Burned

by Sam McBride

  Just six months into Stormont’s RHI scheme, there had now been a barrage of prompts to look at the issue of cost controls and some of the key assumptions behind the scheme. At this stage the number of claimants was in single figures, and although those who had entered the scheme would have locked in lucrative uncapped subsidies for 20 years, action at that point would have contained the problem. But, for whatever reason, nothing was done.

  The following month, there was another moment that might have jolted DETI to spot ‘cash for ash’. On 3 June, Ofgem sent Hutchinson a spreadsheet with the Northern Ireland RHI data for that week. It gave considerable detail about the applicants’ behaviour. It set out the size of the boilers, showing that they were generally far bigger than the 50 kW boilers which CEPA’s modelling had expected and on which it had based the tariffs. Aside from any other problem with the scheme, if CEPA’s assumptions were wildly wrong then the tariffs were going to be wildly wrong. One number in the data gave away that something potentially problematic was going on. The spreadsheet showed that several of the early biomass installations were running for 168 hours per week. There are only 168 hours in a week so that meant that the boilers were running round the clock. A simple calculation would have shown how much money they were making.

  That same month, senior Ofgem figure Edmund Ward attended an event organised by the green energy charity Action Renewables. Promotional material for the event to explain RHI to potential claimants included the strapline: ‘Find out how to generate heat and get paid for it!’ Subsequently, the organisers circulated some of the speakers’ presentations to those who had attended. Ward was sent a presentation by the chief executive of the Renewable Heat Association in which attention was drawn to perverse incentives. Under the heading ‘lessons for DETI’, it said: ‘Don’t let there be perverse incentives’ and argued for tiered tariffs. DETI was not present at the event – and was criticised by some attendees for not being there. However, the energy division team were regularly going to similar events to promote RHI. Their evidence to the inquiry was that they never picked up on the flaws of the scheme at such events, despite what multiple witnesses described as participants’ open discussion about the extremely lucrative nature of the subsidy.

  Solmatix, a firm which attended such events, had a leaflet that literally marketed RHI as ‘cash for ash’. Its literature said: ‘When you factor in your guaranteed quarterly RHI grant income, you’re effectively benefiting from FREE heat plus a significant financial reward. It’s cash … for ash.’

  Hutchinson, who most regularly attended such events for the department, was over-worked by his superiors who effectively left him to single-handedly keep a day-to-day eye on a novel and complex incentive scheme which DETI’s own risk analysis had shown was vulnerable to fraud. But he was also being asked to expand RHI.

  The non-domestic RHI had always been intended as the first stage of a larger scheme, which would allow domestic applications and also include further technologies. With pressure to spend the RHI money on offer from the Treasury – and to hit the EU targets – Hepper again turned to CEPA for advice. Having paid £100,000 for the flawed initial advice, DETI now agreed to spend about the same again for advice on how to get more people into the scheme. CEPA delivered its 131-page report in June 2013 and for those who read it there were a series of warning signs. The consultants raised one of the most flagrant abuses of the non-domestic RHI. The warning, on page 66 of the detailed report, came as CEPA set out several risks. Among them are problems with metering which ‘broadly relate to the range of issues encountered by the non-domestic RHI to date’. Under the heading ‘useful heat’, it went on to say: ‘With direct metering, properties may be heated to higher than best practice levels, windows opened, etc., if the tariff is tied to heat generated. In this case, the tariff could exceed operating costs.’ It was an unvarnished articulation of the sort of practices the industry had immediately spotted were being incentivised by DETI.

  Throughout the report, the consultants also warned that the department could not afford the payments, which would be necessary if it was to reach its target of securing 10% of renewable heat by 2020: ‘In short, if DETI is spending more than 4.2p/kWh, it is not going to be able to afford the 10% target with its assumed budget. In that regard, we note that many of the tariffs in this report are above 4.2p.’

  The report also reiterated the cost of wood chip and wood pellets – the two main biomass fuel sources – and said that the prices collated in its initial report had been substantiated by a Northern Ireland stakeholder group with which it had discussions. Not only was this in itself another chance for DETI to be reminded of the gulf between the cost of fuel and the level of its subsidy, but the report recommended that, as part of what were meant to be regular reviews of the non-domestic RHI, DETI specifically review the cost of biomass fuel.

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  By December 2013, RHI had been open for a year in Northern Ireland. But despite the riches on offer, just 85 applications had been made to the scheme. Some in DETI were disappointed, and there was an understandable sense that RHI was underperforming. At least, that’s what the story was when the scandal erupted in 2016. It was the explanation offered by both Foster and her civil servants for why cost controls had not been prioritised. However, had the numbers been examined in more depth, they would have realised that was not quite the full story. The department was not comparing like with like. They were comparing Northern Ireland’s fledgling scheme with the more established GB scheme at that point. Had they compared their scheme with the GB scheme at the same stage, a year after it had been set up, they would have seen that Northern Ireland had a higher pro-rata take-up than GB.

  On one reading, Stormont was lulled into a false sense of security by the mistaken belief that there was limited demand for its scheme and, whether consciously or subliminally, this contributed to cost controls being delayed. But was that really what happened? Several pieces of evidence suggest that DETI may have known that RHI was performing well.

  In December 2013, Foster wrote in reply to another letter from Barker, the Whitehall minister. She told him: ‘The Northern Ireland RHI has only been in operation for 12 months, yet there has been an encouraging level of uptake, with the number of applications for the Northern Ireland scheme being around 7% of the number received by the GB scheme during its first year of operation.’ Given what Foster would later claim about low uptake helping to explain the inaction over implementing cost controls, that is a remarkable sentence. The 7% quoted is far above Northern Ireland’s 2.8% share of the UK population. Foster was now clearly aware that the uptake on her scheme was more than double what had been experienced in GB at the same stage of that scheme’s life. Perhaps that was in her mind – or in the mind of the civil servant who drafted the letter for Foster – when she also assured Barker that among the issues being considered by DETI was ‘cost control’.

  The following month, Foster was asked in the Assembly to provide an update on the scheme. Oozing confidence, she gave no hint of alarm or disappointment. Foster told MLAs that the performance of her scheme was better than that in GB, and said that while Northern Ireland accounted for less than 3% of the UK heat demand, the number of Northern Ireland applications equated to 6.8% of GB applications. That, Foster said with the sort of clarity that gave many observers the idea that she was a competent minister, ‘demonstrates that the Northern Ireland scheme is punching above its weight’. Four months later, in a briefing which went to Foster, the then head of DETI’s energy division, John Mills, told her:

  The current NI uptake compares favourably with the GB uptake at the same point in time on a pro-rata basis. The NI scheme is currently tracking at 7.2% of GB applications, 7.2% of accreditations and 4.1% of heat capacity, despite the NI heat market being only 3% of the UK market. This suggests that the NI RHI could experience a higher volume of applications but for smaller installations.

  He was certainly right about that. As 2013 ended
, the first year of RHI had seen multiple explicit warnings about the fledgling scheme or moments that ought to have prompted reflection by DETI. Rather than move to address the myriad problems with the subsidy, the department was putting all of its energy into expanding the scheme. But already there had been another seismic warning – a warning so significant that it would help to topple the future First Minister.

  CHAPTER 7

  WHISTLING IN THE WIND

  It was a Monday morning and Janette O’Hagan was in the office of Okotech, her small technology company, in Antrim. The business had been set up the previous year and was centred around the development of energy - efficient heating controls called heatboss. The product enabled heating to be wirelessly controlled, switching the heat on and off in individual rooms remotely, rather than heating an entire property when much of it may be empty. Her pitch to businesses was simple: buy my product and expect to pay 30% less for heat. But on the morning of 26 August 2013, O’Hagan was not marketing her fledgling company’s product to potential customers. She had stumbled across something hard to believe, but because it was impacting her business she quickly came to see that it was true.

  While most businesses were interested in discovering how they could save money on their heating bill, companies with biomass boilers seemed to have no interest. Baffled, O’Hagan dug into the issue. She had picked up in conversations at industry events that these businesses were receiving the RHI subsidy. She recalled:

  The more I was hearing, the more I was getting more convinced, so I looked online, and I went onto the DETI website and looked at the tariffs that were set, and immediately I thought — and I mean immediately — thought that, ‘That can’t be right. You know, that can’t be right. Where is the limit? How do you ensure people are being efficient there?’

  And then, whenever I compared it to the GB tariffs and their tiers, and they just seemed to have got it. They got it that, ‘Yes, we have to incentivise people to take up this technology’ … but they knew that there had to be a limit, you know: ‘We have to not incentivise waste’.

  This epiphany immediately explained why when she contacted businesses with RHI boilers they were not interested in being efficient because the more that they burned, the more they earned. With scant knowledge of politics, she was unsure what to do. But she was clear that she had to try to alert the authorities to what was happening. Not only was her business suffering as a result of the RHI but she was angry at the thought of such waste being incentivised by government. That Monday morning she decided to go right to the top – to Arlene Foster. O’Hagan sent an email to DETI’s generic email address, marking it for the attention of Arlene Foster. It was a general email setting out her company’s attempts to facilitate energy efficiency and asked for a meeting with Foster to discuss the issue. Moments after hitting ‘send’, she had second thoughts. Would an email to a generic email inbox get picked up? And, if it did, would it ever make its way to the minister?

  O’Hagan decided to try another route. Searching the DUP website, she found an email address where Foster could be emailed about constituency issues. Five minutes after sending the initial email, she sent a second to Foster but added the line: ‘Given the benefits of RHI, we find that many of our potential customers are no longer worried about becoming more efficient, because they are now more sustainable.’ It was a cryptic reference to the problem, but her intention was to secure a meeting at which she could explain RHI’s central flaw. Eight days later, there had been no response to either email.

  Undeterred, O’Hagan sat down again and emailed arlene@arlenefoster.org.uk. This time she was more direct, telling the minister: ‘Given the benefits of RHI, we find that many of our potential customers are no longer worried about becoming more efficient, in fact it pays them to use as much as they can – in fact the incentive to use more is leading to misuse in some cases.’ Now, just ten months after the launch of RHI, Foster had been warned explicitly that it was in itself a perverse incentive to waste heat and was being actively abused. O’Hagan never received a reply to that email and there is no electronic record of it ever having been passed on to DETI – unlike the initial email, which Foster had forwarded to her private office. However, two days later O’Hagan was contacted by a DETI official who said that Foster could not meet her but a meeting would be arranged with officials. The businesswoman was in no doubt that it was her second and more direct email to Foster that led to the response.

  O’Hagan had not known what to expect and was pleasantly surprised to be told that she was being offered a meeting. A month later, she was sitting around a table in DETI’s Netherleigh House headquarters with the triumvirate of civil servants who knew more about RHI than anyone else – Fiona Hepper, Joanne McCutheon and Peter Hutchinson. The fact that all three met her for an hour at a time when the civil servants say they were overworked suggests that this was thought to be more important than simply a businesswoman with a commercial complaint.

  But their disposition in the meeting left O’Hagan despondent. On leaving the rambling DETI headquarters, she felt that she had wasted her time. As in her email to Foster, O’Hagan had warned them of the perverse incentive to run boilers around the clock with windows open. With lurid language, she told the civil servants that she was surprised people weren’t mounting radiators on the outside walls of buildings, such was the financial incentive to waste heat. The response – she thinks it was from McCutheon, but certainly from one of the three – never left her: ‘We don’t think people will do that.’ O’Hagan shot back: ‘Well, they can, and they will, and I’m surprised they’re not mounting them on the outside.’ She was certain of her facts because she had compared Stormont’s scheme to the one in GB and she also had first-hand experience of how those with biomass boilers reacted to the offer of cutting their fuel bill, as well as what others in the energy industry were saying. But she also had something else.

  Just two months earlier, O’Hagan had approached BS Holdings, the biomass installer which had within weeks worked out that the scheme was a money-maker, with a proposal to work together – the heatboss system would be installed along with the biomass boiler, thus saving money on two fronts. But ahead of the meeting, the boiler installer sent her an email to caution that for its RHI customers ‘the more heat generated, the more funding’. The implication was clear: a product which cut their heating bill was going to reduce their income, so it wasn’t going to be attractive. At the meeting, it was suggested to her that if BS Holdings was to trial some of her promotional literature with its customers then the leaflets should be rewritten to remove the references to savings. Instead, the suggestion was that she should market her product to RHI users as a means of ensuring ‘control’ and ‘comfort’. But at the meeting with DETI officials, O’Hagan was told that it was their ‘assumption’ that if a business was going to invest in an expensive biomass boiler it would be the last stage of an attempt to become more environmentally friendly and would have been preceded by efforts to become more energy efficient.

  Based on what they told O’Hagan, the civil servants don’t seem to have been able to comprehend that a business might be more interested in making easy money than cutting its carbon emissions. Yet the explanation which they gave to O’Hagan did not fully add up because in their own paperwork for the RHI scheme they had identified the risk of fraud and overcompensation. And it is harder still to understand why they were so dismissive of her central claim because by now Hutchinson, at least, had firm evidence about how the early claimants were using their boilers far more than had been anticipated. Although DETI’s small RHI team was not monitoring it in the hands-on way that Whitehall was examining trends in the GB scheme, they were receiving sufficient information in RHI’s first year to raise eyebrows.

  As early as seven months into the scheme, Hutchinson was estimating that boilers could be used for as much as 35% of the year – more than double the 17% CEPA had estimated. It was also clear from the data coming through to DETI
by then that the only real interest was in biomass. That in itself ought to have been a red flag because the scheme had been set up to incentivise a host of green technologies, and the subsidies were meant to have been calculated so that there would be no predominance of a single technology.

  Hepper later told the public inquiry that O’Hagan had only raised ‘anecdotal’ evidence. She said that the businesswoman had been encouraged to contribute to a consultation on the expansion of the scheme. But when O’Hagan looked at the consultation, most of it related to the domestic scheme and she felt that she had already explicitly told the key DETI figures about the central problem. If they wouldn’t believe her when she told them in person, why would they react differently if she filled in a consultation response form? O’Hagan later told the inquiry: ‘I just keep thinking a blind man on a galloping horse would have seen it. You know, how could they not?’

  It would be the emergence of O’Hagan’s email to Foster, three and a half years after it was sent, that would trigger former DUP minister Jonathan Bell to speak out and then the process of Foster’s toppling as First Minister, the collapse of Stormont and the public inquiry.

  O’Hagan, who stressed that she had no political motive for what she did and who was not involved in the leaking of her email in December 2016, could never have imagined where her attempt to raise the alarm would lead. Although she later came to be referred to as a whistleblower – and at various points had later referred to herself as such – she told the inquiry that she did not think that she was in truth a whistleblower, because she was not blowing the whistle from the inside but was rather a ‘concerned citizen’ who could see there was a problem. For that reason, she did not seek anonymity when she approached the department. Her 2013 attempt to alert those in authority to the problem was the first of multiple efforts to get DETI to open its eyes to what was going on. The dismissive response from officialdom shook her confidence in the machinery of government. She later reflected: ‘It seems to me that the effective route is probably to go to the media.’