Regulator challenge to Click on its renewables purchase quota
The success story in developing renewable electricity supplies has been the rapid increase in the number of small on-shore electricity generators (several hundred) scattered around the province.
The economics of these projects have been sufficiently attractive to the point where the added incentive of allowing each small plant to earn renewable obligation certificates (ROCs) added so much extra capacity that, just over two years ago, the Government withdrew the ROCs incentive. That scheme was closed to new entrants.
Any new on-shore renewables investments must now operate without the supplementary revenue from the sale of ROCs.
So much have the economics of renewable energy improved that there have been continuing enquiries and further investments which are expected to pay their way without ROC subsidy.
The incentive mechanism for renewable supplies of electricity depended on the investors being awarded ROCs, which then became saleable.
The sale of ROCs is, in turn, incentivised by requiring commercial suppliers of electricity to purchase ROCs for a set proportion of their market sales.
Normal customers do not see a separate bill for that part of their electricity that is indirectly attributed to renewable generators.
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The unseen cost is part of the tariff allowed to electricity suppliers.
Asking commercial suppliers to buy renewable supplies is sustained by a mechanism where suppliers must buy their renewable quota and renewable generators must sell their ROCs.
The Utility Regulator acts, through Ofgem, to monitor that suppliers' fulfil these obligations.
On July 2 the Regulator, having noted a failure by a supplier to show that it had purchased the number of ROCs appropriate to its scale of activity, issued an order for a payment by July 9 to offset this deficiency.
The order, issued to Project Plug, was for £824,550.61. This is the estimated value of the failure to submit 17,918 ROCs.
As this review is written, there is no formal statement on possible sanctions by the Regulator affecting Project Plug.
The sanction, if the order to make a payment is not successful, could be that the Regulator might withdraw the licence of Project Plug.
Project Plug is the registered name of a company which has been awarded a licence to supply electricity. The company, for its convenience, has registered that it trades under the name of Click Energy by which, particularly in the north-west, it is better known.
Project Plug began trading in 2015.
Initially, as a small business, it did not need to register its annual accounts with the Companies Office.
Some details from the accounts have been registered for the years 2016 and 2017. The accounts for 2018 are due for registration this autumn.
For the two years where trading results are known, the business enjoyed an increase in revenue: £4.6m in 2016 rising to £12.3m in 2017. However, the 'bottom line' showed that pre-tax the business recorded a loss: £0.9m in 2016 and £1.9m in 2017.
As a result the balance sheet showed a negative value of equity at the end of 2017 of £2.6m.
The business, for the year 2017, employed an average of 27 people.
As a growing electricity supplier, Project Plug may well be capable of earning an acceptable level of profit as a return to the private sector shareholders.
The most recent accounts, even with a pre-tax loss of £1.9m in 2017, show no cause for concern from either the directors or the auditors.
The outstanding deficiency in ROCs credited has now been challenged by the Regulator.
Project Plug is required to notify the Regulator immediately when the outstanding payment is made. However, in more moderate terms, the Regulator has added that the order (to pay) shall cease to have effect on 30 September 2019 unless it is confirmed by the Regulator before that date.
Normal business is now awaited.
Company report: ESBNI
ESBNI is an unusual subsidiary company, wholly owned by the ESB and registered in Dublin. It serves as an intermediary holding company as the owner of three Northern-Ireland registered subsidiary businesses including, as the larger subsidiary, Northern Ireland Electricity Networks (NIEN), which provides the main electricity grid.
ESBNI has been set up to act as a financial vehicle, linking NIEN with its parent organisation in a way that shows how the financing of this major part of the electricity grid is facilitated.
NIEN invests large amounts each year to maintain and extend the electricity grid.
Annual turnover at NIEN in 2017-18 was £275.8m. Arising from that revenue, NIEN made an operating profit of £109m which, after deducting interest payments on borrowed funds, left a pre-tax profit of £68m. In the latest year, NIEN made dividend payments of £22.1m which became revenue to ESBNI.
The accounts of ESBNI do not report any direct capital investment or the employment of any staff. These accounts show that, in the management of finance for NIEN and two other smaller companies, there have been very significant accounting adjustments each year making provision for fair value adjustments to the carrying value of outstanding borrowed funds.
The report from ESBNI confirms that the fair value adjustments take account of interest rate swaps and also inflation-linked swaps which have the effect of converting fixed rate interest payments into variable loan interest payments.
At the end of September 2018, the value of shareholders’ funds was negative to just over £503m. This compares with the shareholders’ funds as presented in the NIEN accounts of £373m.