A scheme incentivising renewable energy production risked paying an overly-generous 20% return to some investors, Northern Ireland’s spending watchdog has said. Small wind turbine and food waste to energy enterprises enjoyed greater financial support than in Great Britain over a number of years. The amount was based on market rates paid by electricity suppliers who used the power to those who generated it. The scheme has closed to new applications but there was a “surge” to gain accreditation for small turbines beforehand. They exceeded their targets in developing sustainable power but suffered from “strategic shortcomings”, auditors concluded. The potential payback period on the original investment could be less than four years but the small-scale generators covered represented a minority of the industry, the review said. The Economy Department said the audit recognised increased levels of renewable electricity consumption from around 3% in 2005 to almost 47% for the 12-month period up to March 31 2020. The Audit Office said: “The number of smaller, standalone wind turbine-based generating stations increased significantly in the last few years of the NIRO. “We believe that this is as a result of the higher level of financial support available to these generating stations since 2014, as well as a surge to gain accreditation prior to scheme closure. “
The Northern Ireland Renewable Obligation scheme (NIRO) means sustainable source generators are issued with Northern Ireland Renewable Obligation Certificates (ROCs) for each unit of electricity produced. It is not funded by taxation and is unrelated to the Renewable Heat Incentive (RHI), a botched green energy scheme which promised to massively overspend. The Audit Office added: “We estimated these small-scale generating stations could potentially achieve returns on investment of more than 20% per annum. “These small standalone wind turbines now make up approximately 94% of all wind generating stations and approximately 16% of potential wind-generating capacity.” The Audit Office said there were almost three times as many standalone wind turbines per square kilometre in Northern Ireland than Great Britain. SDLP energy spokeswoman Sinead McLaughlin said: “Legislation created a perverse incentive to build smaller wind turbines, rather than the more cost-effective larger wind farms. “Bearing in mind the failings around RHI, it seems that government in Northern Ireland has difficulty in getting to grips with the concept of perverse incentives.” The Economy Department said the cost to domestic consumers is driven by the annual obligation level and is not directly linked to the level of revenue received by renewable generators by trading ROCs in any given year. Electricity suppliers throughout the UK use the certificates to demonstrate compliance with their obligation to source a given proportion of the electricity they supply from renewable sources. Comptroller and Auditor General Kieran Donnelly said: “This report does not criticise the use of renewable sources as a means of electricity generation as this undoubtedly produces significant benefits for the environment and society as a whole.
I have found a number of strategic shortcomings in the design of the NIRO.
The average cost, to the average domestic consumer (5% of the average total electricity bill), of renewable electricity support schemes last year was £31. The Audit Office confirmed: “A green scheme to incentivise the development of electricity generated from renewable energy sources has succeeded in helping Northern Ireland exceed its targets, but the financial return for some investors may have been more generous than it needed to be.” A total of £1.25 billion is the forecast cost to all Northern Ireland suppliers to meet their renewables obligations between the scheme’s inception in 2005 and end in 2037. Mr Donnelly said: “This report has been published at a time of significantly reduced public confidence in renewable energy schemes.
It is crucial that the recommendations I have made here are followed up and that lessons are learned to ensure future schemes are more robust and efficient.
The Economy Department told auditors that some generators accredited under the NIRO will realise higher returns than the rate considered as typical and that others will realise lower. That was particularly relevant in the case of anaerobic digester plants which break down food waste and where there are numerous cost variables.
It said potentially higher rates of returns for a sub-set of generators were not out of line with the schemes’ design and did not demonstrate that the schemes overall provided higher rates of return than needed. Some of the generators realising rates of return below the average may consider the policies not generous enough. The Audit Office said the department should review all types of renewable generators to ensure current levels of support and actual rates of return achieved complied with original projections and State Aid rules. It recommended future schemes should project rates of return across a range of outputs and, in setting any bandings, should assume that investors will usually seek to maximise their returns by choosing the most favourable output within that banding. The Department said the Audit Office had recognised that the Executive’s 40% renewable electricity consumption by 2020 target was met a year early. It said the review concluded that: “The NIRO operates in a manner that takes into account factors such as higher levels of fuel poverty in Northern Ireland and, as a consequence, Northern Ireland consumers pay considerably less for the NIRO than consumers in Great Britain pay for their renewables schemes. “The resulting reduction in greenhouse gases and carbon emissions benefits the environment and society. “The expansion of the renewables industry has led to job creation. “More ROCs are issued to Northern Ireland generators than Northern Ireland suppliers require to meet their renewables obligation; surplus ROCs are purchased by Great Britain suppliers and contribute towards meeting the Great Britain renewables obligation resulting in a net positive transfer to the local economy.” https://www.itv.com/news/utv/2020-10-13/green-energy-scheme-risked-paying-overly-generous-rate-of-return-to-investors?fbclid=IwAR3wg4JM-Z7jKK1vYfpCGqEMI9ybsOd5NQFFTIHhu4yeakug3FfzYVfshk8
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