light of these factors, it might be reasonable to decide to front-load NI RHI
payments, or even to introduce a grant scheme for domestic consumers. Table 4 gives suggested
grant levels.
6.6.2. Other issues
We have followed the GB RHI approach in many respects. For example, we have followed the
approach of setting the subsidy at a deemed level (either based on capacity or on output) based
on what a well-insulated property of that type would provide. This gives appropriate incentives
for energy efficiency measures (which can be very cheap and in many cases cost-effective), and
avoids perverse incentives to generate additional renewable heat to receive additional subsidy.
The question of how deeming will operate is not yet fully resolved. Until it is, it will be difficult
to fully include the domestic sector in an NI RHI, and any decision taken now risks being
incompatible with the eventual GB decision. We note that the GB domestic sector will be
eligible to receive Premium Payments under the GB RHI, from June 2011, subject to a
willingness to share feedback on the technology (i.e. a much closer monitoring regime than
deeming). We recommend that DETI explore with DECC and Ofgem the details of the
Premium Payments scheme, and whether there is scope to use it (or the processes underlying it)
for Northern Ireland domestic consumers. Table 4 gives suggested Premium Payment levels for
NI.

63

6.7.

NI RHI subsidy levels

As set out at the start of this chapter, arguably the most important question for any subsidy is the
level at which it is set. We describe how we have come up with our proposed levels in this
section, and how these compare to the GB approach and rates.
We have looked at a number of approaches to setting the subsidy levels for an NI RHI,
including what rates would be set by the methodology used by DECC for industrial and
commercial heat users63 but using NI specific input assumptions. This methodology assumes that
those users require a 12% return on the additional capital cost of renewable heat technologies,
and require on-going support for any difference in operating, fuel or other on-going costs
between the renewable heat technology and the counterfactual. It also includes an allowance for
any upfront hassle costs; these are spread evenly, without discounting, over the lifetime of the
technology. Our assumption is that this 12% is effectively the weighted cost of capital that
companies require to justify the additional spending needed for a renewable heat project. As
such, it includes their financing costs, their required equity return based on the risk, and any
assumed time preference.
We have followed a two stage process to setting the NI RHI rates.
In the first stage, we have taken the DECC methodology but with input assumptions modified
to reflect NIs circumstances (e.g. different fuel prices, and an oil counterfactual). This gives the
figures in the column NI recommended levels DECC basis in Table 6.4 below.
In the second stage, we have used a slightly different methodology (see Annex E) which gives us
our recommended rates NI recommended levels alternative basis. This gives more renewable
heat. The main difference between this approach and that used by DECC is that positive and
uniform discount rates are used to value costs in future years and recover upfront costs across
heat output in all years. In each case this results in rates that are less than one penny per kWh
different except for solar thermal. We have set rates such that they make renewable heat
economic (at least) for 50% of each technology.
Given that we are at an early stage in the roll-out of renewable heat, there is inevitably significant
uncertainty in these figures. In particular, as it is unlikely that domestic consumers will be fully
included in an NI RHI before being fully included in the GB RHI, the figures for domestic
consumers below should be taken as indicative and likely to be revised. Other uncertainties
include the relative prices of biomass, oil and gas, our assessment of the relative technology costs
and in the case of CHP, the support that the technology might receive from policies designed to
support renewable electricity.

63

As set out in Annex 4 of the GB RHI Impact Assessment

64

Table 6.4: Suggested rates for an RHI modified to suit Northern Ireland64
GB RHI draft
consultation

NI recommended
levels - DECC basis

NI recommended
levels - alternative
basis65

Tier 1

Tier 2

Tier 1

Tier 2

Tier 1

Tier 2

ASHP - Small

3.1

3.3

ASHP - Medium

Biogas injection - All

6.5

3.2

2.5

Biomass boilers - Small


Biomass boilers Medium
Biomass boilers - Large

7.6

1.9

3.7

4.5

4.7

1.9

1.3

1.3

2.6

GSHP - Small

4.3

3.6

4.0

GSHP - Medium

3.0

1.6

0.9

Liquid biofuels - Small

0.9

1.5

Liquid biofuels - Medium

Liquid biofuels - Large

Solar Thermal - Small

8.5

17.0

8.5

Solar Thermal - Medium

8.5

8.5

6.7.1. Tiering
The rates shown include two tiers for some technologies. This is an approach taken by the GB
RHI, where technologies receive one rate (the tier 1 rate) for output up to a certain annual
limit (15%) and then a second, lower, rate (the tier 2 rate) for any additional output. Tiered
incentive rates for investors with high load factors were calculated to limit the subsidy to any
incremental fuel expense should they breach the DECC tiering threshold of 15% load factor.
We considered tiering for the NI RHI rates, using the DECC approach. However, when setting
the NI recommended levels for this report, the incremental fuel cost was higher than the subsidy
rates in all cases66. Therefore no tiering is provided in the rates in this report.
6.7.2. Comparing the GB RHI and NI RHI rates
The NI RHI rates are below those for the GB RHI in all cases except solar thermal. The main
reason is the higher prices in NI for fossil fuel heating than in GB, meaning less subsidy is
required to make renewable heat economic. In particular, the relative costs of oil and gas make a
significant difference. We have also updated our technology cost and performance assumptions
to use the most up to date data, and to take account of the characteristics of heat demand and
the types of fuels that are likely to be displaced in Northern Ireland.
64

The rates shown are for quarterly payments; we have multiplied the annual figures from our analysis by 0.96 for
consistency with the GB rates.
65
Described in detail in Annex E.
66
With the exception of solar thermal, where there is no possibility of increasing output to receive extra subsidy.

65

As Table 6.4 shows, our alternative methodology makes little difference to the rates (although it
improves uptake).
6.7.3. Solar thermal rates
Our alternative methodology gives a raw subsidy figure of 32.5p per kWh for solar thermal. This
is clearly very high, compared to that for other technologies. Subsidy at this level for solar
thermal could divert funding away from more cost-effective technologies, and our analysis shows
this happening in the Funding 3 scenario. On the other hand, in the Funding 2 scenario with an
RHI, not all funding will be taken up without some deployment of solar thermal. But this
deployment is very expensive: the analysis shows 13GWh at a cost of 175 million over 10
per kWh.
Our conclusion is that DETI should, depending on funding, subsidise solar thermal but set it at
a lower level than our methodology suggests; the same level as the GB RHI would be
appropriate. DECC has decided to set the solar thermal tariff ...at a level which is roughly equivalent,
in terms of financial support per unit of energy output, to the level allocated to what is currently considered to be the
marginal cost effective technology required to deliver the UKs 15 per cent renewable target, offshore wind67.
We would also recommend considering a cap on the annual subsidy paid to solar thermal to
avoid it diverting funding from other technologies. The size of any cap would be dependent on
available funding.
6.7.4. Tariffs for domestic consumers, and discount rates
In designing a subsidy for domestic consumers, it should be understood that the evidence68
suggests that they discount future costs and benefits very significantly (much more than
businesses do). This is not dealt with in the GB RHI rates, since they do not yet apply to
domestic consumers. We note that the GB RHI proposal includes a Premium Payments
scheme specifically designed to better understand the likely rate of take-up of renewable heat by
domestic consumers, which will be driven in large part by their discount rate(s). The evidence
from this will be useful in feeding into reviews of any NI RHI. For now, in our analysis, we have
followed the approach used in previous analysis for the GB RHI of assuming a discount rate for
domestic consumers of 16%69. Section 8 shows the impact of assuming a higher discount rate (of
25%).
This discussion about discount rates also only deals with the economics of installing renewable
heat, and the subsidy required to make them attractive investments from a cost-benefit
perspective. However, there is also the question of how renewable heat installations are financed.
This is of particular relevance for households, which are unlikely to be able or willing to take out
large loans (large, that is, relative to household income) to fund renewable heat installations.
Some households may be able to fund the installation from savings, but this will, clearly, tend to
be the richer ones. Even then, they may look for very high implied returns on any such spending
(in effect, their equity return).
67

DECC, 2011, Renewable Heat Incentive, page 54


See for example NERA, 2010, Design of the Renewable Heat Incentive: A report for DECC
69
ibid
68

66

Table 6.5 below shows the capital cost of renewable heat technologies compared to oil and gas
boilers. As can be seen, even for domestic consumers the incremental capital cost is several
thousand pounds.
Table 6.5: Capital cost of heat technologies, in per typical installation
Technology

Domestic

Small Commercial

Large Commercial

Gas boiler

3,100

4,800

24,500

Oil boiler

3,700

4,800

24,500

Solar Thermal

4,400

10,600

222,300

Liquid biofuels

4,400

5,800

29,400

Biomass boiler - urban

7,600

7,600

97,300

Biomass boiler rural

7,900

7,900

101,800

ASHP

9,100

9,100

89,200

GSHP - rural

10,300

10,300

180,000

GSHP - urban

16,300

16,300

180,000

The sensitivity analysis in section 8 looks at the impact of assuming that most households are
restricted in the amount they can spend upfront on renewable heat. As this shows, uptake is
reduced. This provides the basis for our recommendation that DETI should look at the evidence
from the Premium Payments scheme, and the GB RHI approach to domestic consumers, before
making a final decision on the subsidy approach for domestic consumers.
One way to overcome any barrier due to capital costs is through Energy Service Companies
(ESCOs). Box 5.1 sets out an example of one that has arisen in the GB renewable electricity
market. While this is a welcome development, and we recommend that DETI starts a
stakeholder process to look at the potential for ESCOs in the NI market, there are risks in
having a policy that relies on ESCOs coming forward.
6.7.5. Subsidy for large industrial users
Our analysis in section 2.5.2 suggests that for the large industrial sector, either renewable heat is
likely to be economic without additional subsidy or the sites are or will potentially be on the gas
network and so subsidising renewable heat for them could hinder the roll-out of the gas
network. This is subject to site-specific analysis in some cases, and so DETI should keep this
conclusion under review. However, we do not see a case at this stage for subsidy for the large
industrial sector, which is why we have set the rates for that sector to zero.
6.7.6. Subsidy bands
Table 6.6 below shows proposed technology sizes for each subsidy band. We have included a
comparison with those used in the GB RHI. In most cases, our proposals are very similar. In
67

some cases, we have proposed no upper limit to a size band. Applying an upper range to
technologies would restrict the potential for larger commercial/public installations serving a large
office/residential building or even connected to a district heating network to be eligible for
subsidy.
Table 6.6: Proposed sizes for subsidy bands
Technology Group

Investor groups

GB
RHI GB RHI Proposed NI
consultation proposal
range
ranges70
rates71
Lower Upper
bound bound

ASHP

All domestics and small


commercial/public sector

0-45

Small

*72

Less
than
45

45

No
upper
limit

Medium Large commercial/public


sector (but not large enough
for industrial)

45-350

Biogas
injection

All

All

All

All

All

All

Biomass
boilers

Small

All domestics and small


commercial/public sector

0-45

0-200

Less
than
45

Medium Large commercial/public


sector (but not large enough
for industrial)

45-500

200+

45

No
upper
limit73

Small

0-45

0-100

Less
than
45

Medium Large commercial/public


(but not large enough for
industrial)

45-350

100+

45

No
upper
limit

Liquid
biofuels

Small

All domestics (but not large


enough for small
commercial/public sector i.e.
50kW)

0-45

*74

4575

Solar
Thermal

Small

All domestics and small


commercial/public sector

0-20

0-200

20

GSHP

All domestics and small


commercial/public sector

70

http://www.decc.gov.uk/assets/decc/consultations/rhi/1_20100129161148_e_@@_designoftherenewableheatin
centivenerareport.pdf These rates are included for comparison purposes, since they include domestic installations,
unlike the current GB RHI proposed bands.
71
These rates do not include domestic installations. There are also no rates given for a number of technologies that
we suggest are included in the NI RHI. A direct comparison is therefore difficult.
72
Not eligible in phase 1, under review for inclusion in phase 2.
73
Based on our analysis, we recommend a zero rate for large industrial sites, and so recommend that they are
excluded from this band.
74
Not eligible in phase 1, under review for inclusion in phase 2.
75
If non-domestic schemes are to be included, then we recommend a separate band above 45kW.

68

6.8.

Renewable Heat Obligation

One other option, which DETI asked us to consider, is a Renewable Heat Obligation. This is
already used in both the electricity and transport sectors, and is an obligation on the suppliers of
electricity or transport fuels to have a certain percentage of their supply from renewable sources.
In both cases, suppliers receive a certificate for each unit of renewable electricity or transport
fuel that they supply. The supplier must have a certain number of these certificates by the end of
each year, or face a penalty (the buy-out price) for each certificate they are short. The penalties
are then distributed to the suppliers who did have enough certificates. Since the certificates are
tradable, they have a price, which is the incentive to supply renewable fuel. The price is driven by
the level of the penalty, and the difficulty that suppliers face in supplying renewable fuel or
electricity.
The pros and cons of obligations have been extensively discussed. In the electricity sector, the
UK Government is moving away from an obligation in the electricity sector to a feed-in tariff
approach. The main reason given is that because the price of a certificate fluctuates, it is more
risky as a basis for investment in new renewable capacity than a feed-in tariff, where the price per
unit is, by definition, fixed. A 2008 study76 for the Department of Business Enterprise and
Regulatory Reform (BERR) looked in detail at the relative merits of an RHI and an RHO for
GB. It concluded that the higher discount rates this would imply would mean that an RHO
would be around 30%77 more expensive than an RHI for GB for an 11% renewable heat target.
In summary, we consider that an RHO is unlikely to be the most cost-effective way to deliver
renewable heat; a fixed support level is more likely to be successful in stimulating investment.

76
77

NERA, 2008, Quantitative Evaluation of Financial Instruments for Renewable Heat.


1.3 billion vs. 1.0 billion per year in 2020

69

7.

OPTION ASSESSMENT

The previous section set out the detailed options that we are considering. In this section, we look
at how those options score against a range of assessment criteria which reflect DETIs
objectives, such as (not necessarily in order) economic growth, security of energy supply, carbon
emissions and making the policy open to all. We also look at an assessment against our primary
criterion, that of renewable heat delivered within the available funding (or assumed funding
scenario). We also consider heat deployed per pound of funding. These measures are to some
extent in opposition to one another, since higher levels of renewable heat will only be deployed if
some of the more expensive technologies are deployed. Good subsidy design can mitigate this to
some extent, as we will see.
7.1.

Assessment criteria

We start by setting out the criteria we have considered, and how we have attempted to trade
them against one another. Under our primary criterion of heat deployed, we have considered a
number of other objectives. Our approach has been to attempt to modify policy options so that
those objectives are delivered (or delivered to a greater extent) without significantly harming the
overall objective of delivering the maximum renewable heat. In many cases, there is little conflict
the maximum oil displacement, reduction in carbon emissions and minimum impact on the gas
network all take place when subsidy is targeted at those using oil rather than gas.
Table 7.1 below lists all the criteria that we have considered, and whether we have assessed them
quantitatively and/ or qualitatively. While we have a preference for quantitative assessment if
possible, we recognise that a purely quantitative analysis would be incomplete.
Table 7.1: Criteria for assessing policy options
Criterion

Quantitative?

Qualitative?

Notes

Amount of
renewable heat
deployed

Yes

No

Cost per unit of


heat deployed

Yes

Yes

Oil displaced

Yes

No

Carbon
emissions

Yes

No

Assessed using the DECC methodology

Displacement
effects in other
sectors

Yes (for gas)

Yes

Focused on the gas and oil sectors

Employment &
capacity
building,
particularly in
green sectors

Yes

Yes

Certainty of
delivery

Through
sensitivity
analysis

Yes

70

Criterion

Quantitative?

Qualitative?

Notes

Open to all
(special
consideration
to fuel poor)

Yes

Yes

Assessed through sensitivity analysis

In most assessments of this type, consumer bill impacts and fuel poverty would also be a
consideration. However, it is assumed in line with the GB RHI78 - that all funding will be from
general Government revenues, and that there will therefore be no increase in consumers bills
and no direct adverse impact on fuel poverty; that is, the costs are socialised. Indeed, the
replacement of oil or gas-fired heating with renewable technologies may, in some cases, result in
lower on-going costs, which would have a positive impact on consumers. While this could help
reduce the numbers in fuel poverty, the exact reduction will depend on the uptake of renewable
heat by the fuel poor. Since the evidence suggests that households with less capital (which tend
to be those in fuel poverty) are less likely to install renewable technologies, we adopt the cautious
approach of not claiming any quantifiable benefit from this potential reduction in fuel poverty.
7.2.

Model

In order to assess the impact of any subsidies on consumer decisions, we have built a detailed
economic model. This considers the expected impact of different levels and profiles of subsidy
on consumers decisions about heating. It incorporates constraints such as deployment and the
availability of resources such as bioliquids, and looks at consumers at a relatively granular level,
to capture the differences between, for example, rural and urban domestic consumers. The
model outputs the expected uptake of renewable heat, by customer segment, and looks at the
displacement of oil and gas that this implies. Carbon and oil savings are also calculated, with
carbon savings being monetised. The model outputs form the basis of our quantitative
assessment of the options and of our cost-benefit analysis (CBA).
We have separately provided more detail on the financial model to DETI. Figure 7.1 below
summarises the main steps in the models calculations.

78

DECC, 2011, Impact Assessment for the Renewable Heat Incentive, Paragraph 56 ...there will...be no direct impact on fossil fuel
bills arising from the RHI and as a result no energy bill impact analysis is presented here.

71

Figure 7.1: Outline of model calculation

For each technology/ user


segment
Hassle costs

START
Technology costs
Fuel costs
Heat users discount rates
Counterfactual heating
system by segment

Calculate levelised cost


compared to counterfactual
Calculate levelised cost postsubsidy
Assess relative attractiveness
of technologies

Rate of return required


Apply technology, fuel and
financing constraints
Subsidy level and profile
Calculate deployment in year
1
Technology constraints (e.g.
suitability, supply chain)

Repeat for subsequent years


Financing constraints
Fuel constraints

7.3.

Deployment in
GWh, and total cost

Assessment of the shortlisted options

Using the economic model outlined above, we have assessed the likely level of take-up for
renewable heat given the range of options already discussed. This provides us with the figures in
Table 7.2 below, which show the level of renewable heat delivered in each policy/ funding
scenario combination.

72

Table 7.2: Level of renewable heat79 in 2020, including baseline and viable installations, by funding level and
policy, in GWh
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16

1,278

Funding 3 - Long term


funding: 25 m to 2014/15,
12m per year thereafter

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

1,414

1,345

1,953

1,785

1,708

1,810

1,860

1,869

1,486

1,458

1,584

1,574

Table 7.3 shows the amount as a percentage of Northern Irelands projected overall heat demand
in 2020, for ease of comparison to the 10% target.
Table 7.3: Level of renewable heat in 2020, by funding level and policy, as % of total heat demand
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

7.65%

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

8.47%

8.05%

11.69%

10.69%

10.23%

10.84%

11.14%

11.19%

8.90%

8.73%

9.49%

9.42%

Consideration of results and basis for recommendation on rates


We start by noting that there are options which deliver the 10% target on their own, but given
the uncertainties around take-up, this should not be read as suggesting that no other policies will
be needed. In particular, our analysis suggests that the rate at which renewable heat can be
deployed is a significant constraint, so policies to support the supply chain are likely to be

79

Additional Renewable Resource

73

effective (as well as having potential employment benefits). Indeed, the potential deployment
levels that we assume are often the binding constraint.
The next point to note is that under all funding scenarios, the Challenge Fund delivers the most
renewable heat. As we will see later, it also scores well on efficiency in terms of cost per unit of
heat deployed and on overall cost-benefit. This is because it is competitively allocated; other
grant schemes could be expected to deploy heat more slowly than an RHI that gave the same
lifetime subsidy per installation (although even the administered grants do better than the GB
RHI).
Moving to the RHI options, we can see that it is possible to improve significantly on the GB
RHI rates. The figures lead to our recommendation that, on balance, the rates should be set
using the alternative methodology, since they deliver more heat than the NI RHI DECC
rates in the Funding 2 scenario, and approximately the same level in Funding 3.
Efficiency
While the tables above show the level of renewable heat deployed, they do not show how
efficiently this is done in other words, how does the deployment score against our key metric
of heat per pound? We cannot assume that the level of spending is the same in all scenario/
funding combinations, since our analysis suggests that not all the funding will be spent in every
scenario.Table 7.4 below looks at the spending in each funding/ policy combination, and shows
the cost, in pounds per kWh of renewable heat in 2020. Note that this figure does not take
account of the benefits of renewable heat deployed in earlier years, or of the on-going benefits. It
is therefore somewhat higher than the figures shown in the levelised cost graphs in section 3.
Table 7.4: Average cost in per kWh of additional renewable heat in 2020
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

n/a

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

0.16

0.36

0.24

0.33

1.06

0.57

0.57

0.13

0.41

0.90

0.51

0.52

As might be expected, the Challenge Fund options do well, but these figures need to be treated
with caution since the Challenge Fund is assumed to be able to target the most cost-effective
deployments first. Issues such as a lack of awareness are likely to mean that not all of the most
cost-effective heat deployment opportunities can be targeted. This is of course also an issue for
other subsidies.
74

All RHI options are more expensive than the Challenge Fund options, but there are differences
in unit cost between them. The NI RHI DECC and the NI RHI - alternative rates are
similarly efficient on this measure; both have a significantly lower cost than the GB RHI rates.
7.4.

Segment analysis

As well as considering the overall deployment picture, we also looked at where the renewable heat
was being deployed, and which technologies were being deployed. This includes consideration of
how deployment is split between rural and urban areas80.
To avoid excessive detail, we only present results for one option for each funding scenario, and
discuss how the results vary by policy option within that.
7.4.1. Short-term funding
We consider here the deployment from the Challenge Fund, in the short term funding scenario
(that for the capital grant is very similar).
By design, the Challenge Fund is intended to support the most cost-effective deployment. As
Table 7.5 shows, it does however still lead to deployment of more expensive technologies such
as GSHP, which might indicate limits on the deployment of other more cost-effective options.
Table 7.5: Technologies in use in 25m funding scenario with Challenge Fund
Technology

GWh

% of total renewable heat

ASHP

282

18.9%

Biogas injection

0.5%

Biomass chip boilers

111

7.5%

GSHP

83

5.6%

Liquid biofuels

18

1.2%

Solar Thermal

0.2%

Baseline

982

66.0%

80

The market segmentation used the Northern Ireland housing statistics 2009-10 report as a basis. The
segmentation showed 33.5% of homes as being in rural areas and 66.5% in urban areas. As a sense check this was
also compared to the NISRA Urban-rural definition group study from 2005 which reports that approximately 65%
of the population live in urban areas and 35% in rural areas. For the commercial sector, the rural/ urban split was
based upon the sub-sector SIC category (such as Agriculture, forestry and fishing being one of 17 different
categories upon which assumptions were made as to the proportion of the sub-sector that would be based in urban
and rural areas).

75

Table 7.6 below shows that deployment is focused on urban areas and in the commercial sector.
Table 7.6: Geographical and sector split in 25m funding scenario of installations driven by the Challenge Fund
Domestic

Non-domestic

Total

Urban

1.8%

42.1%

43.9%

Rural

21.6%

34.5%

56.1%

Total

23.4%

76.6%

100%

The focus on the commercial sector is partly driven by differences in discount rates. We have
assumed that domestic users have higher discount rates than commercial ones, meaning that
even if the additional annual costs of a technology are exactly the same in both sectors, the
commercial sector will find it more attractive. Commercial installations also often have higher
load factors, and so get a greater benefit from the often lower running costs of renewable heat
than domestic installations would.
There may also be some effect from the economies of scale shown in the technology costs,
although this is not always in one direction, since the important factor is the relative economy of
scale compared to the counterfactual. In other words, if the price per kW of an oil boiler drops
faster with increasing size than the price of a biomass boiler, biomass boilers will become less
and less attractive as they get larger.
7.4.2. Long term funding scenarios
The tables below show which renewable heat technologies are deployed, and where, in the two
long-term funding scenarios. We have focused here on the NI RHI alternative methodology
for clarity. One difference between the impact of these rates and other RHI options is that the
alternative methodology does incentivise (often relatively cost-effective) liquid biofuels.
We start with the tables showing the technology deployment (Table 7.7 and Table 7.8).
Table 7.7: Technologies in use in 2020 in funding scenario 2 with NI RHI (alternative methodology) rates
Technology

GWh

% of total renewable heat

ASHP

484

24.1%

Biogas injection

73

3.7%

Biomass chip boilers

192

9.6%

GSHP

205

10.2%

Liquid biofuels

72

3.6%

Solar Thermal

0.0%

Baseline

982

48.9%

76

Table 7.8: Technologies in use in 2020 in funding scenario 3 with NI RHI (alternative methodology) rates
Technology

GWh

% of total renewable heat

ASHP

328

19.8%

Biogas injection

41

2.5%

Biomass chip boilers

162

9.8%

GSHP

109

6.6%

Liquid biofuels

36

2.2%

Solar Thermal

0.0%

Baseline

982

59.3%

The absolute figures are most informative here, as they allow a more direct comparison with the
short term funding scenario. They show an increase in the deployment of all technologies, with
the exception of solar thermal. Increasing funding (from funding 3 to funding 2) further
increases deployment in every case (again, except solar thermal).
We then turn to the question of where the renewable heat is deployed. Interestingly, the
deployment is now split slightly more evenly between urban/ rural and domestic/ non-domestic
consumers. As expected, as funding increases, there is a greater level of deployment in the
relatively less cost-effective domestic sector, and an increasing uptake in rural areas. Since the
commercial (and public) sectors account for only around 17%81 of heat demand in NI, and there
are the limits on industrial potential that we discuss elsewhere, delivering a 10% renewable heat
target without deploying any in the domestic sector would be difficult.
Table 7.9: Geographical and sector split in funding scenario 2, with NI RHI (alternative methodology) rates
Domestic

Non-domestic

Total

Urban

3.8%

40.0%

43.8%

Rural

25.8%

30.4%

56.2%

Total

29.6%

70.4%

100%

Table 7.10: Geographical and sector split in funding scenario 3, with NI RHI (alternative methodology) rates
Domestic

Non-domestic

Total

Urban

1.4%

35.4%

36.8%

Rural

26.2%

37.0%

63.2%

Total

27.6%

72.4%

100%

81

AECOM/ Pyry, 2010, op.cit. The domestic sector accounts for 61%, while the large industrial sector accounts
for 22%, leaving 100-61-22=17% from the commercial and public sectors.

77

A further consideration from the above is the question of fairness, or whether the RHI is open
to all. While there are good cost reasons for a focus on the non-domestic sector, the relatively
low percentage of take-up in the urban domestic sector may be an issue to consider.
7.5.

Carbon savings

Another of the key assessment criteria that we set out earlier was the reduction in carbon dioxide
emissions from renewable heat. In this section, we set out the level of savings we expect, and we
monetise them using the DECC82 methodology. Carbon savings form the key monetisable
benefit from renewable heat; we consider other non-monetisable benefits later in the report.
Table 7.11 below shows, for each subsidy/ funding scenario combination, the expected savings
in carbon dioxide emissions compared to current levels of renewable heat.
Table 7.11: Cumulative carbon saved, by scenario and option, in millions of tonnes of CO2 equivalent
Do
nothing

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

2.8

2.3

5.9

4.9

4.5

5.1

5.4

5.5

3.1

3.0

3.8

3.7

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

1.8

As expected, higher levels of funding lead to higher savings, but there are variations between the
RHI options. Overall, the level of carbon savings is quite closely related to the level of renewable
heat deployed, since most renewable heat installations displace the same fuel (oil). If an option
had preferentially displaced gas heating rather than oil, the carbon savings would have been
lower than an option that displaced the same number of kWh of oil.
Again, as in our discussion of the level of heat deployed, the alternative methodology does
slightly better under Funding 2, and similarly under Funding 3.
To include these savings in our overall monetised cost-benefit analysis, we have taken the
savings above and monetised them using the DECC carbon saving methodology (central carbon
prices). This gives the following present value benefits for each option (to the nearest m). The
pattern of the results is virtually identical to that in the previous table.

82

http://www.decc.gov.uk/en/content/cms/what_we_do/lc_uk/valuation/valuation.aspx

78

Table 7.12: Value of carbon saved, by scenario and option, in m, compared to no new renewable heat
Do
nothing

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

131

107

274

229

211

239

248

255

145

144

179

173

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

7.6.

85

Monetisable costs

To assess each option, we also need to consider the costs associated with it. There are both
monetisable and non-monetisable costs associated with each; we consider the former in this
section, and the latter in Section 9.
As well as the overall cost of the funding spent as subsidy, there are three types of monetisable
cost we consider:

the administration cost for the body operating the scheme;

the administration cost for those installing renewable heat; and

the cost of metering.

As will be seen below, the overall funding cost, and the administration for the body operating
the scheme, dominate.

79

7.6.1. Cost of funding


Table 7.13 below shows the total lifetime subsidy cost for each policy/ funding combination.
Table 7.13: Subsidy spending, in m (present value)
Do
nothing

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

22

24

161

167

455

303

334

79

85

161

155

154

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

As can be seen, the level of spending varies by option. This is driven by two factors: the timing
of payments under a grant vs. an RHI, and the uptake shown by our model.
Under a grant or Challenge Fund, payments are made on installation, by assumption, and there is
no ongoing stream of payments. For installations to 2020, there is therefore only a need to spend
until 2020. With an RHI, on the other hand, spending needs to continue for 19 years after
installation i.e. to 2039, in our case.
Turning to uptake, deployment constraints, and the fact that the rates used in the RHI options
set out above may not be sufficient to incentivise all the potential for each technology, mean that
not all available funding will be taken up. In practice of course, the ability to deploy renewable
heat could increase, given a long-term, credible, funding stream, and so our results need to be
considered with this in mind.
7.6.2. Administration for body operating an RHI
To estimate the potential administration costs of any scheme, we have looked at the cost of
running previous renewable energy programmes as reported by the National Audit Office. Table
7.14 below highlights the overall management costs as a percentage of the grant awarded under
each programme. Annex D looks at the elements required in administration of a programme,
based on AEAs experience of running these for the UK Government.

80

Table 7.14: Renewable energy programme management costs83

The Offshore Wind programme is perhaps less representative of the other grant programmes or
in terms of similarity to an NI subsidy for renewable heat. The Offshore wind programme had
very few applications but those that received funding were extremely large in terms of grant
award. Excluding Offshore Wind the other grant programmes had an average management cost
of just over 14% of the grant payments. Assuming that an NI subsidy programme is relatively
simple one could therefore expect the management costs to be around 10%.
We understand that the HM Treasury funding cannot be used for administration costs, so these
will need to be found separately (see section 11.2). We therefore include an additional
administration cost equivalent to 10% of the subsidy spent for each option (as shown in Table
7.15 below).
7.6.3. Other monetisable costs
Other costs of the policy include administrative burdens on those taking up the renewable heat,
and costs of installing meters in non-domestic premises (although as will become clear below,
these are small compared to the cost of the subsidy). We do not include upfront hassle costs
of installing renewable heat, as these are captured in the subsidy paid to consumers.
DECC estimates that meters for the GB RHI will cost between 250 and 500 million,
depending on the size of installations that are incentivised. This will deliver approximately
47TWh of incremental renewable heat in 2020. Conservatively, we assume that the cost in NI
will be equivalent to the upper end of the GB cost range, per TWh. This gives a metering cost
per incremental GWh of renewable heat (in the non-domestic sector) of 10,683. Applying this
to the level of renewable heat beyond the baseline level gives the following metering costs:
83

Source: National Audit Office

81

Table 7.15: Estimated metering costs by option, in m


Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16

Funding 3 - Long term


funding: 25 m to 2014/15,
12m per year thereafter

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

1.1

0.5

4.9

2.7

3.4

4.4

4.4

4.2

1.4

1.5

2.6

2.3

For administration burdens, we use the administration cost figures from the GB RHI impact
assessment, of 26.61 per installation to register with the body administering the scheme, and
51.72 per quarter to report the level of heat delivered84. This equates to a present value cost of
3,005 per non-domestic installation and 26.61 per domestic installation (we assume that
domestic installations operate under a deemed approach and so do not have to report their
consumption, and that the cost of their time is comparable to that for commercial installations).
We also assume that the administrative requirements will be similar for grant and RHI options.
This leads to the estimated costs in Table 7.16 below.
Table 7.16: Estimated lifetime administration costs for those installing renewable heat, m, 2010 prices
Do
nothing

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

7.1

6.0

30.3

31.4

15.6

32.8

32.8

27.3

12.8

7.7

18.4

2.7

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

84

DECC notes that this may be a monthly requirement for some larger installations. We do not expect to
incentivise large industrial installations through an NI RHI.

82

7.6.4. Total monetisable costs


Table 7.17 below sums the figures in the preceding tables to show the total monetisable costs.
Table 7.17: Total monetised cost of each option, in m, 2010 prices, compared to do nothing
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

32

33

212

218

519

371

405

119

108

186

191

174

The majority of the cost is the subsidy given to renewable heat. The NI RHI Alt rates have a
slightly higher cost reflecting the higher level of renewable heat deployed. GB RHI costs are
highest, even though they are not the most effective at deploying renewable heat.

83

8.

SENSITIVITY ANALYSIS AND RISKS

There are inevitably significant uncertainties attached to our results, and a consideration of them
is needed to ensure our results are robust. Some of them can be considered through quantitative
sensitivity analysis, and others can only be considered qualitatively.
Some of the sensitivities below suggest particular directions for DETI. We have included these
in our recommendations.
8.1.

Quantitative sensitivity analysis

Our focus here is on the uncertainty over domestic consumer take-up rates. These will be driven
by three factors: consumers discount rate, their awareness of renewable heat technologies and
their ability to borrow (or rely on ESCOs) to finance upfront capital costs.
We set out the results of these sensitivities in the form of the net change in renewable heat
deployed in 2020 in Table 8.1 below.
Table 8.1: Impact of sensitivities on renewable heat deployed increase/ (decrease) from central scenario, in GWh
Sensitivity
Domestic consumers discount rate is 25%85 rather than 16%
Lack of awareness means that only 50% of potential for each
technology is available

Challenge
Fund

NI RHI
Alt

12

-3

-153

-130

This suggests that changes to discount rates make little difference in practice for either policy.
For the RHI, this could indicate that rates are high enough to overcome the increase in discount
rates. Where a constraint applies across the board, such as a lack of awareness, it affects both
policies approximately equally.
We also consider the possible impact of consumers being capital constrained in other words,
being unable to afford the additional upfront cost of a renewable heat installation, even if it
would be profitable for them in the longer term. We assume for the sake of these sensitivities
that domestic consumers cannot raise more than 5,000 (net of subsidy) and look at the impact
on renewable uptake with the NI RHI Alt subsidy levels. We also consider the impact of
front-loading the subsidy for the sake of this sensitivity, giving consumers one-third (in PV
terms) of the subsidy upfront and then the remainder in equal payments for 19 years. The
change in renewable uptake is shown in Table 8.2 below.

85

The mid-high rate from NERA, 2010, Design of the Renewable Heat Incentive: A report for DECC

84

Table 8.2: Renewables uptake under capital constraint and front-loading sensitivities, in GWh, compared to NI
RHI Alt base case
With capital constraint

With capital constraint and front loading

-198

-43

What this shows is that the capital constraint has a noticeable impact on uptake, but that
including front-loading compensates (although not fully) for this impact. This could also have
distributional benefits, in that lower income households have less ability to overcome capital
constraints.
However, front-loading will, other things being equal, require more spending in early years per
unit of renewable heat than a flat profile. It may also be unnecessary if (as in the GB renewables
market) energy service companies come forward. However, in that case, a proportion of any
RHI subsidy would flow to those companies rather than wholly to consumers.
We therefore consider that the case for front-loading (or at the extreme, grants) depends on the
level of funding available (the more funding, the more there is a case and need for domestic
deployment) and the experience with consumer uptake in particular, with the GB Premium
Payments approach. Front-loading, or grants, are therefore options to consider once the long
term funding level becomes clear, once the GB approach is clearer, and once evidence from the
Premium Payments scheme is available.
The extreme example of front-loading is an administered capital grant. Our modelling suggests
that an administered grant that gives the same present value of support as the NI RHI, within
the Funding 2 envelope to 2020, delivers 10.69%, compared to 11.14% with the RHI and
11.69% for the competitively allocated Challenge Fund. This suggests that some degree of frontloading is compatible with achieving the 10% target in that funding scenario.
Finally, we consider the issue of deployment constraints. To assess the impact of the constraints,
we look at the implications of increasing the ability to deploy renewable heat by 50% above our
base case assumptions. Our model suggests that this would lead to the NI RHI Alt rates
delivering 12.58% renewable heat, compared to 11.14% in the base case, within the same
funding envelope.
8.2.

Qualitative analysis of risks

Given the uncertainties associated with the take-up of renewable heat, it is particularly
appropriate to assess the potential risks associated with any policy, and how they might be
avoided or mitigated.
8.2.1. Risk of incorrect subsidy level
Probably the most obvious risk is that the subsidy levels proposed for the RHI are either too
high or too low. In the former case, those installing renewable heat will be over-subsidised and
less heat will be delivered per pound than under more optimal subsidy levels. In the latter,
85

renewable heat will not be deployed to the extent expected. The normal method of dealing with
this risk is to have regular, planned, reviews of subsidy levels after a number of years of
experience with the subsidy. In the event that DETI introduces an RHI, we recommend that
there is a review after two to three years (see section 11.5).
We note that the Challenge Fund is much less exposed to this risk, since subsidy levels are in
effect reset each time a call for bids for the fund is made, and are set by those installing the
technology rather than administratively.
8.2.2. Risk of harm to other sectors
An increase in renewable heat will, inevitably, lead to a reduction in the demand for conventional
heating (oil, gas, coal and electric heating). At a high level, the short term harm to any sector
should be relatively small, as the additional86 level of renewable heat delivered by an NI RHI is
approximately 3.5% by 2020 even in the case with the most funding (a Challenge Fund would
deliver 4%). However, even this, if it impacted disproportionately on the gas sector, could have
negative consequences for the extension of the gas network. We consider this more in section
9.5.
8.2.3. Risk of failure of renewable heat supply
Just as supplies of conventional fuels may be disrupted, there is a risk that supplies of renewable
fuel (i.e. biomass, biogas and bioliquids) will be disrupted. Our analysis in section 7.3 suggested
that around 33% of the additional renewable heat deployed would be powered by biofuel:
biomass (19%), biogas (7%) or bioliquids (7%). Biogas can be replaced with conventional gas in
the short term, so disruptions to it should be relatively low risk. Bioliquids, since locally sourced
by assumption, should be less risky than biomass, much of which will be imported. This suggests
that the biomass supply chain, and the security of biomass imports, will be an important factor in
the actual or perceived riskiness of renewable heat. We recommend that DETI works with
biomass suppliers and potential large users to look at the risks to the biomass supply chain, and
how these could be mitigated.
8.2.4. Risk of low take-up
Our earlier discussion on the capital cost barrier to uptake in the domestic sector only covers
one of the possible barriers to uptake. Other possible barriers include planning restrictions, a
lack of awareness, and negative perceptions of the reliability and/ or cost of renewable heat. We
suggest that the delivery of the Green New Deal presents a significant opportunity to deliver
messages about renewable heat to homes and businesses. We recommend that DETI works with
DSD to look at how this could be done, and considers whether additional marketing or
awareness raising is appropriate.

86

That is, not counting those baseline and otherwise viable renewable heat installations that would be delivered
under the do nothing option.

86

9.

NON-MONETARY IMPACTS

Sections 7.5 and 7.6 looked at, respectively, the monetisable costs and benefits of the options.
This section covers the costs and benefits that are not monetised in this report. While they have
not been monetised, we note that in many cases the size of the benefits is likely to be
proportional to the extent of renewable heat deployed.
9.1.

Employment and capacity building, particularly in green sectors

DECC has estimated87 that there are 150,000 jobs in the heating industry in Great Britain. Prorating by population size suggests that there are around 3,750 jobs in this sector in NI. The
Renewable Energy Installers Academy lists 92 firms or individuals in NI that are qualified to
install renewable heat; this could be expected to grow significantly with a robust, long term
renewable heat subsidy in place. In March 2011 there were 26 firms that were MCS accredited
and qualified to install at least one of the renewable heat technologies and based in NI. It should
be noted that a few of these firms were actually registered in the Republic of Ireland.
Investment in renewable energy is likely to create direct jobs as well as indirect jobs across the
entire supply chain of the renewable industry including:

environmental monitoring;

development design;

commissioning and procurement;

manufacturing;

installation;

project management;

transport and delivery and operations; and

maintenance.

A number of studies have found a positive net impact on jobs as a result of substitution to
renewable sources of energy. This is mainly due to longer and diversified supply chains, higher
labour intensity and higher net-profit margins for renewable energy compared to non-renewable
energy generation. Increased spending attributed to net new jobs would lead to additional output
thus creating a ripple effect in the economy.
A 2007 European Commission study88 found that, overall, a 10% substitution towards renewable
energy sources compared to non-renewable sources has a positive impact on jobs.
A renewable supply chain gap analysis carried out by the Department of Trade and Industry89
(DTI) in 2004 estimated jobs created per MW for a number of renewable technologies in the

87

http://www.decc.gov.uk/en/content/cms/news/pn2011_023/pn2011_023.aspx
European Commission (2007), DG Environment: Links between the environment, economy and jobs.
89
DTI, 2004, Renewable Supply Chain Gap Analysis
88

87

UK. While this study is now seven years old, it provides valuable data on employment per MW
of installed capacity across several of the key renewable heat technologies.
The majority of jobs are created during the construction phase of a project, which could include
the installation phase of a biomass boiler, or the manufacture of solar panels in a factory. Jobs
created per MW are lower when fuels are imported and are not local. According to the DTI
study the level of job creation for biomass and solar thermal is approximately 20 jobs per MW
during the construction phase. For many of the renewable heat technologies such as solar
thermal, biomass and heat pumps the manufacture will not be in Northern Ireland so much of
the job creation will be associated with the installation.
In the biomass heating sector AEA have estimated the level of job creation associated with
installation, under the Bio-Energy Capital Grants Scheme job creation was equivalent to 0.2 jobs
per MWth for medium sized (100-500kW) heating boilers.
A previous study by NERA/AEA90 reports that four man days by plumbers are required per
solar thermal installation. The time required for installation will also be comparable for domestic
heat pumps and biomass boilers. As part of the modelling for DETI we have estimated that over
25,000 additional renewable heat installations will be required by 2020. In the year 2020 over
4,150 installations a year are required, this would equate to roughly 16,000 man days by skilled
plumbers. Assuming 220 working days per year this would equate to over 75 specialist plumbers
installing renewable heat technologies in the domestic sector. These new skilled jobs cover only
one component of the eight areas listed on the previous page. Further research is required to
accurately estimate the full job creation potential of renewable heat.
Employment can be created or safeguarded in the following ways:

Direct employment in the installation, construction or operation of a project.

Direct employment in the manufacturing of renewable heat technologies.

Indirect employment from supplying goods and services to a project.

Induced employment through jobs created due to increase spending due wealth creation
by the project.

Biomass and bioenergy schemes in particular offer the greatest potential for jobs relating to the
ongoing operation of a facility. Jobs may be created both from the operation of larger plants, and
also from the ongoing management and supply of fuels.
Bio-energy schemes can result in additional jobs through:

The management of forestry and production of forestry residues.

Transport and delivery of fuels.

Utilising unused land for energy crop production.

90

http://webarchive.nationalarchives.gov.uk/20110123082441/http://www.decc.gov.uk/en/content/cms/what_we_
do/uk_supply/energy_mix/renewable/policy/renewable_heat/incentive/supply_curve/supply_curve.aspx

88

9.2.

Job displacement

Whilst new skills are required for the installation of renewables this would displace work that
would have otherwise been undertaken on installing the counterfactual technology. If one
assumes that two91 man days are required for the installation of an oil boiler (excluding the fuel
tank) then this would halve the number of additional jobs that may be created that is, a net
increase of 37 jobs. The current market developments are that traditional heating companies are
developing teams and up skilling staff with expertise in renewable heat technologies. In summary
renewable heat will lead to job creation but this will be partly offset by job displaced from fossil
fuel heating jobs.
More on the employment impacts of deploying specific technologies can be found in Annex F.
9.3.

Open to all (special consideration to fuel poor)

The evidence suggests that the barriers to take-up of renewable heat by the fuel poor include a
lack of capital or ability to borrow, and a lack of awareness. However, intermediaries, such as
those that have arisen in GB for the domestic renewable electricity market or in the Republic of
Ireland for renewable heat, could help overcome both barriers. We present a case study of one
such company in Box 5.1. We recommend that DETI specifically engages with such
organisations to highlight to them the potential opportunities in the NI renewable heat market.
9.4.

Reduction in oil imports

Our analysis suggests that the majority of the fuel displaced will be oil, which is as expected since
nearly 80% of heating in NI is from oil. Table 9.1 below shows the oil displacement we expect in
the different policy/ funding scenarios.
Table 9.1: Oil displaced in 2020 in millions of barrels, compared to no additional renewable heat
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

0.3

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

0.7

0.46

1.4

1.0

0.9

0.9

1.1

1.2

0.7

0.6

0.8

0.9

91

The oil boiler would generally be a direct replacement for an existing oil boiler. Renewable heat equipment would
be a new installation and would require additional work to install/modify controls and ancillary works, which leads
to the estimate of four man days.

89

For comparison purposes, NIs current demand for oil is around 17, 558 GWh/ year92, which is
around 10.3 million barrels93. Even the NI RHI with the highest level of renewable heat
deployment - using alternative rates and in the funding 2 scenario displaces only around 11%
of oil imports. A Challenge Fund could lead to higher displacement around 14%.
This reduction in oil imports would reduce NIs exposure to the price of oil and to the risk of
disruptions in oil supplies. However, there would be a countervailing increase in the exposure to
the global price of biomass and the biomass supply chain. On balance, though, the increased
diversity of fuel supply should be beneficial for security.
9.5.

Impact on the gas network

One of DETIs stated policy objectives is to extend the gas grid in NI. Renewable heat, as an
alternative source of heat, has the potential to impact on this, possibly negatively. We therefore
considered, working with DETI and NIAUR, what the potential impact might be.
The size of the impact can be measured through estimating the impact on the revenue of gas
supply companies of renewable heat. We note first that the issue here is not simply with the RHI
but with virtually any support mechanism for renewable heat. In other words, part of the impact
is due to the fact of having a renewable heat target at all, and the remainder is due to the way that
it is delivered.
9.5.1. Future increase in gas connections
We assume, following discussions with DETI and NIAUR, that by 2020 there will be more gas
connections within existing gas licensed areas. Phoenix Natural Gas currently has around
138,000 gas consumers, with some 270,000 having access to gas, and the number of connected
customers are increasing on an annual basis, perhaps by around 4,000-5,000 per year. Firmus
Energy has around 10,000 customers connected to gas, and hopes to connect around 2,000
customers per year over the next 25 years (focusing on industrial and commercial customers,
along with social and new build housing). A map of the current gas infrastructure is available on
the NIAUR website94. We look at two options for extending the gas network: one with an
extension to Dungannon, Cookstown and Omagh, and one with an extension to Dungannon,
Cookstown, Omagh, Enniskillen, Magherafelt and Strabane. The customer numbers and
potential heat loads are shown in Table 9.2 below.
Table 9.2: Customers and heat demand for two possible gas network extension options95
Customers

GWh

As % of NI total heat load

Option 1

4,655

318

1.9%

Option 2

7,658

476

2.9%

This shows the total number of customers and annual heat loads, both in GWh and as a
percentage of NIs total heat load. The figures used are those for minimal domestic uptake, as we
92

Source: AECOM/ Pyry, 2010, op. cit.


Assuming 1 barrel of oil =6.119GJ, source: Energy Information Agency www.eia.gov
94
http://www.uregni.gov.uk/uploads/publications/Gas_Map_NI.pdf
95
Source: DETI
93

90

understand that the economics of the gas network roll-out are driven by industrial and
commercial consumers.
9.5.2. Possible scale of impact on future gas connections
We start by noting that the incremental renewable heat delivered by an NI RHI would be around
3.5%, with a Challenge Fund potentially delivering 4%. One plausible starting assumption would
be that this displaces oil and gas customers in proportion to the relative market share of those
fuels (so around 3.5-4% of oil customers and 3.5-4% of gas customers would switch). Analysis
done for DETI on the feasibility of extending the gas network assumes that 80% of potential
commercial loads switch to gas, which is consistent with a 10% switch to renewable heat.
We then consider whether the relative cost of oil and gas is a factor. Sensitivity analysis using our
economic model suggests that shifts in gas prices relative to oil should not lead to any RHI
causing more displacement. This is because we have set subsidy levels based on the amount
needed to cover the cost difference between oil and renewable heat in effect, making
renewable heat as economically attractive as oil. There are two scenarios: gas becomes relatively
cheap compared to oil (and so renewable heat), and gas becomes relatively expensive compared
to oil (and so renewable heat). In the first scenario, consumers currently on oil and looking to
switch are unlikely to choose the relatively expensive renewable heat option over the cheaper gas
option. In the second, consumers on oil are unlikely to switch to the relatively expensive gas
option in any case whether or not renewable heat is subsidised and our sensitivity analysis
shows a significant drop in gas connections in this case. So in neither case is renewable heat
providing a significant disincentive to switching to gas.
It is also important to note that the switch to or from gas is not driven simply by economics.
Gas, unlike many renewable heat technologies, is relatively well-understood and established and
these benefits may sway consumers decisions in favour of gas.
All that said, a key risk is the extent to which we have set the subsidy levels at just the right level
to preferentially displace oil rather than gas (or potential gas) customers. If we have overestimated them, there may be a greater incentive for gas customers to switch than we have
anticipated. While we have tried to avoid this, it could only be completely avoided by not giving
subsidy to current or future gas customers, which has its own difficulties. This risk is one that
should be carefully considered in a review of the RHI.
To deepen our analysis, we calculated with our economic model the likely displacement of gas
connections by our recommended RHI option, which uses the NI RHI Alt rates. We have
looked at the proportion of commercial or public sector premises that will in future be on the
gas grid (assuming no further extension) and that might be expected to switch to renewable heat.
We do not consider any switching of large industrial sites as a result of the NI RHI, since those
sites are not given any subsidy in our proposal. A further discussion of the large industrial sites
can be found in section 2.5.2.
Our analysis shows that, for the NI RHI Alt rates, between around 1,500 and 2,500 small
commercial installations, which might have been expected to take up gas in future, can now be
expected to take up renewable heat. As noted above, the expected growth in gas connections is

91

of the order of 4,000 to 5,000 per year, so this displacement is a relatively small proportion of the
total (close to the 3.5-4% figure that was our initial assumption).
That said, we have looked at the drivers for this figure and how it could be reduced. Our model
suggests that the main driver for this take-up is the subsidy paid for small Air Source Heat
Pumps. We have followed existing FIT practice in setting subsidy bands based on the size of the
technology to be installed, rather than the type of consumer. This means that domestic and small
commercial installations receive the same subsidy. Because of the tariff setting methodology
used, the subsidy for small Air Source Heat Pumps is set by domestic consumer requirements96,
meaning that in many cases it provides more subsidy than is needed to small commercial
installations. This could be an argument for separate levels of subsidy for domestic and small
commercial installations.
Because of uncertainties about the scope of potential future gas extensions, it has not been
possible to model gas displacement in those areas. It might be reasonable to assume that
commercial/ public sector users in the extension areas are as likely to switch to renewable heat rather than gas - as those in areas currently covered by the gas transmission network.
In summary, apart from the risk of over-subsidisation, it is difficult to see that renewable heat
should make a material difference to decisions about any roll-out of the gas network. However,
we recognise the importance of this issue, and understand that DETI intends to keep it under
review. We recommend that it is reconsidered in the first review of any NI RHI, after two to
three years. This would be before the expected date of any extension (2015), allowing policy and
subsidy levels to be adjusted if necessary.
We also briefly considered the option of only providing the incentive to those consumers not on
gas, and that would not be expected to be on gas in future. This was rejected on practical
grounds, particularly the fact that it is not clear who future gas customers would be.
9.6.

Displacement effects in other sectors

Leaving aside the impact on the gas network and on oil imports, which we considered above, the
other significant displacement impacts are likely to be focused on the oil sector, and are largely
an inevitable consequence of a move away from the current level of oil use for heating; we would
expect these to be proportional to the level of reduction in oil imports. The impacts could
include:

96

A reduction in the need for the oil network, as a result of falling oil demand. This could
be offset by the need for biofuel transport, although as we noted earlier, the scope for
bioliquids sourced from NI is limited.

Less of a need for expertise in oil boiler installation (although this will be offset by
increased need for expertise in renewable heating installation).

Technically, the reference installation is a domestic one.

92

9.7.

Air quality

There could be air quality impacts from widespread take-up of biomass heating, particularly if
this is in urban areas. However, the relative impact will depend significantly on the fuel displaced.
The impact assessment for the GB RHI97 notes that where renewable heat displaces oil, the [air
quality] impacts can be positive, whereas displacement of gas tends to worsen air quality. This gives
an additional reason to minimise the displacement of gas.

97

DECC, 2011, Renewable Heat Incentive Impact Assessment

93

10.

SUMMARY OF COSTS AND BENEFITS

The preceding sections set out the costs and benefits, monetisable or otherwise, associated with
the RHI options that we have considered in this report. In this section, we bring together, and
summarise, those costs and benefits for each option.
10.1.

Monetisable costs and benefits

We start by looking at the monetisable costs and benefits, although we stress that these only
form part of the picture. In broad terms, the cost benefit considerations can be thought of as
looking at the cost per unit of carbon emissions reduced. Other costs and benefits are relatively
small in comparison. Monetisable benefits, in particular, are driven solely by the level of carbon
savings. Monetised costs include a number of other factors, but these are relatively small in
comparison to the cost of the subsidy paid out to those installing renewable heat.
Table 10.1 below shows the monetised benefits. It is identical to Table 7.12, which showed
carbon saved, except that the figures below are shown as the benefit relative to do nothing.
Table 10.1: Total monetised benefit of each option, in m, 2010 prices, compared to do nothing
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

46

22

189

143

126

154

163

169

60

59

93

87

The corresponding monetised costs are shown in Table 10.2 below (which is identical to Table
7.17). Again, figures are shown relative to the do nothing option.

94

Table 10.2: Total monetised cost of each option, in m, 2010 prices, compared to do nothing
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16

Funding 3 - Long term


funding: 25 m to 2014/15,
12m per year thereafter

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

32

33

212

218

519

371

405

119

108

186

191

174

Finally, we subtract monetised costs from monetised benefits to yield the net monetised cost/
benefit figures in Table 10.3 below.
Table 10.3: Net monetised benefit/ (cost) of each option, in m, 2010 prices, compared to do nothing
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

14

-11

-24

-74

-394

-217

-242

50

-48

-128

-98

-87

The first message from these tables is that, purely on the basis of monetised costs and benefits,
most of the options in particular, all the RHI options - have a negative net monetised costbenefit. This of course takes no account of non-monetised costs and benefits, and is heavily
influenced by our assumption about the future carbon price.
In monetised cost-benefit terms; however, the NI RHI DECC and NI RHI Alt options are
clearly preferable to the GB RHI rates, and as noted earlier they deliver more renewable heat.
The choice of RHI rate is therefore between those two options. From Table 3, the cost per unit
of renewable heat is comparable for both options, but as Table 1 showed, the Alt rates deliver
more renewable heat in funding 2, and roughly the same amount in funding 3. We therefore
recommend those rates.
95

It could be argued that both NI RHI options achieve the 10% target, and so the one with the
lower cost should be preferred. In reality, however, deployment could fall short of the figures
from our (theoretical) analysis. The rates that give the higher deployment should be more robust
to this, giving greater certainty of achieving the 10% target.
10.2.

Value for money

As well as the overall net present value analysis presented above, we have calculated the cost per
tonne of carbon saved of the policy options under each funding scenario. This is shown in the
table below.
Table 10.4: Cost of carbon saved ( per tCO2e) compared to do nothing
Do
nothing

Funding 1 - Short term funding:


25 m to 2014/15
Funding 2 - Long term
funding: 25 m to 2014/15,
additional 5m/ year from
2015/16
Funding 3 - Long term
funding: 25 m to 2014/15,
12m per year thereafter

n/a

Challenge
fund

Capital
Grant

GB RHI

NI RHI
DECC

NI RHI
Alt

23

53

39

54

171

93

95

22

67

133

79

82

For comparison purposes, analysis by the Committee on Climate Change98 suggests a cost for
onshore wind of approximately 50-80 per tonne, and for offshore wind 80-90. As the table
shows, this suggests that our recommended NI RHI option is approximately as cost-effective as
offshore wind. The cost of the administered capital grant is roughly equivalent to that for
onshore wind, while the Challenge Fund is cheapest, because of competitive allocation.
The value of the options has been shown here in carbon terms, but as noted in Section 9, there
are other non-monetised benefits to renewable heat, such as potential air quality benefits, and
improved security of fuel supply. The achievement of the stated target is also a significant
positive outcome.

98

http://downloads.theccc.org.uk/Cost%20of%20decarbonising%20the%20power%20sector9.pdf, figure 3.1.


Figures exclude forced onshore/ offshore wind

96

11.

FUNDING, MANAGEMENT, MONITORING AND EVALUATION

Stage 10 in the NIGEAE Appraisal process is a review of the funding, management, monitoring
and evaluation arrangements for the policy options. We explore these in turn below.
11.1.

Funding

Table 4.2 set out our assumed funding profiles for support for renewable heat in NI. We
understand from DETI that HM Treasury has agreed that funding beyond 2014/15 will be
available for those installations that are installed within the Spending Review period (i.e. up to
2014/15)
11.2.

Administration costs

We understand that the administration costs for each option will need to be found from outside
the HM Treasury funding. Based on our analysis in Section 7.6.1 and Annex D of the
administration requirements and costs for other renewable support schemes, we consider that
the likely cost would be around 10% of total funding. We do not see any reason why this should
be materially different for a capital grant as compared to a challenge fund option. DETI has
previously managed capital grant programmes, and it may be possible for the equivalent for
renewable heat to be managed by them internally rather than contracted out.
The administration costs of any NI RHI, along the lines of the GB RHI model, will depend on
the extent to which DETI can use the systems already in place for the GB RHI to administer an
NI RHI. We understand that DETI is already in discussions with Ofgem, the administrator for
the GB RHI, about this. The eventual costs are likely to be higher the more that any NI RHI
diverges from the GB RHI, both in terms of rates and in terms of structure (e.g. front-loading).
From an overall cost-benefit perspective, Table 10.3 shows that the net cost/benefit of the NI
RHI alternative rates, compared to the net cost benefit of applying the GB RHI rates to NI,
are substantial (between 41m and 152m, depending on funding). This would likely outweigh
any additional administration cost burden. However, it needs to be recognised that there are
constraints on administration budgets.
We therefore recommend that DETI asks Ofgem for a quote for two options:

Administering an NI RHI with the same rates as the GB RHI; and

Administering an NI RHI with our recommended rates from Table 5.

DETI will then need to consider, within its overall administration budget and staffing levels,
which of the options would be deliverable.
11.3.

Options for management

There are effectively three options for managing any subsidy scheme: DETI (whether internally
or through a contractor), NIAUR and Ofgem.
Given the administrative resource available to DETI, it is unlikely that either subsidy scheme
could be managed internally; there would be a need to contract it out either to NIAUR or
Ofgem or to another organisation.
97

For some form of grant scheme (e.g. a Challenge Fund), there seems no good reason to assume
that the administrative costs would vary significantly between any of the three options (whether
or not it was contracted out). We therefore see no economic reason to prefer any option.
For an NI RHI, there are likely to be significant economies of scale in having Ofgem manage it,
given that Ofgem is already managing the very similar GB RHI. DETI is of course already in
discussions with Ofgem about this option. To ensure value for money and act as a comparator,
we recommend that DETI explores the option of contracting out the management of an NI
RHI to a third party.
11.4.

Monitoring

Apart from a full review of the programme after two to three years, we recommend that DETI
monitors uptake of any renewable heat incentive on an on-going basis. If this uptake is found to
be going to the more expensive technologies, or is lower than expected, DETI should
investigate.
We recommend periodic monitoring, at an appropriate level, to ensure that any renewable heat
installations are operational and continue to generate heat. This is a particular issue for those
installations that have potentially higher running costs than gas or oil (e.g. biomass). Random
audits of a proportion of installations may be appropriate.
11.5.

Evaluation and review

A common feature of any renewable support programme is the inclusion of a review, including
of support levels, after a number of years of experience with the programme. The benefits of the
review, in terms of evaluating progress, incorporating the benefits of experience and allowing for
changes to the programme, need to be weighed against the need to give those considering
renewable heat some policy certainty.
On balance, we consider that a review after two to three years would be justified, whatever
option DETI decides on for supporting renewable heat in NI. The issue of policy certainty can
be addressed to a large extent by some form of grandfathering that is, committing not to
change the level of support that those who install renewable heat before the review will receive.
We recommend that any review considers at least the issues set out in

98

Table 11.1 below.

99

Table 11.1: Issues to be considered as part of a review of renewable heat support


Issue

Notes

Extent of uptake in
each sector

We would expect around 1,300 installations in the domestic sector, and the
same in the non-domestic sector, by the end of 2013/14.

Uptake by technology,
compared with
expectations
Barriers identified

What are the limiting factors in renewable heat deployment skills/ supply
chain/ planning or others?

Installations in towns
that could receive a gas
network extension
before 2020

To what extent are potential or existing gas customers taking up renewable


heat? What does this imply for the potential uptake in gas network extension
areas?

The review should also assess progress against the indicative objectives set out in Table 4.1, and
the number of renewable heat installations made. We set out indicative objectives in the table
above.

100

12.

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

This section brings together the analysis in the rest of the report, and sets out our overall
conclusions and recommendations (as set out individually in appropriate parts of the report). We
provide recommendations both on subsidy for renewable heat, and on some of the supporting
policies which could help to deliver renewable heat in NI. In doing so, however, this is not
intended to be a complete policy package for renewable heat, which is beyond the scope of this
study, but a selection of policies which could make an RHI more effective.
12.1.

Summary

The initial sections in the report set out the policy context, before describing the workable
renewable heat technologies that might be used in Northern Ireland and extent of the subsidy
required to make them economic for households and businesses to take up. We then considered
the respective pros and cons of different ways in which the necessary support might be best
provided, taking into account efficiency and several constraint factors. This was largely
undertaken through the development of an economic model. Whilst this was very necessary to
undertaking the required analysis, it should always be remember that models inevitably only
provide a partial representation of reality, however sophisticated, and their results should
therefore always be interpreted with a degree of caution. Moreover, some issues simply cannot
be modelled and must be addressed qualitatively.
The initial modelling was focused on determining the subsidy requirements necessary to make a
range of different renewable heating technologies viable. Specifically, this viability was the
difference in cost between an oil or gas counterfactual investment, together with a return
incentive to promote the change to a renewable alternative. Albeit to varying degrees, all of the
conversion costs ran into several thousands of pounds, significant financial outlays for the
majority of households.
The analysis also shows how this gap can be funded through either, at one extreme a series of
payments over many (twenty) years, or immediately, through an upfront grant. The former
approach works by providing so-called revenue certainty against which households and
businesses may be willing to invest in renewable heat technologies, often by raising finance from
third parties. Although on a much smaller scale, this is the same principle as is used in providing
FITs to large scale wind-farms, which enables investors and lenders to provide long term
financing to such projects. The advantage of such approaches is therefore that in the right
circumstances, the available subsidy allows leveraging of debt and equity resources, the
commitment of which increases the quantum and speed at which renewable heat technology
brought on line (other constraints aside). This is a particularly useful approach where the
amount of subsidy available in the early years of a programme is relatively limited. The success
of such an approach, though, assuming that the government commitment to continued
provision of the subsidy payments over the promised period is seen as being robust, relies on the
ability of those receiving the subsidy to raise the necessary finance to purchase the desired
technologies.
In the case of households, this can include their ability to borrow. It is important to recognise
that there is a difference between creating an incentive for households to borrow to invest in
101

renewable heat technologies, through providing them with a return on their investment, and
their ability to finance the necessary investment to realise that return. As such, financing barriers
could be a major constraint in the uptake of renewable heat technologies, at least at the
household level.
The way to address this barrier, as in many other contexts, is to offer grants that to varying
degrees, depending upon the scale of the grant, effectively buy-down the up-front costs of the
investment; for instance, reducing the residual financing requirement and making the investment
much more financeable.
Against this, the flip side of the coin is that grants will not produce the same degree of leverage,
in terms of raising additional long term finance. Any available subsidy resource therefore, all
things being equal, provided in an upfront form, will result in lower levels of investment in
renewable assets. In addition, where payment streams are linked to continued use of the
renewable heat asset, a payment stream approach can incentivise its continued use, which is
more difficult in an upfront grant approach.
Over time, however, depending upon discount rate used, the present value costs of the grant
subsidy, relative to the payment stream subsidy is likely to be significantly less. Thus, there are
clear trade-offs between obtaining benefits now (that is, level of immediate investment) and
paying later versus slower uptake but lower cost; assuming both policies are viable (financing
constraints being likely to be a barrier to household uptake). In this context, however,
availability of subsidy would not appear to be the biting constraint in terms of meeting the
renewable heat target, this being more availability of installers. Thus, it is arguable that cost may
be a more appropriate consideration, which would tend to favour a grant based approach,
particularly for households.
In our analysis of this issue, we went further by considering a competitively allocated grant
approach, which we termed a Challenge Fund grant allocation mechanism. Whereas both the
RHI approaches and the administered grant result in a portfolio of different renewable
technologies, the Challenge Fund approach is technology neutral, such that the cheapest
technologies will always chosen, thus reducing the all-in costs, relative to the other approaches.
Whilst we adopted this approach in our model, in the section on Challenge Fund design, we do,
however, describe how the approach could be adopted so as to take into account the costs of
different technologies.
Based on the cost-benefit analysis, a capital grant or Challenge Fund scheme appears to be more
attractive than an RHI. However, there are other pros and cons of these two options, which we
set out below in Table 12.1.

102

Table 12.1: Pros and Cons of RHI and capital grants


Pros
Grants
(Administered
and Challenge
Fund)

Removes upfront capital barriers


Cheaper, on a lifetime basis

Cons

Major proportion of renewable


heat capex must be subsidised
upfront (which can be challenging
if available subsidy is limited
relative to uptake targets).

Can

be difficult to ensure
continued use of renewable heat
equipment, once grant is paid.

Can be seen as short term measure


RHI
(payment
stream)

12.2.

Payments made for renewable heat


production, not simply installation

Requires less subsidy upfront


Consistent with GB approach

More expensive in the long term


May not be the optimal approach
for households, because of the
financing constraints.

Conclusions and recommendations

The findings from the cost-benefit analysis are pretty stark in terms of net cost differences
between the schemes. This would be very likely to hold if the analysis was also undertaken for
the rest of the UK. However, an element of this is likely to be the lower costs of pursuing a
technology neutral as opposed to a portfolio (of renewable technology) approaches (this would
be captured in the difference between the costs of the full capital grant and challenge fund
approaches)
Given that the amount of grant is sufficient to meet the desired target, the best value for money
seems be in the grant approaches, especially the Challenge Fund. There are, however, reasons as
to why a Northern Ireland RHI, in particular, might be preferred, which include:

the non-cost additional benefits of the RHI as set out in Table 12.1;

administrative simplicity in terms of being better able to piggy-back what is


happening in the rest of the UK and at a lower costs; and

alignment with UK policies, so as being better able to capture any learning from those
experiences, which might be slightly more difficult to adopt in the instance of pursuing a
go it alone policy.

In providing an overall recommendation it is, however, useful to distinguish between the


commercial and domestic sectors. In terms of the former, if it is determined that the factors set
out above outweigh the results of the cost-benefit analysis, then the Northern Ireland specific
RHI should be pursued.
The case for including domestic consumers in an RHI is much less strong, though, because of
upfront capital barriers and the fact that the GB approach has not yet been decided. Whilst our
analysis of RHI options is on the basis that domestic consumers are included, we recommend
that no final decision on the inclusion of domestic consumers is made until the GB approach is
103

clearer. Even if domestic consumers are included in an RHI, we recommend that some form of
front-loading of support is at least considered. This can be thought of as an intermediate option
between the two extremes of upfront grants and flat payments that we consider in this report. In
any event, household take-up is required if targets are to be met, irrespective of the support
mechanism adopted.
Our overall recommendation on the type of RHI to adopt is driven by our key metric of
renewable heat deployed. Based on the analysis of options in Section 7, and in particular Table
7.2, we therefore recommend that if DETI does decide to implement an RHI, the rates should
be set using the alternative methodology. We recommend that DETI keeps the policy of no
subsidy for industrial consumers under review, to allow for movements in the relative cost of
biomass and oil or gas. The rates are set out in Table 6.4 and repeated here in Table 12.2 for
convenience.
Table 12.2: Recommended NI RHI rates, in pence per kWh
Technology, by size
ASHP Small
ASHP Medium

NI recommended levels
3.3
-

Biogas injection All

2.5

Biomass boilers Small

4.5

Biomass boilers Medium

1.3

Biomass boilers Large

GSHP Small

4.0

GSHP Medium

0.9

Liquid biofuels Small

1.5

Liquid biofuels Medium

Liquid biofuels Large

Solar Thermal Small

8.5

Solar Thermal Medium

8.5

There are other design choices to be made for any RHI, and we set out our overall
recommendation in Table 6.3, also repeated here as Table 12.3.

104

Table 12.3: Proposed structure for NI RHI


Aspect
Duration of
payments

Proposed NI
RHI

GB RHI

Comments, including reasons for difference


if any

20 years

Sectors
covered

As GB except
excluding large
industrial
consumers

Domestic
supported by
grant
payments in
2011 and
included fully
from 2012.
Other sectors
included fully
from 2011

Adopting a different approach for domestic


consumers for 2011 would require NI to take its
own view on deeming, ahead of GB risking
incompatibility later for questionable benefit
(total funding in 2011 is 2m). Our expectation
(which can only be tentative, since it is made
before sight of the GB deeming approach) is
that it is likely to make sense for DETI to
follow the GB deeming approach once
introduced.
Our analysis (section 2.5.2) suggests that for
large industrial sites, biomass is either costeffective without additional subsidy, or
unsuitable.

Technologies

As GB, except
with domestic
bioliquids allowed
and rates for small
Air Source Heat
Pumps

Full list in GB
RHI
document

The existence of oil boilers in NI can make


bioliquids relatively cost effective. On balance,
we recommend that DETI delay the decision on
this until after the completion of existing NI
bioliquids trials, since our analysis does not
show any bioliquids uptake in the short term.

Payment
levels

Different tariffs to Deliver 12%


GB (see Table
return for each
6.4)
technology99 see Table 6.4

A previous study for DETI showed that the GB


RHI applied to NI would be inefficient.

Payment
profile
Metering/
deeming
Delivery
body100
Treatment of
energy
efficiency

Flat, quarterly
Deemed for domestic, metered for
industrial and commercial
Ofgem
Buildings receive incentive based
on the heat requirement of a
reasonably efficient building of that
type

This follows the structure of the GB RHI relatively closely. Areas where there are significant
differences include the technologies supported (because of the prevalence of oil boilers in NI,
bioliquids are a potentially attractive technology).
99

Except solar thermal and biomethane injection.


We understand that DETI is confirming with Ofgem that Ofgem is content to be the delivery body for a
possible NI RHI. We understand that the process would be that DETI would place a duty on NIAUR, the utility
regulator in Northern Ireland, which would then contract with Ofgem for Ofgem to administer the NI RHI
alongside the GB one.
100

105

Administration of any RHI will be a significant cost, and we understand that DETI is already
exploring the options for this with Ofgem. To ensure value for money in administration, it
would be helpful to also explore the option of contracting out the management of an NI RHI to
a third party.
12.3.

Other recommendations

As well as the recommendations we make on rates and the overall structure of any NI RHI, our
analysis has highlighted a number of other issues, which it may be worth targeting with specific
policies, such as possible barriers to renewable heat uptake. These are discussed below.
12.3.1. Growing the supply chain
In terms of barriers, we have noted several times the limits on the rate at which renewable heat
can be deployed in NI, and how this could hinder the achievement of the 10% target or increase
costs unnecessarily. We have also noted the potential job benefits of a stronger supply chain. We
therefore recommend that DETI works with the renewable heat industry to identify ways in
which it could be supported by DETI, building on the experience of, for example, the
Renewable Energy Installers Academy.
This would also be helpful for the large industrial sites, which have in many cases the potential to
switch to biomass without additional subsidy, but where there may be concerns about the size or
strength of the biomass supply chain.
A further benefit will be that it will complement the ability of an RHI to bring on renewable heat
relatively quickly, within a given funding envelope.
12.3.2. Addressing barriers to domestic uptake
As the GB RHI proposals and analysis make clear, there are significant uncertainties about the
likely domestic uptake of renewable heat, given a level of subsidy. We have looked, in our report,
at sensitivities on uptake such as higher than expected discount rates or a limit on the upfront
cost that households can cover. These all show that, if those sensitivities turn out to be
reasonable reflections of how households make decisions on renewable heat, that deployment
could be low. However, they may not fully capture household financing constraints.
A further option for overcoming these barriers is the so-called energy service company (ESCO)
model, where companies install domestic renewable heat, covering most or all of the upfront
cost, and then receive some or all of the RHI payments for that installation. This has been seen
in the electricity sector in GB, as we noted earlier. Such a model may be useful in NI as well,
particularly given the levels of fuel poverty, and we recommend that DETI explores this model
with interested organisations.
Exploring the use of the Premium Payments scheme proposed for the GB RHI is also
recommended, both as a way to deliver grants to domestic consumers and to help understand
the barriers to domestic uptake.
Awareness may also be an issue at the domestic level. There are many policies targeted at
households, and messages about renewable heat may not be heard. To try to overcome this, and
106

to avoid duplication of effort in targeting households, we recommend that DETI works with the
Green New Deal team in the Department for Social Development, including informing those
benefiting from the Green New Deal about the incentives available for renewable heat.
12.3.3. Monitoring
For any policy, a degree of monitoring of outcomes is appropriate. We recommend the
monitoring of two aspects in particular. The first is the type of technologies that are being
installed. If there is a bias towards the technologies that are less cost-effective, action may need
to be taken to review rates or to limit the annual payments for that technology (as we specifically
recommend for solar thermal in any case).
The second aspect is whether renewable heat installations are still operational years after
installation, and so still eligible for the subsidy. While in some cases, the operating cost of such
an installation will be below that for an oil or gas counterfactual, and so the incentive to switch
back to oil or gas might be lower than otherwise, installations do break down and/ or are
replaced for non-economic reasons. Some form of monitoring most likely, of a sample of
installations is therefore required.
12.3.4. Review of any scheme
Closely related to the need to monitor policy outcomes is the need to periodically review the
structure of policies to ensure they deliver what is required, and that they reflect the lessons of
experience. There is a balance to be struck between the benefits of incorporating this experience
as early as possible, and the benefits of policy stability. While there is no hard and fast rule here,
we recommend that DETI undertakes a review of any RHI or grant scheme after two to three
years. This will allow a review to be completed before a possible extension of the gas network.

107

ANNEX A: COST AND PERFORMANCE DATA


The tables below set out the cost and performance figures for the technologies considered in this
report. Costs for conventional boilers are also included for comparison purposes.

108

Table A.1: Conventional Boilers cost and performance


Customer Segment

Domestic

Commercial/publicsmall

Commercial/publiclarge

Industrial

Variable

Unit

Values

Capital Cost (2010)

/kW

157 to 183

Opex (2010)

/kW/year

9.4

Size of installation

kW

20.0

Efficiency (2010)

% (Net CV)

93% to 94%

Lifetime

years

15

Load Factor

7% to 10%

Total installed cost (2010)101

'000s

3.1 to 3.7

Total Potential Heat Output for Sector

GWh/Yr

10,644

Capital Cost (2010)

/kW

96.8

Opex (2010)

/kW/year

3.5

Size of installation

kW

50.0

Efficiency (2010)

% (Net CV)

93% to 94%

Lifetime

years

15

Load Factor

7%

Total installed cost (2010)

'000s

4.8

Total Potential Heat Output for Sector

GWh/Yr

1,927

Capital Cost (2010)

/kW

68.0

Opex (2010)

/kW/year

1.5

Size of installation

kW

360.0

Efficiency (2010)

% (Net CV)

89% to 90%

Lifetime

years

15

Load Factor

20%

Total installed cost (2010)

'000s

24.5

Total Potential Heat Output for Sector

GWh/Yr

963

Capital Cost (2010)

/kW

31.4

Opex (2010)

/kW/year

0.2

Size of installation

kW

9,596 to 122,247

Efficiency (2010)

% (Net CV)

89% to 90%

Lifetime

years

20

Load Factor

82%

Total installed cost (2010)

'000s

301 to 3,836

Total Potential Heat Output for Sector

GWh/Yr

3713.4

101

Installed cost includes boiler, delivery charges, boiler pipework connections and labour costs. Domestic price
data is based upon a 2008 study by Element Energy The growth potential for Microgeneration in England, Wales
and Scotland, with prices inflated to 2010 prices.

109

Table A.2: Air Source Heat Pumps - cost and performance


Customer Segment

Domestic

Commercial/publicsmall

Commercial/publiclarge

Industrial

Variable

Unit

Values

Capital Cost (2010)

/kW

650.0

Opex (2010)

/kW/year

3.9

Size of installation

kW

14.0

Efficiency (2010)

% (Net CV)

260%

Lifetime

years

20

Load Factor

9% to 15%

Total installed cost (2010)

'000s

9.1

Total Potential Heat Output for Sector

GWh/Yr

10,644

Capital Cost (2010)

/kW

650.0

Opex (2010)

/kW/year

3.9

Size of installation

kW

14.0

Efficiency (2010)

% (Net CV)

350%

Lifetime

years

20

Load Factor

24%

Total installed cost (2010)

'000s

9.1

Total Potential Heat Output for Sector

GWh/Yr

1,927

Capital Cost (2010)

/kW

446.0

Opex (2010)

/kW/year

3.5

Size of installation

kW

200.0

Efficiency (2010)

% (Net CV)

400%

Lifetime

years

20

Load Factor

36%

Total installed cost (2010)

'000s

89.2

Total Potential Heat Output for Sector

GWh/Yr

963

Capital Cost (2010)

/kW

N/A

Opex (2010)

/kW/year

N/A

Size of installation

kW

N/A

Efficiency (2010)

% (Net CV)

N/A

Lifetime

years

N/A

Load Factor

N/A

Total installed cost (2010)

'000s

N/A

Total Potential Heat Output for Sector

GWh/Yr

0.0

110

Table A.3: Ground Source Heat Pumps - cost and performance


Customer segment

Domestic

Commercial/publicsmall

Commercial/publiclarge

Industrial

Variable

Unit

Values

Capital Cost (2010)

/kW

940 to 1,480

Opex (2010)

/kW/year

4.9

Size of installation

kW

11.0

Efficiency (2010)

% (Net CV)

315% to 325%

Lifetime

years

20

Load Factor

12% to 19%

Total installed cost (2010)

'000s

10.3 to 16.3

Total Potential Heat Output for Sector

GWh/Yr

10,644

Capital Cost (2010)

/kW

940 to 1480

Opex (2010)

/kW/year

4.9

Size of installation

kW

11.0

Efficiency (2010)

% (Net CV)

360%

Lifetime

years

20

Load Factor

31%

Total installed cost (2010)

'000s

10.3 to 16.3

Total Potential Heat Output for Sector

GWh/Yr

1,927

Capital Cost (2010)

/kW

900.0

Opex (2010)

/kW/year

1.0

Size of installation

kW

200.0

Efficiency (2010)

% (Net CV)

360%

Lifetime

years

20

Load Factor

36%

Total installed cost (2010)

'000s

180

Total Potential Heat Output for Sector

GWh/Yr

963

Capital Cost (2010)

/kW

N/A

Opex (2010)

/kW/year

N/A

Size of installation

kW

N/A

Efficiency (2010)

% (Net CV)

N/A

Lifetime

years

N/A

Load Factor

N/A

Total installed cost (2010)

'000s

N/A

Total Potential Heat Output for Sector

GWh/Yr

0.0

111

Table A.4: Biomass Boilers - cost and performance


Customer segment

Domestic

Commercial/publicsmall

Commercial/publiclarge

Industrial

Variable

Unit

Values

Capital Cost (2010)

/kW

633 to 662

Opex (2010)

/kW/year

19.2

Size of installation

kW

12.0

Efficiency (2010)

% (Net CV)

85%

Lifetime

years

20

Load Factor

11% to 17%

Total installed cost (2010)

'000s

7.6 to 7.9

Total Potential Heat Output for Sector

GWh/Yr

10,644

Capital Cost (2010)

/kW

380 to 397

Opex (2010)

/kW/year

11.5

Size of installation

kW

20.0

Efficiency (2010)

% (Net CV)

85%

Lifetime

years

20

Load Factor

17%

Total installed cost (2010)

'000s

7.6 to 7.9

Total Potential Heat Output for Sector

GWh/Yr

1,927

Capital Cost (2010)

/kW

487 to 509

Opex (2010)

/kW/year

4.6

Size of installation

kW

200.0

Efficiency (2010)

% (Net CV)

81%

Lifetime

years

20

Load Factor

36%

Total installed cost (2010)

'000s

97.3 to 101.8

Total Potential Heat Output for Sector

GWh/Yr

963

Capital Cost (2010)

/kW

316 to 331

Opex (2010)

/kW/year

14.4

Size of installation

kW

9,596 to 16,086

Efficiency (2010)

% (Net CV)

81%

Lifetime

years

20

Load Factor

82%

Total installed cost (2010)

'000s

3,174 to 5,089

Total Potential Heat Output for Sector

GWh/Yr

1,065.6

112

Table A.5: Biofuel Boilers - cost and performance


Customer segment

Domestic

Commercial/publicsmall

Commercial/publiclarge

Industrial

Variable

Unit

Values

Capital Cost (2010)

/kW

219.6

Opex (2010)

/kW/year

9.4

Size of installation

kW

20.0

Efficiency (2010)

% (Net CV)

93%

Lifetime

years

15

Load Factor

7% to 10%

Total installed cost (2010)

'000s

4.4

Total Potential Heat Output for Sector

GWh/Yr

7,656

Capital Cost (2010)

/kW

116.1

Opex (2010)

/kW/year

3.5

Size of installation

kW

50.0

Efficiency (2010)

% (Net CV)

93%

Lifetime

years

15

Load Factor

7%

Total installed cost (2010)

'000s

5.8

Total Potential Heat Output for Sector

GWh/Yr

1,349

Capital Cost (2010)

/kW

81.6

Opex (2010)

/kW/year

1.5

Size of installation

kW

360.0

Efficiency (2010)

% (Net CV)

89%

Lifetime

years

15

Load Factor

20%

Total installed cost (2010)

'000s

29.4

Total Potential Heat Output for Sector

GWh/Yr

674

Capital Cost (2010)

/kW

37.7

Opex (2010)

/kW/year

0.2

Size of installation

kW

16,086 to 122,247

Efficiency (2010)

% (Net CV)

89%

Lifetime

years

20

Load Factor

82%

Total installed cost (2010)

'000s

606 to 4,603

Total Potential Heat Output for Sector

GWh/Yr

3,228.5

113

Table A.6: Solar Thermal - cost and performance


Customer segment

Domestic

Commercial/publicsmall

Commercial/publiclarge

Industrial

Variable

Unit

Values

Capital Cost (2010)

/kW

1,687.2

Opex (2010)

/kW/year

17.7

Size of installation

kW

2.6

Efficiency (2010)

% (Net CV)

50%

Lifetime

years

20

Load Factor

8%

Total installed cost (2010)

'000s

4.4

Total Potential Heat Output for Sector

GWh/Yr

1,373

Capital Cost (2010)

/kW

1,363.3

Opex (2010)

/kW/year

5.9

Size of installation

kW

7.7

Efficiency (2010)

% (Net CV)

50%

Lifetime

years

20

Load Factor

7%

Total installed cost (2010)

'000s

10.6

Total Potential Heat Output for Sector

GWh/Yr

289

Capital Cost (2010)

/kW

1,363.3

Opex (2010)

/kW/year

1.4

Size of installation

kW

163.1

Efficiency (2010)

% (Net CV)

50%

Lifetime

years

20

Load Factor

7%

Total installed cost (2010)

'000s

222.3

Total Potential Heat Output for Sector

GWh/Yr

145

Capital Cost (2010)

/kW

N/A

Opex (2010)

/kW/year

N/A

Size of installation

kW

N/A

Efficiency (2010)

% (Net CV)

N/A

Lifetime

years

N/A

Load Factor

N/A

Total installed cost (2010)

'000s

N/A

Total Potential Heat Output for Sector

GWh/Yr

0.0

114

ANNEX B: USE OF BIOLIQUIDS


Bioliquids are an option proposed for inclusion in the Renewable Heat Incentive (RHI) being
designed for Northern Ireland (NI). This annex considers the arguments for and against
inclusion of bioliquids in the NI RHI
Bioliquids considered
Bioliquids are liquid fuels produced from biomass sources that are suitable for use in power and
heating applications. In the case of the NI RHI two bioliquids have been proposed for heating
purposes. These are:

A biodiesel/ kerosene blend, containing 30% biodiesel. This would be suitable for
use in all applications where heating oil is currently used. This would include
domestic, commercial and industrial applications. Minor adjustments to the burner
systems would be required, but existing storage and transport infrastructure could be
utilised.

100% bio-oil. This would only be suitable for industrial applications as it would
require dedicated transport and storage and the combustion system would need
extensive modification.

Feedstocks
Waste oils and fats would be the feedstock for the 100% bio-oil. These could be resourced
locally, or imported.
A range of feedstocks are used in the production of biodiesel. The most common are waste oils
and fats, palm oil, soya oil, rape seed oil sunflower oil. Oil seed rape could be grown locally. The
other vegetable oils are traded commodities that are used for food and energy applications. In
particular there is a growing market for vegetables oils for production of biodiesel for the
transport market. Research conducted for DECC (AEA 2011102) suggests that biodiesel is
considered an important contributor to meeting the Renewable Energy Directive (RED) targets
for EU Member States to source 10% of their road transport fuels from renewable sources by
2020. Moreover the modelling work concludes that there will be a shortage of sustainable
biodiesel available globally to meet the RED renewable transport fuel targets.
Northern Ireland resource
6,000 hectares of oil seed rape (OSR) was grown in NI and Wales in 2010 (Defra 2010103). In
2008 AEA carried out a study for DETI (AEA 2008), in which the potential resource of a
number of bio-energy feedstocks in 2020 was estimated.
102

UK and global bioenergy resource - final report. Accessed at:


http://www.decc.gov.uk/en/content/cms/what_we_do/uk_supply/energy_mix/renewable/policy/incentive/ince
ntive.aspx
103

Joint announcement by the Agricultural Departments of the United Kingdom. Cereals and OSR production estimates 2010 harvest UK final
results. http://www.defra.gov.uk/evidence/statistics/foodfarm/food/cereals/documents/cps-osr-mincrop-final.pdf

115

The report estimated that up to 7,000 hectares of OSR could be grown for energy purposes on
surplus arable land in NI in 2020. Assuming current yields of 3.5 tonnes per hectare, about
25,000t tonnes of OSR could be produced, which would produce about 9,500 tonnes of oil or
8,800 tonnes of biodiesel (9.9 million litres biodiesel). To put this in context, the recent
Renewable Fuels Agency (RFA) annual report104 reported that 1,568 million litres of biofuels
were supplied for road transport use in the UK in 2009/10, with 71% (1,113 million litres) of
this being biodiesel.
The report also assumed that the tallow produced in rendering operations would continue to be
exported to GB, so that this resource would not be available for bioenergy production. However,
it is also possible that some of the tallow could be used at the rendering site as a heating fuel to
raise steam for rendering, with the excess being exported. Small scale local processing of tallow/
Used Cooking Oil (UCO) to produce biodiesel is unlikely as the biodiesel must be shown to
achieve stringent standards to be eligible for the Renewable Transport Fuel Obligation. We
would expect similar standards to be necessary to ensure the quality of biodiesel used in heating
fuel.
Costs
Table B.1: Costs for domestic use
Fuel
Heating oil
Biodiesel (Argus 2010)
Wood pellets (AEA
2010)
Wood chips (AEA
2010)

Cost of fuel in pence per litre


40-50ppl
60-80ppl (ex tax)

Cost of fuel in per gigajoule (GJ)


10.7-13.4
18-24
12-16
6-9

Table B.2: Cost of installation /maintenance of domestic boilers (AECOM 2010)


Boiler
Oil boiler, new
B30 boiler, conversion
B30 boiler, conversion
+new tank

Capital
3,000
250

Maintenance (/y)
180
270

1,500

270

The conversion of an oil boiler to a B30 boiler is significantly cheaper than installation of a new
biomass boiler. However, ongoing costs of maintenance of the converted boiler and the biomass
boiler are likely to be similar, and fuel costs will be lower for the biomass boiler using pellets
compared to a B30 mix.
The RFA reported a strong correlation between biodiesel prices and fossil diesel prices in
2009/10. Biodiesel was more expensive to produce than fossil diesel, but was typically lower cost
than fossil diesel once the 20p/l lower excise duty was applied (Berry, 2010105). This price
correlation is likely to persist, so that upward pressure on oil prices will be reflected in the price
104

Year Two of the RTFO. RFA report on the RTFO 2009/10. http://www.renewablefuelsagency.gov.uk/yeartwo
Impacts of the RTFO on UK business and agriculture. Presentation to RFA Stakeholders meeting Feb 11. Accessed at
:http://www.renewablefuelsagency.gov.uk/sites/rfa/files/RFA_270111_impacts_on_uk_business_%26_agriculture.
pdf
105

116

of biodiesel. This means that the use of B30 will not provide any protection from increasing
fossil fuel prices.
For industrial use of tallow/ UCO the RFA reported that the market was clearly driven by the
biodiesel industry, with increases in price from 250/t to 350/t and even reaching up to 550/t
on occasion. Tallow prices were typically 300-450/t. This means that again, use of
tallow/UCO bought on the open market will not provide fuel price stability. However, there is
an opportunity for industry producing its own tallow/ UCO to choose to utilise this resource for
heating.
OSR prices in 2009/10 were driven by global supply and demand, and there was no clear link
between price of OSR and biodiesel. Typical OSR prices (crop prior to oil extraction) are in the
range 200-350 per tonne. Currently OSR is one of the most expensive feedstocks used for
biodiesel production. Prices for heating using biodiesel from OSR would be at the upper end of
the range shown.
Sustainability
Both biofuels (liquid or gaseous fuels for transport produced from biomass) and bioliquids are
subject to sustainability requirements under the RED. These requirements must be met in order
for the biofuels and bioliquids to count towards:

measuring compliance with RED regarding National targets;

measuring compliance with renewable energy obligations; and

eligibility for financial support for the consumption of biofuels and bioliquids.

In summary the requirements are:

A minimum Greenhouse Gas (GHG) emissions saving of 35%, rising to a minimum of


50% saving in 2017.

The feedstocks for the bioliquids shall not be taken from land with high biodiversity
value or from land with high carbon stocks.

There must be a verification process to show the sustainability requirements have been
met.

Bioliquids made from wastes and residues are exempt from the requirements on land use, and
are assumed to have zero GHG emissions up to the point of collection.
The current debate on sustainability is centred on undesirable land use change, and competition
for land between food, feed and energy uses. Waste oils and tallows avoid these concerns as they
do not require additional land for production. Vegetable oils for biodiesel are at the centre of the
debate. In particular land used for vegetable oil production could either cause direct land use
change by displacing land of high biodiversity/ carbon stock value, or indirect land use change
by displacing a current enterprise that subsequently moves to land of high biodiversity / carbon
stock value. The estimates of land available in NI assume that OSR for biodiesel would be grown
on surplus arable land, and therefore avoid the issues of direct and indirect land use change.
However, the status of grassland is currently unclear and is still to be clarified by the
117

Commission. Use of such land would increase the resource available in NI, but will lead to a land
use change penalty and may not be allowable under RED.
Regarding the bioliquids proposed for heating fuel in NI, the use of waste oils and tallow would
present no issues for sustainability. Using vegetable oils would require ensuring that the oils met
the sustainability requirements. As mentioned earlier, AEA predicts a shortage of sustainable
biofuels in the EU by 2020, due to the requirements of RED. There will therefore be stiff
competition for sustainable biofuels from the transport market. This competition will be
stronger for biofuels from wastes and residues, as these count double towards the meeting the
national targets for transport biofuels.
A reporting and verification system similar to that being developed for biofuels will be required
to demonstrate that the biodiesel used for heating meets the sustainability standards.
GHG emissions savings
The RED provides default values for production of biodiesel from both wastes and vegetable
oils. The relevant values are shown below:
Table B.3: Default GHG emission savings
Biofuel production pathway
Rape seed biodiesel
Soya bean biodiesel
Palm oil biodiesel
Waste vegetable or animal oil
biodiesel

Default GHG emission saving when used for heating


33%
25%
12%
82%

These values do not include land use change emissions.


These figures show that good GHG emissions savings are achieved from use of biodiesel from
wastes and residues for heating. However, GHG emissions savings from use of virgin oils is
poor, and the default values are below the RED requirements.
This problem is recognised in the transport fuels sector, hence the prediction of a shortage of
sustainable biofuels and competition for biofuels from wastes and residues.
Table B.4 below shows the percentage GHG emissions savings that would be achieved from a
B30 blend assuming that the feedstock met the minimum GHG emissions savings in RED
(35%), met the minimum GHG emissions savings from 2017 (50%), and were produced from
tallow/UCO with GHG emissions savings of 82% as calculated from the RED defaults.
Table B.4: Comparison of savings between biodiesel and B30 blends
GHG emissions savings for GHG emissions saving from B30 blend
biodiesel
35% (similar to current OSR default)
10.5%
50% (RED minimum in 2017,
15%
achievable for best practice in
production from OSR)
82%
(default
saving
for
25%
UCO/tallow)

118

To give an idea of the relative savings from biodiesel and wood pellet pathways, Table B.5 below
shows results calculated by AEA on GHG emissions savings from the use of wood pellets to
produce heat in domestic boilers (AEA 2008106). The results have been adjusted to exclude
landfill credit and to use the RED fossil fuel comparator.
Table B.5: GHG emissions savings in wood boilers
Fuel
Net GHG emissions saving (%)
Wood pellets from
85
Short Rotation Coppice
(SRC)
Wood pellets from
92
clean wood waste
Wood chips from clean
94
waste wood

The AEA GHG tool has now been updated to use the same methodology as RED, and it is
recommended that emissions are estimated for the wood pellet pathways following the RED
methodology to ensure consistency.
Demand for heating oil in NI
OFTEC107 estimate that oil is used in approximately 500,000 homes in NI, and the average
kerosene consumption is 2008 litres per annum. This gives a domestic oil consumption of
approximately 1 billion litres per annum. Assuming 1 litre of kerosene provides 10.35kWh, this
gives an energy demand of 10,391 GWh. This is similar to the current domestic oil demand of
9,241 GWh estimated by AECOM/ Pyry108. Biodiesel has about 90% of the energy content of
kerosene, so to replace say 30% of the heating energy with biodiesel (a B30 blend) would require
303 million litres biodiesel.
234 million litres of biodiesel from wastes and residues was sold into the road transport sector in
the UK in 2009/10. (RFA 2010a109). This was 21% of the total biodiesel sold.
This implies that if there were a substantial uptake of biodiesel from tallow/ UCO for heating in
NI it could require all the biodiesel from tallow/ UCO available to the UK.

106

A report on the assessment of the potential for bioenergy development in Northern Ireland. Accessed at:
http://www.detini.gov.uk/assessment_on_bioenergy_in_ni_oct_2008.pdf
107
Letter from Oftec to Peter Hutchinson (DETI) 9th March 2010
108
AECOM/ Pyry, 2010, op. cit.
109
RFA quarterly report 8:15 April 2009-14 April 2010

119

ANNEX C: FUEL COST ASSUMPTIONS


This annex provides tables of the fuel cost assumptions underlying the modelling exercise, and
provides a summary of the approach and sources used.
Cost inputs for each series cover the years 2010-40, although the source data in most cases only
extends to 2025 or 2030. We have assumed input costs remain constant outside the period
covered by source data.
The fuels covered in this annex are:

Electricity

Gas

Heating oil

Biomass (i.e. wood chips and pellets)

Bioliquids (i.e. Used Cooking Oil)

Biogas (note: this is the wholesale price received for a biogas injection facility)

Where appropriate, prices are differentiated by consumer segment (domestic/residential,


commercial/public and industrial), and we present ranges around the central scenario.
Electricity
Table C.1 below presents input costs for retail electricity.
Table C.1: Electricity retail costs (/kWh)
Segment/
Scenario

2010

2015

2020

2025

2030

2035

2040

Domestic
Low

0.11

0.12

0.14

0.17

0.17

0.17

0.17

Central

0.13

0.15

0.17

0.22

0.22

0.22

0.22

High

0.15

0.17

0.20

0.25

0.25

0.25

0.25

High-High

0.16

0.20

0.22

0.28

0.28

0.28

0.28

Low

0.09

0.10

0.13

0.15

0.17

0.17

0.17

Central

0.12

0.13

0.16

0.21

0.25

0.25

0.25

High

0.12

0.14

0.16

0.22

0.26

0.26

0.26

High-High

0.15

0.19

0.20

0.27

0.32

0.32

0.32

Low

0.08

0.09

0.12

0.14

0.15

0.15

0.15

Central

0.11

0.12

0.14

0.19

0.23

0.23

0.23

High

0.11

0.13

0.15

0.20

0.24

0.24

0.24

High-High

0.13

0.17

0.18

0.25

0.29

0.29

0.29

Commercial

Industrial

120

Commercial and Industrial prices are based on figures in the analytical annex to DECCs RHI
impact assessment (2011), uplifted by 10%110 to account for differences in Northern Ireland
prices relative to GB prices. Domestic prices are based on DECCs 2010 projections, accessed
from the DECC website.
Gas
Table C.2 below presents input costs for retail gas.
Table C.2: Gas retail costs (/kWh)
Segment/
Scenario

2010

2015

2020

2025

2030

2035

2040

Domestic
Low

0.03

0.04

0.05

0.05

0.05

0.05

0.05

Central

0.04

0.05

0.06

0.06

0.06

0.06

0.06

High

0.05

0.06

0.07

0.07

0.07

0.07

0.07

High-High

0.05

0.07

0.08

0.08

0.08

0.08

0.08

Low

0.02

0.02

0.02

0.02

0.03

0.03

0.03

Central

0.03

0.04

0.04

0.04

0.04

0.04

0.04

High

0.04

0.04

0.05

0.05

0.05

0.05

0.05

High-High

0.05

0.06

0.06

0.06

0.06

0.06

0.06

Low

0.02

0.02

0.02

0.02

0.02

0.02

0.02

Central

0.03

0.03

0.03

0.04

0.04

0.04

0.04

High

0.04

0.04

0.05

0.05

0.05

0.05

0.05

High-High

0.04

0.05

0.05

0.06

0.06

0.06

0.06

Commercial

Industrial

Commercial and Industrial prices are based on figures in the analytical annex to DECCs RHI
impact assessment (2011), uplifted by 10%111 to account for differences in Northern Ireland
prices relative to GB prices. Domestic prices are based on DECCs 2010 projections, accessed
from the DECC website.

110

Source: NIAUR
http://www.uregni.gov.uk/uploads/publications/Electricity_Tariff_Announcement_Q_and_A__Sept_10_FINAL.pdf, page 3
111
Source: NIAUR
http://www.uregni.gov.uk/uploads/publications/Approval_by_the_Utility_Regulator_of_the_Phoenix_Supply_Lt
d_Tariff_2.pdf page 6

121

Heating oil
Table C.3 below presents input costs for retail heating oil.
Table C.3: Heating oil retail costs (/kWh)
Segment/
Scenario

2010

2015

2020

2025

2030

2035

2040

Domestic
Low

0.04

0.04

0.05

0.05

0.05

0.05

0.05

Central

0.05

0.05

0.06

0.06

0.06

0.06

0.06

High

0.06

0.07

0.07

0.07

0.07

0.07

0.07

High-High

0.07

0.08

0.09

0.09

0.09

0.09

0.09

Low

0.04

0.04

0.04

0.04

0.04

0.04

0.04

Central

0.05

0.05

0.05

0.05

0.06

0.06

0.06

High

0.05

0.06

0.07

0.07

0.07

0.07

0.07

High-High

0.06

0.08

0.08

0.08

0.08

0.08

0.08

Low

0.04

0.04

0.04

0.04

0.04

0.04

0.04

Central

0.05

0.05

0.05

0.05

0.06

0.06

0.06

High

0.05

0.06

0.07

0.07

0.07

0.07

0.07

High-High

0.06

0.08

0.09

0.09

0.09

0.09

0.09

Commercial

Industrial

Commercial and Industrial prices are based on figures in the analytical annex to DECCs RHI
impact assessment (2011), converted to /kWh basis using 2009 DUKES conversion factors.
Domestic prices are calculated based on the ratio of domestic to commercial prices in DECCs
2009 Renewable Energy Strategy analytical annex.

122

Biomass
We present biomass input cost assumptions separately for two categories of biomass fuel: wood
pellets and wood chips.
Table C.4 below presents input costs for retail wood pellets.
Table C.4: Wood pellet retail costs (/kWh)
Segment/
Scenario

2010

2015

2020

2025

2030

2035

2040

Domestic
Low

0.05

0.05

0.05

0.05

0.05

0.05

0.05

Central

0.05

0.06

0.06

0.06

0.06

0.06

0.06

High

0.06

0.06

0.07

0.07

0.07

0.07

0.07

High-High

0.06

0.07

0.08

0.08

0.08

0.08

0.08

Low

0.04

0.04

0.04

0.04

0.04

0.04

0.04

Central

0.04

0.04

0.05

0.05

0.05

0.05

0.05

High

0.05

0.05

0.05

0.05

0.05

0.05

0.05

High-High

0.05

0.05

0.06

0.06

0.06

0.06

0.06

Low

0.04

0.04

0.04

0.04

0.04

0.04

0.04

Central

0.04

0.04

0.05

0.05

0.05

0.05

0.05

High

0.05

0.05

0.05

0.05

0.05

0.05

0.05

High-High

0.05

0.05

0.06

0.06

0.06

0.06

0.06

Commercial

Industrial

Wood pellets are assumed to be available for:

All urban domestic and commercial consumers;

Two-thirds of rural domestic and small commercial consumers; and

One-third of urban industrial consumers.

Table C.5 below presents input costs for retail wood chips.

123

Table C.5: Wood chip retail costs (/kWh)


Segment/
Scenario

2010

2015

2020

2025

2030

2035

2040

Domestic
Low

0.02

0.02

0.02

0.02

0.02

0.02

0.02

Central

0.03

0.03

0.03

0.03

0.03

0.03

0.03

High

0.03

0.03

0.04

0.04

0.04

0.04

0.04

High-High

0.03

0.04

0.04

0.04

0.04

0.04

0.04

Low

0.01

0.02

0.02

0.02

0.02

0.02

0.02

Central

0.02

0.02

0.02

0.02

0.02

0.02

0.02

High

0.03

0.03

0.03

0.03

0.03

0.03

0.03

High-High

0.03

0.03

0.03

0.03

0.03

0.03

0.03

Low

0.01

0.02

0.02

0.02

0.02

0.02

0.02

Central

0.02

0.02

0.02

0.02

0.02

0.02

0.02

High

0.03

0.03

0.03

0.03

0.03

0.03

0.03

High-High

0.03

0.03

0.03

0.03

0.03

0.03

0.03

Commercial

Industrial

Wood chips are assumed to be available for:

One-third of rural domestic and small commercial consumers;

Two-thirds of urban industrial consumers; and

All rural industrial and large commercial consumers.

The base prices for the above series were provided by AEA based on their 2011 study of
biomass resource availability in the UK. The original prices were provided in /GJ terms, and
converted to /kWh based on DECC DUKES conversion factors.
Prices were estimated from market sources and suppliers for 2010 and 2020. Prices for the
intervening years were interpolated on a straight-line basis, and prices for subsequent years were
set equal to 2020 values.
For wood chips, the prices in the original data were divided into two categories: domestic and
commercial/industrial. For wood pellets, prices were given for bulk and bagged pellets. We have
assumed that domestic consumers would use bagged, and commercial/industrial consumers
would have access to bulk.
Finally, we note that actual prices could vary according to quantity delivered and quality.

124

Bioliquids
Table C.6 below presents input costs for retail Used Cooking Oil (UCO).
Table C.6: UCO retail costs (/kWh)
Segment/
Scenario

2010

2015

2020

2025

2030

2035

2040

Domestic
Low

0.05

0.04

0.04

0.04

0.04

0.04

0.04

Central

0.05

0.05

0.06

0.06

0.06

0.06

0.06

High

0.05

0.06

0.06

0.06

0.06

0.06

0.06

High-High

0.05

0.06

0.07

0.07

0.07

0.07

0.07

Low

0.05

0.04

0.04

0.04

0.04

0.04

0.04

Central

0.05

0.05

0.06

0.06

0.06

0.06

0.06

High

0.05

0.06

0.06

0.06

0.06

0.06

0.06

High-High

0.05

0.06

0.07

0.07

0.07

0.07

0.07

Low

0.05

0.04

0.04

0.04

0.04

0.04

0.04

Central

0.05

0.05

0.06

0.06

0.06

0.06

0.06

High

0.05

0.06

0.06

0.06

0.06

0.06

0.06

High-High

0.05

0.06

0.07

0.07

0.07

0.07

0.07

Commercial

Industrial

The above prices were supplied by AEA based on UCO prices reported in NNFCCs April 2011
evaluation of Bioliquid Feedstocks and Heat, Electricity and CHP Technologies.

125

Biogas
Table C.7 below presents the price received for biogas injections.
Table C.7: Biogas prices (/kWh)
Segment/
Scenario

2010

2015

2020

2025

2030

2035

2040

All segments
Low

0.09

0.10

0.10

0.10

0.10

0.10

0.10

Central

0.11

0.11

0.11

0.11

0.11

0.11

0.11

High

0.11

0.12

0.12

0.12

0.12

0.12

0.12

High-High

0.12

0.13

0.13

0.13

0.13

0.13

0.13

The above prices are based on figures in the analytical annex to DECCs RHI impact assessment
(2011) for wholesale gas, uplifted to account for differences in Northern Ireland prices relative to
GB prices, and including a gate fee of 8.1p per kWh.

126

ANNEX D: ADMINISTERING RENEWABLE HEAT GRANT PROGRAMMES


The components listed below are based on an indicative grant funded renewable heat
programme (the Bio-Energy Capital Grants Scheme).
Scheme initiation/preparation phase:

Guidance document

Application form

Assessment criteria and evaluation guidance

Construct website for logging applications and undertaking assessment

Assessment procedures and approach

Assessor guidance and training

Set up helpline for queries and deal with queries

Develop monitoring documentation

Develop claim documentation

Project Assessment phase

Eligibility check- can they apply (correct sectors) / have they provided the correct
information

Financial check- are they a reputable entity, registered company, appropriate for financial
support (undertaken by a financial specialist, typically with accounts background)

First technical assessor, undertakes project scoring appraisal

Second technical assessor (senior technical assessor), acts as a double check and also
helps ensure consistency in scoring/ resolving disputes

Project assessment meetings with DECC to agree scorings of projects and discuss/agree
any projects that are borderline for various reasons. Essentially this phase approves
formally approves or rejects AEAs recommendations on those that should receive
funding.

Scheme initiation phase

Approved projects are then issued a grant offer letter (drafted by AEA
contracts/financial team)

Grant offers are accepted or rejected, this is logged

127

Project monitoring

Project monitoring officers (PMOs) (junior technical expertise) ensure that the grantees
understand the terms and conditions

Quarterly monitoring of progress via simple reports and telephone discussions

Project Completion

Review and approve claims forms and completion reports

Finance review and approve financial information submitted, such as accountants reports

Finance sort out payment aspects and issue grant payment to applicant.

Other costs

Project manager to oversee the running of the programme

128

ANNEX E: ALTERNATIVE RATE SETTING METHODOLOGY


This report includes a set of cost-based RHI incentive rates tailored for the Northern Ireland
market. These rates are calculated to provide a large proportion of investor segments112 with
sufficient incentive to install a range of renewable technologies.
Characteristics
The proposed rates are set on the following basis:

Periodic payments per unit of heat Subsidies are paid as a fixed / kWh heat
generated from qualifying renewable technologies over the expected life of the
installation.
Calculated for reference installations Rates are calculated for a reference installation
to meet the forecast difference between the discounted value per unit of heat from a
renewable technology and its conventional fuel counterfactual (usually oil).
Differentiated by band Rates are set independently for a set of technology /
installed capacity bands, with independently selected reference installations to reflect
variation in the cost of each technology relative to its counterfactual.
Incentivise up to half potential output subject to having an oil counterfactual
The reference installation is selected such that the subsidy level would make half of the
potential heat output within its band economically viable, or if that installation has a gas
counterfactual, at the next lowest level required by an installation with an oil-based
counterfactual.

The rates proposed are designed to provide a reasonable incentive for each technology in
isolation and do not take account of investors post-subsidy preferences across technologies, or
presuppose rankings of rival claims on limited installation capacity or subsidy budget. This
approach aims to ensure that there is an incentive for take-up across technologies, providing a
set of rates that are more robust than if designed to optimise against any given take-up algorithm.
Assessing subsidy levels required
A renewable technology is considered to be economically viable for an investor if its all-in,
discounted cost of heat over time is less than the non-renewable counterfactual. Valuations are
based on both the investor and boiler characteristics that define the technical demands of each
installation. Values considered in these calculations are the levelised cost per unit of heat over the
life of the boiler of: 113

upfront capital costs;


expected upfront hassle costs;
ongoing operational expenses; and
forecast yearly fuel expense.

112

Heat installation investors are characterised as domestic, commercial or public entities differentiated by their size,
type, location and access to fuels.
113
This process implies a required return on upfront costs equal to the discount rate used.

129

The difference in the value of each technology can be expressed as a net / kWh. If the
renewable technology is more costly than the counterfactual, this difference shows the per unit
subsidy required to make that investor indifferent between the technologies.
Valuations were conducted for stylised consumers in a small number of market segments
selected represent the Northern Ireland heating technology market. Technologies are only
considered for a segment if considered technically viable by AEA.
Expected technology costs and performance specifications (see Annex A) were provided by
AEA. Conventional fuel forecasts are based on Central projections by DECC, with uplifts
applied to reflect higher costs in Northern Ireland. Forecast biofuel projections were provided
by AEA. Valuations were levelised across expected heat output using discount rates
differentiated for domestic and non-domestic investors.114
Selecting the bands
Subsidy bands are defined by observable technology and capacity ranges, pooling together
investors with similar costs per unit of heat. This allows technologies to be economically viable
across a range of scales and investor types while reducing the need to over-subsidise investors
requiring comparatively little subsidy.
The bands ultimately selected group domestic, small commercial and small public sector
installation capacities together, while providing separate rates for medium sized commercial and
public sector installations. No subsidy has been provided to ASHPs as they are viable for many
non-domestic segments without subsidy. Medium capacity bands have also been excluded for
liquid biofuel and solar thermal segments. Incentive rates for large capacity industrial installations
were considered to be inappropriate as any sites with potential to use a renewable option would
able to do so without RHI support.
Selecting the reference installation
A fixed incentive rate is calculated for each band based on the / kWh subsidy required to make
a reference installation viable. In line with DECCs methodology, the reference installation is
chosen as the installation requiring a subsidy that would incentivise half of the total potential
output from the technology that could be taken up across the period 2011-20 if that rate was
offered to that band in every year. Total potential output is calculated as heat output that could
be achieved if all technically viable segments within the band installed the technology.
In order to limit the impact of the policy on the gas network, if the reference installation
delivering half of total potential output has a gas counterfactual, the incentive rate was revised
down to the subsidy required by the next lowest group with an oil counterfactual.
Tiering
Tiered incentive rates for medium scale metered installations with high load factors were
calculated to limit subsidy to any incremental fuel expense should they breach the DECC tiering
114

16 percent for domestic and eight percent for non-domestic investors sourced from NERAs Mid-Low
scenario in NERA/AEA (2009) Study on the UK Supply Curve for Renewable Heat accessed at
http://www.rhincentive.co.uk/library/regulation/0907Heat_Supply_Curve.pdf

130

threshold of 15% load factor. In all cases, the subsidy rates were found to be lower than the
incremental fuel expense. Therefore no tiering is provided in the rates in this report.
Differences from DECC methodology
The main difference between the method used to calculate the rates in this report and that used
by DECC is that positive and uniform discount rates are used to value costs in future years and
recover upfront costs across heat output in all years.
In each case this results in rates that are less than one penny per kWh different except for solar
thermal. Solar thermal incentives would be over 15 pence less per kWh using the DECC
methodology as their approach assumes investors place a high value on ongoing fuel savings.

131

ANNEX F: DETAILS OF RENEWABLE HEAT TECHNOLOGIES


Air Source Heat Pumps (ASHPs)
ASHPs are best suited to residential and commercial applications that do not have access to the
gas network and that do not have access to land needed for ground source heat pumps
(discussed elsewhere). Disadvantages are that the CoP for ASHPs falls with lower air
temperatures. They are also limited by the low temperatures they can deliver into the heating
system which normally require an upgrade to the surface area of the emitters.
Ambient air is blown over the heat exchange surface in the evaporator by a sizable fan which can
create a noise nuisance in densely populated areas.
Suitability of the ASHPs for the demand sector
Table F.1 below assesses the suitability of Air Source Heat Pumps for different customer
segments, against a range of criteria.
Table F.1: Technology and demand sector suitability matrix
Sector

Space
Hot
water

Grade of heat
Space

Environmental
Process

Domestic urban

N/A

Domestic rural

N/A

Small commercial/ public

Large commercial/ public

Small industrial

Large industrial

0 = not suitable 5 = very suitable

ASHPs can be installed in almost all properties given their small space requirement. However,
the main types of ASHPs available on the market provide outlet temperatures in the region of
35-45 C, this is below the standard requirements for hot water and as such the technology is
better suited to space heating. The low temperatures again limit the suitability of heat pumps for
process heat loads, and so the uptake in industry will be low. Other barriers to ASHPs are shown
in Table F.2 below.

132

Table F.2: ASHP Technology barriers


Barrier

Overview

Options
Remediation

for

Heat pump efficiency

Heat pump efficiency is dependent upon


the ambient air temperature. Recent trials
by the Energy Saving Trust115 found that
the system efficiency of heat pumps was
lower than expected. At these levels of
efficiency there is a risk that ASHPs cannot
be classed as providing renewable heat.

Introduce technical standards


to ensure that installations are
being installed to the match
the heat load.
Consider ESTs follow up of
the field trials which aims to
ascertain how the poor
performance could have been
improved.

Noise

Low level noise (50 db) is emitted from


ASHP. This may restrict the number that
can be installed in higher density urban
areas.

Ensure clear approach is


established to ensure that
problems related to noise
complaints do not arise.

Thermal efficiency of Heat pumps do not generally perform well


housing stock
in poorly insulated buildings as low grade
heat delivery can give extended warm up
times that impact on levels of perceived
comfort. Given the prevalence of fuel
poverty and quality of housing stock this
may present a challenge to Northern
Ireland

Consider
ensuring
that
thermal insulation is at
suitable levels before allowing
the installation of heat pumps.

Electricity prices

Look
at
widespread
encouragement of improving
thermal efficiency of buildings
in tandem with incentivizing
renewable heat.

Heat pumps generally use electricity (in Increase thermal storage from
some cases gas) as an input to the heat pumps to make use of off
compressor.
peak electricity.
Introduce special tariffs for
heat pumps

Potential impacts on other Northern Ireland and UK policies:

Fuel Poverty: ASHPs present a good opportunity to alleviate fuel poverty as they may be
suitable for many urban properties that other renewable technologies are constrained
from because of space issues. However, inappropriate specification of the system will
lead to poor efficiency which will mean that the heat pump is almost operating as an
electric immersion heater. This may therefore offer limited financial savings.

Households in fuel poverty may not have made the necessary investment in insulation so
performance may be disappointing unless the installation is part of an integrated package
of measures.

Grid decarbonisation: Heat pumps are one of the best technologies for moving towards
a low carbon future as using renewable electricity they will be zero carbon. They can

133

present positives and negatives for electrical demand. Firstly they increase overall
electrical demand, however, with the introduction of smart grids there is potential for
heat pumps to act as demand side management technologies to make use of excess
electricity generated by wind power.

Social Inclusion: no apparent barriers, aside from higher capital cost than counterfactual
alternative.

Air Quality: No air quality impacts.

Job creation: Will lead to increase in the number of heat pump installers. For larger nondomestic installations ongoing annual F-gas checks are required. This presents longer
term job opportunities.
Ground Source Heat Pumps (GSHPs)
Typical sizes for GSHPs are between 5 and 50kW although utility scale units exist in other EU
countries utilising water from aquifers or lakes with capacities of several megawatts. Advantages
of GSHPs are that they do not experience the same performance loss as ASHPs in cold weather
due to ground temperatures remaining constant through the year. However, installation can
require significant disruption associated with installation of the ground loop and this adds
additional cost.
Suitability of GSHPs for the demand sector
Table F.3 below assesses the suitability of Ground Source Heat Pumps for different customer
segments, against the same criteria as for Air Source Heat Pumps.
Table F.3: Technology and demand sector suitability matrix
Sector

Space
Hot
water

Grade of heat
Space

Environmental
Process

Domestic urban

N/A

Domestic rural

N/A

Small commercial/public

Large commercial/public

Small industrial

Large industrial

0 = not suitable 5 = very suitable


The same characteristics for heat pumps regarding temperature supply as discussed under
ASHPs above also apply to GSHPs. The ground works associated with GSHPs result in cheaper
installation costs for horizontal systems which will be possible to install in non-space constrained
rural properties. For urban and sites with larger heat loads then a vertical system will be required
which entails greater costs. Many of the barriers to ASHPs apply to GSHPs as they utilise the

134

same technology in terms of the heat pump unit. The ground work associated with GSHPs does
however present some slightly different barriers.
Table F.4: GSHP Technology barriers
Barrier

Overview

Options
Remediation

for

Heat pump efficiency

Recent trials by the Energy Saving


Trust116 found that the system efficiency
of heat pumps was lower than expected.
The GSHP sector has always maintained
that efficiencies were about 1.0 higher
COP than ASHPs. The results from the
field trial showed the difference to be
much less.

Introduce technical standards


to ensure that installations are
being installed to the match
the heat load.
Consider ESTs follow up of
the field trials which aim to
ascertain how the poor
performance could have been
improved.

Geology

The geology can have an important


influence upon the cost and practicality of
vertical ground source heat pumps. Areas
with underlying rock as opposed to clays
and sand will be easier and cheaper to
install vertical GSHPs.

Look at providing information


on those areas that are likely
to be more geologically
suitable for GSHPs.

Thermal efficiency of Heat pumps do not generally perform well


housing stock
in poorly insulated buildings as the delivery
temperature is lower. Given the prevalence
of fuel poverty and quality of housing
stock this may present a challenge to
Northern Ireland

Consider
ensuring
that
thermal insulation is at
suitable levels before allowing
the installation of heat pumps.

Electricity prices

Heat pumps generally use electricity


(sometimes gas) as in input to the
compressor. Given the current favourable
gas to electricity prices in Northern Ireland
those properties on the gas grid will see a
lengthened financial pay back compared to
operating in GB.

Look
at
widespread
encouragement of improving
thermal efficiency of buildings
in tandem with incentivizing
renewable heat.
Increase thermal storage from
heat pumps to make use of off
peak electricity.
Introduce special tariffs for
heat pumps

Potential impacts on other Northern Ireland and UK policies:

Fuel Poverty: GSHPs represent a good opportunity to alleviate fuel poverty as they may
be suitable for many urban properties that other renewables are constrained from
because of space issues. However, inappropriate specification of the system will lead to
poor efficiency which will mean that the heat pump is almost operating as an electric
immersion heater. This may therefore offer limited financial savings.

135

As with ASHP performance may be disappointing if insulation is not upgraded.

Grid decarbonisation: Heat pumps are one of the best technologies for moving towards
a low carbon future as using renewable electricity they will be zero carbon. They can
present positives and negatives for electrical demand. Firstly they increase overall
electrical demand, however, with the introduction of smart grids there is potential for
heat pumps to act as demand side management technologies to make use of excess
electricity generated by wind power.

Social Inclusion: Horizontal (slinky) systems are generally cheaper to install than vertical
systems. This means that if the incentive is the same for both types of system those with
greater land availability have the possibility to install a cheaper system. In the case of
Northern Ireland, generically this will coincide with off gas grid properties.

Air Quality: No air quality impacts

Job creation: Will lead to increase in the number of heat pump installers. For larger nondomestic installations ongoing annual F-gas checks are required, this presents longer
term job opportunities. GSHPs also create jobs in the drilling sector. Jobs may be
displaced in the oil delivery and boiler servicing sectors.
Solar Thermal
Systems will typically not be designed to meet space heating requirements as this will normally
require a larger collector area than would be available for a single residence. Solar collectors can
only be deployed where the user has access either to a south facing roof or an unshaded area of
land on which collectors can be erected. As a result solar thermal installations may not be well
suited to high density residential accommodation. Furthermore, the effectiveness of solar
collectors will be dependent on the level of incident solar radiation, which diminishes with
increasing latitudes.
Cases exist in the EU of solar collectors being used to supply heat to multiple residences via a
community heating network. However, no examples exist within the UK. The UK also has very
few examples of larger solar thermal installations, and as such DECC is only supporting
installations up to 200kW in the first phase of the RHI. Due to the low temperatures they can
deliver (typically less than 60 C) solar is limited to space heating and hot water in some domestic
and commercial buildings.
Suitability of solar thermal for the demand sector
Table F.5 below assesses the suitability of Solar Thermal for different customer segments,
against a range of criteria. Note that they are not suitable for process heat, or for space heating in
the industrial sector.

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Table F.5: Solar thermal and demand sector suitability matrix


Sector

Space

Grade of heat
Hot
Space
water

Environmental
Process

Domestic urban

N/A

Domestic rural

N/A

Small
commercial/public
Large
commercial/public
Small industrial

Large industrial

0 = not suitable 5 = very suitable


Solar thermal needs to be installed on a south facing roof. This is not always available, which
leads to a constraint on the number of properties for which it is suitable. In the domestic sector
solar thermal is typically sized to the hot water demand; the space heating demand does not
correlate well with the maximum solar insolation during the summer. As mentioned above due
to the low temperatures they can deliver, they are not suitable for process heat loads. Finally in
terms of the environmental impacts, there are some constraints related to the visual obtrusion of
solar panels. Typically this will only present a constraint to listed buildings and larger buildings
installing a significant array. Other barriers to solar thermal are shown in Table F.6 below.
Table F.6: Solar thermal barriers
Barrier

Overview

Technology cost

Solar thermal represents a high investment Incentives to acknowledge


in terms of costs compared to the heat this high cost.
generated.
Encourage
non-domestic
systems that can provide a
boost to hot water.

Integration with fossil As solar thermal will not provide the total
fuel
heat demand for a property it will require
integration with a secondary source. Given
the dominance of oil boilers in Northern
Ireland this may therefore not represent
the most optimal way of maximising
carbon savings and reducing fuel bills.
This integration presents another barrier as
plumbers currently do not understand solar
thermal well, hence they are unlikely to
recommend or advise on the technology.

Options for Remediation

Ensure that DETI have an


agreed methodology as to how
they wish to promote solar
thermal.
Introduce training courses to
upskill plumbers with the
knowledge to integrate solar
thermal with fossil fuel
boilers.

Potential impacts on other Northern Ireland and UK policies:

Fuel Poverty: will not completely reduce the need for fossil fuels and therefore means
that problems associated with escalating fossil fuel prices and increasing fuel poverty may
137

not be resolved. Solar has a high initial cost that may exclude poorer households if
finance packages are not available.

Grid decarbonisation: Solar thermal heat generation has minimal carbon emissions. Small
amounts of electricity are required for pumping the thermal transfer fluid around the
system.

Social Inclusion: there are limited risks of social exclusion. The technology is suitable for
urban and rural areas.

Air Quality: No air quality impacts

Job creation: Will lead to increase in the number of solar thermal installers. The
integration with fossil fuel boilers means that heating engineers and plumbers will require
education and training to enable this service to be offered.
Biomass Boilers
Suitability of the technology for the demand sector
Table F.7 below assesses the suitability of biomass for heating. Note that it is highly suitable for
hot water and space heating for all customer segments.
Table F.7: Biomass and demand sector suitability matrix
Sector

Space

Grade of heat
Hot
Space
water

Environmental
Process

Domestic urban

N/A

Domestic rural

N/A

Small
commercial/public
Large
commercial/public
Small industrial

Large industrial

0 = not suitable 5 = very suitable


Biomass is one of the few renewable heat technologies that can provide high temperatures that
enable the good provision of space and process heat loads. A major barrier facing the uptake of
biomass is the space requirements, as the boilers are significantly larger than gas or oil and the
biomass fuel requires a covered storage facility. The space constraint will affect significant
numbers of urban properties. There are various potentially negative environmental impacts
associated with maximising biomass heating. The key impacts are air quality and increased lorry
movements which can influence local air quality, road conditions and noise. The environmental
and other barriers are discussed in more detail in Table F.8.

138

Biomass can include municipal solid waste, but support would only be provided for the biomass
component of the waste. In GB Fuel Measurement Sampling (FMS) procedures are used and the
biomass component must be at least 50% of the waste. Other wastes with a biomass component
of greater than 90% are also allowed in GB.
Table F.8: Biomass barriers
Barrier

Overview

Options for Remediation

Air quality

Given significant uptake urban areas may


exceed emission thresholds for particulates
and NOx. The threat of exceeding
emission thresholds may mean that certain
applications are rejected by the local
planning authority. That said, DECC
analysis suggests that any benefits against
oil are mixed.

Clarity on what types of


appliance (such as Clean Air
Act listed appliances) could be
installed in certain areas.
Good
information
for
consumers and air quality
control will need to be
provided prior to mass roll
out.

Biomass transportation

Increase in number of lorry movements on


roads. Biomass is typically half the density
of oil, so a doubling of fuel lorry
movements. This will present challenges to
maintain road quality, increase noise along
main transportation routes especially to
larger sites.
On the upside, the requirement for fuel
deliveries is a key employer in Northern
Ireland, and biomass actually represents an
opportunity for job creation in this area.

Encourage oil distribution


companies to offer biomass as
part of their fuel offerings.
For large projects ensure
transport management plans
are in place.
Consider
whether
improvements
in
road
infrastructure are required to
accommodate fuel transport.

Poor match to existing Biomass boilers operate most efficiently at


heat usage pattern
high and constant loads. Therefore
biomass boilers should be sized smaller
than fossil fuel boilers. Their operation
means less instantaneous heat, therefore
less suited to some modern lifestyles where
boilers are switched on in the evening to
rapidly warm the property.

Encourage high insulation in


buildings to conserve heat.
Limited mitigation other than
education surrounding the
optimal operation of biomass
heating systems.

Disruption to existing Modern biomass boilers have specialized Limited mitigation other than
heating system
controls and non-standard components improved
technical
such as large accumulators. Additional cost developments.
may be incurred through the disruption of
relocating components.
Biomass resource

Northern Ireland has low forest cover and


a constrained national resource. AEAs
recent work for DECC suggests that
importation of biomass will be important.
This means exposure to the global tradable
biomass price.

Ensure
woodland
management and long term
planting is encouraged. In the
short term look to maximize
recovery of waste wood going
to landfill. Also promote the
importation of biomass as
means to increase uptake.

Fuel Supply contracts

In the non-domestic sector many sites will Provide advice on long term
need assurance that biomass will be fuel supply contracts and
supplied consistently over time. There is work
with
relevant

139

Barrier

Overview
also a concern that because of the
immature market future prices are
uncertain. Long term fuel supply contracts
are therefore sought by interested sites,
however these are proving currently
difficult to secure as the supply chain is
fragmented and inexperienced in managing
such contracts

Options for Remediation


stakeholders
overcome
barriers preventing these
contracts becoming common
place. In addition alternative
fuel supply contracts should
be investigated and monitored
such as turnkey solutions.

Potential impacts on other Northern Ireland and UK policies:

Fuel Poverty: In rural areas with good access and connections to the local woodland
supply chain, biomass can represent an excellent way to move out of fuel poverty.
However, as the initial capital costs are high in many cases this opportunity cannot be
realised.

Grid decarbonisation: Biomass will assist in moving towards a low carbon grid by
presenting a minimal increase in electricity demand compared to heat pumps.

Social Inclusion: some risks of social exclusion as biomass will be better suited to larger
properties and especially those with own woodland estates. Typically wealthy rural
landowners stand to benefit the most from any biomass heating incentive.

Air Quality: As mentioned above will increase NOx and particulate emissions.

Job creation: Biomass has the greatest potential to create jobs and stimulate the local
economy. Much of the remedial works can be undertaken by local builders. Wood fuel
supply offers significant opportunities to offset reductions in demand for oil transport.
Finally woodland management will create opportunities in rural areas to plant and
manage woodlands for biomass fuel supply.
Bioliquids
Bioliquids are liquid fuels produced from biomass materials, including waste such as used
cooking oil and tallow. Examples include bio-ethanol or biodiesel. Within Northern Ireland it is
expected the principal role that can be played by bioliquids is as a replacement for heating oil
within a domestic context. Their overall suitability is shown in Table F.9 below.
Table F.9: Bioliquids and demand sector suitability matrix
Sector

Space
Hot
water

Grade of heat
Space

Environmental
Process

Domestic urban

N/A

Domestic rural

N/A

Small
commercial/public
Large

140

Sector

Space
Hot
water

Grade of heat
Space

Environmental
Process

commercial/public
Small industrial

Large industrial

0 = not suitable 5 = very suitable


Bioliquids will be relatively easy to integrate into existing oil fired properties as the same or
similar equipment can be used. The space requirements and availability of the gas network mean
that this is not likely to be practical or favourable in areas such as Greater Belfast. The
combustion of bioliquids particularly at a B30 blend with Kerosene as suggested by OFTEC will
result in similar performance characteristics as mineral oil. The supply chain issues may act as a
barrier to the larger sites. This is discussed in more detail in Table F.10 below.
Table F.10: Bioliquids barriers
Barrier

Overview

Options for Remediation

Technology immaturity

As reported by NNFCC117 and OFTEC


trials are ongoing to test the performance
of converting oil boilers to run on
bioliquids. NNFCC believe that further
research is required in the domestic market.
As such early roll out supported by
government incentives present a possible
technical risk.

Monitor ongoing research of


bioliquids
demonstration
projects to determine the
success rate and understand
how to overcome technical
barriers.

of Bioliquids derived from energy crops


require significant energy inputs associated
with the production and risk resulting in
indirect land use change. In GB, DECC are
monitoring the ongoing research on the
overall sustainability of bioliquids before
providing support under the RHI.
Certification, audit and reporting will be a
cost to business

To
avoid
potential
controversy
surrounding
sustainability the use of Used
Cooking Oils (UCO) and
Tallow (animal fats) should be
encouraged. As these are both
wastes significant carbon
savings can be achieved.

The size of UCO and tallow market


represents a constraint upon the roll out of
bioliquids in Northern Ireland and GB.
Given this particularly larger sites may be
cautious in investing in bioliquids
combustion equipment.

Ensure that the benefits of


promoting a limited resource
are properly considered to
avoid market constraints.

Sustainability
bioliquids

Limited resource

141

Potential impacts on other Northern Ireland and UK policies:

Fuel Poverty: Bioliquids are potentially the cheapest renewable heat technology for those
with existing oil boilers. However, uncertainty over bioliquids prices through to 2020 is
high. The market price is likely to be driven by the transport bio-fuels sector which will
demand waste bioliquids as a key source to meet the EU sustainability criteria.

Grid decarbonisation: Limited carbon savings as running at B30 blend offers only a
proportional saving on oil.

Social Inclusion: offers an opportunity to those with limited capital, but generally
excludes those in Greater Belfast and other areas on the gas grid.

Air Quality: As mentioned above could increase NOx and particulate emissions.

Job creation: Helps retain existing jobs in the oil industry in Northern Ireland. Some
possible job creation with the conversion of boilers. May suppress activity in solid
biomass sector which has greater potential to create jobs.
Biogas
This refers to the production and use of a fuel gas derived from a biomass feedstock. Biogas can
be used as a replacement for natural gas and so can be used in gas boilers for the production of
heat or gas engines for heat and electricity. For the avoidance of doubt, biogas does not include
landfill gas, which is a separate technology. There are some potential barriers, which are
discussed in Table F.11 below.
Table F.11: Biogas barriers
Barrier

Overview

Options for Remediation

Feedstock supply chain

The supply and transportation of wet Look


at
best
practice
biomass is an emerging area with limited examples from countries such
experience in Northern Ireland or GB.
as
Germany.
Encourage
centralised supply chains such
as for the collection of
household food waste.

Negative perception of The GB experience of anaerobic digestion


performance
has been mixed with some successes but
also some plants such as Holsworthy have
struggled to operate at a profit. There are
few examples in GB of the technology in
operation compared to in other EU MS
such as Denmark and Germany.

Disseminate
results
of
pioneering projects. Provide
successful case studies from
other countries.

Limited resource

Identify areas of high biomass


resource and correlate with
heat
loads
to
identify
opportunities.

The size of wet waste resource is limited.


In addition transportation of wet waste
over significant distances i.e. greater than
10km is problematic and not cost effective.
This means that opportunities for biogas
heating are constrained to areas where a
high heat load and high wet biomass
resource exist.
Feedstocks with a high methane generating

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Barrier

Overview
Options for Remediation
potential and negative cost such as food
waste from industry and municipal
collection seem to be essential to the
economics which restricts the geographical
location.

Lack of secure disposal Land available for disposal of digestate may Investigate which areas in
route for digestate
be limited
Northern Ireland will be
suitable to accept digestate as
a soil conditioner. This in turn
will help inform opportunities

Potential impacts on other Northern Ireland and UK policies

Fuel Poverty: Limited benefits to fuel poverty due to the upfront capital costs. If the
technology is deployed more as a means of waste management then community district
heating could offer some potential.

Grid decarbonisation: Incentives for AD electricity are currently 4 ROCs in Northern


Ireland. The incentives proposed for renewable heat generation will have to be at least a
comparable level for any investors to consider such an opportunity.

Social Inclusion: restricted to those with access to capital (for plant construction) and
access to wet biomass.

Air Quality: As it is management of existing waste, there can be benefits in reducing


emissions of methane, N2O and ammonia from digestate spreading.

Job creation: opportunities for the construction and management of AD facilities and
transportation of wet wastes.
Bio-methane Injection into the Gas Grid
The barriers for bio-methane grid injection are the same as for biogas heating as far as the
production of the biogas. Table F.12 below discusses any additional or different barriers.
Table F.12: Bio-methane grid injection barriers
Barrier

Overview

Proximity to gas grid The gas network in Northern Ireland is


network
focused on urban areas. This will restrict
the opportunities of bio-methane plants
necessarily being located in areas near to
where the resource arises.

Options for Remediation


Good potential to consider
the use of using household
food waste for grid injection.
There are some successful
projects collecting household
food waste for AD in
England.

Interactions with gas Given the immature nature of the gas Ensure that legislation allows
network
network in Northern Ireland there could the opportunity for biogas
be potential legislative and contractual grid injection to take place.
barriers that may restrict or delay the
injection of biogas to the gas grid

143

Potential impacts on other Northern Ireland and UK policies:

Fuel Poverty: Limited benefits to fuel poverty due to the upfront capital costs.

Grid decarbonisation: Incentives for AD electricity are currently four ROCs in Northern
Ireland.

Social Inclusion: restricted to those with access to capital (for plant construction) and
access to wet biomass.

Air Quality: As it is management of existing waste, there can be benefits in reducing


emission of methane, N2O and ammonia from digestate spreading.

Job creation: opportunities for the construction and management of AD facilities and
transportation of wet wastes.

Renewable Combined Heat and Power (CHP)


Some of the barriers facing Renewable CHP will depend upon the feedstock, i.e. biomass, energy
from waste or bioliquids. The specific technology barriers facing CHP are highlighted below.
Because CHP produces electricity, there are interactions with the Renewables Obligation. We
discuss these in section 2.
Table F.13: Renewable CHP barriers
Barrier

Overview

Options for Remediation

Proximity to heat load

A CHP plant operating efficiently will


require a significant heat load to be
available within the proximity of the plant.
An electricity only plant is not
geographically constrained in the same
manner

Utilise heat mapping exercises


undertaken
in
the
AECOM/Pyry report and
also link to the UK heat map
to identify significant heat
loads.

District heating

Given the typically significant heat Look at opportunities to


generation, district heat networks offer an address fuel poverty through
excellent way of balancing heat load district heating.
profiles such as domestic and commercial.
However, in Northern Ireland there is
limited experience of installing large scale
district heating networks and a social
barrier as many prefer to have their own
boiler.

Potential impacts on other Northern Ireland and UK policies:

Fuel Poverty: Renewable CHP can offer an opportunity as discussed above to link with
district heating and provide heat to areas with high concentrations of fuel poverty.

144

Grid decarbonisation: As with AD the interaction with the incentives for ROCs currently
mean it is more favourable to look at renewable electricity generation than renewable
CHP.

Social Inclusion: Potential opportunity to address fuel poverty. However, the incentives
would be restricted to those companies with significant capital.

Air Quality: Dependent upon feedstock source

Job creation: opportunities for the construction and management of CHP facilities and
transportation of biomass feedstock.

145