ROC Re-banding Consultation in Northern Ireland

Hot on the heels of the announcement of a ROC re-banding consultation by both the Department of Energy and Climate Change ("DECC") and the Scottish Government, the Department of Enterprise, Trade and Investment ("DETI") has now published its consultation on the levels of support under the Northern Ireland Renewables Obligation (the "NIRO").

Whilst DETI recognise that the strength of the NIRO lies in its linkages with the other two obligations in Great Britain and that consistency is important across all three, the banding levels for Northern Ireland need to reflect circumstances unique to Northern Ireland and the fact that the Great Britain Feed-In Tariff (FIT) does not apply in Northern Ireland.

The few instances where Northern Ireland proposes to differ from the rest of the United Kingdom include the following:

• continued support for landfill gas at 1 ROC/MWh to 2015;
• enhanced support for Anaerobic Digestion (up to 5 MW);
• enhanced support for Hydro-electric (up to 1 MW) ;
• enhanced support for onshore wind (up to 250 kW);
• enhanced support for Solar photovoltaic (up to 5 MW); 

However, for the majority of technologies, DETI propose to remain consistent with the other two Renewables Obligations and introduce the proposed Renewables Obligation Certificate (ROC) levels as set out in the DECC Consultation. For further details on the DECC Consultation, please read our recent E-Briefing by clicking on this link: http://www.mcgrigors.com/e-bulletin/energy/eb-2011-10-20.html

Technology Banding Proposals for Northern Ireland

The DETI Consultation proposes new banding rates for a range of technologies. The table below highlights those technologies which have/will have different ROC levels under the NIRO. The new proposed bands will appear in statute in 2012 and will only be effective from 1 April 2013.

Why are different banding levels proposed for Northern Ireland?

In Great Britain, the majority of small scale renewable technologies (i.e. up to 5 MW) are incentivised through the FIT mechanism as mentioned above. As the FIT does not apply in Northern Ireland, the NIRO incentivises eligible technologies of all sizes.

Landfill Gas

Landfill gas is recognised as a mature and cost effective renewable technology in Great Britain; however it is less well developed in Northern Ireland. It was for this reason that it was retained at 1 ROC/MWh in 2010 when it was reduced to 0.25 ROCs in the rest of the UK. Northern Ireland currently has six landfill gas stations accredited under the NIRO with a combined installed capacity of just under 10 MW with further deployment potential.

Solar PV

In 2010, ROC levels in Northern Ireland for small scale Solar PV were increased from 2 ROCs per MWh to 4 ROCs per MWh for stations up to 50 kW installed capacity. Stations above 50 kW remained at 2 ROCs per MWh. DETI appear to recognise that these increases still fell short of the levels offered under the FIT in Great Britain for Solar PV, albeit that DECC have recently decided to reduce FIT support for stations above 50 kW in order to protect the money available to other small scale technologies.

There is considerable interest in this technology in Northern Ireland, particularly for installations up to 10 kW installed capacity. High costs have been proving to be the most significant obstacle for deployment to date hence the proposal for enhanced support proposed to be made available under the NIRO.

Wave and Tidal Stream

In December 2010, DETI published a consultation on incentivisation for offshore renewable energy generation in Northern Ireland. That consultation proposed an increase in the ROC level for tidal stream from 2 ROCs/MWh to 4 ROCs/MWh. The consultation also added that, if the UK banding review was to recommend a higher level support, then DETI would match that higher support level.

The banding review has recommended that "marine" i.e. wave and tidal technologies, should receive 5 ROCs/MWh for each project up to a limit of 30 MW. This enhanced level of support will only be available for capacity installed and operational prior to 1 April 2017.

Interaction with the proposed Renewable Heat Incentive for Northern Ireland 

You may recall from another of our Energy E-Briefings (http://www.mcgrigors.com/e-bulletin/energy/eb-2011-08-22.html) that DETI has also just completed a consultation on the development of a Northern Ireland Renewable Heat Incentive (RHI). The RHI consultation noted that the NIRO currently supports renewable heat in the form of 2 ROCs for good quality CHP and that there are two options under the RHI for renewable heat from CHP. It was proposed that investors considering CHP would have the choice of the half ROC uplift up until 2014 at the earliest, after which they will be eligible for the appropriate ROC level for non-CHP technologies and the RHI tariff.

The DECC consultation proposes the same policy but confirms that CHP stations accrediting up to 1 April 2015 will have a one off choice of taking the 0.5 uplift for CHP or RHI. Under the DECC proposals, after 1 April 2015, new accreditations and additional capacity will not be eligible for the CHP uplift but instead will receive the relevant level of support for their electricity output from the Renewables Obligation and for their heat output from the RHI, subject to satisfying the respective eligibility requirements of those schemes.

DETI propose to introduce the same requirements and timescales for treating CHP installations in Northern Ireland as those proposed in the DECC Consultation.
    
Impact of the Electricity Market Reform Proposals on Northern Ireland

The Coalition Government are seeking to move away from the Renewables Obligation as the mechanism for incentivising large scale renewable electricity generation to a Feed-In Tariff with Contracts for Difference (FIT CfD). A small scale FIT was introduced in Great Britain in 2010 and remains unaffected by the proposals for Electricity Market Reform (EMR).

For further details on the EMR reform package proposals, please view our recent Energy E-Briefing by clicking here: http://www.mcgrigors.com/e-bulletin/energy/eb-2011-07-12.html

Options for Northern Ireland

Energy is essentially a devolved matter and as such Northern Ireland is not obliged to follow the Coalition Government's lead on how renewable electricity generation is incentivised. However, DETI recognise that the NIRO has been successful because it works within a UK-wide scenario. ROCs can be traded across all three Renewables Obligations and the costs of administering and incentivising the NIRO are spread across all UK consumers. Therefore, any decision to diverge from a UK-wide position has to be taken in the context of the impact of Northern Ireland's ability to meet ambitious 2020 targets and associated costs to the consumer which would undoubtedly be higher under an NI-only funded scheme.

DETI and the Utility Regulator for Northern Ireland have been working closely with DECC to consider how a FIT CfD could work within the Single Electricity Market (SEM) in operation on the island of Ireland and to analyse the associated impact on consumer costs arising from a move away from the NIRO. Whilst this work is ongoing, initial indications suggest that a FIT CfD could work in Northern Ireland and within the SEM. A key factor in any final decision will undoubtedly be whether the Coalition Government can give a commitment to DETI that any replacement for the NIRO continues to have the costs socialised across all UK consumers and that the burden does not only fall to NI consumers.

Small Scale Incentivisation

The FIT CfD is not intended to incentivise small scale generation (i.e. below 5MW) as a small scale FIT is already in place in Great Britain as discussed above. If the FIT CfD was to be introduced in Northern Ireland, DETI already recognise at this early stage that such a mechanism would not be appropriate for small scale generators given its complexity.

If Northern Ireland does introduce a FIT CfD then it will also have to introduce a small scale FIT (similar to that operating in Great Britain). The introduction of a small scale FIT in Northern Ireland would necessitate a review of the ROC banding levels for small scale renewables to ensure no conflict of support between the two support mechanisms.

Extending the NIRO to 2037

Under the EMR Proposals, the Renewables Obligations in Great Britain are scheduled to close to new generation from 31 March 2017, After that date, new generation greater than 5 MW will be supported by the FIT CfD mechanism.

When the NIRO was first introduced in 2005 it had an end date of 2027. In 2010, the two other Obligations in Great Britain were extended to 2037 to reflect the long term nature of renewable electricity generation, with project lives and financing structured over 15-20 years. This was seen as necessary to give investor certainty and confidence.

Northern Ireland decided not to follow the GB lead and instead chose to extend the NIRO to 2033, which represented a period of 20 years from the 2013 banding review date.

Whilst a final decision still has to be made on whether the NIRO will remain open to new generation after 31 March 2017, it is important that generators and investors are assured of long term support under the NIRO. It is therefore proposed to extend the NIRO to 2037 to ensure that any generation accredited over the banding period 2013-2017 receives the full 20 year support.

Next Steps

Responses to the DETI Consultation are due in by 19 January 2012. Subject to any responses received, DETI aim to implement the proposals via the Renewables Obligation (Amendment) Order (Northern Ireland) 2012 which will be legislated for next year and take effect from April 2013.

For more information or if you would like any assistance in making a consultation response or on the implications for your business or project please contact one of the individuals listed below or your usual McGrigors contact:

richard murphy
Director, Energy & Infrastructure
Tel +44 (0)28 9089 4844
Email richard.murphy@mcgrigors.com

LEIGH WILLIAMSON
Solicitor, Energy & Infrastructure
Tel +44 (0)28 9089 4880
Email leigh.williamson@mcgrigors.com

McGrigors Energy - About Us
The McGrigors Energy Team consists of over 50 energy lawyers recognised for their market leading specialist knowledge and understanding of the commercial and legal challenges in the energy sector, both internationally and in the UK. The team works with clients across the whole energy industry including major multi-nationals, utilities, FTSE/AIM listed companies or independents, regulatory bodies and financiers and draws upon the complementary skills of colleagues in corporate, banking, competition, litigation, tax, shipping, real estate, environmental, planning, construction, infrastructure, health and safety and human rights.

The team's capabilities cover the upstream and downstream markets working with clients on projects, transactional and regulatory matters across the oil and gas value chain and all aspects of power and heat generation/supply including coal, nuclear and renewables. The McGrigors Energy Team is at the forefront of advising clients in the renewables sector with significant experience of onshore and offshore wind projects, solar, wave and tidal power generation and alternative fuels.

McGrigors LLP has offices in London, Manchester, Edinburgh, Glasgow, Aberdeen, Belfast, Doha (Qatar) and Port Stanley (Falkland Islands).

For more news and handy legal updates follow us on Twitter.