The government will on Monday open the world's first subsidy scheme designed to support the use of renewable energy sources for heating, two months later than its initial start date after the European Commission requested a rate change.

State aid for large-scale biomass heating schemes were slashed by 62 percent to one pence per kilowatt-hour (kWh) after the Commission's competition directorate objected to the initial rate which it deemed too high.

The start of the scheme follows a short delay while DECC (Department of Energy and Climate Change) resolved the scheme's compatibility with EU state aid rules, the energy ministry said in a statement on Friday.

The so-called Renewable Heat Incentive (RHI) was initially scheduled to launch in late September.

UK-based CPL Distribution, which supplies wood pellets that are used in biomass installations, said at least 250 renewable heat projects were currently in limbo as investors grew concerned by the two-month delay.

There has been a huge amount of interest in the RHI but in the absence of absolute clarity over the tariff rates, people simply weren't willing to trust politicians' assurances given the backdrop of the cuts in feed-in-tariffs elsewhere, said its Chief Executive, Tim Minett, referring to subsidy cuts in the solar sector.

Successful RHI applicants will receive quarterly subsidy payments guaranteed for 20 years, with up to 8.5 pence per kWh given to solar-powered scheme with a capacity of up to 200 kW (see table below).

This is excellent and very long-awaited news. It's high time UK started benefitting from a major roll out of some of the cheapest forms of renewable energy, said Gaynor Hartnell, chief executive of industry body Renewable Energy Association.

The government expects the programme will bring forward 126,000 renewable heat installations by 2020 in the industrial, commercial and public sectors.

Renewable heat will be a big win for our economy - it will support thousands of green jobs, reduce our dependency on imported fossil fuels, reduce our carbon emissions and help us meet our renewable target, Energy and Climate Change Minister Greg Barker said.

Britain aims to cut carbon emissions by 43 million tonnes by the end of this decade, a target which will be largely driven by the roll-out of renewable energy sources.

(Reporting by Karolin Schaps; editing by James Jukwey)