Official Report: Minutes of Evidence

The Chairperson (Mr Brett): I welcome Sarah Brady, director of energy operations in the Department for the Economy, who is well known to the Committee, and Alan Smith, lead officer for the closure of the renewable heat incentive (RHI) scheme. Congratulations on your excellent appointment, Alan. I am sure that you are very excited to take up the role. With that, I will hand over to you.

Ms Sarah Brady (Department for the Economy): Thank you, Chair, for the opportunity to discuss the closure of the non-domestic renewable heat incentive scheme. The Department is progressing legislation to formally close the scheme. Following initial agreement from the Executive in July 2024 that closure was the preferred option and subsequent Executive agreement last month that we should bring forward primary legislation, the primary principle of our approach is balancing fairness to the participants with protecting the public purse and ensuring value for money for taxpayers.

As part of the closure process, the Department has introduced primary legislation, the RHI (Closure of the Non-Domestic Scheme) Bill. The Bill is purely enabling in form. It provides the Department with the power to formally close the scheme, and any detail behind that will be in regulations. We will then establish a framework for legacy payments to participants. The Bill will ensure a smooth transition for participants, including a clause that will allow certain regulations to apply to a period that existed just before the legislation comes into operation. That is to ensure continuity and fairness to the accredited participants as they transition to the new arrangements.

The Bill is technical in nature. It does not directly impact participants or do anything other than provide powers. That is why the public consultation that we are undertaking is not on the Bill but on the policy proposals to close the scheme through regulations. The proposed approach involves transitioning from quarterly metered payments to annual closure payments. The annual closure payment that each participant receives will be based on historical usage from 2017 to 2019.The closure payments will continue until the end of each participant's original 20-year accreditation period, provided that the installations in question remain in use. A tariff uplift is also being progressed, and we hope to bring that forward ahead of this winter. The proposed rates for the tariff uplift would be aligned with the calculation of the closure payments.

We are committed to ensuring a fair closure. I welcome the Committee's scrutiny and look forward to addressing any questions that you might have.

The Chairperson (Mr Brett): Thank you, Sarah. Alan, do you want to add anything, or are you content?

Mr Alan Smith (Department for the Economy): I am content with that, thank you.

The Chairperson (Mr Brett): Sarah, thank you very much for that, and I thank the officials for their work on this. I read your briefing and the Bill. The Bill states "RHI closure" but it is not really RHI closure, is it?

Ms Brady: It is RHI closure. It is drawing a line under the old RHI as it was known, but the participants in the scheme have the right, under article 1 of protocol 1 of the European Convention on Human Rights, to receive payments. We could have paid them a single closure payment, which is what was consulted on previously, but we examined it and felt that the fairest and best value-for-money solution would be to make the closure payment annually. It is a legacy payment that will be made annually provided that the installation remains in use. If it stops being used, then the payments stop.

The Chairperson (Mr Brett): The scheme has been closed to new applicants since 2017, and anyone who entered and got the accreditation for 20 years will continue to get that payment, so it is a continuation of payments for people rather than a closure, because it has already been closed to new applicants.

Ms Brady: It is a transition to legacy arrangements for the participants.

The Chairperson (Mr Brett): Will you talk about the cost of the proposed regulations?

Ms Brady: The cost of closure will actually be around the same as it would have been to keep the scheme open. The annually managed expenditure (AME) cost is £196 million over the remaining life of the scheme, and there are departmental expenditure limit (DEL) costs of around £17 million.

The Chairperson (Mr Brett): Has the Treasury approved those costings?

Ms Brady: Yes.

The Chairperson (Mr Brett): It has, so is the £196 million going to be covered by the Treasury, and is the £17 million from the Department's own funds?

Ms Brady: Yes. The £17 million is for admin, auditing and ensuring compliance — those sorts of things.

The Chairperson (Mr Brett): If the cost is the same to the public, and the participants are going to receive their full 20-year accreditation, what is the Department's view of the benefit of the Bill?

Ms Brady: The Bill really simplifies it. It draws a line, it meets our legal requirements to the participants, and it provides us with budgetary certainty. The closure payments will be the same every year, so you have budgetary certainty, and you know where you are.

The Chairperson (Mr Brett): I will just turn to the closure payments. This is an increased tariff from the uplift figure that was proposed last year. Why is it higher than the figure produced last year?

Ms Brady: The primary variable in the model that drove the change was the changes in fuel prices. The model that is used to determine the appropriate tariff includes capital costs and maintenance costs, and then the big variable is the cost of biomass compared with the cost of kerosene.

The Chairperson (Mr Brett): Is your view, then, that the rate of return is still similar to last year's?

Ms Brady: Yes.

The Chairperson (Mr Brett): Which was?

Ms Brady: 12%.

Mr Smith: 12%.

The Chairperson (Mr Brett): Even with that large uplift in comparison with last year, the rate of return is calculated by the Department at the same rate.

Mr Smith: Yes, the 12% is modelled to give a typical participant a 12% rate of return based on a 20-year investment profile, so, based on the capital costs and the operation and maintenance (O&M) costs, as Sarah said, over the 20 year-period. However, while capital costs and O&M costs are quite steady, fuel costs change from day to day. Once you set the tariff, the next day, the rate of return changes. Because people are not typical, their usage will change, as will the fuel costs. That is why our annual review will affect the tariff level based on fuel price changes.

Ms Brady: As I say, because we have such a bank of historical data of what is happening, the model set the best assumptions over a 20-year period to give that rate of return.

The Chairperson (Mr Brett): Yes, and you have based those on the usage between 2019 and 2021. Is that right?

Ms Brady: 2017-19.

The Chairperson (Mr Brett): OK. Why were those years chosen?

Ms Brady: The years in question were the years that best represent the right usage for the installations because the period up to 2017 typically may have seen some overproduction of heat, so that was not a good period. The tariff set in 2019 was the correct tariff at the time when it was set. Subsequently, a lot of unprecedented global events, such as the war in Ukraine and COVID, very much affected prices of kerosene and biomass. Because of that, we saw low usage in those years. That was not typical, so we felt that 2017-19 were the right years.

The Chairperson (Mr Brett): Regarding the administration of the closure of the scheme, the Committee has been aware for considerable time that Ofgem will leave its role as administrator in April 2026. From my perspective, the Committee is now in a difficult position, because the RHI Closure Bill, once it goes through its processes in the Committee and the Assembly, will run very close to Ofgem withdrawing from that. If we do not have legislation in place, it makes it very difficult, and that puts huge pressure on the Committee to try to advance the legislation at pace. However, the Committee is not keen to rush it because there are serious issues that it needs to ensure are covered. Why has it taken so long for a pretty-small Bill to get to this Committee?

Ms Brady: Obviously, there was a lot of work for the Department to do behind the scenes: identifying the options for closure or keeping it open, producing a business case, bringing the business case to the Department of Finance, bringing it to Treasury and getting Treasury agreement, so that took time. Obviously, with the three magic letters — RHI — everybody, including the Committee, wants to do their level best to consider what they are looking at, so that is just why it took the time it took to get here.

The Chairperson (Mr Brett): Moving forward, the closure arrangements will be taken on by the Department for the Economy. Given the Department's history of the scheme, are there any concerns in the Department regarding its capability to administer the scheme for the next 10 years?

Ms Brady: This is not a continuation of the RHI. It is a very simplified scheme. At the end of the day, it is something that we can develop the systems for and have the people to deliver, so I do not think that there is any —.

The Chairperson (Mr Brett): In terms of that simplified process that you have created, from my reading of this, it means that payments will be based on a banded system of usage, so if people are using their boiler under 5% of the time, they get a de minimis payment. However, if they are using it from 5% up to 50%, they will receive a payment of 50% of usage. Can you not see how, from the public's perspective, somebody who uses their boiler 5% of the time and receives a payment of 50% could be problematic?

Ms Brady: Somebody using their boiler 5% of the year will get a de minimis payment because, as we say, part of what goes into that consideration is the capital and maintenance of the machine. They will be required to maintain their machines.

The Chairperson (Mr Brett): Yes, I get that.

Ms Brady: If the machine is broken beyond repair, then the payments stop. If the machine is out of action for over 50% of the year, we will write you down. If it is only in action for a small period of the year, we will write you down. Other than that, your closure payment is your set amount, increasing by inflation.

The Chairperson (Mr Brett): If somebody uses their boiler for 6% of the year, they are getting the same payment as somebody who uses it for 50% of the year. Is that right?

Ms Brady: This is —

The Chairperson (Mr Brett): Is that right?

Ms Brady: It is, but —

The Chairperson (Mr Brett): OK. In terms of boiler inspections, in the document that it sent to the Committee, the Department said that:

Why is that the case?

Ms Brady: It is because, going forward, the payments will not be based on heat produced but on historical heat produced. They are based on the right amount of heat for the right installation in its particular location. There are good reasons why the participants will use the machines, provided that they are able to and that they have the right kind of heat for what they are doing. Based on what the installation was there for and what they have been doing historically, we think that it is the right payment for the right amount of heat.

The Chairperson (Mr Brett): If I have read your evidence correctly, you say that boiler owners will be notified in advance if they have been selected for inspection. Why would you tell people in advance that you are going to inspect them?

Mr Smith: We have to get access to the property legally. The advance notice would not allow someone enough time to rip out a boiler and put a new one in or tamper with it so much that the inspection would be invalidated.

The Chairperson (Mr Brett): Will the notice period be covered in the regulations?

Mr Smith: Yes, it should be.

Ms Brady: The detail of the notice period will not be in the regulations. We will need to produce guidance separately that will give the notice period. Legally, you have to tell somebody that you are coming. You cannot just break into their property.

The Chairperson (Mr Brett): No one is suggesting that you would be breaking in. Surely if we are producing regulations and legislation, we could have something in the legislation to say that all users may be subject to inspection, rather than giving people advance notice that you will be coming.

My final question for now is about the drafting of the regulations for the winter period. Those are described as an "urgent" set of regulations. My definition of "urgent" is sometimes very different from the Department's definition. What do you mean by "urgent", in relation to the winter period?

Ms Brady: The regulations will be brought forward as quickly as possible. The Departmental Solicitor's Office (DSO) is currently doing final checks on the regulations in order to make sure that the clauses are right. We aim to have those in place and have a tariff uplift applying from 1 November. There may need to be a tiny bit of slippage, which, if it is mid-November, could be handled by Ofgem. We are aiming for 1 November. That is our target.

The Chairperson (Mr Brett): What is Ofgem's cut-off point to be able to administer this?

Ms Brady: Mid-November.

The Chairperson (Mr Brett): Let us talk through the Assembly and Committee process. The regulations would have to come to this Committee and would then have to be laid in the Assembly for a vote. That is in mid-November. We have a week's recess coming up very soon, so the regulations cannot be debated in the Assembly then. The regulations are going to have to appear before the Committee pretty quickly, within the next week.

Ms Brady: Yes.

The Chairperson (Mr Brett): OK, that is all from me.

Mr Honeyford: I struggle with this "pretty quickly". We were told, last year, that it would be in the new year. It is now the middle of October. It has been 18 months since the Committee spoke to Ofgem, and we were told at the very start that we were leaving the scheme. "Very quickly" has never happened in the Department, has it?

Ms Brady: When you hear the three little letters "RHI", everybody wants to do a thorough job.

Mr Honeyford: Do you not think that we need to do a thorough job?

Ms Brady: No, I fully appreciate that you —

Mr Honeyford: You are not giving us the opportunity. You have just said that we have a week, and we have about a month —

Ms Brady: That is for the tariff uplift. We also had to do quite a bit of extensive engagement. If the tariff uplift is to be done before the winter period, it would need to be done fairly quickly.

Mr Honeyford: We heard that last year. This is déjà vu. We sat here last year, at nearly the exact same time, and had exactly the same issue. We were not given any information. We were not given anything. We have been given three or four pages that are, basically, asking us to trust a Department to do what it wants.

Ms Brady: The difference between this year and last year is that, as I understood it, the Committee was concerned last year that the Department had not done sufficient engagement with the participants' representatives and participant stakeholders. The difference between last year and this year is that, first, we have had that engagement, and, secondly, we have had the model independently scrutinised and looked at by external people. Professor David Rooney also helped. He was there during the engagement with participants and facilitated some discussions between us and them.

Mr Smith: We furnished you with a paper that set out the rationale for the tariff uplift, setting out that changes in the fuel price differentials were the basis for coming up with the tariffs this year.

Mr Honeyford: My point is that we had exactly this conversation last year. It is identical. The uplift that you have now is, basically, for the different price of fuel. That is the reason for it. That would have happened anyway. So, it is the same tariff as we had last year.

Mr Smith: As Sarah said, DOF, in approving the business case for the tariff uplift, asked us whether we had had independent scrutiny of the modelling that we had done. We confirmed that Professor David Rooney from Queen's University looked at our model and confirmed that he thought that the assumptions that we had put in were correct. He also did his own, independent modelling from a different basis. Rather than a top-up cost model, he did a top-down model, and he, independently, came up with tariffs or annual payments that were very much in line with our modelling. From that, we have a bit of assurance.

Mr Honeyford: The difficulty that I have is that you just said this morning that the tariff level was correct in 2019. So, tell me why the number of boilers has halved since 2019?

Ms Brady: Fuel price movements.

Mr Honeyford: So, it was not correct at the time.

Ms Brady: It was correct at the time when it was made. Very quickly after that, we had some major events, including the war in Ukraine and COVID, and the fuel price differentials changed to the extent that they were no longer right.

Mr Honeyford: So, it was not correct at the time. It was made for a point in time in 2019, without looking to the future, but now we are being asked to trust that this point is the correct point in time.

Mr Smith: I acknowledge that it is very difficult for us to predict fuel price movements. That is the difficulty in establishing the proper tariff.

Mr Honeyford: You are not closing the system. You are basically taking the 2012 Act, and you are running it for 20 years. You are just closing it, as Phillip said, to new participants.

Mr Buckley: Which is already the case.

Mr Honeyford: Which is the case, yes. That has not changed. That is exactly as we are now. This is a scheme called something else, basically. If I run my boiler for 60% of the time or 55% of the time, I get full payment, and there is no mechanism at all for checking that. Therefore, it is actually worse than what we have now.

Ms Brady: The options available to us on closure are that we could have done a single, one-off payment and said, "There you go", but —

Mr Honeyford: Why was that ruled out?

Ms Brady: That was ruled out on a value-for-money basis. It was on value for money and affordability.

Mr Smith: If there was a one-off payment, there would be no guarantee that the boilers would continue to be used.

Mr Honeyford: There is no guarantee now, because there are no checks.

Mr Smith: There will be annual checks. There will be an annual declaration, and people will testify that their boiler is being used and is still operational.

Mr Honeyford: This is the scheme that was abused by people making declarations. Where is the scrutiny on that? Is there a new department or section that will go out and check on that?

Ms Brady: The participants will be asked to sign an annual declaration truthfully and to provide evidence, such as photographs of their installation still in situ, and their maintenance and fuel-purchasing records. That will let us know if somebody is doing something wrong. We will also have a physical inspection and audit process. A 100% inspection programme of the original scheme has been done. Despite what the press said, it detected very low levels of fraud from the participants. I do not think that a lot of people made fraudulent statements.

Mr Honeyford: How will it work in the Department? Do you have a new section? Are there people who will manage it?

Ms Brady: A team will be put in place to take the declarations and evidence, process them and make the annual payments. We also propose to do a procurement exercise to bring in an appropriate expert to do the physical inspections.

Mr Honeyford: The point of the scheme was to incentivise green heat. How does the crude payment for my running a boiler at 55% incentivise me to burn green energy?

Ms Brady: You will have the machine there, and you will be required to keep it there, maintain it and put fuel in it. It will meet your heat needs. You will have a heat need, as do those businesses. They —

Mr Honeyford: About 1,000 boilers are not there any more. If I were to turn one of those back on, would I get the 100% payment?

Ms Brady: If you used it every year.

Mr Honeyford: Yes, 50% of the time.

Ms Brady: For people who have de minimis payments, or who had de minimis payments in the past, we are going on their historical usage. As I said, their historical usage gives us a fair indication of what they actually need, as opposed to —

Mr Honeyford: I agree with the principle of closing RHI, but I am really uncomfortable about giving the Department the power to do whatever it wants without scrutiny. It feels as though we are doing that. I am just throwing that out there.

Ms Brady: I understand that. That is why we are consulting on the policy proposals for how the closure will work in practice. That consultation is a real consultation —

Mr Honeyford: A real one?

Ms Brady: — and when that consultation has finished and the proposals are there in detail, we will come back with the closure regulations. You will then get a second chance to look at the closure regulations in detail.

Mr Honeyford: You are asking us to agree to those regulations before all of that. We are giving you the power to do whatever.

Mr Smith: It is not 50% of the time; it is 50% of the historical heat use. We believe that the historical heat use between 2017 and 2019 is correct. If you use less than what your historical use was, you can declare to us, "My boiler has been out of order for six months", and we will reduce the payment accordingly. It is not 50% of the full time.

Ms D Armstrong: Good morning. Thank you for coming to the Committee today. My concern is about reputational damage. We talked about the public purse. You mentioned the simplification of the process. The public perception is that the process has not been clear to this point. It was possible to measure the eligible heat output between 2017 and 2019. Why can the same mechanism not be used to measure the output going forward? Whether we like it or not, that leaves it open; the control mechanism is not in place to guarantee that fraud does not take place. RHI has a sorry history, and the public needs to be satisfied that strict controls will be in place.

Ms Brady: It gives the public budgetary certainty because the payment to an individual installation will be the same every year, subject to inflation. Subject to a machine being there and in use, it will be the same amount. Some of the past issues with overproduction of heat are gone. This provides a simplification. It lets the participant know exactly what they will get each year, and it lets the public know what they are paying each year, subject to the machine staying in use. Had we opted for a closure with a single, one-off closure payment so that it was a case of, "Here's a closure payment; we don't care what happens for the next 10 years", there could have been value-for-money concerns, because people could have gotten rid of their boiler the next day, rather than keeping it, maintaining it and continuing to use it. That approach of a one-off payment was ruled out.

It is important to say that we had 100% physical inspection. The "rampant fraud" among participants was, I think —. I will not say that that was an exaggeration by the press, but I would not say that there was rampant fraud. There will be safeguards, going forward, through the requirement to produce evidence — photographs, records of fuel purchase and records of maintenance — and a physical inspection.

Mr Smith: In the past, the heat output was measured through metering. Were we to continue that, that would not represent closure of the scheme but would be continuation of the scheme as it is. The Department does not have the ability to do the meter readings. Ofgem has been doing that for us, and we do not have the administration. That is why we came up with the idea that we would pay participants based on the correct levels of heat used.

Ms D Armstrong: Have you looked at putting in your own mechanism to measure heat outputs? Was that option explored, at any time?

Ms Brady: Continuing to make payments on the basis of, "If you burn more, you will get paid more" was not considered to be closure.

Ms D Armstrong: Clause 1(6) expressly allows regulations to be made, from time to time, to alter the scheme until it is completely closed and to amend or revoke. Is that a get-out clause whereby, if something goes wrong, the Department can change the scheme? Is that about learning on the hoof?

Ms Brady: The bringing forward of regulations to make changes to anything in the future would be done through due process — that is the normal due process that regulations need to go through. There would be proper scrutiny. It would not be a case of, "Oh, we'll just change whatever we feel like". That is not the case. There is due process to go through to make regulations.

Mr Middleton: Thank you, both, for your update. There is a very delicate balance, and it is important that we get it right, ensuring that those who entered the scheme in good faith are respected and that their views are heard as well as ensuring that, whatever happens in future, we do not allow there to be potential for further abuse of the scheme.

The legislation before the Committee is to do with giving the Minister the power. Then further legislation will look into the mechanisms for closure. The Chair outlined that the timescales are very tight, and we have to be assured that we give this proper scrutiny. Are you giving a commitment that you will bring the wider consultation on the closure regulations back to the Committee prior to our completing our work at Committee stage?

Ms Brady: We will bring the closure regulations to the Committee. We will consider the responses to the consultation, develop the closure regulations and bring those forward.

Mr Middleton: Will we get sight of the feedback in the consultation responses?

Ms Brady: We will bring the consultation responses and the closure regulations to you at the same time.

Mr Middleton: OK, that is important. On the target for closure of April 2026, what contingencies is the Department putting in place in case the timescales slip, which is a possibility? What will happen beyond April 2026, if we have not met those timescales?

Ms Brady: There is a clause that basically allows for the Bill to apply for certain periods before it comes in, which means that, when the participant comes to you with their first payment, it will be applied back to the date when they got their last one from Ofgem. If there is a small amount of slippage, that will be allowed for, so that the participant can get continuity of protection.

Mr Middleton: When you say "a small amount of slippage", what would that be potentially?

Mr Smith: Not everyone will switch over to the new payment on day 1, because the accreditation dates are spread throughout the year. There are peaks in November and February. The workload for us to start making payments will not be to pay all 1,900 on the same day. It is spread out over the year. In that sense, any delay will be manageable.

Ms Brady: We are working at pace to try to bring it forward as quickly as we possibly can to allow the Committee to do its scrutiny. As you can imagine, we have gone to the trouble of engaging with participants because, the last time, one of the Committee's concerns was that there had not been enough engagement with representatives and stakeholders. We have got that right this time.

Mr Middleton: That is welcome. Has the informal feedback been broadly positive?

Ms Brady: It has been broadly positive.

Mr Middleton: I have a final question. We will have an opportunity to discuss a lot of this technical stuff again. I read through it, and one of the things that is mentioned — and you have mentioned it today — is the quarterly meter readings no longer being required. If a participant stops generating heat entirely, but the installation is still in place, how do you proactively identify that? You mentioned photographs and stuff like that; is that how you identify that?

Ms Brady: They would need to submit their legally binding annual declaration, on which they sign that what they have said is true. They would also provide photographs of the machine in situ, evidence of where they got their fuel from and evidence that they have been maintaining it. That would let us know that people are not just taking their closure payment and then scrapping the machine.

Mr Middleton: Thank you.

Mr Buckley: Thank you very much. I appreciate that this is a trigger point for many. It is important that we all take the time to study it. It is a bit like déjà vu, as we have been here before. The big problem that the Committee has had from the last time that you came to the Committee until now is a lack of information — a lack of detail on proposed tariff rates and on engagement with participants. You made clear last time, and it is fundamental, that you are trying to strike a balance between managing taxpayers' money and giving good-faith, genuine participants a fair settlement. On the proposed tariff differential, the table shows that there is a change. I remember that, the last time you were here, you said that you believed that you had struck the right balance. Today, we are hearing, "We've struck the right balance, but it's different". How do you square that circle?

Ms Brady: It needs to be understood what goes into the model. The big thing is fuel price differentials. As Alan explained, the differences this time are, first, the external scrutiny and, secondly, the fact that the person doing the external scrutiny did their own model. They did a top-down model, and we did a bottom-up model. The external scrutiny came up with broadly the same number that we did. That gives us a certain amount of comfort, and I hope that it provides more comfort to the Committee.

Mr Buckley: OK. There has been engagement with the industry. At this stage, are you content that industry feels that you are striking a fair balance for good-faith participants?

Ms Brady: Broadly speaking, that is the feedback that we have got to date. Once they see the consultation, they will say whatever they feel they need to say, but the feedback that we have got from participants to date is that they appreciate the engagement and can see that we are attempting to be fair and do this properly.

Mr Buckley: Through the public consultation, we will find out whether or not the taxpayer and the public feel that we have struck the right balance. Is that essentially it?

Ms Brady: Yes.

Mr Buckley: You are giving the commitment today that the results of that public consultation will be with the Committee before the end of Committee Stage to ensure that we can make informed decisions.

Ms Brady: Before the Committee is asked to decide on the final regulations, you will know what is behind the final regulations.

Mr Buckley: To be eligible for payments, people will have to ensure that their boiler is operational until the end date — for the length of time that was always set out; yes?

Ms Brady: Yes.

Mr Buckley: Is the payment per installation or per site?

Ms Brady: It is per installation.

Mr Buckley: OK. That is fair enough. There is a genuine point about the unknown, because we are dealing with legacy usage between 2017 and 2019. Sarah, you mentioned that there was a low level of fraud detected in the system. Are we confident, when using the 2017-2019 period, that we are safeguarding the taxpayer in relation to usage levels and that it is in line with what you said, namely that no fraud was detected in that period?

Ms Brady: We think that 2017 to 2019 represents the most balanced period as regards use of individual installations. As I said, pre 2017, there was concern that there was overproduction of heat, and enough was said about that at the time. After 2019, there was a low level of heat production detected because of fuel price differentials. Therefore, for us, 2017 to 2019 represents the right period.

Mr Buckley: Did the Department detect any fraud in applications between 2017 and 2019?

Ms Brady: Some participants lost their accreditation, and there was a very, very low level of —

Mr Buckley: Is there a percentage? I will not put exact figures in your mouth, but are we talking below 5%?

Ms Brady: I do not have the exact number to hand. I would need to get back to you on that.

Mr Smith: From my recollection, it was as low as that, but I would need to check. Again, those people are no longer accredited, so there is no suggestion that they will be able to receive payment.

Mr Buckley: Is the Department confident that the evidence suggests that all the people who will still be eligible under this closure scheme have been fair, good-faith participants?

Ms Brady: I think so, yes.

Mr Buckley: OK. Boiler owners have previously disputed in court the tariffs that they were paid from 2019 until the present day. We discussed that on the last occasion. Do you believe that the new closure payments will address that period, about which there was a dispute?

Ms Brady: We will not backdate payment, because, in our view, backdating does not represent good value for money for the taxpayer.

Mr Buckley: OK. In our papers, we have the tariff table. Are you able to give a breakdown of the number of installations in each of those categories?

Ms Brady: The vast majority of them —

Mr Smith: About 98% are under the one category.

Ms Brady: They are in the lower medium and upper medium biomass categories. The majority of them are in the lower medium biomass category.

Mr Buckley: How many of the 1,864 lower medium solid biomass boiler installations from 2024 are still in operation?

Mr Smith: Of the total number of installations, just under 1,900 are still live and accredited.

Ms Brady: A certain percentage of participants have stopped engaging with the Department. The Department will give those participants a fair opportunity to come forward, make declarations and provide evidence.

Mr Smith: There are 590 inactive participants who have not been submitting meter readings or have been submitting meter readings of "zero".

Ms Brady: We do not know why they are inactive, so we have to give them a fair chance to come forward and provide evidence that they still have an installation that is generating heat.

Mr Smith: It could be that the tariff meant that it was not worth their while generating heat, or it could have been for other reasons, such as decommissioning.

Mr Buckley: One of the concerns from some genuine participants whom we heard from in evidence to the Committee was that the rate that was struck did not even cover the maintenance costs for their installations. Are you confident that the new rate will make it viable?

Ms Brady: I think that the new payments are fair.

Mr Smith: The new tariff has been built from all the costs: maintenance costs, capital costs, repayment costs, barrier costs and the fuel price differential.

Ms Brady: It is important to clarify that the payments were for the difference between what the participants would have paid had they gone with fossil fuel and what they did pay because they went with biomass. It is not the total cost but the difference in cost.

Mr Buckley: The Department previously advised that last year's rejected tariff would generate an internal rate of return of 12% and would, then, comply with state aid rules. Are we confident that this tariff and payment scheme will comply with state aid rules?

Mr Smith: We have clarified that.

Mr Buckley: OK. Thank you. I look forward to further engagement.

Ms Nicholl: Thank you. I appreciate that you have engaged, which I mentioned the last time. Whom did you engage with?

Ms Brady: We engaged with the Ulster Farmers' Union (UFU), the Renewable Heat Association NI and the Federation of Small Businesses (FSB).

Ms Nicholl: Thank you. Lots has already been covered. The thing with RHI is trust in the process. It is fair to say that, to date, it has been messy, and that has not really engendered trust in the process. I agree with, David: it feels as though it is a bit of a rerun. My biggest concern is that the Department is asking for a lot of power here, and we do not know what will be in the regulations or the guidance. It is not that clear to me. More work needs to be done to reassure members that we can have confidence in the process. I want to see the RHI scheme closed, but I want to know what is coming next. At the moment, I do not feel that I know that, and I would like to know what will be in the regulations. What further reassurance can be given to us so that we can have trust in the process?

Ms Brady: That is what the policy consultation that is out at the minute sets out. It sets out what we propose to put into the regulations. The results of the consultation process will help us decide what goes into those regulations. Then, the regulations will go through the normal due process procedures. That will, hopefully, be where the Committee can get reassurance.

Ms Nicholl: I just do not know how I can vote for a Bill when I do not know what will be in the regulations.

The Chairperson (Mr Brett): To follow up on Kate's point, when will the regulations be introduced in the Assembly? Will it be at the same time as we are at Committee Stage?

Ms Brady: We hope to bring the regulations forward at the same time as Committee Stage, so that you have them.

The Chairperson (Mr Brett): No problem.

Ms Sheerin: Thanks for the presentation. You have been put through your paces and have covered quite a lot already, which I appreciate. Did any other Minister suggest alternative closure arrangements?

Ms Brady: No, not that I am aware of. I do not know of any Minister's suggesting alternative closure arrangements.

Ms Sheerin: OK. Thanks for clarifying that.

Some of this has been covered in answer to other members' questions. I have constituents who suffered badly from reputational damage in the wake of the whole scandal and as a result of bad governance. You have reflected that in your answers — about how it was reported in the media and how some things were portrayed. It is important to bear that in mind.

Mr Honeyford: I will go back to a couple of things that have been said. Tell me again the reason for the difference between the tariff last year and the tariff this year: is it higher this year because of the difference in fuel prices?

Ms Brady: We looked at the fuel price movements.

Mr Honeyford: OK. When we look at the graph in front of us, we see that it is cheaper now, unless the price has dramatically changed since January 2025. The graph in front of us shows that fuel is cheaper now than it was when we looked at this last October.

Mr Smith: We had to take a long-term view of fuel price movements, for example in biomass, where volatility has settled. It is about prediction: we have to predict not what we have seen but what will happen in future. We used a spot price in our prediction on biomass, but, for kerosene, where price volatility was much more apparent, we used a long-term average.

Mr Honeyford: How is that different from last year?

Ms Brady: Last year, we did not use the spot price for biomass.

Mr Honeyford: But you told us that it was right last year, and you told us that it was right in 2019.

Mr Smith: The problem is that we were predicting fuel prices into the future, and —

Mr Honeyford: Yes, but then be honest with us.

Mr Smith: — once we do it the next day, it will be wrong. We have to accept that.

Mr Honeyford: But you come here and tell us, "This is the right price", and then you ask us to trust you.

Ms Brady: We are not necessarily asking you to trust us. We are asking you to understand that we base this on certain assumptions about fuel prices, including the price of kerosene, which is notoriously volatile. We are asking you to consider that the difference between last time and this time is in the independent scrutiny and the increased level of engagement, which we hope will give you more confidence this time.

Mr Honeyford: It has taken 18 months to meet three people, and kerosene is cheaper today than it was last year. I would like to hear the honesty of, "We are plucking a figure out of the air". Do not tell us, "This is the right price", when, historically, it has not been right.

Mr Smith: I am trying to emphasise the difficulty of correctly predicting fuel prices; I do not think that any of us can do it.

Ms Brady: As I said, two models came up with the same number, and, while there is no direct read-across from the GB scheme to the Northern Ireland scheme — the GB scheme has had digression, and there is a range of tariffs, whereas we have one set tariff — the tariff that we have come up with is in and around the level that is set in GB for those who entered that scheme in 2015. I do not know whether that helps the Committee, but there are a number of different —

Mr Honeyford: I am not talking about the level. You are telling us that this is the right tariff. We were told that before. What I am getting at is this: we have constantly been told, "This is right; trust us on this".

Ms Brady: I am not sure what more I can bring you.

Mr Buckley: This is a valid conversation. I accept that it is very difficult —

Mr Honeyford: I agree totally.

Mr Buckley: — to forecast fuel prices. Could you talk us through the processes — you started to do that, Sarah — by which you came to the figure for the proposed tariff? It would be helpful for us to understand those: whether they involve a number of models, an average or whatever. That is maybe where David is coming from. We would like to hear about the processes of calculating the figure and about how we can have confidence that it strikes the right balance.

Mr Smith: We use a bottom-up model, which means that we look at all the costs. Those are typical costs, because, for example, with capital costs, we do not know what somebody paid for their boiler: they might have bought it second-hand or brand new. There are a lot of uncertainties, so we take what we feel is a typical cost for a participant. We build that up through the capital costs of the boiler, typical O & M costs and typical barrier costs to reflect that it has always been an issue to get people to switch over. We make that assessment. Then, we also have to look into the difference in fuel price between what they would pay if they were using a fossil fuel boiler and what they pay if they are using a renewable boiler. We build up that cost model. Then, we say that, over a 20-year period, which is deemed to be the asset life of the appliance, in order to make that investment and to meet all their costs, they need a 12% rate of return. That is an internal rate of return, so it is not like a rate of return from a bank — it is not a 12% per annum payment. We work all of that into the model, and it generates an appropriate tariff. The tariff is what comes out of that model. If any of those assumptions change, the tariff will change. We find that a lot of those earlier assumptions — on capital costs, O & M costs and barrier costs — are fairly steady. They should not change, and, in fact, once they have been made —

Ms Brady: They are fairly well known as well. We had 100% inspections, so we have reasonable data there.

Mr Smith: The real volatility is with the fuel price differential, and that is the difficulty that we have. Every time that you were to do this calculation, you would probably get a different tariff to match the 12%, and that is the problem.

Ms Brady: It would depend on which period you took the fuel price movements over. We do a lot of engagement on settling on the right period and settling on how to do it.

Mr Smith: You would not really want to do a lot of periodic reviews of the tariff — ideally, you would have it set for the 20 years of the scheme — but there have been wrong tariffs in the past.

Ms Brady: Both participants and taxpayers want a bit of certainty. They want to know how much it is going to cost the taxpayer and how much the participant is going to receive. I think that this gives everyone a bit more certainty than they had in the past.

The Chairperson (Mr Brett): I have a couple of final follow-up questions, and then we will let you go. For the record, you have confirmed that Treasury has approved this.

Ms Brady: Yes.

The Chairperson (Mr Brett): How much of the overall AME budget allocation for the remainder of this period does it use?

Mr Smith: The AME budget is around £33·5 million per annum, and this uses £17·8 million of it.

The Chairperson (Mr Brett): What is the plan for the remainder of that budget?

Ms Brady: The Treasury has made it clear that any follow-on scheme or any scheme that might be developed in the future would need to meet certain criteria and would be dependent on things such as the spending review that is coming up. A lot of engagement with Treasury will be needed, and the Department will need to take a strategic view of how we manage the transition from heat coming from fossil fuels to decarbonised heat. We have had a number of consultations on various aspects of renewable heat. We intend to continue that development work, to continue to take a holistic view and to continue to engage with Treasury. We have engaged, and we need to continue to engage. We need to draw this line in order to allow us to do that.

The Chairperson (Mr Brett): What is your target date to have a new policy in place by? We have legal targets that have been set by a previous Assembly and Executive, and, if this Bill is passed, there will be underutilisation of £17 million of funding that was allocated to trying to ensure that Northern Ireland plays its role in the overall climate change work. We are now in 2025. I assume that you are not thinking that any new policy, scheme or intervention will be in place any time soon.

Ms Brady: It will not be in place next year.

The Chairperson (Mr Brett): Yes, so that money will continue to be returned to Treasury.

Ms Brady: As I said, we are aiming to give value for money as opposed to just aiming to use the entire budget.

The Chairperson (Mr Brett): Of course. My preference is, obviously, that we have a scheme that gives value for money but also continues to work towards meeting our legal targets.

In the Department's budget for this, how is it that £17 million profiled over the next 10 years?

Mr Smith: The DEL money?

The Chairperson (Mr Brett): Yes.

Mr Smith: It is not exactly steady. There is an inflationary factor built into it.

Ms Brady: It is roughly £1 million; is it not?

Mr Smith: Yes. There is a peak, and it will tail off towards the end, as people start dropping out and the numbers decline. I can give you the profile, if you need it.

The Chairperson (Mr Brett): Sure. In the business case that was produced for that, how many inspectors will be employed?

Ms Brady: We intend to tender to get external providers for the inspections.

Mr Smith: Our target is roughly 100 inspections per annum.

Ms Brady: At that rate, we should be able to get round everybody.

The Chairperson (Mr Brett): There will be 100 inspections a year for the next 10 years, which is 1,000 inspections. You said that there are currently —

Ms Brady: There are just under 2,000 installations, but there are just over —

The Chairperson (Mr Brett): So, how will we get round everybody?

Mr Smith: Remember that there are only 900 participants. Some people have multiple boilers.

Ms Brady: That is how you could do it.

The Chairperson (Mr Brett): That is 100 sites that we have to get round in a year.

Ms Brady: Yes. That is our target.

The Chairperson (Mr Brett): OK. No problem at all. Thank you very much for your representations on that issue. It is very much appreciated. The Committee will probably follow up with a few questions. Our takeaway is that you are making a commitment today that both the regulations for the uplift for the winter period and the regulations for the closure will be tabled at this Committee before we are asked to pass the Bill.

Ms Brady: The tabling of the regulations for the uplift of the winter period needs to come first. If those are going to be for this winter, they need to come first. We intend to bring you the closure regulations and the final Bill at the same time, following the consultation.

The Chairperson (Mr Brett): Obviously, this is the final Bill. However, before it completes its passage in the Assembly, the regulations for closure will also be published.

Ms Brady: We hope to do that.

The Chairperson (Mr Brett): You said earlier that they would be published.

Ms Brady: We hope to get you the final regulations as soon as possible.

Mr Smith: The closure regulations?

Ms Brady: Yes. Nothing can happen on the closure Bill until the regulations are there, and you will see the regulations.

Mr Smith: We will come back to you on that.

Ms Brady: Yes.

The Chairperson (Mr Brett): Sorry. I am confused. The uplift regulations will come first because, if we are going to meet our target of Ofgem leaving us in April, those regulations need to be in place by mid-November. That is fine. Second Reading of the Bill is scheduled for Monday 20 November, and then it will go into Committee Stage. However, before Committee Stage has completed, we are probably going to seek an extension. I cannot dictate what the Committee will do, but I imagine that we will seek an extension until the end of January. Will we have the closure regulations before that?

Ms Brady: We aim to have the regulations in January.

The Chairperson (Mr Brett): Perfect. Will the guidance come after that?

Ms Brady: I suggest that the guidance should be a living document, because my experience of running schemes — I have run them before — is that things come up that you would never have dreamt would come up. It is often necessary to change guidance, and that is why it is appropriate to keep guidance as a living document. I suggest that, in the audit procedures, the guidance is a living document.

The Chairperson (Mr Brett): No problem. Did you say when the Committee will get the winter uplift regulations ? Will it be next week?

Ms Brady: Our aim is that the tariff should apply from 1 November. We hope to get the regulations to you. They are just undergoing a final check at DSO.

Mr Smith: They have just come back from DSO.

Ms Brady: They just came back this morning. That is how fast we are working.

The Chairperson (Mr Brett): OK, that is fine. Will you have them for us next week?

Mr Smith: Yes.

The Chairperson (Mr Brett): OK. Perfect. Thank you very much indeed. We appreciate your time and dedication.

Ms Brady: Thank you.