It is, Iain Osborne says, a good time to be reviewing the energy framework. Should the draft Strategic Energy Framework lose its prefix, it will be replacing one which was focussed on getting an all- island dimension “motoring” and was for a time when security of supply was not as significant an issue.
Painful experiences over the last few years have highlighted that: “Now, we’ve understood that importing such a very large proportion of our fuel lines us up to be internationally uncompetitive. We, for all sorts of reasons, have tended to be a high-cost jurisdiction but we’re making some progress on that.”
Osborne’s counterpart in Great Britain, Ofgem, has recently had its remit extended to include climate change. However he also believes that it is a mistake to believe that “making a tiny tweak” in law is the most important lever on how regulators behave: “I think the fact that my Chairman is an environmental scientist makes a difference to the overall structure of this organisation.”
Instead, he adds, there needs to be a regime that is “stable and predictable” for the system to really work well and warns that “if you end up hanging new duties on regulators, eventually you get to the point where it becomes completely impossible for investors to predict what regulators will regard as the most important.
“So, we need something a bit more sophisticated, which involves Ministers stepping up to the mark about being absolutely explicit about what things they think are more important,” he adds.
Though, if Ministers do take on that role, regulators must be clear that they are not “taking the political steer day-by-day. We can’t get to the point that prices aren’t allowed to rise because Ministers are afraid of the political repercussions”.
Wind of change
While wind is well catered for in Northern Ireland, Osborne is wary that renewable energy should not be confined to just that source and says we must be looking more long-term.
“If wind is the only technology which is through the gate yet in commercial viability, others will follow and we need to make sure we’re well positioned. Getting 40 per cent de-carbonised electricity is not the goal; the goal is getting to 100 per cent. We need to plan beyond 2020,” the regulator contends.
The wind debate is getting on the agenda locally but Osborne believes that “it’s important we don’t start the debate in Northern Ireland as if we’re having it 15 years ago”, but rather we need to have it in light of what we now know i.e. the “fairly grim” outlook for fossil fuels.
The island’s two regulators have also completed work on what the effect would be on system marginal price (SMP) with 40 per cent wind. Osborne calls that outcome “quite reassuring as it tells us the SMP would be more or less where it was last year”.
That research also suggested the need for conventional generators would be lower, though not so low as to make investment impossible. He admits that 10 years out, it is quite difficult to take a view on investment incentives, though it is something to keep a close eye on for two reasons.
The first, he says, is that it suggests that the current system, which has only recently been created, does not have a clear shelf life and secondly, there is no overriding reason to regard wind as a driver of huge cost.
In DETI’s draft framework, it estimated that with 40 per cent electricity coming from onshore wind, the estimated impact on the average annual household bill would be £99, which Osborne thinks is “rather in the high side”. He believes that the increase would be more like £50, which would constitute a 10 per cent increase.
He explains: “Adding a billion [pounds] to the cost of the network might add 25 to 30 per cent of network charges. If you do the maths you’re maybe talking about 5 to 10 per cent extra and not a whole lot else in terms of energy costs.”
The regulator does admit that any support mechanisms would add extra costs. But if the model is based on “high- ish” energy costs and fossil fuel prices, there may not need to be a mechanism for onshore wind.
The DoE has been made aware of the planning problems facing renewables and is understood to be drafting a policy statement, which is intended to allow wind developments through the system easier.
Osborne considers that it could lead to problems down the line if local planners start to treat any guidelines as gospel. Allowing only smaller turbines, he says, would be an “environmental disaster” as turbines will be needed to meet targets, hence more of the countryside would be used for wind farms more.
An attitudinal change as well as a policy shift is needed.
There needs to be an understanding that taking a positive attitude toward turbines means cables are needed to connect to the grid and “if we can’t join onto the grid then there’s no point building them. The experience so far of the North/South Interconnector makes you think our heads are not quite in the right place in terms of building new electricity.”
Offshore wind represents a more expensive and marginal resource and as such the focus should remain on the onshore resource, he claims.
The biggest issue in heat is how we use carbon, Osborne contends. People tend to focus on turning off their mobile phone chargers, which may be worth doing, but it is the use of central heating and the thermostat that needs to be altered, accompanied by better communication with the public.
As well as that, as always, there are policy matters which need looked at. For example, if gas is to be taken to new communities a decision needs to be made on whether it is to build a gas network, with boiler in every home, or if it is greener and more effective to deliver gas to a central combined heat and power boiler and build a heat network from it.
From a consumer point of view, he warns: “If you buy a home connected to a heat network, it’s going to cost you quite a lot of money to dump the heat network and move to installing your own boiler and connecting up your own system to radiators. It’s not clear what the consumer protection regime is for heat at the moment.”
Currently the Utility Regulator has no statutory role in heat, though Osborne is wary of campaigning for increased roles. The bottom line, he contends, is that the main domestic heating method has no energy efficiency. That needs to change.
Developing the heat mechanism is currently in cloudy waters as the ultimate goal and 2020 goal seem to run counter to one another.
Zero carbon is clearly the final destination but he is not sure of the 2020 target (26 per cent less) of balancing cost and progress. If the aim is to reach zero carbon at all costs, he suggests that micro-production of heat at household level should be encouraged.
For cost reasons, particularly in the energy sector, the emphasis has been on moving from small scale to a large scale national or, even European, grid.
If small can be profitable then that will have to be developed. But history points in the opposite direction.
Article from agendaNi issue 31 October 2009