The regulation of Anglo-Irish electricity sector toughening
Policies for the provision of electricity to customers in Northern Ireland need to be reviewed. The key decisions on electricity provision are evolving, partly, through the all-island Single Electricity Market (SEM).
However, important features of the electricity sector in Northern Ireland also fall within the remit of the recently published UK-wide Electricity Market Reform (EMR).
To meet the requirements of EU directives, after a two-year derogation, the operating framework of the SEM must be reviewed by its joint north-south agency, the SEM Committee (SEM C) which is accountable through the Utility Regulator. This sets a series of inter-locking policy questions for the Department of Enterprise, Trade and Investment (DETI) to consider, along with shared responsibility with the Irish Department.
The objective is to build a cross-border electricity market where exports and imports of electricity can respond to market wider opportunities.
The market in Great Britain (GB) is contrastingly different. The BETTA framework hosts trading arrangements between specific generators and supply companies. Both GB and Irish systems are functionally acceptable but they use different trading structures. One consequence is that electricity trading between GB and this island does not work in a fully flexible marketplace.
In addition, the GB market is now to be shaped around a price setting formula for new electricity generation based on a system where a 'strike price' is set and generators earn their income based on the application of contracts for difference (CFD).
The all-island market presently continues to use an all-island wholesale pricing pool to schedule generation. An unfinished debate is taking place on whether the SEM C should commend to DETI that the electricity arrangements should switch to bilateral trading from the current central dispatch rules. Then DETI (and its Dublin counterpart) will be asked to approve (or reject) the SEM C recommendations.
Ideally, both in Belfast and Dublin, this question should be influenced by consideration of which answer makes trading with GB more competitive and keeps prices as low as competition allows. There are differing opinions amongst the larger trading organisations on the merits of this choice.
Critical to the long-term stability of the electricity sector is the development of a secure inter-connection system between north and south on this island, between Scotland and Northern Ireland, between Ireland and Wales and further out between these islands and France and Belgium. The degree of easy interconnection is critical to the security of overall supply and also to the viability of increased generation from renewable sources.
At present the constraints on interconnection are so tight that, logically, the Regulator should consider a warning of a possible pause on the approval of extra renewable capacity in Northern Ireland. The Moyle interconnector is faulty and the cross-border connection in Tyrone-Cavan has still not been approved. These delays are costing customers here an avoidable extra £40m each year.
A further issue for DETI is the need to review the application of the subsidies for Renewable Generation to match the changes now proposed, from 2017, in GB. Will the prices for renewable energy continue to match those in GB? If they differ, where will the subsidy bill lie?
Mutual Energy, a non-profit distributing business, owns the Moyle Inter-Connector which has usefully facilitated trading across the North Channel. Moyle is facing unexpected problems because of an asset failure which may mean a need for further investment. Currently, Mutual Energy has a guarantee approved by the Regulator, that NI customers will make good its operating deficit. In the changed environment, to avoid any extended customer guarantee, there would be merit in transferring Mutual Energy to become operationally part of NIE. The minister might consider a strategic policy role.
In summary, the policy, politics and regulation of the Anglo-Irish electricity sector have just become a lot more testing.