Written evidence submitted by North Channel Wind, relating to Renewable Energy and Net Zero in Northern Ireland inquiry (REN0022)

             

 

Re. Call for Evidence – Renewable Energy and Net Zero in Northern Ireland

 

North Channel Wind welcomes the opportunity to respond to the Northern Ireland Affairs Committee inquiry into renewable energy and net zero in Northern Ireland.

North Channel Wind is wholly owned by SBM Offshore which has traditionally carried out activities in the oil and gas sector including design, supply and installation of floating production solutions over the full lifecycle. The Company is market leading in leased floating production systems with multiple units currently in operation globally. SBM Offshore has been building on this offshore engineering experience to develop innovative solutions for the renewable energy market. SBM Offshore has developed a floating platform for floating wind turbines, which is light and modular, has low motions and accelerations at nacelle level. The floater is easily installable with light and standard means and has a reduced seabed footprint, is easy to decommission which leads to a competitive cost of energy. SBM is working with EDF Renewables to provide its proprietary floating wind solution for a 25 MW pilot project which has recently been installed in the Mediterranean Sea (“Provence Grand Large”).

 

SBM Offshore has recently decided to move into project development for early commercial floating wind projects, as a way of progressing projects in markets which are considered suitable for the early deployment of the technology. Northern Ireland has been identified as a key market in this regard. North Channel Wind has commenced project feasibility work and has identified several suitable sites for development off the east coast of Northern Ireland. SBM has signed a co-development agreement with NMK Renewables, an Irish based developer which is responsible for the front-end development work, consenting, grid, interface engineering and stakeholder engagement.

 

North Channel Wind is committed to working closely with the relevant policy makers, the Utility Regulator and key stakeholders in Northern Ireland to develop early commercial floating offshore wind projects in line with our ethical commitments which are to conduct business in a sustainable way over the long term by developing close relationships with local people, communities and businesses in Northern Ireland and by safeguarding the natural environment.

 

In response to the Consultation Questions, we would like to note the following:

Question 1: What measures need to be in place to support the prompt meeting of NI’s 2030 renewables target, taking into account the needs of both large installations and micro-generation?

NI currently has 1.8GW of renewable capacity installed. This will need to be at least doubled to meet the growth in demand and the 80 by 30 target. Given the pace of development and in particular the issues in relation to the onshore planning system in NI, offshore wind is critical to NI achieving the 80 by 30 target. The evidence for this is that SONI the transmission operator has now included at least 500MW of offshore wind in its Shaping our Electricity Future plan (SOEF) and its transmission strategy. The SOEF document also assumes that 5,000MW of offshore wind will be delivered and operational by 2030 in ROI, which is also very doubtful given the judicial reviews currently underway in that jurisdiction.

The key measures required to support the prompt meeting of NI’s 2030 renewable target are:

  1. An expedited seabed leasing round by The Crown Estate. This is the trigger activity for all offshore development in Northern Ireland. No offshore project can be energised and delivering energy to the NI grid by 2030 unless the leasing round is concluded, with agreements for lease awarded, in 2025. The two figures below come from The Crown Estate’s recent Information Memorandum for Round 5 in the Celtic Sea. As you can see the expected process from initial invitation for views (December 2020) to the expected delivery of Agreements for Lease (Autumn 2025) is close to 5 years. TCE has commenced work in NI already, but it is unclear where exactly we are in the process and what the expected timeline is.

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  1. An efficient renewable electricity support scheme for all renewable generation above 1MW.
  2. Ahead of time grid investment – grid that facilitates maximum uptake of renewable generation and minimises dispatch down.
  3. Working planning system – the planning system in Northern Ireland is not fit for purpose and is taking significantly longer than all comparable projects in ROI and GB. Data from Renewable UK and Wind Energy Ireland shows the average duration for granting of planning permission for onshore wind farms in NI is over 3 years, which is 55% higher than the GB average, and 275% higher than in ROI.[1]
  4. Legislation for the establishment of a decommissioning regime and Decommissioner of Last Resort in Northern Ireland.
  5. Appropriate Offshore Connection Policy (including IEM3) relating to regulatory licencing for generators beyond 12 nautical miles.

Question 2: What progress has already been made to put those measures in place?

The Department for Economy (DfE) included offshore wind in the NI Energy Strategy which was published on the 16th December 2021 and the subsequent Action plan which was published in January 2022.

DfE committed in the Action plan to Develop an action plan to deliver of 1GW of offshore wind from 2030. Over the course of 2022, DfE led the development of the Draft Offshore Renewable Energy Action Plan (OREAP) which brings together all of the key stakeholders to try to deliver offshore wind in Northern Ireland. The OREAP established a number of committees based on the themes of the Plan and these committees met regularly through 2022 and 2023. North Channel Wind welcomes the leadership shown by DfE in delivery of the OREAP thus far and it is vital that this focus and pace are maintained by all stakeholders if delivery timescales are to be met.

Question 3: How can investment in renewable energy be sufficiently incentivised without driving up the energy costs paid by industrial and domestic consumers?

There is an emerging dichotomy between the approach taken by The Crown Estate (TCE) and the ambition of the regulators to protect the best interest of the consumer. The Crown Estate has taken a very aggressive approach to seabed leasing, in which the highest bid secures the lease area. For example in Round 4 in GB the options fees amounted to £879m per year for nearly 8GW of capacity. This represents a very significant upfront investment and ultimately pushes up the cost that the developer has to bid in for the Contract for Difference (CfD) auction to cover the costs of the development and achieve the project Internal Rate of Return (IRR).

By contrast in the Republic of Ireland, the seabed lease development levy (which is the same as the option fee in TCE process) is capped at €20,000/km2 which is significantly lower. This has the potential to distort the Single Electricity Market (SEM).

It is worth noting that options fees are also capped in the ScotWind process and that the TCE Leasing Round 4 approach is an outlier across these islands.  We would recommend that options fees are capped in the leasing process for NI to prevent us being at a competitive disadvantage and to protect consumers from higher costs.

The ScotWind process also considers the experience in delivering offshore wind and the financial capability to do so, in the assessments of bids.  This is good practice that we believe should be adopted for the NI leasing process.

Renewable NI commissioned a study by Cornwall Insights which investigated the policy impact on the cost to the consumer of renewable development in NI. Supporting-Renewables-online-version.pdf (renewableni.com). The study showed that certainty is a key factor to secure lower prices and the following key risk factors:

When all of the risk factors are combined the base price which will be bid in could be 41.3-46.9% lower according to the Cornwall Insight research.

From an offshore wind perspective the most important criteria for price reduction are compensation for all dispatch down and 100% indexation.

Question 4: What best practice exists elsewhere in establishing renewables support schemes for similarly sized markets and encompassing different sizes of installations?

One of the major emerging issues in Northern Ireland will be dispatch down and system constraints. According to the SONI Northern Ireland Constraints Report published in December 2023, if there is 500MW of offshore wind connected to the system by 2030, the modelling shows that 18.3% of renewable generation would be dispatched down. This is made up of 14.1% oversupply, 2.9% curtailment and 1.1% constraint.

In Ireland the issue of dispatch down is being dealt with pragmatically through the new Offshore Renewable Energy Support Scheme (ORESS 2). The concept of Unrealised Available Energy Compensation (UAEC) has been adopted in the new scheme to de-risk participants exposure to uncertainty surrounding curtailment and oversupply.

Successful ORESS projects that have an unrealised available energy in any given hour will be eligible for unrealised available energy compensation (UAEC) for that hour. The UAEC is a €/MWh amount in respect of an hour, calculated as follows:

 

Unrealised Available Energy Compensation = (Unrealised Available Energy x Strike Price) – Other Compensation for Unrealised Available Energy.

 

The ORESS scheme in ROI provides an index linked 20-year contract for difference. Research carried out by Cornwall Insights for Renewable NI showed that these two criteria could reduce the base price by between 26.1% and 27.4%.

 

A RESS scheme in NI which is at least 20 years in duration, which is index linked and which provides compensation for dispatch down will result in the lowest possible price to the consumer, even allowing for the compensation events.

 

The CfD scheme in the UK is also linked to the Consumer Price Index (CPI) and an indexation adjustment occurs each calendar year of the contract, however the contracts are only for a period of 15 years which do not have the same impact in terms of reducing the base price.

 

Question 5: How should any renewables support scheme interact with the Single Electricity Market, the market in the Republic of Ireland and the Great Britain market?

The UAEC which is applied to the ORESS scheme in the Republic of Ireland excludes generation availability not utilised for reason of transmission constraints. The impact of such constraints remains an important locational signal and is dealt with by the Single Electricity Market Committee (SEMC)

Question 6: What legislative and administrative factors will be important in delivery of a new renewables support scheme?

The Supporting Renewables report commissioned by Renewable NI with research by Cornwall Insights clearly outlined the need for a new CfD regime in Northern Ireland to incentivise investment which has stalled since the end of the NIRO scheme. The report also highlights potential administrative issues and costs which would likely emerge through partial indexation and also partial compensation.

In the case of offshore wind a number of pieces of legislation will be needed to enable the development of the first wind farms including:

Decommissioning regime for Northern Ireland Legislation will need to be enacted to enable the devolved government to take similar powers to those permitted under the Energy Act 2004 to cover all elements of decommissioning, including the protection of funds in the event of insolvency (a key feature of the DESNZ regime, which is tried and tested and consistent with the GB approach).

Safety Zones A safety zone is a designated area of water around or adjacent to an offshore renewable energy installation (OREI), within which certain or all classes of vessels are excluded, and activities can be regulated. In the UK, the Energy Act 2004 sets out the safety zone scheme which includes the introduction of discretionary power to the Secretary of State, Scottish or Welsh Ministers to declare such a zone(s) to protect installations and mariners. The scheme does not apply to the territorial or internal coastal waters of NI. In the Consultation on Offshore Renewable Energy Installation (OREI) Policy Options for Northern Ireland, DfE proposes to mirror the provisions as set out in the Energy Act 2004 for NI waters, with consideration for NI revisions or consequential amendments, to enable the establishment of provisions for safety zones around OREIs which is tried and tested, and consistent with the GB approach.

Question 7: How effectively has the UK Government supported the Executive as it seeks to deliver the 2030 renewables target?

The UK Government did not consent to NI joining the existing GB CfD scheme.  The creation of a bespoke NI scheme has caused delay but is now well progressed.  We would ask that the UK Government provide DfE with all required advice and support in determining how to administer the NI scheme.  The GB CfD has been incredibly successful in incentivising new renewable generation and bringing down prices.  There should be significant knowledge transfer to ensure NI gets it right from the outset.

Whether through an act of omission or an oversight, the NI Protocol does not make provision for the recognition of NI Renewable Electricity Guarantees of Origin (REGOs) by the EU.  This prevents Corporate Power Purchase Agreements between large energy users in RoI and renewable generators in NI, therefore closing of a key route to market.

RNI has developed an extensive policy paper and there seems to be no disagreement with these proposals in London, Belfast or Dublin.  However, the UK Government has so far failed to raise this with the EU.  Resolution would unlock over £100m of investment in NI today and more in the future.

Question 8: To what extent should NI officials be reasonably expected to take decisions in this area pending the formation of an Executive and based on Northern Ireland Office guidance?

NI officials have been very proactive in moving the low carbon and renewable energy agendas on in the absence of the Executive. However, it is extremely risky and greatly adds to the possibility of decisions being challenged as projects progress. In the case of offshore wind, the final permits will need ministerial approval. At the current time it is difficult to see any senior civil servant being enabled to grant final approval to such large infrastructure projects; and if they did, it would most likely be challenged legally. It is not reasonable for non-elected officials to be expected to assume the de-facto role of Minister and nor is it legally robust.

Question 9: What might the consequences of NI failing to meet its 2030 renewables target?

One of the main risks of Northern Ireland failing to meet its renewables target is a general failure internationally to tackle the most critical environmental crises the world has ever seen. The global temperature rise agreed in the Paris Accord was 1.5 degrees above pre-industrial levels. The global mean temperature in 2023 was 1.48. It is fair to say that the Paris Agreement is now broken, and the world is accelerating towards a tipping point of more than 2 degrees warming which means:

One of the main consequences for Northern Ireland is the consequent issue of failing to reduce emissions and the carbon budget. If Northern Ireland exceeds its carbon budget, the Act requires that DAERA (with the assistance of other departments) publishes a report setting out proposals and policies to compensate for the excess emissions in subsequent budgetary periods.

This could result in legal action by either private companies or Environmental NGOs. In the UK, the government’s net zero strategy was ruled ‘unlawful’ by the High Court in October 2022 for breaching its legal duty under sections 13 and 14 of the Climate Change Act.

We would like to thank the NI Affairs Committee for the opportunity to provide written evidence to this inquiry and we stand ready to provide oral evidence if required.

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[1] Based on data for onshore wind projects >1MW from 2020 to 2023. Source: Renewable UK Energy Pulse and Wind Energy Ireland