Cavalier attitude to EC State Aid decision on RHI could save the day

The comedy of errors that is the Northern Ireland Renewable Heat Incentive (RHI) scheme may be about to take yet another strange twist. And at last there may be some good news for the tax payer.

Earlier this week when I tweeted an alert to the EC’s decision on State Aid (SA.34140 (2012/N) for the Northern Ireland scheme I drew attention to one of the key paragraphs (Section 2.5 para 25) that sets out in very clear terms that:

“Only “useful heat” is eligible for payment under the RHI scheme, that is, heat which would otherwise have to be met by fossil fuels. This eliminates any incentive for deliberately wasting heat to receive payments.”

There’s an associated footnote which points out that the old ‘DETI’ Department had the power to investigate claims of heat waste or other forms of fraudulent behaviour. This power would now fall to the Department of the Economy.

There’s another paragraph (34) that describes the intention of the tariff structure, which is “not to provide perverse incentives to waste heat.”

These paragraphs underline the intention of the State Aid decision, which is to confirm that “the notified scheme” complies with the relevant provisions of the Community Guidelines on State Aid for Environmental Protection (2008):

a) Member States may grant operating aid to compensate for the difference between the cost of producing energy from renewable sources, including depreciation of extra investments for environmental protection, and the market price of the form of energy concerned. Operating aid may then be granted until the plant has been fully depreciated according to normal accounting rules. Any further energy produced by the plant will not qualify for any assistance. However, the aid may also cover a normal return on capital.

In other words, the Commission decision is based on conditions that must pertain if a “notified scheme” is to be deemed compliant and the recipients eligible. There is an understanding that a notified scheme qualifies on the basis of its environmental integrity (“useful heat”) in terms that allow for the qualified provision of State Aid. A further and related fundamental qualification is the absence of “over compensation” (Paragraph 109, Guidelines).

Far from being a threat of further financial liabilities for the Executive in the form of infraction fines, as some journalists have speculated, these provisions may be good news.

The provisions in the EC decision suggest that there may be significant scope for the Executive to cite the Northern Ireland Audit Office’s report on the Renewable Heat Incentive Scheme with a view to demonstrating that the actual operation of the “notified Scheme” significantly departed from the Community Guidelines on State Aid for Environmental Protection. This could open up an argument that any agreements or commitments with individual recipients of funding under the RHI that are not strictly compliant with the Guidelines (in breach of State Aid rules) are, de facto, ultra vires or outside the authority of the Department of the Economy.

By citing their own departure from the Guidelines, the Executive may find a way to significantly reduce its liability by providing a legitimate basis for revising funding arrangements in a way that would bring payments back into line with the RHI scheme operating in other parts of the United Kingdom.

Curiously, it may be the cavalier attitude to the environmental integrity of the RHI Scheme and to State Aid regulations that keeps the door open for a significant financial recovery.