The changing energy landscape of Northern Ireland

The energy markets in Great Britain (GB) and Northern Ireland (NI) face many of the same challenges as the two countries are presented with an energy trilemma: reaching its 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 NI energy market is radically changing to meet the European Union’s target model, which aims to converge pricing across Europe so that all customers are able to access power at a similar price.

The history of the SEM

The single electricity market was born out of the peace process. Following decades of conflict, the NI government 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 Ireland would combine to create one 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 generating facilities, the SEM is a centralised market, meaning generators bid into a pool and suppliers buy out of the pool. The advantage here is that you can easily find out how much generators are paying for power, meaning a massive amount of transparency in the market.

The Utility Regulator is currently working on developing the integrated single electricity market (I-SEM), ready for implementation in 2017. The I-SEM will focus on innovation, driving out inefficiencies and getting 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, 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.

Policy and regulation

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, adhering to 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 of Great Britain (GB). Power NI is the incumbent electricity supplier, although a surrounding of 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.

Both Northern Ireland Electricity (NIE) and Power NI (formerly NIE Energy) were owned by energy business, Viridian Group, until 2010, when NIE was sold to the Electricity Supply Board. Viridian retained ownership of NIE Energy which was renamed Power NI.

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 (SONI).

NIE is regulated by the Utility Regulator in much the same way as Ofgem regulates the GB DNOs. Being the solitary DNO, however, the firm doesn’t have any competition. The 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

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 as a result of fuel poverty over the last four years. At the energy policy 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.”

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.

Additionally, 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.

Levels of trust, however, are higher in NI than GB. 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. This is higher than in GB. Ofgem reports about 30 per cent cost levels in the suppliers in GB, but there are still real opportunities to improve.”

The energy sectors in both countries are presented with many of the same challenges in terms of the uptake of renewable technologies. The island of Ireland 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 warns, insisting that, with unique challenges, “we need to develop unique solutions, which can be done through innovation”.