12.Energy policy is a devolved matter, with the newly-formed Department for the Economy taking lead responsibility. Only nuclear energy is an excepted matter, with responsibility for policy-making retained at a national level. Nevertheless, there remain significant interdependencies between the two electricity sectors. This chapter examines the ways in which the UK Government influences Northern Ireland’s electricity sector and the lessons which could be learned from recent UK-wide policy changes that have had unintended consequences in the region. It also considers some of the challenges the NI Executive faces in developing electricity policy and addresses concerns raised in evidence regarding the Executive’s approach to policy-making and the draft Programme for Government.
13.Although electricity is devolved, policy changes at a UK level continue to have implications for Northern Ireland due to, as AES described, “the complex, interconnected nature of energy markets, systems and infrastructure”. This means that the NI Executive is often not able to develop policies in isolation, but instead must consider constraints which exist at a UK-level, as well as an all-island level, due to its participation in the Single Electricity Market. This is a wholesale market through which electricity is bought and sold on the island of Ireland through a mandatory pool. The following sections outline some of the ways in which the UK Government exerts significant influence over policy-making in Northern Ireland.
14.The Renewables Obligation (RO) was introduced in 2002 by the UK Government as a financial support scheme for renewable electricity projects, providing participants with support per megawatt hour (MWh) of renewable electricity generated at a relatively stable rate for 20 years. The NI Executive launched its own version of the RO, the Northern Ireland Renewables Obligation (NIRO), in April 2005. Renewables Obligation Certificates issued in Northern Ireland (NIROCs) were fully tradeable with Renewables Obligation Certificates issued in Great Britain (GBROCs), and through this mechanism, the cost of the NIRO was shared across the UK.
15.As part of the 2011 programme for Electricity Market Reform, the UK Government announced the replacement of the RO in 2017 with a new scheme, Contracts for Difference (CfD), in which the level of subsidy varied according to the wholesale price of electricity. However, following a commitment made in the 2015 Conservative Party Manifesto to “halt the spread of onshore windfarms”, the Government announced in June 2015 that it would close the RO for onshore wind one year early, in 2016.
16.The Government told the NI Executive that, were the NIRO not similarly reformed, it would prevent GB suppliers from meeting their annual RO quota by using NIROCs produced by schemes accredited after 1 April 2016 which did not meet the grace period eligibility criteria. Were this to have happened, the cost of subsidising renewable energy would likely have increased considerably for NI consumers. As a consequence, the NI Executive followed the UK Government by closing the NIRO to new small-scale onshore wind. In June 2016, the Northern Ireland Assembly approved the Renewables Obligation Closure (No.2) Order (Northern Ireland) 2016.
17. The closure of the RO and NIRO was highlighted to the Committee by a number of witnesses as an example of poor coordination and communication between the UK Government and the NI Executive. Reflecting on this experience, the then Minister for the Economy, Simon Hamilton MLA, told us, “We were not really consulted properly in my view in terms of how we might be involved and what the shape and nature of a future scheme might take”.
18.Unsurprisingly, the renewables industry was especially affected by the short notice and lack of consultation between the Government and Executive. ABO Wind told us:
Experience of the recent NIRO closure has demonstrated a total lack of coordination between Governments, leading to constantly changing announcements and increased uncertainty for investors.
19.Energia said the Government should have engaged with the NI Executive much earlier, given the likely impact on the policy and investment environment in Northern Ireland. Stephen Kelly, Chief Executive of Manufacturing NI told us “there were letters going forward and back looking for some clarity” at the time, noting that the communication between the Government and the Executive “could have been a little better” and that “this is hopefully something that will not be repeated”.
20.The Northern Ireland Office (NIO) was directly criticised by a number of organisations. ABO Wind and RES told us the NIO had failed in its responsibility to ensure that the implications for Northern Ireland of the closure of the RO were fully understood and dealt with by the former Department of Energy and Climate Change prior to the policy’s announcement. This lack of awareness of the implications for Northern Ireland was apparent during the passage of the 2015–16 Energy Bill, which gave effect to the closure of the RO scheme. NIRIG highlighted that no Northern Ireland MPs were appointed to the House of Commons Public Bill Committee to scrutinise the legislation. Members of the Public Bill Committee repeatedly sought clarification from Ministers regarding the effect of the closure of the RO on Northern Ireland, reflecting a need for greater understanding in Parliament and Government as to the wider impact of the policy change.
21.For many electricity market participants, and especially generators, it was not clear until late in the process what the relevance to Northern Ireland would be. This damaged investor confidence, with market participants unable to obtain clarity about timescales for the phasing out of the NIRO. Action Renewables, and others, told us this damage was further exacerbated by the continued absence of a replacement renewables financial support scheme for Northern Ireland. We consider this issue in more detail later in this Report.
22.There was a lack of coordination and collaboration between the UK Government and the Northern Ireland Executive on the closure of the Renewables Obligation (RO), and no clarity until late in the process regarding the consequential effect on the Northern Ireland Renewables Obligation (NIRO). This led to significant uncertainty for electricity market participants in Northern Ireland, damaging investor confidence and putting projects at risk. This could and should have been avoided with greater foresight and a more joined-up approach between the UK Government and NI Executive.
23.In March 2011, the Coalition Government announced a floor price for carbon emissions in the power sector, to take effect from 1 April 2013. The proposal required industries to pay a top-up if the market price for carbon fell below a certain level, set by the existing EU Emissions Trading Scheme, and was intended to stimulate investment in low-carbon infrastructure. In March 2014, the Government announced that the floor price would be capped at £18 per tonne from 2016–17 to 2019–20, to limit any competitive disadvantage faced by UK businesses. In December 2012, the NI Executive secured an exemption from the Carbon Price Floor, following interventions by the Executive and operators in the electricity market, who argued that it would distort the all-island market, creating a competitive disadvantage for market participants in Northern Ireland by increasing electricity prices by 10–15 per cent.
24.The Carbon Price Floor was highlighted by a number of witnesses as an example of how policy implemented by the UK Government can have an indirect and negative effect on the electricity market in Northern Ireland, despite the devolution of energy policy. ESB told us the non-application of the Carbon Price Floor in Northern Ireland had set a precedent in that UK-wide interventions which were likely to distort the operation of the Single Electricity Market should be avoided, and that future UK policy proposals which were likely to impact Northern Ireland’s electricity sector should be carefully considered before a decision is made.
25.Even though the Carbon Price Floor was ultimately only implemented in Great Britain, it nevertheless had an indirect effect on the electricity market in Northern Ireland. Mutual Energy told us that the flow of electricity on the Moyle Interconnector, which connects the NI and GB markets, had been affected by the introduction of the Carbon Price Floor, despite Northern Ireland’s derogation from the policy. Since the doubling of the Carbon Price Floor in Great Britain in April 2015, NI Generators had found it more attractive to export electricity to Great Britain, such that flows of electricity had moved from being almost 100 per cent import in 2002, to 50 per cent import, 50 per cent export in 2015. Mutual Energy told us:
The pricing and support mechanisms that are applied in the Great Britain market only do not appear to take account of the consequent effects in interconnected markets, including in Northern Ireland. Inconsistent policies across interconnected markets distort cross-border flows and lead to less efficient generation.
26.The implementation of the Carbon Price Floor was initiated by the Coalition Government without consideration for Northern Ireland’s position as part of the Single Electricity Market on the island of Ireland. While a derogation was ultimately secured thanks to the vigilance of electricity market actors and the NI Executive, it is a further example of how the UK Government should be more alert to the effect of GB-only policies on Northern Ireland.
27.The Moyle Interconnector, owned and operated by Mutual Energy, connects the electricity grids in Northern Ireland and Scotland through submarine cables running between converter stations in County Antrim and Ayrshire. With a capacity of 500 MW, the high voltage direct current link allows users to flow electricity from low to high priced markets. A key issue, which we consider in more detail later in this Report, relates to recent restrictions placed on the Moyle Interconnector in Scotland, reducing the capacity of the interconnector to 300 MW, and scheduled to reduce further to 80 MW in October 2017. This restriction has limited the ability of Northern Ireland to export surplus wind generation to the GB market, increasing costs for users in the Single Electricity Market. Recently, the interconnector has also developed a fault with one of its underwater cables, which has halved its capacity.
28.The restrictions on the Moyle Interconnector have been put in place by National Grid, which operates according to legislation and policies set by the UK Government. For Northern Ireland to take full advantage of the 500 MW capacity of the Interconnector, it will require UK-driven investment in the Scottish grid and policy decisions from Ofgem, National Grid and the new Department for Business, Energy and Industrial Strategy. This again highlights the need for more joined-up thinking and a collaborative approach between the UK Government and the NI Executive on electricity policy.
29.Following the referendum on the UK’s membership of the European Union, the UK Government will play the leading role in determining Northern Ireland’s energy relationship with other Member States, including the Republic of Ireland, during the negotiation process. Recognising this, in their letter to the Prime Minister of 10 August 2016, the then First Minister and Deputy First Minister noted that energy should be a key priority in the Brexit negotiations, given the cost and supply issues faced by Northern Ireland. The Prime Minister responded to the First Minister and Deputy First Minister in October, affirming her commitment to an affordable, secure and sustainable electricity sector in Northern Ireland.
30.In the next chapter, we will examine some of the key issues which have been raised with us relating to the impact of the UK’s decision to leave the European Union on Northern Ireland’s electricity sector. What is clear, however, is that the forthcoming negotiations will be another area in which the UK Government will continue to have a significant influence over how Northern Ireland’s electricity market functions over the coming years. As Dr David Dobbin, Chair of the Energy and Manufacturing and Advisory Group (EMAG), told us:
There is so much talk at the moment about trade. Well, energy is going to be a big part of that trade and I am hoping that the Government negotiators get us a good deal.
31.The UK Government continues to have both a direct and indirect influence on policy-making for the electricity sector in Northern Ireland. However, recent experience has shown that GB electricity policy is not always devised and implemented in a way which adequately reflects the aspirations of the electricity sector in Northern Ireland or the interconnected nature of the two markets. It is vital, though, that the UK Government remembers the unique needs of Northern Ireland’s electricity sector when determining the UK’s future energy relationship with EU Member States after Brexit.
32.In written evidence, the then Department of Energy and Climate Change (DECC)—whose responsibilities have since been absorbed by the new Department for Business, Energy and Industrial Strategy (BEIS)—told us that, in accordance with the principles set out in the memorandum of understanding between the UK Government and the devolved administrations, the Government does seek to engage and work closely with the Northern Ireland Executive in the development and implementation of UK policies which affect Northern Ireland. However, the Department told us it would be happy to consider the degree to which these arrangements currently work effectively and make improvements, where necessary, to working practices.
33.We welcome the UK Government’s commitment to consider changes to the current arrangements, as much of the evidence we have received suggests there is a need for better collaboration and coordination in the development of electricity policy. Many organisations have called for a substantially more joined-up approach between the Government, NI Executive and electricity stakeholders in Northern Ireland to ensure the needs of the sector are better taken into account in the development of UK-wide electricity policy.
34.The then Executive Minister for the Economy, Simon Hamilton MLA, described the relationship between the Government and the Executive as “patchy”, and that while some areas of co-operation had worked well, “There have been examples of not so good cooperation”. He highlighted that, on some occasions, the NI Executive had been asked for input too late into the process, perhaps after decisions had already been made. Mr Hamilton told us he would “like to see some of that engagement happening earlier” and there needed to be improvement in the consultation process, reflecting the importance of the electricity sector to the wider economy.
35.We also heard that there has been particular concern over the role played by the NIO in defending the interests of Northern Ireland’s electricity sector within Government. ABO Wind told us the early closure of the Renewables Obligation highlighted how the NIO had struggled to ensure Northern Ireland issues are fully taken into account in this area. The CBI said it was not clear what, if any, role the NIO currently played in defending and promoting Northern Ireland’s interests in the context of UK electricity policy, and that this must change in the future. AES was one of a number of stakeholders which argued that the NIO should have a greater role at Cabinet level in ensuring that devolved energy policy was not adversely affected by decisions taken by the UK Government. However, the Minister for the Economy said he did not want to criticise any Westminster Department in particular. He told us he doubted the NIO had expertise in electricity policy, but that this was understandable given energy policy was devolved to the NI Executive.
36.One approach, advocated by Mutual Energy, would be to legislate for a new, statutory duty for Great Britain authorities to consider the impact on Northern Ireland of any policies or decisions relating to the electricity sector prior to their implementation. This would be a significant change; one which could be necessary in the longer term, if GB electricity policy continued to be implemented without adequate consideration of its effect on Northern Ireland. However, non-statutory measures may also be helpful in improving collaboration between the UK Government and NI Executive in this area.
37.The Scottish Affairs Committee reflected on these issues in its 2016 inquiry into the renewable energy sector in Scotland. Noting the impact of UK renewables policy on Scotland, it called for the Government to put in place a clear process for consulting the Scottish Government on the future design of, or amendment to, renewables incentives. The Committee further recommended that a consultative process be established for wider UK energy policy:
[ … ] the obvious impact UK Government energy policy has on Scotland, means that it is essential the Scottish Government is involved in the development of not just support for renewables, but the UK’s wider energy policy.
The evidence we have heard—especially relating to the closure of the Renewables Obligation—suggests that a new, formal consultative process for electricity policy, such as that recommended by the Scottish Affairs Committee, would also benefit Northern Ireland.
38.The present guidance on consultation as set out in the Memorandum of Understanding between the UK Government and Devolved Administrations clearly did not lead to sufficient collaboration between the UK Government and NI Executive during policy development on the closure of the Renewables Obligation. A new, more robust consultative process for electricity policy is, therefore, essential between the UK Government and NI Executive.
39.We join the Scottish Affairs Committee in calling on the Government to establish a new process for consulting the devolved administrations on the design of, or amendment to, policies that are likely to have an impact on the electricity markets in the devolved regions. The Government should present details of a new, clear and transparent process, outlining how the Northern Ireland Executive and key stakeholders in Northern Ireland’s electricity sector will be formally consulted on UK electricity policy changes in future.
40.We also urge the Northern Ireland Office to add to its expertise such that it is better able to represent the interests of Northern Ireland’s electricity sector in Whitehall. A failure to represent adequately the interests of Northern Ireland’s electricity sector within Government represents a significant risk to Northern Ireland’s future prosperity, especially in the context of the forthcoming negotiations with the EU over Brexit.
41.Formal responsibility for the development of electricity policy in Northern Ireland rests with the Department for the Economy. Much of the evidence we received reflected this, and here we summarise the concerns raised relating to those areas over which the NI Executive is solely responsible.
42.The NI Executive published its Strategic Energy Framework (SEF) for the period 2010 to 2020 in September 2010. It was intended to provide a clear signal of the Executive’s priorities for the energy sector, to guide market participants, encourage investment in increased levels of renewable energy and the necessary associated infrastructure, to improve energy security and support economic activity.
43.One of the most consistent messages we heard from electricity market participants was the need for the NI Executive urgently to update the SEF and publish a new long-term strategy for the electricity sector. This was a point made by the Energy and Manufacturing Advisory Group (EMAG), when it recommended in its March 2016 report that, “The Executive should provide long-term policy certainty by developing a clear, consistent long-term energy and decarbonisation strategy for Northern Ireland to 2030”. AES told us an updated strategy was needed to guide investment, to ensure Northern Ireland received electricity of the right quality, in the right location and at the right price and, in particular, to define the level of indigenous generation Northern Ireland needed in order to ensure its security of supply. Jenny Pyper, Chief Executive of the Utility Regulator, told us it would “really enhance” its role to have a clear policy framework, targets and a direction of travel set by the NI Executive.
44.The CBI noted that the current SEF was quickly becoming outdated, and the absence of a clear long-term strategic energy policy was leading to low levels of investment in the electricity sector and a widespread sense of uncertainty. They argued that, without a clear view of what outcomes the NI Executive wanted for the electricity sector in the medium and long term, it would be unable to articulate its ambitions to the UK Government and ensure that Northern Ireland’s interests are taken into account in the context of UK energy policy-making. ABO Wind told us there needed to be policy guidance even for the period 2030 to 2050.
45.We were repeatedly told that the NI Executive needed to develop a new Strategic Energy Framework which sets out clearly its ambitions well beyond 2020. This is because a long-term framework provides certainty to investors, who expect the assets and generation plants they build to be in operation for many years.
46.We urge the NI Executive, once it has been re-established, to update its Strategic Energy Framework as soon as practicable, to provide long-term policy clarity for the electricity sector and to guide investment in the near, medium and long-term.
47.In May 2016, the NI Executive published a draft Programme for Government, which outlined 14 high-level strategic outcomes, setting out the priorities that the Executive had intended to pursue in the Assembly mandate. The Executive invited views in an extensive consultation process, the first phase of which concluded in July 2016. An updated draft Programme for Government was subsequently published, with a second phase of consultation concluded in December 2016.
48.Much of our evidence was received prior to the conclusion of the first phase of consultation, and reflected widespread disappointment in the industry that the initial draft did not include an explicit energy-focused strategic outcome. The CBI told us this reinforced the view that the NI Executive did not give energy the policy priority and resources it deserved. The renewables industry, including Action Renewables, expressed concern that the initial draft only contained the word ‘renewables’ once, and that there was no reference to fuel poverty or electricity at all.
49.It was pleasing, then, that the Executive took these criticisms on board in its second draft Programme for Government. The updated draft included a number of references to energy, with a specific ambition for a secure, sustainable and cost-efficient energy supply. The new draft stated:
Energy is necessary for the effective functioning of modern economies. We are dependent on an abundant and uninterrupted supply of energy for living and working. The energy sector brings employment, investment, infrastructure, technological advances, knowledge and skills, that can be highly beneficial to the wider economy in general. Energy is both a facilitator of, and a contributor to, economic growth. In addition energy costs are a key factor in the competitiveness of our economy.
50.The updated draft committed the NI Executive to addressing the future of energy policy and strategy, including the increased use of renewable and sustainable sources, through the SEF. This is important because, as highlighted earlier, the Executive needs to urgently provide long-term policy clarity and certainty for market participants in order to drive much needed investment in Northern Ireland’s electricity sector.
51.Following the collapse of the NI Assembly in January 2017 and the subsequent elections, a new Programme for Government will need to be drafted by the incoming Executive. We expect the new NI Executive’s Programme for Government to maintain an ambition for a secure, sustainable and cost-efficient energy supply, and commit to updating the Strategic Energy Framework as soon as possible.
52.To support the NI Executive in the development of a long-term electricity strategy for Northern Ireland, there have been calls for the establishment of a permanent, formal energy forum which can give officials, who may have limited practical experience of operating in the energy sector, access to the knowledge and experience they need to develop coherent policy. The Consumer Council for Northern Ireland recommended that such a forum should be modelled on the Energy and Manufacturing Advisory Group (EMAG) and the National Energy Forum in Ireland, and should exist to examine policy, to help achieve consensus and identify long-term priorities and policy proposals for the electricity sector in Northern Ireland.
53.Indeed, the EMAG appears to be a sensible and proven model for providing advice to the NI Executive. Founded in December 2015 by the then Minister of Enterprise, Trade and Investment, the EMAG had a brief to recommend measures to reduce Northern Ireland’s high energy costs for manufacturers. The Group was chaired by Dr David Dobbin, Chief Executive of Dale Farm, and had representation from industry groups, including Manufacturing NI, SONI Ltd, NIE Networks and AES UK and Ireland.
54.EMAG published its report in April 2016, making 24 recommendations to the NI Executive, urging policy changes to improve the competitiveness and effectiveness of Northern Ireland’s electricity market. Dr Dobbin told us he was yet to receive a formal response from the Executive regarding the Group’s recommendations, as the report was published shortly before the purdah period and the restructuring of departments in the NI Executive. However, he hoped that the Group’s recommendations would help to shape the Executive’s review of the Strategic Energy Framework.
55.The then Minister for the Economy, Simon Hamilton MLA, told us he was very grateful to the EMAG for its report, and he was using it to help inform the policy decisions that he would take relating to the electricity sector. He told us there were no plans to ask the Group to meet again, but that he would speak to its individual members to take their advice on the future direction of electricity policy.
56.The recent establishment of a new Energy Forum by the Northern Ireland Chamber of Commerce and Industry, in partnership with SONI, was in direct response to one of the EMAG’s recommendations. It will seek to provide a bridge between energy providers and large energy users in Northern Ireland, meeting four times a year, establishing a platform for the sharing of best practice on energy efficiency and informing businesses of significant changes within Northern Ireland’s electricity sector. While the Energy Forum is an excellent initiative, which will provide valuable support to large energy users in Northern Ireland, it is clear that it is not intended to be a successor organisation to the EMAG, which had a specific advisory role with the NI Executive.
57.The Energy and Manufacturing Advisory Group (EMAG)’s report made a number of important recommendations urging policy changes to improve the competitiveness and effectiveness of Northern Ireland’s electricity market. Officials at the Department for the Economy will benefit from the expert advice contained within the EMAG’s report as they conduct a review of the Executive’s Strategic Energy Framework and establish long-term priorities for Northern Ireland’s electricity system. It appears unlikely, however, that EMAG itself will continue to meet and advise the Executive on electricity policy in future.
58.We urge the NI Executive to establish a permanent advisory body for electricity policy. Its membership should represent all major stakeholders within Northern Ireland’s electricity sector, including large energy users, generators, suppliers, network operators and domestic consumers. Like the EMAG, the body should have a mandate to examine the NI Executive’s electricity strategy and identify long-term priorities and policy proposals. Such a body would help to ensure that electricity policy is given the priority it deserves within the Executive and that market participants have clarity and confidence in the Province’s long-term energy strategy.
5 Northern Ireland Office, ‘Devolution settlement: Northern Ireland’, 20 February 2013
6 AES ()
7 Northern Ireland Renewables Industry Group () para 20
8 House of Commons Library, ‘The Renewables Obligation’, Commons Briefing papers SN05870, 22 July 2016
9 Department of Enterprise, Trade and Investment, ‘Closure of the Northern Ireland Renewables Obligation to new small scale onshore wind’, March 2016
10 Q619 (Simon Hamilton MLA, Minister for the Economy)
11 ABO Wind () para 21
12 Energia () para 30
13 Q569 (Stephen Kelly, Manufacturing NI)
14 ABO Wind () para 22, and RES () para 6.3
15 Q97 (Maf Smith, Northern Ireland Renewables Industry Group)
16 Q97 (Maf Smith, Northern Ireland Renewables Industry Group)
17 Action Renewables () para 2.2
18 House of Commons Library, ‘Carbon Price Floor’, Commons Briefing paper SN05927, 14 May 2014
19 Northern Ireland Chamber of Commerce () para 6.2, and Quarry Products Association Northern Ireland ()
20 Northern Ireland Chamber of Commerce () para 6.2
21 ESB () para 3.28
22 Mutual Energy () para 3.1
23 Mutual Energy () para 2.2
24 Q394 (Paddy Larkin, Mutual Energy)
25 Mutual Energy () para 4.5
26 Q392 (Paddy Larkin, Mutual Energy)
27 , 10 August 2016
28 , 14 October 2016
29 Q547, (Dr David Dobbin, Energy and Manufacturing Advisory Group)
30 , September 2012
31 Department of Energy and Climate Change () para 15
32 For example: Northern Ireland Chamber of Commerce () para 2.1
33 Q619 (Simon Hamilton MLA, Minister for the Economy)
35 ABO Wind () para 22, and RES () para 6.3
36 CBI Northern Ireland () para 43
37 AES UK and Ireland () para 36
38 Q620 (Simon Hamilton MLA, Minister for the Economy)
39 Mutual Energy () para 6.1
40 , 2016–17, Scottish Affairs Committee, para 73
41 Ibid, para 126
42 Northern Ireland Executive, ‘Strategic Energy Framework 2010–2020’, September 2010
43 , March 2016, page 3
44 AES UK and Ireland () para 19
45 Q322 (Jenny Pyper, Utility Regulator)
46 CBI Northern Ireland () para 5
47 CBI Northern Ireland () para 6
48 ABO Wind () para 6
49 Northern Ireland Executive, ‘Programme for Government’, 2016
50 CBI Northern Ireland () para 5
51 Action Renewables () para 2.2
52 Northern Ireland Executive, ‘Programme for Government’, 2016
54 Consumer Council for Northern Ireland () para 7
55 , March 2016
56 Q546 (Dr David Dobbin, Energy and Manufacturing Advisory Group)
57 Q541 (Dr David Dobbin, Energy and Manufacturing Advisory Group)
58 Q652 (Simon Hamilton MLA, Minister for the Economy)
59 Northern Ireland Chamber of Commerce and Industry, ‘New Energy Forum to power ahead with critical issues’, 6 September 2016
28 April 2017