The Department of Energy & Climate Change (DECC) has announced it is to impose an upper limit to the Renewable Heat Incentive (RHI) budget for 2012/13.

In his Ministerial Statement, Climate Change Minister Greg Barker said: “I am pleased to publish our response, which will ensure we have a standby budget management mechanism in place this summer, enabling the sustainability of the scheme by allowing us to keep within the budgetary limits set by the Comprehensive Spending Review (CSR).” 

The upper limit has been set at £70 million for the coming year, which is a reduction from the initial proposal of £133 million. DECC said it believes reducing the available budget for year one will ensure that the unchanged £251 million budget that has been allocated for 2013/14 will 'support both new and existing installations should the budget be reached the previous year'.

Barker said: “A higher limit for 2012/13 would leave insufficient funds available in the following year for new installations and therefore could be very damaging to the renewable heat industry.”

If the £70 million limit is reached before the end of the 2012/13 financial year, the scheme will then be placed into standby, meaning that any further applications will have to wait until the following year to be approved.

The notice period that DECC will need to give industry before triggering this 'standby mechanism' has also been reduced from one month to just one week, although Barker confirmed that DECC will provide weekly expenditure reports on its website, making it publicly available to allow industry to monitor how much of the budget has been spent to date.

Barker said reducing the notice period to one week would allow more of the budget to be allocated before the scheme was suspended than if a month's notice had to be given (£67.9 million, 97% of the £70 million limit, compared to £56 million, or 80% of the limit, if a month's notice was required).

"Given current uptake figures," Barker said, "We do not currently envisage having to use the standby mechanism…but we have learnt from our previous experiences and want to provide assurances that we are spending money on the RHI in a sustainable way".

DECC’s full response to the consultation can be found here