I welcome the new chairperson of EirGrid, Ms Bernie Gray, who is at this committee for the first time.
Pöyry Report: Discussion with EirGrid
Ms Bernie Gray
Thank you, Chairman.
We have had the pleasure of welcoming Mr. Dermot Byrne, who is the chief executive of EirGrid, and Mr. Philip O'Donnell, who is the generation analysis manager of EirGrid, in the past. I also welcome Dr. Phil Hare, who is the managing director of Pöyry. Is there anyone else with them?
Mr. Dermot Byrne
It is just the four of us. There are two more people in the Visitors' Gallery.
I knew there was someone else coming. I look forward to hearing the delegates' contributions.
Ms Bernie Gray
Dia dhaoibh agus go raibh maith agaibh, a Chathaoirligh agus a bhaill an choiste. EirGrid is delighted to have been given an opportunity to make another presentation to the joint committee. We welcome the priority it attaches to this sector. The provision of reliable, economic and quality electricity supplies is of fundamental importance to the nation. We have spoken to the committee previously about the vital work undertaken by EirGrid on an ongoing basis, including the real-time operation of the national control centre, where electricity supply is matched with demand 24 hours a day, seven days a week. In September 2009, we addressed the committee on the necessary development of the national grid. We also spoke about the role of the strategic plan, Plan 25, in facilitating economic recovery and meeting our challenging environment targets.
On this occasion, we are looking even further ahead, to 2025 and beyond. The decarbonisation of Ireland's power sector is necessary if we are to achieve a sustainable future and to realise a vision of a fully decarbonised electricity system on the island of Ireland by 2050. We are on track to connect enough renewable energy to the grid to meet the electricity sector's 40% target by 2020. This would have seemed highly unlikely 20 years ago. These developments present challenges. I do not doubt that members will agree it is crucial that a wider debate on the development of a low-carbon power system takes place now, to allow sufficient time for the strategic planning of the grid.
To identify the challenges and begin to address them, EirGrid commissioned a report from a leading energy consultancy firm, Pöyry, on the low-carbon generation options for the all-island market. The report focuses on the long-term planning of the electricity transmission grid and the generation portfolio that will drive the shape and structure of the grid towards and beyond the middle of the century. EirGrid wants to provide information on the likely portfolio options that will lead to the development of sustainable energy solutions and effective energy policy. These choices should be the right ones for Ireland. We do not have to follow the approaches taken elsewhere. Ireland's geographical location means that even with increasing interconnection, we will not enjoy the high number of connections enjoyed by countries in continental Europe. Therefore, we must decide what generation mix is appropriate for us.
I will hand over to my colleague, Mr. Dermot Byrne, who will expand further on the scope and objectives of the Pöyry report. I thank the joint committee for its time.
Mr. Dermot Byrne
Members of the committee have been given hard copies of my presentation, which I will go through. It is also on the screen.
We do not have hard copies.
They are on the way.
Mr. Dermot Byrne
I will go ahead anyway.
It is on the screen.
Mr. Dermot Byrne
I am making this presentation in the overall context of the transformation taking place in the power system. The committee will be aware of the changes made in recent years and planned for the years to come. This transformation is happening in three phases. The first phase, which began in the mid-1990s, involves deregulation and competition and is driven by the principles of competitiveness and customer choice. The first phase of transformation is well advanced. It has been facilitated here, as elsewhere, by forms of technology. I refer specifically to combined cycle gas turbines, which can be installed quickly and at a low cost. The business plan for combined cycle turbines is well understood by the banks and the funding agencies. We are now implementing the second phase of transformation, which involves the integration of renewable forms of energy into the system. Hand in hand with that is necessary grid development. As the Chairman has stated, in September we briefed the committee on the work being done on the second phase. For example, I am happy to report that the east-west interconnector has significantly advanced even since we were here in September. It is now in the construction phase and we have completed the funding for the project. We are putting down ducting in Wales currently and we will commence construction in Ireland later this month. The cable is being manufactured in Sweden as we speak. That project, which is transformational for Ireland, will be completed in the third quarter of 2012, which is the target date.
With regard to other projects in the second phase, the Chairman referred to the 40% target by 2020. The committee is aware of the work being done on the gate 3 connection process. We have indicated that we are on track for 15% this year, which was a target in itself. The wind generation capacity will exist for that 15% this year. On a slight word of caution, this year to date has been a very poor wind year and developers have told us with regard to their cash flow that the weather has been much less windy than in many previous years. This year in particular will be a low wind year unless it picks up in the second half of the year. We have briefed the committee on the GRID25 network development strategy.
All of these relate to the implementation of policy in the second phase to bring us to 2020 approximately. There is a third phase, which is the subject of our presentation today. It looks beyond 2020 to perhaps 2050, and there is a growing international consensus that we should be aiming for full carbon neutrality by then. In that way, we would facilitate the electrification of transport and heating sectors, thereby taking carbon from those sectors as well. There is much work being done both nationally and internationally in the thinking about getting to full carbon neutrality. I will brief the committee on a number of actions in EirGrid in this respect, focusing specifically on the Pöyry report.
Before getting to the report I will mention two other issues. The first is the development of offshore grids. The committee is well aware of the vision developing around Ireland as an exporting country capitalising on the tremendous offshore resource we have in wind, ocean and wave technology. In EirGrid, we are participating in a number of studies aimed at teasing out what is involved in this and what a future grid or supergrid would look like. A number of studies are under way, including the North Sea study. ENTSO-E is the European Network of Transmission System Operators for Electricity and we are a founding member. We are working in that organisation throughout Europe on these topics.
There is also work on further interconnection. I briefed the committee on this in September last year and we have since issued the interconnector economic feasibility report, which I understand has been sent to the committee. In the report we analysed the feasibility of potential further interconnection with Great Britain and continental Europe. It is an economic study rather than a full project proposal; it considers the fundamental economics. It does not involve the detailed technical investigation or seabed routes, etc. It is to establish the prima facie economic case for interconnection.
Our submission shows the kind of routes we considered in dotted lines, with the solid lines in the illustration showing the existing interconnector being built between Ireland and Wales and Northern Ireland and Scotland. One can also see the existing interconnector between Britain and France and the new BritNed interconnector.
The economic analysis we undertook reinforced the very strong economic case for the east-west interconnector we are currently building, which is not a surprise. It identified that a third 500 MW interconnection between the island of Ireland and Great Britain would be economically attractive in 2020 and more so in 2025. It identified that a fourth 500 MW interconnector between Ireland and Great Britain could be economically feasible by 2025 in some scenarios, with the higher the amount of renewables in the scenario, the more attractive the interconnection. That is understandable as interconnection and renewables, particularly wind power, go hand in hand because interconnections help to integrate renewables into the system.
The study considered 500 MW increments but in practice the sizing will be determined by what is available and most economic at the time, as was the case with the east-west interconnector. We examined the possibility of French involvement, although in less detail, and it showed significant benefits. Further work will be required to fully explore interconnection to France in more detail, and we are undertaking that work.
To summarise the results of the interconnector economic feasibility study, there was confirmation of the strong economic case for the east-west interconnector. Further interconnection between Ireland and Great Britain is economically attractive. Interconnection between Ireland and France also appears beneficial but we must work further on that. The key point is that interconnection assists in the integration of more wind in the system, particularly for export.
I will move to the Pöyry report, which is the main topic for consideration today. A consensus is emerging within Europe that decarbonisation of the power sector will be one of the key objectives for obtaining a sustainable future. Full carbon neutrality by 2050 is deemed to be the target. The means of achieving this are still being debated but what is certain is that the power sector is set to undergo further significant change over the next few decades. Ireland and Northern Ireland have already begun this process by setting targets for renewables, establishing energy efficiency plans and making preparations for the roll-out of electric vehicles. There is now a need to extend the outlook to delivering low-carbon power by the middle of the century, and we are pleased to contribute to the debate by having commissioned Pöyry to study and report on the technology options for the island's low-carbon future.
The report, Low Carbon Generation Options for the All-Island Market, describes various generation technology options likely to be available to help deliver sustainable power in the future. We have taken a year midway between 2020 and 2050 as being a stepping stone towards full carbon neutrality as the technologies available for 2035 are feasible now, whereas 2050 is so far in the future that there will be many developments between now and then. It is more realistic to take a middle point than look to 2050.
With Pöyry we have examined the technology options in order to provide feasible generation portfolio choices, or mixes of plant, that would meet the requirements of the all-island market by 2035. These are six balanced portfolio options which give a sense of what is possible and explore the characteristics of each option. We are not recommending a particular choice as it is far too early for that. By identifying the portfolio options and analysing them, the key characteristics pertaining to each technology are illustrated.
We have carried out detailed modelling and we will present the results of some of that today. The report addresses some of the issues raised in the committee's consultation on electricity needs post-2020 and the follow-on report, to which we also made a submission. It is clear that by 2035, Moneypoint will have closed, peat and oil plants are set to close and a fuel diversity issue will arise from that. Otherwise, we may be down to gas and renewables. The question we set at the outset was whether this was acceptable.
Debate should now move on to the longer term policy on the criteria for emissions, costs, long-term reliability, efficiency and the environmental impact. These are the criteria that the committee itself has set in its report. The overall goal will be for a transition to a low-carbon or carbon neutral electricity system. We have looked at the wide range of options that are a possibility in the timeframe outlined.
The first slide shows the six different portfolios that we have constructed. Each portfolio has a different theme, but there are strong similarities across all of them. All the portfolios build on the 40% renewable target that we have set for 2020. We assume that by 2035, which is the study year, renewable penetration will have increased to above 50% in energy terms in all cases. For the high renewable cases, renewables rise to about 70% to 80% of the energy supply. All the portfolios have significant degrees of interconnection with our neighbouring utilities. There are 2 GW, or 2,000 MW, of interconnection with Great Britain in most cases. The high renewable case has a total of 5 GW of interconnection, 3 GW of which go to Great Britain and 2 GW of which go to France. Gas is common to all of the scenarios.
The first scenario on the slide is what we label "the gas scenario". Building from the bottom of the slide up, the orange colour shows gas, followed by a small sliver of pump storage. The pink colour shows the interconnection, green shows onshore wind, light green shows offshore wind, while a small amount of other renewables at the top are in blue. This makes up the gas scenario. The next scenario is labelled "the nuclear scenario". We are introducing over 2 GW of nuclear generation capacity to this scenario, and this is shown in yellow. This reduces the requirement for gas plant. We still have 2 GW of interconnection, which is shown in pink, and we have the same amount of renewables as the first scenario. The third scenario is labelled "clean coal technology". This replaces nuclear generation with clean coal and carbon sequestration, which is shown in deep blue. Apart from that, the interconnection and renewables are the same.
The "high renewable scenario" contains an amount of gas that balances the high renewables and is there when the wind is not blowing. We have interconnection and both onshore and offshore wind. We also have added other renewables, shown on top in light blue, which would be ocean technology and biomass. The "high renewables and increased interconnection" scenario allows for a considerable expansion of interconnection from 2 GW to 5 GW. That has the impact of reducing the required gas plant. We still have high levels of renewables associated with that plant. On the right hand side of the slide, we have the "high renewables and increased storage" scenario. This is shown in the blue just above the gas plant. We believe the six portfolios bring out the different characteristics of the different technology types.
The next chart compares the total capital cost for the six portfolios. All portfolios have higher capital costs than an equivalent portfolio today, as we are moving towards higher fixed costs and lower production costs. For example, once the renewable portfolio is built, the energy is free from a production cost of view. The gas portfolio has the cheapest capital costs, but we will see in a later slide how this balances against the higher fuel costs. In general, high renewable portfolios have higher capital costs but far lower fuel costs.
All of these have been normalised for the same level of security of supply, so the plant being put in for each scenario delivers the same reliability of supply to customers and we have kept the security of supply equivalent across all portfolios.
Why are we going up to 20 GW of power? That is significantly more than Ireland requires now.
Mr. Dermot Byrne
It is because of the intermittent nature of the main resource here, which is onshore and offshore wind. At a time when the wind is not blowing, we have to be sure that we have enough plant on stand-by. Gas is highly flexible, both for open cycle plant and combined cycle plant to some extent. There is a complementarity between gas and gas technology and wind. When wind is increasing or decreasing rapidly, the ability to have flexible plant that can mirror the movement is very important from a reliability point of view.
Is EirGrid taking into account the European demand for export of renewables from Ireland?
Mr. Dermot Byrne
No. That was the point to which I was referring earlier. In looking out to 2050, there is much work going on in making Ireland a net exporter or a massive exporter. This is not that work. That is other work. We are showing here how Ireland meets its needs by 2035. Having said that, interconnection features strongly, so each of these provides the infrastructure to export. The focus is not to examine the economics of Ireland as an overall net exporter. That is work that others are doing and we are participating in that work as well. The focus here is on the island of Ireland and how it will meet its needs in a global context of a consensus on carbon neutrality by 2050.
I am interested in where these decisions are made. I would have thought that this is really a matter of public policy. With all due respect to the company, whether Ireland becomes a major exporter of energy or otherwise is not really a decision for EirGrid. EirGrid is part of how to do it. I am concerned that there is no overall strategic approach on our ability as a nation or as an island to export energy. Where does that decision making take place?
Mr. Dermot Byrne
The Deputy is right. We are setting out some analysis to facilitate an informed debate on these topics. We are responding to the consultation work commissioned and reported by the committee. This is a piece of a jigsaw, not the complete jigsaw. While we are not policy makers we have a particular perspective because we operate the power system. We carry out this analysis anyway because we need to do so, and we are making it available in the policy space. Ultimately, it is for the Department, the Minister and the Government to take the various elements and develop and crystalise a policy.
The all-island grid study done a number of years ago was key and enabled the 40% target to crystalise in the Government's White Paper. Having a target aligns everybody towards meeting it. I contend that we are not at that stage yet with the 2050 vision. Much storming work is going on but the norming has not happened yet and it will be some time before it does. In the meantime it is very productive that EirGrid and others conduct analysis and bring it into the public domain so that when policy making is set it is based on sound analysis.
The annualised costs include capital and production costs on a per annum basis. The slide shows the comparison between the six portfolios in a central fuel price scenario. The blue part of the bars shows the capital cost element and the red shows the production costs, which are fuel and carbon costs. We explicitly cost carbon in the analysis. The top part of the bars shows the system operation costs, which are additional costs for carrying spinning reserve to enable a reliable power supply to be delivered on a minute-by-minute, hour-by-hour basis. The nuclear scenario has two large nuclear plants sitting in the portfolio. We have identified a higher level of system operation costs because of the sheer scale of those plants.
Why is there not a reduction in system operating costs with a much higher level of storage? Surely taking intermittency out of the renewable element by having storage would make it easier to operate the system.
Mr. Dermot Byrne
There is still an element of higher operational costs that we will need for the higher renewables. The very fact that there are very large amounts of renewables——
No, I am talking about relative costs versus the other options. There is no difference between the fifth and sixth options in the cost of managing the grid, whether there is significant storage on the grid or not. I am not trying to be difficult.
Mr. Dermot Byrne
I shall ask Mr. McDonnell to answer that.
I understood the point of having storage on the system was that it made it easier to operate.
Mr. Philip McDonnell
It is not at all obvious from the graph but the costs are a little lower; they are not quite as high. It is difficult to see but in the studies we did we had lower system operating costs.
It is significantly more expensive than portfolios 1 and 3.
Mr. Philip McDonnell
It is because of the significantly higher renewables in those portfolios. We have taken account of the fact that one will get more reserve from the storage with interconnection. It is slightly smaller but not as much as it is for portfolios 1 and 3.
Mr. Dermot Byrne
Portfolios 1 and 3 have approximately 50% renewables whereas the other three have 70% to 80%.
I would have thought the storage element would have made a significant difference between portfolios 4 and 6 but it does not make any that I can see unless it is in the actual figures. I know bar charts are crude.
Mr. Philip McDonnell
There is a significant drop but it does not show up in the bar chart.
Thank you.
Mr. Dermot Byrne
I want to show the high fuel price scenario, in which there is a further levelling of the annualised costs. Because fuel costs are a higher proportion of the gas scenario it will increase more so than other portfolios. When we assume a higher fossil fuel price, it has the effect of increasing the annualised costs of the gas scenario more than the others.
Is there a benchmark for that price?
Mr. Dermot Byrne
One is gazing into a goldfish bowl. The nearest benchmark would be the International Energy Agency, IEA. Its most recent long-term gas fuel price would be akin to this high fuel price scenario. The central fuel price scenario was based on a Pöyry long-term estimate of fuel costs and prices, based on marginal production costs.
Dr. Phil Hare
The central fuel price scenario used here is based on $80 oil, which is what the IEA was stating three years ago. Our view is that oil prices will be set by the long-run cost of new production of oil. There are large amounts of reserves of unconventionals, gas to liquids and coal to liquids that will lead to prices not going significantly above $100 in a sustainable manner. We are very happy to defend $80 as a sensible number on which to base this analysis.
Is Dr. Hare happy that the gas price, which is more significant than oil prices in all of the scenarios, will start to mirror oil prices at some stage in the future? There is now a strong divergence between oil and gas prices.
Dr. Phil Hare
We would hang our hat on gas prices being linked to oil in the long run, recognising that at present unconventional gas prices are depressing global gas prices.
Mr. Dermot Byrne
It is important that we also show the higher fuel price scenario because that is more aligned with the IEA and there is an international benchmark. We are showing the Pöyry and the IEA fuel price scenarios.
The next slide shows the generation component of end user prices for the central fuel price scenario. They are higher than the fuel prices seen in the current single electricity market, SEM. However, the important point is the comparison with our competitors and whether Ireland is competitive. This is why the slide also shows our estimate of the GB market. It shows that on balance we are competitive with our nearest neighbours. The prices are pretty level across all of the scenarios. We have included the necessary subsidies that will give an incentive for the plant to be built. That is a particular feature of our market. Due to the large amounts of renewable energy sources and their intermittent nature, to incentivise the other plant needed we will need some support mechanism. We have built that into these prices.
Most importantly, this slide compares the carbon intensity of the different portfolios and is the key comparison indicator. As the committee can see, all portfolios go a long way towards 80% emissions reductions by 2035 compared to the present day portfolio which is shown on the left hand side. Currently, we are in excess of 500g of CO2 per kW hour. That is reducing, to a greater or lesser extent, towards 100g per kW hour, which is a reduction of roughly 80% on current levels. We set a notional target of 100g of CO2 per kW hour as a credible path towards complete decarbonisation by 2050.
On this slide we have shown how we account for carbon associated with interconnector imports because in the detailed studies there is considerable action on the interconnectors on a daily and hourly basis. There are lots of imports and exports. The way we handle that on this slide is that the lighted blue on top is the carbon associated with imports, mainly from combined cycle gas turbine plants.
Does EirGrid have a breakdown of the source of the electricity we are importing? The issue of how much nuclear power we are importing is raised from time to time. I recently heard the figure was 4%. EirGrid clearly has a breakdown of the various sources.
Mr. Dermot Byrne
We have assumed at the margin we will import from gas fired plants because whatever nuclear energy will be in the United Kingdom portfolio we will be generating anyway. The fact that we import it will not add incrementally to the amount of nuclear energy. We outlined the worst case scenario because we are assuming that the incremental import from Great Britain is gas fired. The accounting for that tends to be more on the mix. The accounting we do on an annual basis, through the CER or whatever, takes the total mix of generation in the United Kingdom and apportions that to the imports. That gives the percentages to which the Deputy referred. For this analysis we assume it is a worst case scenario and that we are importing gas. We also assume that when we export the export will be wind power. We assume that the carbon credits accrue to the receiving country. Again, it is a worst case scenario. Even then we are hitting the 100g per kW hour level.
Exports are not accounted for in this graph.
Mr. Dermot Byrne
We assume that the exports will be at times of high renewables which is reasonable. We will export when we have very high wind on the system and need to export the excess to the United Kingdom.
There is no section of the chart which applies to exports.
Mr. Dermot Byrne
No, we assume that the carbon credit for that accrues to the United Kingdom. Again, it is a worst case scenario. If we assumed that we retained that carbon credit the figures would be even less.
This would absorb the carbon negative deficit.
Mr. Dermot Byrne
Yes.
Fine.
Mr. Dermot Byrne
In summary, the most significant result is that significant emissions reductions can be achieved in all the portfolios. All the portfolios have a higher capital cost but also lower running costs, relative to today. Under current policies the gas portfolio is the most likely outcome and could be viewed as a transitional step towards carbon neutrality by 2050. The other technologies, coal, CCS, nuclear, much higher levels of renewables, storage and much further levels of interconnection are all able to further reduce emission levels. However, a number of technical, environmental and cost issues would need to be overcome regarding those technologies.
The purpose of the report was to contribute to the debate this committee initiated on future energy policy. It is not policy; clearly it is an input into that. It builds on and is complementary to the joint committee's previous consultation and its report on electricity needs post 2020. As everybody will appreciate, there are no simple or easy choices in what is a very complex area. We believe and appreciate that the Joint Committee on Climate Change and Energy Security provides an important forum for this debate. I am happy to answer any questions.
This is a very interesting discussion. In some ways it is an abstract discussion because we are talking about 2035. We need to plan our energy policy. We all know how long it takes to build the infrastructure to make this happen. It is something which EirGrid is endeavouring to do in the context of targets which are much closer than 2035. We need to try to help it to do that, which I recognise.
Are all of the portfolio options viable, as far as EirGrid is concerned? For example, the Grid 25 study makes the case that 40% renewables is a viable proposition in terms of managing the grid, if everything happens as we plan it to happen. Option four, for example, is essentially the same as the Grid 25 study except EirGrid is practically doubling the contribution from renewables. Is that a viable scenario, from the point of view of EirGrid? Can we go well above 40% to 50% or 60% of power generation potentially coming from renewable energy sources without any increase in interconnection or storage?
We need to say bluntly that even though this may be part of the portfolio option the task of managing a grid that does not have any more storage or interconnection but would double the renewable contribution in terms of the intermittency areas might be a very difficult thing for EirGrid to manage. That is why options five and six seem to be a logical progression from options one, two or three because there is increased interconnectivity or storage to deal with the increase in renewables.
I suspect that we will be examining very closely some sort of hybrid between options five and six that will involve some increase in storage as well as interconnection because ultimately we want to sell this stuff. For us to have option four, five or six and not export large volumes of energy defeats the purpose because it would mean that we would have to have a huge amount of gas or conventional power plant sitting idle and doing nothing for large parts of the year which becomes a very expensive way of facilitating renewables. We need to constantly sell, store or export renewable power as it is being produced. If we are to choose any of the final three proposals, which involve significant increases in renewables, we have to take account of that issue. Scenario four does not seem viable for that reason, unless I am missing something. Scenarios five and six at least offer answers to the problem of increased renewables.
Carbon capture and storage appears to win on all accounts, provided the technology is viable. Most of the cost charts on what we get for our expenditure and on system operation appear to indicate that it is the cheapest to operate and delivers results at the lowest cost. We will have to find a suitable site, however. I live near what is probably the most viable site in the country and I would happily try to make it happen if the technology is viable.
Nuclear energy is probably not an option for Ireland but we should not be shy about importing it if other countries are happy to produce it. It would be nonsense to attempt to separate the nuclear component from our imports, particularly if we interconnect with France.
The Chair did not mention that three members of the committee have just returned from Brussels where we attended a conference on energy and climate change. Much of the discussion concerned the need for significant increases in expenditure on interconnection, which is good news for Ireland. There was also a debate on nuclear energy but the message for us is that the European Union wants to allow countries like Ireland to do what they do best in the energy area. In our case, this should involve facilitating renewables.
I could bore the committee for a long time on this subject but I wish to raise some specific questions on gate 3. Mr. Byrne will be aware of my concerns about the targets for 2020, never mind 2035. It is crazy to allow wind farms to go where developers want to build them rather than where the country decides they should be located. Unfortunately, EirGrid has to facilitate a developer-led queuing system. Consumers will have to meet the added expense of grid connections through ESB networks or EirGrid as a result of an unco-ordinated approach to the location of wind farms. This creates an unnecessary headache for EirGrid and I am interested in hearing an honest opinion on whether we should proceed with gate 4 rather than put in place a spatial strategy on the counties and regions in which clusters of wind farms should be constructed. In the latter instance, EirGrid could be instructed to connect the relevant regions as a priority rather than do bits and pieces all over the place to facilitate wind farms that get grid connection under Gate 3.
If we are to go the route of scenarios four, five and six, which involve significant increases in on and offshore wind, we will find it difficult to answer when somebody asks, in 40 years time, whether a spatial strategy was put in place to decide where wind turbines would be located. It would be difficult to unwind gate 3 but we should develop a parallel system that requires new entrants to invest in areas where we decide clusters of wind farms should be developed. We could by that means give strategic direction to EirGrid on where it should prioritise grid infrastructure, in addition to the grid 25 strategy.
That is what we are trying to achieve with the offshore renewable energy development Bill. If a body such as the Marine Institute was responsible for zoning, EirGrid would be guided in its development of the grid to facilitate these investments. I cannot stress enough the urgency we feel in developing clear guidelines on zoning. We have made sufficient mistakes in regard to housing developments which are now lying idle. Any influence that people in this room can exert to take the issue by the scruff of the neck would be welcome if our Bill is not accepted.
It is crazy to start planning interconnectors before we know where development will occur. As an organisation, EirGrid has done a good job but the lack of knowledge about where developments will be located must make its life very difficult.
I thank the delegates for their useful and interesting presentation, which complements the work we have done on planning for the longer term. It is almost a contradiction that gas appears to be the best medium term option in achieving carbon neutrality by 2050.
I accept the report is not a project proposal but it nevertheless draws attention to the need to clarify public policy. I am reminded of the recent Diarmaid Ferriter programme which dealt with the extraordinary construction work done on the Ardnacrusha dam. The view at the time was that the dam would meet our electricity needs forever. We have to base public policy on facts to the greatest extent possible but it appears to me that clear direction is badly needed. If we are to aim at becoming an exporting nation we should have the courage to build the necessary infrastructure and seek European Union support for our project. I do not mean this as a criticism of Mr. Byrne because that is not his job but his assessment adds to the argument for some kind of long-term vision.
The case for increased interconnection is very strong. I am aware that EirGrid has been subject to criticism and pressure in this regard. Perhaps Mr. Byrne can tell us whether there are down sides to increased interconnection, apart from the obvious one of building the infrastructure. We are currently experiencing a reduction in electricity demand and generation capacity appears to be more than sufficient for our needs. Interconnection would, therefore, be valuable in terms of developing renewables and in exporting spare capacity. Mr. Byrne noted this was not a good year for wind. Is this something for which we should plan and, if so, how would we go about it?
The report takes an analytical approach to assessing costs, whereas we gathered considerable information through consultation. Will EirGrid embark on a consultation process or does it see its report as an end in itself? What kind of feedback does it expect?
We need to end the debate on nuclear power. Unless I am missing something, it appears to me that the hard evidence indicates that Ireland is too small and nuclear power is too expensive to produce. The information provided is salutary. While the pro-nuclear lobby keep telling us nuclear power is cheap and Ireland should adopt the nuclear option, it does not appear to be a cheap form of power. Capital costs and annualised costs are significant. Perhaps I am being ideological but at some point we will have to indicate that nuclear power is not an option. If anything, the report reinforces my view.
Does the delegation wish to respond?
Ms Bernie Gray
I will respond in a general sense, after which Mr. Byrne will provide a more detailed response to some of the issues raised concerning the report. While EirGrid recognises its role in Ireland Inc., as Mr. Byrne stated and Deputy McManus, we are not policy formulators. We have an independent, authoritative voice. This report may not be popular in terms of its independence or authority in reviewing the issues or raising questions. It is, nevertheless, indicative of the stance EirGrid wishes to maintain in order that citizens know that when we produce a report we are wholly independent and rational in our assessment. That is the context in which this report was born.
The report raises difficult issues in terms of what the options are for Ireland. To return to the Chairman's suggestion on spatial strategy for grid development, EirGrid would welcome such a development. To some extent, the company has tried on a mini-basis, as it were, in its assessment of applications in gate 3 to try to group applications in a manner that optimises the use of the existing network and provides for the lowest cost option in procurement of additional network. This falls a long way short of the definitive outline of a spatial strategy which is adhered to and with which people can align themselves. Nevertheless, in our role as an independent authoritative voice, EirGrid would certainly support any such proposal.
In terms of the identification of nuclear power as an option in the report, again EirGrid is not a policy formulator. Our responsibility is to provide a safe and secure network. This requires that we at least examine the benefits or otherwise of all options. If, from a policy formulation point of view, nuclear power is not considered an option, that is fine. From a transmission operators' point of view we need to assess all the options. Nuclear power must be considered in that context, if only to discount it. At least then we will have discharged our responsibility.
Mr. Dermot Byrne
Members should alert me if I fail to respond to any of the questions. On Deputy Coveney's question as to the viability of the different options, a key point arises regarding the technical viability of each of the options. The report notes that the study is not a technical evaluation. In this context, I refer to the all-island grid study carried out some years ago which deemed potentially viable a scenario of achieving 40% renewables on the Irish network, subject to further technical studies being undertaken. The reason was that the actual technical performance of wind turbine generators is much different on a system from what is known as conventional rotating plant. As the inertia, the physical weight and mass of the turbines, is much less, it potentially gives rise to highly significant system stability or frequency response problems. The issue is highly technical.
In the context of the all-island grid study and the 40% renewables target, EirGrid and our Northern Ireland company, SONI, recently completed a major, ground-breaking, all-island study, one which has never been done elsewhere. Tomorrow, we will brief industry on this work, which shows that we can reach the 40% target without compromising system stability. While certain steps must be taken to make this target viable, it is a feasible objective. This ground-breaking study has been completed and shows the 40% target is technically viable.
What types of steps need to be taken?
Mr. Dermot Byrne
Wind farms are connected both at transmission and distribution level. At distribution level, to protect the equipment, one has protection relays known as ROCOF — rate of change of frequency — relays. The problem, as we approach the 40% target, is that if a large generating unit trips off the system, owing to the fact that the inertia or weight of the system is less, the frequency will fall rapidly — in a matter of milliseconds. What this does with the rate of change of frequency or distribution level is that it trips them off. This produces a double whammy in that one loses, let us say, a large combined cycle gas turbine plant such as the new facility in Cork and instead of the cavalry coming in behind to restore the frequency, one then loses a raft of wind turbines which are connected at distribution level. One then enters a negative spiral which can black out the system.
One of the steps we must take and on which we have started to engage with ESB Networks and NIE in Northern Ireland is to examine alternatives to these ROCOF relays. It would not be acceptable if, every time we lose a large plant on the system, the rest of the plant falls off the system causing it to black out. This is one example of the type of technical issues we had to address.
When we project forward to 2035——
Who produced the report to which Mr. Byrne refers?
Mr. Dermot Byrne
We commissioned three different parties to do the report. Siemens PTI did one part of the analysis, another company based at University College Dublin, ECAR, did a second part and ECOFYS did the third part. Professor Mark O'Malley from UCD and Peter Harte of SWS were the peer reviewers of the study. As I indicated, we will brief industry on the results at a conference tomorrow. This is good news because it means we have proved the technical feasibility of the 40% renewables target.
I apologise as I must leave the meeting.
Deputy Michael Fitzpatrick took the Chair.
Mr. Dermot Byrne
I have given some context for the technical viability of the different scenarios. We believe all three scenarios are individually feasible, subject to a more detailed technical feasibility study being done at a future stage. That addresses one of the questions.
The good news is that policymakers are not required to make any major decisions in the short term. Clean coal technology is very much in development and while considerable investment is being made in this technology in Europe, we do not expect it to be commercially proven before the end of the decade. Commercial decisions on clean coal technology cannot be taken until the case is proven. In the meantime, we have other options, one of which is interconnection. The study shows that further interconnection is economically feasible by 2020.
In the gas scenario shown, we project that the volume of gas used in Ireland will reduce significantly in the period until 2035. This is because we are significantly increasing the amount of renewables on the system. In the context of the 2035 to 2050 framework, we have time to evaluate the research and development taking place on clean coal technology. We are well advanced on gate 3 and have started to make offers. The process was subject to a consultation process by the regulators and the issues were teased out, but it is under way now. We are where we are now and the decision to move ahead was made on that basis. There is also an issue of fairness for the people in the queue. The question really concerns what happens after gate 3. The Deputy mentioned a possible gate 4 and asked whether there was a different way to do it, perhaps taking the spatial strategy on board. As Ms Gray said, we would welcome that because it helps us in the grid development process. We take on board the points made by the Chair on offshore zoning.
To comment on the questions raised by Deputy McManus, I appreciate the comment about our work complementing the work of the committee. That is important for us. As she said, it is not a project proposal. We agree there is a need for a clear public policy. However, it is important that this, what I call storming work, happens also and that different bodies produce work like this, based on sound analysis, but open to challenge. In our report, we have put forward our assumptions and figures for costs and anybody is free to do a "what if" analysis or to disagree with our figures and plug in their own. That creative interaction that takes place in the industry will bring about the norming or crystallisation of the policy on the future vision. However, we are not there yet and there is still much work to be done in this area. With regard to offshore grids, even if nothing else remains to be decided, there is much technical and technological work to be done around high voltage direct current, HVDC, and how it will work in an offshore grid. That work is happening. It is fantastic that there is so much good investigative work going on. Perhaps Dr. Hare would like to comment on some of the technology issues.
Dr. Phil Hare
I would like to make some points about the nature of interconnection and its impact. A very good point was made about the value of interconnection in a renewables market and the question was asked on the downsides. The downside occurs when the Irish market inevitably becomes exposed to the economic characteristics of the neighbouring markets.
We have had that experience already.
Dr. Phil Hare
Yes. Inevitably when the wind does not blow, Ireland will have to import high priced electricity from the British market. The wider geographical nature of interconnections to France would mitigate that somewhat. When the wind blows and Ireland has power to export, it is generally true that the wind will also be blowing in the British market. Therefore, the wind energy will be worth relatively less at those times. In the context of a wider European market, this analysis is based on a general boundary condition of the greater European market, but additional work we have done suggests that the wind is correlated significantly into mainland Europe as well. Therefore, the conclusions are supported. I do not say they are bad; they just come as part and parcel of the proposition of what greater interconnection will provide.
Mr. Dermot Byrne
The other downside is the cost of interconnection. We are building the current interconnector, the east-west interconnector, so we understand the costs involved. Like committee members, I believe Europe supports further interconnection and that we will see considerable support in the future. We are getting a support grant of €110 million from Europe for the east-west interconnector, which is significant. I expect there will be further supports for further interconnection.
On whether we need to plan for the variations in wind, we already do to a certain extent. The fact that wind can be zero at any point means we will always have more plant on the system than would be needed just to meet the load. This will help us manage the variation in the wind that takes place. It just means we will burn more fossil fuel or gas or import more in the years when wind is lower than we might otherwise have to do.
Ms Bernie Gray
It is also important we have good weather forecasting.
Mr. Dermot Byrne
That is critical.
We certainly talk about the weather a great deal.
Mr. Dermot Byrne
We are all experts.
I thank the delegation for the presentation. Dr. Hare mentioned exposure to import costs when the wind does not blow. Is that not an argument for increased pumped storage, like the hybrid version Deputy Coveney mentioned, so that we limit exposure to the cost of importing expensive fuel? There is a balance to be struck about how much is needed. I may be completely off the mark, but is there an argument for trying to supply as much energy as we can domestically through microgeneration within the system and then tailoring our interconnection capacity to what we need on a bad day, with some headroom? Would that limit what we can export? There is a fine balance to be struck, but it seems the hybrid model has the most merit.
With regard to the competitiveness of each system, did the EirGrid study factor in the cost of carbon credits if there is a need to buy them? The three systems on the right in the slide would reduce the amount of carbon credits the country would have to purchase. I am not clear from the last slide whether the cost of carbon credit has come into play. EirGrid changes its brief in this scenario from just being manager of the grid in Ireland to being an importer and exporter of electricity as well as everything else. Is it prepared for that?
Mr. Dermot Byrne
I will tackle the last question and then hand over to Dr. Hare and Mr. McDonnell for the others. With regard to our brief, we are currently building the east-west interconnector and will operate that interconnector in 2012. We are already planning for that and putting in place the systems and procedures to facilitate the trading of electricity over that interconnector. We will not be the party buying and selling electricity. We will make the infrastructure available to the traders. We will also put in place the auction platform which will facilitate people in buying capacity on it and buying across the interconnector. We are market neutral and get our authority and independence as a result of that. We will not trade on the interconnector, but will make the interconnector available. We are gearing up for that now. Once the platforms are in place, they will be in place for any further connections that come on stream. I will ask Dr. Hare to deal with the issue of the cost of carbon.
Dr. Phil Hare
The cost of carbon is calculated in the same way in all of the scenarios.
I also asked about the hybrid model and pumped storage.
Dr. Phil Hare
Storage can be a valuable part of the approach to dealing with wind intermittency. The challenge in this regard is trying to manage the intermittency of almost 12 gigawatts of wind and of having an appropriate storage capacity that can deal with the fluctuations of that, from very low levels right up to 12 gigawatts. We factored 2.2 gigawatts of storage into our calculations on the storage scenario and that made a significant difference. While it did not resolve the problem, it was of significant assistance. I am, therefore, of the opinion that it could be valuable.
Mr. Philip O’Donnell
We were anxious to include a wide range of technologies and storage is obviously one of these. We drew up six portfolios but we could have drawn up 26 of them because there are many different combinations. As the Deputy stated, a hybrid would be another possible combination. Interconnection is important, with high renewables for storage as a benefit as well. Perhaps there is a combination in this regard which might provide a more optimal outcome.
The report did not specifically consider microgeneration. However, it did examine the position with regard to high wind, which could include the microgeneration of energy, in households and on farms, through the use of wind. The other form of generation, which is quite common, would be small CHP-type generation. Again, the latter could be covered under gas and perhaps some elements of biomass. We did not give specific consideration to these but the could be included under the larger technologies we examined.
Would our guests agree that we should be examining the possibility of trying to create a common market for energy between Ireland and Britain? Dr. Hare stated that the more interconnection there is, the more the characteristics of the market to which one's country is connected are introduced. Potentially, this could be good for Ireland because it would introduce greater competition and give rise to the possibility of lower prices. Traditionally, energy prices here have been higher than those which obtain in the UK. In addition, however, the characteristics of our market would be introduced to the UK. We would, therefore, be in a position to play to our strengths in the context of being able to produce renewables more efficiently than is the case in most parts of Britain, with the exception of Scotland.
If we are serious about producing the necessary volumes of energy from intermittent sources of power such as wind, it would surely make sense for us to be part of a larger pool in order to sell such energy. If we were part of a larger pool, that is, a single market involving the two islands, we would not be obliged to rely on interconnection charges. If we are projecting forward to 2035, then consideration should be given to the matter to which I refer. I accept that historical issues, such as Anglophobia, often affect major policy decisions and I recognise that independence is extremely important. However, the reality is that we are trying to create a common market for energy across the European Union. Surely the place for Ireland to start in that regard would be to try to create a common market between it and Britain. I foresee major opportunities for the renewables industry here to make that scenario become a reality. Have our guests given any consideration to this matter?
Mr. Dermot Byrne
We have to consider it in the short term, particularly as a single electricity market already exists on the island of Ireland. The latter is quite a groundbreaking development. Due to the fact that there are different market structures on both sides of the Irish Sea, questions arise as to how we might make best use of the interconnector capacity we possess by coupling the two markets. In the short term, we are concerned with regard to market coupling. This might mean changes to the Irish market or to the market in Great Britain in order to enable us to trade right up to one hour ahead. The shorter the gate closure time, the more efficient will be the trading.
Ideally, there would be a single market and this would be the much bigger single European market. In order to try to progress towards the ideal of the single electricity market for Europe, we are examining the position with regard to regional markets. Ireland is participating in a consideration of the possibility of establishing such a market that would involve it, France and Great Britain. We are also carrying out work within the European Network of Transmission System Operators for Electricity ENTSO-E, with which Mr. McDonnell is involved. Perhaps he will brief the committee on that work.
Mr. Philip O’Donnell
We are engaged in a market and network modelling exercise within ENTSO-E. In the context of the regional part of this, Ireland is a member of the North Sea Group. The latter consists of Ireland, Great Britain, France, Belgium, Luxembourg, the Netherlands, Denmark, Norway and Sweden and is, therefore, quite large. We are currently engaged in detailed modelling in respect of 2020 and beyond. In that context, we are considering the kind of interconnections that would be required among the countries to which I refer in order to, for example, integrate high renewables. This planning is being carried out in conjunction with our European colleagues.
Yes, but different market structures obtain. In respect of renewables, for example, we have the REFIT system and the UK has a rock system. It is difficult to compare like with like because various countries have taken decisions at a domestic level to promote different forms of renewables by means of providing particular incentives. It is extremely difficult for a wind farm in Ireland to compete directly with a wind farm in Scotland because the support structures in place in the two jurisdictions are completely different. As well as establishing interconnection, perhaps we should consider introducing similar market structures — in terms of support systems — in Britain and Ireland.
I am of the view that we need to work with France, the Netherlands and the other countries to which Mr. O'Donnell referred on projects such as the supergrid, etc. Many of the problems relating to the energy market in Ireland would be solved if a common market with the UK were established. In such circumstances, the huge percentage of domestic energy produced from renewables in this country would suddenly become a much smaller percentage of a market involving Ireland and Britain. If there were a free-flowing system involving a number of interconnectors, it would make matters much more manageable.
I accept there are political aspects to this matter. If, however, some of us are considering going down that route, would it make our guests' lives more difficult?
Mr. Dermot Byrne
That is the ideal because then one would not have artificial blocks to trading. Such blocks could remain in place because of the different structures that obtain. As a first step, we must consider market coupling arrangements as opposed to just introducing wholesale changes to the market. Inevitably, however, we will move in that direction. There is a great deal of work taking place in Europe with regard to establishing common market principles.
Are there any actions our guests would like us to take?
Mr. Dermot Byrne
That is a very good question. We see our work as being complementary to that already carried out by the committee. Our report represents an input into the policy-making process. In that context, we deliberately did not set down any recommendations. We ask that our report be noted and we hope that it will provoke further debate within the industry and also the policy-making process. That is what we expect from this, rather than anticipating any specific set of actions or recommendations to flow from it.
I thank the representatives from EirGrid for their worthwhile, interesting, stimulating and technical presentation. We have learned a great deal from it. I also thank them for placing their work in the public arena. It is important that companies such as EirGrid should place work of this nature in that arena in order that policy makers might be given the opportunity to consider it in the context of the policy-making process. If there is no other business, we will bring proceedings to a conclusion.
The joint committee adjourned at 4.30 p.m. until 2.30 p.m. on Wednesday, 23 June 2010.