Watchdog retains ‘significant concerns’ about RHI scheme

The Comptroller and Auditor General (C&AG), whose initial report first highlighted key failings in the controversial Renewable Heat Incentive (RHI) scheme, has published an update relaying concerns around its “ongoing weaknesses”.

Kieran Donnelly released the latest report satisfying a pledge in the first instalment that he intended to provide an update on any changes over the year, but outlined that he would not be reviewing the history of the establishment of the scheme which is now under the remit of the Public Enquiry set up in January 2017.
Donnelly’s initial report was the basis for further scrutiny into the botched scheme set up in 2012 to encourage renewable energy production, the outcome of which eventually helped lead to the collapse of the Stormont institutions and ongoing investigations.

One of the actions taken by the Department upon the release of the original C&AG report was to appoint PricewaterhouseCoopers (PwC) to carry out site investigations and follow up on the issues highlighted on the report.

The PwC report categorised boiler use, based on site inspections of 78 businesses, into four categories and found that less than half of those inspected were operating with an eligible purpose within the scheme (category one). However, 37 per cent were generating heat for an eligible purpose not meeting the intentions of the scheme (category two), 10 per cent were using heat in a way that was not energy efficient (category three) and 6 per cent generated heat “which may be for an ineligible purpose and therefore may be in breach of the scheme” (category four).

The report states that even those listed in the first category “may still have been generating excessive profits from the scheme because of high levels of use and the lack of tiering of tariff rates or a cap on usage”.

Of the boilers listed in the other three categories, those involved with ‘process drying and the drying of woodchip’, a significant number were considered wasteful and inefficient, including some that would not have been economically viable in the absence of support payments from the scheme. Several boilers categorised in the fourth category had the potential to be serving a domestic dwelling, even though the scheme was non-domestic.

Parasitic wood chip drying was a further issue identified by PwC. The C&AG summarised this problem, explaining: “Subsidy payments may have been received for the heat used to dry the fuel which would then be used to dry more fuel for which further support payments would be received.”

Multiple boilers

The site inspections identified a number of cases where multiple boilers were installed to gain the higher rate of subsidy than would have been the case where one boiler was used because boilers less than 100kW paid a higher subsidy rate. Of the applications for boilers pre-18 November 2015, 99 per cent were for boilers below 100kW but 72 per cent of those had more than one boiler on the scheme.

Highlighting the severity of the change in application types after the introduction of the new two-tier system, the C&AG said: “I am concerned at the extent of the use of multiple-boilers which allowed applicants to claim a considerably higher level of subsidy payments than would have been payable for installations with a single boiler of more appropriate size.”

Details of the PwC report were passed to Ofgem, of the 20 category four cases flagged, 16 have been cleared to continue, two remain under investigation and two have been revoked from the scheme.

Following the original C&AG report, Ofgem increased their level of inspection. However, of the 88 undertaken since 2012-13, none have yet been removed from the scheme.

Excessive

Extreme cases of usage were highlighted, in particular, Northern Ireland Audit Office calculations found that 10 RHI boilers were being used for at least 90 per cent or more of the year, in each case taking in a subsidy of at least £50,000 per boiler. A further 40 per cent of boilers installed before cost controls have been running for more than half of the hours of the year with a subsidy of at least £28,000 each.

The two-tiered rate introduced meant that the higher rate was only available for the first 15 per cent of hours used in a year and the C&AG noted a “significant impact” on the amount of use of these boilers. This can be seen in the fact that only one user was above the 50 per cent usage mark and the majority of boilers were used for less than 20 per cent of the hours in the year.

Donnelly also noted that it was “regrettable” that whistleblowers’ concerns were not addressed when they were first raised in September 2013 but added that he was not made aware of the correspondence when compiling his initial report.

Cost

The initial report by the C&AG estimated that the scheme’s cost for 2016-17 would exceed the Northern Ireland share of the UK budget funding provided by the Treasury by over £32 million, however, that figure was reduced slightly in the Department for the Economy’s figures, which showed the actual net cost to be £27 million.
The new tiered system introduced by the Department should reduce the annual cost of the scheme to the Northern Ireland budget to £2 million from the £30 million outlined in the C&AG’s initial report, however, the update lays out that due to an ongoing judicial review into the introduction of retrospective cost controls and plans by the Department to consult on appropriate rates for the scheme for the remainder of its lifetime, “it is not possible at this stage to estimate the total costs and the impact on the block grant for the remainder of the scheme”.

Inspection

The report also revealed plans to shelve the 100 per cent inspection of all non-domestic boilers within the scheme. The Department has encountered problems in appointing an inspection contractor for the 2,100 installations and instead is now leaning towards a pilot programme of inspections. With little detail on the extent of the pilot programme, the Department told the C&AG it will “consider how enforcement should be undertaken given the pilot inspections will cover an element of business analysis as well as technical checks”.

Concluding, the Comptroller and Auditor General Kieran Donnelly said that while the Department has made some progress in addressing the issues arising from his initial report: “I continue to have significant concerns about the operation of this scheme and the serious systemic weaknesses in controls that have facilitated the possibility of funding that is at best not in line with the spirit of the scheme and at worst is fraudulent.”