In this update, we look at how the UK-wide implementation of Electricity Market Reform will affect Northern Ireland.
The Department of Enterprise Trade and Investment (DETI) Minister, Arlene Foster MLA, announced in May 2012 how Northern Ireland will implement a series of measures as part of the UK-wide implementation of Electricity Market Reform (EMR). Mrs Foster MLA stated "Electricity market reform proposals are aimed at addressing the challenges of ensuring the supply of reliable, low carbon and affordable electricity across the United Kingdom".
EMR will be effected through the Energy Bill (recently published by DETI's UK equivalent, the Department of Energy and Climate Change (DECC)), which will extend to Northern Ireland subject to a Legislative Consent Motion in the NI Assembly.
The main changes introduced in the Energy Bill that will affect Northern Ireland are as follows (please see overleaf for more details):
- introduction of a Feed-in Tariff with Contracts for Difference (FIT CfD) for large scale renewable electricity generation (greater than 5 MW) from 2016;
- administration of the FIT CfD on a UK-wide basis;
- a UK-wide Fixed Renewable Obligation Scheme from 2027;
- a UK-wide Emissions Performance Standard for new coal fired power stations; and
- closure of the Northern Ireland Renewables Obligation (NIRO) to new generation and additional capacity from 31 March 2017 and an extension of the scheme to 2037 so that power stations accredited up to 2017 can receive the full 20 years support.
The EMR is intended to secure the investment needed to deliver a reliable diverse low carbon technology mix. It is estimated that a quarter of the UK's current generating capacity will shut down over the next decade; as a result, the UK requires an investment of more than £110bn to build power stations and upgrade the grid. It is intended that the EMR will make the UK more attractive to foreign investment in the UK energy market.
The Coalition Government published a White Paper in July 2011, setting out key measures to attract investment, reduce the impact on consumer bills, and create a secure mix of electricity sources including gas, new nuclear, renewables, and carbon capture and storage. The Energy Bill will create the legislative framework for delivering these objectives.
Feed-in Tariff with Contracts for Difference
The rationale for the introduction of a Feed-in Tariff following the structure of a Contract for Difference is to provide increased revenue certainty to low-carbon generation. This will only apply to large scale renewable energy generation greater than 5 MW.
CfDs are intended to remove long term exposure to electricity price volatility. The CfD will set a 'strike price' for the sale of electricity into the market by generators. When the market price is below the strike price, the generator will receive a top-up payment from suppliers for the additional amount. If the market price is higher than the strike price, the generator will reimburse the difference.
Although DECC has stated that UK-wide strike prices are preferable, it acknowledges that market conditions within NI are different to those in GB and so, if required, CfD strike prices in NI may be different to those in GB to reflect these differences. The CfD will be standardised across technologies, thereby providing a stable basis for investment and enabling easier cost comparison between different technologies.
The CfD legal framework and payment model are outlined in the draft Energy Bill, however it is expected that these may be subject to change due to the concerns expressed by the industry on this model.
Although CfDs will be introduced in GB in 2014/15, they will not be implemented in NI until 2016/17 to take account of any changes required to the Single Electricity Market (SEM) due to European Electricity Market Integration. DETI's forthcoming Energy Bill, on which Arthur Cox has been advising, may contain enabling powers to introduce a small scale Feed-in Tariff for renewable energy generation of less than 5 MW.
Emissions Performance Standard
In order to encourage investment in low-carbon power generation, the Energy Bill will introduce an Emissions Performance Standard (EPS) to provide a cap on emissions of new fossil fuel power stations.
The cap will initially be set at 450g/kWh for all new fossil fuel plants, excluding those which form part of the UK's Carbon Capture and Storage (CCS) commercialisation programme or benefit from European funding for commercial scale CCS.
Northern Ireland Renewables Obligation
NIRO is currently the main support mechanism for encouraging increased renewable electricity generation in Northern Ireland. NIRO is part of the UK-wide market for Renewable Obligation Certificates (ROCs) and it works in tandem with the Renewables Obligations in Great Britain. Suppliers must produce a certain number of ROCs per MWh of electricity sold to NI customers, or face a Buy Out fee for any shortfall.
The Energy Bill will close NIRO to new generation and additional capacity after 31 March 2017. NIRO will remain open to new generation accredited up to this date and so renewable generation that becomes active between 2014 and 2017 will be able to choose between NIRO and the CfD. NIRO will be extended to 2037 for all generating stations accredited up to 2017 so that power stations can receive the full 20 years support.
The Energy Bill also contains provisions to enable the Secretary of State to replace the Renewables Obligation with a Certificate Purchase Obligation, whereby ROCs will be purchased at a fixed price.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.