UK finance watchdog: 'Novel' RHI scheme has not delivered value for money

The UK’s Renewable Heat Incentive (RHI) scheme has not delivered taxpayer value as the government does not have a reliable estimate of how much it may have overpaid to those participating in the scheme, according to Parliament’s finance watchdog.

A National Audit Office (NAO) report assessing the success and value of the RHI said today the scheme was a “novel approach” to decarbonising heating in UK homes and businesses, but warned that improvements were needed to avoid the costs of the scheme potentially spiralling in future.

First launched in 2011 for business and industry before being expanded to include householders, the RHI was set up to encourage switching away from fossil fuel heating systems by offering a subsidy for each unit of heat produced from renewable or low carbon sources.

Technologies supported by the taxpayer-funded RHI include biomass boilers, heat pumps and anaerobic digestion plants, and almost 80,000 installations have been delivered by the RHI as of December 2017.

The RHI has also saved an estimated 4.5 million tonnes of CO2 equivalent, or approximately one per cent of total UK emissions, in 2017-18, figures show.

But as of August 2017, the government has paid out £1.4bn to participants in the RHI scheme, and the NAO estimates lifetime payments through to 2040-41 could amount to £23bn.

Meanwhile, the number of installations so far remains well below the Department for Business, Energy and Industrial Strategy’s (BEIS) target of 513,000 by 2020, the report shows, and the NAO said the government needed to increase renewable heating rates in order to meet statutory carbon targets.

NAO praised BEIS for showing flexibility in rolling out the scheme and adjusting objectives in response to “over-optimistic initial planning assumptions”, adding the department was “learning lessons for the future” that would help avoid the problems that saw the costs of a similar scheme in Northern Ireland rocket.

Nevertheless, it said estimated overpayments to participants as a result of non-compliance with the regulations in 2016-17 alone amounted to £3m. Ofgem estimated last May that overpayments as a share of total payment in both the non-domestic and domestic schemes during 2016-17 amounted to 4.4 per cent and 2.5 per cent respectively.

As such, NAO said the scheme had not delivered value for money, and warned BEIS still did not have a reliable estimate of how much it has overpaid for non-compliance, nor the emissions impact of those gaming the regulations “which could accumulate to reduce the scheme’s value significantly”.

Meg Hillier MP, chair of the Parliament’s Public Accounts Committee, said it was “worrying”, the government still did not know how much value taxpayers were getting from the RHI, especially given the scandal involving Northern Ireland’s renewable heat scheme.

She also raised concerns over a lack of complementary policies to decarbonise heating in the UK. “The government faces a huge challenge in cutting harmful carbon emissions,” said Hillier in a statement. “The NAO report shows how the government has massively cut back its ambitions for this scheme, and that as a result it will have to work even harder elsewhere. But right now the government doesn’t know how it is going to cut carbon from heating systems in millions of homes and businesses around the country. There is a limited amount of time to work with, so it needs to start making real progress now.”

BEIS was considering its response to the report at the time of going to press, but industry groups hit back at the NAO’s criticism, insisting the RHI is an “essential policy tool”.

“Britain’s Renewable Heat Incentive is a successful scheme that has supported the production of enough heat to date to warm over 1.8 million homes for a year,” James Court, head of policy and external affairs at the Renewable Energy Association, said. “The scheme has been critical to the construction of over seventy-eight thousand renewable heat sites reaching from Cardiff to Glasgow which in turn has unlocked jobs growth, with the UK’s renewable heating industry employing 33,500 across the country.”