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National Audit Office RHI Review

National Audit Office RHI Review

23 March 2018

The National Audit Office (NAO) published its review of the Renewable Heat Incentive (RHI) on 23th February 2018, in which they examined the objectives of the RHI and progress against them, and its overall cost effectiveness, monitoring and evaluation.  The NAO report pulls no punches, and certainly holds BEIS and Ofgem to account for some of the failings that they identify with the scheme.

Taking the headline figures first, the numbers are truly huge, with £1.4bn paid to scheme recipients to date under the RHI, and an estimated £23bn due for payment through to the end of the scheme in c. 2040.  This represents a huge commitment by UK government to renewable heat, but according to the NAO report, falls well short of the schemes' original ambitions.  In fact, since its launch in 2011, the RHI has delivered 78,048 (correct at 23 February 2018) installations across the domestic and non-domestic schemes, an impressive figure, but one which falls well short of the 513,000 installations that BEIS originally planned that the RHI would deliver by 2020.  Taking the current deployment rate and extrapolating this out to 2020, only 111,000 installations are expected to result from the RHI - 22% of the original target, and well below government's lowest estimate in its original business case.

Changed Objectives

In recognition of the slow progress, BEIS has changed its ambitions for the RHI, reducing the amount of renewable energy it anticipates will be delivered by the scheme by 65%, and reducing the attendant carbon emission savings by 45%.  This reflects a change in focus of the RHI towards off-gas grid properties, but the NAO report points out that BEIS has "not fully replaced the reduced ambitions of the RHI for renewable heat with equivalent contributions from other sources", so there remains work to be done, and it could be that renewable heat gets another bite at the cherry via some other routes.

Strategy for the Supply Chain

Another interesting finding in the report is that BEIS does not have a set of goals or a strategy for developing the renewable heat supply chain of the future, an issue which is particularly pertinent for the biomass sector, where the supply chain continues for the life of the project, not just the installation phase.  According to the NAO report, BEIS are reforming the RHI and recognise that there are failings, but the NAO highlight that BEIS have not set specific goals, established a monitoring plan or defined clear criteria for how to support technology-specific supply chains.

Non-Compliance

The NAO's analysis of the costs associated with non-compliance with the RHI regulations makes for interesting reading, and highlights the fact that BEIS relies on Ofgem - who administer the scheme on their behalf - to estimate the cost of non-compliance themselves.  May 2017's estimates were that non-compliance with the non-domestic RHI resulted in overpayments of 4.4% of expenditure, while the figure for the domestic RHI was at 2.5%.  Taken together, these figures equate to around £3m, which isn't a huge figure given the overall scale of the RHI budget.

That said, the NAO report also found that there were 'significant weaknesses' in Ofgem's estimate, and in reality, the financial impact of non-compliance could be much higher, but it's simply not possible to say by how much, further pointing out that BEIS had not reviewed Ofgem's estimate and were unaware of its unreliability.  Furthermore, BEIS were found not to have assessed the extent and potential financial impact of 'gaming' - where scheme participants play within the set rules, but do so in a way to maximise their income.

Overall Conclusions

The overall conclusions of the NAO review are that while there are positives in the way the RHI has been managed - BEIS have been flexible; the scheme is innovative; and the cost control mechanisms have helped avoid the sorts of issues that plagued solar PV support under the Feed In Tariff scheme, there are several negatives.  These include the lack of understanding around levels of gaming and overpayment, and that these and other factors mean the RHI is not delivering value for money.

The NAO report makes a number of interesting recommendations, and although it runs to 65 pages, including appendices, is a digestible read which stays clear of jargon and paints an interesting picture of the RHI and how it is being implemented as a support programme.  Coming almost 7 years after the scheme was launched, and just 3 years before it closes to new applicants, its unlikely that the changes brought about in response to the report will have a meaningful impact, but its findings would make a useful contribution to what comes next.

The full report can be downloaded from the NAO website at :

https://www.nao.org.uk/report/low-carbon-heating-of-homes-and-businesses-and-the-renewable-heat-incentive/