Committee for Enterprise, Trade and Investment

Strategic Energy Framework

January 2010 –
NI STRATEGIC ENERGY FRAMEWORK - CONSULTATION PAPER – SUMMARY OF RESPONSES

Introduction

DETI’s is acutely aware that national and international developments are increasingly moving the primary focus of energy policy world-wide towards tackling the threat of climate change as well as addressing concerns around security of supply and economic development. These concerns are set to be key strategic priorities for the foreseeable future and it is against this background that the Department is seeking to put in place a new Strategic Energy Framework for Northern Ireland and has sought consultee responses under four key energy goals:

1. Building Competitive Energy Markets

There is widespread recognition of the fact that fossil fuels are a fundamentally finite resource. However, while the majority of respondents want to see an increasing proportion of Northern Ireland’s energy needs coming from renewable sources, there is also broad recognition of the fact that fossil fuels must, at least in the short to medium term, be an essential factor in providing back-up to these renewable sources.

From the competitiveness prospective, now is seen as a critical time to reduce energy costs relative to other UK/EU regions if local businesses are to remain competitive. Respondents pointed to the need for switching incentives as well as resource efficiency as this will save businesses money, allowing them to produce at lower cost and thereby become more competitive. In welcoming the focus on energy efficiency, some felt it a must for the Department to have a policy aimed at encouraging business to invest in this area. Respondents also pointed to the fact that competition in retail gas and electricity markets should be considered in a dual fuel context as it would be easier to enter the retail market if both the gas and the electricity markets are amenable to competition. Others stressed that we should not seek competition at any price.

Many recognise that fossil fuel prices will rise again over time, along with the cost of carbon itself which will make renewable generation technologies increasingly competitive. While it is acknowledged that support for renewable technologies will be required in the medium term, there is some concern raised at the impact that measures aimed at supporting renewable energy deployment will add to consumer costs, although the Department’s commitment to ensuring these costs will be kept as low as possible is welcomed. There are also calls from some quarters for the Department to restore some type of local grants scheme, similar to Reconnect.

The point is made that the Single Electricity Market has demonstrated that common arrangements for energy markets across the whole island can deliver competition. On this basis common arrangements in gas are deemed necessary to encourage improved supply arrangements, reduce costs and increase competition and international competitiveness. A number of respondents also indicate that expansion of the gas network will assist in providing for more competitive solutions as well as enabling Northern Ireland to more quickly realise its carbon reduction commitments. Indeed, a number feel that Government needs to take a lead in driving the demand for natural gas by ensuring it switches to gas where it is available.

However, while some see significant value in developing a robust gas infrastructure and recognise that availability of gas will reduce our current dependence on foreign oil imports and provide greater fuel choice for consumers, the point is also made that opting for natural gas will do little to enhance security of supply and shield consumers from fluctuations in world energy markets. In addition, the fact that gas is a fossil fuel and emits carbon must be factored into the cost of increasing natural gas usage. Extending the gas network can only be viewed as a short to medium term solution given the geopolitical and economic risks associated with increasing Northern Ireland’s dependence on importing gas; any further roll out should be targeted at those areas where it is most viable. As such, a number stress that we must therefore seek alternative renewable solutions using indigenous sustainable resources, and that any investment in gas should be balanced by investment in renewable technologies, specifically heat. Some respondents went as far as to say that even acting as a medium term solution between oil and renewables, gas is not a sensible option given the large investment required in infrastructure, and that deep geothermal energy and biomass led district heating networks should be considered as a serious alternative to extending the gas network.

There is also a broad consensus for a joined up approach with the DOE Planning Service particularly with regard to renewable energy projects and market opportunities. A number of respondents also push for the provision of tax breaks for companies that manufacture renewable energy systems.

Other views expressed from the competitiveness perspective include development of the infrastructure to alleviate costly transmission bottlenecks and opening the electricity grid to proper public access and allowing profits to energy suppliers of all sizes. Alongside easier grid access come calls for greater responsibility to help develop the existing infrastructure. There is also a call for more flexible hedging arrangements and for the non-domestic electricity market to be de-regulated on the basis that the non-domestic sector is generally very competitive. Similarly, there are also calls for smart-metering; for a Feed-in tariff to be introduced at the earliest opportunity in order to bring Northern Ireland into line with the rest of the United Kingdom; and for renewable heat sources to provide an alternative to oil and gas in the West of Northern Ireland.

A number of respondents also stress the need for greater awareness among school leavers to consider undergraduate courses that offer opportunities in the ‘green economy’.

On the basis of the above feedback the Department would suggest the following key actions from the draft SEF:

• Ensure the SEM continues to encourage investment and is flexible enough to meet changing generation and demand patterns, with the aim of securing the lowest possible wholesale electricity price. This includes supporting the construction of the new high voltage transmission link between NI and RoI – the ‘second interconnector’;
• Ensure there is transparency in the setting of electricity and gas retail prices;
• Encourage more companies to enter the gas and electricity supply markets, particularly the domestic market, through continued market liberalisation;
• Create conditions within the market which more readily facilitate customer switching;
• Agree a strategy to incentivise gas connections and increase gas uptake in existing and future licensed areas;
• Extend the natural gas network where it is technically possible and economically feasible to enhance diversity of fuel supply and customer choice, and bring about reductions in CO2 emissions;
• Work with Invest NI to maximise economic opportunities from renewable energy and energy efficiency;
• Develop a policy to deliver better metering and billing, including smart/advanced metering; and
• Incentivise energy efficiency measures in the business sector and ensure that advice, information and support to identify options for business to improve energy efficiency will continue to be available.

2. Ensuring Security of Supply

There is broad recognition that the new North/South interconnector will enhance security of supply to the whole island and acknowledgement of the need to upgrade the existing infrastructure to facilitate increased production of renewable energy sources. There is also support for further East/West interconnection to allow the island to fulfil its potential to export excess wind generation. However, there are also calls aimed at gaining greater public acceptance of the need for additional infrastructure.

A number of respondents highlight the need to ensure the appropriate fuel diversity mix and indicate that the potential for some form of energy storage should be explored. Others feel more strongly, seeing energy storage as absolutely vital, believing both electrical and thermal storage to be key technologies in the future smart grid.

The point is also made that security of supply can only be achieved when the energy is locally produced and while natural gas is cleaner than oil its further utilisation is not future-proofing Northern Ireland’s energy security. To this extent it is felt that there is not enough focus on other predictable technologies such as marine and indigenous biomass.

A number of respondents pointed to the need for a smart meter roll out to run concurrently with the planned roll out in the rest of the UK, while others would encourage investigation into the scope for smart meters/grid to provide demand side management.

Similarly, a number have indicated that they would welcome gas security of supply standards and one respondent has called for a review of gas transportation tariffs.

On the basis of the above feedback the Department would suggest the following key actions from draft SEF:

• Collaborate with neighbouring jurisdictions to set out clear policy guidelines that will promote and enhance regional energy infrastructure and security of supply;
• Develop appropriate actions to gain greater public acceptance of the need for additional electricity grid infrastructure, and the benefits which this would bring for security of supply;
• Maximise the consumption of indigenous renewable electricity and renewable heat where practicable;
• Research the potential for underground energy storage, including natural gas storage, in the East Antrim and Islandmagee areas and adjacent off-shore areas;
• Develop a ‘security standard’ in relation to natural gas and the wider fuel mix; and
• Consider the issues affecting the longer term fossil fuel mix for conventional power generation in Northern Ireland, in light of availability and cost of such fuels to ensure there is not over-dependence on a single fuel.

3. Enhancing Sustainability

Of those that specifically chose to comment, practically all express support for DETI facilitating the development and deployment of renewable technologies. It is broadly accepted that an increased reliance on the renewable energy market is one that must take place if our renewable energy targets are to be met and if CO2 emission targets are to be achieved. Similarly, it is recognised that the alternative to increasing our renewable energy installed capacity will result in high price volatility and the absence of any long term security of supply. As such there is a consensus that the short term additional costs to consumers will be less burdensome than the long term economic consequences of taking no action to substitute fossil fuels. However, a number of respondents do emphasise the need for the Department to work with DSD to address fuel poverty and achieve affordable warmth.

There is support and widespread endorsement for the proposed renewable electricity target with renewable energy seen as the only sustainable and equitable way forward in the long-term. In fact, one respondent comments that NI’s renewable energy potential is one of the finest in Europe. A number see the 40% by 2020 target as very ambitious but achievable, providing that planning policy is fully supportive of the rapid expansion of renewables and the proposed electricity network improvements are implemented. A number of respondents are of the opinion that if we get the grid infrastructure right then the rest will follow, while others are of the opinion that if the infrastructure is improved and smart grid introduced then a target in excess of 40% is achievable. The point is made that the 40% target must come from indigenous supplies of renewable energy as there is little merit in importing renewable energy in the form of biomass etc.

Others feel sub targets will be helpful in supporting the development of a range of renewable energy technologies in NI, but that these could slow growth in some particularly well developed technologies such as on shore wind. In addition, some scepticism is expressed at the wisdom of placing too great a reliance on onshore wind energy given opposition from the public and concerns over the impact on tourism.

However, one key respondent does not believe that either the 40% penetration level or the grid development can be achieved in a period of ten years. Another, is of the opinion that without fundamental reform of the planning and consents process the 40% target by 2020 will not be achieved. In addition, concern has been expressed that most of the cost of complying with the 40% target will fall to NI Water as the largest consumer of electricity.

There is a broad welcome for the Department’s intention to seek statutory powers to take forward work on renewable heat. A number of respondents feel the 10% renewable heat by 2020 to be modest and underestimates both the potential of renewables to provide a significant impact on heat generation and the importance of utilising renewable heat as a means of providing real, long term security of supply in NI. Some feel the minimum target for renewable heat generation in NI should be equal to GB, and others that overall NI policy on renewable energy should mirror policies in GB. However, there is also some concern expressed that there is no mention of the costs involved in meeting the 10% target, while others question the ability to achieve it given there are so many policy variables and uncertainties.

Some respondents feel interventions should be mandatory e.g. a percentage of each dwellings energy needs in new-build should come from renewables. Others see a Feed–in tariff and a renewable heat incentive as the most proactive means of creating the demand for renewables, which they in turn see leading to job creation.

A number indicate that energy efficiency issues must be dealt with as a matter of urgency, in order to best utilise renewable energy technology. Others comment that energy efficiency and promotion of renewable heat will lead to a significant reduction in overall energy consumption and, by association, a reduction in carbon emissions. There is broad support for a policy on advanced/smart metering in NI with the point made that successful demand management, particularly at peak periods, is likely to reduce investment requirements in the grid. Others state that it makes greater economic sense to ensure that buildings have the lowest thermal losses possible, making use of free heat gains, rather than adding additional technologies which will increase costs.

Significant revisions to the Building Regulations are seen as necessary to ensure that the building infrastructure investment set out in the Programme for Government and the Investment Strategy for Northern Ireland result in the low carbon buildings consistent with a low carbon economy.

There is widespread support for joined up thinking across Government departments. Some see a Department for Energy and Climate Change (DECC) approach as making a lot of sense. Others that an inter-departmental working group is fundamental to stimulating a joined up approach to sustainable energy and vital to ensuring a more cohesive approach to energy efficiency across the different sectors – with one respondent suggesting that the group be widened to include the private sector. There are also calls to encourage the Further and Higher Education sector to focus on sustainability and renewable/low energy technologies.

On the basis of the above feedback the Department would suggest the following key actions from draft SEF:

• Ensuring effective public engagement on energy efficiency and renewable energy that stimulates behaviour change to save energy and to save money through a sustainable energy communications plan for Northern Ireland that has Executive approval;
• Ensuring the transposition and implementation of the EU Renewable Energy Directive;
• Increasing the amount of electricity from renewable sources to 40% by 2020;
• Co-operating with NIAUR, NIE, and SONI to deliver new electricity grid infrastructure to absorb renewable electricity generation from onshore and offshore wind and tidal stream generation and thereby meet Northern Ireland’s renewable electricity targets to 2020 and beyond;
• Implementing the offshore wind and marine renewables strategic action plan, subject to the outcome of consultation planned for the Autumn;
• Working with other key departments in the implementation of the Bioenergy Action Plan to enable bioenergy to maximise its contribution to renewable energy targets and other broader Government objectives;
• Developing a renewable heat strategy for Northern Ireland through action to maximise the amount of renewable heat generated and used;
• Consulting on the Department’s and the Authority’s statutory duties so that sustainability is given a higher priority in relation to other duties as well as p utting in place legislation to give DETI powers to develop policy on heat as well as a financial mechanism to support the increase in renewable heat;
• Develop a policy on advanced/smart metering in Northern Ireland; and
• Maintaining an effective cross-departmental lead on sustainable energy issues through the Sustainable Energy Inter-departmental working group.]

4. Developing our Energy Infrastructure:

A modern and reliable grid infrastructure that can accommodate the large penetration levels required from renewable sources of energy is essential for a fully competitive NI economy in the long-term. There is a general consensus that the proposed new North/South interconnector is crucial to the achievement of the overall strategic goal of a sustainable, secure and affordable energy infrastructure and that without it DETI’s targets for renewable generation will not be met and competition within the Single Electricity Market will not be as effective as it otherwise could be. Offshore developments also need to be considered in the medium term with the possibility of more renewables being sourced offshore whether in the form of offshore wind, tidal or wave energy. There is also a recognition from some quarters that NI is in need of a major grid overhaul and upgrade regardless of renewable energy requirements.

Public acceptance of infrastructure development and its associated cost implications is recognised as a key challenge, as is the need for a dramatic increase in public knowledge deemed essential. Of those specifically commenting the vast majority point to the need for local support for infrastructure development and feel this will only be secured by presenting a compelling case for such development. Comments range from those who believe that if there is a genuine understanding of the issues and costs, there will be less support for an undergrounding and that public acceptance can be won through a public awareness campaign e.g. on the changing face of our electricity supply. Others feel Government needs a grid development plan which will identify new infrastructure, timelines, connection strategies and financing arrangements, and that the planning system must provide support not just to wind development, but to the wires developments that will support it. Some also feel that undergrounding cables should, where appropriate, be considered in the interest of timely infrastructure delivery.

One respondent feels that the grid development proposed is wrong for NI at this time and that it will have a detrimental effect on genuine fossil carbon replacement technology. They go on to stress that the issue of distributed grid, despite being raised on many occasions by differing organisations, does not get addressed in the draft Framework.

While it is deemed appropriate to convert to gas at power stations and at homes on the ‘gas grid’ a number express the opinion that further incentivisation and expansion of the network should not be the priority. Careful consideration should instead be given to the potential for renewable heat sources to provide an alternative to oil and gas, particularly in the West of Northern Ireland, with financial supports being directed at those technologies that provide the greatest carbon reductions over time.

Energy storage does have advantages in terms of price stability and energy security, and there is support for DETI continuing to explore proposals for gas storage and, to a lesser extent, LNG and oil. It is also felt important, for the development of a storage facility, that DETI create a framework in which the strategic value of gas storage can be realised and captured.

Others deem strategic energy storage as essential only for as long as we rely on fossil fuels for significant proportions of energy generation. They basically see natural gas only ever acting as an interim measure and delaying the inevitable wholesale adoption and support of renewable energy technologies. NI should instead move directly to the future which they state will be dominated by generation of electricity and heat. Therefore, emphasis should instead be placed on strengthening the electricity grid, deployment of smart grid technologies and localised generation and storage of electricity and heat.

One suggestion is that further infrastructure development should be tendered in two phases – development and operational – the tender being for a licence to construct or a licence to own and operate the infrastructure. They welcome DETI’s intention to consider further mutualisation, but question DETI’s allocating resources to determine the technical feasibility of gas storage in NI, stating that private companies are already doing this and that the technical feasibility has been effectively proven in Larne Lough.

Others feel local heat networks need to be promoted and made conditional upon planning or building control requirements for developments to underpin biomass driven heat and CHP installations. The point is made that we can’t afford to extend both gas and electricity infrastructures, asking which is more important? and whether biomass offers a lower cost solution?

One respondent disagrees with the proposal to encourage a shift from domestic dependence on oil for home heating to natural gas, and indicates that it would see any process using public funds to fast-track gas penetration as clearly anti-competitive. Others indicate that support to help shift usage away from oil should only be provided if this is the most cost effective means of reducing carbon emissions.

On the basis of the above feedback the Department would suggest the following key actions from draft SEF. DETI is committed to:

• A strategy being taken forward to strengthen the electricity grid to address current areas of weakness in the grid and in order to absorb significantly more renewable energy from wind and offshore renewables;
• Supporting construction of a new electricity transmission line between Northern Ireland and the Republic of Ireland;
• Ensuring that the drivers for grid expansion are communicated effectively and consistently at all levels
• Identifying locations for appropriate heat clusters and potential district heating areas through its work on a renewable heat strategy for Northern Ireland; and
• Considering the technical and economic issues around extending the gas network outside the existing licensed areas.

DETI ENERGY DIVISION
8 January 2010