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Heat turned up in Stormont on scheme burning millions

Analysis

By John Simpson

Published 18/10/2016

The scheme could cost Stormont £25m a year
The scheme could cost Stormont £25m a year

A special scheme, providing financial incentives to encourage the provision of heat from 'renewables' (the Renewable Heat Initiative, RHI) was launched in November 2012. It was launched in parallel to a comparable scheme for the rest of the UK. However, unrecognised, the Northern Ireland version was not the same as in Great Britain and contained a fatal flaw.

In an unusual arrangement the Government department, now known as the Department for the Economy, sub-contracted the administration of the scheme to the English-based Office of Gas and Electricity Markets (Ofgem). In the autumn of 2015, after an initial slow take-up, there was a large spike in the number of applications. Nearly 900 were received in the October and November which was nearly the same as in the previous 34 months.

Private sector owners had spotted the flaw in the scheme which opened the way for the registered user to claim more in subsidy for renewable fuel than expected. The rate of marginal subsidy, which rose to 6.4p/kwh, was higher than the cost of buying the raw material, the woodchips. This was akin to an incentive to keep the renewable heat boiler in virtual continuous all day usage in order, not necessarily to provide heat, but to enhance the net subsidy benefit to the owner.

Since the registered owners of RHI boilers signed on for a 20-year contract, the cost was both the current subsidy and its follow on for 20 years. As a public sector incentive scheme, this was an incredibly expensive mistake.

The Comptroller and Auditor General for NI (C&AG) has published estimates that the scheme is likely to cost over £55m each year for most of its 20-year life.

In comparison with Great Britain's scheme and using the expected amount allowed by Treasury, the NI scheme was allowed nearer £30m each year (in the calculation of the Barnett formula).

The scheme, after February 29, 2016, the date when new applications were suspended, was set to directly cost the Stormont budget over £25m each year with further increases in later years. That extra £25m each year is over and above an allowance through the Block Grant.

The potential abuse of the RHI scheme, with hindsight, must have been known to officials by the end of October 2015. It seems to have taken four months for formal steps to suspend the scheme to be implemented - that four months has added an appreciable extra spending commitment to the scheme for the remainder of the 20 year contracts.

The report by the C&AG emphasises the 20-year contractual commitment to registered licence holders under the RHI scheme. There is an expectation that many of the 2,000 + registered users will receive a very generous subsidy.

Partly following a whistleblower complaint in January 2016, there is a prospect that a tighter inspection and supervision scheme may be used to identify and tackle fraudulent usage. An independent review of the scheme was due to be completed in September 2016. The Department for the Economy is seeking approval to undertake a range of site audits on both non-domestic and domestic RHI schemes.

The C&AG usually uses restrained language when reporting on weaknesses in public sector administration. In this examination, he has been forthright. In abbreviated form he reported that the scheme:

l was not designed to include any viable cost controls

l did not take the opportunity in 2013 to mirror the GB scheme and introduce cost control measures

l was over generous in incentivising renewable heat

l could not be changed quickly when demand rose quickly

l was not officially approved by DFP after April 2015

l was not properly monitored and controlled, with undue reliance on OFGEM

l did not identify the risks of overspending at an earlier possible stage.

For Northern Ireland taxpayers, this is costing hundreds of millions of pounds. Now, where is the heat going?

Belfast Telegraph

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