The Renewable Heat Incentive (RHI) had “serious systemic weaknesses” and had controls on spending that were not adequate to prevent abuse of the scheme, a report by the NI Audit Office has found.

In the report, Kieran Donnelly from the NI Audit Office said that use of the scheme was “at worst possibly fraudulent” by some users, although no hard evidence of fraud exists at present.

However, a whistleblower in January alleged that a farmer is aiming to collect approximately £1m in RHI payments over 20 years for heating an empty shed. Also, large factories with no previous heating have installed three biomass boilers to operate all year round in order to collect £1.5m.

Donnelly said that the decision by the former Department of Enterprise, Trade and Investment (DETI) in November 2012 not to introduce tiered payments in the scheme in NI, similar to the RHI in Britain, was “a critical mistake.

“It would appear to benefit those in receipt of a grant approved prior to November 2015 to use the boiler 24 hours a day, even if the heat generated is not being used,” Donnelly said.

Over-generous

The report states that tiered payments were not introduced by DETI at a review in 2013 as tariff rates were incorrectly considered to be less than the boiler running costs, meaning rates were “over-generous”.

He was also critical that a degression mechanism that is used in Britain was not included in the NI scheme. It allows tariff rates to change quarterly in response to changes in demand.

In terms of inspections of installations, the rate of inspections by scheme administrators OFGEM was described by Donnelly as “very low” at 0.86%, compared with 1.86% in Britain. “When issues are identified by the inspection process it is very unclear if anything is done about it,” he said.

In response, the new Department for the Economy is undergoing an independent review in two phases to firstly assess OFGEM’s administration of RHI and then to inspect a sample of sites for evidence of scheme abuse.

Audits

An independent audit assurance body is also being set up, which will be in addition to routine OFGEM site audits, and in order to inspect around 10% of the 2,128 non-domestic and 2,721 domestic installations claiming RHI.

The RHI scheme was funded by the British Treasury, but a funding shortfall estimated at £140m over the next five years is to be met by the NI block grant. The cost of the shortfall after this depends on future budget allocations from the Treasury.

The shortfall was mainly due to “a huge spike in applications” prior to the introduction of tiered tariffs and capped payments in November 2015.

However, Donnelly said that “clear indication” was given by the Treasury in April 2011 that the scheme would not be funded without limit, and that DETI did not introduce cost control measures in time.

Donnelly also highlighted that expenditure for seven months in 2015, covering 788 non-domestic RHI applications with an annual estimated cost of £11.9m, had not been approved by the Department of Finance due to administrative errors in DETI.