Social landlords could benefit from the renewable heat incentive if they adopt the right model, argue lawyers Kate Silverman and Stuart Urquhart
Most registered providers would agree that reducing tenants’ energy bills and lifting tenants out of fuel poverty whilst also complying with the government’s green agenda is a good thing.
The first phase of the renewable heat incentive, which comes into effect in July 2011 for non-domestic property, should be seen by registered providers as something of an opportunity to achieve just that.
The first phase of the RHI applies to non domestic property and includes the installation of renewable heat installations serving multiple properties such as district heating or combined heat and power. The second phase of the RHI, which comes into effect next year, will apply to the installation of renewable heating technology within individual dwellings.
The RHI is to renewable heat generation what the feed in tariff is to renewable electricity generation. Therefore it provides a new source of funding for registered providers installing communal renewable heat generating technology for blocks of flats or estates.
The way that RHI works is similar to the FIT scheme where an owner is paid for the renewable heat generated by reference to a published tariff over a period of 20 years. The intention is that this payment makes up for the marginal costs of installing green technology over and above installing more traditional technologies.
In order to receive the tariff payments a registered provider must be the ‘owner’ of the plant. Typically, a renewable heat installation might be financed, designed, built and operated by a private sector partner who will also own the plant. This is probably the right solution where a private developer builds out a development and moves on to the next one. However, a registered provider has a long term interest in maintaining the integrity and value of its property including green infrastructure in the post build phase for the long term benefit of its tenants.
With this in mind registered providers might want to consider developing the expertise post-build to maintain and operate their green infrastructure themselves in order to get the benefit of the RHI. This could be done in conjunction with a private sector partner in the early stages. This does not require that much of a leap of the imagination when registered providers currently supply and bill for communal heating in supported housing schemes for example.
For those considering this option that are charities, there may of course be vires issues connected with the running of a micro generator, therefore it is likely that some registered providers would have to set up a separate energy service company to manage the day to day operation of green infrastructure.
Depending on the registered provider’s objectives, a not for profit company, limited by guarantee and with stakeholder participation, from a tenant for example, might be an appropriate vehicle. Not for profit does not of course mean no profit; it means that the profit is not distributed to shareholders but instead is reinvested into the project in the form of further energy efficiency measures, user education, relief of fuel poverty and so on.
The registered provider could have a contract with the ESCO for the supply of heat and power to the social rented dwellings leaving the ESCO free to contract with owner occupiers.
Such a company could raise cash flow financing for the initial capital investment based on the RHI revenue streams, supported by the principal heat supply contract with the registered provider as well as the lower running costs. These savings could be passed on to the tenants through cheaper energy bills.
Of course there are challenges in bringing together the financing, the legal set up and the expertise, but for those who are ambitious, the potential rewards in terms of lifting tenants out of fuel poverty and for creating future low carbon communities are immense.
Kate Silverman is a social housing lawyer at TLT and specialises in property and social housing. She advises registered providers, local authorities and other public sector bodies on development, regeneration and property management matters. Stuart Urquhart is a commercial lawyer who has advised on a number of renewable energy projects. For more information please contact Kate Silverman, on 020 3465 4167. Visit www.TLTsolicitors.com