Northern Ireland’s RHI ‘burn to earn’ blunder

A political scandal rocked the Northern Ireland assembly this week  — at its centre an estimated £400mn overspend of the nation’s renewable heat incentive (RHI) subsidy scheme, funding for which will need to be taken from the province’s budget for the next five years.

The assembly was recalled from Christmas recess to address the issue and First Minister Arlene Foster — accused of gross incompetence for overseeing the ill-advised policy — narrowly survived a vote of no confidence. If passed, the motion could have forced Foster’s resignation and triggered Stormont elections.

So how did a scheme designed to encourage the deployment of renewable heat technologies go so terribly wrong? And how have wood pellets come to be at the centre of a political storm?

Back in February, legislation to close the RHI to new applications was brought forward by the department for enterprise, trade and investment (Deti) as a result of “significant uptake” exhausting the RHI budget.

But an inquiry found that RHI tariffs over-compensated beneficiaries and encouraged “gaming” of the system. Among other oversights, Northern Ireland’s failure to introduce a tiered RHI tariff for heat generation resulted in fatal misuse of the scheme.

Unlike in Northern Ireland, Great Britain’s RHI scheme was designed with a crucial two-tiered tariff to avoid any incentive to generate excess or wasteful heat in order to maximise RHI payments.

Since its inception in 2012, Britain’s RHI regulations specified that during a 12 month period the first 1,314 hours of heat generated are eligible for a higher tier one payment, and any further heat generated is paid at the lower tier two tariffs.

In the case of Northern Ireland the lack of tiered tariffs meant that, the more heat a beneficiary generated the more subsidies they received. A “burn to earn” habit was encouraged and it is believed that some beneficiaries generated heat unnecessarily in order to profit from the RHI.

Consultancy Cambridge Economic Policy Associates (Cepa) was contracted by the Northern Ireland assembly to design and model the RHI policy. When questioned, Cepa explained the scheme was designed “on the assumption that people would use their boilers for an average of about 28-29 hours a week but suddenly people were coming in with 100pc load factors”.

Moreover the tariff payments exceeded the cost of biomass fuel. “We have seen that a growing margin between tariff and fuel costs, together with the ability to install multiple boilers at the same site, was responsible for a significant proportion of the gaming that occurred.” Cepa said.

Put simply, people were incentivised to burn more biomass fuel than they required in order to profit from their RHI payments.

Britain’s RHI scheme includes tariff degressions which kick in when individual heat technologies exceed their expenditure threshold. There were no such budgetary controls in Northern Ireland’s policy — another “fundamental omission that cost the government”, a member of the Assembly noted during the inquiry.

The Republic of Ireland recently announced proposals to open its own RHI scheme. It must surely take note of Stormont’s policy mistakes and protect its own scheme from going up in smoke.

For first minister Foster, surviving the vote of no confidence is not the end of her woes. Opposition parties have said they intend to put forward a motion in January calling for her to step aside while further investigation is carried out into the overspend.

The story is the latest in a long line of perceived bad press surrounding biomass – an industry that has long struggled to achieve a positive public image globally and communicate the important role it has to play in the renewable generation mix.

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