Why Minister's hard choice on energy was correct one
Energy Minister Jonathan Bell inherited a difficult series of problems. Some could and should have been foreseen at an earlier date but delay has compounded the immediate difficulties. But regret has no contribution to make in offering solutions now. The Minister, acting on behalf of all electricity users, has little choice. He needs to encourage greater supply of renewable energy but not at a cost that is excessive.
Across the UK, the current subsidy levels are proven to be too high. The economics of renewable energy from on-shore wind have changed and electricity customers are at risk of paying too much.
No surprise therefore that the Minister is acting to curtail what could be a large bill for customers extending over 20 years.
Northern Ireland has a small energy sector which should be managed reasonably simply taking account of the degree of devolved responsibility within the UK framework and developing sensible co-operation and integration in the services on an all-island basis.
However, the principal policy-making agencies such as the Department of Enterprise, Trade and Investment (DETI) and the Utility Regulator have become vulnerable. They are both, in their different roles, too reticent in building an adequate public appreciation of what they are doing and why, and how this influences decisions.
Policy to encourage the development of supplies of renewable energy is now at a critical stage. Unusually, the Minister has found himself facing a decision about the Northern Ireland Renewables Obligation (NIRO) against a time-constrained backdrop so that a favourable commercial arrangement with Great Britain can be retained.
In simplified form, if Northern Ireland adopts a similar timetable to that in GB, to end the present scheme to subsidise investments in on-shore renewable energy, then a UK system of postalising the costs could be maintained. If Northern Ireland does not make comparable changes then the UK department has made it clear to the minister that a different regime in NI would have to carry the unshared higher costs, to the disadvantage of local customers.
There are two messages in this. First, a move away from parallel changes puts local costs on local customers. Second, the consideration of these changes is a reflection that the current NIRO scheme is both too expensive and is not good value for money.
The current NIRO scheme attracts a mixture of criticism and praise. The NIRO scheme has incentivised a large expansion of this sector, so large that it has created problems in arranging on acceptable commercial terms the greater connection of smaller units to the electricity grid.
That higher than expected scale of expansion is quoted as if it is a success story. Less frequently, but no less significantly, the NIRO scheme is proving too costly in terms of the environmental objective of increasing supplies of renewable electricity. It is a popular scheme to supplement some farm incomes.
The cost of ending access to the NIRO in April 2016 instead of a year later is larger than is sometimes understood. It is the cost of an extra year of NIRO investments which would continue to earn subsidies for 20 years since all approved investments would be eligible to claim until 2036. This is estimated to cost NI customers an extra, at least, £4m per annum.
The Minister can claim that the pressure for an urgent local decision stems from a change of policy by the GB Minister following the election. The NI Minister reacted at first to try to retain a commitment to ending NIRO in April 2017 as had been already announced.
However, the knock-on implications of NI exercising devolved authority and the wish to retain a postalised financing system gave the Minister a difficult, but necessary, choice.
Unpopular as the Minister may be with potential investors in on-shore wind systems, the wider public interest, economically and environmentally, supports his proposal.