Official Report: Minutes of Evidence

The Chairperson (Mr Brett): I welcome from the Department for the Economy, Sarah Brady, director of energy operations, and Peter Neill, head of policy and legislation branch. Sarah, welcome back. It is good to have you. Thank you very much for coming along. Do you want to provide an opening oral statement?

Ms Sarah Brady (Department for the Economy): Briefly, if that is OK. Thank you for having us back. We understand that it is really important that the Committee gets to see the detail and the extra evidence that has been provided.

After we briefed you on Wednesday 11 September, you asked for more information on the tariff uplift proposed for 1 April. Following that, we provided you with that information on 20 September, and included in that was information on the responses to the 2021 consultation on the future of the scheme, an overview of the tariff calculation, a table setting out the tariffs from scheme inception to present and information on the GB tariffs. I hope that the Committee has had a chance to look at those.

You probably had the chance to see from the GB tariffs that, as was rightly pointed out, there is no single GB tariff. There is a range of tariffs, and they were structured differently from the Northern Ireland tariff from inception. There is a range of differences, but I guess the most important one is the differential in fuel. In GB, the fuel is natural gas, and, in Northern Ireland, it is kerosene. Nonetheless, the Department has done its best to be incredibly fair and to provide the information. If you look at the range of GB tariffs from around April 2016 onwards, you will see that the tariff that we propose is —.

The Chairperson (Mr Brett): Can you move closer to the microphone?

Ms Brady: My apologies. We provided the information on the GB range of tariffs nonetheless. If you look at the range of tariffs from April 2016 onwards, you will see that what we propose is more generous than that range of tariffs. That is part of trying our best to be fair.

It is worth highlighting that the reason that we are looking for the November date for uplifting the tariff is not to hide anything; it is simply to try to get it done before the winter, because, technically, our next opportunity to provide that uplift will be spring 2025, and we do not want to wait that long. That is why we are hopeful that you will enable the tariff uplift to go to the Assembly for a vote.

I am happy to take any questions that you have on what you heard from the Renewable Heat Association for Northern Ireland (RHANI) or on what we provided. I just want to pick up one important point that was made. The Department did not accept that the 2019 tariff was incorrect when it was brought in. We accept that, post that tariff being brought in, fuel price differentials over a period of time moved, so that the tariff became too low. We have now looked across three years' worth of fuel price differentials in order to look at smoothing things like that out and to look at a prospective over an entire 20 years. That is why we think that what we have come up with is fair.

The Chairperson (Mr Brett): Thank you very much, Sarah.

Mr McGuigan: I am first up. Backdating is obviously an important issue for participants. Why is the Department bringing forward a statutory rule (SR) from November only and not backdating a previous tariff?

Ms Brady: We looked in to that. As you can imagine, we are trying to be fair to the participant and the taxpayer. We have tried to look forward and say on a prospective basis what the rate of return will be over 20 years. When you look over 20 years, you will see a smoothing out, as it were — it is not a smoothing out, but over 20 years, you will get times when something might look different for an individual. We are trying to look over 20 years for everyone as opposed to for an individual at a point in time.

Mr McGuigan: Are you talking about 20 years into the past or 20 years into the future?

Ms Brady: Twenty years into the future.

Mr McGuigan: I know that we are not here to discuss this, but everybody accepts that the Department has proposed that the scheme close in 2026, so I do not think that we can look at 20 years.

Ms Brady: Obviously, I cannot speak too much about closure, but the closure proposals that we will seek to bring forward will seek to take into consideration the tariff that we are uplifting and what the participant will expect over 20 years, albeit that they may get it in a different format than it is currently in. We would seek to do that in order to show fairness, so we would seek to look across 20 years.

Mr McGuigan: OK. I understand. You mentioned fairness to participants and cost to taxpayers: how does backdating it impact on the cost to taxpayers?

Ms Brady: Backdating it, obviously, increases the cost to taxpayers quite significantly. I do not have the exact figure in front of me; I am sorry that I cannot give it to you. It is like I said, however: as a principle and in order to show fairness to both sides — the participant and the taxpayer — we have not, in the past, sought to claw back, as it were. A public interest business case was not made for backdating.

Mr McGuigan: Thank you.

Mr Honeyford: Thank you. I was not expecting to be in again so quickly. I was going to ask about backdating, but the £33 million that is available from annually managed expenditure (AME) came up a second ago. It has been suggested that that figure would be increased over the year through Barnett consequentials. Is that £33 million figure still £33 million today, or is it greater?

Ms Brady: It is a demand-led scheme, and that is a proportion of the GB money set aside. It changes each year, but the £33 million is a fair representation of what we think.

Mr Honeyford: This year?

Ms Brady: Yes.

Mr Honeyford: What is likely to happen next year or moving forward?

Ms Brady: We consider the proposals in this paper to be affordable within the AME budget going forward. It will have no impact on or cause a problem with any other budgets.

Mr Honeyford: I will go back to the cost and the starting point for the foundation of that cost. I am going back to the 12% that we were talking about earlier. There is a calculation of 12% in the Department's figures, and we have just been given evidence about a figure of 12·8% for five years ago. How can those two be 12%? I cannot get my head around how we have a figure that the money —.

Ms Brady: It is as I said: the figure is on a prospective basis. We basically forecast on the basis of what, we think, the fuel price will be. One of the big components in that is the fuel price differential. I think that we provided the Committee with a graph of the movements of the fuel price differentials over a number of years. That is the thing, as it were. As you can see from that graph, from 2019 or 2020 there were substantial changes in fuel prices and fuel price differentials that we had to take into consideration in setting that tariff. That is what we tried to do.

Mr Honeyford: I have two short points. Capping the AME funding was mentioned: is it possible for us to put a cap on it and say, "That is the limit that you can go to"?

Ms Brady: We in the Department never set out to max out an AME budget. We seek to set a correct balance, to consider the taxpayer and that it is the taxpayers' money, to consider the participant, who entered the scheme in good faith, and to find the right balance. We have never set about attempting to set a tariff that would max out a budget or anything like that.

Mr Honeyford: I do not mean max out, but is there a cap? You were saying that the figure is, I think, £15 million; I do not have it in front of me right now. Is it possible to say that that £15 million is the cap and to lock it at that, or is it possible to cap a percentage of that budget? I do not mean max out; I am just asking if you can cap the budget.

Ms Brady: It is a demand-led scheme, so, obviously, it very much depends on the amount of heat output from the participant. We have set a tiered tariff so that, when you get to 1,314 hours, you move from tier 1 to tier 2. In a sense, that is a budgetary control. Further on up from that, when you get to 400,000 kWh, a cap hits. That is a budgetary control to guard against the possibility of future overproduction. We think that that creates fairness and budgetary control in what we have proposed.

Mr Peter Neill (Department for the Economy): Just to add to Sarah's point, you all know that it was a flawed scheme from 2012 onwards. The AME was being blown back then, so the caps that are on the tariffs and the different layouts now are to fight against that, so to speak. That has been our understanding of where we were. There was a real risk to the Northern Ireland block grant back then, and, I suppose, that has to be considered as well. We have to be careful around all budgetary aspects.

Mr Honeyford: Finally, I know that we are not talking about the buyout, but this is basically to set a precedent for what will be —.

Ms Brady: It will be a step on the road towards closure. What we are doing now is looking at options for closure and at ways to effect closure in a way that will be fair to participants. That is what we hope to bring forward and to demonstrate that we have struck that balance. I know that "fair" is a difficult word to quantify, particularly when we look at things like forecasts and typical participants. Individuals might come along with a set of individual circumstances, so they might consider that differently, but I think that we have tried all along to strike a balance. That is the key word. We have struck a balance and have attempted to be as fair as possible to the participants.

Mr Honeyford: For me, that is absolutely key. We have people who certainly went into a scheme and are now losing money or have lost money. You have heard of bankruptcies and of everything else. The Northern Ireland Affairs Committee (NIAC) report said that there should not be a one-size-fits-all approach and that the calculation needs to be based on individual things. Are we ruling that out at this stage?

Ms Brady: There is one tariff. We could not have 2,000 different tariffs for 2,000 individuals. Obviously, I cannot speak too much about closure, because it is very much a work in progress, but, when we look at closure, we have a number of options on the table. They will seek to be fair and take all the responses and comments in, for example, the NIAC report into account.

Mr Middleton: I thank the officials for their briefing. One of my questions goes back to funding and AME. You heard from the delegation from the Renewable Heat Association a few moments ago, and one of the questions that I asked was about the cost to the public purse. There is a lot of interest in that. It was made clear from the presentation that the AME fund had not been entirely used — far from it. In regard to what is being used, if the tariff is not being set at the current level, is there a risk that it would have an impact on the block grant? Is that the primary focus of that reasoning? Can you set out again the reason why payments cannot be backdated, given the fact that the AME has not been entirely utilised?

Ms Brady: Talking about whether AME has been fully utilised is a slight red herring, because, as I said, we would never set out to simply max out a budget. We set out to show fairness to the participant and value for money to the taxpayer.

Mr Middleton: I take your point on that. My question is not about why we should not max out the budget; it is about what is preventing the Department from doing something retrospectively.

Ms Brady: Again, it simply comes down to the fact that, in a public interest case, we would not seek to backdate for periods where we wanted to adjust the tariff up. We never sought to backdate for periods where we sought to adjust the tariff down. We have consistently looked and said that we want to be fair to the participant and to the taxpayer. We are therefore looking at a prospective 20-year rate of return.

Mr Middleton: OK, thank you.

Ms Nicholl: Thank you for your presentation. I was just thinking about your point about fairness. You are right, but good faith renewable heat incentive (RHI) boiler owners are in debt as a result and are facing bankruptcy, and that is not fair. What is the Department's assessment of the Grant Thornton report?

Ms Brady: There were fundamental flaws in the Grant Thornton report. There were some fundamental misunderstandings about the structure of the scheme and about its rules at the start. The proposals in the Grant Thornton report would breach state aid rules.

Ms Nicholl: That is, obviously, very different from what we have just heard in previous presentations.

Ms Brady: I understand that. The Renewable Heat Association paid for the report and did so hoping to put forward its views in good faith, obviously, but we identified that the Grant Thornton report had some fundamental errors.

Ms Nicholl: The AME points have been covered, but will you explain a bit more the rationale for not using the full ring-fenced amount? That point has come up as well.

Ms Brady: It is like I said: we set out to provide a tariff that gave a prospective rate of return in line with the state aid rules. We never set out to max out a budget. A Department would never do that, because it is taxpayers' money.

Ms Nicholl: My final point relates to your presentation at a previous session. You mentioned that the overall cost was £65 million.

On the website, it says that costs for 2022-23 are £137·5 million. How is that reconciled?

Ms Brady: Right.

Ms Nicholl: The Department website says that the cost of the non-domestic scheme for 2022-23 is £137·5 million, but, in your verbal presentation, I think, you said that it was £65 million. Is that right?

Ms Brady: I will need to check that.

The Committee Clerk: I will clarify that, and, hopefully, this will be helpful to the member. The Department's website has the statutory information for the non-domestic RHI. It indicates that the expenditure for the NI non-domestic scheme from 2011-12 to 2022-23 is £137·5 million. As the member indicated, in evidence on 11 September, the Department indicated costs of £65 million rising to £160 million. That is just to reconcile those numbers for the member.

Ms Brady: Can I take that away and come back to you? That could be, I suspect, to do with accounting rules.

Mr Neill: Maybe there has been some confusion in how that was articulated, but those were forecast costs based on the tariff uplift. The figure has gone from £65 million to £160 million. We can clarify that in more detail in writing, but there was maybe a slight miscommunication or misunderstanding there.

Ms Brady: Sorry. Thanks, Peter. I was misunderstanding, because I was not sure what was on the website, but, yes, our costs are based on forecasts and forecast heat use. I hope that that clarifies that.

Ms McLaughlin: Thanks, Sarah and Peter. Can I ask this again: is it the Department's intention to publish the 2021 consultation?

Ms Brady: Like I say, what we have here is a step towards closure, and the 2021 consultation was on the Executive's New Decade, New Approach (NDNA) preferred option of closure. When we get to the point where we have Executive decisions, we will publish the consultation report and show in it how participants' consultation responses were taken into consideration, including how we did that and how we got to the decision. It would be in line with good practice to say, "This is how we got to this final decision". However, we are now at a step where closure is the final decision.

Ms McLaughlin: Do you understand that the consultees are concerned that they have responded to a departmental consultation and that, at this stage, other decisions are being made about tariffs, yet that report has not been published? There are concerns. What is there to hide?

Ms Brady: There is nothing to hide at all.

Ms McLaughlin: That has been a concern, as we heard in the previous session.

Ms Brady: There is nothing to hide at all, as, I hope, the Committee can see from the quite detailed information that we provided on the responses. Clearly, the respondents to the consultation did not think that the proposed tariffs or the proposed closure payment were generous enough. When it comes to the final decision on a proposed closure payment, it will be down to Pete and me to show that it is fair in the final consultation report.

Ms McLaughlin: This is just a point of clarity for me. Previously, the Department declined to confirm whether any unspent AME could be used for other renewable energy purposes, and you cited how that required Treasury approval. Did you seek Treasury approval for an alternative renewable energy scheme?

Ms Brady: Engagement with Treasury is ongoing. When we engage with Treasury, we have to consider any legal risk of someone coming back and saying, "You should do x, y or z", and that will be a call on the budget.

Like I say, we are trying to get to a point where we can draw some kind of line on fairness so that we can engage properly with Treasury and get the approvals that we need.

Ms McLaughlin: I just want to understand this. Have you asked specifically for approval to spend unspent AME moneys on another designated renewable scheme, or are you having different types of conversation regarding AME but nothing concrete?

Ms Brady: We continue to engage on that, but we have not got a final answer.

Ms McLaughlin: I am not sure that I really know what you are saying. I am asking whether you are asking them, "We have this new renewable scheme. Can we spend such and such?".

Ms Brady: We do not have one. We do not have a renewable scheme ready to rock and roll.

Ms McLaughlin: Right, so it is generalities around it, rather than —

Ms Brady: Yes. Apologies if that was not clear. We have not developed a scheme that is sitting ready to go.

Ms McLaughlin: OK.

The Chairperson (Mr Brett): I have just a couple of things. Sarah, is there a court ruling that the current tariff is not sustainable and that the Department has to act to uplift the tariff?

Ms Brady: Yes. As I pointed out, the court ruling —.

The Chairperson (Mr Brett): Do you believe that the tariff that is being presented to the Committee today would meet the judgement that was laid down on the issue?

Ms Brady: I hope so.

The Chairperson (Mr Brett): Do you believe that the Committee has been afforded the opportunity to follow due process on the issue?

Ms Brady: I believe so.

The Chairperson (Mr Brett): Perfect. You do not believe that the Department has in any way misled the Committee or called into question the Committee's ability to make a full and frank decision?

Ms Brady: No.

The Chairperson (Mr Brett): OK. That is all that I have on this, members. Are there any other questions? No? OK.

Thank you very much indeed, as always, for coming back to the Committee.

The Chairperson (Mr Brett): OK, members, I know that this is a difficult issue, but my job as Chair is to ensure that the Committee discharges the business that is before it. Members of the Committee and members of the public will have views on historical and future issues relating to the scheme. As Chair, my view is that the Committee has interrogated the issue and the matter should go before the Assembly to allow all MLAs to have their say and cast their vote. The Committee making that decision does not tie any Committee member to a particular view or vote when this comes before the Assembly, but I believe that we have concluded our deliberations at this stage and it is now over to individual Assembly Members to cast their vote on the issue.

I ask Committee members whether they are content that the Department lay the rule and that Members will take their individual decisions when it comes before the Assembly. Are members content with that approach?

Ms McLaughlin: I want to put something on the record. I agree with the approach, but it is all very unsatisfactory. No matter what way you look at it or what direction you go with it, it is all really messy and unsatisfactory. From the Committee's perspective and given what we are here to do, however, it is the right approach.

The Chairperson (Mr Brett): Do any other members have anything to add?

I do not think that any of us were there when any of the previous decisions were made. Our roles and responsibilities are set out, and I believe that we have interrogated the issues. Members rightly have issues and concerns, and the place to put those forward is in the Assembly. A vote will be taken in the Assembly as to whether the rule will proceed. My vote and your votes are as important as those of any of the 90 MLAs.

I encourage those watching and those in the Public Gallery: it will not just be members of the Committee who will ultimately decide. The opportunity to make your representations to each and every Assembly Member is afforded to you.

The Committee has agreed on the proposal, and I will move on to the next item of business.