Belfast Telegraph

Friday 18 April 2014

The lights are on but is any innovation at home?

The Northern Ireland electricity industry is facing some serious questions

The Northern Ireland electricity industry is serving businesses and households well. The lights (and power) continue to function with little outage (or black-outs).

That introduction is as good as it gets. Northern Ireland pays extra for electricity because we pay subsidies for renewable energy, nearly £40m per year, and because cross-border flows are not fully available, costing possibly another £25m per year.

An examination of the functioning of the electricity generation and supply industry quickly raises a range of serious questions about the evolution of the sector in the years ahead.

The most basic question is whether the industry is delivering electricity at prices which are fully competitive between types of customers and between Northern Ireland customers and other areas.

With the availability of inter-connection, cross-border price differences should narrow as power flows from the cheaper sources to the higher priced outlets.

Inter-connectors are a modern answer to the long standing assumption of inevitable extra costs of separate systems.

During the early months of 2011, the Moyle Interconnector from Scotland demonstrated that Northern Ireland could benefit significantly. The interconnector supplied the equivalent of over 20% of electricity usage. The price differences between Northern Ireland and Great Britain encouraged high levels of electricity imports which helped to bring Northern Ireland prices (for some customers) closer to those in parts of Great Britain.

In the next few months a second interconnector between Ireland and Wales will become operational.

Trade in electricity between the two islands, Ireland and Great Britain, can potentially offer the equivalent of at least two large generating plants and the associated economies.

More extensive inter-island connection offers opportunities and also poses regulatory questions.

The regulatory dimension emerges in an answer to the question, should the use of the interconnectors be unregulated in that the owners should operate as stand-alone commercial ventures? If interconnector trade is expected to be more than just marginal flows of electricity, then the market structure in Great Britain, as represented by the British Electricity Trading and Transmission Arrangements (BETTA) arrangements, and in Ireland, as represented by the SEM (single electricity market), need to be adapted to these changes.

These inter-island trading arrangements become more complex when the expectation is built-in that the inter-connectors need to be factored into the expansion of the supply of renewable energy.

If Northern Ireland is to generate up to 40% of its electricity from renewable sources by 2020 there is a consequential necessity that when wind energy is plentiful a large amount will need to be exported.

The current arrangements for grid development rely on bids to install capacity from NIE seeking regulatory approval. That mechanism does not require a long-term grid development programme based on the impact of a major expansion of renewable sources.

In addition, there remains a major obstacle closer to home.

The all-island SEM cannot work as originally expected unless the all-island grid allows the SEM to function properly operationally.

The long-delayed grid connection from Tyrone to Cavan is a critical bottleneck. NI customers are paying about £25m each year over and above competitive prices because the systems operators cannot schedule the cheapest options for generating capacity.

Officials and ministers are well aware of this long-standing issue.

Illuminating energy policy lights up some dark corners. Now is the time to re-energise the delivery mechanisms.