So why did applications to the RHI fund hit such a steep spike?

This is really on foot of a question asked by one of our regular commenters Ted. It’s not a definitive answer (the Public Inquiry report should give us that) but more of an educated guess.

First thing is to ask why for the first three years of the existence of this thing it was vastly under-subscribed. Well then, so why? In fact, the “free money” only comes in after you’ve made the initial capital outlay.

These things are not cheap (hence the scheme). A commercial boiler is going to set you back between 25k to 55k, with the average in the mid 30ks. So you need a lot of cap ex in hand to buy before you can avail of the scheme.

Not many people are in that sort of position so as a proposition on the face of it doesn’t look great. It’s only when you can afford the initial outlay that the benefits of the gearing kicks in.

The spike, of course, comes when officials get the word out that the scheme looks like closing and presumably speeds up the decision making out with a prompt to get in quick before it ends, that the rush comes.

Importantly it does not fit the classic corruption profile, where people would have been told to get in from the start.

  • Sergiogiorgio

    Ahhh, those dastardly officials again….see SPADS and their political overloads. Don’t see any “officials” resigning or stepping aside. Let’s wait for the inquiry.

  • Simian Droog

    You ever think that people were loathe to invest in a scheme that seemed so ridiculously advantageous that they held off believing it all too good to be true. Until word got around, that not only were they paying out but that it would end soon and you would miss the boat? Sounds perfectly likely to me.

  • Old Mortality

    The only plausible explanation for imposing a higher tariff than in the rest of the UK was that our more dull-witted farmers would need a larger incentive to adopt. And so it proved in the first couple of years before the banks cottoned onto its singular appeal as lending proposition. I’m almost certain the scheme was initiated only to satisfy some EU directive with targets.
    It was Foster’s decision to apply a higher tariff and she should have resigned immediately once the consequences of her poor judgement became apparent.

  • Korhomme

    A new technology, one unknown here. So why would you invest in it when the oil burner is working well? Oil is a well understood technology.

    Perhaps you needed a new boiler anyway. Otherwise, only ‘early adopters’ initially, until the firms can show newer customers just how good the technology is, and there is experience with it and with the scheme.

    But the jump in applications seems too great for this conventional uptake curve.

  • Gingray

    Or, as the Perm Sec of DETI said this week – the scheme was kept open at the behest of the Finance Ministers SPAD.

    The Finance Minister was Arlene Foster.

    And as the Perm Sec of DETI again said this week – the SPAD is an extension of the Minister and is there to represent their views.

  • the rich get richer

    God must have convinced the dodgy Dupers connections …………

  • the rich get richer

    Tis no wonder Arlene did not want nationalists/republicans to get their hands on the financial ministries…….. Too many “nice little earners” for Arlene to divvy up with her cronies……………….

  • Lionel Hutz

    Actually from what I hear, one of the reasons the take up was so low was because people didn’t believe that the deal was as good as they were advised. No one believed they’d be getting such a payback. And that changed when the word got out that it was going to close up.

  • Lionel Hutz

    That’s got the ring of truth to it

  • Sergiogiorgio

    Wonder if we’ll find the happy clappers with their noses in the trough or if it’s just the usual hand-out farmers. They’ve got to replace the EU gravy somehow.

  • the rich get richer

    Don’t the Police always tell you that if a deal sounds too good to be true then their may be some sort of fraud/fiddle/dodgy deal going on….The Dupers must have offered their “Protection” to encourage those that were reluctant to get involved in such dodgy dealing……….

  • file

    It is not just those who are in the RHI scheme we need to know about. It is also a) installers of these heating systems and b) suppliers of wood pellets. Then we can have a full picture of beneficiaries of the scheme and their connections to any of our sadly missed political class.

  • Angry Mob

    Speaking from my own personal experience I was aware of the scheme several years ago as it was possible to receive funding for properly green energy methods such as anaerobic digestion but with regards to the wood burners I first heard about them in December 2014 when an engineer I knew had been in contact with a local company who had asked to help install them as they had begun to fit quite a few.

    One thing I did notice was that that particular company would be in the epicentre of the Mid-Ulster region which in the closing stage had a lot of applications according to the BBC news report. Towards the end, and even before the two week extension the engineer was working extra long days in order to get as many installations signed off before the deadline.

    They were basically telling people that it was “free money” once the burners had paid themselves off and we even advised to fit a couple in our warehouse which isn’t even insulated and that we would be mad not to.

    I know of people who installed them in uninsulated warehouses with the roller doors left open constantly and the thermostat cranked up full as well as building new warehouses with extravagances such as underfloor heating. There are some who also installed them into their homes and in which the windows are left open constantly.

    I think as @disqus_jyh3yLxImM:disqus mentioned the main barrier to implementation was the disbelief. In conversations most people would state that they would just simply stop it one day, the other obvious barrier was the cost however the savvy lenders knew they were on to a sure win.

  • Neil

    Was it not the case that the fuel, wood pellets, were initially more expensive, but due to supply and demand economics the pellets were expected to fall in price and possibly continue falling, whereas the payments were at a flat level, so the more the pellets fell, the more dough left over for your pocket? I read this somewhere.

  • NotNowJohnny

    You do wonder surely why DETI officials were talking their instructions from a SPAD in a different department. One wonders if officials in the Dept for the Economy are still taking their instructions from the Finance Department’s SPAD rather than the Minster for the Economy. Or perhaps I am misunderstanding the situation?

  • Gingray

    It sounds like the DETI Minister took instructions from his Spad (and according to the DETI Minister, from Foster herself) to keep the scheme open.

    The DETI Perm Sec and Bell have both said that Fosters Spad in Finance was strongly in favour of this, and he had the ear of his Minister.

    I doubt many officials actually got involved.

  • Angry Mob

    It would seem very plausible and could be why initially that it wasn’t a problem, I couldn’t speculate as to whether any thought was ever given as to whether wood pellets would fall in price but in hindsight it’s something that they should have taken into consideration earlier.

    Biomass technology is what we most tend to associate with the RHI scheme as that has been so frequently mentioned in the news but there were other alternative methods such as geothermal, solar and as I mentioned earlier AD in the form of biogas. Each technology had its own tariff rate, it would of been fairly simply to drop biomass to 1p to 2p which would of totally stopped the incentive to burn fuel flippantly whilst allowing the other schemes to continue.

  • Gopher

    The possibility that the scheme was desgned to be exploited from the start given what we now know about civil service behaviour cannot be discounted. That is entirely possible. If that was the case then the likelyhood is the pool would intentionally be kept small. Initially I was only really dubious about the spike but it looks more and more dubious from the start.

  • Pigeon Toes

    I’ve heard exceptionally similar stories from impeccable sources, who were savvy enough not to get involved…The man in question would have raised an eyebrow and done his research when put to him…

  • file

    A bit of a misunderstanding Neil of what you read. Initially, in the consultants’ recommendations in 2011, the subsidy rate was lower than the price of wood pellets, so there was no need for tiering of payments. After consultation, in 2012, the subsidy rate was raised to above the cost of wood pellets, but the line about there being no need for tiering was copied over with out though (by who?) in the Department of Enterprise & Industry business case to the Department of Finance.

    If you want to read the unbelievable original, i have cut and pasted it below from the report of the Auditor and Comptroller General:

    33 The suggested rate for biomass boilers below 100kw (which became by far the most popular heat generating method in Northern Ireland) was recommended at 4.5 pence per kwh based on a 20kw biomass boiler reference case. At this rate the consultants noted that there was no need for tiering as at that time the proposed rate was less than the cost of wood pellets and therefore there was no incentive to excessively use the boilers just to claim the subsidy.

    34 The consultants were asked to reconsider the rates following feedback from the consultation process, and in February 2012 the consultants produced a new paper which increased the rates available to take into account a larger reference point boiler. The rate proposed in this paper for biomass boilers less than 100kw was increased to 5.9 pence per kwh but there was no mention of the need for tiering or that this was now in excess of the cost of wood pellets. The final business case, approved by the Department and DFP in mid 2012 included the 5.9 pence subsidy rate which has subsequently been increased in line with inflation to 6.4 pence per kwh.

    35 In the business case to DFP the Department states that there was no need to consider tiering because the rate proposed was lower than the cost of fuel and therefore there would be no incentive to abuse the system by generating heat just to claim the subsidy. However in the case of biomass boilers this was not the case and appears to have been copied from the July 2011 consultant’s report without thought. In fact the cost of wood pellets was shown in the same business case as being 4.39 pence per kwh compared to the proposed subsidy rate of 5.9 pence per kwh. In hindsight the failure to adequately consider the tiering of rates similar to the GB scheme was a critical mistake.

  • OPB58

    Other reasons for the spike were:

    1. Banks needed to be convinced that the deal was as good as it appeared. These esteemed organisation were still recovering from the disaster of the bursting bubble and not keen to lend funds as liberally as previously. Most were still trying to recover dodgy loans from the same landowners who were now seeking loans for wood burners. In addition half of those seeking loans for the burners were already extended in their recent investments in chicken houses popping up all over the Tyrone countryside and in hock to their suppliers, may Park. Few of them looked like good investments. So, up pops Arlene with her letter to the Banks letting know that the scheme was as good as it appeared. Then the loans began to flow on the back of what looked like a government guarantee, greed got the better of the lenders again and loans for huge amounts started to come out. Now with the money flowing orders were put in for burners and the scheme was up and running. Hence Arlene was responsible for building the spike.

    2. You could only apply for the subsidy once your installation was ready to run. So, with loans in hand and suppliers rushing to provide the equipment the big problem was to get the installation completed and commissioned. This resulted in a period where virtually every plumber in the country was fully engaged in fitting the boilers and equipment. You couldn’t get a plumber for a period of about six months, particularly as the decline for applications approached. So, the loans factor led to the installation factor.

    The spike in applications is not the timeframe to be examining, because the equipment had to be in place and commissioned before an application was made means that the real time frame at issue was several months before hand when all those applying in the spike of applications had secured their loans and run to the suppliers with their money. The lag between to decision to join the scheme and application for subsidy was substantial giving the time taken to get the loan and the time to get a date for supply of the equipment which was become scarce and was being manufactured just in time.

    Another major question that has to be asked is about supply of the pellets. In the winter of 2006 there was a wood pellet shortage in Ireland which was managed through imports. Capacity growth in the industry continued to be slow because installation of boilers was equally slow. However, there must have been a major build up in capacity to allow local manufacturers to meet the needs of the spike in applications for subsidy and the 24/7 usage of such boilers to maximise income. So, the questions are:
    How did the manufacturers know that the spike would occur and result in a huge market for product?
    When did the manufacturers build this capacity to meet a demand that appears to have ‘surprised’ everyone?
    Surely, this development of capacity to meet demand is one of the most notable business predictions in this century.

    One side effect of the development of the pellet industry to its current level is the deforestation of our hillside as lorry load of freshly cut timber are transported towards Fermanagh on a daily basis? Just take a look up and notice how quickly the trees are disappearing from local forests and remember how long it took to grow them! It would be interesting to know how many acres of forest in N.Ireland are being lost each week to be wasted through the RHI scheme. Not so ecological if you think about the amount of CO2 that those trees were removing before they were turned to pellets and then to CO2 with fewer trees to remove it from the atmosphere again. We do have the willow growers who can produce a faster grower crop to meet demand for a rougher type of biomass than the pellet burners require but it is still small scale compared to the deforestation.

  • Nevin

    Sam McBride has received new information:

    The emails between individuals in the renewable energy industry cite discussions with Department of Enterprise, Trade and Investment (DETI) officials as the source of the information and include the suggestion that clients considering wood pellet boilers should “move asap” to “avoid missing out on the best rates from RHI”. ..

    However, the correspondence seen by this newspaper points to the potential for the spike actually beginning much earlier, with some in the industry aware of the looming changes a full ten weeks before they were made public – and 20 weeks before critical flaws were rectified.

    A 1 July 2015 email referred to an “update” from DETI officials about “proposed changes to RHI tariffs…with a proposed implementation in early October”.

    Read the whole thing

    The Permanent Secretary was absent from the Departmental Board meeting on June 23 so he may have been on holiday then and at the beginning of July. The RHI update promised at the June meeting doesn’t get a mention in the July one, by which time the PS has returned.

  • Nevin
  • the rich get richer
  • John Gorman

    We should have a sweep stake on who will come clean tomorrow and then the day after and so on, drip, drip, drip.

  • Anthony O’Shea

    Whoooops !

  • the rich get richer

    Perhaps the Dupers were trying to prove to themselves that Global Warming is a real thing…………. By warming the Globe……….

  • JOHN TURLEY

    Fair play to the relatives of Jim Wells.very industrious people, certainly were
    not lying in bed in the mornings when an open goal was there for the taking.

  • Gingray

    Mick, you are still trying to pretend there is nothing to see here, despite what we know to the contrary.

    As the DfE Minister said, the Finance Ministers spad was putting pressure on DETI to keep the scheme open. It was a political decision, not a policy one.

    And as the perm sec said, spads are there to act as the voice of their minister. The finance minister was Arlene foster.

    She has denied that either she or her spad put pressure on deti and bell to keep it open.

    So either Arlene Foster is lying or Andrew McCormick is, yet you keep pretending this is not the case.

    Why?

  • Eugene Doherty

    I know at least one person like that, looking into getting a new boiler and when told about the scheme reckoned it had to be a scam on the part of the boiler salesman as it seemed too good to be true

  • john millar

    “The spike in applications is not the timeframe to be examining, because the equipment had to be in place and commissioned before an application was made”

    Excellent identification of the core issue- any SPADS coming or going in the period say 4/5/6 months prior to the “spike” ?