Electricity sector in Northern Ireland Contents


203.The final dimension within the energy ‘trilemma’—sustainability—refers to the need to ensure that electricity systems are designed and managed with appropriate regard to their effect on the environment and long-term viability. In this Chapter we consider the progress which has been made during the lifetime of the Northern Ireland Renewables Obligation (NIRO) and since the 2010 Strategic Energy Framework outlined the Northern Ireland Executive’s ambition for 40 per cent of electricity consumption to come from renewable sources by 2020. We also look at the future of renewables incentivisation in Northern Ireland, and the proposals that have been made in light of the closure of the NIRO scheme.

Renewables policy

204.In the Strategic Energy Framework for Northern Ireland, published in September 2010, the then Minister of Enterprise, Trade and Investment, wrote:

I believe that Northern Ireland needs, and is able, to move rapidly to much higher levels of renewable electricity production and so am confirming that Northern Ireland will seek to achieve 40 per cent of its electricity consumption from renewable sources by 2020.244

205.This ambition, combined with the financial support made available through the NIRO scheme, has seen Northern Ireland increase its level of renewable generation from 3 per cent in 2005 to 25.4 per cent in 2015.245 In October 2016, there was 926 MW of installed renewable energy capacity on the Northern Ireland electricity system, over 90 per cent of which was onshore wind generation.246

206.Through the DS3 programme, the Executive has also invested heavily in the electricity network so that it is able to support higher levels of renewable generation. SONI told us the non-synchronous penetration cap—the level of wind generation the electricity network is able to support at any one time—was currently at 55 per cent , with a medium-term ambition to increase this to 75 per cent; a level that has not been achieved anywhere else on a synchronous system.247

Benefits and costs

207.We were told there have been some significant benefits arising from this rapid increase in renewable generation in Northern Ireland. The onshore wind industry has directly created 500 skilled jobs, and indirectly supported up to 10,000 jobs, contributing £32 million gross value added (GVA) to the economy in 2014.248 Wind generation has also reduced Northern Ireland’s dependence on fuel imports, with savings estimated to be £40 million per year, rising to £80 million per year by 2020 if the next Northern Ireland Executive achieves the 40 per cent target.249 The Northern Ireland Renewables Industry Group (NIRIG) gave evidence that every megawatt of wind capacity deployed equated to £1.18 million invested in the Northern Ireland economy, and that this investment had particularly benefited rural communities.250

208.However, the Committee also took evidence from individuals and groups who were concerned by the rapid growth of onshore wind in Northern Ireland. West Tyrone Against Wind Turbines told us the policy costs associated with renewable energy placed an unfair burden on industry and those in fuel poverty.251 Mr Robert Graham, a rural resident affected by wind turbines in his community, was concerned that planning rules had led to a proliferation of onshore wind that “impact adversely on rural residents, spoil the countryside and jeopardise tourism”.252 Windwatch NI questioned the employment statistics and economic gains quoted by the renewables industry, arguing that thousands of jobs had been lost in the manufacturing industry due to high energy costs caused by green subsidies and network costs designed to facilitate the connection of renewables generators.253

209.Reflecting the range of views on renewables policy, we also heard disagreement between academics from Ulster University as to the value of small-scale onshore renewables generation. Dr Keatley told us small-scale renewables were “not good value for money”, and they made the low-voltage network difficult to manage for the system operator. He said that only large-scale renewables systems, controlled from the grid and centrally-managed, brought the economies of scale necessary to provide value for money for consumers.254 Professor Hewitt disagreed, stating that small-scale renewables did have an important role in strengthening the voltage and frequency of the low-voltage network.255 Rachel Anderson, Chair of NIRIG, echoed this view, stating that small-scale turbines and solar panels had brought significant benefits to farms and businesses in Northern Ireland, whilst the renewables industry had helped the rural economy to diversify.256

210.The Northern Ireland Executive’s ambitious target to achieve 40 per cent of electricity consumption from renewable sources by 2020 has seen a rapid growth in onshore wind generation over recent years. The Committee recognises that some rural residents have legitimate concerns about the impact of wind turbines on the visual environment. However, we believe Northern Ireland will benefit in the long-term from having invested in a sustainable, low-cost and indigenous source of electricity.

Northern Ireland Renewables Obligation (NIRO)

211.In June 2015, the UK Government announced that the Renewables Obligation scheme for onshore wind would be closed a year earlier than had originally been intended, to be replaced with a new auction-based subsidy, Contracts for Difference (CfD). As referred to earlier in this Report, the UK Government’s decision had profound consequences for the then Northern Ireland Executive’s NIRO scheme. The UK 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 that did not meet the grace period eligibility criteria. Were this to have happened, the cost of subsidising renewable energy would have increased considerably for NI consumers.257 As a consequence, the NI Executive followed the UK Government by closing the NIRO to new small-scale onshore wind in June 2016.

212.In Chapter 1, we addressed the early closure of the NIRO in the context of the insufficient consultation which took place between the UK Government and Executive throughout the closure process. Here, we focus on the effect the early closure of the NIRO has had on the renewables industry in Northern Ireland, and the policy implications this has had for the Executive.

213.The closure of the NIRO has left Northern Ireland as the only part of the UK not to have a support mechanism for the renewables industry.258 Unlike the UK Government, which announced a new scheme to replace the Renewables Obligation in GB, the NI Executive had not revealed how—or whether—it would support the renewables industry beyond 2017–18 prior to the collapse of the power-sharing arrangements in January this year.

214.Action Renewables told the Committee that the current lack of policy called into question the Executive’s target to achieve 40 per cent of electricity consumption from renewable sources by 2020.259 The Northern Ireland Renewables Industry Group (NIRIG) told us that, with uncertainty around the closure of the NIRO and ongoing difficulties in connecting to the electricity network, the Executive was unlikely to achieve the target. It estimated that a figure of between 35 per cent and 38 per cent was more realistic.260 RES claimed there would be a shortfall of between 200 MW and 400 MW in the amount of generation needed to meet the target.261 However, the then Minister for the Economy told us that enough grid connections offers had been made to achieve the 40 per cent target by 2020, if all the projects worked through the system as anticipated.262

215.The closure of the NIRO without a replacement, and the lack of long-term policy clarity, have been detrimental to investor confidence. ABO Wind noted large infrastructure projects were complex, time-consuming and expensive, and that the importance of policy stability could not be overstated.263 They told the Committee their investment plans were being kept under review until further policy clarity was offered by the Northern Ireland Executive. NIRIG told us this was “likely to lead to a hiatus of renewable energy development in the coming years”, which would be detrimental to the economy and lead to a loss of skilled jobs and increased reliance on fossil fuels.264

216.The early closure of the NIRO was exacerbated by difficulties in receiving grid connection offers during the ‘connections moratorium’ imposed by NIE Networks (as outlined in Chapter 3). Investors, many of which had spent significant sums on planning and consultancy fees, found themselves unable to get connections into the grid in time to avail of the NIRO, leaving their projects commercially unviable. The Ulster Farmers’ Union gave evidence that many farmers and landowners had spent substantial amounts in preparation for connecting small-scale renewable schemes to the grid before the closure of the NIRO, but did not receive those connections in time.265 Action Renewables highlighted the 1,500 MW of grid connection applications received by NIE Networks since August 2015, and noted that many will not be processed before the NIRO closes, leaving the majority financially unviable.266

217.The emerging ‘policy gap’ around renewables support has the potential to significantly damage Northern Ireland’s burgeoning renewables industry. Action Renewables stated that a strong microgeneration sector had emerged in recent years and that the jobs within this industry would be difficult to sustain without continued support for renewables businesses.267 NIRIG said the loss of Northern Ireland’s renewables industry would put at risk between £1.5 billion and £2 billion of further investment in the electricity sector, £409 million of lost rates to local councils, and £687 million in lost wages to the economy.268

Future support for renewables

218.The then Minister for the Economy explained that he had not yet made a decision as to how the Executive would support Northern Ireland’s renewables industry after the closure of the NIRO. He did, however, outline three guiding principles which would be considered when determining the NI Executive’s future strategy:

First is gaining access to the grid, which I treat and view as a scarce and precious resource, and should be treated as such. There are some issues in terms of pressures with the grid, accessing the grid and getting renewable connections to the grid.

I have to also bear in mind that at this minute in time there are not the energy storage facilities that we would like and we would need if we were going to go beyond the capability to generate peak demand.

The third and most important factor that I have to bear in mind is the cost of any future support and, allied to the affordability issue, what that would do for both domestic and non-domestic customers.269

219.Mr Hamilton also made clear he would not be able to create a new renewables support scheme on the same scale as the NIRO.270 He noted that the costs associated with the NIRO had been socialised across all UK customers, while a replacement scheme would need to be paid for through the bills of Northern Ireland consumers, such that an identical programme to the NIRO would be substantially more expensive.

Contracts for Difference

220.Contracts for Difference (CfDs) were introduced by the previous Government as part of its Electricity Market Reform programme.271 CfDs operate by fixing the prices received by low-carbon generators with a generating capacity of over 5 MW. Through a reverse auction process, a ‘strike price’ is agreed with renewables generators, ensuring they receive financial support when prices are low, but pay money back when prices are high. CfDs thereby guarantee that eligible technologies receive the electricity price they need to make investments commercially viable, whilst protecting consumers from excessive prices. The first CfD auction took place between October 2014 and February 2015, following which 27 projects were awarded £315 million of contracts.272

221.We received mixed evidence as to whether Northern Ireland should join the CfD scheme. Action Renewables stated that they supported calls for CfDs to be used to support larger renewables generators in Northern Ireland, although they also warned that small-scale generators should not be left without any government support.273 NIRIG said that it “made sense” for Northern Ireland to join the CfD scheme, arguing that its renewables industry would be able to compete with schemes in Scotland and Wales, whilst benefiting from the socialisation of costs across the UK.274 ESB said that the competitive auction mechanism was sensible from a policy perspective, and they would be interested in bidding into a CfD process, were Northern Ireland to participate in the UK-wide scheme.275

222.However, other witnesses advised the Northern Ireland Executive against joining the CfD scheme. Dr Patrick Keatley of Ulster University stated that, “the big problem [ … ] is that we could end up paying for Contracts for Difference and see no benefit in Northern Ireland”.276 They highlighted that the auctioning process meant there was no guarantee of seeing renewables projects built in Northern Ireland, yet consumers would nevertheless pay for Northern Ireland’s participation in the scheme, with a potential three-fold increase in the cost of renewables support by 2020.277

223.The Consumer Council made similar arguments, telling us, “[ … ] if we are looking at trebling the renewables subsidy with no guarantee of any return, that is a real concern to us”.278 Manufacturing NI agreed, arguing that all the evidence they had seen showed the CfD scheme would be “very detrimental” to Northern Ireland.279 Energia said, while a suitable financial support mechanism for renewables was needed, the CfD scheme was unsuited to Northern Ireland and should not be adopted by the NI Executive.280 Power NI told the Committee the CfD scheme could be “very dangerous” for customers in Northern Ireland, if they were asked to pay more for renewables subsidies, without seeing the benefit of that.281

224.This is the view that was adopted by the Northern Ireland Executive. The then Minister for the Economy explained that he had reviewed the evidence we had received and, in particular, agreed with Ulster University’s position. He said:

I would agree [ … ] that Contracts for Difference does not really work for Northern Ireland. It would have a significantly high cost. There would be no guarantee that it would benefit our economy and Northern Ireland schemes would have to be part of a wider bidding process. [ … ] the scheme is not necessarily designed with Northern Ireland in mind.282

All-island proposal

225.An alternative proposal, suggested by some witnesses, was that the NI Executive should work with the Republic of Ireland to implement a new financial support mechanism that would extend across the island of Ireland. Action Renewables argued that renewables policies originating in Great Britain had caused problems within the Single Electricity Market and that a better solution could be to develop an all-island renewables scheme specifically designed to operate within the Single Electricity Market.283

226.SSE urged the NI Executive to look at the Republic of Ireland’s renewables support scheme, which it described as one of the most successful and cost-effective in Europe.284 Moreover, SSE told us there could be efficiencies in scale in adopting a similar scheme in Northern Ireland, and for it to operate throughout the Single Electricity Market. Power NI also described a potential all-island scheme as “a very cost-effective means” of supporting renewable generation in Northern Ireland.285

No renewables support

227.The next Northern Ireland Executive might also decide not to implement a new financial support mechanism for the renewables industry in Northern Ireland. When asked whether the NI Executive’s decision rested on whether there was a need for further incentivisation, or whether there were sufficient renewables projects already in the pipeline, the then Minister for the Economy said, “That is a fair summary”.286 Given the principles he outlined with regard to renewables—supporting the grid, recognising limitations with regard to energy storage, and making electricity costs affordable—it appears possible that a future NI Executive might decide not to adopt any new support scheme for the industry.

228.However, many in the renewables industry gave us evidence that some form of financial support mechanism was needed. NIRIG told us the wholesale price of electricity was too low for generators—renewables or otherwise—to be able to build and operate schemes at profit.287 For the market to send the necessary signals for investors to build renewables capacity without financial support from government, the wholesale price would need to be higher.288 As such, without an adequate incentivisation scheme for the industry, there would be substantially less investment in renewables generation in Northern Ireland.

229.Having made significant progress in moving towards much higher levels of renewable energy production since 2010, the next Northern Ireland Executive needs to consider the future direction of renewables policy in Northern Ireland. The former Minister for the Economy elaborated three sensible principles: to protect the grid, to acknowledge current technological limitations, and to make sure electricity costs are affordable. In making its decision, the Northern Ireland Executive should remember the need to support its new renewables industry and to quickly provide the long-term policy clarity which investors in the electricity sector need.

244 Department for Enterprise, Trade and Investment, A Strategic Energy Framework for Northern Ireland, September 2010, Ministerial Foreword

245 Q616 (Simon Hamilton MLA, Minister for the Economy)

246 Q484 (Nicholas Tarrant, NIE Networks), and Q71 (Rachel Anderson, Northern Ireland Renewables Industry Group)

247 Q335 (Robin McCormick, SONI Ltd)

248 RES (ENI0018) para 1.2, and Action Renewables (ENI00026) para 2.4

249 Q78 (Rachel Anderson, Northern Ireland Renewables Industry Group)

250 Northern Ireland Renewables Industry Group (ENI0021) para 11

251 West Tyrone Against Wind Turbines (ENI0004) paras 4,11 and at end

252 Robert Graham (ENI0002) para 2

253 Windwatch NI (ENI0003) section 7

254 Q24 (Dr Keatley, University of Ulster)

255 Q24 (Professor Hewitt, University of Ulster)

256 Q77 (Rachel Anderson, Northern Ireland Renewables Industry Group)

257 Department of Enterprise, Trade and Investment, ‘Closure of the Northern Ireland Renewables Obligation to new small scale onshore wind’, March 2016

258 RES (ENI0018) para 1.4

259 Action Renewables (ENI0026) para 2.5

260 Northern Ireland Renewables Industry Group (ENI0021) para 23

261 RES (ENI0018) para 1.4

262 Q656 (Simon Hamilton MLA, Minister for the Economy)

263 ABO Wind (ENI0015) para 2

264 Northern Ireland Renewables Industry Group (ENI0021) para 17

265 Ulster Farmers’ Union (ENI0031) Section 11

266 Action Renewables (ENI0026) para 3.3

267 Action Renewables (ENI0026) para 2.6

268 Northern Ireland Renewables Industry Group (ENI0021) para 13

269 Q616 (Simon Hamilton MLA, Minister for the Economy)

270 Q654 (Simon Hamilton MLA, Minister for the Economy)

271 House of Commons Library, ‘Energy Policy Overview’, Briefing Paper, 23 June 2016, page 7

272 Ibid.

273 Action Renewables (ENI0026) para 2.6

274 Qq130–131 (Maf Smith, NIRIG)

275 Q275 (Paddy Hayes, ESB)

276 Q59 (Dr Keatley, University of Ulster)

277 Professor Neil Hewitt and Dr Patrick Keatley, Centre for Sustainable Technologies, Ulster University (ENI0008) section 4

278 Q178 (Richard Williams, Consumer Council for Northern Ireland)

279 Q570 (Stephen Kelly, Manufacturing NI)

280 Energia (ENI0025) para 12

281 Q232 (Stephen McCully, Power NI)

282 Q658 (Simon Hamilton MLA, Minister for the Economy)

283 Action Renewables (ENI0026) para 4.2

284 Q231 (Marian Troy, SSE)

285 Q232 (Stephen McCully, Power NI)

286 Q657 (Simon Hamilton MLA, Minister for the Economy)

287 Q101 (Maf Smith, Northern Ireland Renewables Industry Group)

288 Q74 (Maf Smith, Northern Ireland Renewables Industry Group)

28 April 2017