Northern Ireland urgently needs formal route to market for renewable energy

Richard Murphy of Pinsent Masons said the fact that Northern Ireland was the only jurisdiction in the UK and Ireland without a renewable energy support scheme “remains a cause for concern”, adding that the region had to “increase the pace and scale of investment” if it was to meet its pledge to reach 80% renewable electricity by 2030.

His comments came after the Department for the Economy (DfE) published a consultation (25 pages / 311KB PDF) on design considerations for a renewable energy support scheme in Northern Ireland. The DfE is seeking input on the definitions of the principles that will underpin the scheme, as well as the support structure and eligibility criteria.

Outlining the challenge facing Northern Ireland’s renewables industry, the DfE warned that, with no existing support scheme in the region, “potential investment…is instead being diverted to Great Britain, the Republic of Ireland and other countries.” It added that a support scheme for Northern Ireland would support inward investment and help ensure that its energy market is “appropriately regulated” to protect consumers from global price shocks.

Murphy said the consultation was “a welcome first step”, warning that the design of the scheme “will be crucial to deliver the required investment” needed for net zero. “This ‘made in Northern Ireland’ scheme will need to learn lessons from what has been happening around us with support schemes in neighbouring markets,” he added.

Murphy said one such lesson involves the use of contracts for difference (CfDs), which offers greater certainty to investors by setting a minimum price for the electricity produced by renewable energy generators. “There has been a design trend towards the use of CfDs in recent years across Europe which has proved cost-effective for consumers, while providing the long-term price stability that investors require to cover upfront costs,” he said.

“CfDs appear to be the obvious contractual model for Northern Ireland. However, there are specific design lessons from other markets that we need to bear in mind when working through a preferred approach for the region. For example, the lack of indexation in the Republic of Ireland’s renewable energy support scheme (RESS) has pushed auction prices up there – something which Northern Ireland should avoid,” Murphy said.

He added: “The length of support will also be an important design consideration. Investors will likely want support for as long as possible. While some schemes have been 12 to 15 years in other markets, the length of these contracts have been seen as a hurdle in the RESS scheme to date. Because of this, 20-year contracts might be the most effective option.”

“The available technologies in the Northern Irish market is expected to be predominantly onshore wind, offshore wind and solar, so the use of a tiered structure for the support scheme will be necessary. Given that Northern Ireland is playing catch up with Great Britain and the Republic of Ireland, the frequency of auctions and eligibility criteria will also need to be thought through carefully to ensure new deployment comes forward on a regular basis,” Murphy said.      

The DfE’s deadline for responding to support scheme consultation is 27 April 2023.