Thursday, November 13, 2008

UK Energy Bill to Include Renewable Heat Incentive

The Energy Bill received its third reading in the House of Lords on 5 November 2008 and includes proposals from the Department for Energy and Climate Change for a scheme to incentivise investment in renewable heat. Currently, energy used for heating accounts for just under half of all the UK’s carbon dioxide emissions, while only 0.6% of heat generated in the UK is derived from renewable sources.

The Government has been considering for some time how to reduce heat-related emissions and boost heat generation from renewable sources. Earlier this year, the Government issued a Call for Evidence on Heat (see our related Law-Now) and sought views on introducing a financial incentive to encourage heat from renewable sources in Chapter 4 of its consultation on the UK Renewable Energy Strategy (see Law-Now).

The amendments to the Energy Bill will enable a scheme to provide financial support to any supplier of renewable heat. Support may also be available to producers of biogas or biomethane or to producers of biofuel used for generating heat. The scheme will provide a welcome boost to renewable CHP (Combined Heat and Power) producers and the bio-waste industry, among others.

Key points to note are:

- There is flexibility to band the level of support according to the technology used for generating heat.
- Eligible renewable heat sources for the scheme are biomass, biofuels, fuel cells, water (including waves and tides), solar power, geothermal sources, heat from air, water or the ground and combined heat and power systems (using a renewable fuel only).
- There is no specified limit on the size of plant which will be eligible for support, as the scheme is intended to cover both domestic and industrial scale projects.
- The scheme will be financed by fossil fuel suppliers, perhaps through a levy which would be administrated by Ofgem.

The amendments to the Energy Bill do not contain information on when the scheme will come into force, but the government has acknowledged it would take at least 18 months to develop the details of the scheme and implement the necessary secondary legislation.

The Government’s consultation expected later in November as part of the development of its Heat and Energy Efficiency Strategy is likely to provide a forum to develop the details of the scheme. In that consultation, the governement will consider the issue of heat in the round from a low carbon, renewable and CHP perspective, as well as links to energy efficiency, notes Hergen Haye, the Director for Heat Policy at DECC.

The Energy Bill now only requires the House of Commons to approve the Lords’ amendments before receiving royal assent.

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