42.Energy policy is largely devolved to the Northern Ireland Executive, and the sector has significantly different characteristics to those in Great Britain. In terms of power, it has three major fossil-fuel based power plants and a number of renewable generators making up its indigenous production. Interconnection with the Republic of Ireland and Scotland help to maintain its secure supply of electricity, with imports from the two countries together providing around 15% of its power in 2014.
43.The gas markets of Northern Ireland and the Republic are separate. However, both rely almost exclusively on importing gas from Great Britain. Together, Northern Ireland and the Republic of Ireland received about 62TWh of gas from Scotland in 2015, accounting for nearly 100% of their gas demand. The land border between the UK and the EU in Northern Ireland presents important challenges in determining our new relationship with the EU. These challenges apply to the energy sector, just as much to other aspects of trade. The Brexit White Paper states that the Government will aim to avoid disruption to the all-island Single Electricity Market, which covers Northern Ireland and the Republic of Ireland.
44.Since 2007, the island of Ireland has operated with a Single Electricity Market (SEM). This allows free trade of power across the island, with all generators and suppliers trading through a central mandatory wholesale market. It is regulated jointly by the Commission for Energy Regulation (CER) from the Republic of Ireland, and the Utility Regulator from Northern Ireland.
45.In order to comply with EU legislation adopted in 2009 the existing arrangements are being replaced by an enhanced wholesale market: the Integrated Single Electricity Market (I-SEM). These new arrangements are planned to go live in 2018. It is designed closely around the rules of the Internal Energy Market, requiring exclusive short-term trading through European market coupling as established by the European Network Codes. The new design should increase competition and “increase the economic efficiency of cross border electricity flows and reduce the level of curtailment of variable renewable generation on the island”.
46.These benefits of the I-SEM are particularly relevant for Northern Ireland. Northern Ireland has a target of sourcing 40% of electricity consumption from renewable resources by 2020. Increased intermittent electricity generation from renewables poses particular challenges for the secure operation of the network. In addition, Northern Ireland faces significant supply concerns, including an anticipated supply deficit in 2021. The System Operator for Northern Ireland, SONI Ltd, stressed the seriousness of the situation to the Northern Ireland Affairs Committee last year: “Elected representatives across the political spectrum are obligated to understand and appreciate the acute nature of NI’s security of supply”.
47.The border on the island of Ireland marks two separate gas markets but, as noted above, both are reliant on gas imports from Great Britain. The Commission for Energy Regulation and the Utility Regulator had been leading a project, the Common Arrangements for Gas, seeking to operate the gas systems on a single all-island network basis. However, the project has been overtaken by the European Network Codes, which require implementation of enhanced trading arrangements across all Member States.
48.The Single Electricity Market for the island of Ireland is considered an “exemplar of regional co-operation by the EU”, and successful in increasing competition and driving down energy prices. A number of witnesses to our inquiry stressed the importance of maintaining an integrated energy market across the whole island, and raised concerns that leaving the EU could undermine the SEM and I-SEM. AES UK & Ireland told the Committee in its written evidence that the nature of the new market design would make the imposition of any tariffs difficult. According to the Chief Executive of the all-Ireland transmission system operator, EirGrid, disruption to the I-SEM project would set back a decade of effort to remove barriers to trade.
49.The implications of any disruption are not, however, only a question of re-addressing complex arrangements. Disruption affecting the efficient supply of energy and future investment could have serious implications for consumers. In particular, it could compromise a new interconnector between Northern Ireland and the Republic. The System Operator for Northern Ireland, SONI Ltd, has stated that without the planned North South Interconnector, it cannot be confident that “we can keep the lights on beyond 2021”.
50.We were pleased to see that the risks of any disruption to both Northern Ireland and the Republic of Ireland are well recognised by the Government. The Secretary of State told us that:
this has been very high up the agenda in preparing for the negotiations that are about to happen. I have discussed this directly with the Northern Ireland Secretary and the Brexit Secretary. We know that this is a particular priority, as it is, of course, for the Republic of Ireland. They too have the same interest in making sure that our market continues to function very flexibly in the future as it does now.
51.The free trade of energy across the island of Ireland and efficient use of interconnection with Great Britain are of critical importance to Northern Ireland, which is reliant on imports from the Republic of Ireland and Great Britain for gas and power supply. Any disruption to the development of and trading within the Single Energy Market of the island of Ireland (SEM), and the ongoing implementation of the Integrated Single Energy Market (I-SEM) project, may have serious implications for consumers across the island of Ireland.
52.We recommend that the Government protect the continued operation of SEM and implementation of the I-SEM project, through the UK’s wider access to the Internal Energy Market or alternatively through special arrangements for the island of Ireland.
78 AES UK & Ireland (); Department of Enterprise, Trade & Investment, Energy In Northern Ireland 2016, pp31-32
80 National Grid ()
81 Department for Exiting the European Union, The United Kingdom’s exit from, and new partnership with the European Union, Cm 9417, 2 February 2017
82 Commission for Energy Regulation, , April 2011
83 The single electricity market is governed by the SEM Committee, consisting of the Commission for Energy Regulation, the Utility Regulator, and an independent and deputy independent member Commission for Energy Regulation: , April 2011
84 , Proposed Amendment to the Electricity Regulation (Amendment) (Single Market) Act 2007
85 Single Electricity Market Committee, , September 2014, p4
86 Single Electricity Market Committee, , September 2014, p7
87 North South Inter-Parliamentary Association, , September 2013: Background briefing prepared by the Research and Information Services (RaISe) of the Northern Ireland Assembly and the Library & Research Service (L&RS) of the Houses of the Oireachtas (Tithe an Oireachtais), p3
88 AES UK & Ireland ()
89 Written evidence submitted to the Northern Ireland Affairs Committee inquiry on the Electricity Sector in Northern Ireland, SONI Ltd ()
90 North South Inter-Parliamentary Association, , November 2016, Background briefing prepared by the Research and Information Service (RaISe) of the Northern Ireland Assembly and of the Library & Research Service of the Houses of the Oireachtas (Tithe an Oireachtais), p71
91 North South Inter-Parliamentary Association, , p70
92 E3G (); Chatham House (); EDF Energy (); European Federation of Energy Traders (EFET) (); Renewable Energy Systems Ltd (); AES UK & Ireland (); Renewable Energy Association (); National Grid (); Ofgem (); Energy UK ()
93 AES UK & Ireland ()
94 Chatham House ()
95 Centrica ()
96 SONI Ltd ()
4 May 2017