Consultation: CFD Implementation in NI Strategic Issues Discussion Paper Date: 08/05/15 Contact: Andy McClenaghan Our reference number: 2259 PD20010

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1 Consultation: CFD Implementation in NI Strategic Issues Discussion Paper Date: 08/05/15 Contact: Andy McClenaghan Our reference number: 2259 PD20010

2 Introduction The Consumer Council welcomes the opportunity to respond to the Department of Enterprise, Trade and Investment s (DETI) CFD Implementation in NI Strategic Issues Discussion Paper. The Consumer Council recognises the objective of the Northern Ireland Executive to support the generation of renewable energy in order to ensure the region benefits from security of supply while minimising the environmental impact of electricity consumption. We also recognise DETI is mindful that pursuing these goals must be balanced against minimising the cost to the consumer. The Consumer Council is concerned at the possibility that (Northern Ireland) NI may be included within the CFD regime given the increases in domestic electricity bills that will result, along with the potential negative impact on the region s economy caused by increases in the bills of industrial and commercial customers. Addressing increases in fuel poverty which would result from participation in CFD would also place greater strain on the budgets of NI Executive departments. Context As a region, NI has the highest levels of fuel poverty 1 and the lowest median household incomes in the UK 2. NI also has the second highest electricity prices in Europe for large commercial energy users 3. In December 2014 the Consumer Council commissioned Ipsos Mori to conduct research 4 examining consumers views regarding a number of energy issues, including the energy trilemma (balancing the cost of electricity, security of supply, and environmental protection). When respondents were asked what they considered to be most important in terms of their electricity supply, receiving the lowest possible price was regarded the most important factor, 1 The NI Housing Executive 2011 House Condition Survey published in 2014 indicates that in 2011, 42 per cent of households were in fuel poverty in NI NI Utility Regulator Retail Market Monitoring Quarterly Transparency Report, February The research sample was representative of energy bill payers in NI and the survey was undertaken via a faceto-face quantitative questionnaire administered between December 2014 and January In total, 854 respondents participated in the research. 2

3 with 80 per cent of consumers considering this to be very important and 15 per cent considering it quite important. Reliability of supply was considered the second most important factor with 72 per cent considering it very important and 20 per cent considering it quite important. Ensuring that as much energy as possible is generated from renewable sources was considered the least important factor with only 28 per cent of respondents considering it very important and 32 per cent considering it quite important. These results indicate that NI consumers prioritise keeping their electricity bills as low as possible over incentivising the deployment of renewable energy. However, the Consumer Council appreciates the complexities and interconnections of these factors and the role renewables have to play in securing and sustaining energy supplies in NI. Impact on consumers Inclusion of NI in the CFD scheme will mean the contribution made by consumers towards supporting the development of renewable energy generation will more than triple from the currently being paid by domestic bill payers annually under the Northern Ireland Renewables Obligation (NIRO) to a contribution of 54 by This represents an additional cost to the region s domestic electricity bill payers of approximately 24 million per year 6 amounting to a total contribution to supporting the deployment of renewable energy generation to approximately 43 million annually 7. The Consumer Council believes the Northern Ireland Executive should explore whether NI could more efficiently contribute to reducing its carbon emissions by other means, for example through investing in improving the energy efficiency of the region s housing stock rather than continuing to subsidise the development of renewable generation. Improving energy efficiency would have the associated benefits of reducing the number of individuals in fuel poverty and providing jobs within the region s economy. The Consumer Council does not oppose, in principle, a modest increase on consumers ,287 bill payers (as identified by the Utility Regulator s Quarterly Transparency Report published in February 2015) multiplied by 30 each NIRO contribution per NI bill payer amounts to approximately 19 million. 3

4 electricity bills to fund energy efficiency work programmes, but only as an alternative to the inclusion of NI in the CFD. Increasing the current Northern Ireland Sustainable Energy Programme (NISEP) levy by 5 per bill, for example, would raise an additional 4 million per year to fund energy efficiency initiatives in NI. The discussion paper explains renewables support costs for industrial and commercial customers is also forecast to increase, and could represent between 7% and 9% of bills (depending on their consumption) by This will have a negative impact on the NI economy further hampering economic growth and job creation, with potentially negative impacts on the number of individuals in fuel poverty in NI. The discussion paper also explains that NI consumers will be expected to meet a share of the one-off set up costs and ongoing administration costs of the CFD scheme and that, set up costs would add to consumer bills in the period and with administration costs incurred on a yearly basis from No indication is given as to what the anticipated set up costs will be and how much NI consumers would have to pay. These costs will further increase the financial burden that inclusion in the CFD scheme would mean for consumers and the lack of information concerning the level of the cost is concern to the Consumer Council. DETI highlights that the optimum net economic benefit for renewable generation in NI is delivered at around 25 per cent of total energy consumption, and the Programme for Government target of 20 per cent by 2015 has almost been reached. By the end of the life of NIRO (2017), the current figure of 19 per cent of total electricity consumption in NI generated from renewable sources located in NI 8 will have further increased. The Consumer Council questions the potential of requiring consumers to significantly increase the amount they pay in order to continue to fund the incentivisation of renewable generation beyond 25 per cent when exceeding this will result in diminishing benefit to the economy. 8 DETI Electricity Consumption And Renewable Generation In Northern Ireland: Year Ending December

5 The discussion paper explains that while the CFD scheme will incentivise the most cost effective renewable projects in the UK, if deployment of renewables in NI are not competitive in terms of cost effectiveness, there could be a much reduced level of renewable deployment in NI and therefore no economic benefit. The Consumer Council understands that no UK wide assessment has been conducted to determine where the least cost renewable generation locations are and therefore there would be considerable risk associated with NI participating in CFD given there is no guarantee of increased renewable deployment in NI. In addition, participation in the CFD scheme will mean the costs of incentivising deployment of renewable generation elsewhere in the UK will be shared by NI consumers despite this deployment rendering no benefit to the NI economy. Paragraph 2.15 explains the UK Government intends to exempt the most trade exposed and electricity intensive industries (EII) from some of the costs of the CFD scheme, subject to State Aid approval. The Consumer Council understands that NI has no industries that fall within these categories. This is another factor to suggest NI should not participate in the CFD scheme given that consumers here would bear the costs of incentivising deployment of renewable generation but would receive no benefits to their economy from the exemption of EII industries. In 2014 NI s renewable energy generation accounted for 2.9 per cent of the UK s total renewable energy generation 9. With 2.9 per cent of the UK population living in NI, the region currently makes an equitable contribution in terms of the amount of renewable energy generated and consumed. With 19 per cent of its electricity consumed being generated from renewable sources in 2014, NI is comparable to the UK which in 2014 had a total of 19.2 per cent of its energy generated from renewable sources 10. In comparison to NI, the contributions of Scotland and Wales to the total amount of renewable energy generated in the UK exceed their respective shares of the UK population. Scotland accounts for 30 per cent of the UK s renewable energy generation and 8.4 per cent of the UK population, whereas Wales accounts for 7.4 per cent of the UK s renewable energy generation and 4.8 per cent of the UK 9 https://www.gov.uk/government/statistics/energy-trends-section-6-renewables 10 Ibid 5

6 population. By comparison England generates the least renewable energy on a per capita basis with 84 per cent of the UK population living in England and 60 per cent of the UK s renewable energy generated there. If the Northern Ireland Executive decides that NI should not participate in the CFD scheme, it would be prudent for the Executive to attain a guarantee from the Department of Energy and Climate Change (DECC) that NI will not incur penalties if the region delivers less per capita to renewable energy generation than other regions in future. Planning and grid connections Paragraph 2.8 of the discussion paper states, Projects are only eligible to compete for CFDs if they have planning permission and a grid connection agreement prior to application to a CFD allocation round. The Consumer Council is concerned that the planning processes in NI may not administer applications for renewable generation deployment as swiftly as planning processes in GB which may potentially deter deployment in the region. The recent transfer of planning functions to local councils in NI creates a further degree of uncertainty. Differences in planning permission and grid connection procedures in NI compared to elsewhere in the UK may pose a hindrance to potential generators competing for CFDs for deployment in NI. If DETI chooses for NI to participate in CFD, to ensure the region is not disadvantaged compared to GB, it would be essential that any obstacles hampering the efficiency of the planning permission and grid connection processes in the region are removed to ensure the processes are as efficient as those elsewhere in the UK. The Consumer Council is aware that significant constraints exist in connecting small scale renewable generators to the NI electricity grid. The Consumer Council recognises CFD will not cover small scale renewable generation and notes that that inclusion of NI in the DECC small scale Feed-in Tariff (FIT) may 6

7 add a further 14 per year to domestic consumers bills, equivalent to a two per cent increase in bills based on 2015 prices 11. In the longer term the high voltage grid will need significant investment from consumers to facilitate the connection of more large scale renewable generation. Addressing capacity constraints for both large and small scale renewable energy generation will result in higher costs for consumers. The Consumer Council is concerned that under CFD, and potentially FIT, consumers would not only be incentivising deployment of renewable energy generation, they would also bear the cost of enhancements to the electricity grid to ensure connections for generators. Small Scale Feed-In Tariff The discussion paper explains that DETI is in contact with DECC concerning how NI generators and suppliers can participate in the existing GB small scale FIT following the closure of NIRO. DECC estimates that the total costs of the FIT in 2020 will add 14 a year for GB consumers. If replicated in NI this would amount to a two per cent increase in bills based on 2015 prices 12 for NI consumers. On the basis of this estimate the Consumer Council would oppose inclusion of NI in the FIT as it would cost NI consumers approximately 11 million per year to incentivise what is currently a small fraction of the total renewable generation in the region 13. Conclusion and recommendation Given the significant costs to NI s consumers and its economy posed by CFD and the small scale FIT, the Consumer Council believes that NI should not be included in either the CFD or FIT schemes. The Consumer Council believes the Northern Ireland Executive should explore opportunities to further reduce NI s carbon footprint in the most economically per cent increase based on 622 for average consumption of 3,800 kwh on Power NI s standard tariff, paying by cheque and receiving paper bills. On the cheapest available tariff ( 551 for Budget Energy Welcome to Budget Keypad Tariff) the increase is 2.5 per cent per cent increase based on 622 for average consumption of 3,800 kwh on Power NI s standard tariff, paying by cheque and receiving paper bills. On the cheapest available tariff ( 551 for Budget Energy Welcome to Budget Keypad Tariff) the increase is 2.5 per cent. 13 DETI Electricity Consumption And Renewable Generation In Northern Ireland: Year Ending December

8 efficient manner in all areas of devolved responsibility. The Consumer Council recommends DETI explores the potential of introducing an additional NISEP style energy efficiency levy on all electricity consumers at a contribution level significantly below the amount consumers bills would increase by under CFD and FIT. The levy could fund work programmes to: Reduce carbon emissions; Decrease energy consumption; Reduce consumers bills; and Tackle fuel poverty. Including the new levy would contribute to achieving existing NI targets for carbon reduction, energy efficiency, and fuel poverty at a lower net cost to NI consumers than increasing renewable energy generation. An NI wide programme of energy efficiency improvements would also create employment opportunities within the region. In comparison, participation in the CFD scheme will increase levels of fuel poverty, and will provide no guarantee that NI will successfully attract investment in renewable generation or create jobs. If further information is required or to discuss this response please contact Andy McClenaghan on or 8

9 Making the consumer voice heard and making it count Elizabeth House 116 Holywood Road Belfast BT4 1NY Telephone: Textphone: Fax: Website: 9

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