I thank you, Chairman. I am pleased to have this opportunity to meet the committee this afternoon. The Commission for Energy Regulation operates under the Electricity Regulation Act 1999 and the Gas (Interim) (Regulation) Act 2002, in addition to amendments to those Acts. I would like to provide the committee with a background context regarding the various Government and independent statutory bodies involved in the field of renewable energy and how we fit into it.
The renewable energy division of the Department of Communications, Marine and Natural Resources is responsible for implementing all measures necessary to increase the penetration of renewable energy technologies in electricity production. At present, the Government provides support for renewable energy under the alternative energy requirement scheme, generally known as AER. AER awards people power purchase agreement contracts with the ESB for up to 15 years. Since the programme was launched in 1995, six AER competitions have been held. The technologies supported include wind energy, small scale hydropower, combined heat and power and biomass. The Department recently launched a consultation process on further renewable support after AER because perhaps AER has had its day.
Our role in terms of AER has been in licensing successful applicants. In addition, the additional cost of AER over and above the cost of conventional generation is recovered from all customers in the market, irrespective of whether they are supplied by the ESB or one of the independent suppliers through the public service obligation levy, which we calculate based on the basis of the statutory instrument published in 2002. In line with our duty to consumers, we are conscious of the impact this has on the overall cost faced by final customers.
The total cost for renewable energy under the PSO last year was €6.6 million and that will rise to €16.1 million in 2004, an increase of 150% in one year. We anticipate the impact of this on the average electricity tariff will not be insignificant. It could be close to 1% of the increase. As the level of renewables increases, the ability of consumers to absorb these increases must be considered.
Sustainable Energy Ireland was established under the Sustainable Energy Act 2002. Its functions include advancing the development of renewable sources of energy. The authority's renewable energy information office in Cork provides an independent information and advice service to people who wish to develop renewable energy projects.
As regards our role in renewable energies, since our establishment we have tried to carry out our functions as laid down in the Act. We must exercise those powers having regard to the need to promote the use of renewables or green energy. Renewable energy is broadly defined in the Act and covers 11 sources of energy such as wind, hydro, biomass, waste, biofuel, geothermal, fuel cells, tidal, solar and wave. To date, the main focus of development has been on exploiting wind energy since wind is the most economic of these technologies.
Since February 2000 the market for green energy has been 100% open. That means everyone has the right to purchase electricity from a green supplier. One does not have to stay with the ESB. The market for conventional or brown electricity will not open fully until February 2005. In order to promote green energy, we generally lean towards green when we have decisions to make. We are happy that there is a lot of activity in the green area. We have on a number of occasions, for example, amended the trading and settlement code, which forms the rules in the wholesale market under which all players in the market must operate and which determines how moneys are transferred. We made those decisions in favour of the green sector.
For increased flexibility and in recognition of the fact that the wind does not blow all the time, we have allowed the green sector to mix green and non-green electricity in its sales in the market and also in its trades across the interconnector. This allows the green sector to continue with its sales and then to reconcile the differences afterwards. The Act stipulates that the holders of green licences must balance their green sales with green energy production. I have established that this should be done within a 5% margin on an annual basis. Furthermore, this balancing period is initially set at two years to assist new entrants.
As a measure of our success, a green supplier, Airtricity, is the third largest supplier of electricity in the market. It currently supplies approximately 28,000 businesses with green electricity. The bulk of our authorisations and licences are issued for green electricity. Since its establishment, the commission has authorised the provision of 320 megawatts of wind energy and issued licences to generate to 275 megawatts of wind energy.
The commission is mindful of renewables in the design of the new replacement wholesale market arrangements for electricity, which is the new market that is scheduled to come into effect in February 2006. There are clear benefits for renewables under the new trading arrangements, such as the fact that there is a guaranteed market for their sales, they do not require contracts with all their customers, they get pay capacity which they do not get at present, it will be easy for them to bid into this market and they will not have to balance schedules over the year. The commission was also involved in the grid upgrade development programme for renewables, known as the cluster scheme, which was promoted by the Minister. The commission approved €30 million for that in 2003. The commission is also interested in the promotion of the full spectrum of renewable technologies. With this in mind, the commission is examining the potential for promoting new technologies, such as tidal and wave energy, through the establishment of a special research and development tariff.
I would like to discuss the present moratorium on wind farm connections to the electricity networks. I have agreed to this moratorium based on the advice of ESB National Grid, which is the operator of the transmission system. Operators of electricity grids are conservative by nature, which is right, and they will not countenance anything that might jeopardise the integrity of the system. We have seen a number of system blackouts around the world and in Europe in the past year and most of those were triggered by network problems. It has advised me that the number of megawatts which potentially could be connected to the system could impact on its stability. I have to take full account of that advice and could not lightly discount it.
All offers made to potential generators to connect to the system are on the basis that the stations meet the requirements of the grid code, which I will describe in a few minutes. None of the proposed wind farms meets these requirements. Up to now what has happened is that developers have applied to the commission for derogations from the code and generally we have agreed to those.
The code is a technical document containing the rules governing the operation, development and use of the transmission system. They are the rules of the road for the transmission system, comprising approximately ten volumes which set out all these conditions. The main provisions that wind farms struggle to comply with are known as fault ride through, to which I will refer briefly, voltage and frequency, among others things. I will mention fault ride through only.
Fault ride through deals with the reaction of power stations to faults, which are often caused by lightning on the transmission system. If we get a lightening strike on the transmission system, there is a voltage dip and wind farms shut down immediately, whereas we want them to stay connected to the system and continue to operate, as conventional power stations do. In that way, electricity continues to be supplied and there are no black outs or load shedding. That is one of the particular characteristics of wind farms, which will have to be dealt with.
At present, there are approximately 166 MW of wind on the system. Between new signed connection agreements and live offers, however, there are over 600 additional MW, which, if all were built, would bring the total to 775 MW on the system. There are 422 MW of further applications in process, which would bring the total to 1,200 MW. At present on the island only about 3% of installed capacity is wind. With the extra offers now available this could rise to 10%, if all the people who have made offers are connected, and would reach over 16% if all the potential projects outlined were connected.
This potential contracted percentage is higher than in all other European countries, except Denmark. People keep quoting the Danish example but Denmark is fully interconnected both with the UCTE System - that is, the wider European mainland network system with 550,000 MW - and with the Nordel system, including Norway, Sweden and Finland, which has 90,000 MW. The Nordel capacity is over 4,500 MW of potential interconnection.
The island of Ireland has at present about 7,000 MW of installed capacity with very limited interconnection. The only interconnection on the island is one interconnector of 400 MW to Scotland, so our system is very small and the reliability of the power system depends on generators contributing to this.
Wind has specific technical characteristics: it is intermittent and cannot be controlled. There will be periods when there is no wind and, hence, no production from the wind farms. That requires backup generation to be on stand by. To put it in context, yesterday morning, for example, wind was contributing less than 20 MW out of a demand for almost 4,000 MW. On the other hand, sudden surges of wind can also create problems because they are difficult to control.
ESB national grid has stated that the reasons for the moratorium are system reliability and stability issues, which relate to maintaining the supply-demand balance following faults, the technical nature of wind turbines and the dynamic stability of the system. It is worth noting that ESB National Grid has also advised that the moratorium has nothing to do with grid capacity issues. It does not relate to the investment programme that has been undertaken. There is plenty of space and all these stations can be hooked up to the grid and reinforcements can be built to take the power. It concerns the actual operation of the system, not the capacity, so the grid capital investment programme that has been undertaken has nothing whatsoever to do with this moratorium.
On 3 December 2003, ESB National Grid wrote to me and requested an interim pause on wind connections to the end of the year. The commission expressed its concern that any future remedial action must be necessary and proportionate to the threat facing system reliability by the scale of wind connections. In keeping with our policy of openness and transparency the commission requested the national grid to host a public forum to outline the issues. That meeting was held on 17 December 2003 and was attended by a large number of interested parties. In addition, the commission held a public consultation process on the pause. Some 20 submissions were received and have been published on our website. On 19 December, ESB National Grid wrote to me again requesting an extension of the pause for a further three months. The commission sanctioned this subject to a number of agreed actions taking place during this period, which is the work that is currently in progress.
We have secured an accelerated programme for the grid code review for wind. While that is being prepared, there is a representative committee that sits on that panel. The ESB National Grid has agreed to prepare this for our approval by 9 April, with some interim arrangements in between. We have also committed ourselves to undertaking a survey into wind connections agreed to date, in order to assess projected timeframes and potential system impacts.
We have requested the national grid to produce a detailed programme and timetable for the modelling of wind generation plant and the impact of greater penetration of wind on the transmission system. We have also asked the national grid to submit a detailed work plan on the programme of work for the next three months, which we will publish. We are strongly committed to actively monitoring progress and ensuring timelines are respected.
In addition, we have established a representative working group containing both the transmission and the distribution system operators, Sustainable Energy Ireland, the Irish Wind Energy Association and Meitheal na Gaoithe, to monitor progress. That group has had its first meeting, which was chaired by Mr. Cagney.
Within a few months we will have reached a position where long-term decisions can be made concerning wind. It is essential that we continue to have reliable, high quality electricity to supply our economy and consumers, having due regard, as ever, for the environment.