Design of botched scheme outlined to Renewable Heat Incentive Inquiry
Economist Sam Connolly who worked on RHI scheme gives evidence
Inquiry set up after public concern over scheme's huge projected overspend
Retired Court of Appeal judge Sir Patrick Coghlin chairing inquiry at Stormont
Public evidence sessions expected to last until well into 2018
Image source, Getty ImagesMr Connolly has endured a long day in the hotseat but he'll have to return tomorrow because he has more questions to answer, so join us from 09:45 GMT.
Bye for now!
BBC News Northern Ireland
An economist who signed off on the RHI scheme accepted that he was "relatively inexperienced" and a more senior person should have been given the job.
Image source, RHI InquirySamuel Connolly said he had done his best with the complex and novel scheme.
But he conceded to the inquiry that he had limited experience in dealing with such incentive projects.
Examining one final point today, Mr Lunny raises the regulatory impact assessment for the RHI scheme from the end of June 2011, which Mr Connolly was given y DETI's energy team to review and comment on.
In it, it says the ongoing subsidy option "is the preferred approach, and offers the highest potential heat output at the best value".
Image source, Getty ImagesMr Lunny describes that as a "totally inaccurate statement" and "totally at odds" with what CEPA had said it its report, points that Mr Connolly agrees with.
Asked why he didn't notice it when he read the document, Mr Connolly says he "there's a possibility that I skimmed over" it.
CEPA had constructed a fiendishly complicated financial model for use in the economic appraisal, which Mr Connolly attempted to use it but it defeated him.
Did that concern him? "I probably was a bit too impressed at the time," he says.
Image source, RHI Inquiry"Did you you think it was impressive because it was so complicated?" asks Dame Una.
"I think I did," he replies. "It took a fine mind to put that together in my view.
"Whoever did it knew what they were doing... or time will tell."
Inquiry panellist Dame Una O'Brien notes that from his evidence today, Mr Connolly had been was "very engaged" and in the RHI scheme up until the publication of the final CEPA report.
"Something seems to have happened," she says, "that you somehow stopped being interested.
"Did you feel that if you raised anything nobody would listen?"
Image source, Getty ImagesMr Connolly accepts Dame Una's point, and says that when the report was published there was "very little I could do to influence it".
"Maybe I have to accept some responsibility - maybe I didn't try hard enough," he adds, also suggesting that DETI's energy team had got ahead of themselves in taking the proposals for the scheme to the minister.
"There comes a point," he says, when if the energy team "don't want to take advice on board there's not much more we can do as economists".
Mr Lunny asks why Mr Connolly did not make an issue of the fact that he was not happy with the way CEPA had phrased its conclusion in the appraisal for the RHI scheme.
"I simply didn't do it at that time," he replies.
Image source, RHI InquiryDr MacLean refers once again to the massive differences in the costs indicated in the May draft and the final CEPA report:
"Was there no discusion at all between you and energy personnel about the fact that 'My God, the value for money really must have changed now?'"
Mr Connolly says he doesn't recall any specific conversation, and there were policy changes that had been introduced by DETI's energy division.
CEPA had been asked to produce a "recommendation on the most cost-effective option" for the RHI scheme in its economic appraisal.
Mr Lunny puts it to Mr Connolly that he thought CEPA was being equivocal in not indicating a preferred option, and asks him what he did when he saw the final report.
Image source, RHI Inquiry"There was nothing I could do," he says.
Mr Lunny puts it to him that his job was to quality assure the appraisal.
"Yeah, but there's only so much challenge and scrutiny you can apply," Mr Connolly says.
As we've heard several times during the course of this inquiry, there were significant cost differences between the two options for the RHI scheme... and DETI plumped for one that was much more expensive.
Mr Lunny outlines how the up-front grants option was estimated by CEPA in June 2011 to cost £212m, while the subsidy scheme was projected to run to £405m, a difference that was described as "pretty stark".
Image source, Getty ImagesThose figures had changed significantly on calculations that CEPA had made the previous month, when the grant fund was put at £311m and the subsidy offer was thought to cost £257m.
In the conclusion of CEPA's final report, external, it said the grants option was offering "the best value for money".
The up-front grants option "trumps" the ongoing subsidy model for the RHI scheme "on most, if not all" of the comparisons in CEPA's economic report, says Mr Lunny, and Mr Connolly agrees.
Dr MacLean queries what value for money and cost effectiveness means.
Image source, Getty ImagesHe asks whether Mr Connolly agrees that "it is quite clearly the case that the challenge fund offers twice as much value for money, or cost effectiveness on the basis of cost per kWh of renewable heat".
"Yeah, on the face of it," says Mr Connolly.
DETI sought approval from Stormont's finance department for £25m for the RHI scheme over four years, up until 2015.
But the scheme was offering ongoing subsidies over 20 years, which Mr Connolly says he estimated would amount to at least £160m.
Image source, Getty ImagesDr Keith MacLean suggests the £25m figure that was put to the finance department was "always misleading", a point that Mr Connolly accepts.
"The approach was that if we take care of the £25m the rest takes care of itself," says the witness.
It "should have been brought out clearer" that there would be a much bigger cost over the long-term, he adds.
Mr Connolly was one of the recipients of a draft consultation document for the proposed RHI scheme, sent by DETI official Peter Hutchinson in June 2011, which was issued before CEPA's final economic report was published.
Did Mr Connolly think it was "fair or appropriate" that the up-front grants option appears to have been discarded at a point when the CEPA report is still at the draft stage?
"I don't - I think the best approach would have been to wait to get the final CEPA report," he says.
Image source, RHI InquiryAsked whether he should've intervened to suggest that the energy team should hold off on the consultation until the final report had been received, he says that probably crossed his mind.
But as far as he was concerned the minister had already decided about what option to pursue, and he adds: "Who am I to argue with that?"
Inquiry chair Sir Patrick Coghlin points out that it appears that the minister's decision was based on incorrect information.
The better-value up-front grants model option for the RHI scheme got a "fair hearing" from DETI's energy team, says Mr Connolly.
But he says that "reality dawned that there would be difficulties around administering it".
Mr Lunny asks whether sending a submission to the minister with "potentially misleading information" about the options equates to giving the up-front grants option "a fair hearing".
He says his view is that the energy team had a "genuine interest in it" but the ongoing subsidy scheme later emerged as a favourite for practical reasons.
With the inquiry back in session after lunch, matters turn the two options that were considered for the RHI scheme.
One was an up-front grants model - known as a challenge fund - and an ongoing subsidy offer that would run for over 20 years, which was ultimately chosen even though it was projected to cost hundreds of millions of pounds more.
Image source, Getty ImagesIn June 2011, DETI's energy team made a submission to the then minister Arlene Foster, outlining the options and claimed that a subsidy scheme was projected would be the best value, even though that was clearly not the case.
The submission was based on CEPA's draft economic appraisal for the scheme rather than its final one, which came a few weeks later.
Mr Connolly says he would have waited for the final report before making such a submission, and he tells the inquiry: "There's no excuse for not presenting accurate information to the minister."
Economists with more experience should have been working on the RHI scheme, Mr Connolly tells the inquiry.
"I think it's hard to sit here today and suggest otherwise," he says, accepting that he was relatively inexperienced and had little energy expertise at the time when he was put to work on it, aged 30.
Image source, Getty Images"This was a very complex scheme... and I did what I could to challenge it and scrutinise it.
"It was involving concepts and sums of money that were beyond me."
Mr Connolly says he "naively assumed" that the RHI scheme would've been closed to new applicants once its budget had been allocated to claimants.
He acknowledges that he didn't know what legal mechanism would've been used to do that and he "wouldn't have had the experience to understand that".
Image source, Getty Images"I assumed that this could be stopped relatively straightforwardly," he adds, saying that he did not ask any detailed questions about how the cost of the scheme could be controlled.
Pressed on why he didn't ask questions, he accepts that he should've done more but he again points to his lack of experience at the time, saying that he may not have appreciated the risks involved in the scheme.
Mr Connolly is asked about his knowledge of the funding for the RHI scheme, with Mr Lunny referring to a series of emails between DETI and the Treasury in spring 2011.
They refer to the differences between two types of government funding - DEL (Departmental Expenditure Limits) and AME (Annually Managed Expenditure).
Image source, Getty ImagesThe initiative was funded on a hybrid arrangement using capped AME funding, which we've heard during the inquiry was unusual.
Mr Lunny asks the witness if he would have had any focus on the type of funding.
"No. I would just have been treating it as the same, and I doubt even at that time if i had known what AME was," he replies.
Dr MacLean asks why Mr Connolly raised the issue of tiering with CEPA in April 2011, when he says he didn't see it as a way of preventing overcompensation.
"I could see that it was being implemented in GB," he replies.
Image source, RHI Inquiry"Literally, there was no background knowledge. It was a key difference that was oblivious in the tariff tables, essentially," he adds.
"They had this thing called tiering, we didn't."
The lack of tiering of the subsidy tariffs on offer through the RHI scheme is next on the agenda.
Tiering is a key way of controlling the cost of the scheme and works by dropping the tariff on offer once a certain limit of usage has been reached - that prevents claimants from abusing the scheme by overusing their heating system to harvest more cash, effectively burning to earn.
But it wasn't included in the scheme and that is one of the main reasons why the budget blew up.
Analysis of how longer use of heating systems would affect the rate of subsidy returns for claimants wasn't carried out, and Mr Connolly has told the inquiry that doing so would've been relatively straightforward.
Asked if he had done the analysis he would've noticed that adding tiering to the scheme would prevent profitable returns for claimants, he says he doesn't believe so.
"I wasn't there to come up with my own sensitivities - that was the role of the expert consultants," he says, adding that CEPA advised that claimants would not be overcompensated.
Dame Una picks up on an email concerning the business case, which indicates that it had been sent to the DETI permanent secretary David Sterling (below) - now the head of the civil service - before "going to the minister", without being checked by the department's economists.
She asks whether that was normal procedure, adding: "I would have thought those people might have benefited from your input."
"I see your point there - that is quite odd," says Mr Connolly.
He explains that usually the business case would be sent to the economists for review and for them to suggest any improvements before it was sent to senior officials and the minister.
Part of Mr Connolly's role in the RHI scheme was to assess CEPA's economic appraisal for the project.
CEPA had energy expertise and their work formed the basis for the scheme, but part of it contained a critical flaw that was missed by DETI and later ended up being one of the key factors in the scheme running up a huge overspend.
Image source, Getty ImagesMr Lunny questions whether Mr Connolly was the right person to review CEPA's work, given that he had little specialist knowledge on energy matters.
Mr Connolly explains that the types of renewable energy technology that would be subsidised by the scheme were "absolutely alien to me" and he was limited in how he could challenge CEPA's appraisal.