A new discussion paper issued by DETI reveals the profound impact that reform of the electricity market across the UK will have on the renewable energy industry in Northern Ireland. Don’t be misled by its bland title: CFD Implementation in NI–Strategic issues. This document contains lots that should concern and even alarm wind farm developers and solar panel installers. It will also greatly disturb those who want Northern Ireland to be at the forefront of combating climate change.
The changes in the way renewable or green electricity is subsidised are being forced upon us through the introduction by the UK Government of Electricity Market Reform (EMR) which involves the closure of the existing Renewable Obligation (RO) scheme and its replacement with a new arrangement involving Contracts for Differences (CfDs). The RO system closes to new applications in March 2017 but installations which have already been approved under it will continue to receive support for an agreed 20 year term.
The following are the main findings and implications of the paper issued by DETI.
Currently the typical household here pays £17.25 a year to cover the cost of subsidising renewable electricity under the Renewable Obligation (RO) scheme. That’s less than across the water. By 2020, though we will still not pay our full share of supporting the regime, we will pay more. The increase comes about because the RO charge will rise to £24. There will be an additional levy to meet the cost of subsidising large scale renewables. It is estimated to be £30. That’s a total of £54. The cost could be even bigger. If NI is admitted to a Feed in Tariff scheme operated by the Department of Energy and Climate Change (DECC) to support small scale renewable electricity a further £14 will be added to the annual charge.
From 2017 onwards new large scale renewable electricity projects here will be supported by a regime based on Contracts for Difference (CfDs). Essentially wind farm and other developers wherever they are based in the UK will be competing to secure access to the same pot of money. They will bid in the strike price they are prepared to accept for their output. If Northern Ireland developers are successful they will get the the market reference price (MRP) which over here will be derived from the new Integrated Single Electricity Market plus or minus the difference between the eventually approved Strike Price and the MRP depending on which is larger. There is clearly the risk that developers here may be unsuccessful in the bidding process. There is no reserve allocation for Northern Ireland. In these circumstances there is the real risk that fewer wind farms here will get the go ahead in future years.
The situation is different and worse for small scale renewable electricity generation. When the RO system closes to new applicants in 2017, there is no guarantee there will be a replacement for it. In GB, DECC has a small scale Feed in Tariff but it may not be extended to include Northern Ireland. It seems DECC is showing no enthusiasm to move in that direction. The difficulty may be that if the FiT scheme were broadened to include NI, it might have to be re-submitted to Brussels for approval with the clear risk it could be rejected.
There is clearly a major danger that an local industry mainly built on installing solar panels on the roofs of homes and businesses could find itself without much work apart from maintenance. That’s because there is little chance that there will be a demand for panels if there are no subsidies to support them. DETI could introduce its own scheme but it is apparently too late to devise one in time to replace ROs.
With no control over the support for small scale or large scale renewable electricity, the target to generate 40% of our power from renewable sources by 2020 has simply become redundant. The UK target is for 15% of energy from renewable sources by 2020 which is expected to mean 30% coming from renewable electricity. But of course that lower target does not have to be met through much increased generation here.
From an economic point of view that is no big disadvantage, climate change issues aside. A DETI commissioned study shows the maximum economic benefit for Northern Ireland is achieved when just 25% of our power comes from renewable sources. Politically this is convenient because to hit the 40% target would require investing hundreds of millions of pounds to strengthen the grid which would be unpopular because of the impact on fuel bills. What’s makes that investment even more unlikely is that with a competitive process to win approval for wind farm building, there is no guarantee that if the grid were to be upgraded at huge cost, the wind farms would be built here.