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The regulatory authorities for electricity have been forced to withdraw a controversial proposal on how renewable generators should be paid, or not paid, when the electricity system cannot use all the capacity available.
The proposed rules, approved on December 21 2011, were seen by potential investors as a serious deterrent. Investors have fears that the longer-term profitability of new wind farms would be jeopardised. Following a tense meeting with investor groups on March 5 the key decision was, for the present, withdrawn to allow further consultation.
The root of the problem lies in a lack of adequate foresight and investment in electricity infrastructure that could use all the renewable energy available. A mistaken (or misunderstood) decision was made by the all-island Single Electricity Market Committee (SEMC).
The work of the SEMC is shrouded in the technical language of specialist professionals and its minutes and papers are not usually fully transparent or supported by appropriate press releases. It is a critical, but politically unaccountable, authority.
The SEMC needs to reconsider an acceptable method of deciding how to prioritise which generators of renewable electricity can be given access to the grid and how to prioritise their rank order. There are, at least, four stages to the problem.
First, there will be periods when not all wind energy can be used locally. Some capacity must then be curtailed. Which plant is to be curtailed, and at what price, must be settled in advance so that investors know what to expect to estimate the profitability of an investment.
Second, since wind energy investment is a growing feature, existing electricity grids need to be strengthened and inter-connected to efficiently transmit and distribute available electricity. Unfortunately, the existing grid and interconnectors have not been developed sufficiently to be able to add all the potential new connections. For some years both Northern Ireland Electricity (NIE) and the regulator have known that this was an emerging problem but, even now, there is no agreement with the regulator on an urgent investment programme.
This means that NIE is constraining access for new investors and thwarting investment which is threatening achievement of official renewable energy targets.
Third, investors must obtain planning permission for the creation of physical investment.
Fourth, if a new investor obtains planning permission and is permitted by NIE to plan to buy a connection to the grid, then there is a critical question about whether the new plant will be offered a contract with firm commitments to be able to sell all the electricity produced or be compensated if the output is curtailed.
Investors without a 'firm access quantity' are at the end of the queue and take a large commercial risk. The regulators must remove the ambiguity on the possible contract position for new investors and consider the implications for existing investors of a threat to their revenue potential. The immediate mistake by the regulators has created a perception of market confusion which has created insecurity for investors. With current incentives for renewable energy and adequate market stability, investors could be motivated to invest. The critical dilemma has been caused by a clash of policy ambitions.
The regulators have not been motivated to incentivise grid investment to cope with the expanded number of self-financing renewable generators. If Northern Ireland is to get close to providing 40% of electricity consumption from renewable sources by 2020, then the pace of investment in wind farm must accelerate. By 2020, a further 900MW must be available.
If NIE had taken an appropriate initiative earlier and developed a grid investment plan with an agreed capacity for key grid substations, then the debate about priority status related to constraints and curtailment of supplies would be less contentious.
In the interim, the regulators have created a difficulty for themselves. If they give equal access through a system of pro-rata sharing of curtailment and constraints, both new investors and existing investors may complain. If they give priority to existing investors, first come, first served, then new investment may be deterred and reliance on fossil fuels will be maintained.
The present impasse has created a barrier to the possible development of over 500MW of wind farm development and an associated investment of possibly £750m.
Blaming flawed regulatory institutions is easy but a solution awaits positive politically-endorsed policy interventions.
