Assembly debates electricity prices

scottish windfarm credit russell fallis Michael McKernan reviews the Enterprise, Trade and Investment Committee’s detailed report on pricing which has stimulated a mature debate about energy’s economic impact.

The Northern Ireland Assembly committee shadowing the Department of Enterprise, Trade and Investment (DETI) has reported on its inquiry into the high level of electricity prices in Northern Ireland. The Enterprise, Trade and Investment Committee report is the second of three reports on energy in Northern Ireland; the first covered security of supply.

Although the committee was concerned about the cost of electricity to all customers, there was a particular concern around how Northern Ireland’s comparatively high costs impacted the competitive position of manufacturing industry. In relation to energy-intensive large scale industry, there was the fear that high costs could result in job losses in the present or near term, as well as adverse decisions by multi-nationals located in the North to invest elsewhere in the future.

The committee’s report runs to some 572 pages (although much of this is submissions and minutes of evidence) and contains an extensive

series of recommendations. The recommendations vary from the very general to the quite specific although in some cases they could be described as aspirational i.e. difficult to see how they might be implemented even with government support.

Proposals

Following submissions from different consumer lobbies, the committee’s first recommendations related to price transparency, inviting the Single Electricity Market Operator (SEMO) and the Utility Regulator to review how generation and network cost elements could be made more transparent.

Also, the supply element needed to be analysed so that there was greater understanding of price volatility and what could be done by suppliers to avoid major price fluctuations from year to year. A further recommendation called on DETI, the Utility Regulator and the Consumer Council to work together to produce an extensive awareness campaign informing consumers of how easy it was to switch suppliers.

The committee also recommended that the Utility Regulator should examine how network costs are apportioned between the different groups of customers to assess whether or not the current methodology was actually cost-reflective and fair to large users.

Large users had argued that a different methodology, as deployed in other countries, could greatly benefit energy-intensive industry in Northern Ireland. However, while the committee wanted cost-reflectiveness of network charges to be studied, it warned against changing the apportionment to the detriment of smaller customers until such times as some of its other recommendations to actually lower electricity costs had been implemented.

As regards recommendations targeting lower costs overall, the committee focused on how the single market remunerated generators through the established system marginal price (SMP) market mechanism.

The committee questioned the future efficacy of the SMP model and recommended that the SEMO evaluate whether or not capacity payments should be paid at all. In the meantime, the committee argued, capacity payments should not be paid to wind generators who by their intermittent nature could not be regarded as providers of reliable capacity.

In fact, perhaps the most hard-hitting recommendations in the committee’s report were that DETI and the Utility Regulator should review how renewable generators are rewarded (the suspicion being that the reward system was over-generous and inefficient) and that the SEMO should decouple the price paid for renewable generation from the price paid for electricity generated from fossil fuels.

The committee also burrowed into other payments made to generators, including public service obligations (PSOs), imperfection costs and cost of carbon. On PSOs, the committee recommended that the element to fund the Northern Ireland Sustainable Energy Programme should not be an element in final electricity prices and that a future scheme “to promote and improve energy efficiency for vulnerable customers” should be financed directly by the Northern Ireland Executive rather than by electricity consumers generally.

The committee also recognised that the best way to lower ‘imperfection costs’ – the payments made to generators who are available for dispatch but are constrained-off due to shortcomings in the network – was to complete the work of network integration so that the all-island market could function to its full technical potential.

In this regard, the committee recommended that the Planning Appeals Commission should prioritise dealing with the planning application for the new North/South Interconnector. Mutual Energy was also encouraged to put in place a permanent solution to the Moyle Interconnector faults at the “earliest opportunity”.

It was also pointed out in the report that the network could perform better with greater deployment of smart-grid technology. It was recommended therefore that DETI, in reviewing the Strategic Energy Framework, should consider how this technology can be fully utilised to reduce the need for grid strengthening and to reduce costs to consumers.

On the ‘cost of carbon’ the Enterprise, Trade and Investment Committee report very directly recommended that the cost must be decoupled from the system marginal price to ensure that generators receive a return on the cost of carbon which is “directly linked to the carbon they produce”.

Debate

The committee report was debated in the Assembly prior to publication and a motion calling on all the relevant authorities to implement its recommendations was passed without a division.

The debate was led by committee Deputy Chair Phil Flanagan who outlined, extensively, the quite complex considerations the committee had wrestled with in arriving at its recommendations. Apart from some routine crossing of swords between elements of the DUP and the Green Party over the impact of climate change, this was a thoughtful and intelligent debate with a clear focus on the matter in hand – getting to grips with expensive electricity in Northern Ireland.

Some observers also noted that there were signs of a maturing of political discourse around this important policy area. Despite a time of difficulty in the power-sharing Executive, Assembly watchers could see DUP contributors arguing for greater urgency in maximising North/South energy integration, while some Sinn Féin speakers advocated on behalf of multi-national companies and the damage that high electricity costs were doing to their competitiveness and future interest in Northern Ireland.

Overall, the committee’s inquiry and report will do little to reduce electricity prices in the short term but the recommendations certainly do include measures, which if implemented, would undoubtedly impose downward pressure on prices.

Energy costs have a tendency when suppressed in one area to pop up again somewhere else. The committee has made specific recommendations which would remove elements of the final price of electricity but which would give the Executive a bill it doesn’t currently have. Similarly some of the recommendations in reducing payments to wind generators could have unintended consequences which could ultimately cost government more money elsewhere.

Nonetheless, the committee deserves credit for a serious piece of work and its members for getting their heads around a difficult and complex issue and reaching some measure of agreement on pathways forward.

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