Official Report: Minutes of Evidence

The Chairperson (Mr Brett): I welcome our colleagues from the Department: Sarah Brady, director of energy and operations; and Peter Neill, head of policy and legislation branch. Colleagues, I will hand over to you.

Ms Sarah Brady (Department for the Economy): Thank you very much for the opportunity to address you today on the proposed regulations to uplift the renewable heat incentive (RHI) tariff for small and medium biomass boilers. As you said, you have met me before: I am director of energy operations. My colleague Peter Neill is head of RHI policy.

As a bit of background, on 30 July 2024, the Executive agreed on the closure of the non-domestic RHI scheme. As an interim step to closure, they also agreed to the introduction of regulations to introduce an appropriate tariff for small and medium biomass installations. Following the review of the small and medium biomass tariff in 2019, the Department brought forward legislation that introduced a new tariff structure and new tariff rates. Following the introduction of that 2019 tariff, significant price fluctuations between the cost of biomass and the cost of alternative fuel meant that that tariff was no longer appropriate.

In 2021, the Department consulted on the future of the scheme, noting that the Executive's preferred option was to close it. However, the Executive took no decision on the future of the scheme, either for tariff uplift or for scheme closure, prior to the resignation of the First Minister in February 2022.

The next most significant milestone, as you might describe it, in the RHI journey was the 2023 Court of Appeal decision that upheld the Department's ability to change and revise tariffs given that that was what was in question. However, the court's decision noted that a proper permanent solution that properly balanced participants' needs with the needs of the taxpayer would be sought in months, not years. Following that, the Executive returned in February 2024. At the end of June, they agreed, through the urgent procedure mechanism, to close the scheme and to have a tariff uplift as an interim step towards closure. The draft regulations that we have brought before you and that we are bringing before the Assembly will do just that: they will introduce what we see as a proper tariff for small and medium biomass boilers that is fair to participants and the taxpayer. I will be happy to take your questions.

The Chairperson (Mr Brett): Thank you for that, Sarah. Given the court's ruling that there needs to be a tariff that meets the balance of the public finances and the legitimate expectation of the scheme holders, how did we come to the figure that we arrived at?

Ms Brady: We did a lot of work, as you can imagine. A number of things were taken into consideration, such as capital costs and maintenance costs for the boiler, which we were able to get because we had 100% inspection rates, so we know that they are accurate. We also tracked the fuel price differential over three years and modelled that. That gave us good factual information on that differential. We then modelled that with the aim of producing a prospective rate of return for participants that is in line with the original state aid approval for the scheme.

The Chairperson (Mr Brett): Have you had any responses to the proposed figures from interested parties, or is this the first time that the proposed uplift has been made public?

Ms Brady: This is the first time that interested parties will see the actual number, yes.

The Chairperson (Mr Brett): If the Assembly agrees it, it will come into force from November. For the period between the court ruling, which said that there needs to be a solution, and November 2024, will the rate remain as it is?

Ms Brady: Yes.

The Chairperson (Mr Brett): OK. When was that ruling made?

Ms Brady: It was made in February 2023.

The Chairperson (Mr Brett): The court ruling said months, not years.

Ms Brady: That is correct.

The Chairperson (Mr Brett): So, November 2023 to November 2024. OK.

Ms Brady: I understand that.

The Chairperson (Mr Brett): Of course. I just wanted to check that.

There will be separate legislation on the proposed closure of the scheme that the Assembly will have to scrutinise, debate and agree.

Ms Brady: That is correct.

The Chairperson (Mr Brett): That is all that there is from me.

Mr Buckley: Thank you for coming before the Committee. There is quite a history with all this. For the many new Committee members, there are a lot of moving parts that we have to get our heads around. In particular, we have to differentiate two issues: the revised tariff, which is before us today and closure. We can have thoughts and views on all that.

A primary concern for me is due process. I have some concern that this is the first time that interested parties will see what the revised tariff looks like. I take on board the legal point of view that the balance has to be right between participants and the taxpayer. Going back to where things were, the scheme was suspended in February 2016 with a projected overspend of — was it £140 million over five years?

Ms Brady: Yes.

Mr Buckley: Changes were made that resulted in the return to the Treasury of a £26 million underspend. Going by previous correspondence and representations at the Committee, before Ofgem announced that it was withdrawing from administering the scheme, the Department talked in a manner suggesting that it had already put a business case before the Executive on what a revised tariff would look like. Is that business case the same, with the same findings and the same revised tariff, as what is being presented today?

Ms Brady: It has obviously been adjusted by inflation, but yes. After the 2023 Court of Appeal hearing, we prepared the business case, which went to the Department of Finance in November 2023. Following that, the Executive came back in February 2024. It was only right that such a decision went to the Executive; it would always have had to go to the Executive when they came back. After the Executive came back in February, we got the papers to them in the spring of this year. They were able to make the decision in June, which has allowed us to come to you today. We have tried to get here with the uplift as quickly as we could. Between November and now, inflation has been added.

Mr Buckley: OK. I have received a few emails on the matter, one of which talked about a public consultation in 2021 on the nature of scheme and looking at a way forward. Four hundred responses were submitted, and four options were proposed, of which two were for keeping the scheme open and two were for closure. From my understanding of that email, the report is still unpublished: is there a reason for that?

Ms Brady: The intention generally with consultations of that nature is to publish a report on the consultation when you publish your decision so that you can show that decision.

That continues to be our intention. We will publish a report on that consultation when we have decisions that we can put out with it.

Mr Buckley: Do you not think that it would have been useful to our Committee if you had scrutinised the responses to the consultation before you came before us seeking our view on the revised tariff that you would propose? My simple mind operates in a manner that means that I would like to see what thoughts and views those genuine participants and those involved in the sector have rather than rush towards a potential revised tariff that may well be challenged and may still not, in the eyes of participants, balance participants' costs and impact with taxpayer costs and impact. It is about getting it right, so there is a lot of nervousness around due process in this. Does that concern you, and should we not have sight of that public consultation, which happened over three years ago?

Ms Brady: The majority of responses to the public consultation requested that the scheme remain open. However, they wanted the scheme to remain open at the 2012 tariff, which just was not possible. A large proportion of responses said, "Keep the scheme open, and put us back on our 2012 tariffs, please".

Mr Buckley: How would the revised tariff that you propose compare with counterpart schemes in England, Scotland and Wales?

Ms Brady: The Cornwall report identified that the structure of the scheme in Northern Ireland was so different from the structure of the scheme in GB that they were virtually impossible to compare. There is no single tariff in GB; there are lots of tariffs. They digressed over time and reduced and changed, depending on when participants joined, whereas, in Northern Ireland, we did not have that.

The other big difference between here and Britain is that, in Northern Ireland, the counterfactual fuel is kerosene. In Britain, it is natural gas, so it is completely different. That said, if you looked across the board in GB, you would see that the tariff is fair and is the right tariff.

Mr Buckley: Would the revised tariff that you are aiming for still result in returned moneys to the Treasury in relation to the overall scheme?

Ms Brady: Yes.

Mr Buckley: How much?

Ms Brady: The revised tariff increases the annual cost of the scheme from around £5 million a year to around £15 million a year, so that is an increase of £10 million. The annually managed expenditure (AME) allowance changes from time to time because it is a demand-led scheme, but, on current projections, in the region of £33 million would be available in AME. Our intention, subject to Treasury approval, would be to use that funding difference between the £15 million and £33 million for an alternative scheme that would deliver real benefits in carbon savings.

Mr Peter Neill (Department for the Economy): Just to add to that quickly, Sarah, it is important to, firstly, note that those are forecasts that are based on certain assumptions. They are estimates. Secondly, any alternative use of the RHI budget will be subject to Treasury approval as AME.

Mr Buckley: Just to clarify, the reason for the Committee or the public not having forward sight of the report is what?

Ms Brady: Our intention is to publish the report when we have firm decisions on the way forward on closure. That is when we plan to do that. In addition, with the resources we have had available, we have very much focused on the fact that we felt that, to quote 'Game of Thrones', "Winter is coming", and winter is the period of biggest usage for participants. Therefore, we very much wanted to get the tariff to them in advance of the winter so that they could use it and have the benefit of it over winter when they need it. We think that that is fair to participants, rather than holding up the tariff increase potentially for a consultation.

We have already collected participants' views. We pretty much do not think that we could get any more information from them, given that we already have it and given that the tariff is based on the analysis of cold, hard facts. There was 100% inspection, so the tariff is based on actual capital costs and costs. We monitored the fuel price differential over three years to come up with the tariff. Holding up the tariff increase to do more consultation or gather more views would potentially mean that the participants would not receive their money in time for the winter, which is when they need it. We did not think that that was fair to the participants.

Mr Buckley: Given the wide level of information that you have received from stakeholders and genuine participants over a long time, is the Department satisfied that the level at which the revised tariff has been struck will be met with — I will not say "enthusiasm" — welcome by the participants?

I will finish on the consultation, which has not been published. Given the legal complexities involved, which have existed for a long time, do you understand my concern, as a member of the Committee, that I could be blindsided by what the 400-odd consultation responses might look like? They could be in stark contrast to what you propose as a revised tariff.

Ms Brady: As I said, the vast majority of those who responded to the consultation wanted the scheme to remain open with the 2012 tariffs, which were much higher. I know that that was a whistle-stop note of what the consultation responses said. The current lower medium biomass payment is 2·1p for tier 1 and 0p for tier 2. That is changing to 5·1p for tier 1 and 1p for tier 2. I appreciate that some participants will have different heat use, so it will be different for everybody, but, for the typical participant this winter, that will deliver an increase of about £5,000. I would rather see it in their pocket sooner than later.

Mr Buckley: Will compensation be retrospective?

Ms Brady: No.

The Chairperson (Mr Brett): I just want to check something. It will go from £5 million a year to £15 million a year, so that was based on the tariff 1 going from — will you go through those figures again? They were not provided.

Ms Brady: I think that we provided them in the letter to the Committee, but I will read them out to you anyway. It is 2·1p for tier 1 and 0p for tier 2 for the lower medium biomass boiler, and it will go to 5·1p for tier 1 and 1p for tier 2. It is a significant increase.

The Chairperson (Mr Brett): The total cost of the revised tariffs is £160 million, if I picked that up correctly. However, the Executive's position is that the scheme will close, and the estimated date for the closure of the scheme is before April 2026. Is that right?

Ms Brady: That is right.

The Chairperson (Mr Brett): How, then, do we get to the figure of £160 million?

Ms Brady: The £160 million is the figure if the scheme remained open and the forecast payments under the tariff continued to be paid to the end of the scheme.

The Chairperson (Mr Brett): OK, so it does not take into account the Executive's position that it will close by 1 April 2026. That figure is for what would happen if the scheme continued.

Ms Brady: Yes.

Mr McGuigan: Your last question was mine, Chair. I could not quite figure those things out.

You said that, if we get the scheme with the revised tariffs done and dusted by November, it will be worth £5,000. Is that over the winter? How many months are we talking about?

Ms Brady: That would be over a year.

Mr McGuigan: So there will be an additional £5,000.

Ms Brady: It would be over a year, but, having said that, the reason that we are aiming to get it through by 1 November is to capture the winter period, because that is when the majority of the heat gets used. In the summer months, the tariff would not be as valuable. The next available time after that to uplift the tariff is potentially spring, and that window will have been missed. The usage over springtime is lower, because it is warmer.

Mr McGuigan: I got the same emails as other members — or certainly the ones that Jonathan mentioned.

The Executive have decided that they want to close the scheme. Following the court case and the Executive work, they are going to renew the tariffs. Can you explain the process by which the Executive want to close the scheme and what that means?

Ms Brady: You will appreciate that it is very much a work in progress at the minute and that we are working through all the details. The Executive have said that they will take final decisions once the full business case is done and dusted and we are ready to look at legislation. That means that it is difficult for me to talk about closure or to give any details about it, because, obviously, as a civil servant, I cannot prejudice anything that the Executive might say.

Our team is doing a lot of modelling. We are modelling the tariff that we have put before you as the one on which any closure payments would be made. That forms the basis of the calculation. That is our intention.

Mr McGuigan: I know that you cannot definitively answer this, but will compensation for capital costs be included in the closure?

Ms Brady: As I said, we are working on a model that is based on the tariffs in this paper. That is all that I can say. There are options in the business case in case the Executive want to pick a different one.

Mr Neill: To reiterate what Sarah said, the balance between fairness to the participant and fairness to the taxpayer is paramount. That will be top of our understanding when it comes to closure.

Mr McGuigan: Fair enough.

On the AME money, can the Department not instigate a new scheme until the old scheme is closed? Can the closing of one scheme and the opening of a new one not run in parallel?

Ms Brady: Any future use of AME money will be subject to Treasury approval and agreement, as we said. We need to draw a line under RHI to allow us to really focus on putting that together and getting it done.

Ms McLaughlin: I will be brief and go back to what Jonathan said about the unpublished consultation. Our experiences of RHI were not good from the taxpayer's perspective and that of those who were encouraged to participate in the scheme at the time. There was a lot of encouragement to do it and a lot of hard sell and lining up of ducks with bank loans and whatever else it entailed. Given the lack of transparency in the whole project, it is really important that we have true and open transparency at this point and that the decision-making process is open for all to see, because it was not so clear in the past. I do not really see any reason for the Department not to have a show-and-tell of the consultation results, albeit that there were 400 responses and people said that they want the tariff to be in that lucrative range that was losing a lot of money for the taxpayer.

We are looking at new tariffs. Is there true engagement with all the participants at this stage? Nobody is going back to the 2012 tariffs. How do they sit now that they are aware of the new tariffs and what they mean to them and given the fact that, if they are agreed on them, that entrant level would potentially be £5K up if they were accepted? What engagement is now truly taking place for that open discussion with the participants to happen? A lot of them have been, if you will pardon the pun, badly burnt in this, and they deserve a bit of respect through true engagement and open consultation with the Department that nearly entrapped them into going down that route to begin with.

Ms Brady: I fully understand what you say. We will take away an action to provide you with more detail on the responses to that consultation. We will do that for you.

Where communication with the participants is concerned, in addition to being a very fraught scheme, RHI is, obviously, quite a litigious one. We were mindful of not wanting to raise expectations of something that we could not deliver for participants. We focused on delivering as quickly as we could something for participants that, we think, is fair. They may well say that they want more or whatever, but I think that they will appreciate the fact that we are putting in the effort to get it to them before the winter period, which is the period for which they really need it. That is clear.

We will now have to — we are doing this — work with Ofgem to ensure that, once actual decisions are made on our ability to increase the tariffs for participants, there is a communications strategy in Ofgem to get in touch with the participants to let them know exactly what is happening and to give them a bit more information. That communications strategy will have to be well worked out, because I fully appreciate and respect the participants of the scheme. That is essentially what was driving us to get it for them before the winter.

Ms McLaughlin: Thank you.

Ms Nicholl: Thank you for your presentation. I appreciate that this is a contentious topic. However, I just want to echo the point that Sinéad and Jonathan made about the consultation and its transparency. I appreciate that you have answered the point, but I want to put on record the fact that other public consultations do not necessarily determine the position that the Department takes. They are often skewed, and they will have different factors.

Given that openness and transparency are so important, it feels that this is at odds with the process that we have for dealing with public consultations in other areas. I appreciate that you are being cautious, but I would just like to feed back that, rather than having an action with detail of what was said in the consultation, I would really like to see the consultation responses. We will be able to take from those what we will. Openness and transparency are crucial, and it is disappointing that the responses are being withheld.

Ms Brady: I will take away an action to provide you with, as I said, information on the consultation responses. Like I say, I can tell you off the top of my head that the majority of people wanted the scheme to remain open at a higher tariff than was consulted on, and the majority of them would prefer the 2012 tariff to come back.

Ms Nicholl: I appreciate that you said that, but, if you can tell us that, why can we not see it?

Ms Brady: I will take away an action.

The Chairperson (Mr Brett): OK, members. Thank you very much for that. I know that you are dealing with a difficult situation, and I know the work that you have put into it. The Committee appreciates the work that you have done to date on it. We will probably have a deliberation now and then request some additional information before making a decision. I imagine that that will be the Committee's view, but I will wait to see what our colleagues wish to do. We will be in touch.

Ms Brady: Before I leave, I reiterate that the tariff that is before you was not based on opinion; it was based on verified data.

Mr Neill: A 100% inspection rate.

Ms Brady: It was based on a 100% inspection rate and a three-year period over which actual fuel price differentials were monitored and modelled. We have done our level best to make it as accurate as we can.

The Chairperson (Mr Brett): Thank you so much for that. I appreciate that.

Ms Brady: Thank you.

The Chairperson (Mr Brett): I will attempt to summarise where we are with this. The whole situation is contentious, fraught and difficult. The Executive's position is that the scheme will close, but the position of the courts is that the tariff that is currently in place is not acceptable. They made a clear ruling that a change in tariff had to be made within months, not years. In my view, we are not yet in a position to make a decision on the SL1. The consultation responses may have indicated that, on the whole, people wanted to go back to the 2012 tariff, but, clearly, that will not be the case. The tariff that is in place is not acceptable either: we return funding to Treasury every year. If that is happening, a new scheme needs to be put in place. The Committee needs to get a copy of the consultation response before it makes a decision.

Mr Buckley: You summed that up well, Chair. I do not feel comfortable. I am trying to differentiate between the two issues. The first is closure, on which people will have their own views; the one before us now is the level of compensation. Given the legal complexities, I do not feel comfortable. I heard the Department's view on a revised tariff and take it on board that there has been a lot of painstaking work on assessing what the level should be, but I would also like to hear from the genuine participants. That is where the consultation would really have helped us.

Can we also drill down with the Department into what the projected underspend will be under a revised tariff and seek clarity on whether it will be possible to use that underspend for an alternative project? I think it was suggested that it would, but I remember being told in previous sessions that it would be very complex and difficult to achieve. I would like to get clarity on that.

The Chairperson (Mr Brett): We can check those figures. Ring-fenced AME for the scheme is £33 million per year. We currently spend £5 million, and they are saying that it will go up to £15 million. Can we double check those figures and how much will be surrendered back to Treasury?

If I sum up correctly, members are content that we go back to the Department and seek full sight of the consultation and confirmation that the figures that I just mentioned in relation to operating costs, ring-fenced AME and funding returned to Treasury are correct. Obviously, the Department wants to have this in place in November, but we still have time to make a decision. Are we happy to do that?

Mr Buckley: I have one final point, Chair, that is specific to the Department. Could the Department outline the number of boilers that would be loss-making under the revised tariff? I think that it has the numbers for that.

The Committee Clerk: Does the Committee want the consultation report but not the individual consultation responses? That could be thousands of pages.

The Committee Clerk: The Department has done some work to work out the tariff. It sounds like you want to see the work that they did.

The Committee Clerk: That is as well as the information that the Chair indicated about the return on AME and the number of loss-making boilers — that, hopefully, would be in that, but we will ask for it specifically — and the projected underspend. Perhaps, for my benefit, we could also seek a tariff timeline, because I am a little confused about the period between 2020 and the present. Maybe we could seek sight of the comparison with the rest of the UK in terms of tariffs and the actual costs, if curtailed. Does that make sense, members?

Ms McLaughlin: Sarah indicated that the tariff was based on cold, hard facts and emphasised that again at the end of the presentation. We do not really have the cold, hard facts. I cannot see it anyway: I am not really clear on them. I would like more clarity on those facts and figures.

The Committee Clerk: That is what I am saying: if they have done some work to come up with the tariffs —.

Ms McLaughlin: I am sorry.

The Committee Clerk: No, no. I just want to make sure that we are on the same page. We are looking for that report. Where did they get that number from? They will tell us, "We worked it out this way" — the three years, the 100% inspection rate, three years of price differentials and all of that good stuff — so that members can be assured of the basis of the tariff.

Ms McLaughlin: Yes.

The Committee Clerk: Is that OK, Chairperson?

Ms McLaughlin: Again, what about the view of the participants on the basis of what they have now heard in relation to the potential of the possible new tariffs? Is there any way that an organisation or group could present to us about how it will impact on them?

The Committee Clerk: Well, Chair, because this is being done in open session, organisations will be free to write to the Committee and the Committee can make a decision, but they need to do that soon, I would have thought. We are up against the clock, so, if it is 1 November, this will have to come into effect by draft affirmative. That means that it would have to go to plenary in the middle of October. That means that the Department will probably try to lay the rule soon, in about two or three weeks' time.

Is it the case that the Committee is also seeking an oral briefing from the Department, say, on 25 September?

The Chairperson (Mr Brett): Hopefully, those who may represent members of the scheme may either be in this room or watching online.

Mr Buckley: There are two separate issues, which are closure and the revised tariff. It goes to Philip's point: some of the concerns might be contained in how we would go about closure, whether that is capital costs on the scrappage of certain equipment and whether that is a retrospective issue. There are a lot of unknowns on which the Department, certainly, could give a better steer to the industry and to us before we even make a decision.

The Chairperson (Mr Brett): It is important to be clear when we receive representations that this is not in relation to a decision to close the scheme. That is not the legislation or the proposed rules that are before the Committee. There was a clear court ruling this time last year that the Assembly needed to make a decision in relation to the tariff. At some stage, we will have to make that decision, or we will find ourselves back in that position.

The Committee Clerk: Indeed, Chair, as you have indicated, all of this has been done in public session and will be reported by Hansard. Anyone who wants to read what was said can read that.

The Chairperson (Mr Brett): OK. Are members content with all of that?

The Chairperson (Mr Brett): Excellent. Thank you, members.