Committee Questions Whether Renewable Energy Scheme Proved Value for Money

The Northern Ireland Public Accounts Committee has today published its Report on Generating Electricity from Renewable Energy, which examined the Northern Ireland Renewables Obligation (NIRO) scheme.

The scheme was originally introduced in 2005 by the then Department of Enterprise, Trade and Investment (DETI) and was continued by the Department for the Economy (DfE). While it formally closed to new applications in 2016, it continued to accredit new generating stations until 2018. The scheme financially supports the electricity renewables industry, with investors and owners of accredited generating stations, receiving important financial support, based on the amount of electricity they generate from a renewable energy source, e.g. wind. This financial support lasts for twenty years, from the accreditation date of each generating station.

While the scheme has met and exceeded its primary objective of incentivising the generation and consumption of electricity generated from renewable energy sources—approximately 49% of all electricity consumed in Northern Ireland now comes from renewable energy sources—it is not clear that this was delivered at the lowest cost to the UK electricity consumer. What was clear was the negative unintended planning and environmental consequences, which went unmanaged until 2018.

Chairman of the Committee, William Humphrey MBE MLA said, “Supported by important government initiatives, the renewables industry has created many local jobs, reduced reliance on imported fossil fuels and helped control electricity prices as a whole. However, we were surprised to find there was no certainty that the scheme—estimated at a cost of £5 billion to UK electricity consumers—was delivered at the lowest cost to UK electricity consumers.

“Unfortunately we are unable to ascertain this as both DETI and DfE were not provided with key cost data from those generating energy for the power grid. We believe that any future scheme must include a requirement to provide such cost detail as a condition of funding.”

One finding from the Report was the lack of joined up thinking and formal engagement between DETI and other key public bodies before introducing the NIRO scheme. This meant that a number of planning and environmental risks were not identified until long after the scheme had begun and were therefore more difficult to manage.

The Committee also found that the scheme did not include some cost controls that feature in other similar initiatives in Great Britain, something that could lead to overgenerous financial support to small-scale renewable electricity generators.

Chairman Humphrey said, “While we do not ignore the benefits that this scheme has brought Northern Ireland, we are concerned that there were a number of areas which must be improved, if schemes like this are to provide value for money.

“We noted that, the inability of the Department to ascertain and monitor actual rates of return, particularly for small scale generating stations, meant there was no opportunity to reduce the level of financial support to ensure that the scheme did not become unnecessarily costly for consumers. While different from the Renewable Heat Incentive scheme in that the electricity created is consumed for a useful purpose, we would still wish to ensure that a close eye is kept on the costs and rates of return associated with any further scheme.

“We are pleased that the Department for the Economy has taken steps, since 2017, to strengthen the expertise of its officials and strenuously recommend that it learns from any weaknesses and ensures that new schemes are closely monitored for effectiveness and value for money.”

ENDS

Notes to Editors

The full Report on Generating Electricity from Renewable Energy can be found on the Assembly website.

The Committee’s recommendations from the Report are:

Recommendation 1

The Committee is very concerned at the lack of formal engagement by the Department with other public bodies at the outset of the NIRO scheme. The Committee believes that had this been done, then many of the unintended consequences arising from the NIRO scheme could have been avoided.

The Committee recommends that consideration is given, at the outset of all new energy initiatives by the Department, to identify potential environmental, planning and other risks and ensure these are discussed and mitigated in consultation with other public bodies.

Recommendation 2

Despite the overall success of the NIRO scheme in reaching and exceeding Executive targets, as well as its wider contribution to UK targets, the Committee believes that there are important lessons to be learned for future energy schemes going forward. This is particularly relevant considering the Department is currently drafting a new Energy Strategy for Northern Ireland.

The Committee recommends that, in developing a new energy strategy, and supporting energy policy, the Department learns from any lessons from the NIRO scheme and specifically addresses potential impacts on areas such as the environment and planning and how these will be managed and resourced. This will require significantly more formal engagement and agreement with other public bodies than has previously been the case.

Recommendation 3

Having adequate human resources, in particular having the correct skill mix and experience has been a regular theme in the Committee’s recent inquiries. The Committee disagrees with the Department’s assertion that the Energy team was adequately resourced when it introduced the NIRO scheme and during its operation right up until 2017. This assertion is at odds with evidence produced during the RHI Inquiry.

The Committee recommends that the Department should perform an immediate skillset analysis of its Energy team, to identify and address any current skills gaps with the aim of reducing any overreliance (perceived or real) on private sector consultants and experts.

Recommendation 4

The Committee recognises and accepts that there will continue to be a need to seek assistance from and place reliance on, specialist consultants and other industry experts. However, there needs to be an awareness that some submissions will come from organisations with vested interests and these need to be treated with an appropriate level of professional scepticism.

The Committee recommends that all Departments, when seeking information via a call for evidence, recognise that submissions from individuals or organisations with vested financial interests carry greater risks, particularly if they are accepted at face value. This includes the potential that incorrect conclusions drawn from such submissions could lead to flawed policy decisions. Appropriate due diligence should therefore be performed on all such evidence and, where possible, information from independent sources without vested financial interests should be given much more weight in informing policy decisions.

Recommendation 5

The Committee was shocked that that the Department had not been able to monitor actual rates of return by generating stations accredited to the NIRO scheme. Such monitoring would have enabled the Department to determine whether investors and consumers were receiving good value from the scheme and adjust financial support accordingly. It was also surprised at some of the Departmental witnesses’ early evidence, which appeared to draw heavily on the industry report from RenewableNI, before it had carried out its own assessment of those conclusions. This inquiry has shown the constraints on the ability of the Department to monitor the outworking of its policies and properly assess value for money, when it does not have ongoing, transparent access to critical industry cost data. This is particularly important when it comes to designing schemes which are publically funded and aimed at encouraging private financial investment.

The Committee recommends that in any future energy schemes, the Department should build in a mandatory requirement for investors to confidentially share cost information as part of any accreditation process. This level of transparency would ensure that the rates of return returns being achieved are fair, both to the investor, the consumer and taxpayers. Regular monitoring of the datasets by the Department would assist in informing any changes to the levels of support for those schemes.

Recommendation 6

The Committee was surprised to learn that some owners of accredited generating stations continued to receive financial support from the NIRO scheme, despite not complying with planning and environmental regulations. This undermines credibility and public confidence in such schemes. It learned that the Department had no legal power to prevent this from occurring.

The Committee recommends that going forward, thorough consideration is given to the possibility of wider negative impacts, particularly in relation to compliance with planning and environmental regulations, when developing any future energy related legislation and policy. This should include more robust accreditation requirements, which should include penalties and appropriate action, such as with-holding financial support, if conditions of the scheme are not fully complied with.

Recommendation 7

The Committee also learned that the absence of any legal powers to withhold or suspend financial support from the NIRO scheme for non-compliance with planning or environmental regulations also existed in the RO schemes in Great Britain. It arose as a result of Northern Ireland having to adopt identical legislation from GB in order to avail of the NIRO scheme.

The Committee recommends that the Department needs to consider the wider impacts of adopting GB based legislation and policies being introduced. The Department should ensure that, when appropriate, it engages with equivalent bodies in other UK regions from an early stage, to feed into their legislative process to ensure that, if it is to be adopted in Northern Ireland, it is fit for purpose.

In addition, the Committee recommends that the Department specifically considers impacts on the environment and planning in the new energy strategy and includes methods to penalise renewable energy providers where there is noncompliance.

Recommendation 8

The Committee was surprised that information and data relating to the NIRO scheme was not routinely being shared across government. This included information about planning and environmental compliance and also impacted on the collection of rates. The Committee has seen this problem in several of its inquiries. It believes the tendency to work in silos and not adequately consider the work of other parts of the public sector has been endemic and that there is now an opportunity to realise significant efficiency and economic benefits from enhanced data sharing across government.

The Committee recommends that all Departments and their Arm’s Length Bodies are reminded of the requirement to share information and discuss the development of new policies across government. This work should be facilitated at the centre of government in order to ascertain what datasets exist that could and should be shared across government and if there are any legal obstacles in preventing this.

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