Conor Spackman investigates a multi-million pound blunder over a green energy scheme, that insiders are calling the biggest financial shambles in the history of the NI state.
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Did you hear the one about the Renewable Heat Incentive?
It was a government scheme which went hugely over budget.
Supposedly a green scheme, reducing our reliance on fossil fuels.
But believe it or not, as well as being economically a disaster,
it actually turned out to be damaging to the environment.
There was a series of extraordinary, extraordinary blunders,
and now, because of those blunders, we're likely to spend
the next 20 years picking up a tab of hundreds of millions of pounds.
Tonight on Spotlight, we hear about the missed alarmed bells
and we reveal a previously unseen e-mail from a whistle-blower,
which was ignored by Arlene Foster's department.
The scheme will support generators of renewable heat
through long-term incentive payments.
It seems to have gone wrong.
You wonder, in fact, did anything go right with it?
We realised we had a big, big problem.
It's running into hundreds of millions of pounds of public money.
It's almost like burning the money.
Possibly, this is the biggest financial penalty imposed
on taxpayers in Northern Ireland that has occurred in my lifetime.
This is the story of how a team of civil servants
came up with a renewable energy scheme that was so flawed,
insiders are calling it "the biggest shambles since DeLorean".
Some even believe it could be one of the biggest financial blunders
in the history of the Northern Ireland state.
OK, members, we're ready for the witnesses.
The Public Accounts Committee at Stormont
is investigating what went wrong.
Can I just welcome Dr Andrew McCormick?
The Non-Domestic Renewable Heat Incentive scheme
was about helping the environment, about renewables
and to reduce harmful emissions,
but from what we've seen from the outworkings of it,
it's nearly the opposite of it.
The scheme has not only been bad for the environment,
but a waste of public money.
The man who now has to explain
is the Permanent Secretary at the Department for the Economy -
its most senior civil servant Andrew McCormick.
I think we do owe an apology to the committee.
The intention was good.
The execution and design have been very seriously wrong.
So wrong, in fact, that businesses burning fuel
simply to earn government money was effectively encouraged.
These images from a thermal camera give you a real sense
of the amount of heat being generated quite legitimately
but at enormous cost through the scheme.
But exactly how that happened, according to the department,
is still not clear.
The failure to comprehend what was going on lay with us.
There is no good answer to that.
There is no good explanation.
As I've said a number of times already this afternoon,
there is no good explanation.
'To understand how this green scheme was supposed to work,
'I met Michael Doran,
'who helps businesses move from fossil fuels to renewables.'
OK, what we're talking about is heat.
So businesses, until this scheme, almost all used oil and gas?
In Northern Ireland, yes. Oil and gas are fossil fuels
and what we're trying to do is to move towards renewables.
So what we're using now is wood.
We're using the same kind of boiler,
except it's running on wood pellets.
'Diana Gass owns several garden centres. Earlier this year,
'she replaced the oil-fired boilers with wood pellet boilers.
'She says she was attracted by the environmental benefits.'
It's very quiet, very clean, there's no fumes anywhere.
It fits in with our business quite well. The whole idea of being green,
gardening, getting out in the fresh air, you know,
it goes with the whole thing, growing your own food.
-Well, the thing itself is even green.
-Yeah, it is indeed!
Diana Gass' business had to invest tens of thousands of pounds
to move from oil boilers to wood pellet boilers.
The Renewable Heat Incentive scheme
helped businesses with the cost of making that leap.
Say I'm a businessman, and I want to move to renewables,
but I have an oil boiler -
how much is it going to cost me to move across?
For boilers that are in this scheme, typically, it's about £25-£30,000.
So how does the government then encourage people to do that?
What they are trying to do is to incentivise change
and they have to give you money to do that,
because you've got to incentivise people to pay for the boiler.
The civil servants in Arlene Foster's department responsible
for setting up the incentive scheme were the energy team.
The team was headed up by this woman - Fiona Hepper.
The Spending Review has seen
Treasury commit to a renewable heat incentive for GB.
A former senior civil servant in the department has told Spotlight
that Ms Hepper often dealt directly with Arlene Foster.
'The first mistake Mrs Foster's energy team made
'was setting the rate of payment too high.'
What they do is they pay an amount for the heat that you generate -
but what's actually happened here is that they've set a rate
which is higher than the cost of the fuel in the boiler.
Therefore, you're actually incentivised
to run the boiler for as many hours as possible.
So, in other words, what they are paying you is more
-than it costs you to run it?
-That's exactly the problem.
In other words, in this scheme, the more you burn, the more you earn?
-That sounds like a really fundamental cock-up.
Yes, it is.
The system means that, for the next 20 years,
the payment is very likely to be higher than the cost of the wood.
So how did Arlene Foster's energy team get the rate so badly wrong?
Back in 2011, a rate was proposed,
which was less than the cost of the wood.
At the time of the original arithmetic for the scheme,
the cost of the wood to burn in the boilers was higher than
the subsidy that would've been paid.
By the time the scheme came into operation,
that relationship had reversed, and that was fatal.
'The change came about after a public consultation,
'where pressure was applied by businesses
'to raise the rate or tariff.'
There are many voices in the context of the consultation
saying that the tariff was too low.
Andrew McCormick took over
as the boss of the Department of Enterprise -
now the Department for the Economy - in 2014.
There'd been strong pressure during consultation to have higher tariffs.
And so, the rate - the tariff - was increased.
But the energy team in the department didn't realise
that the rate was now more than the cost of the wood.
The subsidy on the fuel was greater than the cost of buying the fuel.
This was a "heads, you win, tails, you can't lose" type situation,
where simply, the owner of the boiler was going to make money,
so long as he ran the boiler for more hours.
Despite supposedly being a green scheme,
the higher rate discouraged energy efficiency.
This is the paradox of it - burn more wood and you get more money.
It's not an incentive
to improve or enhance the environment.
It's an incentive to put more smoke up into it.
The scheme was set up here in November 2012.
A similar scheme had been introduced in Great Britain the year before.
The GB scheme has a vital in-built cost control,
which was not copied across to our model.
Another crucial mistake by Mrs Foster's energy team.
But at the heart of the scheme was a fatal flaw -
the lack of anything like sufficient control.
It meant the department ended up with a scheme where,
the more you burn, the more you earn.
Cash for ash.
With hindsight, you know, deep regrets.
Had we stayed closer to the GB scheme,
maybe even been a subset of it or a variant on it,
rather than a separate scheme, that might have been better.
Not copying the GB model meant the absence of a key safety valve,
Michael Doran explained to me how an ideal heat incentive scheme
should work - paying a high rate initially that drops off.
So we're drawing here a little graph of the amount of money
that you're getting over the year.
So, in an ideal world, you set a rate
that's relatively high
for the first number of hours over the year,
then you drop that rate
and you pay a lower rate for the rest of the year.
-And why do you start off with a higher rate?
First of all, you're trying to cover the cost of the boiler upfront.
So, the boiler's quite expensive and we know that the government
doesn't just send cheques to people and say, "Here, buy a boiler."
What they're doing is they're giving them a higher rate in each year,
-in order to cover the cost of the boiler?
And you're also trying to encourage people to be energy efficient.
-So that's why you drop the rate down?
Because you don't want people generating heat just to get money.
-OK, so that's an ideal scheme?
-Yeah, that's one way of doing it.
That's not the way that the scheme was introduced in Northern Ireland.
-Just explain to me, then, what we did here.
-We've got the same graph.
So we've got the payment.
-Payments start off high.
But the payment continued on at that rate for the entire year.
-There was no drop.
-OK, and this scheme lasts for 20 years,
-so is it like that for the whole 20 years?
-You're getting that rate
for the whole 20 years and that's where the scheme went wrong.
'The lack of a key cost control - tiering, dropping the rate down -
'is acknowledged by the department as a fatal blunder.'
The hard fact is that there was not a proper assessment of the risk.
That the big...
Especially the risk arising from the absence of a tiered tariff.
The failure to copy the GB model meant the department
ended up with a scheme which was fundamentally flawed.
And it missed a crucial opportunity to right that wrong.
Less than a year after the scheme started, a whistle-blower
approached the minister Arlene Foster with concerns.
The minister referred the whistle-blower to her department.
The whistle-blower met Fiona Hepper and other officials,
a meeting she later noted in an e-mail.
Spotlight has exclusively obtained a copy of that e-mail
from the whistle-blower to the department
and, in it, the whistle-blower is remarkably clear
in setting out her concerns.
For example, she tells the department,
"It's now in the interests of businesses here to waste energy."
And it shows she says she warned the department, in autumn 2013,
about the serious flaws in the scheme.
The whistle-blower's apparently very clear advice was ignored.
It wouldn't be the last time.
Shortly after the scheme was introduced,
the department missed yet another chance to control the costs.
In 2013, London introduced a cost control to the GB scheme
called degression. To understand it, think of the budget like a cake.
In Great Britain, there was only one cake to go round,
and the more applicants there were, the less cake they each got.
No matter how many applicants there were,
the overall funding never got any bigger.
There was only one pot of cash
and, the more applicants there were, the less they each got.
This is degression.
Do your records show if the department had been advised
-that the English scheme had decided to introduce degression?
-Sorry, yes, we were well aware of that.
-You were? All right.
Through informal contact and indeed ministerial correspondence,
so that was there, and... but wasn't acted on.
So, despite information from London to the minister Arlene Foster,
Northern Ireland didn't have the same control.
Here, there wasn't just one cake, there was cake all round!
Arlene Foster turned down our request for an interview,
but in a statement, she said that at no stage
was any proposal for cost controls, like tiering or digression,
made to her by departmental officials.
With such a high rate, and without key cost controls,
the Northern Ireland scheme was lucrative.
-# I'm living well!
-I'm living good, babe! #
The Audit Office, which has investigated,
said one industry in particular could benefit massively.
The poultry business.
Well, this example, on the poultry industry in Northern Ireland
compared to Great Britain, shows the enormous difference
that this enhanced subsidy was making in Northern Ireland.
The profit would be £737,000.
In Great Britain, the comparable profit would be £66,000.
This is chicken country.
As you drive around this part of County Tyrone, you can't help
but notice these big poultry houses dotted across the countryside.
And hundreds of poultry farms in Northern Ireland
are now getting their heat from these wood pellet boilers.
Because of the flaws in the RHI scheme,
some of those poultry farmers are making serious money.
24/7 usage, in some contexts,
entirely legitimate and reasonable, the business' need for it,
and, in poultry or whatever, it's absolutely fine.
The Renewable Heat Incentive was so generous that some people thought
it was too good to be true. But it wasn't -
and, in the early part of 2015, applications did start to go up.
The number of applications was rising rapidly.
At that stage, the department didn't really understand the root cause.
But what it did know was that it was burning through cash.
There was a belief, though, within the department,
that the Treasury was covering the money.
The department would soon find out
that that was another critical mistake.
-I fell asleep amid the flowers... #
They believed that Northern Ireland's day-to-day funding,
the block grant, was safe.
It seems that the department, Andrew,
would've operated from 2012 to 2015
on the basis that there was no risk to the block grant...
..and that everything was going to be covered by the Treasury.
In practice, yes.
That was a mistaken belief.
The Treasury was only prepared to pay 3%
of the overall cost of the scheme across the UK.
When the bills came in, and they were going well above 3%,
the Treasury was perfectly entitled to say, "Stop! What's going wrong?"
The Treasury e-mailed the department in 2011
to warn there would be a limit.
The Treasury itself did give clear indications in the early days...
But this is... I'm now talking about the spring of 2011.
..that there would be budgetary limits.
It was known and understood within the department.
Somehow or other, that got forgotten about.
Another loud alarm bell had been ignored.
London had said all along there would be a limit.
The department was in the middle of a crisis.
It faced a massive bill, which London wouldn't pay for.
An attempt was made to persuade
the Department for Energy and Climate Change,
or DECC, in Whitehall, to come up with the money.
But the high point of that drama
didn't happen in a grand room in Stormont.
You said earlier on, you know,
it was passed to you in the back of a taxi
on the way to a meeting in DECC, you were told to ask for more money.
-I wouldn't quite say it like that, yes.
-You did or you...?
-A touch of that, yes, OK.
That too is astounding.
You know, on your way to a meeting with senior people
over in London, like, what impression does that give to them?
They're bound to be saying,
"What kind of an outfit am I dealing with here?"
The department failed to persuade London to come up with the cash.
The record shows that that was a blind alley.
That we went up a blind alley.
The department had mistakenly believed that the Treasury
was paying come what may.
Some have questioned whether that false belief led to mistakes.
Would you accept that that type of complacency
led directly to the failed regulation by the department?
It's definitely connected. There's no question about that.
And one does get the feel that there isn't the scrutiny of that,
because it's not coming out of the block grant.
Now, if it's not coming out of the block grant,
there seems to be a mentality "What does it matter?"
Well, it does matter. It's all public money.
'Without London covering, the department tried to take action.
'They indicated they would change the scheme.
'But that led to hundreds of applications
'while the scheme was still lucrative.
'It made a bad situation even worse.'
They basically had to go back to the drawing board
-and redesign the scheme.
-So the department suggested
they were going to move to this less lucrative scheme
-and what happens then - people rush through the door.
In that period,
the market understood that there was going to be
a reduction in the monies that were coming out of it,
so there was a big spike,
-so the number of applications went up substantially.
-They inadvertently create this spike.
'In just two months,
'this spike accounted for nearly half a billion pounds of the cost.'
The story was obviously out.
Gossip was going from one person to another "This is so profitable,
"it won't last much longer, get in quickly."
'The scheme was changed and was now how it should've been at the start
'and still financially attractive enough for Diana Gass,
'who applied after the change - proof that people would
'still have applied for a less lucrative scheme.'
It'll take us about ten years before we start to make any saving.
But even if there isn't, we're getting a better product
for our money. We would get a better, consistent heat.
The change to the scheme came too late. The damage had been done.
RHI was closed in February.
The financial consequences are dramatic.
The total comes to over 1 billion. 1.18 billion, if I recall correctly.
-1.18 billion, just to...?
-The total value of the total scheme, yes.
The Treasury will fund just over half of that,
leaving Northern Ireland with a huge cost.
We're footing an extra bill,
which seems as if it's between £400 and £500 million, over 20 years.
The department has already had to start finding money
that could've gone elsewhere.
People come in and tell me about the impossible delays imposed on them
for a hip replacement, or a knee joint,
or schools are scraping to make ends meet -
and yet, we've maybe up to £500 million
that's going to be pared off those services
in order to pay for this squander.
Even though the scheme was closed,
the department still didn't know where it had all gone wrong.
To the astonishment of some, it took the department to effectively
impersonate a business and carry out a secret shopper exercise
before it finally worked it out.
The tariff had been too high all along.
What Internal Audit did was ring a supplier
as a secret shopper-type of approach.
They phoned up and said, "What would it cost to install a boiler
"and what would be the cost of fuel?"
That was in March of this year. That's after the event.
It doesn't change anything.
But between internal audit and external audit,
they are the people who have finally, finally realised
there's a root cause issue, which is too high a tariff.
The department now understood why the scheme had provided
an unacceptably high rate of return.
It only finally worked this out after the scheme had closed.
You only set out then to find out the cost of the boiler
and fuel in 2016, when the man on the street found out,
"Here, I can get my henhouse all heated up,
"and even my own house," yet you, the people sitting in here -
and maybe earning £80,000, £90,000 £100,000 a year - did not know that?
And now, we're paying the consequences
out of the block grant for it.
Heads should roll!
So, who were Arlene Foster's civil servants, earning those big numbers?
The senior officers involved
would've been Fiona Hepper as the grade 5,
um, David Thomson, who's now retired, as the grade 3,
and David Stirling is the permanent secretary.
As we know, Fiona Hepper was the head of the energy team
and often dealt directly with Arlene Foster.
Patsy McGlone chaired the Stormont committee,
which scrutinised the energy team.
They were supposed to report to us twice a year.
It was upwards on a year and a half
before they came before the committee.
The more questions we asked, the less clarity there was.
Whenever you leave a committee room more confused,
with less clarity than what you went into it on an issue,
you realise there's a problem.
Before the scheme's flaws became apparent, Fiona Hepper was promoted.
David Thomson retired in June 2014.
We asked him for an interview, but he declined.
David Stirling was their boss,
the most senior civil servant in the Department of Enterprise,
and ultimately accountable when the scheme was set up.
I will accept full responsibility
for any failings which occurred during my time.
He moved to the same role in the Department of Finance
before the flaws in RHI were known about.
Much of the coverage of the scheme has focused on claims of fraud.
-A whistle-blower claimed some companies put in
boilers they didn't need, that a farmer was heating an empty shed.
Each was hoping to rack up £1 million of profit over 20 years.
Spotlight has seen some of the findings
of a confidential investigation ordered by the department.
Nearly half of almost 300 sites inspected
are doing something the department didn't intend -
for example, not being energy efficient -
but not in a way that breaches the regulations.
Things went fundamentally wrong in the design,
which led to opportunities for, um, abuse and overuse,
which is eligible within the terms of the scheme,
but not the intention of the scheme.
In other words, most of the costs of the scheme,
most of the massive overspend,
comes from the department's blunders and not from fraud.
But it's the treatment of the whistle-blower
who approached Arlene Foster in 2013 which is at the heart of the story.
Correspondence that the committee has received
from a whistle-blower, a member of the concerned public,
shows that there were clear warnings to the departments
in relation to the wasteful use of heat as far back as October 2013.
The whistle-blower had expressed her concerns
to the minister Arlene Foster.
The whistle-blower then met the head of the energy team, Fiona Hepper,
and other officials in autumn 2013.
The point was made that, um,
the scheme was not operating as intended.
It seems, on the face of it, from that,
a very, very clear signal to act
and to at least ask the question "What does she mean?"
The whistle-blower's concerns were not addressed.
In her e-mail sent in May 2014, she put her fears in writing.
By then, Fiona Hepper had left the department.
The whistle-blower's e-mail says,
"What we're seeing on the ground in Northern Ireland is that buildings
"are using more energy than before, because it pays them to do so.
"The flat rate means there's no incentive at all to be efficient.
"So the heat in buildings is on all year round,
"with the windows open everywhere." It then says,
"When we had spoken, you did not believe that people would do this,
"but believe me, it's happening."
The whistle-blower added, "It's got to a stage
"where it cannot be ignored any longer."
The problem of "the more you burn, the more you earn"
had been identified.
The whistle-blower warned the department
and was effectively ignored.
This e-mail was literally, literally worth hundreds of millions of pounds
to the Northern Ireland taxpayer, and nothing was done about it.
To me, that was the first, er, clear opportunity
for the point that the tariff was too generous
to be identified and understood.
As a matter of fact, it wasn't.
The whistle-blower's e-mail was by far the loudest
of a series of alarm bells which were ignored.
Would you agree that, in terms of public money,
this is the biggest financial scandal in living memory?
-In Northern Ireland?
I can't recall anything that was on the scale.
We asked David Stirling and Fiona Hepper a series of questions
about their roles in the failure of the RHI scheme.
Both said they couldn't answer because of the ongoing PAC enquiry.
Arlene Foster said she couldn't be interviewed
because of time pressures, including a trip to China.
In a statement, she said,
"Investigations into the whistle-blower's claims..."
But the whistle-blower had first approached Mrs Foster
and she referred her to the department to investigate.
We asked Mrs Foster if she made any other attempt
to follow up on the woman's claims.
She did not respond directly to this question.
She pointed out that the Permanent Secretary had told the PAC
that her handling of the whistle-blower
had been "entirely appropriate".
Those ongoing costs are likely to be at least £400 million.
That could have paid for the new Omagh Hospital,
the York Street Interchange, Belfast's rapid transit system,
and converting the A26 at Frosses to dual carriageway,
with £15 million left over.
Conor Spackman investigates a multi-million pound blunder over a green energy scheme, the Renewable Heat Incentive, that insiders are calling the biggest financial shambles in the history of the NI state.