David Kidney (Parliamentary Under-Secretary, Department of Energy and Climate Change; Stafford, Labour)

As part of the Renewable Energy Strategy, published in July this year, we provided an estimate of the potential impact of the Renewable Heat Incentive (RHI) levy on consumers.

The RHI subsidy costs are expected to be passed on to consumers of fossil fuels used for heat through price increases on them.

Initial work to estimate the impact of the policy, assuming all costs fall on gas prices, is summarised as follows. These numbers are based on the costs figures presented in the impact assessment which accompanied the Renewable Energy Strategy (RES). The impact assessment set out ranges which reflect different possibilities for providing support for technologies and sectors under the RHI.. The upper end of these ranges is used as the central estimate in the overall RES impact assessment.

Based on these assumptions, under our lead scenario in the RES (that in 2020 12 per cent. of heat comes from renewable sources), bill increases in the domestic sector in 2020 are expected to be in the order of 16 to 23 per cent. corresponding to an average domestic bill increase of around £120 to £172.

However, the eventual cost of the RHI and its actual impact on bills will depend on a series of policy decisions which are still to be taken and external variable factors. For example, whether the support will be paid over a short or long period, how we differentiate support across the different technologies, changes in fossil fuel prices, and likely rates of return. The forthcoming consultation on the Renewable Heat Incentive, will be the next step in this process, and be accompanied by a further Regulatory Impact Assessment.