This annual report summarises activity under the Non-Domestic Renewable Heat Incentive (NDRHI) scheme during Scheme Year 12, covering the period 1 April 2022 to 31 March 2023.
The Executive Summary is provided here and the full report is published at the bottom of this page.
Executive Summary
Ofgem runs a range of environmental and social schemes on behalf of government and for the devolved administrations. Together, these are worth over £9 billion each year. Our schemes fall into three main categories: renewable electricity schemes, renewable heat schemes, and energy efficiency and social schemes.
The Non-Domestic Renewable Heat Incentive (NDRHI) scheme launched in 2011 and it is designed to help Great Britain (GB) reduce its carbon emissions and contributes towards reaching Net Zero. The scheme provides financial incentives to increase the uptake of low carbon heating systems by businesses, the public sector and non-profit organisations in GB.
Under the NDRHI scheme, eligible installations receive quarterly payments over 20 years based on the amount of heat generated, or in the case of biomethane, the volume of green gas injected into the gas grid. The scheme closed to most new applicants on 31 March 2021, however, in line with the regulations, Tariff Guarantee and extension applications were accepted till 31 March 2023. From 1 April 2023, the scheme closed to all entrants.
Ofgem has been responsible for administering the NDRHI scheme in GB on behalf of the Department for Energy Security and Net-Zero (DESNZ) since its introduction. Our role includes processing applications and amendments, calculating and making payments to accredited participants and engaging with scheme stakeholders. Additionally, we conduct annual audit programmes to ensure participants are complying with the scheme rules which helps ensure fair and effective use of public funds.
The Northern Ireland (NI) RHI, similar to the NDRHI scheme in GB, supports non-domestic organisations in NI to take up low carbon heat. The activity under the NI RHI scheme is not covered in this report.
As a part of our responsibilities, we produced this report summarising activity during the twelfth year of the NDRHI scheme in GB (Scheme Year 12), covering the period 1 April 2022 to 31 March 2023.
The impact of the NDRHI scheme since it started has been significant. The scheme has supported 22,602 low carbon heating systems to become fully operational across GB. In Scheme Year 12 (SY12), we received 546 applications in total. This represents an increase of over 41% in applications received compared to (Scheme Year 11) SY11, with nearly 30% received in March 2023 before the closure of the scheme. In SY12 we accredited 732 additional installations to the scheme. This represents a decrease of 48% compared to SY11, which can be attributed to the diminishing queue of increasingly complex applications.
Solid biomass boilers are the most common technology type deployed under the scheme, making up around 77% of all accredited installations. Since 2014, tariff reductions due to a degression mechanism have led to changes in the make up of applications being received which saw a decrease in the share of solid biomass boilers. However, by SY12, solid biomass boilers again accounted for almost 67% of newly accredited capacity compared to over 43% last year. Meanwhile, ground source heat pumps (GSHP), which made up only 2.2% of capacity accredited between SY1 to SY8, made up nearly 22% of newly accredited capacity in SY12. This is a drop from 28% in SY11 and 34% SY10.
Nearly 66.7 TWh of heat generation has been subsidised by the schemeso far, with payments made in relation to around 10.7 TWh generation during SY12 alone. Additionally, more than 2.1 billion m3 of green gas has been injected into the grid since the start of the scheme, with payments made in relation to the injection of 418 million m3 in SY12. A total of £4.99 billion in payments have been made to participants since the start of the scheme; £886 million of this was paid out in SY12. Participants who continue to meet scheme rules may receive payments for a period of up to 20 years.
We take non-compliance with scheme obligations very seriously. Whilst the NDRHI scheme has closed to new applications, we continued to actively monitor participant compliance to ensure that only those that continue to meet scheme rules receive payments. This, along with the counter fraud measures that we continue to implement, ensures that we only pay subsidies on eligible heat generation, thereby ensuring fair and effective use of public funds.
The aim of our audit programme is to check the compliance of scheme participants with the scheme regulations and our guidance. In SY12, we conducted 414 statistical and targeted audits. Just above 52% of statistical and nearly 38% of targeted audit cases were classed as materially non-compliant, suggesting a potential financial impact. The most common reason for material non-compliance was ‘no evidence of sustainable fuel’, accounting for nearly 34% of instances. This means that these generators could not provide evidence that the fuels used met sustainability requirements. However, the percentage of payments going out erroneously (‘error rate’) on the scheme was estimated to be just 0.3% in SY12, a reduction from the 0.4% for SY11.
We have the power to open a compliance investigation when we suspect a scheme participant is non-compliant. In SY12, we completed 696 complianceinvestigations where we protected or expect to recover nearly£2.8 million of public funds. Relying on our well-established debt recovery process, during SY12 we were able to recover a total of £1.4 million originating from various scheme years. This sum comprised of nearly £1.3 million recovered via offsetting from periodic payments and over £135,000 recovered through direct repayments and repayments plans. In light of the current cost-of-living pressures, we have reviewed our debt management process and made some improvements to ensure that we are taking a more participant-focussed approach.
As in previous years, we took a proactive approach to compliance on the NDRHI scheme. We engaged with all scheme participants and potential applicants to ensure that they are aware of key scheme updates which were vital to the effective and robust operation of the NDRHI scheme.
Please note: For those wishing to look at the data used in the report in more detail, a spreadsheet with this information is published below.
