New domestic ‘Renewable Heat Incentive’ (RHI) scheme is only for the rich, says OFTEC

  • High upfront costs make RHI only fit for the wealthy few
  • Expense, bureaucracy and impracticality of installing renewable technologies under RHI will be major barriers to take-up
  • Independent report finds just 5.6% of ‘off-gas’ households would consider renewables under RHI
  • Boiler scrappage scheme would deliver benefits more quickly and cheaply to households and the environment

A £1.8 billion grant scheme, expected to be launched in the next few days, which is designed to reduce the country’s CO2 emissions by encouraging rural home owners in England, Wales and Scotland to switch to renewable heating systems, is costly, impractical and unlikely to attract mass consumer support.

The Government’s domestic Renewable Heat Incentive (RHI) scheme looks set to be as unsuccessful as the Government’s ‘flag ship’ Green Deal scheme where just a few hundred of the nearly 150,000 households undertaking a Green Deal assessment have signed up to the scheme.

Figures from the Energy Saving Trust back up estimates from OFTEC (the Oil Firing Technical Association) that show that homeowners face upfront costs of between £7,000 and £19,000 to install renewable heating systems, depending on the size of the property and the technology used.

With 1.1 million homes using oil for heating, OFTEC believes the initial cost of installing renewable technologies is likely to be prohibitive for all but the wealthy few, unless homeowners are prepared to take out a loan, making it unlikely that the vast majority will take up the scheme.

Favoured technologies will fail to deliver benefits

Savings from using renewable heating systems are doubtful and unlikely to justify the capital expenditure when RHI will only pay subsidies for seven years. These incentive levels are also set to decline over time. See cost example below based on the likely favoured technology of an air source heat pump which shows that during the first seven years of installation (period of RHI payments), a typical three bedroom household taking out a loan to install an air source heat pump would be £3,473 worse off than if they simply upgraded to a high efficiency boiler.

As heat pumps require large amounts of electricity to heat a home efficiently, it is also unlikely these technologies will meet the Government’s required CO2 savings while the UK’s electricity supply remains carbon rich. (CO2 emissions from UK grid electricity sources are more than 95% higher than heating oil.) Additionally, with electricity prices escalating, the cost of using heat pumps will also increase. In contrast, oil is the only heating fuel where prices have fallen over the past three years.

The impracticability of installing heat pumps will further deter many consumers. To work effectively they require, larger ‘low temperature’ radiators to be fitted and/or under-floor heating installed – both of which are expensive and difficult to retrofit. Making these changes could cost an additional £2,500 for a typical home, bringing the total capital outlay to £10,500 based on an air source heat pump. In contrast, the cost of installing a modern condensing boiler is approximately £3,000. Noise from air source heat pumps is also likely to be an issue in many cases.

Homes also need to be fully insulated for renewable technology to be efficient and meet RHI criteria. UK properties are amongst the most poorly insulated in Europe and the vast majority of homes using oil (among the rural properties targeted by RHI) have the worst EPC (Energy Performance Certificate) ratings at F and G. Therefore, it is unlikely that these homes could be sufficiently improved economically to benefit from RHI.

Resistance to change

A further issue is that most homeowners would only consider replacing their existing boiler when it breaks down and is beyond repair. In these ‘distress purchase’ situations, the householder is unlikely to have the time or be in the right frame of mind to consider alternative technologies. A DECC commissioned report states that just 5.6% of homeowners off mains gas (the population RHI is primarily targeted at) would consider switching to a renewable option in a non-emergency situation.

Jeremy Hawksley, Director General of OFTEC, comments: “Whilst we support the need to reduce CO2 emissions from heating and recognise the potential of an RHI policy, the current scheme is highly unlikely to benefit the large majority of rural households as they simply will not be able to afford it.

“A more pragmatic approach OFTEC proposes is the re-introduction of the successful boiler scrappage scheme which ran in 2010 to encourage homeowners to replace old, inefficient boilers with modern condensing boilers. Upgrading to a modern boiler can save up to 20% on fuel costs and an equal reduction in CO2 emissions. The scheme saw nearly 120,000 boilers replaced.”

Jeremy Hawksley continues: “A simple, boiler scrappage scheme would attract far more supporters than the proposed RHI and thus go further in helping households reduce CO2 output - as well as cut fuel bills.”

Furthermore, OFTEC recommends the use of a bio-liquid fuel (called B30K) for oil fired homes which can run on existing oil boilers with minor modification and would contribute a significant further reduction in CO2.  

Successful trials have already taken place and the fuel is now likely to be included in a separate RHI scheme for Northern Ireland.

Mr Hawksley concludes: “The domestic RHI needs to be re-designed to focus on a phased approach to decarbonising home heating. Only this will get public support and ensure that we successfully reduce the UK’s carbon footprint.”

Download a PDF version of this news release with additional notes and a comparison of the cost of installing and running an oil condensing boiler or an air source heat pump.

Download a copy of the calculations used in the comparison.