Heatpump Cost Vs Financial Return


Example - This simple example illustrates the return on investment from intalling an £8,999 Air Source Heat Pump system, paid for via financing. Even with the additional cost of the loan the domestic customer would still be £1,919 better off, and £3,055 better off had they not had to take out a loan.
The Renewable Heat Incentive (RHI) scheme was introduced to help people to make the right choice in converting to renewable energy and to help the government hit their target of reducing emissions by 44 million tonnes of carbon by 2020. As the government target date suggests, this financial incentive will not be around for long so if you are thinking of replacing your expensive to run oil, LPG or electrical powered heating system then now is the time to do it!

RHI Financial Example

Commercial - 2.5p/kWh - 8.7p/kWh

Payments will be inflation linked and degress annually for new installations, paid quarterly for a 20 years. Accreditation is gained after commissioning and the payments will not start until accreditation has been granted.

Domestic - 7.3p/kWh - 18.8p/kWh

This scheme allows domestic properties to benefit from the government RHI too, but paybacks last for seven years, not twenty. There is one rate at 7.3p/kWh for air source heat pumps and 18.8p/kWh for ground source heat pumps.

The RHI is calculated to offer a good return on initial investment

The introduction of the RHI offers a financial reward for lower carbon emissions over the twenty year life of the renewable heating technology installed. The tariffs for the Renewable Heat Incentive have been calculated to offer a rate of return of 12% on the initial investment across the tariff bands.

The introduction of the RHI coincides with a time of increasing wealth and demand for fossil fuels from an increasing world population: many pundits expect the price of oil and gas to increase much more sharply than general inflation over the next three years.

The RHI provides a positive step change in the business case for delivering on-site renewable heat, not only to reduce energy bills and carbon emissions, but also to deliver a energy related cash flow into your building.

Tony Grayling, head of Climate Change and Sustainable Development at the Environment Agency said: Ground source heating is a rapidly growing technology that has the potential to produce at least 30 per cent of the country’s renewable heat needs, but it needs financial support in order to grow. We would like to see this technology given adequate financial support through the new renewable heat incentive to meet its full potential in the UK.

RHI Administration by Ofgem

The RHI is administered by Ofgem. Owners of renewable heat technologies included apply to Ofgem who pay tariffs, on a quarterly basis, over 20 years. Owners need to provide information on the metered heat generated and satisfy Ofgem that the equipment is used to provide space heating or hot water and that the equipment is maintained according to the manufacturer's instructions. For installations rated up to 45 kW capacity the equipment and the installers will need to be MCS certified, or equivalent.

See the Ofgem MCS website to check if an installer is properly accredited: Celtic Green Energy.

Heat Pump Maintenance

There is some maintenance that you will be able to do yourself but inspecting refridgerant levels and testing for efficiency is really a skilled task best left to professionals otherwise you could end up paying far more for your heating than you expected for your heating! see heat pump maintenance...

Feed-In tariffs for microgeneration of electricity

DECC also introduced Feed-In tariffs for microgeneration of electricity from April 2010. The tariff levels for the electricity financial incentives were calculated to offer between 5-8% return on initial investment. The tariff levels for photovoltaic were reduced twice in 2011 as the cost of PV installations fell, and the returns were seen as overgenerous as the price of energy rose sharply. Nevertheless, the tariff levels for photovoltaic (up to 21 pence per kWhour) and wind (up to 36 pence per kWh) are set at a higher level per kWh than for the RHI to compensate for the high capital costs and lower efficiencies of these technologies. The tariffs for the Renewable Heat Incentive have been calculated to offer a rate of return of 12% across the tariff bands.

RHI Tax free income

RHI tariffs are exempt from income tax. This means that domestic users and other income tax payers will not be taxed on any income received from the Feed-In Tariffs or the Renewable Heat Incentive.

For those using IHT, the annual clean energy cashback for heating will normally be larger than the annual running cost.


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