MLAs at Stormont have until next Monday to decide if they are going to back plans put forward by Economy Minister Simon Hamilton to cut the costs of the non-domestic Renewable Heat Incentive (RHI) scheme.

That came after a decision was taken earlier this week to adjourn a debate on amending existing regulations to allow politicians to consider the proposals more carefully. However, with the Assembly to be dissolved from 26 January, ahead of a new election on 2 March, the time frame is tight.

The proposals put forward by Minister Hamilton would effectively bring approximately 1,800 RHI claimants who joined the scheme before 18 November 2015, into line with those who joined thereafter, up to the scheme closing in February 2016.

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Within these original applicants, most opted to install 99kWth boilers, which attracted a flat rate payment of 6.5p per kW hr (for a >100kWth boiler the rate fell to 1.5p per kW hr) on all heat produced.

Less attractive

The new tiered system implemented in November 2015 was less attractive, with 6.5p/kWh paid for the first 1,314 hours of heat produced for boilers between 19 kWth to 199kWth, and then 1.5p/kWh paid thereafter, up to an annual cap of 400,000 kWh. The proposal is that all claimants now move over to this tiered system.

To highlight the financial impact on these businesses, it is worth referring to work by CAFRE officials presented at a poultry conference back in 2015.

It suggested that under the original RHI, a typical 27,000 bird house using 365,000kWh of renewable heat each year would receive £23,360 of support. Under the changes, the same house would receive £8,326 under the first tier, and £3,524 under the second tier of the scheme – a total of £11,850 annually.

Forced back to gas

Since the plans to change the scheme emerged, a number of poultry producers have pointed out that given the cost of wood pellets, they will probably now be forced to switch back to gas once the 1,314 hour limits are reached.

Another issue is that the original scheme effectively encouraged producers to install 99kWth boilers, while under the new scheme boilers up to 199kWth attract the higher 6.5p/kWh Tier 1 payment.

With Tier 1 tariffs applying on the initial heat generated by a boiler running at its installation capacity for 1,314 hours, these larger 199 kWth boilers are going to generate twice the RHI income of the 99kWth boilers, mainly installed before November 2015.

Best option

Despite that, Economy Minister Hamilton and his permanent secretary Andrew McCormick were adamant when they met MLAs at Stormont on Monday that moving everyone on to tiered tariffs was the best option. “This is now, in the time available, the best thing to do,” said McCormick.

The plan is to introduce new tiered payments from 1 April 2017, lasting for one year. In the meantime, the Department will consult with industry on a longer-term solution, with new regulations to be in in place before 1 April 2018.

Another suggestion by Minister Hamilton to reduce costs is to undertake 100% inspections of RHI installations.

Business case

The business case put to the Department of Finance for approval includes inviting relevant organisations to tender for this work on behalf of government. “I would like to think in the next couple of months inspections will commence,” Minister Hamilton told MLAs.

To date, around 20% of installations (295 inspections) have already been undertaken by PwC. But these businesses were not chosen at random, so while 33 claimants had payments suspended, there is general acceptance that this is not necessarily representative of others in the scheme.

Despite that, the message from the Department is that a business must have a valid use for heat and use it in a reasonable way.

When asked for clarity, Andrew McCormick maintained that each boiler will be assessed on a case-by-case basis. Heat used purely for domestic purposes is not eligible.

“Also, just consuming heat for the sake of securing payments is not eligible – that might include, for example, drying wood to put into a boiler,” suggested McCormick.

There is also an expectation that efficient use is being made of heat, and if pipes are not lagged or windows open, questions might be asked. “That’s not good practice – it’s where we get a bit greyer,” he acknowledged.

Both men were clear that they believe some people have not entered into the scheme with the best of intentions. “We are working through the most serious category of what PwC found. If the PSNI needs to be involved, it will be done,” said Minister Hamilton.

Possible savings to be made

With the scheme oversubscribed and RHI payments guaranteed for 20 years, the cost of the total RHI scheme is estimated at £1.15bn. Of that, around £660m is expected to come from British Treasury, as the NI share of a wider UK scheme, leaving the shortfall of £490m.

Speaking on Monday, Economy Minister Simon Hamilton said his priority was to get the costs down for the 2017/18 financial year. Costs for the year are projected at £50m, with approximately £22.5m available from UK Treasury, leaving a shortfall of up to £28m to come out of NI finances.

However, implementing a tiered tariff system from 1 April 2017 would save £25m, leaving a shortfall of approximately £2.5m for Stormont to cover.

However, according to the minister, that projection is a worst case, and he expects the 100% inspection process to further bear down on costs. “There may well have been behavioural change already,” he suggested.

Minister expects legal challenge by Renewable Heat Association NI

Earlier this month, a number of groups came together to create the Renewable Heat Association NI (RHANI).

Leading the new body is Michael Doran, the current managing director of Action Renewables, a company that provides expert advice on renewable energy projects.

Farmers with RHI boiler installations were encour- aged to join RHANI by Monday of this week, as the association prepared to legally challenge proposed changes to the RHI scheme.

The cost of membership is £180 plus £60 per eligible RHI installation.

Already the association has had some success, preventing the names of RHI claimants being published last Friday, after it threatened to take out an injunction against the Department for the Economy.

An assurance has now been given that names will not be published without the association being given prior warning.

RHANI argues that releasing names at this time (given current media interest) would have serious consequences for individuals and their businesses.

It is also expected that if and when the regulation to amend the RHI is made, the RHANI will seek an urgent judicial review, highlighting that some people have invested thousands in new boilers in good faith and now face bankruptcy.

Instead, the association wants rigorous inspections undertaken to remove any fraudulent claimants.

Minister Hamilton expects a legal challenge.

He points out that the rate of return in 2017/2018 (after a tiered system is introduced) is estimated at around 12%, which is in line with the rate of return projected at the start of the RHI scheme in 2012.

“I do not see how it can be reasonably argued that anyone has a legitimate expectation of rates of return that are far in excess of the returns announced in 2012,” he said.

According to the minister, some scheme participants are currently realising returns of 30% to 50% on their investment.

The other potential challenge is based on the right to property, but the minister maintains that this must be balanced against the public interest.

“Having taken and considered the very clear legal advice available to me, I believe that there is a very robust defence against anyone who wants to assert that the very generous original tariff and the accompanying risks of abuse and overspend should be continued,” he concluded.

Hamilton to publish claimants’ names in spirit of transparency

In a statement on Wednesday afternoon, Economy Minister Simon Hamilton provided an update on the publication of the details of businesses benefiting from the RHI scheme.

In it he said it was imperative that there is openness and transparency around RHI, and that it was always his intention to publish the information, but that he had to be mindful of legal obligations around data protection law.

He confirmed officials are currently analysing responses received to a letter from his department in December, which asked claimants if they had objections to their name being published.

“The process will balance the competing interests of transparency and the right to privacy and protection in accordance with the law. I anticipate that the process will be concluded by the beginning of next week and it would be my intention to publish RHI recipient details on Wednesday 25 January,” said the minister.