Climate change minister Greg Barker has insisted the government must learn its lesson from the “inefficient” feed-in tariff scheme.
Speaking at the launch of the renewable heat incentive today, Mr Barker said the RHI scheme had to provide certainty for the tax payers who were funding it. Any reductions in incentives would take place through “gentle lowering of tariffs rather than them balancing on a knife edge”, he said.
Under measures to be backdated to July 2009, organisations using renewable heat will receive quarterly payments for 20 years from the date they enter the RHI scheme.
The scheme will be introduced in two phases, with up to 25,000 households supported in the first phase and the domestic market to be targeted in combination with the Green Deal from October 2012.
The minister was responding to a question about whether the government could still provide certainty in the market following its decision to fast track the feed-in tariffs review for large scale solar suppliers.
Energy secretary Chris Huhne said the government had to avoid a “boom and bust” system when trying to get off the oil hook.
He added: “I expect heat pump technologies will be the ones that will be key in terms of heating our households.”
Mr Huhne said renewable heat installers would expect to receive a 12 per cent rate of return on their investment.
He said a clinic or health centre with an energy use of 920,000 kw hour per year could expect to spend £300,000 on a ground source heat pump and would receive a subsidy of around £27,600 per year.
However commercial scale air source heat pumps will not be supported in the initial phase of the scheme but will be included from 2012.
Mr Barker said the onus was now on the renewable industry to drive down the scale of technologies so that they can be beneficial to three-bed houses and that at present, the only technology that was proven on a small scale was solar thermal heating systems.
The government also wants to see schools, hospitals and libraries undertake the scheme and said it will be focusing on non-domestic buildings for industry, business and the public sector in the initial phase of the scheme.
It is expected that around £56m will be spent on the scheme in the first year with the RHI costs rising on a steep trajectory to £860m by 2014.