Official Report: Minutes of Evidence
Public Accounts Committee, meeting on Thursday, 18 March 2021
Members present for all or part of the proceedings:Mr William Humphrey (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Cathal Boylan
Miss Órlaithí Flynn
Mr Harry Harvey
Mr David Hilditch
Mr Maolíosa McHugh
Mr Andrew Muir
Mr Matthew O'Toole
Witnesses:Mr Mike Brennan, Department for the Economy
Mr Trevor McBriar, Department for the Economy
Mr Richard Rodgers, Department for the Economy
Mr Stuart Stevenson, Department of Finance
Mr Kieran Donnelly, Northern Ireland Audit Office
Inquiry into Generating Electricity from Renewable Energy: Department for the Economy
The Chairperson (Mr Humphrey): I welcome, from the Department for the Economy, Mr Mike Brennan, accounting officer and permanent secretary; Mr Richard Rodgers, head of energy; and Mr Trevor McBriar, principal officer for renewable energy. Mr Kieran Donnelly, the Comptroller and Auditor General for Northern Ireland, is also in attendance. Mr Stuart Stevenson, Treasury Officer of Accounts (TOA), joins us remotely, as does Mr Tomas Wilkinson, a director in the Northern Ireland Audit Office (NIAO). I ask those who are not speaking to mute their microphone.
Today's evidence session with the Department for the Economy is part of our sixth inquiry into generating electricity from renewable energy. The relevant papers for the session, including background information and notes, are in members' packs. We have, just today, received a substantial amount of information, and, of course, it will be necessary for members to review that. We will look at it at a later stage.
Mr Brennan, you are welcome to the Committee. I invite you to make an opening statement, after which, hopefully, you and your colleagues will be available to take some questions.
Mr Mike Brennan (Department for the Economy): Thank you, Chairperson and members, for the opportunity to appear in front of you. I will make a few opening comments and then ask Richard and Trevor to set out their roles in the Department and their professional background. Their expertise in energy and their competencies will be an issue as we wander through quite technical areas in the next few hours.
The first point that I would like to make is that the Audit Office report recognises that the policy intent of the Northern Ireland renewables obligation (NIRO) scheme — increasing the scale of renewable electricity — has been achieved: almost 50% of electricity in Northern Ireland is being generated from renewable resources. That has significantly reduced our dependence on fossil fuels, created hundreds of jobs and brought significant investment into Northern Ireland, particularly in rural areas. It is also worth noting that, each year, the NIRO scheme brings several hundreds of millions of pounds of income into the Northern Ireland economy.
When the strategic energy framework was published in 2010, it said that the estimated cost to households in Northern Ireland of achieving the 40% renewable target that was set at that point would be somewhere between £49 and £83 per annum. In the Audit Office report, the actual outturn cost is shown to be somewhere in the order of £31. So, by that metric, it has been a success. The NIRO has also made a massive contribution to our decarbonisation agenda, but lots more will be needed in this space in the coming years if we are to get to our net zero target by 2050. The benefit of hindsight is always great, but it is important to remember that, in the early days, there was little real knowledge of the cost of renewable technology in Northern Ireland. I am sure that, in the course of this afternoon, we will get into the detail of what has happened since 2005.
There are six recommendations in the Audit Office report, three of which fall to DFE, and we are already working to address them as we speak. The Audit Office report claims that there is some risk of excessive returns being generated through the NIRO. In expressing concerns about the rates of return, the report forms that view on the basis of one non-grid-connected generating station. However, as the Committee will know, more contemporary evidence is now available through the independent KPMG report, which looked at the rates returns that were generated by some 134 stations. We are reviewing that information with Audit Office colleagues, and, no doubt, we will come back to you in the coming weeks and months to discuss certain areas of the report, once we have a clear picture of those rates returns, for small-scale wind in particular.
I will pause there and hand over to Richard and Trevor to describe the roles that they fulfil in the Department and the expertise and professional skill sets that they bring to us.
Mr Richard Rodgers (Department for the Economy): Thanks, Mike. I have worked in the energy sector for more than 32 years, 20 of which were in energy utilities. I was part of the senior management team at Phoenix Natural Gas, which brought natural gas to the greater Belfast area. In the 12 years that I was there, we went from having no natural gas customers to having 120,000 customers, and we established a business with £80 million of annual turnover. After that, I worked in the fuel poverty sector as the managing director of Eaga International. Eaga plc was a FTSE 250 company that delivered fuel poverty schemes for Governments in the UK, Ireland, India and Canada. I was also a non-executive director on the board of the Utility Regulator (UR) for nine years, a position that ended in March 2019. For the past eight years, I have worked in the public sector, first on the development of the new energy efficiency initiative and then, since July 2017, as head of the Department's renewable heat incentive (RHI) task force. Since November 2018, I have been head of the energy group in the Department.
Mr Brennan: Thanks, Richard. Trevor, do you want to briefly set out your background?
I cannot hear you, Trevor.
The Chairperson (Mr Humphrey): Is your microphone muted, Mr McBriar? As I said at the start, I ask those who are not speaking to mute their microphone. I could hear music during Mr Rodgers's contribution, and we have just heard a phone ringing. Please put your phones on mute to respect those who are in front of us.
Mr Trevor McBriar (Department for the Economy): Thanks, Chairperson. I am the head of the renewable electricity branch. I have been in the Civil Service for over 42 years, the last 20 of which have been in the Department for the Economy and the last 10 of those in the energy group. For the last four and a half years, I have been dealing with issues to do with the Northern Ireland renewables obligation, including the progression of the NIAO report on generating electricity from renewable energy, along with our partners in the Northern Ireland Utility Regulator and in Ofgem, which has responsibility for the administration of the scheme.
Mr Brennan: Thanks, Trevor. That concludes our initial opening observations.
Mr Hilditch: You are very welcome this afternoon, gentlemen. It cannot be denied that great strides have been made in the renewable energy field since it started off at a base rate of zero. Were sufficient resources and staff allocated to the NIRO scheme at the outset? What are your views on that?
Mr Brennan: My initial observation is that we went from 3% renewable generation in 2005 to almost 50%. I remind you that that was in a UK-wide market system, which shows that DFE — DETI as it was then — was adequately resourced to ensure that Northern Ireland played its role in delivering the renewables obligation (RO) scheme over the 12-year period.
Mr Hilditch: Were there enough staff and resources available to do that, in your mind?
Mr Brennan: Looking back, yes. I have come across no evidence of constraints on the Department being able to engage with key partners, Ofgem and the Utility Regulator, or to feed into the market system.
Mr Rodgers: It might be helpful, Mike, if I outline the background to how the scheme was resourced. The legislative responsibility sits across two bodies. The Department has responsibility for the policy that underpins the NIRO, for the legislative framework and for setting the support levels. The Utility Regulator is responsible for the administration of the scheme, which it does through an agency services agreement with Ofgem. That is quite appropriate because Ofgem also administers the renewable obligations in GB. There are two renewable obligations there: one for England and Wales and a separate one in Scotland. Ofgem administers all three schemes, and the ROs there operate in tandem with the NIRO in Northern Ireland. That provides a consistency of approach, and, obviously, there are economies of scale in the cost of delivery.
We have been aware from the beginning, in 2005, that the Utility Regulator has had the expected management processes in place under the agency services agreement. The Utility Regulator provides the Department with an annual assurance statement, and that dovetails with the similar assurance statement, from Ofgem to the UR, that the Department receives. Also, very importantly, the Department is updated by the Utility Regulator during the year. I would describe it as an excellent collaborative working relationship on things such as legislative revisions, which happened almost annually during the scheme and, more laterally, the work on closure. As part of that, of course, there are fortnightly and monthly meetings. The monthly meetings are all about ensuring that the money is spent properly. On top of that, there is a formal relationship agreement between the Department and the Utility Regulator.
The direct answer to your question is that the Department has had three satisfactory internal audit reports. Plus, in 2019, we took to the Department's audit risk and assurance committee a formal paper with 16 recommendations to ensure that we were delivering the scheme in the right way with our partners in the Utility Regulator.
I hope that that helps to express how we have gone about delivering the scheme with Ofgem over the past 15 years.
Mr Hilditch: That was very helpful detail. Can you confirm that the reporting and accountability for the NIRO scheme were clear?
Mr Brennan: Yes. In our opinion, they were.
Mr Hilditch: OK. Thank you. Why were other Departments with a clear stake in the NIRO scheme not consulted or informed about it?
Mr Brennan: When the scheme was constructed back in 2005, it replicated the GB legislation. As I said earlier, we look back now with the benefit of hindsight and with a particular reference to some of the findings in the Audit Office report about engaging with the Northern Ireland Environment Agency (NIEA) or planning authorities. In retrospect, the legislation should have allowed for greater cooperation across Departments. Obviously, there were some significant constraints then, particularly with sharing data and information, but it is one of the areas that we will look to address as we look forward to a new energy strategy.
Mr Hilditch: That is great. Thank you, Mike.
The anaerobic digester projects in Ballymena and Donegal stand out. Clearly, there is a difficulty with the Donegal operation. Was that scheme funded jointly with the Government in the Republic?
Mr Brennan: Mr Hilditch, I will have to tread carefully here. It is an ongoing commercial entity, and negotiations are under way. That was a commercial enterprise. Invest NI was asked to provide loan assistance under what is called financial transactions capital (FTC). Invest NI offered a loan under the Industrial Development (Northern Ireland) Order 1982 and provided significant money for the development of the anaerobic digestion (AD) plant in Donegal. Part of a wider Executive agenda under the sustainable utilisation of poultry litter (SUPL) scheme, it was developed jointly with DAERA, Invest NI, this Department and the Strategic Investment Board (SIB) in recognition that the poultry industry, in particular, had some acute problems with the disposal of poultry litter in Northern Ireland.
At that stage, there were really only two options: find an export market to which to send the poultry waste or consider scaling back on the activities of the local poultry industry. The SUPL scheme was, as I said, taken up by a number of government agencies, and Invest NI made a loan to the commercial company to develop an AD plant in Donegal.
As I said, it is still a live commercial entity, and negotiations are under way about its viability and where we go from here. However, to my mind, it produced two significant benefits for the Northern Ireland economy. First, it provided a disposal point for local poultry litter and therefore maintained the viability of the poultry industry at a certain scale. Secondly, we should not lose sight of the fact that the biogas produced from it is used to assist two major manufacturing plants in the greater Belfast area. The outworkings of that are, I think, that somewhere in the order of 37,000 tons of poultry waste have been disposed of on the Donegal site alone. It also means that there is less fossil fuel generation in the Belfast area because those large manufacturing plants have been able to use the biogas.
There has been lots of media speculation about the Invest NI loan that I referred to and the current position of that loan. That loan has not been written off. In the last year or so in particular, the plant in Donegal has experienced operational challenges, partly because of COVID. Those issues are being looked at, and, as I said, negotiations are under way. The issues for the poultry industry are its scale in the local economy and finding a suitable and environmentally friendly way for it to continue to operate.
Mr Hilditch: Yes. To the layperson, it seems that it will be a potentially expensive loss to Invest NI, considering, as you outlined, the difficulties with the significant tonnage of poultry litter that needs to be taken care of and the fact that the Donegal plant has not delivered. I know that you said that it disposed of 37,000 tons over a period, but, if that is broken down annually, I am sure that it would be a much smaller figure.
What was the logic behind the Donegal plant, given that there was a plant in Ballymena and, potentially, maybe somewhere in the south of the Province would have been a better location? What was the business element that guided you towards Donegal?
Mr Brennan: I will bring Richard in, Mr Hilditch, but it was my understanding that there was a capacity problem in the Northern Ireland economy. It was difficult to find a plant that could dispose of the litter in sufficient quantities. Some projects had been considered, and developers had looked to advance projects, but there were difficulties getting approvals for those to proceed. Really, it was due to the nature of the poultry industry, its scale and output and what could be done in an environmentally friendly way.
Richard has some technical detail, particularly on what happens in Ballymena and why previous schemes did not proceed.
Mr Rodgers: I will just add to what Mike said that it is important to clarify that the NIRO accredits generators, and one of the acceptable fuels for those generators is biogas. Of course, it is anaerobic digestion that produces biogas.
I certainly do not want to comment on why the anaerobic digester is in Donegal and not somewhere else. Members will be aware that there are, I think, off the top of my head, 51 biogas generators across Northern Ireland that use anaerobic gas produced by anaerobic digestion. As the member said, the major one is in Tully Quarry in Ballymena. It is a 3 MW generator. We have engaged with Stream Bioenergy, the owners and operators of that plant, and we are aware that, after some teething difficulties, it now processes 40,000 tons of poultry litter a year. This is an important issue because we have nitrate challenges, limits that we have to meet and a need for economic vibrancy, so it is a really important plant, and the biggest.
I will just clarify what I said earlier. We have 124 biogas-accredited generators in Northern Ireland, all from anaerobic digested gas, with the exception of the gas transported from Donegal to the generating plants at Bombardier in Belfast and Montupet in Dunmurry. I hope that that helps.
Mr Muir: I thank the witnesses for coming today. This is a complex and detailed, yet important, report.
A recent report on energy policy, relating to the NIRO scheme, stated that the Department for the Economy was not:
"seen as a competent authority on energy matters".
Concerns were also raised that, because of the perceived lack of leadership, it may be easy for companies to slow or influence the introduction of policies that could affect them. Building companies and agri-food were mentioned specifically.
Those are significant concerns about the capacity and capability of the Department for the Economy to take forward schemes. We have had the RHI scheme, and we have the NIRO scheme. What is the response to that criticism of the capacity and capability of the Department? Have those concerns been properly addressed since the publication of the damning RHI inquiry report and this NIRO report?
Mr Brennan: The RHI legacy will, for some time, taint anything to do with energy policy that emerges from this Department. I find it frustrating that NIRO is in some way tainted by RHI, because, as I said, I regard what NIRO has achieved to be a significant success. It is a good starting point for where we have to go in the decarbonisation agenda to meet the renewable targets set for this Department, and for the Executive, as part of the Programme for Government (PFG).
Regarding the capacity of the Department, you can take considerable reassurance from looking at how we are progressing the strategy that will set out energy policy for the Executive and Assembly for many years. Richard will take you through the detail of that. Energy policy is not being constructed solely within the confines of the Department here at Netherleigh. Five themed groups are working across not just other key Northern Ireland Departments but a wider range of stakeholder groups such as the Consumer Council. Also, we have appointed an external panel of energy experts to provide assistance and guidance as we take forward the construct of the energy strategy.
I can understand why you have concern, looking back at what happened in RHI, but the assurance that I give you is that the energy strategy, in its widest sense for the Executive and Assembly, is not being constructed in a silo here in DFE but with other Departments and a wider stakeholder group. I think, Richard, that we have something like 70 stakeholder representatives on the five working groups.
Richard can take you through the detail of the significant scrutiny of the construct of future energy policy.
Mr Rodgers: As I mentioned, I took over as head of energy in November 2018. We have added about 30% to the resource working in the energy group in the Department from within the Civil Service and outside. We brought in external energy expertise, the need for which was one of the findings of the RHI inquiry report.
We have made collaboration and engagement the cornerstones of what we have been doing. The first outworking of that was when we issued the call for evidence back in December 2019. We received 161 responses from across stakeholders, not just in the energy industry but from wider stakeholders across Northern Ireland. We engaged in three different seminars across the country; it was not just Belfast-focused. It was truly engaging, in our opinion. That will be followed by the options consultation, which is the next step in landing the energy strategy at the end of this year, in time, all being well, for the UN Climate Change Conference of the Parties (COP26), the major climate summit that is happening in Glasgow. That options consultation will be issued at the end of this month, quite soon indeed. As Mike said, that has been produced through true collaboration, and not just across the whole of government. Every Department here has a stake in this. Whether they have policy stakes or whether they tend to be the largest users of energy, they all have a role to play.
I saw the report that the member mentioned. The challenges of vested interests are always there. It is about how we deal with them. It is important to understand not just what people say but why they might be saying it, and we take that into consideration all the time. I would like to give some comfort to members that we are engaging widely, and, whilst the likes of the regulated industries, the network providers and the network operators are, of course, very important because they are operating billions of pounds' worth of energy assets on behalf of consumers in this country, everybody has a role to play. We have a massive opportunity through decarbonising energy here, not just to get rid of the fossil fuel problem but to bring consumers on board in tackling the challenges of vulnerable consumers and to properly eradicate fuel poverty for the first time.
Mr Muir: Thank you for that. It is important to do that stakeholder engagement and to ensure that it informs policy decision-making. However, one aspect of the NIRO report was that the decision to increase the levels of support for small-scale anaerobic digesters was made by the former Department in 2011, following a public call for evidence. It was reported that a number of organisations and investors provided evidence as part of that but that there was no evidence of any due diligence being done by the Department to confirm the accuracy of that evidence. I have serious concerns about that. What measures are put in place to ensure that, when you are doing that stakeholder engagement and looking for evidence, due diligence is in place to ensure that the evidence that you are being provided with is accurate?
Mr Rodgers: The comfort that I would like to try to give is that I have been on both sides of the table. As I said, I was part of the senior management team in Phoenix, which made a greenfield private investment of hundreds of millions of pounds in the energy sector here in greater Belfast at the time. I have also been on the other side of the table, working for nine years as a non-exec challenging what the private companies put forward on the costs that they needed. At the end of the day, as consumers, we pay for everything. One thought that springs to mind is that you are damned if you do and damned if you do not. First, it is really important that we bring in the evidence, and, secondly, I absolutely agree that it is really important that we do the due diligence.
On your particular point on the increase in levels of support in 2011, the driving rationale behind that was the fact that GB was replacing the renewable obligation for small-scale generators with the feed-in tariff (FIT). That feed-in tariff was going to increase the income for potential investors, and there was a real risk that Northern Ireland would be left behind. We did the work, we looked at the cost, and, in our opinion, we challenged them very hard. That was when the increase in the renewable obligation certificate (ROC) level to 4 was put in, which was to bring Northern Ireland on to a level playing field. Yes, we have been challenged often about why we did not challenge the lack of a level playing field in the RHI scheme.
We did that in 2010 when we increased ROCs to 4 to bring our NIRO into line with the FIT. There was a good rationale for that then, and I re-emphasise that we did our due diligence.
Mr Muir: Your comment about due diligence is at odds with the Audit Office.
Mr Rodgers: It is a question of the work that is done to look at the detail that is brought forward.
Mr McBriar: I will add to that point. A wide range of official responses came back at the time of the call for evidence on the consultation. The Department looked at that in the round rather than taking account of any one response in particular. As a result of that, we built up 17 scenarios and did a cost benefit analysis to ensure that we came to a rounded view.
The NIAO was concerned about AD in particular. Most of the estimations were coming in at 500 kW, and, in our scenarios, we had put that in the higher bracket. The bracket was from 500 kW upwards rather than 500 kW downwards, which is where the banding level fell. As a result of the NIAO report, we looked at the modelling again and put it in the situation that the NIAO suggested. It came up that the banding level would be around 3·9 rather than 4·07, so it turned out that the ROC banding would have been the same.
Mr Muir: Officials will be aware that there is now a debate about the rate of return. I am conscious of the correspondence that we have received regarding how the Department is still considering the KPMG report and RenewableNI's submission about the overall rates of return. I will not go into that, because you said that you are still considering it.
There is another role for the Department: to analyse independently what it feels the rate of return is and to report that to us and others. There is the Audit Office report and the KPMG report, but it seems to me that there has been silence from the Department on its thinking on what the rate of return is around these issues.
Mr Brennan: That takes you to the heart of recommendation 6 — looking at rates of return — which, as I said, the Department is content to accept. As the Audit Office report was being constructed, the Department was not content with the 20% rate-of-return figure that was quoted in the paper. That is why a number of caveats have been built into the report where a figure is expressed as an opinion of the Audit Office. We had those concerns before the KPMG work, and we will now take that analysis forward.
The difficulty is that, to get into the nuts and bolts of a rate of return, you have to ask the operators to divulge commercially sensitive information for the operation of each of their stations. Getting access to that information presents a difficulty, but we will move that forward. As I said, we will seek to address that when we construct a new energy strategy. We expect that commercially sensitive information to be made available to us for the renewables component of that strategy.
The bottom line is that the information that we have seen suggests that the average rate of return across the 134 stations analysed in the KPMG report was in the order of 9·7%. The comfort that we take from that is that it is well within the target range of 8% to 12%, which was set by DETI when the NIRO was brought in.
Mr Muir: Is it fair to say that one of the significant lessons learned around the NIRO scheme is about those commercial sensitivities and being able to access that information so that you have independent oversight of the rate of return?
Mr Brennan: Yes, that is one of the things that we will look to ensure that it is covered in the successor schemes.
Mr Muir: I have one last question. I am conscious that members will have many other questions.
The issues to be addressed include the relationship between the NIRO scheme and planning, and the requirement to have planning permission in order to avail oneself of assistance from the scheme. There is also, in relation to environmental waste and the rating system, the potential loss associated with revenue from non-domestic rates because of the lack of notification that a clawback could be done only for five years. The report gives legislative reasons as to why Land and Property Services (LPS) could not be informed about rating and all the rest of it. Why were no attempts made to rectify that by legislation? We see the outworking of this in a potential loss to the public purse in the form of rates. We see the impact on the environment in respect of planning and environmental waste. Action should have been taken to rectify the legislation in order to address those issues.
Mr Brennan: This is a reflection of the way in which primary legislation is constructed and taken forward in Northern Ireland. In the past, it has tended to be taken forward in departmental silos. That is a weakness. The constraints embedded in that include, for example, the restrictions on sharing of data across Departments, which obviously played a part in preventing information from being provided to LPS or the NIEA. We were able to identify alternative sources of information. For example, we were able to point LPS in the direction of published information, which allowed it to recoup virtually all of the £2 million that was notionally lost. We are down to something in the order of £100,000 being outstanding.
This is a key issue to be considered when we look at constructing a new energy order. It is key to ensuring that, as part of the statutory consultation process, all Departments are fully aware of the impact that an order may have on their policy remits.
Mr Muir: Thank you for that response.
To be honest, I think that a lot of the responses thus far are about what we will try to do in future rather than trying to understand why action was not taken to address the issue in the past. As I said at the start of my questions, there is an issue about capacity and capability. I have no confidence that, in the context of what has happened, those issues will be fixed.
I need to understand why action was not taken to rectify those issues, when, in relation to the planning system and rates, they were known. It was just accepted, as if to say, "The legislation is there. We are not going to change the legislation. We are going to have to live with it". Why was action not taken to bring forward legislative change?
Mr Brennan: I will bring Trevor and Richard in to give you the detail. There is an issue about timing. You have to remember that, as far back as 2011 at a UK level and 2012 in Northern Ireland, Ministers announced that the scheme was going to close. There were some difficulties. For example, to do anything would have required primary legislation. The introduction of a FIT scheme in Northern Ireland would have required that and would have possibly reopened the position with Brussels on state aid approvals.
I will bring Richard or Trevor in, because I am not sure about your suggestion that people were aware from the very start that there was exposure to rates not being paid or environmental permission not being granted. I think that that emerged at a later stage. Is that correct, Richard or Trevor?
Mr Rodgers: Yes, I will give a quick answer and then bring Trevor in.
First, responsibility for adhering to the law rests with each business individually. That means each part of the law. Secondly, as Mike said, the NIRO legislation mirrored the renewable obligation legislation in GB. One major criticism in the RHI inquiry report was that we changed the legislation in Northern Ireland from the GB legislation and went on a solo run, and that led to the significant flaw in the tariff. We come at it from the angle that we mirrored the legislation in GB, accepting your point that it should have been better joined up, and, as Mike said, that is a commitment going forward. We cannot change the past, and it is now important that, in this environment, over the next 29 years, we need to get to a point of decarbonising our energy mix and that we learn from the issues of the past as we land our strategy this year looking forward for the next 29 years. Trevor, do you have anything to add to that?
Mr McBriar: As you said, Richard, the Northern Ireland legislation basically mirrored the position in the rest of the UK at that time. To move dramatically from it is fraught with danger, as was shown at the time of closure in 2016 when we tried to agree a different deal for Northern Ireland as regards closure to small-scale wind. The GB Department — it was the Department of Energy and Climate Change (DECC) at that time — had an article in its legislation that would have ceased the trading of some Northern Ireland ROCs in the rest of the UK if we did not do things the same way as them. That would have been a difficulty.
The NIAO report also recognised that the primary responsibility for the enforcement of planning and environment legislation rests with those bodies with the legislative authority to do so. We do not have the expertise in that area.
It is important to note that, if Ofgem, in its role as administrator of the scheme, is advised of issues regarding planning, for example, it does not have the power to do anything directly, but it will pass that information to the relevant planning authority for it to take whatever action that it feels is necessary.
Mr Muir: Thank you for that response. The reason that I am raising this issue is that we had a scheme that incentivised single small-scale wind turbines, and we now have high-profile cases in which there are disputes around the environmental impact and, in particular, around planning. It seems mad to me that you would grant fund through this scheme without having the necessary planning and environmental licences in place.
I understand the points that you are making that everyone has their legislative ability, but, when people look at this from the outside, they find it difficult to get their heads around the fact that ROCs were being awarded, yet planning permissions were not in place, and the Department did nothing to rectify that, other than saying that it is a lesson learned from the scheme. It is a real matter of concern.
We also have the issue around financial transactions capital and the loan for chicken waste. I am still not getting that, and we may need to consider whether to discuss this in private session to get an assurance that all the necessary efforts were made to manage the risk associated with that loan. There is a lot here screaming out to me to say that serious issues have happened in the past, and real, significant assurances need to be given that all was done to address those issues at the time.
Mr Rodgers: The scheme has been closed now for four years, but, if you look back, you will appreciate all the difficulties, particularly in a mandatory coalition, of getting legislative coherence and collaboration across Departments. This Department does not have policy responsibility for rates or for environmental compliance. The key challenge now is to find ways to deal with those cross-departmental issues as we move forward.
The Glenmore project in Donegal is still progressing. There are commercial negotiations. There was an agreed way forward to meet an industry need. Loans were offered and taken up. The project has not collapsed, despite media speculation. A business case was processed, there were casework committee processes — all those normal approval processes were and are in place.
Mr O'Toole: Thank you for your evidence thus far. You talked about how the intention was to mirror the GB scheme, both in legislation and approach. The Northern Ireland scheme was and is more generous. Is that correct?
Mr Brennan: It depends on your definition of "more generous". The small-scale wind scheme started to change when GB introduced the feed-in tariffs. If you look at where ROCs were compared with Northern Ireland ROCs, you could say that Northern Ireland was paying slightly more than GB, but you also have to factor in the additional support that went to renewable generation in GB, whether it was from FIT or contract for differences. My overview is that, particularly for the period from 2010 to 2014, the incentives available in GB were more attractive than in Northern Ireland. In the two years from 2014 to 2016 and closure on wind, Northern Ireland was probably marginally more attractive than GB on wind. Is that is a fair summary of the relative degrees of attractiveness, Richard or Trevor?
Mr McBriar: To add to that first point, it is important to note that 85% of generation in Northern Ireland comes from large-scale wind. The support for large-scale wind has been consistently the same across the UK throughout the life of all three schemes. We are talking about small portions of the scheme. For small-scale wind, the reason that we brought in a higher ROC banding level was in direct response to the change in the mechanism to support small-scale renewables in GB. It brought in the small-scale FIT from 1 April 2010 when support was much higher. The 4 ROCs for small-scale wind was brought in to replicate, as far as possible, the level of support available in GB to ensure that Northern Ireland developers were not disadvantaged. That is why the 4 ROCs was brought in for wind. We kept the 4 ROCs in 2014 when we had a small-scale banding review based on evidence that suggested that the ROC level could be lifted by half a ROC to 4·5 ROCs. The Department decided to keep it at 4 ROCs because the level of uptake was going well.
Mr McBriar: The AD situation is slightly different. It came in on 1 April 2011 on the back of evidence received from a consultation. Again, that was based on fact.
Mr McBriar: It was based on evidence. The same situation applied at the time of the 2014 small-scale banding review. It was found that, although costs had reduced very slightly, they had not reduced sufficiently to justify changing the ROC banding rate.
Mr O'Toole: Thank you. If I understand correctly, the reason that small-scale wind subsidy is significantly higher in Northern Ireland than in Britain is that the Department's view is that it has encouraged uptake and therefore should be continued. Is that roughly right?
Mr Rodgers: No, that is not a fair reflection. As Trevor explained, effectively, the support was the same as with the GB scheme until 2014. The only change was that the GB scheme for small-scale wind became a feed-in tariff, not an RO, so it was equivalent rather than exactly the same. The report refers to the period from 2014 to 2016, and it was not that we increased. Our level of support remained the same. It was that the GB support — the feed-in tariff — was reduced because of a factor called degression. It was reduced because of budgetary implications. At that time — Trevor will correct me or tell you the detail — a Westminster Committee on the environment criticised the move by the UK Government to reduce the support because it was counter to the policy intent of the scheme. That was all down to budget, whereas, because we were still on the renewable obligation over here, we did not have that issue and therefore we kept our support in line with the costs.
Mr Brennan: Indeed. The evidence base that was presented to us suggested that the cost base, as Trevor said, should have increased from 4 ROCs to 4·5 ROCs, but the Department held it at 4 ROCs for that two-year period.
Mr McBriar: To add to that, Mike, the DECC review in 2014 concluded that both capex and opex had increased and that the FIT that existed did not overcompensate. As Richard rightly says, the reason that it was reduced was a policy decision by Government to save costs, and that was criticised by the Westminster Environmental Audit Committee, which stated that it undermined investor confidence and led to a reduction in the number of projects being developed. While I am on that point, the work that was completed by DECC in 2014 included a review of the FIT in the context of extending the FIT to Northern Ireland. That was rejected by DECC as it would have increased costs to consumers in GB but also increased cost to Northern Ireland consumers. Also, we would have had to re-notify for state aid clearance, and that would be problematic, simply because the nature of the FIT is not competitive. That would have been a difficulty.
Mr O'Toole: OK. Were you concerned at the Department's inability — I do not say that in a pejorative way, so correct me if that is the wrong word — to give a clear view of the return on investment? You mentioned the importance of investor certainty. Surely inherent in that would be the Department's having a view on what it believes return on investment is for the average operator or investor in a small-scale wind facility.
Mr Brennan: The best that the Department can do is to undertake analysis and research, guided by experts, on what a target rate of return would be to grow the sector. The initial target was an 8% to 12% rate of return. Looking forward, as you say, we have to now get, first, from 49% to 70% and then up to 100%. We will look to see what degree of investment is needed in new and emerging technologies to grow the industry in Northern Ireland, and we will take expert advice on what an appropriate rate of return would be. The difficulty is that companies will take their own investment positions depending on things like their risk appetite, their awareness of technology and the skills that they can bring to the investment. We cannot set a rate of return and ask industries to live with that. It just does not work like that in the commercial world.
Mr O'Toole: I appreciate that. In 2010 or, indeed, 2014, did you have a worked example of how that might work for a typical investor and a typical small-scale farmer who is working with either an investor or a business? There must have been a worked example to show how that might work and the return on the investment.
Mr Brennan: Trevor referred to the modelling work and the scenarios that were constructed in 2014. The consultant's advice was put to us. He suggested, for example, that costs had increased and, therefore, ROCs should increase from 4% to 4·5% in that specific case, and the rates of return for those sectors would have been factored in. A lot of modelling work was undertaken based on scenarios, and rates of return varied across those scenarios.
Mr O'Toole: OK. However, there is no biblical figure on a typical return on investment. I appreciate the point that there might not be a typical return on investment, although others may disagree. Clearly, that has met a policy intent to increase the volume of energy produced from renewable sources in Northern Ireland. However, does that argument sit uneasily with the high proportion of facilities that are not connected to the grid? We have no way of knowing whether those facilities are contributing to the volume of renewable energy either produced or used. We know the energy is being produced, but we do not know whether it is going anywhere or whether anyone is using it as some of those plants are not connected to the grid.
Mr Brennan: You are asking about our ability to monitor between connected and off-grid.
Mr Brennan: OK. Richard, do you want to come in?
Mr Brennan: Trevor, do you want to address the issue of measuring off-grid generation and the fact that it does not appear on the grid and yet is still remunerated?
Mr McBriar: Yes. The level of off-grid is fairly small: 51 off-grid stations are operating out of almost 24,000. Therefore, 99·8% of stations are attached to the grid. The off-grid stations are still displacing fossil fuel generation. Obviously, they need a load on-site, otherwise it has to be supplied by a private wire to a third party. As the NIRO is about the generation of renewable electricity, the stations are doing that and are entitled to ROCs under the legislation. The situation is the same UK-wide across all the ROs and FITs.
Mr O'Toole: However, am I right in saying that we have a higher proportion of off-grid facilities than elsewhere?
Mr McBriar: No, off-grid is spread throughout the UK. In fact, Wales has fewer than us, but England and Scotland have more.
Mr O'Toole: OK. I will briefly ask about the AD plants. Are there any other examples of investment agencies offering FTC to build AD facilities on the basis of conversations with a business sector — in this case, large poultry?
Mr Brennan: I am not aware of anything, but we can check and get back to the Committee.
Mr O'Toole: OK. That decision was based on the judgement that Northern Ireland had a large and growing poultry sector, which was producing a huge amount of chicken litter that had to be disposed of. I am intrigued to know where that conversation started. Did Invest NI go to the Department with a proposal? I know that Invest NI reports to your Department, but where did that conversation start or originate?
Mr Brennan: My understanding is that concerns started to develop in 2008 or 2009. They were then driven by the Department of Agriculture, and they led, as I said earlier, to the sustainable utilisation of poultry litter initiative. There was a range of key players, including DAERA, SIB and ourselves in Economy. We were trying to find a solution to the chicken litter problem. I do not know whether Invest NI has given other loans. I will need to check whether the plant in Ballymena that was talked about earlier received loan facilities from Invest NI. I am not aware of that, but I will check and write to the Committee.
Mr O'Toole: My final question is about Ofgem. Did Ofgem, at any time, raise concerns about the fact that NI is creating, not a burden on bill payers in GB, but punching above our weight in renewables obligations and the impact on household bills? Was that ever raised by Ofgem? Would you expect it to be?
Mr Brennan: I will bring in my colleagues in a second. I think you refer to the fact that 80% of NIROCs are exported to GB. I am certainly not aware of any concerns voiced by Ofgem. Northern Ireland is not unique in that. Northern Ireland derives income, on the Audit Office figures, of £190 million per year or, on the KPMG figures, somewhere in the order of £240 million per year coming into Northern Ireland. The Scottish figure is somewhere in the order of £700 million per year in income from exported ROCs. The net result is that income flows to here and Scotland, but it is also to the benefit of GB consumers, because prices are lower than they would otherwise have been, had the Northern Ireland and Scottish ROCs not been put on the ROCs market.
Trevor or Richard, is there anything further that you want to add to that?
Mr Brennan: I am sorry, Chair.
The Chairperson (Mr Humphrey): It is OK. I say to Richard Rodgers — I am being advised by those who know — that you should drop out and come back, and then broadcasting will allow you back into the meeting. You have dropped out, and we have lost you at the moment. Perhaps Richard Rodgers can hear us, or, if someone can pass the message on to him, that would be helpful.
Mr McBriar: It is important to emphasise how the NIRO operates and how it was intended to operate. The NIRO works alongside two other ROs, of course, as it is a UK-wide scheme. It operates as one scheme, in that ROCs are tradable on a UK-wide basis and are equally acceptable everywhere. It was designed in the expectation that developers and generators would locate in the areas where there is the greatest resource. However, the cost, naturally enough, is based on the electricity supply and would fall in areas where there is the highest level of population. Because of that, Northern Ireland has a tremendous resource. We attract more ROCs than we need to satisfy our obligation. We are a net exporter; as is Scotland, as Mike says, but to a greater degree, whereas England and Wales are net importers. They need to import ROCs to satisfy their obligation level.
That is what happens. That is exactly how the scheme was set up. It is doing exactly what it should. It is a UK-wide scheme. Therefore, ROCs will be bought from the areas where they are plentiful. That is how it works. It is not that GB consumers are actually paying for the NIRO, as some people have been saying. That is not the way that it is. The thing is that ROCs are purchased from any region to satisfy the obligation level in other regions.
"From each according to his ability, to each according to his needs"
Mr O'Toole: Not me, but I am certainly a good social democrat, Chair. My final comment before I hand over to others is this: there is concern that, clearly, lots of those projects have been funded or part-funded by, for example, hedge funds in London, which will have closely modelled numbers and return on investment in order to make multi-year and, indeed, multi-decade commitments. I am still slightly struck as to why the Department responsible here has been unable to get a clear picture of those numbers, given that hedge-fund investment managers will have done so. Notwithstanding, I accept, that, clearly, on the face of it, this has been a success in many ways.
Mr Brennan: There are two reasons why AD investment may have ramped up in Northern Ireland. One was that the returns achievable in the GB market deteriorated for the reasons that Richard set out earlier with regard to degression and it being less attractive. The second reason is that the nature of AD means that Northern Ireland is a much more attractive place to set up. The agricultural inputs that AD plants need are much more abundant in Northern Ireland.
Ms Flynn: Thanks to Mike, Richard and Trevor for your answers so far. Mike, you mentioned in your introductory comments that, hopefully, you will have a clear picture on the rates of return soon. Is the Department working towards a date by which you expect to complete that work and have the information at hand? Do you have any more detail on that topic that you could provide to the Committee today? If it is work in progress, it is possible that you do not. Are you having any issues or problems with getting access to the data and calculations that you need from the different bodies?
Mr Brennan: My understanding is that there are ongoing discussions with KPMG and RenewableNI to get access to the information. I have not been told that there is a problem. That last that I heard was that the expectation was that we would like to have something on the analysis by, I think, the end of May. I think that Tomas from the Audit Office has also been involved in those negotiations. My understanding was that work would be done and we would have some outputs by the end of May. I am not sure whether Richard is back online. He or Trevor might be able to clarify that. If not, we can write to you and the Committee to confirm what the latest position is.
Mr Rodgers: Can I just check whether I am back online?
Mr Brennan: You are, yes.
Ms Flynn: Yes, we have got you back, Richard.
Mr Rodgers: I was like Harry Potter there.
Ms Flynn: Thanks for that, Mike. It would be really useful for the Committee to get that in writing if any updates arise after today's session. Mike, you also mentioned that the positive is that the scheme exceeded its target: it reached 46% of electricity being generated via renewables. You also mentioned the hundreds of jobs that it has created and the millions of pounds that have come into the economy as a result. When you were designing the scheme, was a target set for the number of jobs that would be created and for the amount of money that would go back into the economy? If so, have those targets been met or exceeded?
Mr Brennan: My understanding is that, when the scheme was set up initially, the policy imperatives were, for example, to recognise fuel poverty in Northern Ireland and the lower levels of income. When you talk about lower levels of income, there is a significant divergence between urban and rural areas. The NIRO has to do with small-scale wind, and AD particularly benefits rural communities, so they were positive policy outcomes. I am not aware that there was a specific job creation target, but we know, for example, that the KPMG report suggested that some 500 jobs have been created in small-scale wind, largely in rural areas.
The Office for National Statistics published a report in January 2020, I think, suggesting that the renewables industry in its widest sense — large-scale wind as well as solar and AD — had an estimated turnover of £1·1 billion. From recollection, it said that that also delivered some 5,400 full-time-equivalent jobs in the local economy. So, you can see that it is a significant employment generator. As I said, a lot more needs to be done in that space as we move forward from 49% generation to get to 70% and then on to 100%.
Ms Flynn: That is great, Mike, thank you very much.
Mr Rodgers: May I add to that? The forecasts out of the UK are that there will be 710,000 long-term jobs in the UK, while 38,000 jobs are forecast in the Republic of Ireland. Our 3% share would be 21,000 long-term jobs as we get towards net zero. Given what we have been talking about today, and the fact that we have a greater wind footprint, for example, we expect that that 21,000 will be exceeded. That will have quite a material impact on our local economy.
Ms Flynn: That is great, Richard, thanks very much. I have two very short final questions, the first of which, maybe, should be directed towards Trevor. Andrew said earlier that small-scale turbines were not generating as much wind power in relation to the financial support that they were receiving. He asked about the reason for the higher level of support for wind turbines. I am not sure whether it was Trevor or Richard, but you said that you went through a process of looking at all the costs and that you wanted to bring the North on to a level playing field with Britain. That was part of the rationale given for the smaller turbines.
Mike said at the beginning that we are looking at these issues with hindsight. However, would it have been much better value for money had you reduced the support to the small turbines and focused on the larger wind farms, which are producing more renewable energy? Trevor, in your answer to Andrew, you quoted some figures and said that making that decision would not have resulted in better value for money.
Mr McBriar: We were talking about the objectives of the scheme, one of which at the outset was to do with rural diversification. The policy decision was made to support small-scale. The banding levels are based on what the developer needs. However, because of economies of scale and so forth, the large-scale guys do not need as much support simply because of their size. The smaller guys do, so the ROC rate reflected that and was based on evidence that was gathered in that regard.
Ms Flynn: That is great. Thanks, Trevor; I appreciate that response. Finally, Mike or Richard, I am going back to the operating costs. The Committee understands that it was difficult from the outset of the scheme because you did not obtain the details of installation and the costs of operation. They were not required to be provided to you. In the absence of that information, how has the Department assured itself — in fact, how does it assure itself, on an ongoing basis — that the rates of return at all levels are reasonable and not excessive? I am not saying that it is the Department's fault, but if you do not hold that information, how can you have the security and confidence that the rates are not excessive?
Mr Brennan: The analysis of rates of return, and requiring data to caveat rates of return, would have to be looked at differently if this was grant support given to people directly, for example, but it is not. They are selling product into a UK-wide market, and that market is determined and driven by BEIS.
From a narrow taxpayer perspective, there is no taxpayer exposure to worry regarding excessive rates of return. It is about whether the ROCs offered in the UK-wide market are sufficiently attractive to attract commercial investment in providing wind turbines, for example. If the ROCs are not high enough, people will not build wind turbines; it will not happen. However, if the ROCs are excessively generous, you will be inundated with people wanting to build wind turbines all over the place. The evidence suggests that we have struck the right balance, as does the KPMG material.
As I said earlier, that figure will, hopefully, be confirmed when we get into the analysis in April and May. One of the stats that provides some comfort relates to the number of stations and accreditations that took place. The highest rate was in 2008-09, when there were 161 small-scale wind accreditations. The four ROCs were introduced in 2010, and, as you see in the graph in the report, the figures from then were 70, 30, 59, 95, and then, when they knew that the scheme was closing, the figure jumped. From that, I take it that going to four ROCs in 2010 did not send a signal that excessive rates of return could be earned and that companies were jumping into the market. That is not what the accreditation figure work shows. I am relatively comfortable that there were not excessive profits to be earned because ROCs were set too high.
Ms Flynn: That is fair enough, Mike. Thanks very much. Thank you, Chair.
Mr McHugh: Go raibh maith agat, a Chathaoirligh, agus mo bhuíochas fosta as an ráiteas. Thank you, Chairman, and my thanks too for the statement. There is no doubt about the success of the programme in respect of the energy that was produced through renewables, but I feel that, sometimes, in haste, rules tend to be ignored. I am going back to the anaerobic digesters. We know that a large number of wind turbines and anaerobic digesters that did not have planning permission were able to join the scheme and continue claiming ROCs. Since then, many of them have, perhaps, been in breach of planning regulations as well. It is not sufficient to say that, when it comes to the application of the rules, we do not have the expertise and then pass the buck on to the council, which, effectively, says the same thing. How do you feel about that?
Mr Brennan: My opening response is that we had to make sure that we complied with the legislation that the Department is subject to, which is the Energy Order. On the planning and environmental compliance issues, when Ofgem is aware of issues — Richard spoke earlier about an issue with planning non-compliance — it notifies LPS, and that has been very successful in recouping outstanding rates arrears. The policy responsibility on, for example, the environmental side or the rates side resides either with the Department for Infrastructure or with district councils. All that Ofgem, as the administrator of the scheme, can do, when it becomes aware of issues, is make the relevant authorities aware of them so that they can take action, be that retrospective clawback or whatever. As I say, we have learnt, and we will endeavor, as we move forward with new renewable strategies, to make sure that there is a better joined-up approach across NICS to doing that and to working with local councils.
Mr McBriar: I will add to that, Mike. With regard to planning approvals and waste management, when the Department became aware of the allegations about possible gaps in approvals, we, along with colleagues in NIEA and DFI, set up a task-and-finish group to identify any gaps in any of those key areas. As a result of that work, which resulted in NIEA visiting 200-plus sites, 42 potential planning gaps were identified. Some of those perhaps did not need planning permission, because they were so small. Nevertheless, they were referred to DFI, which took them forward to see whether any appropriate action was needed to fill those gaps.
Mr McHugh: On that point about the gaps and the environmental impact, do you feel that the Department, in its haste to encourage anaerobic digesters and other producers, gave sufficient consideration to the environmental elements?
[Inaudible due to poor sound quality]
[Inaudible due to poor sound quality]
NIEA. As Richard explained earlier, of course the Department was interested in AD plants, but it is the biogas produced from AD that is relevant to the NIRO. The NIRO does not fund any of the equipment for the AD plant; it is the biogas only. The NIRO is only concerned with the generation of electricity. Sometimes, there may be a generation station attached to an AD plant, but that is not the case in every eventuality. Biogas travels. The AD plant itself is not therefore really within the remit of DFE.
Mr Rodgers: This is a point of background information. There is a biogas generator on an industrial estate in Lisburn that processes about 40 tons of food waste from supermarkets every week. So you have the rural aspect and the city aspect. In principle, AD is a good thing, but, as the member says, it is how you implement it that is important.
Mr McHugh: As long as, at the end of the day, the end does not justify the means. In some cases, landowners seriously question how some venture capitalists have been able to develop beside plants, given the impact on the environment and their land. Yet and all, they feel that there is very little opportunity for redress and that councils, particularly when it comes to planning and so on, tend to, as I say, offer up the excuse, "We don't have the expertise to make judgements on this".
Mr Rodgers: Yes, I suppose.
Mr McHugh: Yes, I was making a statement in the hope of encouraging a response, but there does not seem to be any.
Mr Beggs: Thank you for your evidence so far. One of the points that has been made to us today is that the scheme mirrors the policy of the GB scheme. Do you accept that, once you deviate from the financial rewards in terms of ROCs, or, for that matter, the FITs that are being talked about, the schemes deviate?
Mr Brennan: The biggest deviation came when, as we discussed earlier, at GB level, FIT was introduced.
Mr Beggs: Why was it not introduced here alongside it?
Mr Brennan: There were two main reasons, from recollection; the guys may be aware of others. One was that it would have required primary legislation in Northern Ireland; and, secondly, it would have meant that we would have had to seek state aid approval for a new scheme from the European Commission.
Mr McBriar: We did a piece of work in 2010 to consider what the best mechanism was to support small-scale generation in Northern Ireland. The conclusion was [Interruption.]
Sorry, can you still hear me?
Mr McBriar: The conclusion was that the NIRO was the most cost-effective way to do so in the context of the cost to the consumer. There was no need for it; changing would not have been the right thing to do. Moreover, as Mike said, even if it had been a good idea, we did not have primary legislation at that time to do it.
Mr Beggs: Did you have any understanding of why it changed in GB if it is the best thing for the consumer and you decided not to change here? Why did they change it in GB?
Mr McBriar: It is a different scheme.
Mr Beggs: I thought that we mirrored their scheme. Why did they change the scheme?
Mr McBriar: They did their own assessment and decided that it was the best thing for them. It was a more controllable scheme than the ROs.
Mr Beggs: So, you are saying that our scheme was not controllable.
Mr McBriar: No, I am saying that, in the work that we did, the experts concluded that we should stick with the NIRO, so that is what we did.
Mr Beggs: Mike Brennan indicated earlier that there was no exposure to the taxpayer and that that was one of the things that gave them confidence in the scheme. Mike, do you accept that there is exposure for electricity users?
Mr Brennan: I said that there was no exposure to the taxpayer in the context —. Sorry, can you hear me OK?
Mr Brennan: OK. I am using someone else's computer, and it seems to be very intermittent.
Mr Brennan: OK.
When I was talking earlier about there being no exposure to the taxpayer, it was in the context of the question about taking a view on rates return. What I am saying in answer to your question is that there is no cost to the taxpayer — the Exchequer does not make a contribution to the payments to the generating stations — but, logically, there is a cost to the consumer. However, that cost is negligible. As I said at the start, the cost forecasts for Northern Ireland consumers were that it could have been as high as £81 or £82 per annum.
The actual cost for Northern Ireland electricity consumers is only £31 per annum, so the costs in Northern Ireland are considerably less than in GB. When you look at that metric, you have to say that it has been a success from a Northern Ireland perspective, but yes, there is a cost to the electricity consumer, and costs will have to be incurred as part of the decarbonisation agenda and the move to more renewables.
The important thing to factor in is that it is all part of reducing the reliance on fossil fuels. It is also important to bear in mind that, as a consequence of the NIRO, wholesale electricity costs in Northern Ireland have been kept lower than they otherwise would have been.
Mr Beggs: Do you accept that that will have created great dissatisfaction among GB consumers in that we are giving away more ROCs and they are paying more for ROCs?
Mr Rodgers: No. Sorry, fire away, Mike.
Mr Brennan: No, I do not accept that. Northern Ireland and Scotland are able to export ROCs because they have a higher ability to generate because wind is more prevalent. It is just like solar being more prevalent in the south-east of England. That is one of the reasons why Northern Ireland and Scotland have been able to generate ROCs and export them. That has affected the cost to GB consumers because the availability of Northern Ireland and Scottish ROCs means that the cost to GB consumers is less than it would have been.
Mr Rodgers: More ROCs are produced in England and Wales than in Scotland and Northern Ireland overall, but what we are referring to is as a proportion of our population, and that is because, as Mike said —
Mr Beggs: My question is about the proportion of ROCs per megawatt generated. Is that not the figure we all should be looking at?
Mr Rodgers: No. The proportion of ROCs per megawatt generated was the same until 2010, when the feed-in tariff was introduced and the GB scheme for small-scale renewables was moved from a renewable obligation to a feed-in tariff. As Trevor said, this is the small-scale end. About 80% of renewable generation is large-scale.
Back to the point: Northern Ireland consumers, for the past 100 years, have been paying for fossil fuel imports. Every single kilowatt-hour of fuel that we have used for power, heat and transport has been imported, quite often to the benefit of developers off the east coast of Scotland, in the North Sea, for example. This is the first time that we have been able to become a little bit more self-sufficient. A total of 50% of our electricity is generated locally. That means that we do not have to import and pay money offshore for fossil fuels. On top of that, the support scheme actually gave us the ability to export, effectively through the ROCs, the value that is being created, because we can produce electricity through the wind here. That was the policy intention of the UK Government when they introduced the obligation. We have been a part of delivering that, and that has been to the benefit of the economy locally.
Mr McBriar: On the point about GB purchasing ROCs from Northern Ireland. It is important to understand that English suppliers need ROCs from Northern Ireland to enable them to meet their supplier obligation. If they were not purchasing ROCs from Northern Ireland, and from Scotland to a greater degree, they would not be able to meet their obligation by the presentation of ROCs. They would then have to pay into the buyout fund, which, in all probability, would be a higher cost. Therefore, that would result in higher costs to consumers on the assumption that all costs of the ROs are passed on to consumers.
Mr Beggs: OK. Mr Brennan, I would like to go back to June 2015, when Jonathan Bell, the Minister at the time, said in a statement:
"I want to make it clear now however that I do not intend to follow the Westminster government's policy to close the existing scheme" —
What was the thinking of the Department when the Minister said that?
Mr Brennan: I am not sure what the context is there, because the Economy Minister — the Minister of Enterprise, Trade and Investment — announced in 2012, I think, that the NIRO would close in 2017. I am not sure what the context is. Unless Trevor or Richard can elaborate, we will have to look into that, but I am not aware of what the content was for that statement.
Mr Beggs: The context was that the level of ROCs had changed in GB and the UK Government wanted us to look at the attractiveness of issuing ROCs locally.
Mr Rodgers: Trevor, you are over the detail, so you can talk about why this was driven by bringing forward the closure by one year in GB.
Mr McBriar: Mike is quite right: the Minister in DECC in 2011 announced closure for 2017, and our Minister did the same in 2012. The Conservative Party had success at the election in 2015, and one of its pledges was to cut back on the support to renewables. At that time, it announced that it was going to close the ROs one year early to onshore wind. That is what the issue was, and I think that that is the issue that the member is trying to get at.
Mr Beggs: I understand that the larger turbine scheme was fairly similar to that in GB but that the smaller turbine scheme was different. Only 13% of the electricity is generated by providing 40% of the ROCs. Do you think that is value for money?
Mr Rodgers: Sorry, Chair, we cannot hear the member.
Mr Beggs: OK. Only 13% of the energy generated from small-scale wind is allocated 40% of the ROCs. Do you think that is value for money?
Mr Brennan: I suppose that it goes to your definition of what value for money is, and, as I said, I take the widest possible definition of value for money when it comes to NIRO. In that case, I factor in things like the amount of income that comes into Northern Ireland and the number of jobs that are generated. Therefore, you would expect that the employment levels, in a proportionate term, would be higher for small-scale wind farms, and that is also why, for example, the ROCs payment, and therefore the income coming into Northern Ireland, is higher than it would otherwise have been. Those are all issues and factors that need to feed into any determination of value for money.
Mr Beggs: Did the Department build into the scheme any access to the amount of energy generated and the proportion of income from ROCs and energy generated? The difference between the two. Have you any sight of that? Do you know how dependent any particular scheme was on ROCs compared to actual useful energy?
Mr Brennan: I am sorry, but I am struggling to understand the question.
Mr Rodgers: Yes, I do not follow the question.
Mr Beggs: I am trying to understand to what proportion ROCs were driving decisions rather than actual renewable energy being generated. How did the Department know if it was getting the balance right?
Mr Brennan: If I understand you correctly, you are asking whether we think we were over-incentivising or under-incentivising investment in the market. If that is the question, as I said earlier, the key metrics that you would look at are the extent to which, for example, with small-scale wind turbines, the amount of accreditations flatlined from 2010 on, except for the last year or two when people were aware that the scheme was closing. There was no mad rush to invest in the industry because there was deemed to be the potential for excessive returns. The flip side of that is that the ROCs offered were sufficiently attractive to encourage a degree of investment, which is why we moved from 3% renewables in 2005 to 49% renewables in December just past. I think that a balance has been struck there.
Mr Beggs: Looking at the environmental benefit of the scheme, do you accept that, by allowing derating of turbines, we are not maximising the potential generation of renewable energy?
Mr Brennan: I am not sure that I would accept that.
Mr Beggs: Do you not accept that if it was not derated, it would generate more renewable energy?
Mr Brennan: It is bound to be a further incentive, but I am not sure what proportion of the operating costs of the wind turbine is made up of the cost of rates and whether it is significant. I do not have enough detail on the commercial side of things to determine that.
Mr Rodgers: If it is OK, the one thing that would add to that comment is that derating is available across the UK. It is not something that we have here that is not available in GB. The impact of derating a turbine is that, for any given site, there is an opportunity to produce more electricity, up to the limit that is available under the support scheme. That is reasonable. It is a fair comment that it will produce a bit more electricity, but that is in line with the objectives and intentions of the support scheme.
Mr Brennan: Richard, is it also fair to say, and am I correct in saying that the excess element through derating has a significant offset in the reduction in fossil fuel costs that would come into the system?
Mr McBriar: To add to that and to explain: the reason for derating is not just to get more ROCs. On occasion, developers have to derate to fit in with the approved grid connection. For example, if there is availability for only 225 kW, but they are unable to get their hands on that size of turbine, one of the options to get it onto the scheme is to buy a larger turbine and to derate it down to 225 kW.
Mr Beggs: Do you accept that derating changes the generation envelope and allows more energy to be generated without reducing the ROCs subsidy? In fact, it increases the amount of ROCs that you would ultimately be able to get for a site.
Mr McBriar: Yes, but it also increases the amount of electricity that is being generated at that site without the need to have other sites, if you know what I mean. The whole idea of the NIRO was to generate as much from your
[Inaudible due to poor sound quality.]
Mr Beggs: OK. To follow up on a comment about objectives —.
Mr McBriar: Sorry. Can you hear me now?
Mr McBriar: The member asked about derated turbines. I said that the whole rationale for the NIRO is to generate as much renewable electricity as possible. Stations that are more efficient are probably a good thing rather than a bad thing.
Mr Beggs: For generating renewable energy, you cited that policy. Others mentioned off-grid stations and said that 54 off-grid station operators were in receipt of ROCs. The information that we have been given is that there is no evidence to demonstrate that any of those stations can be shown to be using electricity that was generated in a deliberately wasteful manner. That is very careful language. If you heat an empty machinery shed with electric heaters, would you be entitled to use the scheme, even though that was never a requirement for that facility? The problem with RHI was heating empty sheds, and that was deemed to be appropriate if there was a tractor sitting in it. Under the NIRO scheme, could a scheme receive ROCs for heating a machinery shed?
Mr Rodgers: If it is OK, I will I pick that up. No developers, businesses or farmers would be off-grid by choice. The clamour throughout the lifetime of the scheme was to get grid connections. They wanted that. Grid connections are coming on all the time because, clearly, they can produce more electricity. The difference between the boiler that you mentioned and this is that the electricity has to have a demand at the end of it. If you put on a bar heater — you might get a 1 kW, 3 kW or 10 kW heater — it will not move the dial. They want to be on the system.
The other aspect to the context is that there are only 54 off-grid stations out of 23,600 accredited stations on the scheme, so we are not talking about a big risk. We are talking about a risk that has been managed by the Department, with the Utility Regulator, in a way that ensures that we minimise the risk of producing electricity that is not useful, as the member describes.
To go back to my original point, every participant wants to have their generator connected to the grid because, in that way, they can use the turbine more than they can when they are off the grid. We have seen evidence for that as we have run the scheme over the past 15 years.
Mr Beggs: We are here to try to learn lessons for future schemes. Do you accept that it is essential that clear planning permission is given for future generation capacity, so that planning regulations are not breached? We have had instances of that. There needs to be a requirement for waste licensing, because again we have had issues with generation qualifying for ROCs when there has been no waste licensing. There needs to be transparency so that information can be shared with all Departments without any restrictions on data protection, so that local rates can be raised appropriately. Do you appreciate that there needs to be greater transparency and sharing of information for the public good, not just for the benefit of a small number of individuals who, in my experience, have been larger farmers and hedge funds?
Mr Brennan: As I have already signalled, that is the ideal that we are working towards. For the new energy strategy, there are cross-departmental working groups. We seek to have as much transparency as possible in the construction of the new scheme, so that will be operational in the future for renewables. For example, colleagues in the Department for Infrastructure, DAERA or LPS will know exactly what our intent is, and they will have a chance to shape the new scheme.
Mr Rodgers: I will make one additional point. When any business invests in new capital opportunities, it tends not to do that from its own resources but seeks the investment, first off, from the local bank. Therefore, a significant proportion of the participants in the NIRO will have got their investment capital from local banks, or banks wherever, as well as from investment houses and, as the member said, potentially venture capital hedge funds. That is just the nature of doing business in the capital economy.
Mr Harvey: Thank you, gentlemen. I believe that the small-scale wind sector brings in £45 million a year and sustains some 500 direct and indirect jobs. What is the average cost of one of these turbines to a Northern Ireland customer over a period of time? You mentioned £35, but that is for the complete number. Is it 700 or 1,200 turbines in total? Numbers are being jiggled around, and I wonder how many turbines we are actually talking about.
Mr Brennan: The figure that I quoted was the total cost of NIRO to local electricity consumers, which is £31. In total, there are 1,209 small-scale wind turbines; that is, those below 250 kW. I have seen figures for the costs, but Trevor is the man with the detail. I think it is of the order of 1p per kWh, or 1p per year or something. Maybe you have more insights, Trevor, on what the small-scale wind costs are to the consumer. If not, we can write back to the Committee on that.
Mr McBriar: I am not sure, Mike. I know that those figures that you quoted come from the KPMG report.
Mr Brennan: We can double-check and come back to you, but that is the figure that I recollect seeing. Trevor says it was in the KPMG report. Obviously, we have not validated it, but we will see whether we can get you that small-scale wind cost component for a Northern Ireland electricity consumer.
Mr Rodgers: Just to finish on that, I think that the important figure is that, on average, it is £31, or £32 including network costs, per annum. So, the cost of the NIRO is, on average, around 60 pence a week to the local electricity consumer.
Mr Harvey: It is very good to be able to produce 50% electricity.
Other figures are being moved around here. On the return on investment, we have 20-plus and then maybe 10 or fewer. It is based on one turbine, then maybe 10 and then it is up to 134. The bottom line is that there is an obligation to be accurate here. We know about the recent media attention that was generated because of the excess of 20% return, which now may seem not to be accurate. That puts unnecessary attention onto Departments and Ministers, which in itself is unfair. I think that our obligation is to be accurate here. Do you agree?
Mr Brennan: I agree wholeheartedly with you. I have to say that the 20% figure generated a lot of media interest, and, as I said, it was based on just one station that was off-grid. The KPMG report takes us further in that it refers to 134 stations. The calculation of rate of return was 9·7%. I can see your frustration, because, on the one hand, someone said 20% and, on the other hand, it is 9·7%. Going back to other members' questions, we will endeavour to work with KPMG in the coming weeks to firm up what we think is happening here. It ties directly into recommendation 6 of the report.
As I said, given the larger sample size, which went from 1 to 134, I would like to think that you get closer to a total population estimate, so I would be more comfortable that the initial targets in the Department of 8% to 12% have been adhered to.
Mr Boylan: Thank you very much for the presentations. Mike, I appreciate that you are trying to move away from fossil fuels and to reduce our carbon footprint, but, for whoever wants to respond, I will take you back to this: you replicated the scheme from England, but, clearly, what we have learned now from the things that we have done on planning and environmental impact is that we have not got it right, and the report indicates that.
I want to pick up on a few points about anaerobic digestion. In my area, when planning permission was given outside Armagh city in a wee place called Milford, a business plan was put in place as part of the application process. Basically, it was about the feed in terms of the silage and the slurry that was needed to run the plant. There were serious questions about that at the time. The report indicates that it takes a large amount of slurry, silage and other waste materials to run the plants, given the number that we have. Was any consideration given to increasing the price of silage and slurry or to transportation costs or general land valuation? Once you wanted to introduce the new technology, was any consideration given to the unintended consequences of what might arise from it? There was clearly a big demand to feed all the anaerobic digesters. There was talk about going over to Scotland and bringing the feed over. Was any consideration given to that?
Mr Brennan: I am not aware of that dimension at all or of what assumptions were made about the AD inputs. As I said, the question was whether four ROCs would be sufficient. All that I can say is that you talk about planning for AD, and there are issues. We have talked at length this afternoon about how we rectify that going forward, and, rest assured, we will look at those issues. I am not sure, Richard or Trevor, whether you have any greater insight into the extent to which the input costs to AD have altered the growth in ADs in Northern Ireland. My take on it is that ADs will have to have a growing role and future in Northern Ireland, given the increasing constraints and needs on environmental compliance and standards, directives on nitrates and ammonia etc. I am not sure of the extent to which past distortions on prices for silage or whatever have influenced the investment behaviour of ADs.
Mr Rodgers: I will add a bit to that before Trevor maybe provides some details. The scheme accredits biogas generators. The biogas is produced by anaerobic digestion. In principle, anaerobic digestion — I am not a farming expert, so forgive me — is a good thing because it prevents the slurry being spread on the land and adding to our nitrates problem. One of the things that we are starting to ask through, for example, the Tully Quarry investment in Ballymena with Stream BioEnergy and other investments like that, is what we should do with the digestate that is left behind when we take the biogas off. The potential of combining it with carbon dioxide for a drop in fuels and the like is the final piece of the jigsaw, if you like, for solving the nitrates problem.
It is an exciting space, but, as you say, it is really important to understand whether we are getting unintended consequences. The challenge in any business investment is that, if a business makes a commitment to provide a certain amount of biogas to a generator who wants his or her return on investment in the generating to be set, it might become difficult to produce
[Inaudible due to poor sound quality]
amount of gas. That is where we have seen some of the tensions clearly arise. The uncertainty in any business investment is that returns are not guaranteed in the same way that some wind sites are windier than others, and sometimes the wind does not blow. AD has its risks as well.
Trevor, is there anything that we should mention on this question?
Mr McBriar: I do not think so, Richard.
Mr Boylan: Richard, I will put it to you in a different way. In simple terms, slurry and silage are fuels. What you are saying is that you have not seen an increase in prices on that side of things. Do I have to get out of the country to get the fuel, whether it is silage, slurry or waste components that are required to fuel the turbines? Obviously, there was no consideration given to that at the time, because you would not have had enough detail. That is my main point.
Mr Rodgers: That is a fair point, because we have been saying throughout the afternoon that, under the regulations, there is not a requirement for the generators to provide the commercially sensitive information on their costs and, indeed, on the incomes that they generate through the market mechanism. Ironically, that is different from the RHI scheme, as we were able to get hold of that information on a confidential basis. That is one of the things that we have to improve. One of the challenges in delivering recommendation 6 is getting access to the commercially sensitive information.
Mr Boylan: I appreciate that. Anybody who has been a councillor or a rep understands those arguments when applications are put in. We appreciate what Mike said about there needing to be more cross-departmental working on this. That has caused a lot of issues for planning permission at local or regional level.
Another point that you touched on was emissions. The Department has some concerns about the digestate and the emissions that arise from it. Can you comment any more on how you are engaging with the NIEA, the Department and the other Departments on those issues or what you have learned from them?
Mr Brennan: I will bring Richard in on that in a second. As I said, as part of our future forward look on the strategy, we have a number of cross-departmental working groups. DAERA and NIEA are all represented on your working groups, are they not, Richard?
Mr Rodgers: Yes. DAERA takes the lead for us locally on climate change. As part of that, the chief executive of the Environment Agency is at the heart of it. She and her officials are working with us on the development of the new policy, and they were part of the process to establish the detail in the options consultation. The member raises the really important point that it is not just about the energy aspects but about the feedstock, and that is something that we are considering as part of the development of the new energy strategy.
Mr Boylan: I appreciate that. Most of my questions were answered before I got in. Thank you.
The Chairperson (Mr Humphrey): No other members have indicated that they want to ask questions. Everyone has had their opportunity to have their spoke.
Mr Boylan talked about formulating primary legislation, which you mentioned earlier, Mr Brennan. That will be crucial if lessons are to be learned not just on this issue but on so much to do with government in Northern Ireland. Are you confident that that will happen?
Mr Brennan: I am very hopeful that things will get better. That is probably the best that I can say. All that we can do, as officials, is make sure that there is better cooperation and collaboration between officials in all the Departments and that we are as fully informed and sighted as possible on each other's plans when progressing the relevant pieces of legislation. I take heart, because if you look at the PFG and the commitments in, for example, New Decade, New Approach, you see that the non-contentious areas tend to be in the space around energy, environment and climate change. I am pretty confident that, in moving forward with primary legislation, it should be easy to get not just official but political buy-in and collaboration.
The Chairperson (Mr Humphrey): This is now our sixth report on the matter, and there seems to be a recurring theme. That is something that we need to address. We have put that to permanent secretaries in other Departments who have been in front of the Committee, so you are not being singled out. We made that point to the former head of the Northern Ireland Civil Service, and we will make it to the new head of the Northern Ireland Civil Service when they are appointed. That collective responsibility is crucial, because this is far too small a place for that sort of joined-up governance not to happen. Did someone else want to come in?
Mr Rodgers: I just want to add that, in a positive vein, DAERA is leading on the Climate Change Bill, and, in that energy produces 60% of emissions. The AERA Minister has established an inter-ministerial group, and on that group is DFC, DFI, our Department and the Department of Finance as well as TEO. There is a clear signal of intent that it is not DAERA's climate change and it is not DFE's energy strategy. There is collective responsibility, and the issue now is to see that through as we get into the new world, as Mike said, of properly joining up how we deliver those services locally.
Mr Brennan: Going back to your broader strategic comment, in summary, I could not agree with you more about the need to move in that direction.
The Chairperson (Mr Humphrey): I also welcome the Department's acceptance of recommendation 6. The Committee sees that very much as a positive.
Mr Rodgers, you talked about moving from 49% renewable energy to 70% and about 21,000 jobs being created in the Northern Ireland economy. Do we have a timescale for that?
Mr Rodgers: That will come out of the energy strategy. As I said, we will have the options consultation by the end of the month. The intention is to land the energy strategy by the end of this year. That is a proportionate number that was derived from research that has been done by the UK and the ROI Governments. The important thing is that we are on with it now. Our Minister has already signalled our intention to have a minimum target of 70% renewable electricity by 2030 and to produce the first green hydrogen through electrolysis. That hydrogen is to be utilised in the hydrogen fuel cell buses that are built in Wrightbus. We are already leading on renewable electricity production and on the development of the hydrogen economy, and in those are the jobs of the future. We have linked up with the colleges of further and higher education on the skills that are needed. For the first time, as the Committee will have noticed, in the economic recovery plan, clean energy is an important sector. It is highlighted in that plan, and that would not have been the case in the past.
The Chairperson (Mr Humphrey): Those are certainly encouraging signs. Obviously, Wrightbus has a world-class product that is exported worldwide. There are other buses that you can buy, but we recommend that you buy Wrightbus. I suppose that is the line.
Having 50% of electricity now generated locally is a tremendous figure from a starting point of very little or nil. What period did that happen over?
Mr Rodgers: It was 3% in 2005.
The Chairperson (Mr Humphrey): So, we have increased from 3% in 2005 to 50% today. That is tremendous.
Other members mentioned the plant in the Irish Republic, and I would like to return to that. I respect the confidentiality on that, Mr Brennan, but hopefully you and your colleagues will come back again to the Committee for an additional evidence session when you have concluded your verification of those issues. It might be useful to have part of that session in private. I have questions, but I am conscious of the fact and I read the message that there are sensitivities in those things and perhaps negotiations going on, but I think that it is something that the Committee would want to pursue in private if you are comfortable with that.
Mr Brennan: Certainly, Chair. We have promised to write back to your Committee on two or three points as a consequence of this session. If it would help, we could set out in more detail in that response where the Donegal plant is and then treat that submission as commercially sensitive. I would expect updates on the progress to come to the Invest NI audit committee and then through to the Department, so I am more than content to come back and provide a confidential briefing to your Committee.
The Chairperson (Mr Humphrey): Again, these might be questions that you cannot answer, but am I right to presume that the siting of the plant in Donegal was a planning issue and that a site could not be found in the Northern Ireland jurisdiction?
Mr Brennan: My understanding and recollection are that there were proposals for Rose Energy to take forward developments in Northern Ireland, but it failed for a number of reasons, and planning was the number one. I think that it was more of an incinerator. There were issues with emissions and environmental health concerns, so the difficulty was that no one really wants one of those plants close to their back door.
The Chairperson (Mr Humphrey): OK. I will take this opportunity to thank Mr Brennan, Mr Rodgers and Mr McBriar for joining the meeting this afternoon. As I said, we will perhaps have a second session early in the summer, if that is OK. Thank you very much indeed for answering questions and for your candour this afternoon. It is much appreciated.