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Farmer 'gets £1m of public cash to heat empty shed' - 'catastrophic’ blunder threatening to drain hundreds of millions from Northern Ireland’s block grant

by linda stewart

Published 05/07/2016

Auditor General Kieran Donnelly
Auditor General Kieran Donnelly

Northern Ireland's block grant could be hit for hundreds of millions of pounds over the next 20 years because of Stormont's failure to control a renewable energy scheme, it has been revealed.

The lack of financial controls around Renewable Heat Incentive (RHI) have been described as "catastrophic".

The scheme was set up aimed at encouraging businesses to switch to green heating systems such as biomass heating systems, solar thermal and heat pumps.

But the full scale of the burning-ash-for-cash racket are revealed today in a damning audit office report. The report states:

  • a farmer is in line to receive £1m of public money over the next 20 years for heating an empty shed;
  • arge factories in Northern Ireland are on course to pocket £1.5 million over two decades for running incentivised biomass boilers all year round in premises that previously were not heated;
  • more than £1 billion of public money will be paid to Northern Ireland-based businesses by 2036 after they installed new appliances under the RHI scheme;

According to the audit office report, the Department of Enterprise, Trade and Investment (DETI) scheme was designed without viable cost controls and has led to commitments that have exceeded the maximum that HM Treasury will fund.

As a result the excess funding is likely to cost the block grant £140m over the next five years alone, with "significant costs" continuing until 2036.

Comptroller and Auditor General Kieran Donnelly said the scheme didn't include measures that could have curbed potential abuse. The Department relied heavily on OFGEM, a government regulator, to administer the scheme.

Mr Donnelly singled out £11.9 million that was spent by DETI on the scheme over seven months in 2015-16 without obtaining the required approvals from the Department of Finance and Personnel. He said he also had significant concerns over the amount of expenditure that has been committed to in the future, the future impact on the block grant and allegations raised by a whistleblower. In that letter, the whistle-blower said it is being left up to the installer to vet whether suitable businesses can avail of the scheme. Large factories with no previous heating had installed three biomass boilers, planning to run them all year round in order to collect £1.5 million over the next 20 years, he said.

The whistleblower also told OFMDFM about a farmer who was aiming to collect around £1 million over 20 years for heating an empty shed, even though he had no need of a biomass boiler.

Mr Donnelly said the findings of a review by DETI and OFGEM into these abuse allegations are due at the end of July and that work will be supplemented with a new independent review which will be completed in September.

The Renewable Heat Incentive scheme was introduced in November 2012, following a parallel scheme in the rest of the UK, and was aimed at helping Northern Ireland to reach its 2011-15 target of 10% of heat consumption from renewables by 2020.

It paid a fixed amount for every kilowatt of heat energy produced by renewable technology for 20 years after installation.

The Northern Ireland scheme failed to include a number of key controls that were built into the GB scheme, including tiering of payments - so that a reduced rate applied after the equipment had been operated for 15% of hours in a year - and degression, so that the tariff changed in response to changes in demand.

Mr Donnelly said that in the early years of the Northern Ireland scheme, demand was very low and DETI's priority was identifying ways to boost demand and getting the domestic scheme up and running.

"Once it became apparent that demand was increasing significantly the Department was unable to react quickly due to legislative constraints," he said.

Between 2012 and 2015 the rates paid in GB fell by 50%, yet the rates in Northern Ireland increased, he said.

"Returns available to claimants under the scheme in Northern Ireland appear to be excessive and are committed to for the next 20 years," Mr Donnelly said.

Ulster Unionist spokesperson, Steve Aiken said: "This is a catastrophic and self-inflicted failure of devolved government."

How did it happen?

The non-domestic Renewable Heat Incentive (RHI) scheme was introduced in Northern Ireland in November 2012, following a parallel scheme in the rest of the UK.

It aimed to persuade businesses to switch to greener heating technologies.

It was administered on behalf of DETI by the Office of Gas and Electricity Markets (OFGEM).

The Department had approval from DFP for a total budget of £25m for 2011-12 to 2014-15, but thanks to delays and low take-up there was a large underspend up until 2014-15.

The level of tariff was set in 2012 at the start of the scheme and was not reviewed until autumn 2015.

When the scheme was considered in 2011, DETI decided not to copy the GB scheme, mainly due to the wider availability of natural gas there.

When degression was introduced in GB, demand for the scheme in Northern Ireland was low and the priority was to find ways to increase demand.

When demand began to increase significantly the Department was unable to react quickly due to legislative constraints.

In April 2015 it became clear that demand was increasing. DETI proposed an amended scheme with a much lower second tier tariff.

DFP approved the business case for the scheme at the end of October but didn't give retrospective approval for 788 applications that were completed between April 1, 2015 and October 29, with an estimated annual cost of £11.9 million which is considered by NIAO to be irregular.

It is likely that an estimated £19.4 million of expenditure will continue to be incurred every year on these 788 applications for the next 20 years - also considered irregular, unless the Department is able to get retrospective approval from DFP.

For a claim approved before November 2015, there was no upper limit. The more heat that was generated, the more would be paid. A biomass boiler used 24 hours a day could generate £737,580 over 20 years, compared to £66,420 in GB.

HM Treasury has ruled out any increase in its contribution and these costs will have to be met from the block grant for the next 20 years.

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