Report on the Electricity Policy Review Part III Grid Connections

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Executive Summary

Background and Context

1. During its previous reviews of electricity policy, the Committee for Enterprise, Trade & Investment was made aware of concerns relating to grid connections for renewable electricity developers. As a result, the Committee widened the scope of the review to include consideration of the issues and problems faced by these developers.

2. Northern Ireland has an ambitious target in place to have 40% of electricity consumed from renewable sources by 2020. To enable the achievement of the target there are around 31 wind farms totalling 552MW of large-scale generation and 250 small-scale generators totalling 65MW of electricity already connected. To achieve the target of 40% will require around 1,600MW of renewable capacity to be connected. There are currently 42 large-scale schemes in the pipeline at various stages of development. The current level of applications for small-scale renewables connections is extremely high. The high penetration of renewable electricity has already resulted in the distribution network having become saturated in some areas.

Time Scales and Costs

3. As a result of grid congestion in some areas, connection costs are two to three times higher now than they were in 2012. NIE accepts that, due to congestion on the grid, costs of grid connection in Northern Ireland are considerably higher than in Great Britain or the Republic of Ireland. The high number of applications for grid connections is also resulting in long delays for many developers. NIE concedes that there was a dip in service but states that increased staffing has resulted in significant improvements since last year.

4. There was concern among some witnesses in relation to NIE’s requirement for full planning permission to be in place prior to making an application for grid connection. It was felt by some that delays and costs were being incurred as a result. Others were more supportive of the current system as it prevents developers reserving capacity on the grid which may not subsequently be used. Any move to permit planning and grid connection applications to run in parallel may result in some developers not taking forward developments for which they have secured a connection agreement and others being blocked because NIE has had to deny them access. Full implementation of the Planning Act coupled with current consultation on a hybrid solution should assist in addressing delays in the planning process. The Committee welcomes the efforts being made to address this issue and will keep the matter under review.

5. There were calls from a number of witnesses to have access to NIE’s Geographical Information System (GIS). There are, however, considerable costs associated with such a facility. The Committee may consider this further in the future if moves by NIE to improve its ‘heat map’ do not result in a resolution of the problem. NIE has produced a heat map which provides information for developers on where capacity exists on the grid for developers to connect. The Co mmittee was made aware that the level of granularity on the heat map was insufficient for developers to make accurate investment decisions. NIE is planning to publish a revised heat map in the very near future which will allow a developer to more accurately estimate both connection costs and the likelihood of a development being constrained by congestion. This will help developers to avoid unnecessary costs in the planning process where the estimated connection or constraint costs for a development are considered too costly to proceed. NIE must introduce its revised heat map at an early stage and support developers to gain an understanding of how to use it. The revised heat map should be regularly updated and should be reviewed in 12 months to determine if it is providing the adequate information for developers to make investment decisions (Recommendation 1).

Competition and Contestability

6. Given the high costs and time delays associated with grid connections, there were calls for grid connection work to be opened up to competition. This would have to be in the form of contestability where, as the network owner, NIE would provide a cost for grid connection on the basis of a regulatory, approved cost base as set out in its statement of charges. This cost could be contested by other providers. The developer could have a piece of network built and then transfer ownership to NIE to manage it. NIE can then use that piece of network to connect others in the future.

7. Contestability arrangements could bring both cost and time savings for developers. Contestability arrangements are already in place in Great Britain and the Republic of Ireland and there is widespread support for it in Northern Ireland. This includes support from NIE, the Utility Regulator and DETI. The capability also exists in Northern Ireland for others to deliver grid connections under contestability arrangements.

8. The Utility Regulator informed the Committee that the delivery of contestability arrangements would require a two to three year time frame. Given the widespread support for contestability, the Committee has considerable difficulty in understanding this requirement. Given the time delays and high costs currently incurred by many developers, the Utility Regulator must review current plans with a view to introducing contestability within a much earlier timeframe than currently proposed (Recommendation 2).

9. NIE has already set a precedent with the contestable delivery of a large-scale wind development at Slieve Kirk. This has brought time and cost benefits as well as economic benefits to the region. It is generally agreed that this has been a successful project. There are currently no barriers to NIE voluntarily agreeing future contestable delivery arrangements. There is no requirement for NIE to wait for formal contestability arrangements to be put in place. DETI, SONI and the Utility Regulator should strongly encourage NIE to voluntarily work with appropriate providers to draw up a list of approved companies for contestable delivery of grid connections at transmission and distribution levels with a view to introducing informal contestability arrangements at the earliest opportunity (Recommendation 3).

Smart Grids and Micro-grids

10. The Committee recognises the need for grid infrastructure development and for further interconnection however smart grid technology can play a significant part in supporting increased grid capacity and reducing costs for developers. Developers highlighted to the Committee the constraints on the network and the problems that could be alleviated, to some extent, by smart grid solutions. The high rate of development of renewable electricity on the island of Ireland has increased the need to consider innovative solutions and new technologies to maximise the use of renewable electricity.

11. One specific area where smart solutions can provide considerable support is in the development of micro-grids. The development of a number of localised micro-grids could help alleviate the need for future high levels of curtailment of renewable electricity, would enable more small-scale generation and would contribute to improved security of supply and cost reductions for industrial consumers. However, there is a lack of knowledge in Northern Ireland relating to the whole area of micro-grids and this knowledge deficit needs to be addressed. The concept needs to be explored in more detail before consideration can be given to widespread deployment. Given the potential of micro-grids, all key stakeholders including DETI, NIE, SONI, the Utility Regulator and DoE Planning Service must work with the industry to gain a full understanding of micro-grids and their potential to assist in providing an effective addition to the electricity network. This must include involvement of the Sustainable Energy Interdepartmental Working Group (SEIDWG) and its Grid Sub-Group (Recommendation 4).

12. NIE is currently restricted in the amount of money it can spend on the development of smart grid technologies. In its last price determination, the Utility Regulator allowed for assessment of projects on an individual basis. When the determination was referred to the Competition Commission this was overturned and NIE was allowed only £3m funding for the development of smart grid technologies. This compares unfavourably to a £500m Low Carbon Networks Fund established by OFGEM which offers support to Distribution Network Operators to trial new technology, operating and commercial arrangements. In the Republic of Ireland a fund of €18.2m was allowed to the Distribution System Operator to carry out research and development and sustainability activities including provision to explore technological advances in areas including smart grids. As a result of its low level of funding, NIE is constrained in its capacity to make the necessary advances in smart grid technology. The Utility Regulator should, in the next price control determination, consider allowing NIE sufficient resources to fund smart grid solutions to modernise the grid and promote innovation (Recommendation 5).

Transparency and Communication

13. There were a number of examples cited which suggest a lack of transparency in the way in which NIE deals with developers. The Committee also identified areas where NIE’s communication with developers could be significantly improved.

14. There were examples of perceived inconsistencies in NIE quotations. Whether these are accurate or not is unclear however there should be no doubt regarding NIE’s impartiality and fairness when dealing with developers. There are perceptions that NIE charges, for both work and equipment, are higher than could be achieved in a more competitive environment. NIE’s charges are regulated through its statement of charges therefore there should be no doubt relating to the appropriateness of these charges.

15. Witnesses informed the Committee of problems relating to communications with NIE including the lack of provision of network information and on changes to requirements which could impact on costs for developers. There is evidence that delays and uncertainty about time frames for developments are leading to the withdrawal of investment. Communication problems with NIE are contributing to this uncertainty.

16. The absence of any clear strategy or planned approach within NIE for communicating with developers is causing considerable problems and is contributing to a climate of uncertainty. The Utility Regulator must ensure that NIE has an appropriate and effective communications strategy for developers. The communications strategy must include transparency in how NIE’s processes operate (Recommendation 6).

Policies and Processes

17. Evidence demonstrates that NIE’s policies and processes need to be reviewed to ensure they provide the most appropriate mechanisms for developers who are seeking grid connections. There is evidence of processes contributing to delays to developments and to costs for developers. There is evidence that NIE’s rebate policy in not aligned to SONI’s Connection Charging Policy. The time frame in Great Britain to get a project from feasibility to connection is much shorter. In Northern Ireland there is considerable uncertainty for many developers about how long a project will take.

18. The issues raised in relation to NIE’s policies and processes need to be addressed. The Utility Regulator and SONI must work with NIE to review and improve NIE’s policies and processes relating to grid connections. This should include those relating to:

• Communications & Transparency
• Delivery of connections
• Connection Agreements
• Payments policy as it relates to an agreed connection date
• Rebate policy
• Connection quotes
• Re-quotes arising from technical issues (Recommendation 7).

Vision and Strategy

19. Despite DETI’s assertion to the contrary, there is little evidence of a long-term vision or plan for the electricity grid. It is notable that the System Operator for Northern Ireland (SONI) was critical of the management of the transmission infrastructure on a project by project basis. Other key stakeholders such as the Utility Regulator and the Northern Ireland Renewables Industry Group (NIRIG) would also welcome a more strategic approach to the development of the network.

20. NIE quoted a figure of £420m to move from 27% to 40% of electricity from renewable sources in order to achieve the Executive’s target by 2020. Although this figure has not been verified, there is no other cost figure available on which the 40% target is based. It is of considerable concern to the Committee that there is a commitment to the 40% target without a clear understanding of the costs involved or the resulting long-term impact on charges to consumers. As the lead body for electricity policy in Northern Ireland DETI must clearly state and communicate a long-term vision and strategy for electricity (Recommendation 8).

21. DETI has overarching responsibility for energy policy but, in recognition that renewable energy covers the remit of many departments, DETI formed the Sustainable Energy Interdepartmental Working Group (SEIDWG) to ensure a coordinated approach across Government. SEIDWG has not met for some time and neither has the SEIDWG sub-group tasked with considering strategic grid issues. Key stakeholders agree that much better coordination is required. There is currently little evidence of a strategic oversight of grid issues at interdepartmental level. For this reason, the Sustainable Energy Interdepartmental Working Group must be reconvened as a matter of urgency to establish and drive the long-term vision and strategy for electricity (Recommendation 9).

Summary of Recommendations

Time Scales and Costs

1. NIE must introduce its revised heat map at an early stage and support developers to gain an understanding of how to use it. The revised heat map should be regularly updated and should be reviewed in 12 months to determine if it is providing the adequate information for developers to make investment decisions.

Competition and Contestability

2. The Utility Regulator must review current plans with a view to introducing contestability within a much earlier timeframe than currently proposed.

3. DETI, SONI and the Utility Regulator should strongly encourage NIE to voluntarily work with appropriate providers to draw up a list of approved companies for contestable delivery of grid connections at transmission and distribution levels with a view to introducing informal contestability arrangements at the earliest opportunity.

Smart Grids and Micro-grids

4. All key stakeholders including DETI, NIE, SONI, the Utility Regulator and DoE Planning Service must work with the industry to gain a full understanding of micro-grids and their potential to assist in providing an effective addition to the electricity network. This must include involvement of the Sustainable Energy Interdepartmental Working Group (SEIDWG) and its Grid Sub-Group.

5. The Utility Regulator should, in the next price control determination, consider allowing NIE sufficient resources to fund smart grid solutions to modernise the grid and promote innovation.

Transparency and Communication

6. The Utility Regulator must ensure that NIE has an appropriate and effective communications strategy for developers. The communications strategy must include transparency in how NIE’s processes operate.

Policies and Processes

7. The Utility Regulator and SONI must work with NIE to review and improve NIE’s policies and processes relating to grid connections. This should include those relating to:

• Communications & Transparency
• Delivery of connections
• Connection Agreements
• Payments policy as it relates to an agreed connection date
• Rebate policy
• Connection quotes
• Re-quotes arising from technical issues.
• Vision and Strategy

8. As the lead body for electricity policy in Northern Ireland DETI must clearly state and communicate a long-term vision and strategy for electricity.

9. The Sustainable Energy Interdepartmental Working Group must be reconvened as a matter of urgency to establish and drive the long-term vision and strategy for electricity.

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