I thank the committee for inviting me back to participate in this hearing. I was glad to provide evidence to it in 2017. I commend the committee on its report published subsequent to those sessions.
I am the country lead for SSE in Ireland. SSE plc is a FTSE top 40 company, headquartered in Scotland and active in the Irish market for 11 years. SSE Renewables is proud to be the largest renewable electricity developer on the island of Ireland, with plans for up to three offshore wind farms in the Irish Sea. We are also one of Ireland's largest energy providers, supplying approximately 700,000 customers on the island. Over the past six years, SSE has contributed more than €5 billion to the Irish economy, supporting over 4,700 jobs while contributing to the achievement of Ireland’s energy and climate policy aims.
As the largest company by market capitalisation in the FTSE 100, whose revenues are derived solely from the UK and Ireland, SSE is intractably invested in the UK and Ireland continuing a collaborative and co-operative relationship after the UK formally leaves the EU. In addition, a number of our business activities are organised on an all-island basis.
With that in mind, SSE has undertaken an extensive programme of Brexit readiness. This includes examining our own supply chain and GDPR requirements and communicating with staff on issues such as freedom of movement and driving licence and insurance arrangements. A no-deal Brexit would be a suboptimal outcome for SSE and the energy industry, given the uncertainties it creates for all businesses. However, we do not anticipate Brexit becoming a deterrent to our continued operation and future investment in Ireland.
I will focus on the material issues for our customers and our business across the island. When I last appeared before the committee two years ago, I proposed three principles for the exit negotiations, which were reflected in the report of findings published by the committee. Those principles have not changed, though the circumstances have, in particular the greater threat of a no-deal Brexit. First, the single electricity market on the island of Ireland must be maintained in all Brexit scenarios, both immediately after the UK leaves the EU and into the future. Second, the flows of electricity and gas between countries through interconnection should continue to support energy security and consumers. Third, Ireland’s commitment to tackling climate breakdown must be delivered on.
Taking each in priority order, the combining of the electricity markets in Northern Ireland and Ireland into the SEM has been a success. As the committee found in its 2017 report, the maintenance of the SEM is a key component of the all-island economy. The SEM has improved competition and provided the investment case for the construction of new and cleaner generation, providing the benefits of a larger, integrated electricity market. For customers, these benefits arise in the form of lower costs.
The withdrawal agreement negotiated by Theresa May’s Government allowed for the SEM to be retained intact. A statement by the regulators in Northern Ireland and the Republic of Ireland outlines that, in a no-deal exit, the market would essentially be retained, although one element, namely, day-ahead coupling between the SEM and the UK’s British Electricity Trading and Transmission Arrangements, BETTA, market, would be lost. The loss of day-ahead coupling would be regrettable and would lead to reduced efficiency in flows over the electricity interconnectors. SSE is fully convinced that retaining the rest of the market design and working to replace day-ahead coupling is the best outcome for both Ireland and Northern Ireland. We would, however, consider any reduction in efficiency due to the loss of day-ahead coupling to be minor in comparison to the overall benefits of the SEM.
Protection of the SEM is not only a priority for day one. Its continued existence will rely on ongoing collaboration between authorities in London, Belfast, Dublin and Brussels. Continued North-South co-operation between businesses and other bodies will be vital in enabling this to happen, with complementary frameworks needed to allow all sides to continue to trade and co-operate with one another. We ask these authorities to provide for the maintenance of the SEM immediately following any form of Brexit and on an ongoing basis afterwards. We also ask the Government to work closely within the EU and with counterparts in the UK to ensure that the SEM and the benefits it brings to consumers in Ireland can be protected in all circumstances.
Our second priority is that electricity and gas should continue to flow over the interconnectors. Two years ago, I outlined the reasons it was vital that flows of energy between the UK and Ireland continue. As the committee recommended in its 2017 report, the facilitation of seamless interconnection is the preferred solution in all outcomes. Although there may be increased administration, SSE’s expectation is that there will be no barrier in any Brexit scenario to prevent electricity and gas flowing day to day, including in the case of a supply emergency. In addition, tariffs on the flow of electricity and gas are not expected.
As ever, interconnection is one tool in the market, and a combination of it and domestic generation must be provided to ensure that security of supply is assured in all scenarios. New interconnection should be supported by a clear cost-benefit analysis for customers such as that undertaken for the Celtic project between Ireland and France.
When I last appeared before the committee, I noted that the North-South interconnector project was before the courts. While it is encouraging that it has now gone through the planning process in Ireland, the project is still facing delays in Northern Ireland. This project would address impediments to transporting energy within the SEM, whereby the cheapest and greenest electricity cannot always travel to where it is needed, while also facilitating greater security of supply.
SSE supports this important piece of infrastructure and the significant savings it will bring to customers on the island.
When I last spoke to the committee, I advocated that Brexit should not subsume all focus in these upcoming, crucial years. It is welcome that, two years later, such ambitious and necessary plans have been formed to enable Ireland to tackle climate change, providing renewed confidence to renewable investment. The Government’s climate action plan, published this summer, provides a welcome target of 70% of electricity from renewables by 2030. To achieve this target, the plan identifies a need for 3.5 GW of offshore wind energy, as well as a doubling of onshore wind energy to 8 GW. This plan builds upon the clear and ambitious recommendations of both the Citizens’ Assembly and the Oireachtas Joint Committee on Climate Action.
The plan and its targets can provide a green light for renewables investment in Ireland. For this investment to be realised, the actions in the climate action plan must be completed on time. This includes a significant level of facilitative frameworks and consents to deliver grid connections, along with system services to support a higher level of renewables. It also includes a timely implementation of the new renewable electricity support scheme, currently in design by the Department of Communications, Climate Action and Environment. It is critical that any Brexit outcome, including a no-deal exit, does not result in these actions being delayed or a reduction in the outlined ambitions.
Ireland’s offshore sector has had numerous false starts over the past decade. The committee’s 2017 report noted the opportunities which exist for the offshore generation of wind energy. The climate action plan has signalled a clear intention to ensure these developments now begin, setting up processes for offshore leases and connections, as well as route to market. Early offshore projects such as SSE’s Arklow bank can make a significant contribution towards meeting Ireland’s EU emissions targets. It is critical they are facilitated and supported if this transition is to happen this decade.
With the delivery of this increase in renewables, along with the complete phasing out of coal and peat in the first half of the decade, gas will have a critical role to play. High efficiency gas generation will provide the flexibility to support the renewables transition while ensuring security of supply.
It is essential the transition to a low-carbon economy is delivered cost effectively. This needs a strong overarching policy driver. The EU’s emissions trading scheme, ETS, is designed to put a cost on carbon emissions in the electricity sector, as well as for other large demand users. In the case of a no-deal Brexit, the UK including Northern Ireland, will leave the ETS. The UK Government has outlined its intention to substitute the European scheme with a replacement for the coming two years with a view to aligning with the ETS in the future.
Authorities should assess ways to ensure the ETS, and any replacement in Northern Ireland, maintains alignment to the greatest extent possible in order to ensure electricity generators in the single electricity market, SEM, compete on a level playing field. Ireland should also take an active role at EU level in ensuring the EU ETS is on a pathway to delivering a robust carbon price. If this is not achieved, we should consider domestic measures to supplement the scheme.
The increase to carbon tax, as announced in yesterday’s budget, should provide the same overarching signals to solid fuels, heating and transport. We support the announcement and welcome the commitment to use revenues on climate action measures such as improved energy efficiency, as well as in support of a just transition for those particularly impacted.
SSE sees three energy priorities for Ireland as Brexit plays out, namely, maintain the SEM, ensure flows of energy over the interconnectors continue, and deliver on plans for decarbonisation of energy. We believe these three priorities are deliverable, although effort will be required both in the near term and on an ongoing basis. It is our view that the successful fulfilment of these three aims will represent a win-win outcome for consumers in Ireland and the EU as a whole, as well as the UK and particularly in Northern Ireland.
Energy customers want prices to be fair and Ireland requires cost-effective investment in energy infrastructure to decarbonise its economy and maintain security of supply. The imperative and public demand for decarbonisation has never been higher. Brexit, and the potential of a no-deal Brexit, must not distract from the fulfilment of these decarbonisation objectives, along with the continued delivery of cost-effective energy for consumers. It is in that spirit that I have presented these three priorities.