Everybody has finally woken up to the returns you get with biomass heating and the rate of take-up has risen dramatically. The following is the content of an email sent out by Frank Aaskov, of REA (the Renewable Energy Association) and it was sent out to members of the Biomass Heat Sector Group. The upshot is that a further 5% cut at midnight on 30th September 2014 is certain, but a cut of 10% is possible (I would say likely, given the sudden increase of enquiries I have witnessed).
That said, it’s not the end of the world — even with a 15% cut it will have gone from being unbelievably fantastic to plain fantastic, but if you look at it in terms of how much you will have lost on 4 x 199kw boilers running 1,314 hours a year for 20 years, you lose £274,027 from what you would have earned on the 8.8p kw/h rate, and that hurts. But then you will still have earned £1,552,824 index linked (one and a half million in RHI) for an outlay of less than £400k.
Update on small and medium biomass degression in RHI
The small biomass tariff in the RHI degressed 5% on 1 July for new accreditations. We have since been studying the development of the market to understand what might happen to the small biomass tariff at the next quarterly forecast – which will be announced at the end of August (using data to 31 July).
In between the quarterly assessments of whether there will be degression, DECC publishes monthly updates. The most recent of these was published on Monday 30 June and was the first under the new triggers and changes to the methodology that were introduced at the end of May. Based on this, the small biomass band has already hit its individual trigger. The forecast spend over the next 12 months for this band is £61.8m – £3.2m above its individual technology trigger for 31 July 2014 (£58.6m).
Degressions of tariffs will only happen if the forecast spend is over 50% of the intended spend. This trigger as at 31 July 2014 is £92.1m, and total estimated forecast expenditure is currently £8.1m higher than this trigger. Putting it another way, both the individual trigger for small biomass and the ‘50% trigger’ have already been hit. What happens next depends on how much further they grow between now and the end of July.
Since the small biomass tariff was just degressed by 5%, the market face three scenarios, as another potential degression depends on the growth of the small biomass market relative to its tariff trigger.
Reduction to the small biomass tariff
If growth since April is less than 50% of £8.7m (i.e. grows by less than £4.35m)
Tariff remains at Tier 1: 8.4p/Kwh, Tier 2: 2.2p/Kwh
If growth was 50-150% of £8.7m (i.e. grows by £4.35m – £13.05m)
Tariff reduced to Tier 1: 8p/Kwh, Tier 2: 2.1p/Kwh
If growth is greater than 150% of £8.7m (i.e. grows by more than £13.05m)
Tariff reduced to Tier 1: 7.6p/Kwh, Tier 2: 2.0p/Kwh
The small biomass market has grown £3.4m so far in the first month. That would suggest that some degression is highly likely. If we assume a similar growth rate for the next two months, that would result in another 5% degression of the small biomass tariff. There is a possibility of a 10% degression if the market grows more than expected, although we should have a clearer picture at the next monthly update.
Medium biomass is well under its individual trigger, making a degression for the medium biomass tariff highly unlikely.
If a degression is announced at the end of August then it would come into effect 1 October.
If you want further explanation and details, you are always welcome to contact me.
The regulations can be found here.