REA: Surprise UK renewable heat cuts put investments at risk

By Renewable Energy Association | July 28, 2016

The Department for Business, Energy & Industrial Strategy (BEIS, previously the Department of Energy and Climate Change) laid an amendment in Parliament to the Renewable Heat Incentive on July 7 to reduce support for biomass combined-heat-and-power (CHP) systems.

The changes in support are specifically targeted at biomass CHP plants that use less than 20 percent of their fuel for electricity production (with the other 80 percent being used for renewable heat). This change will affect all plants applying on or after Aug. 1, giving industry only 21 days’ notice. Neither DECC or the new BEIS had formally consulted with relevant trade associations or directly with industry on this specific change prior to laying the new amendment in Parliament, surprising many in the industry and putting a number of projects at risk.

The REA surveyed 36 companies that are developing biomass CHP projects in the U.K. Of those companies, 34 had already made major equipment orders for the construction of their facilities or put down nonrefundable deposits; 25 companies have reported that the changes laid before parliament will have a “very negative” impact on their project, and additional eight reporting “negative” impact.

REA discussions with member companies involved in the biomass CHP industry (unrelated to the survey) indicate many companies are facing up to a 35 percent reduction in their anticipated tariff.

James Court, head of policy and external affairs at the REA, said:

“Despite the amendment claiming ‘no impact on the private or voluntary sectors is foreseen,’ the abrupt cut in support significantly impacts the biomass CHP industry. It is the suddenness and the lack of consultation that is the core issue here. Over £140m worth of investment is affected by this change, with a planned renewable energy capacity totaling 203 MW of heat and 20 MW of power.

The industry was preparing for a new tariff structure from spring 2017, as outlined in the recent RHI consultation, but no one was warned about this change. The industry has invested in good faith in these projects, some which have been in preparation and construction for up to two years. Over £22m has been paid in nonrefundable deposits.

This unexpected cut will prove damaging to investor confidence. Of the companies surveyed, 92 percent stated that the changes will a negative or very negative impact on their projects. This significantly reduces the likelihood that many companies and investors will be keen to invest in this low-carbon technology in the future.

We are therefore calling on BEIS to withdraw the amendment until a proper consultation has been launched to examine the impact on these projects, or introduce a grace period for those who can demonstrate that they have already made a significant financial commitment.”