While still keeping the economy as first priority, the draft Programme for Government offers few radical solutions for the province’s problems.

As expected, the economy is described as the Executive’s first priority but its aims are considerably less ambitious than before. This reflects the recession but also the risk-averse influence of the Civil Service.

Closing the productivity gap with Great Britain (a major goal for decades) is not set as a firm target. The previous programme aimed to halve the difference with the UK average (excluding South East England) by 2015. Instead, the draft Economic Strategy calls for private sector GVA growth to exceed the UK average.

As of June 2011, almost a third of employees (31.3 per cent) worked for government. The public sector workforce stood at 218,000 while the private sector employed 481,910 staff (with both figures seasonally adjusted). This compares to 221,980 and 487,790 respectively in June 2010.

Northern Ireland’s unemployment rate stood at 7.3 per cent of the workforce (63,000 people) between July and September. A further 51,000 economically inactive people want a job but fall outside the official definition, which in practice brings the unemployment total up to 114,000.

The programme claims that the same number of benefit claimants will be moved into employment by 2014 through welfare reform. No estimate of the inevitable decrease in public sector jobs is included.

Against that, the Executive promises to “support the promotion” of over 25,000 new jobs (5,900 from foreign direct investment) by 2015. Promoted jobs are those expected to be created by Invest NI-supported projects. A total of 15,565 jobs were promoted between 2007 and 2010, although statistics do not show how many still exist.

A call for the “timely and affordable” devolution of corporation tax is contradicted by Sammy Wilson’s prediction that no cut will happen before 2015. Separately, the Executive will lobby the European Commission for the “best possible outcome” for regional aid after 2013.

The regional rate is pegged to inflation. Industry will be encouraged to achieve 20 per cent of electricity consumption from renewables, which depends on adequate grid reinforcement.

Irish Government A5 funding was cut just before the draft Investment Strategy was published. Its specific goals include Belfast rapid transit (construction due from 2012 onwards), the Lisanelly campus, the Desertcreat training college, electronic prescribing in hospitals and a regional library.

Ministers expect tourist numbers to reach 3.6 million by 2013 (generating £625 million), with the help of the Titanic centenary and Derry’s status as UK City of Culture. The 2009 totals, for comparison, were 3.29 million visitors (1.92 million from outside Northern Ireland) and £529 million in revenue.

The SME liquidity scheme was publicised as a £50 million loan fund, although the maximum in this Assembly term will be £30 million.

Ninety per cent of large scale investment planning decisions should be made in six months by 2015. However, 100 per cent was promised immediately in 2008. The modest interim target is 60 per cent in 2012-2013 and 57 per cent was achieved in 2010-2011.

The value of manufacturing exports (currently £5.1 billion) is to be increased by 15 per cent over the next four years. Exports fell by 0.6 per cent in 2010-2011.

DCAL’s creative industries innovation fund would support 200 projects. DEL plans to fund an extra 540 places on STEM courses. The creation of a new food strategy board recognises farming’s strong economic contribution.

Living standards

Two overlapping chapters cover quality of life, officially termed “Creating Opportunities, Tackling Disadvantage and Improving Health and Wellbeing” and “Protecting Our People, the Environment and Creating Safer Communities”.

Practically, this would involve building 8,000 social and affordable homes and the full double glazing of Housing Executive stock. The house-building total is to be expected given that 2,104 were started by housing associations in 2010-2011.

The SDLP and UUP contend that the £80 million Social Investment Fund could go to community groups linked to the DUP and Sinn Féin, a charge denied by both parties. A separate Social Protection Fund, similar to the December 2008 hardship payment, will receive

£20 million per annum. Child poverty is to be reduced, using both funds.

The promise of one year’s pre-school education (from 2013) does not guarantee a nursery school place. Around 90 per cent of children currently have places and the Department of Education already aims to provide one-year places to all parents.

Forty-nine per cent of young people from disadvantaged backgrounds should achieve five GCSEs A*-C by 2015, including in maths and English. The 2009-2010 figure was 31.3 per cent and that target is in keeping with the current annual increases. The same percentage for all young people should increase to 70 per cent, up from 59 per cent in 2009-2010.

Legislation to ban age discrimination in goods, facilities and services is to be drafted next year but only enacted in 2014-2015. To deal with the legacy of the Troubles, OFMDFM also promises to launch a dedicated ‘victims and survivors service’ in 2012-2013.

More chronic condition patients should be able to take up programmes to help them manage their own conditions from 2014-2015. The Health and Social Care Board will co-ordinate existing programmes and roll these out across the province. £7.2 million is set aside to tackle the growing obesity problem.

Environmental commitments include the plastic bag levy, a 35 per cent cut in greenhouse gas emissions over 1990-2025 (compared to 42 per cent by 2020 in Scotland) and 45 per cent of household waste being recycled by 2015.

For criminal justice, a 3 per cent reduction in violent crime is set as a target. PwC Chief Economist Esmond Birnie commented that the draft programme was “aspirational but lacks substance as well as the necessary milestones and stretching targets.”

He added: “Transformation to a new, prosperous, internationally competitive and socially inclusive Northern Ireland can’t even begin till we’ve defined what it might look like.” Consultees, Birnie said, should not miss the opportunity to become persuaders for a more radical document.

Draft Investment Strategy breakdown (£ million)

*includes the Assembly and minor government organisations

While the Republic has drawn down €290 million from Europe’s key innovation programme, Northern Ireland’s applications total just €30 million. That gap is an urgent wake-up call for the Executive to promote the region’s R&D, especially as the Seventh Framework Programme finishes in 2013.

Statistics for 2010 make clear that business leads the way in local innovation. The private sector spent 22 times more on R&D than government and had a 66 per cent share. Higher education made a substantial contribution (31 per cent) while a mere 3 per cent is done inside government.

That said, government departments have the potential to boost R&D across the board by securing funds from EU R&D programmes.

Most Northern Ireland applications to the framework programme have come from higher education (€21 million), with the remainder from businesses. The programme started in 2007. SMEs are deterred by the cost of participation, inadequate access to finance and problems with finding appropriate partner organisations.

The Irish Government hopes to receive €600 million from the programme over 2007-2013 and many southern researchers were seeking a larger sum. Based on its share of the island’s population, Northern Ireland should therefore be receiving €240 million over the programme’s lifetime. The UK does not have a specific target but has gained £3.27 billion to date.

Business R&D is dominated by externally-owned firms (68 per cent) and large enterprises (61 per cent) i.e. those with more than 250 employees. Small and medium enterprises spent £10.9 million less compared to 2009, an 8 per cent fall, and their share has declined over the recession from 58 per cent in 2008.

Total expenditure in real terms (£521.4 million) was up from £497.1 million in 2009, representing a 5 per cent increase. Using that measure, higher education spending increased by 10 per cent, business spending by 3 per cent and government spending dropped by 6 per cent.

Almost all business R&D spending (94 per cent) is carried out in-house, totalling £324.2 million in 2010. Of this, £234 million was generated in manufacturing. In cash terms, Northern Ireland had the second highest increase within the UK regions (9.1 per cent) in 2009 but that rise is offset by having the second smallest spend; Wales is last with a virtually static £244 million figure.

UK R&D is concentrated in East Anglia and along the M4 corridor, with strong pockets in the East Midlands and North West England.

The province’s R&D investment rate was initially measured as a share of 2009 GVA figures; new statistics are due in December. A 1.1 per cent figure for Northern Ireland makes it sixth out of 12 regions but the regional average is only a modest 1.3 per cent. The UK’s latest overall percentage (R&D of GDP) is 1.87 for 2009, with the Republic just behind on 1.77 per cent.

Business R&D spend in the Republic reached £1.87 billion in 2009 but fell to an estimated £1.6 billion in 2010, with medium and large enterprises cutting their budgets in a turbulent economic climate.

Scandinavian states were Europe’s R&D leaders in 2009: Finland (3.96 per cent of GDP), Sweden (3.62), Iceland (3.1) Denmark (3.02). The most recent US and Japanese figures, for 2009, were 2.77 and 3.44 per cent respectively.

Israel is recognised as the world leader in R&D, particularly in agriculture, defence and engineering. Its rate of GDP will be 4.2 per cent this year, according to the US-based Battelle Memorial Institute.

Battelle’s global R&D forecast, published last December, predicted that worldwide spend would reach $1.19 trillion in 2011. Asia’s share was estimated at 35.3 per cent, having overtaken the USA (34.4 per cent), while Europe’s estimate was 23.2 per cent. China had Asia’s largest R&D budget ($153.7 billion), just ahead of Japan ($144.1 million).

“Leading Asian nations recognize that their economic expansion can be sustained by continued commitment to R&D investment across a wide range of science and technologies,” the study said. In contrast, experienced researchers were becoming harder to find in the US and Europe, and European government support for R&D was being hit by deficit reduction plans.

Speaking to agendaNi last year, European Science Commissioner Máire Geoghegan-Quinn warned that research budgets were seen as an easy target for spending cuts. She recognised that North America and Asia were better at getting research to market and Europe therefore had to catch up. Northern Ireland’s performance therefore needs a radical step change if universities and businesses are to reach their potential in the global knowledge economy.

UK manufacturers can create a global edge by backing up their products with high quality support services, according to Work Foundation author Andrew Sissons. The trend, known as manu-services, was the subject of his ‘More than making things’ report, which he launched in March.

Manufacturing is essential for rebalancing the economy and closing the strategic trade gap but the UK is slipping back at the high-tech end. From 2007 to 2010, UK high-tech manufacturing lost a third of its workforce, declining twice as fast as its low-tech counterpart.

Speaking at the Northern Ireland Economic Conference, he explained that manu-services was an entirely new business model, not just an add-on.

Around 42 per cent of manufacturing workers make things but the majority are employed in other processes e.g. design, marketing and after-sales care. Manu-services involves integrating all those operations effectively.

It’s already happening. Complex services are needed to ensure that Boeing’s products (from outsourced plants around the world) match up to specifications. Apple produces the iPhone and then provides after-sales support.

Manu-services often result in manufacturers leasing goods to customers (rather than selling them) and adopting the risk on their products (which they may be able to manage more efficiently). While manufacturers could also lock customers into longer term contracts, the customer could play a greater role in designing the product “and you might not even know when you sign the contract what the final product is going to look like.” Lasting relationships with customers would be developed.

The manufacturing workforce fell from 6.6 million in 1979 to just under 2.5 million in 2010. Services tend to be more labour-intensive and integrating them with manufacturing could help to rebuild employment.

Data suggest that manu-services firms currently struggle and are more likely to go bankrupt. Smaller companies are better at manu-services but less able to get into the market, given the risks involved.

Government policy can support manu-services by creating “world class” networks of businesses, universities, banks and research institutions to develop this work, and by tackling specific barriers to growth. A publicly-backed insurance fund for manu-services could mitigate the risk for smaller companies.

The Work Foundation estimates that manu-services already represent 15-20 per cent of manufacturing turnover and therefore generate around 2 per cent of UK GDP, roughly the same as all lawyers and accountants.

High-tech manufacturing is becoming increasingly competitive, with countries like China catching up, and he sees manu-services as “a new opportunity for Britain to set itself apart”. The processes involved are complex and therefore harder for other countries to copy.

“Given the darkened economic climate, it makes efforts like this as important as ever,” he said. “Really the only way to get out of this sort of situation for Northern Ireland is to focus very heavily on exports. Those exports are going to come particularly from new types of manufacturing.”

Rather than “beating the drum” for manufacturing per se, he urged political leaders to look at the “nuance” behind the changes in the sector and understand its complexity.

www.theworkfoundation.com/reports

“We’ve got to look for good role models and not merely the nearest but our real problem in Northern Ireland is complacency,” says Graham Gudgin in a sharp critique of the region’s economic culture. Gudgin currently works at Cambridge University’s Centre For Business Research and has analysed Northern Ireland’s economy since 1985.

“The most immediate place to look is the Civil Service,” he says of the problem. “They’ve existed for decades, just shovelling British tax-payers’ money into very willing companies in Northern Ireland.”

He also finds that attitude among many businesspeople, who cannot comprehend an economy without grants.

In his view, the whole system breeds complacency and politicians “don’t want to know any better”. As EU state aid winds down, he blames the Civil Service for ignoring alternatives: “We’ve seen this tsunami coming for several years now and they’ve done nothing about it.” Instead, it is the Secretary of State who has been pushing for lower corporation tax.

Northern Ireland’s decline, though, can be reversed as a smaller country with a more troubled history has shown. Estonia’s business R&D rate quadrupled from

0.16 per cent of GDP in 1999 to 0.64 in 2009. Its overall rate stood at 1.42 per cent. The UK and Irish percentages were 1.87 and 1.77 respectively. Northern Ireland’s in-house business R&D figure for the same year was 1.0 per cent (of GVA).

The Baltic state endured a 58-year Soviet occupation and emerged from communism in 1991. It followed the examples of Finland and Sweden (Europe’s two leading R&D states), building on its existing cultural links.

“Even countries that came out of the Soviet Union [and] did essentially no R&D at all, got their act together and are overtaking us,” Gudgin warns. “The world isn’t standing still.”

Invest NI does give generous grants to companies undertaking R&D in Northern Ireland but not many of these firms exist. He rejects the agency’s “not much we can do about it” attitude.

“This is why [cutting] corporation tax is important in attracting high tech companies,” Gudgin explains. “We’ve got to get our companies more R&D-minded and collaborating with the universities, and perhaps with each other.”

Companies starting up in R&D could receive direct government support but through a very different model. Finland’s state-owned research institute (VTT) employs 3,167 staff and has a €292 million turnover.

“We’ve got nothing like that,” he states. “We could set up an institute that is really to act as a middleman between not only Northern Ireland’s universities but the whole UK universities, to try and introduce that sort of research to companies: to give companies the confidence that they can do it.”

Going further, Gudgin contends that all other business grants should be ended. “Why would you do that?” was the response in Finland and Sweden where the focus is entirely on R&D. A name change from Invest NI to Innovate NI was a no-brainer and “learning by doing” would give the agency a pro-innovation attitude.

In contrast, British R&D has been falling for several declines, partly due to the rapid decline of manufacturing. The UK has “put all our eggs in a sort of financial basket” and the Republic took a similar gamble on corporation tax.

One way that Finland “cracked” the innovation problem was by “mobilising the whole society in collaborating between the education system, universities, civil service [and] companies in a way that we don’t.”

Isolation is no excuse. Finland is nearly twice as far from Europe’s centre as Northern Ireland, and has high tech research centres on the Arctic Circle. To him, the lessons for our small region are therefore very clear.

Disadvantaged by its small size, Israel’s scientific and technological policies are aimed at enhancing its competitive position. It gross domestic expenditure on R&D as percentage of GDP is 4.7 per cent compared to 2.7 per cent in the United States and 2.01 in Europe. Private sector spend as a percentage of its GDP is 3.39 per cent compared to 2.01 and 1.25 in the US and Europe.

Israel’s universities have a strong reputation for technological advancement and all ministries employ chief scientists.

Within government, this work includes the Ministry of Immigrant Absorption’s Centre for Absorption in Science which helps immigrant scientists find work in institutions of higher education, research institutes, colleges or in the business sector.

Since its formation in 1948, the influx of immigrants, particularly from the former Soviet Union in the early 1990s has increased the percentage of qualified personnel in the country. The lack of natural resources has resulted in research policies being geared towards alternatives for raw materials and exporting scientific knowledge. The threat of attack from Iran and Palestinians are cited as reasons for its military research. The conflict with Palestinians is unbalanced due to Israel’s far superior military capability and continual US aid.

Israeli scientists have received four Nobel prizes; three for chemistry (Dan Shectman 2011, Ada Yonath 2009 and Aaron Ciechanover 2004) and one for economics (Daniel Kahneman 2002). Israel has also participated in building the ATLAS detector for the Large Hadron Collider at CERN. It has invented devices such as the ‘pillcam’, which allows physicians to examine a patient’s gastrointestinal tract with a swallowable camera and is a leader on military drone technology.

Other R&D strengths include the scientific breeding of cows to produce more milk, computerised irrigation systems and soil solarisation i.e. the decontamination of soil using solar power.

Israel hosts eight universities and its research institutes include the Ministry of Agriculture’s Agricultural Research Organisation and the Israeli Association for Artificial Intelligence.

The Israel Science Foundation is the predominant source for basic research funding with 1,000 individual researchers receiving grants which are matched with university funding.

Israel’s R&D capabilities are also measured through its production of patents which far outstrips its EU and US counterparts. In addition, the number of scientific publications within the

10 per cent most cited publications worldwide stands at 12.9 per cent, compared to 11.6 per cent in the EU and 15.3 per cent in the US. Post-doctoral research positions and sabbaticals abroad are encouraged at university and government level.

Business has a prominent role in funding Israeli R&D (it funded 73.4 per cent of the countries R&D spend in 2006, according to the OECD). The Manufacturers Association of Israel and the Federation of Israeli Economic Organisations discuss policy-making on the National Council

for Research and Development (consisting of public, private and academic representatives.) Due to their close proximity, informal direct contact between the public and private sectors is also common.

The 2011 EU Competitiveness Report states that Israel is well integrated into the European Research Area (with five universities accessing €224.1 million to date in FP7 funds). Its main scientific partners are the United Kingdom, Germany, France and Italy.

Consilium Technologies opens new corporate headquarters in Belfast following recent US expansion.

One of Northern Ireland’s leading tech companies, Consilium Technologies, has announced the opening of its new corporate headquarters in Belfast. The company recently launched a major expansion at their North American facility in Boston and this move will allow the firm to scale its UK operations alongside its US facility. The move coincides with the company’s leading product TotalMobile™ announced as a medallist for the UK Mobile IT Innovation Award.

Previously based in the Antrim Technology Park, the firm has moved all business functions to Pilot Point in the heart of Clarendon Dock, Belfast.

Founded in 1985, the company was originally located in East Belfast. Two years later the team moved to the Antrim Technology Park where it has remained until now. In 2007, the software development team moved to the Northern Ireland Science Park to focus on the further development of TotalMobile™. The move to Pilot Point will see for the consolidation of all business and development operations in one location.

Speaking following the announcement of the new premises, Consilium Technologies CEO Colin Reid said: “Earlier this year we were delighted to announce an expansion to our North American operations. I said then that our US expansion would also have a positive effect here at home in Northern Ireland and the announcement is the first evidence of this.

“The decision to leave Antrim was not an easy one but the Consilium Group has now grown to such a size that we had to look elsewhere for facilities with the capabilities to accommodate all of our staff, under one roof.

“The new office will allow us to merge all operations into a single location. The Pilot Point facility will house our software development team, sales and marketing, business development and customer services. We have great plans for further expansion and we need our team all working together in one place to achieve this.”

Reid concluded: “We will be sad to bid farewell to Antrim. It’s been home to the Consilium Group for 24 years, but Pilot Point is a terrific location, right at the heart of Belfast’s thriving business community. “We have no doubt the move signals the start of even bigger things for us as a company and with TotalMobile™ commended for this award, it has already begun.”

Shortly after the move, Consilium’s latest innovation, TotalMobile™ secured a medal for the 2011 Mobile IT Innovation of the Year at the UK IT Awards. The award recognises organisations that provide leading-edge mobile technologies that create new ways of working and have shown measurable success and customer satisfaction.

TotalMobile™ is an enterprise mobile working solution that allows field workers to complete tasks and share information both online and offline integrating with existing back office systems and databases.

It helps organisations to:

• increase efficiency;

• encourage mutual working ; and

• increase compliance.

It can

• streamline the way mobile workers work

• improve the flow of information

• reduce costs

TotalMobile™’s entry was selected from 1,000’s of applications, to attend the next stage of the process, a judging panel at the Madejski Stadium in Reading. Chief Technology Officer Gareth Tolerton represented the company and demonstrated TotalMobile™’s Inovation and effectiveness. This resulted in TotalMobile™ joining a shortlist of innovations from 10 companies including Tesco, RBS, National Air Traffic Service and Pizza Express and finally being announced as a medallist at the ceremony held by the Chartered Institute for IT (BCS) at Battersea Park Events Arena. TotalMobile™ representatives including CEO Colin Reid attended to accept the medal.

Web: www.ctechs.co.uk
Telephone: 028 9033 0111
Email: info@ctechs.co.uk

The European energy market is the last large scale market which has not been widely harmonised to date. This is unsurprising due to the vastness of the market and its highly technical nature. The EU Third Energy Package, which is made up of a series of directives and regulations, forms a regulatory framework designed to reinvigorate the integration of the European energy markets for electricity and gas.

Aims and goals

It is hoped that the implementation of the Third Package will go some way to meeting the EU targets for 2020 which aim to secure a 20 per cent reduction in greenhouse gases, a 20 per cent reduction in demand and a 20 per cent energy mix of renewables across Europe.

Additionally, the Third Package aims to safeguard consumer interests and promote market competition by providing consumers with the ability to quickly change suppliers and to prevent discrimination in the use of networks by requiring the separation of transmission system interests from those of supply and generation. It also provides for the functional independence of national regulators, such as the NIAUR and the CER.

The process of large scale integration

The logistical problems associated with such wide scale integration are being tackled through the promotion of regional initiatives. The expectation is that by achieving regional integration in the first instance, the wider process of harmonisation will be accelerated by a coordinated approach to the introduction of network codes for cross border flows of energy.

Locally, regional cooperation is being implemented for electricity through the France-UK-Ireland (FUI) regional initiative and for gas through the North West (NW) regional initiative with the process of integration being overseen by ACER, the new European energy body.

Electricity market interconnection

For electricity, the liberalised market will be provided through increased interconnection, with energy flowing from areas of surplus to deficiency in the most competitive way, resulting in reduced energy costs for consumers and increased security of supply.

Initially, large scale investment in infrastructure will be required with significant additional interconnector capacity needed to ensure the unabated flow of electricity. This is of particular importance given the intention to increase the percentage of renewable generation in the energy mix.

Future network infrastructure must be able to cope with increased levels of intermittent generation with there being a risk of higher levels of curtailment and constraint if necessary upgrades are not made. Associated with this is the need to roll out smart grids to predict and intelligently respond to market demands.

These changes will also be delivered through the introduction of harmonised network codes which will deliver a target market model that will be automatically binding to create unified capacity and congestion management codes.

Issues for the SEM

The island of Ireland has had an all-island electricity market since the introduction of the SEM in November 2007. The SEM market trading arrangements are markedly different from those in the other FUI regions, being based on a gross mandatory pool market with day-ahead gate closure and ex-post pricing. There is currently no physical day-ahead or intra-day trading in the design.

The Third Package target model includes flow based market coupling for day-ahead trading, in which cross-border capacity is made available implicitly by means of energy transactions through power exchanges.

Important features in the SEM market design are incompatible with this day-ahead trading model. For example, there is no firm day-ahead price, the SEM is scheduled and dispatched centrally, it provides for explicit capacity payments and it has longer gate closure times. Also, robust arrangements are required for intra-day trading which is seen as critical for systems with a high proportion of intermittent supply through the use of renewables.

In this regard, transitional market arrangements may be put in place by 2014. Many see a two-phased approach as the fastest way to move to full compliance with the introduction of arrangements for day-ahead and intra-day markets with central dispatch. However, certain specified criteria must be met and demonstrated to ACER before this will be permitted.

Others believe that it may be best to concentrate on putting into place final measures by 2016, when an enduring market design is required under the Third Package obligations.

Common Arrangements for Gas

The completion of the Scotland Northern Ireland Pipeline (SNIP) gave Northern Ireland access to natural gas for the first time. Although a relatively new market, it is likely to undergo significant changes in the short to medium term with the introduction of the Common Arrangements for Gas (CAG) which are intended to provide an all-island market in gas.

Although it is still in the development phase, the regulatory authorities on both sides of the border are endeavouring to ensure that CAG is Third Package compliant. The outcome is expected to be a common network code developed to cover all transmission assets in Northern Ireland and the Republic of Ireland with short-term capacity and interruptible capacity products aligned with those network codes.

With regard to Northern Ireland, the fully postalised transmission system regime currently used is likely to change as a result. This regime results in a single tariff being charged to all users at their exit points irrespective of that exit point or the pipeline used. The Third Package requires that tariffs should reflect the actual costs incurred in using the transmission system, so it would appear that an ‘entry-exit’ point design may be adopted.

Further, as capacity on the SNIP is currently only available on an annual basis, it would appear that short term products will be required to be made available to comply with Third Package requirements. These products would be for monthly or daily entry capacities with the methodology used to calculate tariffs likely to follow the Gas Link code to maintain a level of certainly for Irish shippers and to minimise changes from a code perspective.

Our energy future: moving towards compliance

It would appear that there is a great deal of work to be done and it is no secret that the tasks ahead are challenging. However, we should move forward into this new phase of integration with some confidence.

From an electricity perspective, we have successfully integrated two wholesale markets into one before. Although the SEM is not currently compliant, some level of evolution or even revolution, is likely to be accepted by stakeholders.

In relation to gas, CAG provides us with a great opportunity to put in place a Third Package compliant system from its inception, thus providing an all-island gas market which will bring benefits to all.

Alan Bissett is the lead Partner and David Trethowan is an Associate in Arthur Cox’s Projects and Energy Group

UK and EU competition law prohibit two main types of anti-competitive activity: (i) arrangements between two or more undertakings which have the object or effect of preventing, restricting or distorting competition and which appreciably affect trade in the UK or the EU; and (ii) abuse of a dominant position in a market by one or more undertakings.

Investigation and enforcement of competition law

The Utility Regulator has concurrent powers with the Office of Fair Trading to investigate and take enforcement action in relation to suspected infringements of UK and EU competition law. These powers include the ability to give directions to bring an infringement to an end, accept binding commitments and impose financial penalties up to 10 per cent of worldwide turnover. To date, the Utility Regulator has not exercised its competition powers.

The UK Government has proposed a reform of competition enforcement which will involve the creation of a single Competition and Markets Authority (CMA). Proposals include giving the CMA sole competition law powers in the regulated sectors or at least encouraging a more proactive use of competition powers in these sectors. At European level, the energy sector continues to be on top of the European Commission’s agenda with a number of important cases in recent years.

Application of competition law in the energy sector

In the UK, the highest penalty to date for an abuse of dominance was imposed by Ofgem in October 2004. Ofgem fined National Grid £41.6 million (reduced to £30 million on appeal) for entering into long-term contracts with energy suppliers to supply and maintain gas meters. These contracts restricted the rate at which suppliers were able to replace National Grid’s meters with cheaper and more advanced meters from rival operators.

A more recent case involving long-term supply contracts involved EDF SA, the French electricity supplier

The Commission believed that EDF was abusing its dominant market position for the supply of electricity to large industrial customers through the use of long-term electricity supply contracts. EDF undertook not to conclude any new contracts which exceed five years in duration and to offer large industrial customers non-exclusive contracts.

Another recent case is E.ON, where the Commission was concerned that E.ON had abused its dominant market position for the supply of gas in Germany by reserving to itself almost the entire capacity at key entry points into the gas network. As a result, E.ON undertook to release pipeline capacity to enable other companies to compete on the German gas transmission market.

Does regulatory supervision shield companies from competition law?

In 2010, the European Court of Justice (ECJ) delivered an important judgment with potential consequences for the energy sector5. The ECJ confirmed the decision of the European Commission that Deutsche Telekom had abused its dominant position by charging competitors prices for network access services that were higher than the retail prices which Deutsche Telekom’s end-users were charged. Deutsche Telekom was fined €12.6 million. The ECJ held that, even though Deutsche Telekom’s prices were subject to regulatory supervision, it was left with sufficient freedom to end the abuse. The Commission had therefore been entitled to find an infringement of Article 102.

What does this mean for energy companies active in Northern Ireland?

Deutsche Telekom is an important judgment for all regulated sectors as it makes clear that decisions of national regulators do not shield dominant companies from the application of competition law. In Northern Ireland, it means that energy companies remain responsible for their actions under UK and EU competition law, even if their activities or prices are approved by the Utility Regulator. Moreover, even if a network is independently owned (e.g. NIE), pricing abuses contrary to UK and EU competition law may still occur (e.g. predatory or excessive pricing).

Energy companies should therefore ensure that their activities are fully compatible with applicable competition law.

Dorit McCann, Associate

EU, Competition and Regulation

T: 028 9034 8816

E: dorit.mccann@carson-mcdowell.com

Hot on the heels of the ROC re-banding consultations in Great Britain, the recently published Department of Enterprise, Trade and Investment (DETI) ROC banding consultation has met with a broadly positive response in the local market.
Whilst the document is still only consultative at the time of writing this article, it does provide specific insights into a transitional regime for UK renewables, starting in April 2012 and ending in March 2017. During this period the multiples of ROCs, or bands which producers benefit from, have been tweaked.

For the majority of technologies, DETI proposes to remain consistent with the proposals in Great Britain.

The few instances where Northern Ireland proposes to differ from the rest of the United Kingdom include continued support for landfill gas at 1 ROC/MWh to 2015 and, in the absence of a feed-in-tariff for small-scale projects in Northern Ireland (up to 5 MW), continued enhanced support for small-scale technologies including onshore wind, anaerobic digestion and solar under the NIRO.

The key changes to the ROC system are that onshore wind will drop from 1 to 0.9 ROCs while offshore wind is going to have a phased drop of 0.1 ROCs per annum from April 2015, down to 1.9 ROCs for 2015-16 and 1.8 in 2016-17. Not the 0.5 slash to incentives feared.

Marine energy has received a big boost with wave energy receiving a hike from 2 ROCs to 5 ROCs for projects up to a 30 MW cap, while for facilities above that cap it will be 2 ROCs.

Tidal – which is currently 2 ROCs for all technologies – has a range of options with tidal stream having the same incentives in place as has been proposed for wave energy.

Across the board for different technologies, there is a slight drop in ROCs for waste-related and solar energy (above 5 MW) alongside broadly continued support for biomass. 

Gary Connolly, Chairman of the Northern Ireland Renewables Industry Group (NIRIG), says: “The measures to support wave and tidal energy are particularly welcome and will help build a domestic market big enough to drive innovation and lower cost.
“Onshore wind is already the least expensive form of renewable energy on a mass scale and is currently providing the largest share of renewable electricity. These measures must not put its future deployment in doubt.”

The mood in the market is fairly positive with most saying that they had expected onshore wind to be more heavily impacted than by the loss of just 0.1 ROC. As to offshore wind, the consensus seems to be that the fall in the number of ROCs over the coming years matches what industry believes will be the fall in capex as the sector matures.

As to the marine energy sector, B9 Offshore Developments – which is developing the Thetis tidal scheme at Torr Head in Northern Ireland – Managing Director Michael Harper welcomed the news as a great boost for the local industry.

Harper says: “By proposing to move the ROC banding in Northern Ireland into line with the current level of 5 ROCs for wave in Scotland, DETI has given a positive signal which will incentivise inward investment in what has the potential to be a world-leading, high growth success story for Northern Ireland.”

For more information on the new banding levels proposed for Northern Ireland, please visit our website to access a recent market briefing: www.mcgrigors.com/e-bulletin/energy/eb-2011-10-31.html or contact Richard Murphy (Director, Head of Energy Group in Belfast) on
+44 (0) 28 9089 4844 or by Email at richard.murphy@mcgrigors.com

When Phoenix Natural Gas first brought natural gas to Northern Ireland in 1996, the company believed that strategically their investment would be best facilitated by empowering the indigenous workforce already in place to create its very own natural gas industry to support the gas network roll out to homes and businesses throughout the Greater Belfast area. This was a departure from how the gas industry in Britain had developed.

It was this decision that in turn created an independent industry that today employs over 2,500 people, made up of local gas installers, retailers, distributors, merchants and training centres.

In 1997 the Northern Ireland Natural Gas Association (NINGA) was formed to represent the interests of such companies.

Incentives for change

Although the Department of Enterprise, Trade and Investment continues to recognise the benefits of natural gas, many NINGA members believe the Executive could and should be doing more to promote the importance of installing A-rated central heating boilers. The gas industry here has been installing

A-rated boilers for over 14 years and these are around 90 per cent efficient. To put this into context, many homes, irrespective of what fuel they use, are persisting with old costly boilers and in many cases these can be as low as 60% efficient. In these cases for every £1000 a householder spends on fuel around £400 of that spend is being lost straight away.

Members of NINGA visit around 100,000 households every year and many report that a customer’s enthusiasm to discuss the energy efficiency of their boilers is often tempered by what they see as a lack of government leadership and advice in this area.

The Executive’s focus on renewables remains important, as they will increasingly be part of the answer to providing a sustainable, diverse local energy market. However NINGA members believe that the Executive should be introducing initiatives that encourage homeowners to invest in a range of measures, including the installation of new high efficiency boilers, leading to proven financial and environmental savings.

Grant-aided schemes, for example, provide assistance in not only the capital outlay involved, but also in offering the customer the important reassurance that upgrading their home heating is the right thing to do for the long term.

Boiler scrappage scheme

In 2009 the UK Government introduced a boiler scrappage scheme across England and Wales that provided a £400 incentive to homeowners who wished to upgrade their current central heating boiler. 125,000 grants in total were allocated under this scheme in this year alone. It is our understanding that this scheme has now been rolled into the Green New Deal in Britain, which does not cover Northern Ireland.

In the absence of the Northern Ireland Executive being able to put in place a similar scheme here, in 2009 the gas industry partnered with the Energy Saving Trust to introduce a privately funded boiler scrappage scheme, for a number of months, which mirrored the UK Government grant. This led to unprecedented interest levels from local homeowners. This was a clear example that schemes do not have to be totally non-contributory, or tightly targeted to only specific members of society.

Since then other initiatives have been introduced by the Department for Social Development such as the boiler replacement allowance to tackle the most extreme levels of fuel poverty. Whilst recognising that these schemes impact at this extreme level, they do little to encourage the working poor (often home owners) to consider improving the efficiency of their homes.

VAT reduction on energy efficiency measures

One positive incentive available to householders throughout Great Britain and Northern Ireland is a reduced VAT rate of 5% per cent for householders who want to introduce energy saving measures in their home – such as the purchase and installation of central heating controls, draught proofing measures and solar panels.

Bizarrely, given the significant impact that installing a new central heating boiler has on central heating running costs and carbon emissions, this measure does not ‘qualify’ for the reduced VAT rate.

NINGA members continue to challenge why A-rated boilers are omitted from this taxation break. In pure financial terms this reduction would offer a considerable saving to homeowners and in turn offer them added confidence to invest in a measure that would have real impact in improving the efficiency, carbon emissions and thermal comfort of their home.

Jonathan Martindale is Business Development Manager at Phoenix Natural Gas and the current Chairman of the Northern Ireland Natural Gas Association. He can be contacted on 028 9055 5517.