RHI: Behaviour changes and slow progress

Since the reduction in tariff rates, aimed at reducing the cost to the public purse of the botched RHI scheme, there has been a 33 per cent fall in the generation of heat, somewhat substantiating the claim that heat was being unnecessarily generated to claim additional subsidies.

Following the introduction of tariffs on 1 April 2017, the number of boilers used for more than 40 per cent of available hours has fallen from 926 to 349. This was one of the “significant changes” to the behaviours of applicants of RHI boilers since the introduction of tariffs for all accreditations.

Another example of behavioural changes can be seen in the introduction of a cap on heat output, meaning that heat generated over 400,000kWh (equating to a 99kW boiler operating around 11 hours every day) would not be paid. In 2016/17, prior to the introduction of the cap, there were 659 boilers generating more than 400,000kWh but the following year that number dropped drastically to just 118.

The data was revealed as part of an audit of the Department for the Economy resource accounts by the Northern Ireland Audit Office following the introduction of a new tiered tariff rate and a cap on heat output on 1 April 2017 for those boilers who applied for the scheme prior to 18 November 2015.

The change aligned those early participants in the scheme with those more recent applicants who were subject to tariffs to curb costs and reduce the incentive to generate unnecessary heat. Comptroller and Auditor General Kieran Donnelly outlines that the new tiered rate has been successful in significantly reducing annual cost.

The change in tariffs “appears to have driven significant changes”, says Donnelly about the behavioural shifts over the course of the year. “[It] appears to have been the main reason for a substantial change in the overall heat generated under non-domestic RHI. The total heat generated has fallen by over 33 per cent in 2017/18 compared to the previous year.”

He adds: “This may have been because applicants were no longer able to avail of the higher subsidy rates and as a result, there was no longer any incentive to generate heat if this was only being done in order to claim additional subsidies.”

One argument put forward for the behavioural changes is that scheme participants may have switched the heating methods they utilised once they reached the 400,000kWh, as oil or gas may have been potentially cheaper than the non-subsidised rate. However, Donnelly outlines that this was not the case. “I consider this to be unlikely as the cost of generating heat through wood pellets appears to have been considerably cheaper over the last year compared to either oil or gas and therefore there would have been no reason to change heating.”

The Department’s estimate is that cost of wood pellets in 2017-18 was 3.2 pence per kWh, compared to 5 pence for gas and 4 pence for oil.

Inspections

The report also gave an assessment of the inspection process and reported the findings to date. Initially, plans to inspect all RHI boiler sites had to be shelved after a tender by auditors failed to find a suitable contractor to carry out the workload.

Instead a pilot scheme, inspecting 33 sites (65 installations) was established to assess compliance of the installations against the scheme’s regulations and guidance. Of the 33 sites inspected, none were deemed to be in the highest ‘good’ category and just four were deemed ‘satisfactory’. A total of 17 of the sites were given a ‘weak’ assessment and 10 were deemed ‘unsatisfactory’. Two of the reports were still outstanding.

Ofgem also carried out an audit of 30 installations, identifying issues in 80 per cent of cases. However, on the back of both audits only three installations have been revoked to date.

Donnelly states that it is clear “problems exist in a significant number of installations”, adding his concern at “the slow rate of progress that has been made to date”. The Department has outlined the intention for an additional 250 site inspections to be carried out in 2018/19, as well as the undertaking of a series of desk top reviews. Over the next three years it aims to complete all inspections by these processes.

Summarising his opinion, Donnelly notes that while improvements in cost controls have occurred since the introduction of the revised tariff, he is still unable to obtain sufficient evidence that the controls over the spending on the non-domestic RHI scheme were adequate to prevent or detect abuse.

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