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Burned. Sam McBride
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But while Bissett wasn’t kept in the loop, Hepper and her team believed they had good reason to disregard the regulations drafted by him and instead draw up their own legislation without tiering.
The explanation lay with CEPA. In its report, the consultancy had set out proposed tariffs for a host of green technologies – from ground source heat pumps to solar thermal units. It drew attention to the fact that the subsidies proposed included two tiers for some technologies, in line with the situation in GB. The consultants explained how tiering operated and went on to say: ‘However, when setting the NI recommended levels for this report, the incremental fuel cost was higher than the subsidy rates in all cases. Therefore no tiering is provided in the rates in this report.’ With that decision, the consultants were taking an enormous risk. If the cost of fuel was ever less than the rate of subsidy, the scheme would be fundamentally flawed. Even at that point, it should have been obvious that the cost of fuel was constantly fluctuating while the proposal was for the tariffs to remain set in stone for 20 years, with guaranteed inflationary increases.
But the problem was to get much worse. DETI launched a public consultation on its proposals and received responses which complained that the tariffs proposed for Northern Ireland were lower than for GB. At a glance, the Northern Ireland scheme did indeed seem far less generous. Not only were the initial tariffs for the smallest biomass boilers lower – 4.5 p/kWh in Northern Ireland as opposed to 7.9p in GB – but the most lucrative GB tariff was available for far larger boilers. In GB, it was possible to install a 199 kW boiler, capable of pumping out more than four times the heat of the 45 kW boilers which were to get Stormont’s top subsidy.
But the small print showed that unlike the situation in GB, where tiering meant that after running the most lucrative boiler for 1,314 hours in the year the subsidy dropped to 2p, Stormont proposed to pay the top rate for the entire year – with no heat limit.
Although it is hard to pin down who precisely decided not to include tiering, it is clear that its absence was the result of a conscious decision. In early April 2011, the issue was explicitly raised by Connolly, the DETI economist. Having read CEPA’s first draft report, he asked Hutchinson why the scheme was more generous than GB’s. Connolly asked specifically: ‘Why has tiering not been used as per the GB RHI?’
DECC had the previous year – in publicly available documentation which DETI might have been expected to be studying – recognised that the biomass tariffs could lead to a ‘perverse incentive to over generate heat’. That was, it explained, because the subsidy was higher than the cost of fuel. It said that ‘this perverse incentive is expected to be significant for non-domestic biomass space heating installations that are less than 1MWth’ – that is, every type of biomass boiler eligible under the Stormont scheme. DECC went on to explain in simple language why, as a result of this obvious danger, it was implementing tiered tariffs. At the rates being proposed for Stormont’s scheme, the problem might have been modest, but it was about to be amplified.
In response to the consultation, the department asked CEPA to carry out a second piece of work – what would become known as the CEPA addendum report – to consider some of the responses and make final recommendations before the scheme was launched. Throughout this entire period, the evidence points to DETI repeatedly attempting to make RHI more generous and more widely available. On one such occasion, Hutchinson, after seeing a draft of the addendum, wrote in the margin to query why the consultants were not proposing to allow claims for large industrial biomass installations. CEPA had already made clear to the department that the reason for doing so was that there was no need to subsidise such large biomass heating systems – they were already economical without any subsidy. But Hutchinson told CEPA he was ‘still concerned about not having a tariff for this sector given [the] possible disadvantage in comparison to GB market [which was subsidising such boilers] … some calculation attached for your consideration’.
Hutchinson, a young civil servant being asked to deal with a complex area in which he had little expertise, was under considerable pressure. The softly spoken official was working so hard that he was recommended for bonuses by his superiors in this period, with the citations referring to him having ‘performed exceptionally well’ and having ‘worked largely on his own’ managing CEPA.
The final 47-page CEPA report was delivered in February 2012 and agreed to hike the level of tariffs for every one of the technologies being subsidised. Even an outsider could have seen that the obvious effect was that Stormont was going to draw down more of the Treasury money than if the tariffs were less generous – higher rates were more likely to encourage people to join the scheme, so there would be more participants, and each of them would also receive more.
CEPA now recommended more than doubling the size of biomass boilers getting the most lucrative subsidy from 45 kW to 99 kW. And the tariff for that boiler was also increased by 31%, rising from 4.5 p/kWh to 5.9 p/kWh. Aside from the growing overall cost, there was a clear problem: the same report gave the price of biomass fuel as being massively lower. Research for the report had found that biomass fuel in Northern Ireland could be as cheap as 2.85 p/kWh for those buying wood chip in bulk – one of several places in the report where it was clear to a casual reader that there was now a big gap between the cost of running a boiler and the subsidy rate. On CEPA’s own figures, that meant that the subsidy was more than double the cost of fuel. But the consultants, whose main report had said there was no need for tiering, did not point out the obvious difficulty.
At the inquiry, Hepper was grilled as to how she and her colleagues could not have spotted the problem. Audibly exasperated, chairman Sir Patrick Coghlin put it to her that ‘you didn’t need to be an expert to see this differential … you wouldn’t need to be an expert in economics or, indeed, energy to see that if you have a tariff that is paying you more than the [cost of] fuel you’re using to burn and to achieve that tariff, there’s a problem.’ Setting out a complicated logic for how she and her team had justified the situation to themselves, Hepper replied that ‘in our thinking about how that came to be, we took the price of the fuel, we took it …’ Sir Patrick interjected to say that ‘any common-sense person would’ve seen that difference, and if they didn’t appreciate the significance of it, they would’ve asked’. Hepper said she ‘had a narrative in my head’, which rationalised the apparently illogical proposal. She suggested that because RHI was meant to include payments for the ‘hassle costs’ of installing green technology as well as a rate of return to cover borrowings, there was an explanation for the gap. There were other costs involved with biomass boilers, such as increased electricity costs, which slightly complicated the calculation.
The picture which emerged from the inquiry was that Hepper – and the multiple civil servants who saw the proposal – had been bamboozled by the ‘experts’, leading them to miss a basic fact staring them in the face. Although the biomass tariff was the most glaring mistake in CEPA’s work, the consultants had been responsible for a series of other basic errors with numbers in tables which did not add up. The inquiry’s technical assessor, energy expert Dr Keith MacLean, put it to Hepper that ‘if you looked at almost any of the numbers in the tables in that report, they would not allow you to calculate any of the tariffs … it seems to me nobody actually just got a calculator out and checked, “does this make sense?”’ Hepper said she ‘assumed’ that her colleagues had done some checks, ‘but I also would’ve assumed that the expertise that we were buying in would’ve checked their basic figure work, too’. The blind were now leading the blind, with each believing that the other could see.
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More than four years later, as CEPA prepared to come before the Assembly’s Public Accounts Committee – the precursor to Coghlin’s later public inquiry – its top brass attempted to understand how things had gone so disastrously wrong.
Internal emails, which the public inquiry compelled them to release, show that senior figures in the company – which has worked for governments all