Energy

– in the Northern Ireland Assembly at 11:45 am on 5th March 2001.

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Photo of Reg Empey Reg Empey UUP 11:45 am, 5th March 2001

I wish to make a statement on energy — a subject in which there is keen interest. That has been clearly demonstrated by the Assembly’s debate on electricity costs and by the volume of questions and correspondence on energy issues which crosses my desk. As I said in the debate in November, I am surprised at the proportion of my time that is taken up by energy matters, considering the market is privatised.

This statement is timely. Energy issues affect each of us, our constituents and our environment. We must address problems such as continuing high electricity prices. We all have a responsibility to practice energy-efficiency. That is all the more so in Northern Ireland given the relatively high electricity prices here. There are current developments in the energy field that merit serious debate across the economic and social spectrum.

Various consultation documents on energy issues have been published over the past two years and others will appear over the next few months. The Enterprise, Trade and Investment Committee has begun an inquiry into energy, and my Department has set a Programme for Government target of producing an energy strategy by the end of the year. In achieving the target, I intend to take full account of the Committee’s inquiry report and will provide opportunities for wide participation in considering proposals that emerge to shape and finalise that strategy.

The past 10 years have seen very significant changes in the energy scene. In the early 1990s, the small Northern Ireland energy market was isolated from the main gas and electricity networks in Great Britain and the Republic of Ireland, and it served a population of 1·5 million. Northern Ireland Electricity (NIE) was the only supplier and distributor of electricity.

Northern Ireland was almost totally dependent on imported oil and coal for its energy needs, and was fully dependent on both — but primarily on oil — for its electricity generation. There was a small liquid petroleum gas (LPG) market and environmental issues were beginning to emerge.

Unlike other parts of the United Kingdom, Northern Ireland had no supply of natural gas, there was no nuclear source, and the supply of renewable sources was negligible. There were extensive lignite reserves estimated at 1000 million tonnes but those had not been developed. Those reserves constituted the only known indigenous energy resource, and hydrocarbon exploration had not identified any commercially exploitable quantities of oil or natural gas.

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Electricity generation depended on imported fuels — 70% on oil and 30% on coal. Comparable statistics for the United Kingdom as a whole were 8% for oil, 70% for coal, 20% for nuclear power, and 2% for hydro-power. Most energy usage in Northern Ireland was in the domestic sector, and solid fuels — bituminous and smokeless in more or less equal measure — served 69% of that sector, compared with 11% in the United Kingdom as a whole.

Because Northern Ireland had an isolated, primarily oil-dependent, electricity system, its costs were high. Some things never change, I hear Members say. At that time, the average cost of electricity was about 15% higher than in Great Britain and 9% higher than in the Republic of Ireland. Northern Ireland paid more for certain categories of smokeless fuels than other regions in the United Kingdom. As a result, over 7% of average gross weekly household income in Northern Ireland was spent on energy, compared with less than 5% in the United Kingdom as a whole.

The publicly owned NIE was privatised, with the four power stations — two oil-fired, one coal-fired, and one dual coal-fired/oil-fired — being sold to three private companies in April 1992. The remaining transmission, distribution and supply responsibilities were transferred to a new company, NIE plc, which was floated on the Stock Exchange in June 1993. The largest power station, at Ballylumford, was sold to British Gas on condition that the station would be converted from oil- to gas-fired. This conversion was completed in 1996. The power stations were sold on the basis of long-term generation contracts with NIE. The contracts guaranteed the stations’ payments for being available to meet any demand as well as meeting the costs of generation. More about these contracts later. Regulation of the industry became the responsibility of the Office of Electricity Regulation (OFFER), subsequently renamed the Office for the Regulation of Electricity and Gas (OFREG), a non- ministerial Government Department.

The pace and significance of recent changes in the energy sector have been considerable. Today’s market is very different from that of 10 years ago. Northern Ireland is no longer isolated. It is part and parcel of a much larger European market with a continuing agenda for a single, liberalised energy market in electricity, gas and renewables. I recently announced a joint study of the energy markets North and South with my counterpart in the Republic of Ireland, Mrs Mary O’Rourke TD, and intend to use the findings of that study to ensure that we can deliver an all-island solution firmly within a European market.

We should consider what is now in place — industry restructuring and privatisation with independent regulation; gas interconnection between Northern Ireland and the rest of the United Kingdom; the conversion of Ballylumford to gas firing, and — with construction of an even more efficient plant under way — the much-needed reduction of our dependence on oil-fired generation. We also have the establishment of a natural gas industry in the Greater Belfast area, with its beneficial impacts on the environment; the continuing important contributions of the coal and oil industries in providing consumers with the widest possible fuel choice; the implementation of the Electricity Liberalisation Directive by April 2001 — two years earlier than required by the European Commission — enabling our largest consumers to get the best price for their electricity; and increased North/South interconnection, which will not only stimulate that liberalised market but also assist the progressive development of an all-island trading system.

Further to this, preliminary studies have been undertaken into the possible extension of the gas market, both North/ South and to the north-west. There have been two Northern Ireland Non-Fossil Fuel Obligation, (NFFO) Orders, which have resulted in contracts for some 32 megawatts of renewables, and there has been sustained promotion of both combined heat and power (CHP) and energy efficiency. Moreover, the welcome arrival of natural gas — albeit so far only in the Greater Belfast area — has given industry a much greater opportunity than was previously possible to consider and introduce CHP. Collectively, these developments have brought substantial benefits to the consumer and to our environment.

All this has been achieved through close collaboration between the public and private sectors. I want to pay particular tribute to the degree in which the various private sector interests have co-operated together with OFREG and with the Department, in delivering a much more coherent energy framework upon which to build. The consumer has also been well represented through the General Consumer Council and the Northern Ireland Consumer Committee for Electricity.

Where do we go from here, and how do we build upon this framework? First, we should perhaps remind ourselves of the role of Government. My Department’s objective is to achieve a secure, diverse, competitive and efficient energy market. We are no longer the provider; our responsibility now is to set the strategic context and framework within which industry operates in a manner that ensures benefits for the consumer and the environment. In doing this, we work closely with the regulator. Part of this year’s agenda will be to look at the powers of the regulator and decide whether those are sufficient to ensure that we achieve our objective.

Secondly, the political climate has changed. Although we continue to work closely with our Westminster colleagues on the potential impact of new policies, such as those in the Utilities Act 2000 and others emerging in Brussels, there are now new drivers: this Assembly, the departmental Committees, the Executive’s Programme for Government, increasing North/South co-operation and a new emphasis on equality, social inclusion, and ensuring that the consumer is represented in the most effective way. All these must help us shape future energy strategy and there is a unique opportunity for participation and partnership to ensure that all elements of the emerging strategy are fully considered as this year progresses.

In breaking down our objective, we can take some comfort from the fact that our electricity supply is secure. We have had a recent reminder of the emergencies that can arise but, generally speaking, industry has not had to struggle with ongoing problems such as those in California. However, we are further strengthening security in the electricity market through the Moyle interconnector, which will be commissioned by the end of this year, and by reinforcing interconnection with the Republic of Ireland. Also during the course of this year, the capacity of the main Tandragee/ Louth interconnector will be doubled from 300 MW to 600 MW, and two standby links will be upgraded to full interconnector status. Further strengthening of links will assist the progressive development of an all-island, competitive electricity trading system, and the Executive have included a specific action in the Programme for Government to identify further interconnection projects.

A secure gas market can be achieved by a transmission link between Belfast and Dublin. The prospect of such a link has, at times, been frustratingly close. Whether it becomes a reality depends, first, on decisions by the Department of Public Enterprise in Dublin on the preferred infrastructure to meet gas demand in the Republic of Ireland and, secondly, on the economics of any proposed link. The former has now been clarified with the recent announcement approving a second Scotland-Dublin pipeline. With regard to the latter, I have received an initial submission for an interconnector linking the gas networks North and South. This submission also includes a project for a gas pipeline from Belfast to Londonderry. We are proceeding with a thorough appraisal of all these proposals.

The introduction of a natural gas supply and, subject to European Commission approval, the exemption proposed for gas from the climate change levy, have helped our diversity objective as well as bringing greater competition, consumer choice and environmental benefits. Those benefits will be extended if we are successful in bringing gas to the north-west and south-east, including towns along the route. However, to maintain diversity in generation, we will seek to ensure that our previous reliance on oil and coal is not replaced by an over-dependence on gas. There is a renewed interest in lignite as a generation fuel, although this has not yet reached the stage of firm proposals.

An important strand in ensuring diversity is the promotion and development of renewable energy sources. Up to now the Department has used its powers under the Electricity (Northern Ireland) Order 1992 to place a Non-Fossil Fuel Obligation (NFFO) on Northern Ireland Electricity plc (NIE), requiring the company to contract for specified amounts of electricity from renewable or non-fossil sources. Developers awarded contracts under the NFFO Orders receive a premium price for their electricity, which is financed through the general electricity tariffs.

At the end of January 2001, 18 projects had been commissioned in Northern Ireland under these arrangements, comprising eight hydro-power schemes, eight wind schemes and two biomass schemes. In addition to its involvement in NFFO, NIE launched its Eco Energy — or "green tariff" — scheme in October 1998. An additional wind turbine at Lendrum’s Bridge wind farm in County Tyrone was commissioned in December 1999 solely for production for the scheme. To date, over 1,000 domestic and small business customers have joined the scheme, demonstrating a willingness on the part of consumers to pay a premium on top of our high electricity prices for the benefit of the environment. The eco-energy tariff is now being offered to large industrial customers, and NIE’s supply price control commits it to a tenfold increase in eco-tariff sales by 2005. With the proposed exemption for qualifying renewable-sourced electricity from the climate change levy, industrial consumers will have a much-reduced premium to pay to join the scheme.

The results of an updated assessment of Northern Ireland’s renewables potential were published in July 1999. They concluded that a contribution of 115 MW was possible by the year 2010, equivalent to 7·7% of the current electricity consumption. A separate study of the offshore wind potential around the island of Ireland was published in October 2000. The report concluded that, on the basis of certain assumptions, 7% of Northern Ireland’s predicted electricity consumption in 2005 could be met by offshore wind energy.

Overall, however, the emergence of renewable projects is patchy. I therefore propose to issue a consultation document shortly to seek views on the development of Northern Ireland’s renewable resources. Decisions on revised renewables targets, possible renewable technology priorities and the future support mechanisms to promote and develop renewable energy will be taken on the basis of the conclusions of the July 1999 report; developments in Great Britain following the introduction of a renewables obligation under the Utilities Act 2000; the recent consultation paper by the regulator; and the consultation exercise proposed by the Department of Enterprise, Trade and Investment. I know from the November debate that several Members have a keen interest in renewables, and I encourage them to participate fully in the consultation process.

High electricity prices have been a persistent feature in Northern Ireland and a cause for continuing concern both to industry, because of their impact on competitiveness, and to domestic customers, particularly those on low incomes. Achieving significant price reductions is a vital outcome of our objective of an increasingly competitive energy market.

There are two main reasons for our higher prices. First, production and distribution are more expensive because local power stations are smaller, the level of required back-up spinning reserve is higher and customers in our largely rural community are more dispersed. Secondly, the combination of long-term contracts between NIE and the generators put in place at privatisation and the use of relatively inefficient plant have resulted in higher generation costs, which represent 80% of industrial bills and 60% of domestic bills.

Over the past four years or so, the regulator has sought to facilitate the restructuring of long-term generator contracts to secure price reductions. Efforts to date have been partially successful. For example, NIE and Premier Power recently agreed a revised contract for Ballylumford, including the construction of the first high-efficiency combined-cycle gas turbine in Northern Ireland with accompanying generation cost reductions and environmental benefits. To complement this and any future contract restructuring, the £40 million balance of the £60 million Government support fund is being used to buy down some of the existing availability payments on the Kilroot and Ballylumford contracts, which will lead to modest price reductions. The possibility of new, state-of-the-art generation capacity at Coolkeeragh is a further positive feature for the stimulation of competition.

After generation, transmission and distribution represent the largest single component in electricity costs, accounting for 35% of domestic bills and 15% of industrial bills. The regulator has embarked on a transmission and distribution price control review, which will include rigorous examination of a continuing and growing divergence in the levels of these costs between Northern Ireland and Great Britain. The new price control is scheduled to come into operation in April 2002.

There are clear signals that the European Commission wishes to see the expedition of the timetable for the creation of fully open markets. This will require us to seek ways of buying out or renegotiating the existing generator contracts, and we have already started work on this process. Suggestions that this issue can be easily resolved by tearing up the contracts or going, cap in hand, to the Treasury are unrealistic. The process is complex, and it remains to be seen if an acceptable solution can be found. However, just as this Administration seeks to demonstrate to the whole community its ability to govern, it must also demonstrate that it is honourable in its dealings with those who have invested in Northern Ireland and its future.

The main thrust of policy aimed at reducing electricity prices will be the introduction of increased competition in generation and supply in an all-island and European context. My Department and the regulator have been examining further ways to address the structural problems of the industry, along with the related issues of market opening and encouraging further competition. I have asked the regulator to prepare and publish a consultation paper by the end of this month, containing proposals aimed at achieving these objectives.

Our energy policy has always given a central role to the demand side — reducing energy use through promoting best practice in energy efficiency and green technologies. This is vital to economic competitiveness, given our relatively high electricity prices. The climate change levy will apply some pressure on companies to become more energy efficient. The Industrial Research and Technology Unit (IRTU) already provides an extensive package of measures to assist them, including free energy audits, the Northern Ireland Loan Action scheme and funding for the Energy Saving Trust and the Arena Network. It has also co-operated closely with the regulator in promoting the advantages of combined heat and power.

At the end of the day, energy can be saved only where, when and by whom it is used, so it is up to each and every industry in Northern Ireland to grip this issue. To further assist them to do so I am pleased to announce that IRTU will receive a further £0·9 million to fund the work of the Carbon Trust in Northern Ireland, which will carry out research and development into new energy efficiency technology in addition to promoting energy efficiency.

Effective consumer representation arrangements are a fundamental part of any emerging energy strategy. As I have mentioned, these arrangements currently reside in two bodies. As long ago as 1998, it was proposed that they should amalgamate under the General Consumer Council, and a decision on this matter is overdue. Before coming to a final decision I have recently asked the Enterprise, Trade and Investment Committee, the Civic Forum and other key interests for their views.

Of much greater significance will be the role and remit of any body responsible for the new arrangements. It is my intention that there should be wide consultation during the process of drawing up legislative proposals to ensure that consumers are equally, fairly and fully represented.

I have set the goal of devising an energy strategy by the end of this year. That strategy needs to be on an all-island basis and firmly within the wider UK and European context. A joint study has already commenced, and advertisements have appeared inviting comments. I propose to hold a public seminar in early June to discuss the proposals emerging from this study.

The strategy must be capable of delivering the objective of a secure, diverse, competitive and efficient energy market. Therefore, I urge Members to participate in the consultation exercise that I have asked the regulator to undertake, so that effective competition can be stimulated in an open market. Similarly, I look forward to practical inputs to the debate on increasing renewables. The outcome, based on a fully participative process, will be a strategy capable of meeting our energy needs in a manner which produces lasting benefits for all consumers and the environment for this and future generations.

Photo of Sir John Gorman Sir John Gorman UUP 12:15 pm, 5th March 2001

We have one hour for the debate. Fifteen Members have asked to speak, so I ask them to be concise. I will stop the debate at 1.20 pm as there are three Bills to be dealt with.

Photo of Pat Doherty Pat Doherty Sinn Féin

A LeasCheann Comhairle, I welcome this comprehensive statement from the Minister, and I thank him for recognising the Committee’s work in this area.

Given that the Coolkeeragh management and the Electricity Supply Board (ESB) are pursuing their planning application for the new power station, would the Minister comment on the guarantee of a gas pipeline from Belfast to Derry and on any further plans for wind energy projects in County Tyrone? Finally, would the Minister also comment in relation to Northern Ireland Electricity and its ongoing inability to deal with storms and adverse weather conditions?

Photo of Reg Empey Reg Empey UUP

First, I have said on a number of occasions that we have a proposal on the table with respect to gas pipelines, both south-north and north-west. This is the first time that we have had a firm proposal in front of us and it is being evaluated.

Part of the problem has been the delay by the authorities in the Republic in reaching a decision on their longer-term strategy. Last week, they opted for the second interconnector from Scotland to Dublin. That was not our preferred option, as Members know. We would much prefer a straightforward North/South pipeline and one going to the north-west to the introduction of an additional pipeline from Scotland, because that could have knock-on effects when the Corrib field comes on-stream in the west of Ireland in 2003. However, the Republic has made its decision because of its perceived energy shortages in the winter of 2002.

I am optimistic that at least we now have on the table a firm proposal, which is being economically evaluated. Clearly, due to the time pressures, if the second pipeline is to be in place for the winter of 2002, we are anxious to respond positively. Coolkeeragh and ESBI are at an advanced stage of negotiation, and we would like to think that we will also have firm proposals there. As yet, we have not had an application for a power-generating consent by that particular company at the site, so we await that. Nevertheless, the position looks much brighter because we have never had a proposal before now.

I will have to come back to the Member with regard to the question of wind energy in County Tyrone. There is a degree of renewable activity in that area and there is certainly greater potential.

As regards the recent storms, Members are acutely aware of the difficulties. As we have seen, they were not confined to Northern Ireland. The folk in Scotland had quite a bit of time without electricity — indeed, some may still be without it. I said last week, and I repeat, that at one stage 100,000 customers were disconnected. Whatever way one looks at that, it is a serious development. In certain cases, it can threaten health and life.

For older people in isolated locations, people who depend on electrically-operated medical equipment and families with young children who are plunged into those conditions, this has a huge social and economic impact with a life-threatening element. I have spoken to senior executives of NIE, and they have said that they will co-operate fully with the regulator and myself in examining what happened. They will learn lessons from what happened and, most importantly, try to minimise the risk of the same things happening again.

Executives from NIE accept that a gap has developed between the perceptions of what is possible and the reality. Perhaps the new handling system that was put in place by NIE was oversold, for I have received feedback that customers were not getting the information that they sought. Faults arose with the system, and many of its operators could not get in to the centres to use it because of the weather conditions. There was an unfortunate series of events, and there will have to be a prolonged post-mortem to ensure that all possible lessons are learned.

Photo of Séan Neeson Séan Neeson Alliance

I thank the Minister for his report. Could the decision taken by the Department of Public Enterprise (DPE) in the Republic of Ireland delay the provision of a natural gas pipeline to the north-west? Does the Minister accept that the timescale for the Coolkeeragh power station is limited? Will he also accept that the nub of the problem has been the decision to go ahead with the long-term contracts after privatisation? Will that be considered as part of the strategy? In the options that the Minister put forward this morning, no mention was made of the use of Orimulsion. Was that deliberate?

Photo of Reg Empey Reg Empey UUP

The decisions taken by the DPE will not adversely impact on a pipeline to Coolkeeragh. The proposal that the Department of Enterprise, Trade and Investment has received from Bord Gáis and the American company Questar covers a South/North element and a north-west element. The Electricity Supply Board International (ESBI), the operating arm of the Electricity Supply Board (ESB), has a strict timetable, and, as has been mentioned, it has put in a planning application for the power station. It has informed the potential builders of the gas pipeline of the timescale involved and when the gas will be required. The decision announced last week in Dublin will not affect that.

Mr Neeson is correct in saying that the long-term contracts are the nub of the problem. To cut to the chase, a bad deal was done in 1991-92. The problem is that the generating companies hold those lucrative contracts. They are being paid to be available whether they are used or not. When electricity is used, the generating companies charge the market price for it. That was the driving force behind the last major increase in fuel prices.

I have looked at that matter very closely over the past year. Unless the contracts are sorted out, no impact will be made on electricity prices. When one talks about buying out those contracts, it has to be established whether a utilities bond has to be issued to do so. Huge sums of money are involved, and the Department of Enterprise, Trade and Investment is looking at the issues surrounding that. It is a major piece of work. There is the question of our relationship with the Treasury. I am working very closely with the Minister of Finance and Personnel. I assure Mr Neeson that we are working very hard in the Department. The regulator is focused on it, and we are doing everything that we can to deal with this because it is the core of the problem.

There was no deliberate intention to omit Orimulsion. It is an issue. I have met the people from South America who market the product. If the company at Kilroot wishes to make an application we will have to consider it. There is nothing to be read into its omission from my statement.

Photo of Sir John Gorman Sir John Gorman UUP 12:30 pm, 5th March 2001

I must remind Members that we have used quite a lot of time. Please be more concise. I ask the Minister to do the same. One way of achieving that is for each questioner to confine himself or herself to one question.

Photo of Esmond Birnie Esmond Birnie UUP

I had two questions but I will confine myself to one. With regard to offshore renewables, particularly wind generation, what steps will the Department of Enterprise, Trade and Investment take to encourage the heavy and marine engineering sectors to get into what will surely be an expanding market? Perhaps in the future Harland & Wolff will make more windmills than ships.

Photo of Reg Empey Reg Empey UUP

At present, I would settle for Harland & Wolff making anything. However, the company and its owner, Mr Olsen, are very keen and have many ideas for entering into that area. They see it as a long-term growth sector, and they may well be right. As Members may know, Kirk McClure and Morton prepared a report for the Department last year on the potential of offshore generating capability. There is no doubt that there is potential for it. A pilot project is under way in the Republic, and it is possible that, by 2005, up to 7% of our electricity could be generated by renewables. In practice, that will require a significant increase in wind power, as it is one of the quickest to bring on-stream. I am entirely of the view that the Member is correct. There is potential for wind gereration and the heavy engineering sector could benefit from it. Fred. Olsen Energy ASA is very focused on it at present.

Photo of Mrs Annie Courtney Mrs Annie Courtney Social Democratic and Labour Party

I welcome the Minister’s statement and the fact that there will be a renewable energy policy by the end of this year. Having listened very carefully to the Minister’s responses, I feel that this is not only about economics but about equality; equality of opportunity to support inward investment, equality of opportunity for choice — that is gas versus electricity. If we do not get gas in the north-west we will be building disadvantage upon disadvantage. With that in mind, will the Minister assure me that the extension of a gas pipeline to the north-west is not dependent upon a South/North pipeline?

Photo of Reg Empey Reg Empey UUP

I said in my statement that equality is an issue. Consumer choice and access to a wide variety of alternatives is an equality issue. That said, we have to accept that not every town and hamlet will have a natural gas supply, irrespective of what happens in the north-west. There are economic practicalities that we cannot simply ignore. However, as a general rule, I agree entirely that choice is important.

With regard to Mrs Courtney’s second point, the application that I have received is a joint application covering both issues: South/North and north-west. It is being dealt with on that holistic basis.

Photo of Jim Wells Jim Wells DUP

Does the Minister accept that the announcement on the possibility of a pipeline to Londonderry is extremely welcome news, which everyone will applaud? Will he accept that his Department has a very difficult circle to square, in that they are faced with the need to cut energy costs while not adding to the increasing amount of carbon emissions?

Does the Minister also accept that price reduction should be aimed at the poorest households, with perhaps the first 4,000 units being charged at the lower rate to enable people to have a basic level of energy, which they can use? Charges could increase as energy consumption rises.

Does he accept that the climate change issue could be a major boost to the Northern Ireland economy? For instance, why can Harland & Wolff not continue to expand its production of wind turbines?

Will his Department encourage all other Northern Ireland Departments to give a major boost to renewables by asking them to go on to the renewable green tariff, which would provide the most enormous stimulus to the production of renewable energy in this Province?

Photo of Reg Empey Reg Empey UUP

There is a certain contradiction, in that we have to make our electricity as competitive as possible to help our businesses be as competitive as possible while, at the same time, trying to reduce the emission of carbon dioxide. The cheapest way of producing energy is not always the most environmentally friendly. Consequently, renewables are a premium supply — in other words, people are being encouraged to provide renewable energy and will receive a premium for their product.

The Member mentioned the point about the Government applying to use the renewable tariff. I will bring that to the attention of my Colleague, the Minister of Finance and Personnel. It is an interesting suggestion. Clearly, there would be financial implications as the Member has already stated, and those will have an impact.

In recent months, we have tried to attack fuel poverty and more resources have been brought to bear. Mr Morrow is working to ensure that as many people as possible are able to benefit from that. I hope it will be possible to help even more people, because it does not say very much for society if people are afraid to turn on an electric fire during periods of cold weather such as we are having at the moment. Indeed, many people may die, or their deaths may be hastened as a result of being afraid to turn on a fire. That is something that this community as a whole has to look at.

We have brought resources to bear in the last few months, in some of the monitoring rounds, to increase the number of dwellings receiving attention. A major impact is already being made in this area.

Photo of Ms Jane Morrice Ms Jane Morrice NIWC

I declare an interest in this area as I have a family member who is involved in the industry.

I want to look at the potential for renewable forms of energy. I am fascinated by what Dr Birnie and Mr Wells said about the potential for 7% of Northern Ireland’s predicted electricity consumption to be met by offshore wind energy in 2005. I know that the matter has been raised but I would like further details. What are we doing to ensure Northern Ireland will be able to produce offshore wind energy by 2005?

With regard to the potential for Harland & Wolff to create offshore wind energy turbines, would the Minister agree that while European regulations do not allow subsidies for shipbuilding, if Harland & Wolff were to diversify into marine renewable energy exploration surely Brussels could not disallow support for that industry? It would be of great benefit for Harland & Wolff and its long-term future, and for renewable energy in Northern Ireland. Will the Minister think about pursuing this matter with Brussels?

Photo of Reg Empey Reg Empey UUP

With regard to the second point, the position is that Harland & Wolff receives an intervention aid grant. That is a unique grant that my Department offers. It is not the normal selective financial assistance that is available to other companies, which is a discretionary function of the Department. If Harland & Wolff is doing things other than shipbuilding, it is entitled to approach the Department on the same basis as any other company, and its case will be treated on its merits. It is because it is dealt with in a narrow, project-based grant regime for shipbuilding — which is specifically limited in its percentage — that its difficulties arise. If it comes up with an application which is for any product other than ships, then its case will be dealt with in exactly the same way as any other company’s application.

With regard to offshore wind energy, the Kirk, McClure & Morton study is all that we have. As Members appreciate, this is a privatised sector, and my Department’s role is to license. We can issue licences only if we get applications, and so far, we have had none. Therefore it is up to the private sector to come forward, and my Department will assess the applications on their merits.

Photo of Robert McCartney Robert McCartney UKUP

I wish I could be more enthusiastic about the Minister’s statement. The central issue — and the Minister will agree — is that electricity and energy costs in Northern Ireland are totally unacceptable when compared with those on the mainland. When one reads the Minister’s statement, one does not get a great deal of comfort. Does the Minister agree that he is really saying that the electorate should reduce the amount of energy that it uses, that the present proposals offer only modest reductions and that there is no present or immediate prospect of competition to bring the price down?

The Minister suggests that it is unrealistic either to tear up contracts or go cap in hand to the Treasury. Was it not the Treasury and direct Government, however, that negotiated these lucrative contracts for the generators? Is there anything immoral or unfair in seeking to renegotiate those contracts — although the Minister says that we must demonstrate that we will be honourable in our dealings with those who have invested in Northern Ireland, even if they have invested in terms that are totally prohibitive as far as consumers are concerned?

Finally, if there is to be no variation of the generation contracts or no appeal to the Treasury to right the wrong that it did to the people of Northern Ireland in negotiating these ludicrous contracts, just what real hope does the Minister offer to those who are suffering from outrageous and inequitable energy charges?

Photo of Reg Empey Reg Empey UUP

The Member is, of course, correct that the central issue is high charges — there is no getting away from that. Since I first became involved in this issue, it has been obvious that the starting point was the contracts — which are something that I sincerely hope we would never have negotiated here. It is quite clear that as long as those contracts remain in place under current conditions, prices can only be tackled at the margins.

However, I make the point to the Member that one of the problems is the high energy costs of producing the electricity because of the inefficiency of the plant. Investing in an efficient plant will directly impact on the charges paid by customers, because there is a fuel premium charged in every bill. The decision to spend £200 million on a new combined cycle at Ballylumford will, therefore, have a direct impact on prices, because there will be a more efficient plant. It will be able to produce the same electricity for about 60% of the gas usage. It is now under construction, and it will probably be the end of next year before it is in operation. The same thing could apply if the Coolkeeragh scheme goes ahead; that will also be a new and more efficient system replacing an old inefficient one. The Treasury has been approached about the issue on several occasions over the years and, undoubtedly, further efforts will be made.

Brussels wants to open the market to full competition as soon as possible, and we are getting some help with that. The Moyle interconnector will be in operation by this December, bringing pool price electricity from Great Britain into Northern Ireland for the first time. Three quarters of that capacity will be on the open market, only one quarter will go to NIE. Approximately 35% of our market will be open to competition by next month. That means that the larger commercial companies will be able to buy that electricity. The only way to deal with so-called stranded costs — the burdens that are placed on the shrinking number of customers who are still within the remit of NIE — is to buy out the contracts. That can be done either with the help of the Treasury or by way of a bond.

The approach is multifaceted: better fuel efficiency; more competition in the market; re-examination of the contracts; and modernising the plant and the machinery. Most of the plant dates back to the 1960s and 1970s and is well past its sell-by date. Modernising the plant will have an impact on prices.

Photo of Dr Dara O'Hagan Dr Dara O'Hagan Sinn Féin 12:45 pm, 5th March 2001

Go raibh maith agat, a LeasCheann Comhairle. I welcome the Minister’s statement, particularly the announcement that there will be consultation on renewable resources. There is a growing realisation that the future for our energy needs lies in the use of renewable resources, and, as legislators, we should lead the way on that. Mr Neeson asked about the decision on the Dublin- Scotland pipeline; I was going to ask about it, too. I am pleased that it will not have a detrimental impact on the timescale.

Prices are higher in the North of Ireland, and there is a problem with fuel poverty among lower income households. What contact does the Department of Enterprise, Trade and Investment have with the Department for Social Development, with particular regard to the domestic energy efficiency scheme (DEES)?

Photo of Reg Empey Reg Empey UUP

There will be a full consultation exercise. The Enterprise, Trade and Investment Committee is carrying out a study into energy issues, which I welcome. We will consult all key interests. We also hope to resolve the question of the representation of consumers’ interests at some stage this year. All the matters require resolution within the year. The purpose of the statement was not to make any dramatic announcements today; it was to set an agenda for the resolution of outstanding energy issues for the rest of the year.

The decision to construct the second pipeline from Scotland has now been taken. That was not the decision that we would have preferred. There will not now be the competition on an all-island basis that there would have been, had the decision that we preferred been taken. It will take longer to integrate the systems fully with the second interconnector. Under our original proposal, we would have had a fully integrated system by 2003. If the current proposals are not amended, it will take considerably longer than that, indeed it could be 2013 before that will occur. Corrib comes on stream in the year following the introduction of the new interconnector. That means there will then be a huge oversupply in the market, which could affect the economics of the Corrib system. There are many problems which we cannot go into just now.

I am acutely aware of the fuel poverty issues. Our two Departments work closely together. The Department for Social Development has primary responsibility for running the fuel poverty system. However, we are clearly aware of it, we contribute, and we want people to take advantage on the industrial side. The climate change levy will impact on prices as well. The Department of Enterprise, Trade and Investment offers a free energy audit to businesses if requested, and I am surprised that the take-up of that is not greater.

Photo of Mr Danny O'Connor Mr Danny O'Connor Social Democratic and Labour Party

The Minister stated that we are wholly dependent on coal and oil imported from abroad. To make Northern Ireland more self-sufficient, can he assure us that he is committed to looking at all forms of renewable energy — for example, hydro-electricity and solar power? Some small schemes run on such things as biomass. Can the Minister further assure us that interconnection with the UK will not mean any nuclear tariff for Northern Ireland customers?

Photo of Reg Empey Reg Empey UUP

The Moyle interconnector will be available in December 2001. Electricity can flow both ways — it can be exported and imported. A 500 MW capacity — slightly smaller than Ballylumford, but the equivalent of a significant power station — will come through that cable. That is pooled electricity. In other words, it is available for sale on the open market in Great Britain. We have no way of knowing where that electricity comes from. Therefore it is impossible to say with 100% certainty that some of it would not have been generated by nuclear power stations. Twenty per cent of electricity in Great Britain is generated by nuclear power. It all goes into a central pool and, just as there is no difference between orange electricity and green electricity, there is no difference between coal-fired and nuclear electricity. We have no way of knowing.

Regarding renewables, we are committed. We have targets. We have some hydro schemes, but I have to say that a fishing enthusiast will have problems with those, and I do get some complaints. There are one or two recent proposals concerning biomass so there is interest. I have already referred to wind energy. Solar energy in Northern Ireland is not exactly a big sell at the moment because of our climatic conditions. Perhaps it is sunnier in Bangor than in other parts of the world.

We have set ambitious targets, but are people prepared to pay the premium? Renewables become more economic only when they operate on sufficient scale. That is where the potential for wind farms can play a role.

Photo of Roy Beggs Roy Beggs UUP

I welcome the statement by the Minister that the regulator has embarked on a transmission and distribution price control review and that the Department is reviewing the regulator’s current powers. Will the Minister ensure that that review is completed before his price control review? It could have an effect on the outcome.

Secondly, in the context of the joint study of the energy markets in Northern Ireland and the Republic of Ireland within the European market, is the Minister aware that the semi-state generators in the Republic of Ireland may not reflect actual capital or real costs in their unit electricity prices? Will the Minister ensure that there will be fair competition so that local generating jobs are not lost to unfair competition?

Photo of Reg Empey Reg Empey UUP

There is a transmission and distribution review under way. It is due to be operable by April 2002. It is not clear that it is going to be possible to have the regulator’s powers dealt with by that stage, because the transmission and distribution price control review is already under way.

I said some time ago that I was considering introducing a Utilities Act. It may have to come in two parts. One of the issues that we will look at, without any commitment at this stage, is the power of the regulator. Northern Ireland Electricity (NIE) knows that the regulator may end up with greater powers than he has at present, and that knowledge might encourage NIE as we move through this process.

After fuel, transmission and distribution are the most significant elements that contribute to the prices that people pay. These charges are 35% for households and 15% for industry and they are higher here than elsewhere. That is a problem.

We have announced a joint study with the Republic. I am aware that our industry is privatised while theirs is state or semi-state, and I have no doubt that ultimately the Republic will have to go down the same route as ourselves. That will be demanded by the European Union. In any event, it is long past the point where people recognise that private companies are better at performing certain tasks. It has not escaped my attention that the study will look at all the potential issues and, in any case, there will be widespread consultation before any decisions are taken.

Photo of Wilson Clyde Wilson Clyde DUP

Willow biomass has already been mentioned. Electricity is being produced from biomass at Enniskillen Agricultural College and at a grain farm in the north- west of the Province. If this proves viable, will the Minister consider grant-aiding farmers to set aside land for the growing of willows and poplars for the production of electricity?

Photo of Reg Empey Reg Empey UUP

I know that experimental work has been carried out and that the climatic conditions in Fermanagh have proved to be the best for the production of willow biomass. The encouragement and principal incentive for people to come forward with applications is the premium offered for the unit cost of electricity generated by renewable energy sources. If the Member is suggesting taking certain lands out of current agricultural use and putting them to another use, with a double premium involved, I will have to take advice from my Colleague in the Department of Agriculture.

The principal incentive is that a premium will be paid for electricity generated by the biomass method. That is why there is a premium: to encourage people to produce electricity by non-fossil fuel means. I can assure the Member that if we are to achieve our targets, such premiums will continue to be necessary.

Photo of Joe Byrne Joe Byrne Social Democratic and Labour Party

I welcome the Minister’s statement in view of the complexity of the issues relating to both domestic and industrial consumers in Northern Ireland.

Are we so tied with generator contracts that we have no influence on them? It seems important that the regulator be given some real teeth so that he can tackle the pricing to the consumer in relation to transmission and distribution.

Lastly, is the Minister telling us that the only future for us with regard to lower electricity prices is to import electricity from the Republic or Scotland? Given that the Republic is at the limit of its capacity, there is a major problem.

Photo of Reg Empey Reg Empey UUP 1:00 pm, 5th March 2001

With regard to the latter matter, I am not saying that at all. Imported electricity merely allows trading to take place. If the means to import is there, the mechanism to export is there. If current proposals are carried forward, we will have a surplus of electricity generation in Northern Ireland. Currently the interconnector is primarily used to export electricity to the Republic. It can, of course, be used to cover for emergencies, and if we have a demand spike, then we can import. However, we are exporting most of the time because the shortage is on the other side. Part of the problem is that the distribution mechanism in the Republic is not able to take large amounts for a long period of time, but that is being looked at.

I do not see our being dependent on imported electricity, because we are trying to make generation here as efficient as possible. New plants like Ballylumford and, I hope, Coolkeeragh, and the new Moyle interconnector all bring new sources at a lower price into the equation. Sooner or later that is bound to bear down on prices, particularly as we have opened up the commercial market to the extent currently required by the European Union. However, I believe that the European Union will go for greater market opening, and we are certainly prepared for that.

The contracts are there. They are legally binding contracts in black and white, and we cannot pretend that they are not there. The regulator is working as hard as he can to try and renegotiate, but you have to ask why somebody who has a lucrative contract would simply cast it aside. I am quite sure that if the hon Member held one or two of these contracts, we would all be in difficulties. That is the situation that we have. We are trying to deal with it as best we can, but it is not going to come easy and it is not going to come cheap.

Photo of Mr Oliver Gibson Mr Oliver Gibson DUP

Prices here are 15% higher than in the rest of the UK and 9% higher than in the Republic of Ireland. The best prediction that you can give us is that we will get 7·7% of our electricity from renewables. We have the prospect of a climate change levy. Despite the best efforts that you can make, are we not faced, because of the original agreements and contracts that were signed, with very high energy costs that are going to be added to by the climate change levy?

Photo of Reg Empey Reg Empey UUP

There is a certain element of truth there. If we sit and do nothing, that is exactly what will happen. It depends at what point you measure, but our prices are anywhere up to 25% higher. It depends what you are measuring against and what you are comparing. However, if we simply add the climate change levy and the increased fuel prices and do not take any action, then that is precisely the result that will flow from that. It is precisely that outcome that I am determined to avoid. That is why it is essential to try to set down a few targets for ourselves and why I wanted to do so at an early stage in the year.

Photo of Mr Arthur Doherty Mr Arthur Doherty Social Democratic and Labour Party

The Minister referred to the potential of offshore wind generation. That would impact very positively on sustainable development in both environmental and economic terms. Since Mr Esmond Birnie anticipated my main question, and I suspect that the Minister’s response to Ms Jane Morrice dealt substantially with my other question, I will simply ask the Minister to explain the assumptions that helped form the report’s conclusions about wind energy.

Photo of Sir John Gorman Sir John Gorman UUP

I congratulate you on the brevity of your question.

Photo of Reg Empey Reg Empey UUP

The first thing that the Member has to understand is that no assumption is firm. They have made very interesting maps of the wind patterns and flows throughout the island. They then have to take into account the depths involved, et cetera, so it is a very intricate measurement to calculate. If Members get an opportunity to look at the report, they will find it interesting.

They make assumptions about the best physical location, consistent with wind direction, the amount of time during the year that that wind is blowing and the seabed conditions in the area. It is on the basis of these factors that they are recommending that it is physically and logistically possible to generate a given amount of electricity and that it is economically possible to do so within the suggested timescale. Theoretically, one could build wind farms ad infinitum until all our electricity was generated in this way, but if calm weather conditions were to prevail, we would be back to using batteries.

You can only go so far with each energy option if you want to have a diversified system. No firm assumption can be made about anything, but experts have looked closely at the weather patterns, the seabed situation and the economics involved, and they have made recommendations to both the Republic and ourselves. At present we are running with those, and we hope that there will be further significant development. To cover 7·7% of generation using renewable resources would mark a dramatic increase on anything that we have here at present. Given that we do not have any significant hydro schemes, there must be a significant commitment to other renewable resources.

Photo of Jim Shannon Jim Shannon DUP

In the light of the increase in electricity charges from 1 April 2001, will the Minister explain the role of the regulator in controlling NIE prices? How can he ensure that dividends for shareholders do not take precedence over charges to NIE customers? What grants and incentives are available to increase the use and provision of alternative types of energy, for example, hydro, wind, biomass and solar power?

Photo of Reg Empey Reg Empey UUP

If NIE wishes to increase its charges, it is obliged to notify the regulator. In this instance, NIE argued that, on the basis of the increase in the amount of raw materials needed to generate power, the generators were increasing the cost to the customers. They are entitled to do this because fuel costs are a part of the electricity premium that the customers pay. The regulator looked at NIE’s arithmetic and concluded that the charges reflected accurately the costs that were being incurred by the generators. These costs were not being incurred by NIE because of its operations, but on the basis of the bill charged by the generators for producing the electricity. He concluded that that was accurate enough in this case.

I accept the Member’s point about the dividends for the shareholders, but that is not, in itself, a matter for the regulator. However, I am reviewing the extent of the regulator’s power, and I want to hear the opinions of Members and the Committee. We are looking closely at this matter to ensure that the regulator has at his disposal the necessary tools to do his job. He is currently involved in a major review of the transmission and distribution element — a huge issue — and, if he concludes that a certain change in the pricing structure is required, this will be introduced by April 2002.

On the question of the use of renewable resources, I indicated that the incentive for the provision of renewables is the premium that is paid for electricity generated in that way. Whether or not people actually use renewable energy is down to personal choice, because the renewable premium, the eco-premium or green tariff requires a higher payment. Therefore as far as I am aware, there is no cross subsidy in the system at present, and, indeed, as people are paying a premium for it, it would not make much sense suddenly to start subsidising it because that would in many ways defeat the objective.

(Mr Speaker in the Chair)

Photo of Edwin Poots Edwin Poots DUP

Can OFREG take into account the fact that oil prices have now fallen since NIE made the initial announcement of a 9% price rise? Given that the price of oil is not what it was when the initial announcement was made, can that not now be revised downwards?

When will the Minister be in a position to decide whether or not to give the go-ahead for Orimulsion for Kilroot?

Will the North/South interconnector involve the building of a power station in the south-east of the Province? I assume that that pipeline is running through the south- east of the Province. If it does not involve the building of a power station, is that scheme still viable?

Photo of Reg Empey Reg Empey UUP

Oil prices have fallen since the announcement was made; it is relevant for the regulator to take these matters into account. Of course, it will be pointed out to us that the oil prices rose well before the actual increase was applied for, and we will probably be told, "Well we had to take time to react to a price rise so it is only right that we take time to react to a price fall". But the answer to the Member’s question is that the current market price of the raw materials for electricity generation is a legitimate area for the regulator to review. I have no doubt that he will do so.

With regard to the Orimulsion issue, there is no application before the Department at the moment to produce electricity based on Orimulsion. All that has happened is that the suppliers of the fuel have been in Northern Ireland. I have met them. They have indicated that they want to see Kilroot use this fuel. I have asked them some questions on the environmental issues which may arise. I have sought experience from other European countries but currently there is nothing on our table from any company which wants to convert and generate. As soon as I get an application, I will look at it. I am interested in what Members think of Orimulsion as a fuel, because I would wish to take into account their views before reaching a decision. So far no application has been made.

A power station in the south-east of Northern Ireland on the route of the interconnector would be ideally located at present. For example, a power station in the greater Tandragee area would be in a perfect position. Again, that is a matter for the private sector.

With a power station the economics would be infinitely superior. The study I am having undertaken on the application is giving an early indication that without it there may still be positive possibilities, albeit more difficult ones than if we had a power station there. It is still my intention to go for the comprehensive north- west and south-east solution. That is still our objective. That application is currently on our table; it is being economically and logistically reviewed at present.

Photo of William Hay William Hay DUP

I know that the Minister is aware of the very long campaign fought for natural gas in the north and north-west of the Province, by the local authorities there. The Minister and his Department have worked extremely hard to make this a reality. However, can the Minister indicate to the House the timescale he envisages as necessary for natural gas actually to get there?

Can he give the House a realistic timescale on natural gas coming to the north and north-west of the Province?

Photo of Reg Empey Reg Empey UUP 1:15 pm, 5th March 2001

If we are spared to see this interconnector and the north-west pipeline installed, I will be the first in Londonderry to check the Member’s house to see that he has a gas cooker.

We are looking at a timescale of three years. For a power station to be operational by 2004, the go-ahead for construction will have to be given this year.

I was not joking when I said I would be up in Londonderry.

Photo of Lord John Alderdice Lord John Alderdice Speaker

I had better draw these offers to a close. The time for questions to the Minister is up.