The rationale for a renewable heat incentive

Consumers often ask why they should pay for renewable heat. The funds allocated for this over four years may be around £850 million, which is a great deal of money in these hard times. Renewable heat in effect comprises biomass, solar thermal panels for heat and hot water and heat pumps. There are two main reasons for encouraging renewable heat. The first is to provide a measure of energy security, lessening the dependence on imported fuel. The second reason is to help alleviate rapid climate change because, biomass aside, these technologies emit significantly less carbon dioxide than traditional fossil fuel and in the case of solar panels they emit virtually no greenhouse gases.

Is it right that these installations should be incentivised by the taxpayer? I think so.

Providing energy on a nationwide scale is almost always a national enterprise. Energy requires massive investment and although most utilities started life as privately owned stock companies, for reasons of finance or for reasons as national security, they become a nationalised state controlled industry providing energy to the nation. In recent decades in the United Kingdom, in order to encourage efficiency and free competition the nationalised industries were re-privatised, and in the united Kingdom we now have six energy suppliers, which although does not constitute a monopoly, comes very close to operating as a monopoly. The government deems it important to control these energy suppliers and so there are a myriad of regulations and a large and important controlling and overseeing body, OFGEM.

OFGEM can control most of the activities of these energy companies, except price, so the energy companies operate a free market within the restrictions laid down by the government and administered by OFGEM. It would be foolish of a government to allow energy companies a free rein in their affairs, because like all institutions the energy company must aim for the largest market share; every company aims to become a monopoly, after all.

Since they were established the energy companies have had quite of lot of public subsidy. For example, where the system of carbon trading was started they each got millions of free carbon credits, effectively money, as compensation for having to reduce their emissions. Energy companies also collect from consumers in the form of levies which they are obliged to spend on measures; the measures are costed and the money must be spent on them, but the system is arranged so that any surplus is not spent on additional measures but becomes profit for the energy companies. A consumer tax has become a profit centre for the energy companies.

Against this background the government is establishing a renewable heat incentive (RHI), under which taxation will be used to incentivise the installation of solar panels, heat pumps and most controversially biomass boilers. Instead of dishing out large sums of money to energy companies the taxpayer will dish smaller sums of money to those who invest in these renewable heat technologies. If energy has to be subsidised then it must be right that the subsidy is directed at those who take the plunge and install, for example solar water heating. It is a direct subsidy which will be effective, rather than the indirect subsidies which always seem to be inefficient.

OFGEM has been handed out the task of paying the incentives to householders and businesses that are or become entitled to them, and no doubt will see fair play.

The government is still working government ministers have announced that the RHI will start on 10th June, and previous governments promised that those installation carried out after 19th July 2009 will also qualify for the RHI, provided the installation comply with the RHI regulations.

Genersys maintain a web page covering the RHI at  http://www.therenewableheatincentive.co.uk/ and we will keep you abreast of any announcement on it.

 

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