Lois Vallely looks at some of the distinct differences that separate the NI energy market from the GB market.

The energy markets in Great Britain and Northern Ireland face many of the same challenges as they seek to address an energy trilemma: reaching renewable energy targets and ensuring security of supply while also keeping costs low for consumers. However, NI bears the additional burden of having to make UK policy work in an all-island market with the Republic of Ireland.]#

The development of the SEM

The single electricity market (SEM) was born out of the peace process. Following decades of conflict, the governments of NI and the Republic wanted a project that would help to enshrine its feeling of unity and collectiveness.

In 2004, the decision was made to create a single electricity market (SEM). Instead of three separate markets – Northern Ireland, the Republic of Ireland and Great Britain – the north and the south of the island would combine to create a unified energy market. Much time and effort was put into the process, and, in November 2007, the SEM went live.

Unlike the GB market, which is bilateral, meaning utility providers build and own their own power plants, the SEM is centralised, so generators bid into a pool and suppliers buy out of the pool. Advocates of a centralised market say that it increases cost transparency.

The Northern Ireland Utility Regulator is currently working on developing the next-generation energy market, the integrated single electricity market (I-SEM), ready for implementation in 2017.

The I-SEM will seek to drive out inefficiencies and deliver better value for money for consumers. However, the regulator declares that it is “trying to get the maximum benefits out of the existing wholesale market” as well. Speaking at an energy policy conference in Belfast, Utility Regulator chief executive Jenny Pyper said Ireland has recently seen a 10 per cent reduction on the size of its “capacity pot”, meaning savings of £5-£6 for domestic consumers and £10,000-£12,000 for larger consumers.

Regulation and competition

Energy policy in NI is directed by the Department of Energy and Climate Change (Decc) through the Department of Enterprise, Trade and Investment (DETI) in NI, which must act as a go-between, following instructions from Decc and making new policy work in the SEM.

The energy retail market in NI operates in much the same way as that in GB. Power NI is the incumbent electricity supplier (until 2010 it was the retail arm of an integrated Northern Ireland Electricity), although smaller firms and independents are gradually gaining market share. Domestic customers in NI currently have the choice of four electricity suppliers – Power NI, SSE Airtricity, Budget Energy, and Electric Ireland.

There are only two gas suppliers: Firmus Energy and SSE Airtricity. Domestic customers in the greater Belfast area can choose from both of these at present. Until recently, customers in the “ten towns” area were only able to be supplied by Firmus Energy.

The major difference between the retail markets of NI and GB is that Power NI is k factor regulated. The k factor is a term in the price control formula that allows compensation for any under-recovery or over-recovery in any given year to be applied in the following year.

The networks in NI and GB are vastly different in terms of size. Where GB has 14 distribution network operators (DNOs) owned by six different groups, and one system operator, National Grid, NI has only one DNO, NIE, and its system operator is the System Operator for Northern Ireland.

NIE is regulated by the Utility Regulator in much the same way as Ofgem regulates the GB DNOs. Its RP5 price control, which runs from April 2012 to September 2017, was determined by the Competition Commission in April 2014. The Commission’s determination sought the closer alignment of the regulatory framework and reporting arrangements with those applied by Ofgem through its RIIO price control.

The challenges

Some of the biggest challenges facing the NI energy market are:

• Fuel poverty. The problem of fuel poverty in NI is worse than any other region in the UK. With 42 per cent of the population currently fuel poor, 2,390 extra winter deaths have been attributed to fuel poverty over the past four years.

At the Priorities for Energy Policy in Northern Ireland conference, Energy Saving Trust director of operations Wales and Ireland Duncan McCombie said: “The short-term solution is having a long-term view… but we need to have the right information to make those decisions.”

• Switching. Consumer Council chief executive John French points out that switching numbers in NI are very low compared with GB and the Republic of Ireland, with levels in electricity and gas of between 10 and 17 per cent. He puts this down to lower levels of consumer engagement.

• Prices. Domestic electricity prices in NI tend to be around 10 per cent higher than those in GB. One contributing factor is that wholesale electricity prices in the SEM are 20 per cent higher than in the equivalent GB market.

Despite relative high energy prices however, levels of trust are higher in NI than they are in GB. John French says: “We asked customers how much they trust their electricity or gas supplier in Northern Ireland and we found that it’s around 50 per cent around fair prices, just over that for transparent communication, and being honest about the products and services that are provided.”

• Renewables. Northern Ireland as a whole has a target to generate 40 per cent of its electricity from renewable sources by 2020. Much like the DNOs in GB, this means NIE has to find ways to integrate low -carbon solutions into the grid, with renewable generation exceeding minimum electricity demand by 200MW at times of low demand.

NIE network performance and safety director Con Feeney says the company has 800MW renewable generation connected which, in a UK context, is “significant”. And the group is aiming to connect a further 400MW by March 2017.

NI tends to be a “fast follower”, waiting to see what happens in GB and Europe and following suit, he says. With “unique” challenges, NI needs “to develop unique solutions, which can be done through innovation”.