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How the RHI supports fossil fuels but overlooks billions in waste heat potential

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By ADE Director, Tim Rotheray

As part of the Comprehensive Spending Review last November, the Chancellor announced an extension of the budget for the Renewable Heat Incentive. The good news in the announcement is that the extension helps keep heat firmly on the policy agenda. The bad news is that defining the objective for heat around renewable deployment rather than carbon reductions will drive perverse impacts.

The UK’s 2020 renewable targets are based on the Renewable Energy Directive, which defines renewable as those heat inputs which are not “man-made” (or anthropogenic if you like your syllables). So zero carbon waste heat captured from data centres, industrial manufacturers and power plants is not considered renewable. Logical you think? Not when this waste heat offers some of the lowest cost forms of carbon saving; yet it is not eligible for subsidy under the RHI. The lost opportunity is significant. The UK’s wasted heat, lost up through the cooling tower, is worth more than £3 billion a year, the equivalent of £116 on every householder’s bill!

In contrast, heat pumps use electricity to concentrate heat in lower temperature sources like the air, lakes, the sea and the ground. For every one unit of power they use they can generate between 2.5-4 units of heat and can be a great way of producing low temperature heat. However, in the European Renewable Energy Directive, heat pumps are considered renewable even if all their power comes from fossil sources. So a coal-fired heat pump is renewable!

So to review. A coal-fired heat pump? Renewable but high carbon than gas. Capturing waste heat from a data centre? Zero carbon* and not renewable.

But it gets worse... a heat pump that concentrates ambient air temperature to make heat, such as by capturing the air from a refrigeration system vent, can boost its efficiency and save more carbon by using warmer air sources. Yet if the heat pump does this, it is no longer classed as renewable. So by making a heat pump more efficient with lower carbon emissions you make it ineligible for renewable subsidy. I am a fan of heat pumps - they are clever ways of increasing efficiency but we are currently making sure we minimise their efficiency!

The (unintended) consequence is a policy that penalises efficiency.

DECC is currently reviewing the RHI and its focus, with an aim to reform it to improve value for money. Given the European rules on renewable heat support, DECC needs to consider what constitutes a good outcome for its reforms.

I would suggest that a good outcome would achieve two aims:

  1. Least cost achievement of our renewable target. We have a 2020 target we are bound to meet, and we should always do so at least cost. Spending money unnecessarily is bad value for the taxpayers that fund it. This means considering everything on the basis of pound of subsidy per MWh of renewable energy, supporting the lowest cost options first.
  2. Tie the RHI support to carbon abatement. The point of renewables is to reduce the carbon impact of energy, and we must ensure the RHI actually achieves this aim and at lowest cost. The RHI should ensure that only good value carbon abatement is procured.

What would these proposals look like in practice?

It means that there should be a clear measure in any Impact Assessment of the cost per kWh of renewable heat generation and cost per tonne of carbon abated for each technology supported (off and on the gas grid). It would also mean a carbon abatement price ceiling – perhaps £200/tonne – to prevent subsidising the most expensive forms of carbon abatement. DECC should also develop proposals to see how heat recovery could receive equitable support as technologies classed as renewable.

Decarbonising heat, which is half our energy use, is already set to be a difficult task, so we must do it with a very sharp eye on cost.  The current RHI provides support for carbon abatement in excess of £800/tonne. This is poor value for customers. The government's review offers the chance to ensure that taxpayers get better value for their money to deliver what we’re actually trying to achieve: A lower carbon economy.

*zero carbon as the heat has to be removed and will be rejected. Capturing and using that heat has no net increase in emissions.

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Guest Monday, 18 February 2019