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Western Europe / UK

Northern Ireland seeks renewed energy strategy

The Northern Irish government sees opportunities to boost investment in its renewable energy sector over the next decade but is treading carefully following a previous subsidy scandal.

Northern-Ireland-energy
Chairman Sir Patrick Coghlin (centre) presents the findings at the enquiry into Northern Ireland’s Renewable Heat Incentive. The scandal significantly set back the region’s renewable energy strategy. (Photo by Colm Lenaghan-Pool/Getty Images)

Northern Ireland’s Minister of the Economy Diane Dodds released a statement in late September 2020 setting out her “vision for renewable energy” in the region.

Northern Ireland’s devolved government had already confirmed in June that a “green growth strategy” would form part of its Covid-19 economic stimulus package. It was following the lead of many jurisdictions around the world in promising a green recovery.

The government sees the renewable energy sector as an area where it can increase inward investment and is working on a new ten-year energy strategy, due to be published in mid-2021, that will set out new green energy targets.

Dodds stressed in her statement, however, that she “will not wait for the strategy to progress issues which need to be moved forward urgently”.

Despite this apparent desire for urgency, the government is moving forward cautiously. Any new renewable energy support schemes will be subject to intense scrutiny, given that a scandal involving its old Renewable Heat Incentive (RHI) led to the then government collapsing in 2017.

Dodds struck an ambitious note when saying she supported a target of more than 70% of all electricity in the country being generated by renewables by 2030. She no doubt had the RHI scandal in mind, however, when saying she “will not simply agree to a scheme at any costs”.

Solid foundations

In the three months to the end of June 2020, 48% of the electricity consumed in Northern Ireland came from renewable energy sources. This is above the 44.6% achieved by the UK as a whole during the same period.

Northern Ireland has 1,684MW of connected renewable generation, 76% of which comes from wind farms, and a pipeline of 1,208MW of new projects in its pipeline.

Most of the renewable energy projects to date have been developed and owned by companies based in other parts of the UK or in Ireland. There are some exceptions though. German company E.ON Renewables owns the Bessy Bell wind farm in County Tyrone, for example, while Italian company ERG acquired a 25MW operational wind farm in County Londonderry in 2019.

Thomas Byrne, director of energy strategy at the department for the economy in Northern Ireland, says that rather than just being seen as a driver of decarbonisation, the government now also sees energy sector investments as a driver of economic growth.

Foreign direct investment (FDI) into Northern Ireland, across all sectors, was trending upwards before the Covid-19 pandemic hit. The number of FDI projects grew by 14% annually in the 12 months to April 2020, compared with just 4% across the UK as a whole. Those projects also created 59% more jobs than the projects announced in Northern Ireland the previous year.

Covid-19 is set to have a devastating impact on FDI levels globally, but Byrne argues that the pandemic will not alter the government’s long-term energy plans.

“What Covid-19 hasn’t done is change the underlying fundamentals,” he says. “We still need to decarbonise our public transport, decarbonise our personal transport, decarbonise HGVs… And with the energy strategy, we are looking long term, up to 2050.”

Schemes and targets

Much will depend on how ambitious the targets are within the new Northern Ireland energy strategy. It is due to be announced in June 2021, following a lengthy consultation process.

Given the the recent statements by the minister of the economy, Byrne expects the 2030 target for renewable energy to be somewhere between 70% and 80% of all electricity generated.

Once a target is set, a new subsidy support scheme appropriate to meeting that objective will also be determined. Northern Ireland has been without a support scheme since the renewable obligation expired in 2017. While some new projects were still being brought through up until March 2019, Byrne concedes that “we have seen some of the momentum we had slow down”.

The Northern Ireland government was in discussion with the UK’s Department of Business, Energy and Industrial Strategy (BEIS) about joining the contract for difference (CfD) support scheme in 2015. Those talks ended when the UK government made CfD auctions only available to offshore wind projects.

The UK government has since reversed that decision and will include onshore renewable technologies in upcoming auctions, creating an opportunity for Northern Ireland.

Byrne says: “It needs work to make CfDs work for Northern Ireland, but we are very keen to explore it and have picked up those discussions with the BEIS.”

Payments under CfDs are determined by the difference between an agreed strike price and the average price paid for the electricity on the UK grid. As Northern Ireland operates on its own grid, a slightly different calculation would be required for its projects.

Offshore wind also holds potential for Northern Ireland, although not simply through utility-scale projects. The country’s demand for electricity peaks at about 1,800MW, meaning it would never need any more than perhaps one offshore wind farm of about 600MW.

However, the technology creates other opportunities for investment, according to Byrne.

“Northern Ireland has such a strong engineering base and we have a fantastic harbour here that has ready-made offshore capability,” he says. “So both in terms of opportunities for investments in Northern Ireland’s waters, and to feed in to the supply chain for investments in the Irish Sea and off the coast of Britain, there are lots of opportunities.”

Restoring confidence

Despite falling costs bringing renewable energy technologies close to grid parity, subsidies are still required to incentivise potential investors. Given the previous failure of the RHI scheme, however, the Northern Ireland government will have to rebuild confidence in its support mechanisms.

Unlike other regions of the UK, which primarily burn natural gas for heating, Northern Ireland is largely dependent on oil-fired boilers that are far more polluting. Initiated in 2012, the RHI incentivised domestic properties and businesses that switched to renewable sources of heating.

A Public Accounts Committee investigation later uncovered widespread fraud connected to the RHI, with applicants claiming payments for buildings they had previously not bothered heating.

The scandal and its political fallout directly led to the collapse of the Northern Ireland devolved government in 2017. Government was not fully restored until January 2020.

A previous ten-year energy strategy ended in 2020, but the government is not rushing to replace it. Instead a lengthy review process is being undertaken. The government initiated a public call for evidence in December 2019, has commissioned a number of pieces of academic research, and is providing regular updates on progress.

A summary report on the determined strategy is due to be published in June 2021, in which working groups focused on consumers, energy efficiency, heat, power and transport will outline their proposals.

“The approach we have taken with our energy strategy is to bring in as many different stakeholders as we can, and be as open and transparent and communicate as much as possible,” says Byrne.

“We need to learn the lessons of the past and properly think through the implications of decisions that are being made. A key role of the power working group is to not just jump to an answer, but actually look at different options, gather the evidence, understand the implications of them all, and then follow them through.”

Negative headlines related to constraint payments for wind farms earlier in 2020 demonstrated how renewable energy subsidies remain a sensitive political issue in Northern Ireland. Some local politicians called for the payments, which compensate owners when their wind farms are idle, to be scrapped after it was revealed that £1m was paid out from October 2018–June 2020.

It is against this challenging backdrop that Northern Ireland hopes to encourage greater inbound investment into its energy sector. The region is already punching above its weight on renewable energy generation. The credibility of its new energy strategy will determine how much it can accelerate its transition to a green economy.