£1bn bill for flawed renewable energy scheme will look to the public like"legalised fraud"

A renewables scheme which will ultimately clock up a bill of more than £1bn for Northern Ireland taxpayers will look to the public like “legalised fraud”, according to one Assembly member.

Alliance MLA Trevor Lunn told the Public Account Committee at Stormont it was “shocking” that poor oversight in the Renewable Heat Incentive scheme will eventually cost the public purse around £1.8 billion by the time it ends.

Department of Economy Permanent Secretary Dr Andrew McCormick apologised to the Committee today for the lack of oversight in the Renewable Heat Incentive scheme, which was designed to allow businesses to install biomass boilers, solar thermal and heat pumps.

According to a whistleblower, some companies ran woodchip boilers constantly in order to claim a long-term subsidy.

The scheme, now closed, encouraged the installation of green heating systems by paying a tariff per kilowatt of heat burned over a 20-year period.

But a failure by Stormont to control the programme led to a huge layout of cash, with one farmer allegedly in line to receive £1m of public money over the next two decades for heating an empty shed.

First Minister Arlene Foster and then DUP colleague Jonathan Bell were in charge of the Department of Enterprise, Trade and Investment (DETI) during the period when the debacle unfolded.

Mr Lunn welcomed Dr McCormick’s apology to the Committee for the problems with the scheme.

“However, that does not change the fact the public will be out of pocket for double what it was originally intended to cost, almost £1.2 billion, which is a scandalous figure,” he said.

“Questions need to be asked about those higher up the food chain at the time also. The former Department for Enterprise, Trade and Investment, which operated the scheme, had an opportunity to copy the British model, but chose not to.

“The current First Minister, who was in charge of the Department at the time of the scheme’s launch, should confirm whether it was her or civil servants who made that choice.

“I would also question the legal advice given to the Department while the scheme was being established and ask what contingency planning was carried out in case of high demand of the scheme.

“It is vital lessons are learnt from this matter – the regulator needs to investigate the allegations of fraud immediately and comprehensively, while measures are put in place to prevent it happening again.”

According to a report by the Northern Ireland Audit Office earlier this year, the scheme was designed without viable cost controls and 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.

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.

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

How it happened

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 not reviewed until autumn 2015.

When the scheme was considered in 2011, DETI decided not to copy the GB scheme. 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 , as demand increased, 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.

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 ruled out any increase in its contribution, so these costs will have to be met from the block grant for the next 20 years.