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23rd August 2012
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23rd August 2012

Electricity Market Reform in Northern Ireland: Farewell to ROCs

Andrew-Ryan-new Andrew Ryan, Head of Tughans’ Environment, Planning and Energy Department, considers how the proposed Electricity Market Reforms will change future incentive schemes for renewables.

In May 2012 the Department of Enterprise, Trade and Investment (DETI) announced plans for significant changes to support mechanisms for renewable energy projects in Northern Ireland. The changes start in April 2017, but for projects completing close to that deadline, will there be a race to connect by 31 March 2017? Although over four years away, continuing delays in the planning process, potential delays in obtaining a viable grid connection and uncertainties over future levels of support mean that developers may soon face a stark choice over what scheme they wish to enter or indeed whether to enter at all.

Although energy regulation is a devolved matter, DETI intends that changes to renewables incentives proposed for England in the recently published Energy Bill will be mirrored in Northern Ireland. This proposed Electricity Market Reform (EMR) will close the Northern Ireland Renewables Obligation (NIRO) from 31 March 2017. Currently, qualifying renewables generators receive NI Renewables Obligation Certificates (NIROCs) for every megawatt hour of electricity produced to offset the substantial investment required to install renewables. This in turn incentivises renewables development to meet local, national and EU targets for renewable electricity generation.

From 1 April 2017, new renewables generation under 5MW will receive a Feed-in Tariff (FIT), in line with England. This is also a payment on top of the electricity sale price, but prices will invariably differ from current NIROC rates. For generators over 5MW, FITs with Contracts for Difference (FIT CfDs) will be available. In simple terms, the Government sets a “strike price”; when the price of electricity falls below it, generators receive a ‘top up’ payment up to the strike price. If the electricity price rises above the strike price, generators must pay back the difference. In contrast, NIROCs and regular FITs are payable as a fixed amount above the electricity price. Depending upon the strike price, the incentive payments for large-scale renewables could be significantly less than under the NIRO.

For projects grid-connected before 31 March 2017, the NIRO will now be payable for 20 years up to 2037, extended from an end-date of 2033. The government has also stated that it will artificially maintain the market by fixing the NIROC price from 2027.

There is no doubt that the current NIROC levels have significantly increased the levels of low-carbon generation in Northern Ireland. Changes to that market can effectively wipe out an industry sector – the experience of solar generators in England exemplifies the risks of a sudden change in government policy. The proposed EMR may point to a less financially attractive market for renewable generation post-April 2017 and this could impact on Northern Ireland’s growing renewables sector.

At Tughans we regularly provide strategic advice to renewables developers to minimise delays in the development and funding process. Given the on-going delays in planning decisions from a chronically under-resourced DOE Planning unit, and continuing uncertainty over availability of grid connections, projects at pre-planning stage may well find themselves in a race to complete before April 2017. Seeking advice on how to minimise delays in project approvals could never be timelier. Nevertheless, financial models for investment decisions on new major projects will soon need to start considering the implications of a FIT-CfD regime over the arguably more predictable NIROCs. But in the absence of clear signals on the likely levels of support from FIT-CfDs, renewables developers may soon be faced with stark decisions on whether Northern Ireland remains open for business for renewable energy.

Andrew Ryan is a Partner and Head of Tughans’ Environment, Planning and Energy Department. Contact andrew.ryan@tughans.com

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