Subsidies


HEALTH WARNING 

Subsidies are subject to change, and the situation in relation to Government support for low and zero carbon heat is particularly uncertain at the time of writing (17th November 2021), with the imminent closure of the domestic Renewables Heat Incentive (RHI) (March 2022). However, new guidance in the form of the Heat and Buildings Strategy (HaBS) has been released which details a future support package for low and zero carbon heat delivered by BEIS.

***You are strongly recommended to check primary sources on the current position on subsidies, particularly where these are a critical part of project viability.*** 


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Heat and Buildings Strategy

On 19th October 2021, the Government published an open consultation on a new “Heat and Buildings Strategy”. The strategy, launched on 19th October 2021, sets out how the UK will decarbonise homes, commercial industrial and public sector buildings within the pathway to net zero by 2050.

The support package includes:

  • Public Sector Decarbonisation Fund (PSDF): The PSDF provides grants for public sector bodies to fund heat decarbonisation and energy efficiency measures. Guidance on how to apply for the next round of applications, Phase 3b, will be published in July 2022, with the application window planned to open for applications in September.

  • Local Authority Delivery Scheme: This scheme is for local authorities to support low-income households in their area in the most inefficient homes that are on the gas grid in England with energy efficiency and low carbon heating upgrades (households can benefit from improvements worth up to £10,000). 

  • Social Housing Decarbonisation Fund: Registered providers of social housing (including private and local authority providers) can apply to the Social Housing Decarbonisation Fund (SHDF) to support the installation of energy performance measures in social homes in England. As of November 2021, Wave 1 of the SHDF is closed, however, a further £800 million is expected to be invested between 2022 - 2025.

  • Boiler Upgrade Scheme (BUS): capital grants to property owners to install heat pumps (and in some circumstances, biomass boilers) to replace fossil fuel heating systems. £5,000 will be available for air source heat pumps and biomass boilers, and £6,000 will be available for ground source heat pumps in England and wales from 23 May 2022.  

  • Green Heat Network Fund (GNHF): The GNHF will replace the Heat Network Investment Project (HNIP) as of April 2022. The fund is a capital grant fund open to public, private, and third sector applicants in England by supporting the development of low and zero carbon heat networks.

  • Home Upgrade Grant (HUG):  the scheme has been set up to help low-income households in the worst-performing off-gas-grid homes in England become more energy efficient and cheaper to heat with low-carbon energy, contributing to both fuel poverty and net zero targets. This scheme will commence delivery from early 2022.

  • a Green Gas Support Scheme (GGSS): increasing the proportion of green gas in the grid through support for biomethane injection, this will be achieved via the Green Gas Levy (GGL).

More details on the proposals are available at https://www.gov.uk/government/publications/heat-and-buildings-strategy

Boiler Upgrade Scheme (previously the Clean Heat Grant)

The scheme will encourage homeowners to install more efficient, low carbon heating systems. A rate of £5,000 would be available for air source heat pumps (and in some instances, where a heat pump is not viable, biomass boilers), and £6,000 for ground source heat pumps. The intention is for property owners to pay an amount similar to the installation of a traditional gas boiler. 

It may be possible, in some situations, to combine this with funding from other sources, such as energy efficiency grant funding, to contribute to fabric improvement measures or upgrading a building’s internal heat distribution system. 

Other potential funding

The Green Heat Network Fund is a capital grant fund open to public, private, and third sector applicants in England. The scheme will capitalise on the progress made by the Heat Network Investment Project (HNIP). The HNIP’s completes in 2022 with the GHNF launching in April 2022. During the interim period, the GHNF Transition Scheme opened in July 2021 to support onboarding of the GHNF.

The GHNF will fund up to 50% of a project’s total combined commercialisation and CAPEX costs, of grants up to £1million. The budget for the fund is £270 million, and will support low carbon technologies like heat pumps, solar and geothermal energy. This could include networked heat pump schemes drawing some or all thermal energy from a park. 

As part of the recently published Heat and Buildings Strategy immediate actions for reducing emissions from buildings have been set out. These include the deployment of energy efficiency measures and low carbon heating as part of an ambitious programme of work required to enable key strategic decisions on how to achieve the mass transition to low carbon heat. These actions are part of the Home Upgrade Grant (£950M), the Social Housing Decarbonisation (£800M) and the Local Authority Delivery scheme (£200M). 

There will be multiple opportunities for the public sector to secure funding through Phase 3 of the Public Sector Decarbonisation Scheme. Guidance on how to apply for the next round of applications, Phase 3b, will be published in July 2022, with the application window planned to open for applications in September. The government is also providing £14m of grant funding in the current financial year through Phase 3 of the Public Sector Low Carbon Skills Fund. This will provide funding for public sector organisations to access the skills and expertise needed to plan how to decarbonise heating in their buildings, including enabling organisations to develop applications for the Public Sector Decarbonisation Scheme.

Consequences? 

While there are immediate short-term opportunities through the Public Sector Decarbonisation Scheme (PSDS) and the Green Heat Network Fund (GHNF), the medium to longer term picture is much less clear.

What is proposed through the Heat and Buildings Strategy is a significant reduction in support for heat pumps from that offered by the RHI, and it remains to be seen whether this will achieve the targeted 600,000 heat pump installations per year. 

What is clear is that, for now at least, the Government is hedging its bets with respect to how heating will be decarbonised: 

  • resource is being committed for energy efficiency for low income households; 

  • heat networks prioritised for high density urban areas; 

  • small scale heat pumps prioritised for areas which are off the gas grid; and 

  • explorations in greening the gas grid to see whether biomethane and/or hydrogen can provide a ‘silver bullet’ for this hard to tackle sector. 

Without RHI subsidies, and with the high price differential between gas and electricity, it is likely that fewer opportunities for taking heat from parks will be viable in the short term. However, factoring in a socialised return on investment can help, for example air quality impacts ensures the investment is environmentally beneficial. In the medium term, reducing the price differential between gas and electricity, new grant schemes, or changes to low carbon heat subsidies to meet our net zero transition obligations will also improve the business and financial case for utilising the energy potential of our parks and greenspaces. 

Our parks and greenspaces are a permanent feature of our surroundings. Current and upcoming support schemes should provide a means for public and private sectors to develop clean heating opportunities within these locations. These clean heating projects will provide revenue opportunities, whilst contributing to net zero targets, improving air quality, and demonstrating sustainability and green development.

The Renewable Heat Incentive

RHI logo

The UK Government’s Renewable Heat Incentive (RHI) scheme closed to new applicants on 31st March 2022 with the last payments being made in March 2029. The non-domestic RHI closed on the 31st of March 2021. Launched in 2014, the RHI was designed to encourage the uptake of renewable heat generation technologies for domestic users, communities, and businesses. 

Ofgem

The Office of Gas and Electricity Markets (Ofgem) is the UK’s independent energy system regulator, representing the interests of existing and future electricity and gas consumers throughout England, Scotland, Wales and Northern Ireland. Ofgem administers the UK Government’s RHI scheme, which is designed by the UK Government’s Department for Business, Energy and Industrial Strategy (BEIS).

Resources:

Heat and Buildings Strategy: https://www.gov.uk/government/publications/heat-and-buildings-strategy

RHI payment calculator: https://www.gov.uk/renewable-heat-incentive-calculator

Boiler Upgrade Scheme information for future participants: https://www.ofgem.gov.uk/environmental-and-social-schemes/boiler-upgrade-scheme-bus

Green Heat Network Fund Transition Scheme application information: https://www.gov.uk/government/publications/green-heat-network-fund-ghnf-transition-scheme