A Sustainable Energy Policy for Northern Ireland

EU/REGULATORY

A Sustainable Energy Policy for Northern Ireland

Richard Murphy discusses the proposed Renewables Obligation for Northern Ireland and its impact on licensed electricity suppliers.

Energy systems throughout the world continue to rely heavily on fossil fuels as their primary energy source. Yet, it has become increasingly clear that a sound energy policy must encourage a clean and diverse portfolio of domestic energy supply which helps meet our economic, social and environmental aims in a sustainable manner and also prepares us to rely less on fossil fuels. Renewable energy has an important role to play in that it can help provide for our future needs by harnessing "nature's power".

What is the Renewables Obligation?

The proposed Renewables Obligation for Northern Ireland (the Obligation) will require all licensed electricity suppliers to source a specified proportion of the electricity provided to customers in Northern Ireland from renewable energy sources such as wind and water. It is intended that the Obligation will operate alongside those already in place in Scotland, England & Wales since 2002 (the GB Obligation).

Operation of the Obligation

The Obligation will operate on an annual basis starting on 1 April 2005. The Obligation for each eligible supplier will be calculated by applying the percentage Obligation for the particular Obligation period to that supplier's total electricity sales to customers in Northern Ireland during that period.

It is proposed that the Obligation will rise from 2.5% in the first Obligation period (ending 31 March 2006) to 6.3% in the year ending 31 March 2013. This proposed phasing of the Obligation has been strongly influenced by the need to ensure that the impact of the Obligation on electricity costs to final consumers in Northern Ireland are kept to an absolute minimum. However, the overall policy aim is for indigenous renewable generation to represent 12% of electricity consumption in Northern Ireland by 2012.

Renewable Obligation Certificates (ROCs)

ROCs will be the primary evidence of a supplier's compliance with the Obligation. These certificates are issued initially to accredited renewable generating stations for each Megawatt hour (MWh) of eligible electricity consumed in the UK. Certificates issued by the Northern Ireland Authority for Energy Regulation (NIAER) under the Obligation relate to eligible electricity that is both generated and consumed in Northern Ireland. However, ROCs issued under the GB Obligation will be recognised and accepted as evidence of compliance with the Obligation, effectively creating a UK wide market for ROCs.

An alternative: The Buy-Out Fund

A supplier may satisfy the Obligation by making a payment to a Buy-Out Fund. This payment will be proportionate to that element of its Obligation not met through presenting ROCs. The Buy-Out price will mirror that used in the GB Obligation, currently £31.39/MWh and is altered annually in line with the retail price index. The proceeds from the Buy-Out Fund will be redistributed to suppliers in proportion to the number of ROCs that they submitted during the focal obligation period, providing a strong incentive to suppliers to fulfil their Obligation through the presentation of ROCs.

Supplier Default

Following the failure of a large supplier in Great Britain (TXU), it is proposed that a process known as "mutualisation" be introduced to mitigate the impact on the renewables sector of any shortfalls in the Buy-Out Fund. Essentially, suppliers will be required to make payments to NIAER to make up any shortfall above a minimum size. In addition, a surcharge will be levied for late payment into the Buy-Out Fund.

Conclusion

The Obligation is a key component in the implementation of a sustainable energy policy for Northern Ireland over the next 10-20 years. As well as environmental benefits and favourable implications for employment, the Obligation will stimulate investment in renewable technologies and assist these industries to compete on the world stage in what will become a significant global industry.

Richard is an Assistant Solicitor in the firm's Corporate Department advising on a range of corporate, commercial and competition issues. Richard can be contacted
at richard.murphy@lestrangeandbrett.com

Quote: UK wide market for ROCs