Chapter 8: The island of Ireland
Ireland’s energy relationship with Great Britain
135.The island of Ireland is dependent on the flow of electricity and particularly of gas through the British market for its energy security. As the Aldersgate Group noted, “The island of Ireland’s only physical connections for gas and electricity to mainland Europe, are via the UK.”246 The result, as Energy UK told us, is that “approximately 88% of the island of Ireland’s energy needs are imported and approximately 40% of the gas used on the island of Ireland is imported from GB”.247 Thus, as the CBI told us, interconnectors between Great Britain to the island of Ireland play “an important role in security and affordability for both the Republic of Ireland and Northern Ireland”.248
136.SONI focused on electricity interconnection, describing it as “a key enabler for Ireland and indeed Northern Ireland (currently) to meet its renewable energy and climate change commitments”.249 Andrew McCormick, Permanent Secretary of the Northern Irish Department for the Economy, made the further point that gas imports from the UK were vital to support electricity generation within Northern Ireland: “Security of electricity supply in Northern Ireland depends to a large extent on the supply of natural gas from Moffat in Scotland which provides 100% of our gas requirements.”250 He added that “gas is the dominant fuel in the all-island SEM”, and “post UK exit of the EU, Northern Ireland will continue to source 100% of its gas from Great Britain”.251
Integrated Single Electricity Market
137.SONI reminded us that the Single Electricity Market (SEM) had been an important achievement of cross-border cooperation since the Belfast/Good Friday Agreement:
“The SEM was launched post-Belfast Agreement in the spirit of cross border cooperation; it was well received in both political spheres and by industry. The development of the wholesale market was underpinned by legislation and was achieved through collaboration between two governments, two departments, two regulators and two system operators; and is an exemplary outcome of the peace-process.”252
Centrica agreed: “Energy has been an important example of the ‘peace dividend’ in Ireland.”253
Box 7: Integrated Single Electricity Market
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Northern Ireland and the Republic of Ireland have shared a wholesale electricity market since 2007, known as the Single Electricity Market (SEM). It is a single market with a common set of rules, and is established by parallel legislation in Westminster and the Irish Parliament, underpinned by a Memorandum of Understanding between the two governments. A joint regulatory body, the SEM Committee, was established to oversee market arrangements. The Integrated Single Electricity Market (I-SEM) is a new wholesale electricity market arrangement for Ireland and Northern Ireland. The new market arrangements are designed to integrate the all-island electricity market with European electricity markets, enabling the free flow of energy across borders, and to ensure the Market complies with the EU’s Third Package. It is scheduled to go live in May 2018. Witnesses referred to both the SEM and I-SEM, as reflected in their quoted evidence. We therefore use these terms interchangeably in this report. |
Source: Written evidence from Department for the Economy, Northern Ireland Executive (BES0059); Single Electricity Market Operator, ‘I-SEM Project’: http://www.sem-o.com/isem/Pages/Home.aspx [accessed 29 November 2017]
Value of the I-SEM
138.RenewableUK urged that “continuation of the Single Electricity Market (SEM) on the island of Ireland should be a strong priority of the UK Government during the negotiations”.254 Dr Owen Wilson, Chief Executive of Electricity Association of Ireland, noted that “the industry fully supports the continuation of the Single Electricity Market”,255 while Dr Aoife Foley, Lecturer at Queen’s University Belfast, described it as “critical for the island of Ireland”.256
139.SSE argued that “larger, integrated electricity markets are beneficial for customers in Ireland and Northern Ireland, maintaining energy security and in efforts to meet decarbonisation targets”.257 The Utility Regulator of Northern Ireland (UREGNI) told us: “If SEM cannot operate as a functional market post Brexit then this could have a range of repercussive social and economic aspects—including security of supply concerns and the potential for higher prices with consequential impacts on fuel poverty and manufacturing costs in NI.”258 National Grid explained that a disruption to the I-SEM “could result in an expensive duplication of infrastructure and governance for both the EU and UK”.259
140.In its position paper on Northern Ireland and Ireland, the Government stated that “the new framework relevant to the energy market in Northern Ireland and Ireland should … facilitate the continuation of a single electricity market covering Northern Ireland and Ireland”.260 The CBI welcomed this commitment,261 as did Robin McCormick, General Manager at SONI: “It is important and very helpful that the UK Government have indicated their support for the Single Electricity Market.”262
Challenges to maintaining the I-SEM
141.The Aldersgate Group noted that “The SEM and its successor I-SEM are established by Irish and UK law, not EU law, and supported by NI and ROI policy. This means that even if there is a UK withdrawal from the EU IEM, legally this would not constitute a withdrawal from these arrangements.”263 Silke Goldberg, Partner at Herbert Smith Freehills LLP, agreed: “From a purely legal perspective I do not see that the continuation of the SEM would be at risk.”264
142.However, Robin McCormick acknowledged that “we are in a political environment that is outside our sphere of influence”.265 SONI highlighted the dependency of the I-SEM upon the wider EU Internal Energy Market: “If GB is not part of the IEM, onward trading [from Northern Ireland] with Europe will be extremely difficult (if not impossible).”266 Ms Goldberg expanded the point, explaining that Northern Ireland, through the I-SEM:
“Is integrated with an EU country which will continue to be subject to EU regulations, such as network codes in particular that govern how electricity, and indeed gas, is allocated at interconnection points … The way that is governed under the EU codes, should they no longer apply in the same way in the north of Ireland, will have an impact from an operational perspective.”267
Similarly, UREGNI argued that “If there is no access to the Internal Energy Market then it is possible that the [I-SEM] will not function”—for example without access to the EUPHEMIA algorithm.268
143.In the event that the UK does not continue to participate in the IEM post-Brexit, Chatham House and the University of Exeter noted that “Brexit negotiations will require a carefully managed energy solution that specifically addresses the SEM issue, to avoid the risk of reversing a decade of energy integration on the island”.269 They proposed a number of options, including the designation of Northern Ireland as a special zone, “so that the all-Irish market continues to be subject to EU law”, or creating “a special status for SEM which, while compliant with EU law, would not subject Northern Ireland to the jurisdiction of the European Court of Justice”.270
144.Joseph Dutton, Policy Adviser at E3G, argued that “a special case for Northern Ireland would require Westminster to devolve legal powers over energy, which are not currently devolved, to Northern Ireland”.271 Ms Goldberg explained:
“The question would arise as to whether the Westminster Parliament would adopt the relevant legislation and transpose it with a view to it only being applicable in Northern Ireland, or indeed would there be further devolved powers in relation to the application of the relevant directives and regulations in the North of Ireland. That is very much a political question but from a legal/constitutional perspective that is the question that is of prime importance vis-à-vis the operational rules.”272
145.Ms Goldberg continued:
“There are a number of legal questions around, for example, the continued participation of some of the Northern Irish institutions in European institutions such as ENTSO-E … Prima facie, as a non-EU Member State, a UK representative would not have immediate access to that and a special agreement would need to be made or found.”273
146.Robin McCormick identified a further challenge to maintaining the I-SEM, namely potential restrictions on the movement of workers: “I was in Belfast on Sunday, Dublin on Monday, London on Tuesday and I will be in Dublin on Wednesday. That is the way it works, so any restriction to that has some sort of impact, whether it is hassle, time or money, or all three.”274
147.The Minister, Richard Harrington MP, told us: “Whether we are in the EU or not in the EU, it is in the interests of both Northern Ireland and the Republic of Ireland to continue a shared electricity system … We are held up in sorting this out only by the progress of the general talks in Europe.”275 Dan Monzani, Head of Energy Security at BEIS, emphasised: “We see [the SEM] as of the first order of importance and are making a lot of efforts to maintain it.”276
Conclusions: Integrated Single Electricity Market
148.The Integrated Single Electricity Market (I-SEM) will benefit both Northern Ireland and the Republic of Ireland in terms of energy security, decarbonisation and energy prices. We are encouraged that both the Government and the European Commission recognise its value and are seeking to preserve it.
149.The complexity of maintaining the I-SEM will increase significantly if the UK leaves the EU’s Internal Energy Market. The UK’s negotiators must therefore plan for this eventuality, for example by addressing how Northern Irish organisations would be able to interact with the IEM as a non-member, and by establishing a forum for dispute resolution.
150.If the outcome of the negotiations means that EU energy legislation will continue to apply in Northern Ireland, the Government will need to consider whether to devolve additional powers to the Northern Ireland Assembly.
North-South interconnector
151.As Robin McCormick told us, “The deadline for the I-SEM is May 2018 and for that to work properly across the island we need more infrastructure to link the northern transmission system with the southern transmission system.”277 A new North-South interconnector has therefore been planned,278 which, as the CBI noted, is required “to forestall an electricity supply deficit from December 2021”.279 SONI described the interconnector as “by far the most economical solution to this potential shortfall”;280 Centrica explained it was “estimated to bring cost and capacity savings of between €40–€60m each year from 2030”.281 Speaking in September 2017, Robin McCormick noted: “We now have planning approval in the south and are waiting for planning approval in the north.”282
152.Energy UK explained that the interconnector had been “designated as a Project of Common Interest by the European Commission, because of its particular importance for the functioning of the Irish electricity system”.283 Further to her explanation of PCI qualifying criteria (see paragraph 125), Ms Goldberg argued that, as the interconnector would directly benefit an EU Member State, “there are good arguments for PCI status and Connecting Europe Facility funding to be made available”.284
Conclusion: North-South interconnector
153.The construction of the North-South interconnector on the island of Ireland is vital for reducing consumer costs in both countries, and for maintaining energy security in Northern Ireland. The Government must satisfy itself that its construction is not at risk as a result of Brexit. If that cannot be established, the Government must underwrite its cost to provide investor certainty.
256 Written evidence from Dr Aoife Foley (BES0042), see also written evidence from BCC (BES0008), Green Alliance (BES0010), Aldersgate Group (BES0011), SSE (BES0012), CBI (BES0019), REA(BES0020), Energy UK (BES0024), SONI (BES0036), National Grid (BES0043), UREGNI (BES0048), and Q 22 (Robin McCormick).
258 Written evidence from UREGNI (BES0048); see also written evidence from CBI (BES0019) and Centrica (BES0031).
259 Written evidence from National Grid (BES0043); see also written evidence from BCC (BES0008), REA (BES0020) and Q 29 (Dr Owen Wilson).
260 HM Government, Northern Ireland and Ireland: Position Paper (2017) p 23: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/638135/6.3703_DEXEU_Northern_Ireland_and_Ireland_INTERACTIVE.pdf [accessed 27 November 2017]
268 Written evidence from UREGNI (BES0048). EUPHEMIA is the day ahead pricing algorithm used throughout Europe. For more details, see: Single Electricity Market Operator, ‘EUPHEMIA’: http://www.sem-o.com/MarketDevelopment/Pages/EUPHEMIA.aspx [accessed 27 November 2017].