Drastic cuts to RHI payments will be ruin of many businesses
NI poultry producer Tom Forgrave does the sums for those who joined boiler scheme in good faith but now face bills that far outweigh subsidies
The further proposed cuts to the RHI tariffs being set before Parliament this week will be ruinous for many of the businesses in Northern Ireland who joined the scheme in good faith.
The Kyoto Agreement set targets for renewable energy and it was better value for the Government to offer a RHI scheme in Great Britain and make payments to businesses to encourage the adoption of renewable energy rather than pay these fines.
We decided to not follow the GB scheme and a Northern Ireland-specific scheme was launched a year later.
Prior to cuts in 2017, tariffs were sufficient that our business was in a position to meet the commitments owed on the monies borrowed to cover additional costs associated with renewable heat that we didn't have previously with fossil fuels, with a margin of profit left over.
It was, after all, an incentive scheme.
Much has been said publicly recently surrounding a 12% target for a margin. European guidelines allow for a margin of between 8% and 22% rate of return, with 12% being a target average.
We were at the top end of this range for the rate of return, with the business having an anticipated four to five-year payback on borrowings.
A four to five-year payback is 20-25% rate of return and is not uncommon for any business that invests in an asset which depreciates.
The production of poultry, heat requirement and the significant investments in renewable heat are closely interwoven.
Borrowings to install the boilers were raised against the value of land, and the financial security offered by a 20-year 'grandfathered' and 'guaranteed' scheme made this possible. The poultry side of the business was profitable before RHI was introduced and the additional 'guarantee' offered by the scheme allowed for the profits from the original side of the business to be used to progress and expand.
In 2017 Stormont introduced significant retrospective cuts to the tariffs. This abolished any concept of 'grandfathering' and 'guarantee'.
These sudden cuts to the tariffs dramatically changed the cash flow to our business.
The RHI payments were no longer sufficient to cover all of the running costs and bank repayments. We had to subsidise our repayments out of other business income.
We thought that the department would acknowledge the needs of the businesses who had helped towards achieving the renewable targets by 2020 alongside the needs to meet their budget.
The 2017 cuts to the tariffs achieved their goal - there was no overspend - the budget for the RHI scheme had been brought back into line.
Last week it was announced that Government was going to further reduce the tariffs to 10% of the original figure.
The GB scheme continues unhindered.
Had I installed a boiler in GB, the payments would be around £20,000 per year. If I installed a boiler today in GB it would be around £12,000 due to the proper implementation of tiering and degression, two key components removed from the Northern Ireland scheme.
The current 2017 tariff provides a payment of £13,000 per year. These payments are required to cover the running costs and bank repayments.
The Irish Government is on the cusp of launching their RHI scheme. A boiler there will be in receipt of around £18,000.
When the proposed tariffs come into effect in April 2019, the RHI payments in Northern Ireland will be slashed to £2,000 per year, but all our current running costs and bank repayments remain the same.
The fact that the renewable heat scheme has become so interwoven with our overall business means that our entire business is now in jeopardy and facing ruin.