NIRIG response to EMR: Consultation on Proposals for Implementation

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1 90% NIRIG response to EMR: Consultation on Proposals for Implementation 23 rd December 2013 The Northern Ireland Renewables Industry Group (NIRIG) is a joint collaboration between the Irish Wind Energy Association and RenewableUK. NIRIG represents the views of the large and small scale renewable electricity industry in Northern Ireland, providing a conduit for knowledge exchange, policy development support and consensus on best practice between all stakeholders in renewable electricity. NIRIG welcomes the opportunity to respond to this consultation. We note that the primary aims of EMR are to ensure a secure electricity supply, ensure sufficient investment in sustainable lowcarbon technologies and maximise benefits and minimise costs to taxpayers and consumers. NIRIG believes that Northern Ireland has an important part to play in achieving these objectives. The Strategic Energy Framework (SEF) has provided a clear vision for Northern Ireland to move towards a more diverse, secure and low-carbon energy future and its target of 40% electricity from renewable sources has provided an unambiguous focus for the energy sector. Northern Ireland now generates a high proportion of its electricity from renewable sources, punching above its weight in contributing to the UK target of 15% of energy consumption from renewable sources by Furthermore, a study 1 published in 2012 demonstrates that to the extent that NI renewables can displace the marginal UK renewable technology, greater onshore deployment in NI can create significant UK-wide savings. The SEF represents a clear vision for Northern Ireland. However, the NI contribution to wider UK energy policy objectives requires continued engagement with industry to understand and facilitate local contexts throughout the process of Electricity Market Reform. We welcome the engagement Full Colour with DECC and DETI officials to date and look forward to collaborating further to ensure that the 100% Solid Solid % Gradient 90% Gradient

2 objectives of EMR are achieved appropriately. We raise some general points in this submission and respond to the NI-specific questions below. CfD Supplier obligation proposals: Coincident when NI renewable generators can opt for CfD support, it is currently expected that the supplier obligation will apply from April 2016 in Northern Ireland and will be socialised across the UK. We understand that a defined entry date for this obligation is required but would suggest that serious consideration, including discussion with DETI, should be given to the fact that because of Northern Ireland s unavoidable late entry to the contract allocation process, NI consumers may effectively be supporting GB low-carbon generators before any NI renewable generator can enter the new system. NIRIG believes that some issues relating to Contracts for Difference will require careful consideration and modification for Northern Ireland. Some examples of these are given below: Single Electricity Market (SEM): A project to revise the high level design of the SEM on the island of Ireland (to comply with European Target Model requirements) is on-going. All market reform options currently under consideration include radical to significant re-design of the current market. The project will progress to consultation phase in 2014 and the aim is to decide the new high level design by autumn Only then can the detailed market design and implementation phase of the project begin. December 2016 is the planned go-live date 2. To the extent that this does not align with the April 2016 entry point for NI CfDs, it will be necessary to specify two distinct (and NI specific) reference prices in the Northern Ireland contracts, the second of which (applicable from December 2016) is unknown. This complicates matters from a financing perspective for NI developers. Given the discrepancies in the timelines for the introduction of the CfDs and the new SEM careful consideration needs to be given to this issue in the drafting of the CfD. Balancing: Currently NI generators are not subject to balancing costs. However these costs may be introduced as part of the SEM redesign. If this does transpire then it is important that the impact of these new costs on NI generators is considered to see if a review of the strike price is required. Question CFD5 Do you have any further comments that should be taken into account in finalising eligibility criteria for Northern Ireland? 2 This is consistent with a 2 year derogation from Target Model requirements secured for the island of Ireland.

3 NIRIG agrees with the eligibility criteria proposed. We believe that there should be no additional eligibility criteria introduced for Northern Ireland generators as there should be no increased risk of joining the allocation process at an even later date. Please also see responses to questions CFD54/55. Question CFD54 Given the different planning and grid connection regime in Northern Ireland, we would welcome views from Northern Ireland generators as to which point in the grid connection process in NI is most appropriate to sign a CfD. NIRIG believes that in general the proposed process outlined within the Consultation is appropriate for NI generators regarding the signing of CfDs. However, concerns remain about the timeframes outlined (Target Commissioning Window, Long-stop date, Significant Financial Commitment etc.). The main reason for slow delivery of renewable generation in Northern Ireland to date has been delays in connection offer arrangements, grid infrastructure approval, build-out and connection policy development. These are on-going issues outside of the control of the renewables industry. For example, the consultation proposes that for onshore wind SFC must be reached within one year of CfD allocation. However, an NIE connection offer may have a much longer indicative connection date. Realistic target delivery dates will not be provided by NIE until planning consents are received and pre-construction regulatory approval is given. Therefore despite having met all the eligibility criteria, Northern Ireland generators may be forced to delay applying for CfDs because of the disparity between the SFC deadline and the connection date. NI generators show significant financial commitment by obtaining planning permission and paying a 10% deposit when they sign a connection offer. This will be even more significant if current proposals from NIE requiring a security bond for the full cost of connection alongside the 10% deposit proceed. Currently the awarding of significant amounts of grid capacity in Northern Ireland is based on the cluster approach. However, if not all projects are successfully awarded a CfD within a proposed cluster then the total capacity within the cluster may fall below 56MW, the threshold at which a cluster connection is likely to be granted regulatory approval. This may impact upon grid connection costs for other projects within the cluster. Increased costs will be of particular concern under auctioning as this increased cost will not have been factored into the auction bid. Therefore, all

4 projects within a cluster may be dependent on the success of others in an auction. This potentially creates a very problematic situation. The most efficient process for allocation and costing grid connections needs to align with the CfD allocation process. We believe that more thought needs to be given the most effective auction method in Northern Ireland. We would request assurance that the NI CfDs are drafted appropriately to account for the potential for project delays that are peculiar to the NI situation. One proposal would be that NI generators are only able to make the SFC once they receive clarity on their connection date. For example, once regulatory approval for a cluster is given and NIE give firm dates for connection, then generators would have a certain number of months from this point to make the SFC. An alternative would be grace period provision. NIRIG believes that this issue would benefit from further discussion with DETI, DECC, industry and grid stakeholders in Northern Ireland. It may be that receipt of a target delivery date from NIE is an appropriate point at which sufficient certainty in timelines could allow onshore generators to sign a CfD. However, the complex grid connection process in NI and lack of detail on offshore connection processes mean that we believe further discussion is required early in 2014 to define appropriate CfD signing points. QuestionCFD55 Are there any other issues in the allocation criteria that need to be amended for NI generators? We have already raised concerns that Northern Ireland generators, by necessity as a result of operating in a different wholesale electricity market that is being re-designed, can only enter the CfD allocation process at a point at which it is highly likely to have already moved to constrained allocation rounds. This potentially disadvantages NI generators. NIRIG would recommend that should the situation arise whereby constrained allocation rounds are already in place when NI enters the CfD process that a mechanism be introduced to ensure that there is no disadvantage to NI generators. One potential solution would be a proportion of the Levy Control Framework reserved for NI to make up any difference between the First Come First Served contract value and the average auction contract value at the point at which NI generators enter the process.

5 We also believe that consideration should be given to the impact of a different reference price in Northern Ireland both on the ability of NI generators to win auctions and the costs to the UK of not doing so. We further believe that there should be a requirement for some form of mechanism to review the effectiveness of the Reference Price 6 months or one year after the new SEM/CfD arrangements begin. As the reference prices will have no history there will be no confidence that it will represent a fair price for wind. Northern Ireland transmission loss adjustment is project specific and can be volatile from year to year. An indicative range of loss factors is to but this will vary in each location by approximately 1%. NIRIG therefore supports protection against annual changes in transmission charges in order to make generator whole, thereby preserving the principle objective of the CfD arrangement to provide clear, fixed long-term prices for generators. For offshore projects in NI, there is direct liability for an increased share of connection assets, as well as for deeper reinforcements that does not apply in GB. In addition, the absence of an OFTO arrangement in NI will require significantly higher long-term capital to remain in the project than for an equivalent GB project. Both these issues will need to be addressed either through changes to the DECC-set NI strike price or to CfD terms that allow for the pass through of the costs of differences in arrangements that exist between GB and NI. Again this will need to be addressed. The SEM Committee has decided that compensation for curtailment on the island of Ireland will be removed by Curtailment has financial impacts upon NI generators and NIRIG believes that there should be consistent treatment of generators in NI and GB. We understand that analysis is being carried out on potential flexibility on allocation mechanisms and would request that the above issues be considered. NIRIG welcomes the opportunity to comment on this paper and look forward to continued engagement with DETI and DECC on further development of EMR mechanisms. Meabh Cormacain NIRIG