How the levels were set

The government has sought to set tariff levels to ensure an adequate rate of return for each technology and size

The government calculated the tariffs to achieve a 12% annual rate of return for those installing most types of renewable heat systems.

How the calculations were done

The government’s approach was:

To set appropriate size bands for each eligible technology
To review the cost of each energy source in each size band
To assess the cost difference from traditional heat sources
To set tariffs which delivered the target rate of return on this cost difference

The government decided to set a lower rate of return for solar heating.

It also acknowledges that the rates do not reflect costs for particualr applications like combined heat and power (CHP) and district heating systems.