Conclusions and recommendations
Electricity policy in Northern Ireland
1.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. (Paragraph 22)
2.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. (Paragraph 26)
3.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. (Paragraph 31)
4.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. (Paragraph 38)
5.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. (Paragraph 39)
6.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. (Paragraph 40)
7.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. (Paragraph 45)
8.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. (Paragraph 46)
9.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. (Paragraph 51)
10.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. (Paragraph 57)
11.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. (Paragraph 58)
Brexit and the electricity sector
12.Northern Ireland’s electricity system is highly integrated with that of the Republic of Ireland through the Single Electricity Market (SEM). The UK’s decision to leave the EU potentially challenges the future viability of the SEM and its successor, the Integrated Single Electricity Market (I-SEM), which operate on the basis of mutual membership of the Internal Energy Market and compliance with its rules and regulations. (Paragraph 75)
13.The Government should give particular consideration to how any changes to the UK’s relationship with the Internal Energy Market will affect Northern Ireland. The Government may wish to seek a special status or derogation for Northern Ireland’s electricity sector. Whatever is decided, the Government must provide long-term policy clarity as soon as possible in order to guide private sector investment at what is a critical point for Northern Ireland’s electricity system. (Paragraph 76)
14.The cost of generating electricity and reinforcing Northern Ireland’s energy infrastructure will be affected by exchange rate volatility and any future fuel tariff regime the UK Government agrees with the EU and non-EU countries in forthcoming trade negotiations. When determining its negotiating strategy, the Government will need to reflect on Northern Ireland’s reliance on fuel imports, and the impact higher electricity prices would have on domestic consumers and the competitiveness of the Province’s manufacturing base. (Paragraph 80)
15.Projects of Common Interest (PCIs) in Northern Ireland are likely to be affected by the UK’s decision to leave the European Union. The financial and logistical support provided through the EU’s PCI programme is supporting energy infrastructure projects in Northern Ireland which would otherwise have not been commercially viable. (Paragraph 84)
16.The UK Government should undertake an analysis to identify energy infrastructure projects in Northern Ireland which are beneficiaries of the EU’s PCI programme. Through consultation with affected parties, the Government should establish whether it would be preferable to retain Northern Ireland’s eligibility for PCI funding through continued participation in the European Commission’s scheme, or commit to replicating PCI financial and logistical support through a UK-specific scheme, so that strategically important current and future energy infrastructure projects remain commercially viable. A decision should be made as soon as possible so that businesses investing in PCI projects have the necessary confidence in their commercial viability. (Paragraph 85)
Security of Supply
17.Northern Ireland is anticipated to fall into a generation supply deficit in 2021. While interconnection with the Republic of Ireland will alleviate short-term concerns, it is clear that Northern Ireland will require new generating capacity to replace what is due to be lost at Kilroot and Ballylumford B. Decisions to invest in extending the life of existing power stations, or to build new low-carbon generating capacity, need to be made soon if Northern Ireland is to avoid a more serious generation supply deficit after 2025. In order to invest, generators require long-term policy clarity from the NI Executive and a clearer idea of how they will be compensated through the new Integrated Single Electricity Market. This reiterates the importance of updating the Strategic Energy Framework. (Paragraph 96)
18.The proposed North–South Interconnector has near unanimous support from across the electricity sector in Northern Ireland. Its benefits are clear: security of supply amidst an anticipated supply deficit after 2021, greater capacity for renewable energy, and substantially lower costs for consumers. We recognise that there are objections to the new interconnector regarding its likely impact on the landscape. However, the evidence we have received strongly suggests building the interconnector underground would be financially and technologically impracticable. (Paragraph 107)
19.We urge the Planning and Appeals Commission to make its final decision on the interconnector as soon as possible so, if approved, construction can be completed well in advance of the anticipated generation supply deficit in Northern Ireland in 2021. (Paragraph 108)
20.The Moyle Interconnector has been placed under a substantial technical restriction by National Grid, leaving the only interconnector between Great Britain and Northern Ireland considerably underutilised. The restriction is indicative of the lack of joined-up thinking on electricity policy. Restrictions have been imposed by National Grid without meaningful consultation or with regard to the effect on the electricity sector in Northern Ireland. (Paragraph 120)
21.We believe that, as it is the UK Government’s intention to deliver 9 GW of additional interconnector capacity to the UK, it should first ensure the full utilisation of existing interconnection infrastructure within the whole of the United Kingdom. With this in mind, the UK Government should direct National Grid, Scottish Power and Ofgem to make the necessary investments in the Scottish grid to ensure the Moyle Interconnector is able to import and export electricity at its full capacity as soon as practicable. (Paragraph 121)
22.We recommend the UK Government consults with the regulators in Northern Ireland and Great Britain to determine whether a more formal mechanism should be introduced to improve collaborative working practices and to better facilitate the consideration of UK-wide interests in the operation of electricity markets. The Department for Business, Energy and Industrial Strategy should also take greater responsibility for ensuring that cross-border issues are resolved to the satisfaction of stakeholders in both the GB and NI jurisdictions in a timely manner. (Paragraph 122)
23.Noting the Executive’s enthusiasm for inclusion in UK-wide plans for future interconnection with Europe, we urge the UK Government to give full consideration to Northern Ireland when determining landing points for potential future interconnectors with countries such as Iceland. (Paragraph 124)
24.Technically and commercially viable energy storage technologies are already available. They present an opportunity to revolutionise Northern Ireland’s electricity system, increasing efficiency and enhancing security of supply, reducing the need for substantial investment in additional generation and extensive reinforcement of the electricity grid. The AES Advancion Energy Storage Array at Kilroot Power Station and Gaelectric’s plan for a Compressed Air Energy Storage (CAES) facility in Larne are two prominent examples of the potential that already exists for energy storage in Northern Ireland. However, the current regulatory framework is outdated and represents a considerable barrier to market entry for potential investors. (Paragraph 132)
25.We join the former Energy and Climate Change Committee in calling on the UK Government and Northern Ireland Executive to address the regulatory barriers faced by investors in energy storage technologies. In particular, double-charging must come to an end and the Utility Regulator should ensure that the new Integrated Single Electricity Market (I-SEM) is designed with regard to the future role of storage technologies within the system. (Paragraph 133)
26.Deficiencies in Northern Ireland’s ageing electricity network and the recent ‘connections moratorium’ imposed by NIE Networks and SONI caused considerable uncertainty for the renewables industry, threatening investment in the sector, undermining security of supply, and putting at risk the Northern Ireland Executive’s ambitious target for renewables to contribute 40 per cent of electricity supply by 2020. (Paragraph 141)
27.We share concerns expressed to us that capacity on the electricity network has become an inhibitor of economic growth in Northern Ireland, especially in the west of the Province. Industry groups reported that the costs and delays associated with connecting to the grid had limited their ability to invest, expand and create jobs. (Paragraph 149)
28.The Northern Ireland Executive should consider establishing an independent advisory body to identify connection applications with high strategic importance, and ensure these are given appropriate priority by NIE Networks when connection offers are sought. (Paragraph 150)
29.We join EMAG in calling on the incoming Northern Ireland Executive to undertake a review into whether additional investment in Northern Ireland’s electricity network, beyond what has been proposed by NIE Networks for the RP6 price control period, could have substantial benefits for economic development, security of supply and the deployment of sustainable sources of electricity. (Paragraph 155)
30.The then Minister for the Economy had an optimistic outlook for the security of supply situation in Northern Ireland. We nevertheless urge the next Northern Ireland Executive to focus on the challenges that exist within Northern Ireland’s electricity sector, and make the necessary policy and legislative changes to alleviate these significant security of supply concerns before they become crises. (Paragraph 157)
Affordability
31.Wholesale costs account for 60 per cent of the electricity price paid by consumers. These costs are determined within the Single Electricity Market, and are the same in both Northern Ireland and the Republic of Ireland. From 2018, the Integrated Single Electricity Market (I-SEM) is expected to put a significant downward pressure on the wholesale price of electricity through changes to the way in which electricity is traded, better use of interconnection between markets, the implementation of an auction-based capacity contracting framework, and greater utilisation of low-cost renewable sources of generation. (Paragraph 167)
32.The most recent generator profitability report, published in December 2016, indicated high profit margins in the sector. To aid transparency and provide greater confidence to consumers, the SEM Committee should ensure that its Generator Financial Performance reports are published annually rather than every two years. (Paragraph 168)
33.A number of organisations have called for the NI Executive to set a target for consumers to pay no more for electricity than the EU average. While this would be a challenging objective, given Northern Ireland’s comparative geographic remoteness and limited economies of scale, it may indeed be necessary if the next Northern Ireland Executive wishes to attract large energy-intensive employers to the Province. (Paragraph 179)
34.Electricity prices for domestic users are low by historic standards and in comparison with neighbouring countries. However, fuel poverty levels remain extremely high in Northern Ireland. Lower electricity prices are only part of the solution; work must also be done to improve household energy efficiency and support low-income families with their electricity costs. (Paragraph 183)
35.Electricity costs for large industrial users in Northern Ireland are substantially higher than the EU average and in the Republic of Ireland. High prices are damaging Northern Ireland’s economic competiveness and putting at risk present and future business investment in the Province. Many large businesses are choosing to generate their own electricity off-grid, but this emerging trend risks increasing prices for all other domestic and non-domestic consumers. (Paragraph 191)
36.We acknowledge that high levels of fuel poverty in Northern Ireland make proposals to reallocate network and policy costs away from large industry and onto other users politically very challenging. However, we have been struck by the number of organisations—both within the industry, but also independent experts—who told the Committee that a reallocation of costs, appropriately targeted, could provide much needed support to Northern Ireland’s largest employers, and attract foreign direct investment from energy-intensive industries. (Paragraph 201)
37.We believe this proposal is worthy of further consideration. We call on the next Northern Ireland Executive to undertake a detailed analysis to determine the potential effects of a targeted reallocation of electricity network and policy costs. Consideration should be given to the likely short-term increase in domestic fuel bills, but also the wider benefits which could arise from higher levels of investment from energy-intensive industries. (Paragraph 202)
Sustainability
38.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. (Paragraph 210)
39.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. (Paragraph 229)
28 April 2017