The Department for the Economy (DfE) has made a request to NI Secretary of State Karen Bradley to take legislation through Westminster in the next few weeks that will introduce new long-term tariff rates for all non-domestic renewable heat incentive (RHI) scheme claimants.
The plan is for the new tariffs to be in place for 1 April 2019.
Last year, DfE came forward with a consultation that outlined eight different options for future payments.
Aside from closing the scheme altogether, it has, as expected, effectively chosen the lowest-cost option, which would deliver a tariff of 1.7p/kWh for a 99kW boiler for the first 1,314 hours of heat, and zero tariff thereafter.It would mean a total maximum payment of only £2,210/boiler.
Figures from the Renewable Heat Association NI (RHANI) put that number into perspective when it’s compared with what has been available previously.
Under the 2017 amended tariff (which currently applies to all non-domestic RHI claimants), the same boiler would receive payments of £13,420.
If participants remain on 2017 tariffs the rate of return is 50%, while the original 2012 tariff would deliver a 100% rate of return
Under the original 2012 regulations, which were guaranteed by government at the time for 20 years, the figure is £28,000. Justifying the much lower tariff rate, DfE officials point to a clear direction from the European Commission that state aid approval for the scheme is based on a 12% rate of return on the investment (for a biomass boiler over a fossil fuel alternative).
These calculations, which are done from this point forward, show that the preferred option is the only one to deliver this 12% return. If participants remain on 2017 tariffs the rate of return is 50%, while the original 2012 tariff would deliver a 100% rate of return.
In the preferred option, no allowance, no allowance is given for the significant cost incurred by many claimants when installing associated hot water heating systems, nor for potentially much higher maintenance costs down the line.
DfE officials also claim that biomass is currently cheaper to operate than fossil fuel alternatives, so are not expecting a significant drop off when tariffs change. However, they will review the tariff if and when prices of biomass change against oil or gas.
Buy-out
For those who wish to exit the scheme in the near future, a voluntary buy-out will be available. However, it will be calculated to provide an amount equivalent to a 12% return, minus the amount of RHI payments already received.
It means a significant number of boiler owners would get nothing. DfE is budgeting that 160 claimants per year for three years could avail of a buy-out option.
Funding
Until 1 April 2019, DfE estimates that the RHI scheme will have cost £120m. Moving to the new tariff for the remainder of the life of the scheme will cost another £70m. So in total, the cost comes to around £190m, which is significantly below the estimated budget of £500m potentially available from the British Treasury.
That could leave the door open for a different renewable energy scheme in NI.
The current scheme for new RHI entrants in Britain would deliver an annual payment for a 99kW boiler of £12,200, nearly six times that on offer in NI
However, current scheme claimants can point to the fact that if the 2017 tariffs were retained long term, this would be mainly covered by the budget available from the UK Treasury, so provides little risk to Stormont finances.
The other point being made is that the current scheme for new RHI entrants in Britain would deliver an annual payment for a 99kW boiler of £12,200, nearly six times that on offer in NI.
Presumably the scheme in Britain has also been scrutinised and received state aid approval, yet it seems to be delivering a rate of return well above that in NI.
On the face of it, it looks like a heat claimant in Britain (eg a poultry producer) is now at a significant competitive advantage.
Either way, RHANI is expected to legally challenge the new long-term tariffs currently being proposed in NI. Ultimately, it could be for the courts outside of NI to decide what the appropriate tariff rates should be.
UFU blasts RHI tariff proposals
Responding to the RHI tariff plan from DfE, the Ulster Farmers’ Union (UFU) said it was outraged by the outlined proposals.
Commenting, UFU deputy president Victor Chestnutt described it as a crushing blow for farmers who had entered the scheme in good faith, and were encouraged to do so by politicians, government departments and processors.
“Farmers didn’t design the flawed scheme and it is utterly shameful they are being made scapegoats for the failures of others,” said Chestnutt.
He maintained that the UFU has been contacted by numerous farmers now seriously concerned about the future of their businesses.
“Under the new proposals farmers stand to lose £10,000/year/boiler, which when you factor in loan repayments, maintenance and fuel costs is completely unsustainable,” said Chestnutt.
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