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Renewable energy scheme collapse blamed on Stormont failure to review tariffs

Published 23/11/2016

A requirement for tiering should have been identified in the energy system, said a director at Cambridge Economic Policy Associates
A requirement for tiering should have been identified in the energy system, said a director at Cambridge Economic Policy Associates

Stormont's failure to regularly review tariffs paid under a botched renewable energy scheme was the main reason for its budget-busting demise, an economist has told MLAs.

A director at Cambridge Economic Policy Associates (CEPA), which advised on the controversial Renewable Heat Incentive (RHI), denied its failure to flag up the need to taper off subsidy pay-outs was a major factor in the scheme's overspend of hundreds of millions of pounds.

The consultants were paid almost £70,000 to mathematically model the RHI during its development stages in 2011/12.

Mark Cockburn, a director at CEPA, told the Assembly's Public Accounts Committee the requirement for tiering the tariff rate was deemed not necessary in its first report to the Department of Enterprise, Trade and Investment (DETI, now the Department of Economy) in 2011.

However, he said when CEPA was asked by DETI to look again at elements of the scheme six months later, in response to a public consultation, circumstances had changed and a requirement for tiering should have been identified.

"We missed it," he said.

The economist added: "The need for tiering was not identified within the 2012 report and we have accepted that."

The RHI encouraged the installation of costly eco-friendly heating systems by paying a tariff per kilowatt of heat burned over a 20-year period.

However, unlike in the rest of the UK, in Northern Ireland no cap or payment tier system was placed on the money that could be claimed in proportion to the size of boiler and the hours it was operated.

That effectively enabled a business to burn unnecessary heat 24/7 just to make money.

Thousands signed up to the scheme - a deluge that ultimately forced its closure, but not before Stormont had been left exposed to a huge overspend.

Overall, more than £1 billion of public money will be paid by 2036 to Northern Ireland-based businesses which signed up to the scheme.

Mr Cockburn conceded the lack of tiering was a factor but he said the main reason for the overspend was Stormont's inability to close it down quickly when problems emerged and a failure to regularly review the tariff level.

He highlighted that CEPA made a recommendation to DETI to keep a close watch on the operation of the scheme.

"If our recommendations had been followed and the scheme had been reviewed there would not have been any loss," he told committee members.

He added: "Our recommendation was very much things need to be monitored, things need to be kept on top of, there needed to be a review - that clearly didn't happen."

Mr Cockburn said schemes need to be adapted because people find ways to "game" them.

He noted that the GB tariff started out higher than the Northern Ireland rate but it was gradually reduced upon review, while the NI rate was left untouched for too long.

"As with all of these schemes they all have to be reviewed - if you just leave them people will find ways of gaming them, of exploiting value from them," he said.

DUP committee member Trevor Clarke accused Mr Cockburn of trying to shift the blame.

"There is gaming in all of these schemes but if the tiering had been there the incentive for doing it would have been less," he said.

Mr Clarke added: "I think you are under-estimating the role that your organisation had played and the opportunity that was missed and you are underplaying that entirely and trying to shift the blame.

"I think if tiering had been there we wouldn't be sitting in the situation we are today."

Mr Cockburn rejected the claim.

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