What the RHI changes actually mean for developers

By Chris Winward, Chief Commercial Officer at Privilege Finance

The 2020 budget announced a third allocation of the non-domestic Renewable Heat Incentive (RHI), meaning that developers now have until 31 January 2021 to register for RHI tariff guarantee. This effectively provides a transition phase, where developers can still access financial incentives ahead of the new policies being introduced that relate to the decarbonisation of the UK’s gas supply. The details of these are currently in consultation.

The new deadline for registration is good news for the renewables industry, as it allows continued support for new anaerobic digestion (AD) projects. However, there are some changes in this third and final wave of RHI tariff guarantees that developers need to be aware of.

The clock starts ticking earlier

There are three steps when registering for the tariff – initial registration, financial close once funding for the project has been agreed, and completion, when the AD plant starts supplying gas to the grid.

In the previous waves, the 20 years of tariff guarantee began from when the AD plant became fully operational. However, for this final wave of RHI, the 20-year period starts from the date of financial close. This means developers will lose approximately a year of the tariff guarantee while the plant is being built, so will not benefit from the full extent of the tariff.

Although the effective loss of a year’s worth of tariff guarantee is unwelcome, it is not necessarily going to be a game changer. Funders can adjust calculations, so repayment plans take account of the change, but 19 years of tariff guarantee still provides significant assurance of the viability of an AD project to operate profitably. Projects which intend to purchase feedstocks are likely to be most affected, as they are more reliant on the RHI to be able to operate at a profit.

Sustaining AD development

On a positive note, the extension of the deadline for registration is likely to enable projects that were previously not going to meet the deadline, to be reviewed and potentially go ahead. This especially applies to projects that were assessed for funding but deemed unviable without RHI, perhaps because their model included purchasing a large proportion of the feedstock.

In recent years, the development of new AD plants has been constrained by the stop-start nature of the RHI deadlines and extensions. This has ultimately resulted in less biogas being produced than if there had been a more long-term vision.

It is imperative that whatever comes after RHI provides sustained assurance for investors and funders. This will enable the development of more AD projects, increasing the contribution of green gas towards heating UK homes.

Originally published by MRW

Chris Winward