Official Report: Minutes of Evidence

The Chairperson (Mr McGlone): I welcome Mr Nicholas Tarrant, the managing director of Northern Ireland Electricity (NIE); Mr Peter Ewing, deputy managing director and director of regulation; Mr Michael Atkinson, head of generation connections; and Mr Ian Bailie, distribution planning manager. I have met you before, Mr Tarrant, but not in a formal capacity; this is your first time at this Committee. I am sure that you were listening intently to the previous session and one of your colleagues was with us. The floor is now open to you to make your opening remarks, and we will then move to the questioning session from members.

Mr Nicholas Tarrant (Northern Ireland Electricity): Thanks very much, Chair. Good morning to everyone on the Committee. Thank you for the opportunity to brief the Committee today on issues relating to the electricity network. Specifically, we will deal with the status of the electricity grid in the context of economic and business growth over the coming years. We will also deal with connecting renewable energy to the electricity network.

The Chairperson (Mr McGlone): Excuse me. There is a bit of interruption, as you have probably noticed. Can the Committee staff check that out, please? Please continue, Nicholas.

Mr Tarrant: We have made two separate submissions to the Committee, which I hope you have. The first is titled 'NIE Briefing on Grid Capacity in Northern Ireland in the Context of Enabling Economic Growth' and the second is titled 'NIE Briefing on Connecting Renewable Generation to the Electricity Network'. Both issues are complex, and we hope that the Committee finds these documents helpful in setting out the current status and our view of the way forward on both subjects. I propose to make some very brief introductory remarks, and I will then hand over to Ian Bailie, who is the manager of our distribution planning function. He will deal with the issue of enabling economic growth, and then Michael Atkinson will say a few words on connecting renewable generation to the network.

NIE is a regulated company. It is regulated by the Utility Regulator (UR), and we operate in the energy sector under policy direction from DETI. Currently, we are just over halfway through the RP5 price control implementation. We are expecting a major ramp up in work volume between now and September 2017, which is the end of the RP5 price control period. We are also at an important stage in the RP6 price control preparation. The RP6 price control will set out the work on the network between 2017 and 2022, and I believe that it is particularly relevant to today's discussion on grid development. 2015 is a key year for NIE to develop a business plan for RP6 and to engage with stakeholders on matters relating to electricity network development. We have a structured RP6 stakeholder engagement process that has a steering group with representatives from the Utility Regulator, DETI, the Consumer Council and NIE. The current review that is being undertaken by this Committee is coming at a very good time as a potential feed in to the RP6 process.

NIE is committed to investing in the electricity network to support economic growth. Under the current regulatory regime, the cost of these investments is paid for over a 40-year period, so it is important to take a long-term view on what is effectively strategic infrastructure. We have ideas and recommendations that we hope the Committee finds useful, and I will now pass over to Ian first to deal with the electricity network and economic growth. Michael will then follow and deal briefly with renewables.

Mr Ian Bailie (Northern Ireland Electricity): Good morning. NIE undertakes two distinct types of capital investment on the electricity network: first, asset replacement; and, secondly, investment associated with load-related growth. Asset replacement accounts for almost 90% of our network investment, and that is mainly due to the replacement of age-expired assets or assets that are outside normal operating condition due to their condition. That is really down to the fact that the majority of our network dates from the 1950s and 1960s. A lot of it is coming up for replacement.

I am here primarily to discuss the load-related element of our investment strategy and how this is used to develop the distribution network in Northern Ireland. Key drivers for load investment are load growth, reinforcement associated with customer connections and opportunistic investment. By opportunistic investment, I mean that, where other utilities are doing work, we can gain efficiencies by doing work in cooperation with those utilities and other public bodies. Another key driver is investment associated with delivering distributed generation. The main driver for load investment is the load-related investment.

Similar to all electricity companies, NIE has a formal process to monitor network utilisation and to forecast future load at individual sites across Northern Ireland. That allows comparison between future peak loads and system capacities to identify potential hotspots, allowing NIE to plan investment intervention in a timely manner. In assessing reinforcement options, NIE utilises cost-benefit analysis techniques to identify the optimum solution. We know that as the "least cost technically acceptable" solution. Consequently, investment is carefully targeted to cater for the underlying load growth across the network. However, applications for individual point load increases — for example, a new factory or a new production line at an existing plant — may result in local capacity issues. Those are likely to be exacerbated for customers located in more rural areas.

In many cases, investment to cater for the underlying growth creates some additional headroom, which can be taken up by individual customers. How that comes about is that, when NIE replaces assets, standard ratings of assets may be in excess of the reinforcement requirement, thereby creating a level of headroom. We can also create headroom because, whenever we invest for growth, we build a number of years of growth into the life scheme of the project and that creates a certain level of headroom. Where the increase in an individual customer's capacity cannot be accommodated, the full cost of the least cost technically acceptable solution for reinforcement is passed on to the customer. That is in line with NIE's statement of charges for connection to the network, which is approved by the Utility Regulator.

To consider developing a network with available spare capacity to facilitate the connection of point loads, regardless of location and without the potential delay involved in reinforcement, would require substantial additional network investment. Even if the level of network investment was available, the issue is that such point load increases and their locations are unpredictable. The question for me as a network designer is where we would develop the capacity and how much spare capacity I should design for.

Creating such a network may seem desirable, but it would require substantial additional investment across the Province in anticipation of possible future load applications. That would create the potential for stranded investment. By that we mean where we invest in areas of the Province to create infrastructure and capacity but that capacity is never taken up. That is what we term as a stranded investment. That would place an unnecessary increase in overall tariffs to the general body of customers.

Some level of anticipatory investment is undertaken. NIE works closely with the likes of Invest NI in creating electrical capacity at designated commercial and industrial parks across the Province. In those cases, Invest NI approaches all utilities that provide the infrastructure for service sites. That is funded by Invest NI, through government, and industry is then directed to those specific areas. It still creates the potential for stranded investment if the site does not mature or industry is not attracted to those specific areas. That type of approach works well. It could be extended through higher levels of investment, for example, with the creation of power parks or more enterprise zones in selected areas. Depending on the desired capacity, that would also require input from the transmission System Operator for Northern Ireland (SONI).

That type of anticipatory investment could assist with economic develop but add a significant additional cost. If not funded by the general customer base through tariffs, it would need to be funded by some other means. That is a central policy question that would have to be considered by DETI, UR and other stakeholders. NIE suggests that a useful initial step would be to convene a working group at which illustrative solutions and scenarios and their costs could be explored. We believe that such a group would be best served if chaired by DETI. NIE would be fully supportive of that initiative.

I now hand over to my colleague Michael Atkinson, who will talk about generation connection.

Mr Michael Atkinson (Northern Ireland Electricity): Good morning, everyone. I am struggling slightly with a bit of a cough, so I hope that I do not move into a convulsion here. I spoke to the Committee last year. Hopefully this gives you something of an update on where we are at the minute.

Generally speaking, we have made very solid progress in terms of the overall connections of renewables in Northern Ireland. In fact, NIE has connected more generation per customer versus any other network operator on the mainland. We are actually achieving 20% consumption from renewables now versus the 40% target. The target itself requires around 1,600 megawatts of renewables to be connected. At this point, over 1,260 megawatts have been connected. The other applications that are already processing through the system would bring us beyond the 1,600 megawatt figure that is required for 40%.

The briefing document that we have issued was designed to give a bit of perspective on a topic that can be complex and full of acronyms. At a high level, organised plans are in place for what we describe as large-scale generation — the large wind farms. Developing the transmission backbone network in what we call cluster nodes allows more efficient connection of renewables. That is going well. The work that is under way to enable us to move from 20%, where we are at the minute, up to 27% of transmission capacity is moving well. It is advancing to plan towards the end of 2016. There has also been a good roll-out of what we describe as cluster substations. These are substantive high-voltage nodes on the network to allow the large wind farms to connect. However, at a strategic level, moving beyond 27% does require much more sizeable investment in the transmission network. That is an important point to be wary of.

In the focus on large-scale generation, really what we are pursuing now is the construction work on what we describe as the medium-term plan and the roll-out of clusters with a particular sensitivity to making progress there before the end of 2016, which aligns with the current timetable for the existing incentive regimes. The small-scale generation is more problematic. We have talked about that at some length in this forum previously. As you have been aware, significant issues have arisen on the distribution network. It is now largely saturated across many parts of Northern Ireland. That is visible in the heat map, which we update regularly now.

We established a Project 40 group, in the middle of last year, to address matters that are associated with both large- and small-scale generation. A particular focus of that has been on the small-scale side. That group comprises stakeholders from the Utility Regulator; DETI; SONI; the Northern Ireland Renewables Industry Group (NIRIG), the industry participants; the Ulster Farmers' Union; and a number of developers. That group and work has focused on expediting the roll-out of clusters, alternative connection agreement arrangements for small-scale generators and also establishing consistent rules and protocols in a very busy environment.

We are at a critical stage now in that we have invested in work at some 40 substations to release headroom. That has allowed another 100 or so projects to proceed and released some 30 megawatts into the system. We submitted further proposals to the Utility Regulator for work at an additional 28 substations, which would release another 30 megawatts or so. Alongside that proposal, there is a proposal in for some additional pilot work to test the feasibility or workability for what we describe as a managed connection, which is a different way of connecting some of the parties who, at present, we are unable to provide connection offers to. If that funding and pilot are successful, it would enable us to roll out managed connections from the early part of next year.

There is a health warning of sorts around this in that managed connections may not provide a solution for everybody. We have several hundred applicants who are sitting in that category at the minute, who we are unable to connect because of capacity issues. It is unlikely that we will be able to find a solution for everybody that works within the timetable of the current incentive regime. There will be disappointments out there. We are very conscious of that in our day-to-day interactions with developers. The focus on small-scale generation — and our recommendation — is then largely to use the Project 40 grouping and the close working relationships that we have now established with stakeholders over the coming months to test the potential for the managed connections and also our efforts to secure funding on further, more conventional investments that would release some remaining headroom on the network. We are essentially squeezing out a sponge that is becoming ever more dry. There is probably a limit to just how much of the small-scale generation can be connected. In parallel with the work that we are doing, SONI, which is the system operator, is looking at just how that quantum of small-scale generation actually impacts on the higher-level parts of the network and indeed leads to impacts on large-scale generators and the amount of curtailment, for example, that they experience.

That is broadly where we are on the generation connections side.

The Chairperson (Mr McGlone): OK. Thanks very much. You will appreciate that the problem has been about for a good while, Mr Bailie. It inevitably comes up repeatedly through and with this Committee. When I hear of the idea of a working group being set up, it is kind of a wee bit like, "Is this another analysis group to analyse what is a very stark issue?". It should not really take a working group to work its way through this at this late stage in the game. People are anticipating that the solutions are probably staring you right in the face. Things are coming to the likes of me. I would have to say thanks to some of your staff for meeting out on site and places like that to try to work through some of the detail of these things, but those delays are basically holding up connection to the grid and delaying economic development. That economic development could be of the nature where people are trying to get onto the grid with a small turbine or something like that, or it could be, as has been the case, a significant economic project such as that at Dunman and how the grid is so weak west of the Bann that it is not able to provide the capacity. You will say that, yes, there is capacity there, but it will come at a price. For any business that is close to a district town, we would anticipate that the grid would be of the capacity to be able to absorb economic development. In the context of where we are today with our inquiry, we say that there are issues, such as the roads network, communications, broadband and all of those, but an integral part of that infrastructure is obviously the grid. I was listening carefully to what you were saying about identifying where the pressure points will be. I sat one day over at Aldergrove. [Interruption.]

Sorry, is that a Division? Is the House inquorate? Can we check that? I do not think that there should be any votes.

Mr Frew: There will be a vote on the amendment.

The Chairperson (Mr McGlone): I will just continue my point. I sat with the air traffic control people at Aldergrove. The man in charge showed me the map. Straight off, it was very apparent to me where the hotspots were. Do you work or sit down with them? All you have to do is look at the dots right across the map and you can see where the major issues of concern are. [Interruption.]

I may well have to just drop proceedings here if that is a vote. We may all have to scarper out of the room. If I cut you short, it is not because I am being intemperate or anything; it is just that we have to go to vote.

Mr Flanagan: You will have plenty of time to think of an answer.

Mr Bailie: You have made a number of points there and one specific one on a customer application.

The Chairperson (Mr McGlone): Sorry about this: it is a vote. We just have to drop everything in these circumstances. We will be back in about 10 minutes.

The Chairperson (Mr McGlone): Apologies for that, gentlemen. The vote is done and dusted now.

Where were we? I think you were speaking, Mr Bailie.

Mr Bailie: Yes, you covered a number of points. You talked about air traffic control having maps showing all the planning applications across the Province. We do something similar. We are informed of all planning applications, and we look at how they will impact the network. We also have separate maps, which we refer to as "heat maps". Those are on our website. For the likes of anybody who is looking to connect a generator, those maps show areas of the network that are fairly well saturated and where there could be higher costs or potential delays in connection. They also show substations that need reinforcement to allow them to operate in reverse power. If you imagine a distribution network that was always designed for the power to flow from the main power station down to the house, offloading on the way through transformers, you would find that some of those transformers are being asked to operate in reverse, that is, there is more generation on lower networks. The transformers were never designed to operate in reverse. We need some investment in some of those older transformers to allow that to happen. That is the restriction on them.

The Chairperson (Mr McGlone): My point is that it is a wee bit like having a shop or a business, in that if you know where the areas of high demand are, how do you integrate that into your investment package? Representing an area west of the Bann, clearly the big issue for me has been the pressures from the turbines and how those have affected the area. How does that inform and strategically influence your investment?

Mr Bailie: There are two areas. One is the reinforcement for generation. I will maybe let Michael chat about that in a few minutes. You referred to one customer in the Cookstown area who had an application with us. If we are looking at reinforcing the network for load connections, as I mentioned in my initial presentation, we in NIE, like all electricity companies, try our best to look at historical demands at specific sites, extrapolate that information and look at other environmental impacts to try to forecast as accurately as possible. Obviously, accuracy with forecasting is hit and miss, but we try to get some indication of the level of demand at each site and at when that will breach the sites' capacity. We then target our investment in those areas to ensure that the capacity is there.

We know that a certain level of capacity is available, and doing the reinforcement creates more headroom. For example, if we require 8MVA of capacity at a site, a standard transformer has 10MVA, which means that 2MVA of capacity is available that any customer can avail themselves of for free without having to pay the deeper reinforcement costs. In the notes that we provided, we identified a number of customers, particularly around the Cookstown/Tyrone area — we not at liberty to divulge their names — at a number of sites who have availed themselves of available headroom and got upgrades to their connection free of charge or who have just had to pay the local connection charge to the network, rather than the cost of deep reinforcement. So, customers can avail themselves of that.

Our growth and extrapolating forward looks at what we see as reasonable low growth on those sites. We take account of Department of the Environment area plans, which detail areas of development, such as brownfield sites to be developed or new greenfield sites that have been zoned for development. We take those into account and look at the volume of connection applications coming in from different areas to our business. We talk to Invest NI and other bodies that are involved in developing new customers, such as the Belfast Harbour Commissioners, to try to anticipate where the growth will be and to build that into our forecast model.

That forecast model will allow, as I said a minute ago, for applications coming in for new loads that would be deemed reasonable and that would be within that headroom. However, addressing the case you cited, an 8MVA demand on a rural network is well beyond the available capacity at that point in the network. Therefore, we have to look at the reinforcement required to provide that capacity to that customer. It then comes down to cost. We design the lowest-cost solution to provide that customer with the capacity he needs. Under our charging guidelines, those customers are fully liable for 100% of the cost. If that cost is not passed to the customer, who pays for it? That is our concern.

We can go back further and say that that is one customer coming into Cookstown. Why do we not have that capacity available to him?

As I said when I went through my introduction, if we made 8MVA available in the Cookstown area for any customer that comes along and we then had to make it available in Omagh, Limavady, Strabane, Ballymena and Newry, as I mentioned, that happening at every node would create a substantial additional investment across the network. How much capacity do I design for Omagh, Strabane and Limavady? Do I design for 8MVA, but then a customer comes in and asks for 9MVA?

Given the unpredictable nature of a customer's application form, it is very difficult for us to determine what capacity should be available at every site. We use our knowledge of historical growth rates to try to predict the load at certain sites, and we target our investment at those sites. We cannot predict customers coming in out of the blue and saying, "I have a development opportunity, and I want a connection."

The other issue with that particular customer was not only the cost but the delay in connection to the site. I think that we quoted him up to two years for delivery. That was the outside; it was up to two years. We do that because that particular connection required about 24 kilometres of overhead line from the Toome direction down to the customer's site. That line has to go through third-party property, and we have to get legalities sorted out and the agreements with customers. It has to go through planning, and we have to get the agreement of customers. We are aware that there has been opposition in the past to us putting lines in that area. We were advising the customer that that was the potential but that we could run into difficulties that are outside NIE's control with opposition to the lines going up. We would then be in the position of deciding whether to work with the landowner to try to push through to get agreement, whether to look for alternative routes, which lengthen the circuit and add cost, or whether to go to cable, which significantly adds cost for those sections. We would have those debates with the customer if we ran into those sorts of difficulties.

Mr Tarrant: Can I just follow up on one question that you asked about a working group, just to give a bit of background on why we are making that recommendation? Building on what Ian said about potentially over-investing in the network and having stranded assets across the Province, that echoes the point about clusters that was made in the previous session with the Chamber of Commerce. That is essentially our recommendation. It is to have targeted areas in Northern Ireland where there would potentially be increased capacity to allow businesses to connect. It is to not over-invest by having the entire area of Northern Ireland with additional capacity. That is not a decision that NIE can make on its own; it would have to be done in consultation with other stakeholders. We cannot decide whether the extra capacity should be put into Cookstown, Limavady or whatever area. I think that quite a quick piece of work could be done to identify where that is, but it depends on other stakeholders. That is just the background to that recommendation.

The Chairperson (Mr McGlone): Is your solution to it that we adopt a clustering approach to economic development?

Mr Tarrant: We are putting that forward as an idea for consideration. A policy decision really needs to be made about how economic investment should be made right across Northern Ireland. That idea could be cost-effective from the point of view of reducing the risk of having stranded infrastructure. However, it does not give a guarantee, because businesses have to come in afterwards and actually use that capacity. It kind of builds on the relationship that we had in the past with Invest NI, for example, where it would have come in, as Ian mentioned, to get connections for power parks. So, we think that the Committee could consider that type of idea.

The Chairperson (Mr McGlone): Michael, on the issue of overall planning, you —

Mr Atkinson: You talked about generation as well. Without trying to make it any more confusing, the point is to highlight that the generation situation is very different compared with that for a customer coming in and trying to set up a normal load connection, where they are essentially sucking energy out of the network. With a generation connection, we are effectively pushing energy back in the opposite direction. When you consider the heat map, which you have probably seen before, you know that it identifies pressure points in red dots, showing where we have problems. That is because the network is not receptive to reverse flows in those locations. In fact, if more load was connecting in those areas, it would increase the potential for generation to connect, because the energy could be used up locally. The problem with generation is that we are trying to push energy back up through the primary substations on to the higher level parts of the network. It eventually finds its way back to Belfast, where most of the load is. It is a different phenomenon to the one that Ian is describing about customers coming in and trying to establish load connections on the network.

The Chairperson (Mr McGlone): Thank you for that. I call upon the Deputy Chairperson to take over —

Mr Flanagan: Yes.

The Chairperson (Mr McGlone): — but I will first call Mr Dunne.

Mr Dunne: Thank you very much for your presentation, gentlemen. We are glad to see you again. Microgrids are something that we have heard mention of in various presentations. Have you looked at the full potential of their full development? As I understand it, there are opportunities to generate and use electricity locally. Do you see the potential in that?

Mr Atkinson: There was certainly discussion about that over the last year or so, and we know that the Ulster Farmers' Union, for example, was quite keen to promote the idea of microgrids. In our experience, microgrids being put into place in an effective way has been quite limited. Part of the outcome of that process with ETI was that we worked with it and the Utility Regulator to look more closely at microgrids and at what solutions they might bring forward. Our understanding was that the likelihood was that, in the immediate term, that activity would probably move further back into the next regulatory review period. The microgrids represent a level of automation of the system and the local management of energy. The extent to which we have got so far is to look at the specific situations we have with small-scale generation and at trying to find a more automated way to connect small-scale generators into the network. We are not currently exploring microgrids —

Mr Dunne: You are not?

Mr Atkinson: — in any substantive way, nor do we have funding to do so.

Mr Dunne: What is their long-term potential? Do you reckon that they will stack up and be useful? We have certainly had strong advocates for them in here; you are probably aware of who they are. I am not an expert, but my understanding is that, if you can generate and use locally, why would you not do that, rather than have to move around?

Mr Bailie: We have interest from a number of parties, and one in particular towards the north coast is looking at setting up its own microgrid. It is taking its supply from NIE and is developing its own infrastructure, where it has load and generation. The issue with microgrids is that you have to have that continual balance between the load and the generation, otherwise you will have voltage distortions on the system. They have to be totally balanced.

At the moment, the way that NIE is contracted means that each application comes to us for a direct connection on to our circuit. It is either a generation or a load that wants to be connected. That guy wanting his load connected wants a 24-hour supply and quality of supply. That is what we are obligated to give him under our licence agreement for the connection. Generator connection is a firm connection, and he wants the same. So, we have a contract with each of them. We do not have a mechanism under our licence at present to tie the two together and to allow the generator to generate only when the load is on. The benefit of the guys who are looking at the private network, where they would take a supply from NIE and develop their own infrastructure, is that they can manage that because they have taken a contractual connection from NIE at a certain point and can plan and manage the balance between the load and the generation internally.

Mr Tarrant: May I briefly add to that point? Over the next decade, we will see features like increasing automation on the grid, so there will be more control of load flow. That will be a feature that ties in with microgrids a little bit. I think that we will also see more energy storage and electricity storage. That will also support the general direction towards more smart grids. We certainly would like to see more automation on the network as a general point, because it helps customer service and means, for example, that faults can be restored more quickly.

If you take the overall picture in Northern Ireland, you see that, in general, a lot of the wind generation is in the west of the Province and that the load demand is in the east. So, the idea of more localised microgrids is challenging in that respect, because that local balance between generation and the load demands needs to be present for those microgrids. I think that we are going to see more of that over the coming decade.

Mr Dunne: I have one other point to make, Chair. I have been working with NIE on a number of issues. As I understand it, customers have to pay up front, in full before NIE commences work. Is that the case for all customers? There seems to have been a policy decision that customers have to pay up front, in full before work is commenced.

Mr Atkinson: On the generation connection side, we are in the main talking about small-scale generation connections. The applicant will initially pay an application fee to go through the process of getting an offer and assessment. At the point that he accepts his offer, he will pay only 20% of the total cost of the connection. That is almost at that first stage, where he has been issued his offer and accepts it. Once the pre-construction work, as we call it, which is about getting the consents and the legalities sorted out, is completed and we are approaching the final construction stage, which normally takes eight or 10 weeks, we go to the customer and ask for the final 80% of the balance. Certainly, with the generation connection, they are not paying —

Mr Dunne: Yes, for generation, but there seems to be a demand now for upfront payment for general work, such as running in new supplies to businesses and so on.

Mr Bailie: As Michael said, our charging statement requires that, when we quote on acceptance of terms, either a percentage will be required, or if it is major infrastructure for which we will want to forward purchase transformers or whatever, part of the deposit will be required to allow us to buy that large infrastructure. We will then pursue planning requests and landowner agreements to allow the infrastructure to go ahead. Prior to construction, we request full payment for all works.

Mr Dunne: Yes, full payment.

Mr Atkinson: I suppose the principle that NIE adopts is that it will try to remain cash positive through the process. In the initial stages, a deposit of 20% is required in the case of generation connection. That will allow the pre-construction activity of surveys and way leaves to go out so that that work can get done. When we commit to the final construction, we are booking hard pieces of plant and expensive equipment etc, and it is appropriate to ask for the final balance at that point. That is usually a relatively short time before the connection is delivered on the ground. So, there is a phased approach to it.

Mr Dunne: Thanks, Chair.

Mr Humphrey: Thank you very much for your presentation. What progress has NIE made on the development of a communication strategy for developers in which it commits to customer communication and engagement about the grid connection?

Mr Atkinson: Are you thinking generally about the grid connection?

Mr Humphrey: Yes.

Mr Bailie: As part of our RP6 planning, which is due to commence in October 2017, we in NIE are engaging in a stakeholder engagement process to discuss with all stakeholders what they feel their requirements are or what they would like the network to provide the customer with. We are doing that so that when we go in with our submission, we will be doing so against the backdrop of knowing what the customer wants from the network. Do they want security? Do they want safety? Do they want reliability? What level of service do they want from it? We are going through the formal process of a stakeholder engagement with all parties that have an interest, in the hope that that will develop our understanding of what the customer needs and will develop our proposed investment for the RP6 period.

Mr Humphrey: What percentage of Northern Ireland business is connected to the grid?

Mr Atkinson: The vast majority.

Mr Bailie: When you say "the grid", are you talking about the transmission system or the distribution system?

Mr Humphrey: The distribution system.

Mr Bailie: Do you mean the number of commercial customers?

Mr Humphrey: Yes.

Mr Bailie: There are 840 customers in total.

Mr Peter Ewing (Northern Ireland Electricity): There are 60,000 business and commercial customers.

Mr Humphrey: What percentage is that?

Mr Ewing: About 850,000 customers in total are connected to the grid.

Mr Humphrey: Right.

Mr Tarrant: Basically, every business customer who has a connection to the grid and an electricity supply is an NIE customer. That total of 60,000 is effectively all the businesses that are connected to the electricity network.

Mr Atkinson: Once a customer gets into a general connection, they will be assigned a planner who will maintain a relationship with them until the job is connected. With conventional load-related connections, that process normally works quite well. When it comes to generation connections, which have become more problematic for us recently, the work that we did on that on communication has had to be more widespread.

We have engaged with a number of interested forums and certain groups to promote and present the situation with connections. We are also putting more information on the website; for example, the heat map. We have a network mapping tool that developers can use to self-assess whether they are likely to be able to proceed with a connection. Considerable effort is now being made on communicating generally with the generation connection-related part of the jigsaw.

Mr Humphrey: I understand that, at the moment, about 20% of generation is from renewable sources. Is that right?

Mr Atkinson: Yes, 20% of consumption of energy comes from renewable sources.

Mr Humphrey: What is the target?

Mr Atkinson: The Government have an official target of 40% from renewables by 2020. There will be very important ongoing discussion about the level of certainty over that target over the short term. However, the plans that we have in place will certainly allow us to get to around 27% by the end of 2016. Beyond that, there is more uncertainty about whether some of the very large investments that are required would be made to allow us to move towards the higher target.

Mr Tarrant: That ties in with the recent consultation that DETI issued on the target and plans for renewables in the coming years.

Mr Humphrey: Do you hope to uplift that to 27% by the end of 2016?

Mr Atkinson: That is the plan. That date is also important, because as things stand, the incentive regimes that are in place for large- and small-scale developers have a level of certainty until March 2017. However, there is uncertainty about what will happen beyond that.

Mr Humphrey: If you do not mind, I will finish with another question. If that incentivisation were to be removed, what impact would that have?

Mr Atkinson: To me, the incentives are the sole reason why much of this is happening. If the incentives were to disappear and the renewable sector rewarded at only the same rate for energy as any other source of conventional energy, it would have a dramatic impact on generation take-up.

The Deputy Chairperson (Mr Flanagan): Do you have the percentage of electricity that is generated from renewables, as opposed to consumed?

Mr Atkinson: The figures will be not totally dissimilar. SONI, the network operator, maintains a record of what it calls the energy that is sent out from various generation sources. It makes certain assumptions about how much energy is lost as it finds its way through the network. There are inherent losses in the network anyway. It then estimates how much end users consume from that generation. It is a similar calculation.

The Deputy Chairperson (Mr Flanagan): Therefore, there is no big difference between the amount that is generated and the amount used to meet the needs of consumers.

Mr Atkinson: There will always be a natural level of losses in an electricity network. The amount that is sent out will always be a bit higher than what is consumed. The difference between the two is roughly 6% or 7%.

Mr Frew: This is a massive problem, in which NIE plays a part. I understand that it is not all in your own destiny and that there are a lot of players involved, but you do play a part in the problem. To a degree, you are the problem. Everybody, including NIE, says that investment is needed to connect people to the grid. Why are you not investing more, as per the price control from the Competition Commission?

Mr Bailie: Are you referring to connection of generation or connection of demand?

Mr Frew: By investing in the grid.

Mr Atkinson: Without trying to make it more complicated, Paul, the investments required to support generation are of a very different type. Essentially, to support generation, there is a reverse-engineering of the network. The network needs to be strengthened in a way that is very different from what happens for conventional load-related generation. The work that we had done as part of the last price review to try to get more moneys made available was partly successful, in that we got a certain level of funding released, to support small-scale generation in particular.

As I said in my introduction, that released 100 or so projects, but, unfortunately, the Competition Commission concluded that further investment in the area to support small-scale generation was not in the public interest. That is clearly documented, so we are battling against that position, and, in parallel, we are putting forward further proposals to the Utility Regulator that will potentially release significant further volumes of projects. There is, however, an issue around funding, as well as purely around the logistics of developing a network. It is not just about money; it is about the logistics of trying to strengthen a distribution network, the timelines involved, the way leaves involved and the securing of consents to do it. Even if you had an infinite amount of money, that would be a significant issue.

Mr Frew: I am a realist, so I realise that you do not want to send a distribution network to every nook and cranny of Northern Ireland. I completely appreciate that there has to be a strategic investment outlook in all of this.

I will come back to the statement by the Competition Commission after this question. From April 2012 until April 2013, you were given £58 million by the Competition Commission. From April 2013 to April 2014, you were given £67 million. That is out of a grand total of capital expenditure allowance of £458 million. How much of the £58 million and the £67 million have you spent?

Mr Tarrant: There are a couple of things behind that question. The first thing to say is that the Competition Commission did not reach its conclusions until this time last year, about two years into the price control period. The policy that was adopted — it was a prudent policy by NIE — was to keep the run rate for investment similar to the RP4 run rate. We could not overcommit investment in the first two years with there being regulatory uncertainty over how much money we were going to get from the Competition Commission.

Over the past year, since we have had clarity from the Competition Commission, we have been out to tender for this big ramp-up of work that we are going to have for the balance of the period up to September 2017. In the document that we submitted, we talked about the amount of money that we would be spending on replacing transmission and distribution assets. A total of £217 million will be spent, and that is in 2009-2010 money. We plan to deliver all the outputs that were defined in the Competition Commission's final determination during the price review. Where we have come from through the Competition Commission process is that that investment will be made towards the back end of the period of the price review. We fully expect to complete the investment that is defined in the Competition Commission documents during the price review. It is just the nature of it that it will be back-ended.

Mr Frew: The £58 million that was allowed for 2012-13 can be rolled over.

Mr Ewing: It can, yes. It is just the timing. There was a bit of an underspend in the first three years, but there will be an overspend in the last two and a half years.

Mr Tarrant: I will make one final point related to that. It is important to say that 90% of that work is asset replacement work, because of the age of the network. To go back to the point that Ian made, something in the region of £23 million will be spent during this price control period on load growth-related work on the distribution network. It is a smaller part of this. As I said, this work is asset replacement work, because of the age of the network.

Mr Frew: Can you give the Committee a commitment that the £458 million capital expenditure allowed in the Competition Commission's statement will be spent and invested in the grid?

Mr Ewing: The intention is to deliver all the outputs in the RP5 period. For the first two years, we are overspent versus our allowance by approximately £7 million. We expect that to balance out over the five-year period.

Mr Tarrant: It is also important to say that the nature of regulation is that there is an incentive for us to try to do that work as efficiently as possible: to spend less of the money and still deliver the outputs, and to ensure that that money is shared back with customers effectively. There could be an underspend on that, but the work could still be delivered. Our commitment is to deliver the work programme, and that is what is defined in the Competition Commission's statement.

Mr Frew: That would most certainly be in your interest, because it is my understanding that you get to keep 50% of any underspend out of that £458 million. Is that correct?

Mr Tarrant: There is a sharing of the benefit with customers, and that is the nature of any regulated contract. As Peter said, we are overspent in the first two years not underspent, so our commitment is around delivering the work programme for the network.

Mr Frew: It would not be in your best interests to underspend.

Mr Tarrant: It is in our interest to deliver the work programme as effectively as possible. If we can do that and potentially save money, that is of course what we will try to do. Ultimately, our objective is to deliver the work programme that is defined in our regulatory contract.

Mr Frew: In a statement issued by NIE on 15 August 2014, you stated that you had to withdraw conditional connection offers. You also stated that the Competition Commission:

That is a misrepresentation of the Competition Commission.

Mr Atkinson: I do not believe that it is. I am not sure why you would conclude that.

Mr Frew: In paragraphs 10.303 and 10.319 of its report, the Competition Commission stated that it was not in the public interest to increase NIE's allowance of £30 million for that work because NIE had not justified the cost. It did not state —

Mr Atkinson: I am reading it, and it does not say that. It does not refer to £30 million.

Mr Frew: It did not state that the investment in the 33kV network should not happen. It should happen, and NIE should strategically invest in the 33kV grid to allow people and businesses to connect.

Mr Atkinson: The only allowance that was made for 33kV investments to support renewables was the £2·3 million. It was not £30 million.

Mr Frew: Are you saying that, because the Competition Commission did not give NIE additional investment or moneys to invest in the 33kV network, the 33kV network will not be invested in?

Mr Atkinson: The 33kV network will continue to be invested in, as is required, to support the development of load-related work.

Mr Frew: Who takes that burden?

Mr Atkinson: That is part of the —

Mr Bailie: That forms the basis of the projects that were identified at the start of RP5. We would see through the period that requires investment to meet our licence and statutory obligations to ensure security of supply and quality of supply. On the back of our doing work in certain areas to enhance the capacity of the 33kV network, that obviously has a knock-on effect, in that it increases the capacity of the 33kV network generation in the same area.

Mr Frew: With which you cannot then burden the consumer.

Mr Bailie: We are not. The driver for it is the load-related investment, which is allowed for in the regulatory allowance.

The knock-on effect is that it meets your load development, but, in the same area, it may well release capacity for generators. It is not funding specifically to create capacity for small-scale generation; it is funding to create capacity for the increased load, which also benefits the secondary.

Mr Frew: If you can give a quote and time-bind it — I know that you do the heat map, which is basically a map with increasingly red splotches and circles — why can you not produce a grid or a chart or even release information per substation, when requested? You have 230 primary substations on the distribution network. Why can that not be produced or released and time-bound? I know that there is an issue. You said at first that it was commercially sensitive. It may be just the fact that it is time-sensitive. Why can you not put a disclaimer on that information and release it to businesses?

Mr Atkinson: It is not commercially sensitive from our point of view. It is about the number of applicants who are waiting in the queue to get a connection. We have an obligation to look at the data protection issues surrounding those applicants. For example, when we look at capacity at a substation, if we were simply to tell you now how much capacity there is today at that substation, that would be totally misleading when it comes to whether it is going to help you to get a connection. There could be a number of people in a queue waiting to get offered a connection who have right of access in advance of you. Unless you were given a full picture that released information about people who perhaps do not even have offers — people who are at the application stage awaiting an offer — the information would not be in the least bit helpful to you. That is apart from the fact that our distribution codes, which are approved by the regulator, do not allow us to release information on preliminary planning data. Effectively, that is about people who are in the application process but have not yet agreed to a connection. There are a couple of factors that make it impossible at the minute for us to release that information.

As the work that we are doing with managed connections continues, and we do try to look at what is happening in GB, we certainly feel that we will try to release more helpful information over the coming months as best we can, but without running in the face of some of the obligations in the distribution code, for example. Although you are saying that the heat map has red dots and splodges, it is proving to be helpful, to some extent, to the applicants at the minute. By using what we call a network-mapping tool, an applicant can, using his postcode, get a reasonably good idea of where he fits into the system. If he has a wee bit of design knowledge, he can get a good idea of whether he is close to a busy-looking primary substation or whether there is still a bit of room left in it.

Mr Frew: That will help only if he applies for a generator. That is not very helpful when you are looking to grow the economy and hoping to entice business through lower rates of corporation tax. We have an area east of Ballymena that is served by a substation that consumers have been told that they cannot connect themselves to through new means of generation. Their bills are very expensive, so they need to generate their own electricity to keep their overheads down, yet they are being denied a connection by NIE.

Mr Atkinson: I will not say specifically whether that substation is included. Having had some significant success with the work that was agreed with the regulator, which was for 40 primary substations, we have now identified another 28 substations that are reaching that level of congestion. The amounts of money involved in releasing capacity at those primary substations are of lower order. They are similar to the amounts of money that were previously approved. We are working hard now with the regulator to see whether we can get another step of allowance agreed in those areas to free up potentially another 25 MW or 30 MW of projects. It is not impossible that that will be addressed, and that would deal with the situation that you are referring to in the relatively short term, but we have still not concluded an agreement with the regulator.

In addition to that work, which is more what we call conventional investment to release firm headroom on the network, we have done a lot of work to consider an alternative form of connection, where the party is prepared to accept some form of output reduction at times of peak stress. That is going to take a few months to bottom out, but that is a potential solution as well.

Mr Frew: I understand the concept of headroom capacity and of generators pushing electricity back up the grid instead of sucking it out. If you have a problem in any given substation, whereby you cannot allow more generation, what does that look like for sucking electricity out of that substation? What happens if —

Mr Atkinson: It could be absolutely fine. You could still utilise the same transformers at the substation to pull more energy out. What typically happened historically is that the transformers at those substations were not set up to deal with the flow going in the opposite direction. We found that in areas with relatively low-order investment, changing some of the control gear at the transformers allowed them to absorb some of that energy.

Mr Frew: The heat map will allow only established businesses to find out whether they can generate electricity. It will not help new businesses coming in to build, say, a large plant or a manufacturing plant.

Mr Atkinson: To be honest, the heat map is really trying to deal exclusively with the issues associated with generation coming onto the network. I have to make that clear. If we are creating confusion there, we need to be careful. It is not designed as a —

Mr Frew: What tool can a new company from, say, America or France use if it decides to set up base east of Ballymena, where it considers there to be a problem for generation? How can you entice that company? How can I, as a representative for that area, entice a company to come to the area if there is a problem in a substation?

Mr Atkinson: The demand side is perhaps better. Ian?

Mr Bailie: If it were purely a demand customer, we would treat that differently. There are a number of ways in which it could be dealt with.

If it is new investment, it is generally Invest NI that is involved in attracting that. As I mentioned before, we work closely with Invest NI to develop business parks where capacity is created. Invest NI would ask us to create a substation or a network to that site and develop the network around the site so that any investment would just come in, get the site and pay for the local connection on to the cable running on the street. The infrastructure is already built for them.

We create capacity based on the acreage, building in about 100kW per acre. Invest NI comes to us and identifies a site, and we build the infrastructure for that level of capacity. Invest NI attracts the business and knows that, on that site, it will be able to connect a particular customer.

Mr Frew: Who pays for that investment?

Mr Bailie: Invest NI.

Mr Frew: Therefore, what burden is on NIE to invest?

Mr Bailie: There is no burden on NIE to invest there, because we would not have seen that. There is no substation or infrastructure there to predict the growth rate, because we do not see any growth there. That is for a one-off load coming in to attract investment. NIE, as I said, will invest for underlying growth rate, but we cannot predict where new customers are going to come in. What we can do is work with Invest NI to develop the infrastructure and create the capacity at designated sites to allow it to attract investment.

Mr Frew: If you have an existing problem with a substation and you are talking about one of the most highly populated manufacturing areas in the Province, surely you would have invested beforehand or would invest immediately, if you considered there to be a problem.

Mr Bailie: We review the load and capacity on substations annually. We then look at the utilisation of those sites and try to forecast that forward. Sites that are coming close to their headroom or maximum capacity and showing a continual growth rate such that they will become overloaded, if it is a 5 MVA transformer, we will plan to upgrade that to the next level of transformer, which would be a 10 MVA transformer. If the load continues to grow, there will be capacity for that. If a customer comes in after we have put the larger transformer in and wants 2 MW or 3 MW of capacity, it will probably be available, but if a customer wants 9 MW or 10 MW of capacity, it will not be available.

As I said earlier, we cannot invest in infrastructure with speculative investment into 15 kVA or 20 kVA capacities at every point in the Province, because the cost of that infrastructure would be prohibitive. It would be passed on to the customers, and you would end up with stranded investment in the majority of places across the Province. It is much better that, through the likes of Invest NI, that investment be targeted at areas to where the industry can be attracted through government — power parks, business parks or wherever — and the capacity be created there.

For existing customers who are connected to the network but are not involved in those power parks, if they want to grow, they make an application to NIE. We can look at the load on the transformer or supply feeding them. We will know whether there are other customers with applications in in that area, so we know where existing customers sit in the queue, what is available to them and whether we can meet demand, or whether, through discussion, we can say that if they can reduce their demand, we can connect. We work with them on that on an individual basis. They can either get in within the headroom that is there or, if it is a substantial increase that is being asked for — as with the like of the Dunman project, which is really well outside any reasonable level of headroom — a decision is required on who pays for the work that needs to be done.

Mr Frew: OK. I think that I will leave it there.

The Deputy Chairperson (Mr Flanagan): Paul, you are looking in, but we are in danger of losing a quorum here. Are you in a panic, or are you happy enough?

Mr Givan: No, I will not let the meeting go inquorate.

The Deputy Chairperson (Mr Flanagan): Do you have questions, or are you happy enough?

Mr Givan: I have questions, yes.

The Deputy Chairperson (Mr Flanagan): Go ahead.

Mr Givan: Great. Thank you Chair.

The Deputy Chairperson (Mr Flanagan): Gordon is looking to get out too.

Mr Givan: I know. If the other parties were here —

The Deputy Chairperson (Mr Flanagan): There is strong representation here from the DUP, I will give it to you.

Mr Givan: They are all trying to fight elections.

The Deputy Chairperson (Mr Flanagan): I think that it is lunchtime.

Mr Givan: We are fighting elections, too, but we have to do our job when we are here as well.

Michael, you mentioned 20% at the start. There was a comparison made with GB, and I just want to nail down exactly what it was that you were comparing when you mentioned the 20% figure.

Mr Atkinson: The 20% figure is really a factual figure for the amount of energy being consumed that is generated from renewables in Northern Ireland. When I mentioned the comparison with GB, I said that if we compare ourselves to the amount of generation that is being connected by other network operators on the mainland — such as Western Power, Scottish Power and Electricity North West — and the number of customers in those territories, we are clearly ahead of the amount of generation per customer in those locations. Therefore, in relative terms, the amount that is being connected here through renewable sources is very high, particularly for small-scale generation, because there are relatively high incentives in Northern Ireland that are driving a lot of it, as you would naturally expect when there are strong incentives.

Mr Givan: OK. Thank you. On anaerobic digesters, one company that I am aware of has 10 sites and £30 million worth of investment on its part. NIE has delayed eight of those 10 projects. The company has been planning with your organisation for when it is going to come on stream, and, for eight out of 10 of them, NIE has said that it will not be able to have the work done on time.

What are the processes involved when you get engaged in those projects so that they come on stream according to the time frames in which companies plan to deliver? For those projects, you then have consequences further upstream in the supply chain. Farmers are involved in sowing out their land, and then they are told that NIE is not going to be able to take their product, and there are financial penalties for them. I am keen to tease out how you can ensure that the projects that you are delivering, which are at full cost recovery for the customer, are done on time, because eight out of 10 delays for that particular company does not, I suspect, seem like the type of service that you would be content with.

Mr Atkinson: If we look at the sequence of events briefly, we can see that the applicant goes through a process and gets an offer within 90 days. We have had various discussions about whether that period could be shorter or not. On balance, we think that getting the offer issued within 90 days is reasonable, and we will probably stick to that.

The real challenges emerge once the applicant decides that he is going ahead and has a significant project. We have more recently got to the point at which significant levels of reinforcement are required on the local network to be able to connect that party, so it means that, for us to process the consenting work to get the way leaves and address the legalities, we are having to deal with a multitude of landowners. That would not have been the case perhaps a couple of years ago when the network itself was at a less saturated level. That means, for example, if it is not just a matter of connecting the anaerobic digester plant to the immediate three-phase line, some work needs to be done between that connection point and the primary substation, which may be several kilometres away.

There is a lot of landowner involvement, and what is absolutely holding up these projects at the minute is the level of consenting that is required, the multitude of landowners and, unfortunately, in many cases, an increasing resistance from landowners to grant consents, particularly where there are parties who are affected and who are not getting a connection offer at all because they are snookered by the particular substation that they are going to. That consenting process can take a significant time. There is the planning permission itself involved, as well as the need to finalise all the legalities. That is taking longer than we would like. We absolutely agree with you there. There is a limit to what we can do, and what we are doing in particular is strengthening the way leaves, which is the resource that we use to gain the consents.

We will be introducing significant resource increases in that area. It does not bring an absolute guarantee that we will get the consents done any quicker, because, if landowners refuse completely, we get into compulsory way leaves and into a DETI process that may take 18 months or a couple of years to sort out a particular issue. There is a difficult tension to balance there. When it gets to the stage where the planning approval is in place and the consenting has been agreed, the construction stage of the project typically takes eight to 10 weeks maximum. It is the bit in the middle — what we call the pre-construction — that is proving very problematic. As I said, I think that the best that we can do is to try to communicate the situation as best we can with developers and to push as hard as we can on the consenting arrangements and the resources that we have there. Ultimately, there is some limit to what can be done.

Mr Givan: When in that process does the red flag appear in the system, with the developer saying, "I have committed to people supplying me with all their product. I have been told that it would be done at this particular date"? I know that, in one particular project, six months is the delay that will be hitting the individual concerned. There are other farmers who are supplying into him who will not now be able to for this particular project. They were going to have a cut in May, and now that is not going to happen. They are left with financial penalties. When is it being flagged up that there is a particular project that will have a particular economic consequence for a number of individuals, not least the individual behind the scheme but also all the others in the supply chain, and that we need to prioritise resources to try to resolve those projects?

Mr Atkinson: At the end of the day, there is only so much prioritising of resource that will help a situation such as that. In cases in which a developer has a number of plants running with us, we give that developer, probably through a spreadsheet process, an update on a pretty regular basis. If one had got stuck particularly in way leaves, that would be flagged to him. When it is an individual developer, the relationship that he has with the planner who is dealing with the project is really the one that we need to highlight through that communication if the job is not going as quickly as we would like. However, to sit and say that we can give a guarantee that we can eliminate six months of delays would be unrealistic. The alternative of a compulsory way leave is so much further down the track that all that we can do is try our best to push through the consents in the more conventional way that do at the minute with our way leaves. I accept that, particularly in one-off individual cases, trying to keep the communication channels as open as we can during that process does present a challenge, simply because of the volume of jobs that we are doing at the minute. I think that, in most cases, the developers are fairly well aware of where their project sits. If there are individual cases in which they are not, we can address those.

The Deputy Chairperson (Mr Flanagan): That is it for today. Are you happy enough to follow up on any written questions that we may have following the briefing?

Mr Tarrant: Yes.

The Deputy Chairperson (Mr Flanagan): Thanks for your presentation today. It has been very helpful.