Electricity Market: Discussion

We welcome Mr. Michael Tutty, chairman of the Commission for Energy Regulation to the meeting today. He is accompanied by Mr. Dermot Nolan and Mr. Garrett Blaney and they are very welcome.

Members are anxious to have the meeting concluded by 4 o'clock at the latest, as we are obliged to be in the Chamber shortly afterwards. It is not that we do not want to deal with everything raised by the delegates but rather that we are under pressure today.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(i) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. However, if they are directed by it to cease giving evidence in relation to a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person, persons or entity by name or in such a way as to make him, her or it identifiable.

I now invite Mr. Tutty to make his opening statement, after which members will be invited to put their questions to him.

Mr. Michael Tutty

Thank you, Chairman. Hearing that the committee wants to finish by 4 o'clock brings joy to my heart, since along with some other members here we have spent three and a half hours in this room this morning. I am surprised that some have come back to listen further to us.

We have not finished yet.

Mr. Michael Tutty

They have strong constitutions.

The committee asked us to talk about three issues, regional market integration, the PSO levy and renewable energy sources. I will quickly go through the presentation we have circulated to the committee, as I prefer to find out what questions Deputies and Senators really have on their minds.

On regional market integration there is an effort to get one European market in energy. As part of that the countries have been divided into different regions and on the electricity side we are in a region with France and the UK, the FUI region as it is called. We are working together with Ofgem and the Northern Ireland and French regulators to try to develop integration within this area as a first step towards wider integration in Europe. Obviously interconnection is vital for market integration. As members undoubtedly know, there is an electricity interconnector at the Moyle from Northern Ireland to Scotland and we have a project under way to build an interconnector from Ireland to Wales, which is due to be completed in 2012. The UK has an interconnector to France and is building one to the Netherlands at the moment.

We will certainly look to see what we can do on further interconnection in the future. Up to now we were waiting to see whether the proposal from a private company to build interconnectors would go ahead, but it has not, and we shall have to look at what comes later: should the Government ask EirGrid or someone else to build another one or what sort of process should we use?

The benefit of increased interconnection is certainly security of supply. Wind being intermittent, having interconnection facilitates the integration of wind on to the system. We get more competition and more efficient market prices with greater integration. EirGrid has estimated in building the case for the east-west interconnector that there would be a €66 million per annum benefit from interconnection to Wales. We are overseeing the roll out of that project.

We published a document a few months ago which looked at how we would integrate our market more with the UK and France. We only introduced the single electricity market joining Northern Ireland and the Republic in 2007. It is now three years old. We keep being told the market does not want radical changes to take place too soon and wants this to bed down first. Therefore, we are looking, essentially, at how to adapt the market to bring it more into line with the other markets and facilitate trade. First, we must comply with EU regulations and, second, we must maximise the use of the interconnectors but in a way that brings us closer to the target models that are emerging at a European level to integrate all the markets. In particular we are focusing on introducing facilities for intra-day trading in the single electricity market. At present we have to bid into the market a day ahead but we need to get more flexibility into the system to be able to use the interconnectors as much as possible. We are looking at ways of doing that while not changing our basic market too much and also at how we can have day ahead price coupling with other markets. There is an effort at European level to have day ahead coupling of prices throughout Europe, a single algorithm that will cover the whole of Europe. It is an impressive project and I wait to see how it can be done. We are trying to see how can we get a day ahead price in our market in order that we can fit in with what is happening elsewhere. We are looking at adapting our market to get greater integration and greater use of the interconnector that will be in place in 2012.

The PSO levy was introduced in 2002 for security of energy supply, environmental protection and the use of indigenous fuel sources. These objectives are pursued through the support mechanisms of the PSO for certain gas installations, use of indigenous fuels and alternative and renewable fuelled plant. Our role is simply to calculate the costs associated with the PSO schemes the Government has introduced and what the levy should be on the basis of our calculations. We do not have any role in determining who should be subsidised or how much of a subsidy they should get.

The PSO levy scheme in place covers a number of different areas. There are three peat plants, two owned by the ESB and one owned by Bord na Móna, which together have 378 MW of capacity. The alternative energy requirement scheme, the old AER, was a forerunner to the renewable energy feed-in tariff, REFIT, scheme, which has 400 MW of generation, mainly wind covered. The REFIT scheme, which is the successor to AER, has 998 MW of capacity, mainly wind covered, and there is much more to come. There is also the CADA scheme — capacity and differences agreement — with two gas plants. That was put in place in 2005 at a time when there were no proposals to build generating stations in Ireland and a competition was run to encourage two plants to operate and give them a guaranteed price for the output. Aughinish Alumina and Tynagh are the two plants involved.

The actual PSO levy from October 2010 to 2011 amounts to €156.6 million, of which the peat plants receive €78.2 million, the AER scheme €13.5 million, REFIT scheme €27.7 million, CADA plants €14 million and there is a further amount of €21.2 million, partly for administrative costs but also the carryover from previous years when not enough was collected. These costs are estimated in advance and afterwards we have to ascertain whether the figures were right or wrong. There was a carryover in this particular year. I note the Minister has indicated he is reviewing the peat PSO levy and that he will be working with the CER and others on this topic in the coming months.

We have had very significant development of renewables in recent years and are among the world leaders in the top tier of countries for renewables. About 15% of our electricity comes from renewables and we are working to achieve the Government target of 40% from renewables by 2020. At present we have almost 1,500 MW of renewables on the system which compares with approximately 600 MW in 2004, which is significant growth. Our decision under the Gate 3 process to provide connection offers to a further 4,000 MW of capacity, which is almost entirely wind, will bring us up to and above the 40% target. Even if a significant amount of that 4,000 MW of extra wind connections does not go ahead we will still be able to achieve the 40% target. Of those that are getting connection offers, 3,200 MW are on-shore and 800 MW are off-shore wind. The Gate 3 connection offers have been going out from December 2009. A liaison group brings together the developers, the Irish Wind Energy Association, ESB Networks and ourselves to ensure the process works well. Also EirGrid's Grid 25 proposals are designed to achieve the 40% renewable target for 2020.

I have included a slide which shows the geographical distribution of the wind farms. It is clear the west coast is the main area but there are many other wind farms in other places. Those are my introductory remarks and I look forward to questions.

I thank Mr. Tutty.

I welcome the delegation. I appreciate the time is short and that members will want to ask questions. I am aware that Deputy Leo Varadkar has asked about the PSO levy at another committee. I will concentrate on the first issue which revolves around regional market integration. A growing number of people are concerned that as Ireland's percentage of power generation from wind and renewables increases, we will have to export surplus power and, for obvious reasons, will need to build interconnection to facilitate that. If we want to continue past the 40% renewable target, to which we all aspire, there is an issue of Irish consumers subsidising the cost of producing power from wind to export; in other words, Irish consumers subsidising the cost of green energy for British or French consumers. The more we export, especially if we are producing a large portion of our power generation beyond the 40% target from offshore power, and if we are paying 18 cent per kilowatt hour, which is multiples of what it costs to produce power from either on-shore wind or conventional sources, whether gas or whatever, is there a danger of Irish consumers paying a high PSO levy to subsidise the selling of power to consumers outside of Ireland? That question requires an answer in terms of our long-term planning. I understand the rationale for exporting power and so forth but it is an issue if we are subsidising the production of that power in Ireland, especially in the case of offshore power generation which is very expensive. Irish consumers must be aware of what they are paying for and whose power they are subsidising.

My second question also relates to interconnection. Mr. Tutty said there are moves towards day ahead coupling of pricing. How can one have coupling of pricing if one is paying someone a guaranteed price that is over the market price? One cannot couple those prices because they are guaranteed. If someone is producing power for the system from a wind farm under a REFIT price, one cannot couple that. They have a deal for a certain number of years at a set price. One could do it if the market price goes above the REFIT price but I do not see how one can do it the other way around. Is it not the case that Ireland should consider trying to couple a support system for producing power from wind with Britain, so we can have essentially a common market to import and export green energy as appropriate?

My third question is about regional market integration and the issue of storage, if and when we move beyond the 40% target for electricity generation from renewables. I keep an eye on the weather, particularly in the summer in terms of wind speeds and so forth, for sporting reasons. If Ireland has excess energy coming from renewables, it is likely that Britain will be generating a great deal of energy from renewables at the same time given the geographical spread. There is an assumption in the industry that when Ireland has more green energy than it needs, there will be a market in Britain all the time for what we produce at a price that will give us a profit. I do not accept that logic. Will Mr. Tutty comment on that? For that reason I believe large-scale energy storage in Ireland is an important component if Ireland is to become a big exporter of power. We must be able to produce power and store it until we can sell it at a price that will yield a profit. I am a big supporter of Ireland being a major green energy exporter in the future and that is the vision of the current Minister. Without a storage element that thinking is flawed, certainly if we move beyond the 40% target. I look forward to the replies to those questions.

I thank the representatives for appearing before the committee. The idea of market integration across Europe is very welcome and is something we should support. There has been much discussion at political level about the concept of a super grid for renewables across the European Union and beyond. Has Mr. Tutty examined this and what are his views? As he is probably aware, we have asked for submissions regarding the post-2020 situation. We received some but I believe a great deal more work must be done in that area. We tend to be fixated on the 40% target and it is welcome that it is hoped we will meet it. We certainly have made good progress.

A point that arose at the other meeting was the idea of using the recession positively to carry out a programme of closure of older power plants. It was suggested that this would be more cost effective to consumers. Will Mr. Tutty comment on that?

I have a problem with the gateway system being implemented by the regulator. I have real concerns about the concept that whether one gets a licence depends on how long one is in the queue. There appears to be a lack of strategic approach when it comes to managing this and getting the benefits. I will be parochial and cite a situation in my constituency. County Wicklow is heavily afforested compared with other counties. A local company processes timber and makes various products for export as well as for the home market. It could have a heat and power unit that would make it self-sufficient as well as the nearby village that depends on it for employment, but it cannot get a grid connection from the ESB. The company has met the regulator and the ESB and, essentially, the advice is that as many people who have got through the gateway are private operators who cannot or do not want to raise the money, to use them and buy access through them. That smells of the same thing that got us into trouble — land speculation. It is equivalent to licence speculation and I do not believe it deals with the issues on the ground. I offer it as an example of where good strategic thinking would deliver the results the country needs, be it on a small scale as in this case or on a larger scale, in terms of how it builds capacity and uses its resources. It is preferable than simply saying a person has been two, three or five years in the queue and granting them the licence on that basis. I have problems with that. I accept it is difficult from the regulator's point of view but we should be much smarter in our approach.

Significant attention was given this summer to the 5% increase because of the PSO, and the Minister said he would examine the peat element. Most people find it difficult to accept that it is such a significant feature in the PSO. I presume the regulator has had meetings by now with the Department. Is he saying there have not been any meetings? I would have expected this to be the type of review that would start immediately given the strong public reaction. Of itself, 5% is probably manageable for many people but it is a nightmare for those who cannot manage it, whether one is in the commercial sector or an individual domestic user. Efforts should be made now to tackle that area and there should be meetings between the regulator and the Department. Have there been such meetings and, if so, how many?

I thank the Chairman for allowing me to attend this meeting. I am not a member of the committee but there is a huge overlap between climate change and energy issues. I thank the witnesses for spending the day here. I am aware there was a long session this morning.

Many of my questions are similar to Deputy Coveney's. Although we had not co-ordinated on this, we obviously think alike on the matter. Over the summer I had the opportunity to examine the economics of this as well as the ideology. An ideology is worth nothing if the numbers do not add up, and that causes me some concern. The CER has been helpful in giving me information, especially Mr. Eugene Coughlan. I am grateful for that. I appreciate that some of our questions are policy related so the witnesses are probably quite constrained in answering them, but perhaps they will do so in so far as they can.

I am aware the Minister is reviewing the peat element of the PSO levy. I get the sense that it is under review in order that no decision need be made, not that it is under review in order that a decision must be made. Bord na Móna claims it is not opening any new bogs. It is clear that peat is a filthy fuel from a carbon point of view and it is reasonable to say the regulator will phase it out over time and replace that investment in the midlands with something else. There do not have to be job losses for the midlands. Other ways can be found to create sustainable jobs rather than subsidising unsustainable jobs that destroy the environment, which does not make sense. Do the witnesses have any thoughts on how this review process is working? Is it a real review and will there be a deadline for decision? What will be the CER's involvement in the review? On the CADA element of the PSO level, does it expire at any stage or is it there forever?

My final question relates to REFIT. When one examines the economics of onshore wind, it appears to make a great deal of sense. It varies but the REFIT is approximately 6.9 cent per kilowatt hour, and the cost of producing power in conventional plants is a little less than that. If one accepts that oil and gas prices will rise, that small subsidy makes a great deal of sense because at least in the longer term we will have those wind farms and be able to produce energy perhaps more cheaply than we can from gas, coal or oil. That is the theory and it probably is correct. I can see the great potential of onshore wind energy as there is plenty of it in Ireland.

However, I am a little concerned about the other technologies. Take the example of offshore wind, where there will be a REFIT of 14 cent per kilowatt hour. Instead of paying a subsidy of 1 cent, we will be paying a subsidy of 7 cent or 8 cent. That is a massive subsidy as it could be 50% of the cost. Does the regulator have an idea of how much that would add to the PSO levy, at current prices, if the 800 MW came on stream? Something similar would apply to geothermal. Some of the people involved in that project are seeking a REFIT of 27 cent per kilowatt hour, and some people in microgeneration are seeking the British REFIT, which is approximately 40 cent. We should think very seriously about going down that route and examine all the projections and costs. It would certainly push up prices. Whatever about oil and gas prices rising over the next five, ten or 15 years, the chances of them doubling or tripling, particularly in the case of gas, are quite small. One is therefore facing a huge potential additional cost to the consumer. We must know how much that cost would be. We must carry out projections of that cost and how it would damage jobs and business.

We must also examine the social justice of it. Essentially we are saying that if somebody is going to build an offshore wind farm or some other form of plant, the public will pay for that investment through the PSO levy, which is a flat subsidy on everyone's bill. The public will pay the capital costs of the investment over 15 years and at the end the developer can take all the profits. Essentially, the public, through a flat levy which hits the poorest hardest, pays for the investment and at the end of it the developer has 100% ownership of the plant. There is no economic sense or social justice in that. From where is this policy coming? I am anxious to hear the regulator's comments in that regard. I am sold on the onshore wind and energy efficiency aspects of it but in the case of the other technologies, I have serious concerns that we might be creating a green bubble to rival the property bubble whose effects we are now experiencing.

I have a question on the smart metering trials that are progressing. When is it expected to have a wider roll-out of those trials? Is there a timetable for the adoption of smart meters? Will the decisions being made by the regulator have an impact on the value of the investments already made in good faith by renewable energy companies?

I thank the witnesses from the CER for attending. Have they noticed an effect from these recessionary times on the level of interest or investment in wind power, given the need for credit and so forth? How might that have impacted on such activities? My second question is about net metering. One hears a great deal about smart metering, and net metering is probably part of that. From the point of view of microgeneration, the Minister is working on this and a hopeful announcement is expected. Is that something the commission has a strategy and plan to introduce and can the witnesses give the committee some details about it? Where do smart metering and net metering fit into the commission's overall strategy?

I wish to focus on the interconnectors. The commission's presentation document mentions, with regard to the Gate 3 conventional projects, an additional 350 MW interconnector to the UK. I seek clarification on that. Is it in addition to the 500 MW interconnector already being constructed? Is the interconnector currently being constructed between Dublin and north Wales the 500 MW interconnector?

Mr. Michael Tutty

Yes.

The presentation mentions an additional 350 MW interconnector. Will Mr. Tutty give the committee more information about it? Are there any long-term plans for an interconnector to mainland Europe, again to enhance our security of supply, broaden our markets and increase our price competitiveness? The more interconnection we can afford and achieve, the better for consumers in this country, particularly as regards energy security and price competitiveness.

Mr. Tutty mentioned a figure of €66 million as a net benefit from the interconnection. Could he explain how that is broken down or how he arrived at that figure?

Mr. Michael Tutty

On the question of exports, from our point of view the 40% target can be achieved without significantly depending on exports. It is when we go well beyond our domestic needs, and one hears people talk about us becoming the Saudi Arabia of the wind industry, that exports become involved. If we are just considering our own needs, and there might be some that needs to be exported at particular times, that is not a particular problem. We believe that if we are to pursue an export policy that goes beyond catering for our own needs and we build wind farms to be able to export, much study is required of how it can be done, the economics of it and who is paying for it. I fully agree with Deputy Coveney on the need to study this. We have been anxious for it to be studied, because it is well beyond our remit as it relates to the employment agencies and various others. My understanding recently was that the Sustainable Energy Authority of Ireland was going to co-ordinate a study on it. At present, however, we are focused on meeting our 40% requirement for 2020 and building the networks to achieve that. What comes after that is still subject to discussion.

Many people want to build wind farms. There are many people in the queue beyond the 4,000 MW we are dealing with, so it is a question that must be answered then. Do they start coming on the system and, if so, on what basis? My understanding of the REFIT scheme is that there is no intention at this stage that REFIT subsidies will go beyond what is needed to achieve our 40% target. Nobody is considering an unlimited REFIT scheme to give subsidies to everybody who might wish to come into the system. It is something for serious study at this stage, before we launch into giving connection offers to wind farms going beyond the 40% target.

Storage would undoubtedly be a significant element at that stage. It would be useful to develop storage but there is a question about the economics of storage. My good friend Professor Mark O'Malley in UCD keeps saying storage is crazy and does not make any economic sense as it is too costly.

He does not say that when we move above 40%.

Mr. Michael Tutty

I thought his view on storage was constant. If it becomes economic to have storage, particularly if some commercial operator provides storage, it would certainly be of benefit but at present the economics of pump storage are suspect and it is the same with any other form of storage.

Electric cars were mentioned. That may be a mechanism for using wind at a time when the output is not needed for the normal domestic system. Again, that must be studied, that is, how we accommodate electric cars, when they will be topped up, etc.

I refer to day ahead coupling with guaranteed prices. The guarantee is the guarantee of the difference between the market price and the fixed price under the schemes. I do not see a difficulty having day ahead coupling with these schemes because currently, we do not have day ahead market price. However, each day we have a market price and we calculate the subsidy on the difference between that market price and whatever price is fixed in the REFIT scheme, the AER scheme or the peat plants.

Deputy Coveney talked about perhaps coupling our support system with the UK. It has gone down a different road in terms of the type of schemes it has adopted. My impression is that its schemes cost a lot more money than ours and that it has a much more generous set of subsidies than we have. We have already seen the difficulties vis-à-vis Northern Ireland in terms of trying to have a single market. It has a different support scheme. I have seen no move to try to harmonise them currently. As I said, my impression is that the UK is much more generous than we are. That is certainly what all the people in the Irish Wind Energy Association tell me and what they will tell me tonight when I arrive in Galway for their conference.

The supergrid is a great idea. We have been involved in discussions, and EirGrid is heavily involved in discussions. The real question is what the economics of the supergrid are. Who will build it? Who will pay for it? How will the money be collected? I have yet to see any serious cost benefit analysis of how the supergrid will work. In principle, it looks great. Eddie O'Connor was the first person to talk about the supergrid. The Minister is working at European level to see if we can get some European financing into the supergrid but until there is something more concrete in terms of cost and how that cost will be recouped, we will not move on the supergrid. However, EirGrid is heavily involved in looking at these issues.

I refer to the closure of older power plants. In the way our market works, the older power plants, the more costly ones, are only called into action when all the cheaper power plants are already being used. They push up the price at that time but only because we need them. In terms of getting rid of them, unless they are replaced by other plants, we will have a security of supply problem. We still have surplus capacity and we have two new power stations coming on stream — Bord Gáis's power station at Whitegate and the ESB's one at Aghada. They will reduce the running time for the older plants and will automatically bring down the price because those older plants will not be run.

I am not sure what John Mullins was talking about this morning in saying that it would bring down price if we closed those old power plants. By bringing a new plant on stream, he is helping to push them out of the running order.

There is still a cost even when they are not being used. That is what he was talking about.

Mr. Michael Tutty

No. We have a capacity payment system. They get a payment if they are available to run. The overall amount of the capacity pot is determined by our needs, by the actual amount of generation we need each year. If there is more generation on the system than we need, that pot will be spread over a larger number and everyone will get less. From that point of view, John Mullins's new plant will get a little less if there are other plants on the system which he would like taken off it but which may be needed at particular times.

We cannot say that a power station must close down. That is a commercial decision for the power stations but the less they are run, the less money they will get and the more incentive there will be for them——

There is still a cost whether they are run or not because they are there as spare capacity. The argument is——

Mr. Michael Tutty

There is no cost to the consumer in the sense that the capacity pot, about which I talked, is spread over all those generators. It is determined on the basis of the actual demand that will be there, the need for capacity each year. If there is excess generation available, then each generator will get a little less money from this pot but the consumer is not being charged any more than the total amount in the pot. If there were fewer on the system——

The pot would be smaller if there were fewer on the system.

Mr. Michael Tutty

No, because the pot is not determined by the amount of generation on the system but on the amount of demand in the economy. If there is excess capacity, then each generator will get a little less than if there was less capacity. However, the total amount in the pot and the total amount charged to the consumer does not change.

The corollary of that is that Mr. Mullins is suggesting that those older power plants be closed so that his newer ones can get more of the pot.

Mr. Michael Tutty

Exactly.

Could we not call his bluff by closing the old power stations, reducing the size of the pot and passing the saving on to the consumer?

Mr. Michael Tutty

Do we tell Endesa to close down the two power stations it bought from ESB?

This is the problem.

Mr. Michael Tutty

It is trying to build new ones which will be more efficient. It will then close down the older ones.

Is that Tarbert and Great Island?

Mr. Michael Tutty

Yes.

When will they close?

Mr. Michael Tutty

When Endesa builds new power plants.

Is it not building a new one in Tarbert?

Mr. Michael Tutty

A number of plants have been closed down.

The gate system was introduced to try to make the system more efficient because before that, it was on a case-by-case basis. Until the next one on the list was dealt with, all the ones behind had to wait their turn. It could not continue that way. We thought long and hard about——

Why could it not continue on a case-by-case basis as people applied for grid connection and where the best proposals got the first grid connection?

Mr. Michael Tutty

What are the best proposals? What was being done was——

With respect, that is the job of the grid operator and the CER. The best proposals are the ones that have the most consistent wind speed, are closest to the grid and require the lower cost for grid connection. There is a whole series of pretty straightforward factors.

Mr. Michael Tutty

Our feeling was that if we had to decide on them on the basis of doing an analysis of each project and on which was best from an overall economic point of view, we would spend much time in the High Court defending ourselves against those which complained that we did not calculate their one correctly, etc. We brought in a gate system so that we would group things together and get things moving on a group basis rather than on an individual basis because it was already clear five years ago that there was so much interaction between people in a particular area, the offers had to be revised regularly and things were not moving. Gates 1 and 2 went very well. We are into a much bigger gate at the moment. The people who are outside gate 3 are all complaining that they would like systems which would bring them into the gate.

And rightly so.

Mr. Micheal Tutty

Yes, but——

We are saying to a company which comes to Ireland, has a lot of money to spend and has a good site which it has purchased to forget it and that it must buy a site that is not as good from someone in the queue. That is why there is the kind of speculation whereby people who have no intention of ever building a wind farm are looking for grid connection.

Mr. Michael Tutty

If the people in gate 3 do not accept their connection offer, we will look at replacing them. If they are so bad that they cannot get financing from the bank, because their economics do not stack up, they will be out.

They will sell it on to someone else. That is the point.

Mr. Michael Tutty

They can sell their present site but if it does not work for them, it will not work for someone else. In regard to the particular issue about which Deputy McManus spoke of being able to sell on one's connection offer, one cannot just sell to someone else on a different site in a different area. We have said that non-wind connection, such as combined heat and power, CHP, or biomass, because we would like to promote something other than wind, can come in ahead of the rest of the people in the queue who are outside gate 3. We are quite happy for a connection offer to be issued to that particular company.

The difficulty in the area is that there is no spare capacity beyond the wind farms that are already in gate 3. We would find it difficult to say to the people in gate 3 that we are leaving them aside to bring someone forward. To the extent there is capacity in any area and there is someone with CHP or other non-wind renewables, we want to facilitate them.

I am glad to hear that. The message is that if one has something one wants to develop, which is not wind, one will have to buy off some operator who has the offer but is not going to develop the wind farm.

Mr. Micheal Tutty

If there is no capacity in the area, one either has to wait for the capacity to be built or wait to see if the wind farms, which one thinks will not go ahead, accept their connection offer or drop out. If they are not going to go ahead, the capacity will become available.

Does Mr. Tutty not get my point?

Mr. Micheal Tutty

I get the Deputy's point.

A wind operator will never say it will not go ahead. It will try to strike a deal with someone who is going ahead and say it will cost him or her.

Mr. Michael Tutty

These people — the wind farms — are getting connection offers. If they do not accept them, they are gone.

What is the time period?

Mr. Michael Tutty

From the time they get a connection offer, they must accept it in 50 days. One of the difficulties at the moment is that they are waiting on certain information to be available about the level of constraints in the particular area before they accept the offer. This covers the whole country. They have not got something at the moment that they can accept or reject but I am aware of the case about which the Deputy spoke. We hope they can be facilitated.

I would really appreciate that.

Mr. Michael Tutty

We are not in favour of people being able to sell on a connection. We must provide for locations being changed a little bit, because people have been in a queue for so long, but only within a certain area. From my point of view, one cannot change a wind farm in one place into a CHP plant somewhere else.

Perhaps that is the right thing to do. Mr. Tutty is saying he cannot do it but perhaps he should be able to do it if that is what is beneficial. There must be that flexibility. In regard to the 50 days, what is the timeframe after the 50 days?

Mr. Michael Tutty

If they do not accept the offer, they are out.

Let us say they accept the offer and sit on it. What happens then?

Mr. Michael Tutty

They must pay up something like 10% of the connection cost at that point. They have to put real money on the table. They cannot just sit on it and not pay anything.

Part of the reason the country is in the mess it is in is down to bad planning in regard to hotels, residential developments and so on. It seems that sort of bad planning is the order of the day when it comes to wind farms. If I heard Mr. Tutty correctly, he said he did not want to select the best project because he would end up in the High Court being sued by people who believed they had the best project but did not.

I can only imagine what would happen if local authorities took that view. Local authorities must decide that they will provide for 100 or 1,000 houses per year. Imagine if they said they would take the first 100 or 1,000 applicants, regardless of whether they were in the best place or whether they were connected to roads or rail because if they did not, they would get sued. It is a bit of a cop-out.

That is exactly what has happened with wind. There is no spatial strategy for wind in Ireland. It is developer led. It is wherever one is on the queue. If one is in the queue and has no intention of developing one's wind farm, one can sell on one's place in the queue to someone who does.

Mr. Michael Tutty

Does the Deputy believe we should develop a spatial strategy? We are not in the planning business. It is not our role. Our role is to issue licences to those who apply for a licence to construct and generate.

We are discussing policy here. We are asking for Mr. Tutty's view as an expert in terms of implementation of the policy. Does he believe it makes sense that we will develop 6,000 MW of wind capacity without any formal spatial strategy to decide where it should go?

It is like one-off housing.

That is probably approximately 3,000 turbines. Those turbines will be constructed where developers can buy land cheaply or depending on how long people have been in the queue although, to be fair, that is not quite accurate because in many county councils, there is zoning for wind farms and so on. Would it be helpful to Mr. Tutty in his job to have a national spatial strategy for wind farms?

Mr. Michael Tutty

One of the requirements from the developers point of view is to have an area that has decent wind because if they do not, they will not be there. That in itself is selecting the best areas. As one sees on the graph, the west of the country is the place to be for development rather than east. The developers must develop a project that will make money, so they will go where the wind blows, where they can get land and where they can expect to get planning permission.

Some countries have zoned particular areas for wind farms but we have not. I am sure if one tried to zone particular areas, one would have an interesting public debate with people saying they did not want them in their areas and to try somewhere else.

Part of the cost of facilitating the transition from conventional power generation to renewables and wind, in particular, is the cost of the grid infrastructure to facilitate that. If there is no co-ordination in terms of where turbines are constructed, then there is disjointed grid demand coming from all over the place, depending on where developers want to construct their turbines. As a result, is it not the case that we will have to pay vast sums of money to connect up wind farms that are spread much more sporadically than they would be otherwise if we decided to zone clusters on the island of Ireland as areas where we should be developing wind farms?

Mr. Michael Tutty

In the way we are developing the gate system, we are developing clusters because we are looking at common connections for groups in different areas. That is as far as we can go in terms of achieving spatial planning. Bear in mind, the developers themselves must pay the cost of what we call the shallow connection, that is, getting their wind farm connected.

That determines the level of price support we must give through a PSO.

Mr. Michael Tutty

The level of support is the same whether they have a long connection or a short connection.

Take an average figure for cost of connection.

I must intervene here. We indicated at the beginning that we wanted to be out of here by 4 o'clock or as near as possible to 4 o'clock, and two members, Senator Ned O'Sullivan and Deputy Alyward, indicated they have brief questions. I call Senator Ned O'Sullivan and remind him that we are anxious to be out as soon as possible.

I apologise for coming in so late with a question but I was tied up elsewhere.

Mr. Tutty has been here all day, since early morning.

I will be brief. My two questions relate to Kerry. I welcome the decision by Kerry County Council to initiate a series of public consultation meetings on suitable locations and the parameters to do with permissions for turbines. Did it elect to do that or was it a regulatory matter, and is the CER involved in that?

Is the CER monitoring the proposed LNG terminal project in north Kerry? Is that the CER's brief? How important a contributor will it be to the overall national supply, if and when it goes ahead? Could Mr. Tutty give us an update on it?

I apologise for being late. I also was tied up in other committees. I cannot be everywhere but I would like to have been here for the presentation. All I want to say is that in Kilkenny, where I come from, the county council has its own wind strategy in place. It went out and got consultants to do it. Waterford has another one. A few counties surrounding mine of which I am aware have their own wind strategy, for example, south Tipperary has one as well. It is important to ask whether we are talking about a national strategy or a county one here.

The criterion is simple, one must have wind. That is why the west is favoured over the east because of natural wind coming in off the Atlantic. In Kilkenny, we have identified the best areas for wind by going out and conducting research on it, and we have identified and earmarked those. The other big issue is the grid and access to the grid. Those are the three issues we must speak about.

It will be driven by commercial concerns. This will not happen by way of Government, Departments or anybody else. This issue will be driven by commercial concerns and landowners who have the land and access to the grid. We must wake up and smell the wind, if one wants to see it that way. That is the only way it will happen. That is the way it will be driven, by commercial concerns, by access to the grid and by the wind available to drive these windmills. That is what it is all about.

Does Mr. Tutty wish to respond?

Mr. Michael Tutty

There are a number of other questions I have not responded to yet. If the committee wants us to respond to them in writing——

We could allow a few minutes.

Responding to them in writing would be very acceptable indeed, if Mr. Tutty wants to continue.

Mr. Michael Tutty

If the committee has another ten minutes, I am sure we could finish it.

The peat review, on which we have been talking to the Department, certainly has not been completed. From a practical point of view, the legislation requires that the levy be in place from 1 October for the next year and cannot be changed over the next year, and we are really talking about a change from 1 October next year (2011) rather than any imminent date.

All of these schemes have an expiry date, including the CADA and the peat one. None of the subsidies is forever. I cannot remember the exact number of years, but we can find out, for both the peat and the CADA, what the time limit is. On the CADA ones, it may be up to ten years but I do not think it is any longer than that.

On the cost of offshore wind and other technologies, we are certainly conscious that the higher the subsidy the higher the level of PSO will be. We would like to keep it as low as possible. At many committees in the Oireachtas, we have been asked why we do not go for offshore wind farms and whether it is not better to have them offshore. It certainly is more costly. Provided we get the planning permissions on land, we can develop significantly on land and not have too much offshore. While we would like to see marine and others developed as well, in the short term these need a big subsidy to be economic. Whether in the long term they will become economic is difficult to know, but there certainly are cost elements involved in anything other than onshore wind at present.

There was a mention of the 350 MW interconnector to Wales. That is the one I mentioned that the private company Imera was planning to build. It is still on the table but there is no sign that it is really going ahead.

On connection to mainland Europe, EirGrid has done a study on the possibility of connection to France. It has not done a full cost benefit analysis on it. If the cost benefit analysis stakes up it would be good to go directly there rather than go through the UK, but it is a long way to France and the cable is costly. We would need to be clear that such a connection is the best way to go rather than go through the UK.

The €66 million cost benefit was calculated by EirGrid. Offhand, I do not have the breakdown of it but I am sure we can provide it to Deputy Sargent.

Senator Ned O'Sullivan and Deputy Alyward are quite right. The local authorities are the planning authorities and they determine what happens in their respective counties. We have no role with Kerry County Council in what it is doing, or with Kilkenny County Council.

We are involved in many ways with the LNG terminal. We are involved in getting certain exemptions from third party access for it through the European Commission. We must licence it if it is going ahead. We are certainly in touch with it fully to be aware of the developments there. It has not taken a decision to go ahead as yet, but we are fully in touch with it.

Is a decision on the go-ahead imminent?

Mr. Michael Tutty

I do not think so. That is not my impression. Safety aspects of it are matters we will be heavily involved in too.

I have not covered smart meters. I will ask Mr. Dermot Nolan to deal briefly with that.

Mr. Dermot Nolan

A full pilot study has been ongoing over the course of the past year and a half looking at trial groups which have normal meters and then persons who have all kinds of different special smart meters with each variant on it. The idea is to produce a comprehensive set of figures which would be used for a full cost benefit analysis, which is to be done by the ESRI in tandem with us and which is due to be published in March of next year. At that point, it will be up to the Government to decide, with these figures in mind, how it will press forward and whether, and in what way, it will go ahead. There could be all-singing and all-dancing smart meters or there could be somewhat less sophisticated ones, but that will be a Government decision. Once that decision is made though, it will be in everybody's interest to ensure that roll-out happens as quickly as possible. One of our jobs is to ensure that it is done efficiently and that the cost to the consumer is not too high.

Putting in place an interconnector to France is potentially a very good idea. However, further study would be required. In a scenario where we might export wind energy from Ireland to Britain at a time when Britain might have access to such energy, it must be remembered that this would not be the case in France. As a result, there would be an extra benefit of being able to export wind energy to the French when they might not necessarily have the same correlation as us.

On the issue of the first-come-first-served gate system, when I joined the CER approximately two years ago I had exactly the same reaction and asked why we were doing this. Having wracked my brains and consulted various people, I came to the conclusion that it is the least worst system. It is imperfect but it is the least worst system. Britain has essentially the same system. Against a background where we are legally obliged in statute not to discriminate between different generators, it would be unsustainable to try to identify who was the best generator, the second best and so on. Other countries have also taken that view. It is not a perfect system. However, it is the probably the best single system — regardless of its defects — for ensuring that renewable energy sources are connected relatively quickly.

As was noted in the discussion with Deputy McManus, if someone does not take up their offer they lose it. Generators only have a limited period in which to take up offers and if they do not do so, they lose them. Their offers are then transferred to other generators. It is not a perfect system but, under the circumstances, it is the best available.

Have there been many applicants?

Mr. Dermot Nolan

There is no shortage of applicants.

I thank Mr. Tutty and his colleagues for their submission. I understand that they were involved in a very long session this morning. We came as close as possible to meeting the 4 p.m. deadline set for the end of this meeting. The information our guests provided will be extremely helpful to the committee in its work.

The joint committee adjourned at 4.15 p.m. until 2.30 p.m. on Wednesday, 13 October 2010.