Cash for wind: How Arlene Foster hiked another green subsidy, and GB public will pay most of the £5 billion bill
The Northern Ireland Renewables Obligation (NIRO) scheme, which until now has only received a fraction of the scrutiny of cash for ash, closed to the last new applicants in early 2017 but payments will keep going to participants until 2037.
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However, last night the Northern Ireland Audit Office – the body which first exposed the full scale of the RHI scandal – published the findings of an 18-month investigation into the scheme.
Although the NIRO was open to several green technologies, the report focuses on concerns with two areas which form about 17% of overall renewable electricity production in Northern Ireland – small-scale wind turbines and anaerobic digesters.
Despite the DUP’s historic scepticism about green energy, as with RHI the party not only accepted subsidies on a par with the rest of the UK where David Cameron was pushing for a renewable energy revolution – but Mrs Foster actually agreed to make them more generous.
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While Mrs Foster was energy minister – and while RHI was being developed and then promoted – she decided to increase subsidies for small-scale wind turbines and anaerobic digesters and then decided not to decrease subsidies in line with the rest of the UK and in line with the general principle that green schemes begin ultra-lucrative but then support reduces as the technology becomes established.
Mrs Foster’s former department defended those decisions, arguing that it had evidence from independent consultants and from stakeholders that green electricity required greater support.
Until now, the extraordinarily complex nature of the NIRO has meant that few people really understood exactly what had gone on.
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But the work of the Audit Office shows that Stormont’s policies skewed the market in a way which made green electricity more expensive for consumers than it needed to be – but in so doing, they pulled in huge sums of money from GB to Northern Ireland.
However, if that was intended to increase government spending in Northern Ireland by the back door, it at least partially backfired because many of the ultimate beneficiaries of the turbines producing electricity in Northern Ireland are huge financial institutions based in London and elsewhere.
On Saturday an investigation by the Daily Mail revealed that many of the installations are owned by venture capitalists, and in one case by a company ultimately in the hands of the Royal Bank of Scotland’s pension fund.
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The Audit Office found the scheme had been successful in a key area – in driving a huge increase in renewable electricity in Northern Ireland.
But crucially it found that “this may have been at a higher cost than was necessary” and “the same results might have been achieved more efficiently, at less cost and with less impact on the local natural environment”.
There are two major ways in which Northern Ireland disproportionately benefits from the scheme, which is funded by a charge put on electricity bills across the UK.
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Firstly, the charge in Northern Ireland is just £31 a year – far less than the £80 a year for bill payers in Great Britain.
That benefit was negotiated by a direct rule minister being advised by Stormont civil servants in 2005 and was justified because of Northern Ireland’s greater levels of deprivation and fuel poverty.
But the second benefit is even more significant. Because Stormont made the scheme more generous here, there was a far higher uptake than in Great Britain – but Stormont knew that most of the money to pay for the subsidy was coming from across the Irish Sea.
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The Audit Office described this as “a significant contribution to the NI economy”.
The Department for the Economy, which while known as the Department for Enterprise, Trade and Investment (DETI) set up the scheme, has estimated that the subsidy has cost consumers £1.17 billion since 2005 – and that just 31% of that money came from bill-payers in Northern Ireland.
By the time the scheme is finally shut, the Audit Office estimates that it could have cost as much as £5 billion – with three quarters of that cash coming into Northern Ireland from GB bill payers.
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The department said it did not believe the final bill would be quite as high as that, but there is no dispute that it will be a massive sum and that the vast bulk of it will come from bill payers in Great Britain.
The report said that some of those claiming the subsidy had enquired about using it to heat animal sheds on farms and there was nothing in the legislation which could stop such activity being subsidised.
There are now almost three times more stand-alone wind turbines per square km here than in GB. The Audit Office said it “identified a significant risk that some investors may be achieving a higher financial return than was required to encourage adoption of the various supported technologies.”
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Yet, despite having made renewables more generous than elsewhere in the UK when the bulk of the bill was being paid by those outside Northern Ireland, now Northern Ireland is the only UK region without an incentivisation mechanism for large-scale renewable electricity generation.
It also said that a number of individuals were concerned about “ongoing environmental risks linked to farm-based AD plants” which included allegations of “heat being wasted and vented to the atmosphere and slurry and digestate entering waterways”.
Subsidy for inefficient turbines was quadrupled
When the NIRO was set up in 2005 under direct rule, it largely mirrored a similar scheme in Great Britain – with the exception of the generous reduction in what Northern Ireland bill payers had to contribute.
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But in 2011, Mrs Foster doubled the level of subsidy for anaerobic digester plants.
Then in January 2015, Mrs Foster announced that “existing [subsidy] levels for small scale onshore wind, anaerobic digestion and hydro technologies will remain unchanged until the closure of the NIRO” – although at the same time she cut solar photovoltaic subsidies.
The various decisions made by Mrs Foster and then by her successor, Jonathan Bell, meant that by the time the NIRO was shut in 2016 it was significantly more generous that corresponding green schemes in GB.
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Even when shutting the scheme, after it became clear that Northern Ireland would have to foot the full bill if it remained open, Stormont agreed to facilitate multiple new entrants to the scheme through a “grace period” which allowed them to get in until 2017.
The Audit Office calculated that a typical small scale wind turbine on the scheme would give an annual return of more than 20% and a payback time on the original investment of less than four years – with another 16 years of payments to come.
Turbines of less than 250kwh generated more than four times more in subsidies per unit of electricity than the sort of larger wind turbines generally found in wind farms and incentivised under the same scheme, thus incentivising companies towards installing smaller turbines – even though they provided poorer value for consumers.
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The Audit Office said that “in our opinion the rate of ROCs paid for turbines with capacity less than 250kW appears to have been excessive” and recommended that the department review the subsidies to ensure they are not in breach of EU state aid rules.
Rates of £2 million were not being paid
The Audit Office found that a flaw in Stormont’s regulations meant that there was no legal requirement for turbines or anaerobic digesters to have planning permission or to comply with environmental law before claiming subsidies.
That means that, as with RHI, a scheme intended to protect the environment could be incentivising those who are damaging the environment. The Audit Office also discovered that “a significant number” of wind turbines and anaerobic digesters had never been assessed for rates estimated at £2.1 million a year but thanks to the Audit Office that has now been rectified.
Stormont defends its ‘major success story’
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Stormont’s Department for the Economy – which set up and oversaw the NIRO scheme – last night defended it and insisted that “renewable electricity has been the major success story in Northern Ireland”.
It said that the NIRO had been the main mechanism in driving a huge increase in the amount of green electricity on the grid and that “the majority of the NIRO related issues identified in the Northern Ireland Audit Office report focus on a subset of two technologies which represent a small proportion of the renewable electricity generation supported by the scheme”.
The Audit Office agreed that the scheme had been remarkably successful at increasing green electricity. From almost no green electricity 15 years ago, by March almost half of electricity – 46.8% – in Northern Ireland over the previous 12 months had come from renewable sources, 85.4% of which came from onshore wind turbines.
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The Audit Office said: “The fact that NI has exceeded its target of 40% of electricity consumption from renewables before 2020 is a considerable achievement ... however it is important to recognise that this has been achieved at a considerable financial cost and also in unforeseen impacts on the local natural environment.”
But it took issue with how that had been achieved and the cost to consumers.
It said that initially subsidies in GB were similar to Northern Ireland in most cases and slightly higher or lower in others, such as small scale wind and small scale anaerobic digester technologies.
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However, it said: “From 2014 the equivalent levels of support for certain categories of small scale renewable technologies in GB began to fall significantly, making NI the most attractive UK region in which to invest in small scale wind-based technologies and small scale anaerobic digestion-based technologies.”
The Audit Office also said that there were no “phantom plants” – a phrase used in media reporting two years ago – but that there was evidence of “gaming” the subsidy in order to reap greater profits.
The Audit Office also said: ”The media and third party whistleblowers have played an important role in identifying these concerns.”
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The department highlighted that it had “exceeded the Executive’s 40% renewable electricity consumption by 2020 target a year early” and said that the expansion of the renewables industry has led to job creation.
It added: “The approximate annual cost of the NIRO to the average Northern Ireland domestic customer in 2019 was approximately £31 i.e. around 5% of the total electricity bill.
“It is important to note that this cost is driven by the annual obligation level and is not directly linked to the level of revenue received by renewable generators by trading NIROCs in any given year.”
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