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Why the RHI should be ended for burning wood - now

July 16, 2018

When I started working in renewables in 2002 there were no nationwide grant schemes at all. The only form of assistance for our customers were small disparate grant schemes set up by individual forward thinking councils. Nationwide grants started off with the Clear Skies scheme in 2004, with what were small grants of around £500 to householders installing solar thermal or solar PV systems. At this time, a typical domestic solar PV system cost in the region of £20,000.

 

Later came the Low Carbon Building Program. At this time (2006) the LCBP budget was £30 million which was supposed to last for for 3 years, and grants were in the range of 10-50% of the project cost, given out on a first come first served, basis. This system created a gold rush until the allocation was spent, then a lean period until the next allocation was given out - it was now clear there was a pent-up demand for people who had wanted to invest in renewables but could not previously justify the expense. The scheme was massively underfunded however. In March 2007 after a fresh funding injection into the scheme, the available funds were exhausted in 75 minutes.

 

These events led in time to the “Feed in Tariff” (FiT), subsidising electricity producing technologies (Solar PV, Wind and Hydro) and the “Renewable Heat Incentive” (RHI) subsidising heat technologies such as biomass boilers, heat pumps and solar thermal panels).

 

As ever, where economics meets politics in the playground you are sure to find the law of unintended consequences coming out to play. Because we have a fundamental problem here which is that whilst the RHI and FiT created a big uptick in installations, it was not what you might call socially equitable. Even the previous grant schemes limited uptake to relatively well-off people who could afford the initial capital outlay – the tariff schemes did nothing to change this. Capital is the biggest problem, and tariffs do not help you with capital costs, unless you can borrow against them. So who was taking advantage of these schemes? People or organisations who had access to capital or if not, cheap finance. Bear in mind a biomass installation might cost £15,000 or more for a domestic property, or £40,000 for a large farmhouse, maybe £1mill or more for a group of large poultry sheds. 

 

The government strategy to deal with this problem was called the Green Deal. This allowed people without capital to get the technologies installed on loan, where the payments would be managed through additions to their electricity bills. It was horrendously complex, poorly managed and doomed to failure from the outset. I said as much to my local MP, Jesse Norman, who sent me a reassuring letter telling me it was all going to be fine.

 

By now the main draw on the two schemes had inevitably come from big landowners and financial institutions (often from overseas) funding larger and larger projects, from Solar farms covering 40 acres of land in solar panels, and poultry businesses using their acres of roof space for Solar PV, or using biomass boilers to heat their chicken sheds. In case it is not blindingly obvious, the irony here is that Cameron’s “green crap” was (and still is) being exploited by the already well off, yet is being paid for by everyone – essentially a regressive form of taxation.

 

The burning of biomass is a difficult issue. Like the problem with diesel and petrol, you can’t have your cake and eat it. Your choice is high carbon/low pollution or low carbon/high pollution. Logs and pellets are (officially speaking) low in CO2 emissions when burnt, but very high in sooty pollution (PM2.5s) – more on this later. In the UK it is estimated that sooty pollution is killing around 30-40,000 people a year, and astonishingly around half of these deaths are related to the burning of wood. There are more than twice as many deaths in the UK being caused by wood burning as the pollution from all UK traffic, as shown in one study published in the British Medical Journal around the time the RHI scheme took off.

 

So here is the crux of the problem: on the one hand, we need “low carbon” energy. We need it rolled out fast to meet our legal obligations. It’s easier to administer a few large energy users or generators into a scheme that encourages this, rather than lots of small ones. If the barriers to entry are too high, it won’t happen. If you give away too much money you risk being accused of being a spend-thrift. And on top of all that, you need to police the scheme, and protect it from abuse because, in the case of the commercial RHI, the scheme basically encourages people by paying them to use energy, not save it. You can bet your bottom dollar this situation is going to lead to some perverse outcomes.

 

Having worked in two companies that installed Biomass boilers, I was at the coal face, so to speak, of how these systems were sold and installed during the boom period of the RHI. I can assure you, if I had a full awareness of all the issues I am describing I would not have been. The trouble is, I was not alone in my lack of awareness, and there is little incentive for a business to think about these issues when there is money to be made, it’s the sort of thing that needs legislation to sort out.

 

The RHI legislation is complex and long – it’s published in 2 volumes each of about 150 - 200 pages and has been amended nearly every year since its inception. There are Technical appendices, separate heat metering rules and air pollution documents all interwoven… there is a lot of legislation. But it’s not achieving the right outcomes. The “right outcome” is actually quite a difficult thing to define, but my opinion is that it should at the very least achieve a lower carbon output from the users after installing the boilers rather than a higher one, hopefully without spending too much of the tax payer’s money. Even more optimistically it should not allow the public purse to be defrauded.

 

Let’s take a look at the figures… I’ll concentrate on the commercial stream of the RHI, because that is where the big heat users are and where the biggest problems lie.

 

In the first year of the RHI scheme, around £1 million was given out in payments. In 2017, the scheme paid out a total of £1.1billion. The scheme will be closed to new entrants from 2020 but is guaranteed for 20 years once you are on-board, so the new entrants who joined in 2013 will still be receiving index linked payments until 2033 and the final entrants in 2020 will still be getting money until 2040. Once it closes in 2020 the scheme is expected to cost around £1.2 - £1.4 billion a year. This will lead to accumulative payment costs of around £45 billion over the life of the scheme. Co-incidentally, that is roughly the cost of delivering Hinkley C nuclear power station, if we are lucky(!).

 

It’s worth pointing out that this is a only just over half of the money that was given out in subsidies in just 2010 to the UK Oil and gas industry! Go figure… So, is it being spent wisely or fairly, whether it is a large sum or not?

 

Unfortunately, as I have alluded to already, perverse outcomes are the norm when it comes to tariffs and other incentives. Have you ever heard of the “Cobra effect”? During Indian colonial rule the British government was concerned about the number of venomous snakes at large in Delhi, so it decided to incentivise the hunting of them by giving a bounty for each dead cobra. It was not long before some creative Delhians came up with a cunning ruse – cobra farming. Once the ruse was uncovered the snakes became worthless, so thousands were immediately let loose across the city, leading to an even worse problem than before. Whether this story is true or apocryphal, you can see where I’m going with this. It’s fair to say that there have been some very creative uses of the RHI scheme.

 

All people on the scheme need an accredited supply of wood – the accreditation is to ensure the supply chain is audited, and the wood is of good quality. Burning wet wood is not good for anyone, much less the boiler itself which will need extra maintenance to cope: it’s inefficient and bad for the environment too as the combustion chamber temperatures are lower and more pollution and soot is created.

 

So how do we ensure we have some nice dry wood? By leaving it out to season for a year until the moisture content drops down to a reasonable level? You aren’t being creative enough! You use some dry wood to run a biomass boiler that in turn dries out some wet wood to sell to other RHI scheme users, then also burning the new dry wood on the next batch of wet wood and getting paid on the RHI scheme to do so! It’s like a license to print money. Surely this loophole would get closed down pretty quickly right? Nope… Until this year this was perfectly acceptable – it has been stopped for new entrants, but if you have been doing it to date, you can carry on doing so until 2033 or further under the current rules.

 

Or how about this – you want to get onto the commercial stream of the RHI, rather than the domestic stream which is less lucrative. To be compliant you need one boiler heating two buildings rather than one house. Lots of farms can fit into this category but don’t necessarily have any additional need for heat in another building. Well, come to think of it, does it actually need to be a building? How about a short length of exposed pipe in an uninsulated box, and we’ll call that box a “lamb welfare unit”? Are you getting the hang of it now? Or how about we just try and heat an empty house that has no windows? That’s right, there is currently no requirement for the heat to be used in a building with any kind of reasonable level of insulation. Most of the poultry sheds are essentially uninsulated tin boxes built on a large slab of stone with truly minimal levels of insulation – or none at all on most of the older sheds. And why spend money on insulating a shed when you could spend it on a subsidised biomass boiler instead?

 

I have personally seen these situations arise many times across the West of England – without doubt the installation companies were (are) very well aware of what level of abuse is going on. Speaking to others who work in the industry, the prevalent comment on the fraudulent use of the scheme was that it was “absolutely the norm”. The scheme has been so lucrative that demand for heat has undoubtedly been created, just to exploit the tariffs (the Cobra Effect in full force). Few were willing to hazard a guess on what percentage of claimed heat was being either misreported or represented a creative new use for heat that had not been there previously. My opinion is that 20% would be conservative, but it is just a guess. The area of Herefordshire where I live is pretty much the centre of the UK poultry industry. There are farms which may have 20 poultry sheds, each with a 200kW biomass boiler. Over the tariff life, EACH shed will garner nearly £0.5 million pounds in tariff payments if it was installed at the beginning of the scheme when the tariffs were higher.

 

So now let us move on to the green credentials of burning biomass, which we have touched on already. The government has a big spreadsheet which it uses to keep track of the emissions associated with all the various fuel types in use – it’s called the Green House Gas emissions table. Some fuels remain fairly constant in their impact, others change. For example, the national grid produces electricity which comes at an environmental cost, and this cost changes based on how much solar energy is being produced and what time of year it is. The spreadsheet tracks these impacts and is updated with the averages each year. Since 1990 the environmental impact of electricity on the grid has dropped by around 30% as a result of more hydro, wind and solar, and also less coal being burnt. All the emissions are converted into CO2e (Carbon Dioxide equivalent). For each unit of energy produced by each fuel, a corresponding weight of CO2 equivalent is produced. Companies over a certain size are obliged to use the figures in this sheet for their annual reporting of energy use.

 

So what does the government assume is the impact of burning wood versus say oil, or coal? The spreadsheet is divided into scopes, each scope applies to a different aspect of the impact caused in producing energy. Scope 1 is direct emissions, Scope 2 indirect emissions (used for company reporting purposes), Scope 3 Other indirect emissions. There is also an extra tab on the spreadsheet marked as “Out of Scopes”. Out of scopes means that there are emissions which are being created, but not counted as harmful, as per the explanation in the document:

 

“The emissions are labelled ‘outside of scopes’ because the Scope 1 impact of these fuels has been determined to be a net ‘0’ (since the fuel source itself absorbs an equivalent amount of CO2 during the growth phase as the amount of CO2 released through combustion).”

 

In other words the Out of Scopes emissions are very real, but are not included because the burning of trees is considered “carbon neutral”. However, if you do include all the emissions, burning wood is almost as bad as coal. In fact, if you watched the recent Channel 4 Dispatches on biomass burning for the Drax power station, they found the figures to be even worse. The part not counted is the orange section in the graph.

 

 

There main reason we don’t burn coal is, I would argue, because it produces lots of CO2, not because we cannot replace it - we are after all still burning oil and gas. Burning trees does the same thing – so why are we paying people to do it given the very real pressures facing our climate? We are also not replacing trees as fast as we are using them. 

 

There is one other issue to throw into the mix – these government figures assume the source of the wood supply is relatively local, and not being shipped in from overseas. In reality most of the big suppliers are actually importing pellets in from overseas - whilst there is an established UK pellet supply as well, it’s certainly not guaranteed that UK bought pellets are from the UK. 

 

In 2017 we imported 6.8 million tonnes of pellets, a lot of it from the US or Canada, and this is about 20 times more than the reported production of UK wood into pellets for 2016, according to the Forestry Commission. 

 

The real question we need to ask now is whether biomass should even be allowed to be burnt under environmental schemes, when according to the government’s own statistics it is almost as bad as coal in emissions terms, and very likely worse. On top of that the sooty pollution is killing around 15-20,000 people a year. The RHI scheme is based on a contract with the people and organisations who have signed up to it, which lasts for 20 years. There is scope in the rules for changes to be made as to how and for what these payments are made. The government knows to its’ own cost that drastic changes to these policies made in a rush can backfire spectacularly badly – as seen in the FiT debacle in 2011/2012 where the rates were drastically cut and then had to be reversed following court action. However, it’s time to do whatever is possible to with the existing scheme to stop the burning of biomass in all forms – especially fraudulent use.

 

Let’s not forget these biomass boilers are mostly replacing oil boilers, or in the case of poultry farms, LPG burners. Both these fuels are less carbon intensive than wood in any form according to the government’s own data - on top of that, new and fraudulent uses of heat have multiplied the damage being done. There is an even greener alternative to any of these in heat pumps, which can reduce running costs and emissions even further than natural gas.

 

There are of course other ways to move to reducing emissions relating to heat – or even better, require less heat in the first place. They do not involve an “energy production” subsidy, which was always going to encourage abuse. A scheme is needed which contributes to the capital cost of equipment, not energy production, and it needs to only be allowed on buildings which have a reasonable level of insulation. The current scheme is doing an awful lot more harm than good. The estimated £45billion cost of the RHI scheme could practically fund a free heat pump installation for nearly every property off the gas grid in the UK. Now that would truly drive fuel poverty down. This is not rocket science, just a question of political will. Though the government may well be concerned about how cancelling or modifying this very lucrative scheme might frustrate of some of its’ core supporters: big landowners and agri-businesses.

 

Martin McGuiness resigned over the issue in Northern Ireland with the “Cash for Ash” scandal – you have to wonder why there have been no similar repercussions here, given the scheme is an order of magnitude bigger, and continues for another 20 years.

 

http://www.bmj.com/content/350/bmj.h2757/rr-1

 

https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversion-factors-2017

 

https://gain.fas.usda.gov/Recent%20GAIN%20Publications/UK%20Wood%20Pellet%20Market_London_United%20Kingdom_1-16-2015.pdf  

 

https://www.forestry.gov.uk/website/forstats2017.nsf/0/8404E5F91091A75080257FE0004B2D47?open&RestrictToCategory=1

 

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