JOINT COMMITTEE ON COMMUNICATIONS, ENERGY AND NATURAL RESOURCES debate -
Wednesday, 14 May 2008

Electricity Network: Discussion with Oceanteam-IMERA.

Chairman

I welcome Mr. Hessel Habersman, chairman, Oceanteam-IMERAand Mr. Rory O’Neill, president, Oceanteam-IMERA. The joint committee has invited these representatives to appear before the committee for a discussion on underground and overhead electrical cables, following on recent meetings on the North-South interconnector and the pylons issue and also in relation to the east-west underwater interconnector.

Before commencing I draw attention to the fact that members of the committee have absolute privilege but this same privilege does not apply witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Further, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House, or an official by name or in such a way as to make him or her identifiable.

I invite Mr. Habersman to make his opening remarks after which we will have a question and answer session. As we are under a time constraint I ask him to keep his presentation as brief as possible, 15 minutes maximum. This will allow time for some questions. If we do not finish on time I will have to excuse myself to leave the meeting at 10.45 a.m. to attend another function.

Mr. Hessel Habersman

I thank the committee for the opportunity to appear before it. I am the chairman of two companies, Oceanteam and IMERA. We want to explain to the committee what this is all about, what parties are involved and to give details of where we are at this time and why we are before the committee to present our case. We want the committee to understand what we are doing. The worst thing that can happen in a situation like this is miscommunication and misinformation. It is through communication and information that we seek the committee's support in making this project the success we aim to make it.

We are a joint venture company. The joint venture company consists of Oceanteam and a company called ABB which ranks No. 4 out of the 75 largest companies in the world and specialises in electrical systems, the installation of electrical systems and more specifically in electrical systems for utility usage, connecting countries, islands and anything that needs to be connected up and electricity has to be transported. Oceanteam is the preferred installation contractor for ABB. We are doing many projects together. At this moment, ABB has got an order book on interconnectors and cables, of about €3 billion which has to be done over the next three years. Our contribution is about €250 million. After we met the directors of the European Union we learned that there is a requirement to come up with an easy and uncomplicated installation of an interconnector. The interconnector should be seen as an extension lead to be plugged in and played from one area to another.

We started this business opportunity about two years ago based on the parameter we wish to show the committee. The context is that it is an EU approved priority interconnection. The EU has decided and directed that there be interconnectors in countries to have deregulation of power from one country to another and back and forth and to create the possibility of renewable power to be connected to the grids in such a way that there is sufficient back-up capacity if that is required. From typical wind energy and so on there is a 30% yield, so other power is needed to ensure it can be connected to the grid. This is the context.

The directive came out in 1998. Since then it has been modified many times. The present situation is that if one identifies all the interconnectors and establishes the status of the interconnectors, one finds out that very few countries are physically connected. Germany is connected to hardly anything. There is much negativity about it. I am Dutch-Scandinavian and I live in Norway. I have been exposed to deregulation and the trade of electricity. The other partner, ABB, is a Swedish company. We looked upon this situation as a business opportunity. An interconnector is fine, but if it just connects power and there is no price difference there is no trade. The map shows the present price differences between the various countries. It is shocking. France is cheap, Germany is cheap and Norway is very cheap. On the periphery in Italy, Sicily, Sardinia and Ireland the price difference is such that one pays almost three times the price one pays in Norway. If one does not look at the possibilities then there is no place for any joint venture to make a business case out of it. That is what we are. We started looking into that business opportunity two and a half years ago when we finally got clear of this matter. We set up a company called IMERA Hydrogrid to examine that in a more specific way. We put together an excellent management team which is headed by Rory O'Neill and, for the obvious reasons I have just explained, we identified Ireland as our first project to be done.

I would like members to put their questions on the interconnector to Rory O'Neill who is the managing partner of IMERA and is responsible for making sure that the interconnector physically gets into place.

Mr. Rory O’Neill

I am Rory O'Neill, the managing partner of IMERA. I am joined by some of my esteemed colleagues, many of whom have travelled from various parts of Europe. I will introduce them shortly.

Essentially, the east-west interconnector we are proposing is a 350 MW high voltage direct current interconnector between Ireland and Wales. The EW1 will be the first phase of two interconnectors, the second of which will occur as a phase 2, which will also be 350 MW.

Members will see from the map that there are two proposed routes. These routes are based on a combination of characteristics. First, a physically short route across the Irish Sea and, second, grid connection points that are close to the coast and that, in our opinion, using the 350 MW platform, do not require grid reinforcement and, on the Welsh side, specifically connecting into substations and locations adjacent to very large generation assets. The EW1 will connect into north Wales in a connection point known as Pentir. That substation is the substation that connects to a 2,500 MW pumped hydroelectric facility in north Wales. Similarly with our plans for EW2, that connects into Milford Haven where 32% of all natural gas is now imported into the United Kingdom market through the newly built LNG facilities. That has resulted in a large number of power generators wanting to locate to south Wales.

Adjacent to our converter station site in south Wales there are two power stations which have planning permission totalling 5,000 MW. Two power stations have enough capacity to supply the entire island of Ireland. We have chosen those connection points carefully to take into account the network economics, the physically short distances and the generation stock that is located on the Welsh side.

To put the reason we are connecting to the UK market into context, Mr. Habersman showed a slide which indicated large-scale price differences between different markets across Europe. Ireland is on the periphery of Europe and imports the vast majority of its energy, including natural gas and oil, for power generation. The forecasted growth in demand is 4% per annum until 2010, with a forecasted growth rate of 2% per annum thereafter. Those figures come directly from EirGrid.

There is a low level of international interconnection. There is an existing interconnector between Northern Ireland and Scotland, the Moyle interconnector. That is owned by a private sector trust. The European Union has issued a directive whereby 15% of each member state's installed generation capacity should be through interconnection. So far, that has not occurred in any European country.

We have a very high dependency on imported fuels and that equals high electricity costs. The transport of gas and oil is a very expensive exercise. The economics of the gas grid in the UK have been altered by the LNG facilities coming in to south Wales and as a result we have some of the highest domestic electricity prices in Europe, and that also applies to industrial and commercial customers.

We have chosen a 350 MW interconnector based on a technology developed by ABB called HVDC light. It is a new generation technology. It was first commercialised in 1997 and since then there have been 11 installations worldwide, and several in eastern Europe and in the Scandinavian countries. Of those 11 projects worldwide, six of the projects used in this technology have been private sector investments built, owned and operated by the private sector.

IMERA is an asset owner, operator and originator. We identify projects and develop them from a project management perspective and once they are built and operational, we own and operate that asset on a long-term basis. We are a subsidiary of Oceanteam, which is a Norwegian stock-listed company. It is listed on the Oslo stock exchange. As members will see from some of the images, Oceanteam is building a vast fleet of very specific offshore vessels with a specific capability of cable laying. The first ship has been delivered. A second vessel is due later this year and I understand there are four more in the pipeline.

Mr. Hessel Habersman

The third vessel specifically built for installing the interconnectors will be delivered in 2010, which more or less coincides with the plant installation and commissioning of the interconnector we are discussing. As to how we arrived at the 2010 date, if members look at the graph we were given by the consultants they will see that the development of the requirements of electricity in Ireland shows that 2010 is a more critical date. That is where our date arises.

Mr. Rory O’Neill

In terms of the vessels, the middle vessel on the left column is the Oceanteam Explorer. It is a barge and has full cable installation equipment on deck. That vessel is currently active laying cable in the Irish Sea. It is building the Robin Rigg wind farm, which is a very large-scale wind farm. I believe it is owned by E.ON, a very large German utility.

Apart from the vessels Oceanteam also has an extensive in-house marine survey and geo-technic unit, which is important for ensuring that once these assets go into the ground they are stabilised and will be secure and operational for a very long time. In addition, it also has an interest in an engineering company, KCI, which employs over 100 marine engineers specialising in this area.

To give members an example, the current Oceanteam order book has over €0.25 billion in confirmed signed orders and most of those are for the major oil and gas companies and the major European utilities — E.ON, RWE and DONG. As mentioned earlier, Oceanteam is the installation arm of ABB. In total, including KCI Engineering, Oceanteam and the crews who operate the ships there are over 400 employees within the group.

Within IMERA, I mentioned earlier our management team. We have managed to attract a great management team, some of whom are with us today. We have taken on board some former senior ABB employees, one of which was responsible for interconnector development. The other was their global head of offshore networks and has been responsible for the vast majority of the very large offshore wind farms that have been developed across Europe. We also have somebody formerly with the World Bank who is specifically involved in financing these types of interconnector projects. The former group finance manager for Oceanteam, who was responsible for its stocklisting, has also come on board as our chief financial officer. We also have Mr. Michael Brookings, who is our marine liaison and has a vast amount of marine, surveying and cable installation expertise. We have built up a strong regulatory team and the man who heads that is formerly a researcher at the University of Leuven in Belgium and is currently the scientific director of the European Energy Institute. That combined with the Oceanteam expertise means we have the capability to design and deliver these interconnector systems and offshore grids.

We have developed a standardised technical footprint and methodology which we intend to roll out on other projects. This results in a very fast development cycle for these types of engineers because we have all the in-house capability. We have also partnered with companies such as ABB and retained technical consultants such as ESB International, our technical consultants on the project. We anticipate the interconnector being developed without too much difficulty. The technology we have chosen will enhance grid performance and will very much enable the development of the renewable energy market in Ireland. The vast majority of that sector has been seeking interconnectors for some time.

We will move to the next slide. What is IMERA's position today? We have applied for a number of licences and permits for various interconnector projects in Europe. We currently hold five interconnector licences, granted by the British Government. Two licences are for interconnectors between Ireland and the UK, two are for interconnectors between the UK and France and one is for an interconnector between the UK and Belgium. They are all in our development pipeline but our priority project, which we are absolutely focusing on, is the development of an interconnector between Ireland and the UK. We have applied for all the necessary permits and we are going through the necessary processes with the CER and all the statutory consultees. Our environmental impact studies are ongoing and the project is in good shape for delivery in 2010. In addition, the UK has introduced a regime known as the OFTO licensing regime. We intend, given the Oceanteam marine bases and equipment in the UK, to apply to become the national grid operator for offshore grids around the coast of the UK.

The technology we are using is proven technology. It is modular. It is preassembled and delivered on the back of trucks. Two cables go into the ground side by side. They are insulated with polymer instead of oil. There are no fluctuating electromagnetic fields. There is a reactive power element to it, which means that when these systems are connected into the Irish grid they have a stabilising effect. From an environmental perspective, these assets are absolutely benign. Everything is buried, there are no EMF fields and there is very little environmental risk. The converter stations on both ends are very small barns. They are unobtrusive. No large outdoor switch yards or substations are required. It is a very simple, fully enclosed box. The build time for the converter stations is nine months and the cable laying campaign is only four weeks.

Mr. Hessel Habersman

To give the committee an idea of the size of these cables — we were supposed to bring some samples but, unfortunately, we forgot them — these pictures will do. The two cables are the size indicated. They go under the soil from one end to the other and they are not seen. They are engineered for 40 years of virtually maintenance free operation. The biggest challenge is when they are in salt, specifically in the Irish Sea. That sea is famous for its awkwardness in terms of tides and currents, while the soils are unbelievable. Hence the selection of the route was quite complicated.

The biggest challenge with installing a cable of that type of magnitude, and I am not forgetting Rory O'Neill's idea about putting the fibre optic cable on top of it, is to protect it from external threats such as fisheries, anchors and so forth. However, they are man-made risks. We have done six or seven months of work on that but Rory will explain what we have done and what the results were. We are now very confident that the insulation does what we planned. It is special. The cables are in a difficult area but at least they are between two friendly countries.

Mr. Rory O’Neill

With regard to the south east, in 2010 Great Island power station is due to shut down. That means there will be no thermal generation in the south east, which places the grid in that region at some risk. Connecting into Arklow will provide a huge amount of grid stability and reinforcement, and will provide nice infrastructure for the region to allow industries with heavy electrical loads to locate there. It should also enable the further development of the Arklow wind bank, and we have chosen the location to ensure that we do not have grid reinforcement or any associated overhead lines.

We intend to install a large capacity fibre optic cable at the same time. The combination of power and broadband should be very attractive. The Dublin to London route is one of the most expensive in the world for the transit of data and we intend to ensure that will not be the case in the future. We have teamed up with Hutchinson and it is building what is known as the fibre speed network from Manchester to Anglesea. That will meet up with our fibre optic cable so there will be direct access to the UK fibre backbone. We have already made an offer to the Department of some strands of fibre for strategic national usage, such as HEAnet or for emergency purposes.

There is one final environmental impact. As a result of the interconnector coming into place there will be 350 MW of electricity delivered on to the Irish grid without the consequential emissions associated with that. That will have an impact on Ireland meeting its Kyoto deadlines. That is in addition to facilitating more renewable energy generators coming on to the system. It is a major benefit that the Government should be able to monetise.

I will sum up the benefits. Our interconnector project will provide significant security of supply to the Irish system. It will increase generating capacity on the grid by between 7% and 8%. These assets are extremely reliable; they have a reliability and availability in excess of 99%. It should, by accessing the UK grid, have a downward pressure on wholesale prices. It will, and should, enable new market entrants to enter the Irish market by accessing the wholesale market. There are CO2 savings and there is the broadband element. It is a nice project and we believe it is commercially viable. However, we are doing this entirely with private sector investment; there is no recourse to public finance or to consumer tariffs. We are building this as a merchant project, which is an important point. We take on all the risk and we do not try to pass that risk to any end users or consumers.

I thank the committee for the opportunity to speak on this project.

Chairman

Thank you. I will call Deputy Simon Coveney, Deputy Liz McManus and Senator Jim Walsh for questions.

Deputy Simon Coveney

I welcome the delegation. A number of the committee members will ask questions on what is referred to as the north-south interconnector in Ireland and whether that infrastructure should go underground or over ground. In fact, that is the specific topic for discussion on the agenda this morning. However, I welcome the outline of the plans for an east-west interconnector. They are exciting plans. It shows just how long it has taken the State to put an east-west interconnector in place. I agree, however, that even moving ahead at some pace with that project now, it has taken far too long. I have several specific questions. IMERA plans to have its first interconnector in place by 2010. How does Mr. O'Neill see the competition for interconnection between what he proposes to provide and what EirGrid proposes to own and provide in terms of capacity? Does he think there is a danger of having over capacity on interconnection between Ireland and Britain?

Legislation is currently coming through the Houses of the Oireachtas to facilitate EirGrid in borrowing money to build a new east-west interconnector. Is Mr. O'Neill happy with that legislation or are any amendments needed to facilitate what he proposes to do? I met him previously and know that he had some concerns about licensing arrangements for private operators to build, own and operate interconnection between the Irish and British grids. Are legislative amendments required to facilitate what IMERA is doing? By the way, I think it is very welcome.

I am tempted to get into quite a long discussion on the difference between what IMERA and EirGrid propose as regards the size and scale of converter stations and the technology involved. However, for the benefit of members of the committee, Mr. O'Neill should focus directly on what proposed solutions he has to offer concerning counties Meath, Cavan and Monaghan to facilitate what is essentially an upgrading of the all-Ireland grid, rather than a North-South interconnector. It is a highly controversial political problem. At the moment, a 400 kV line is proposed by EirGrid to go over ground but we have an independent consultant examining the cost comparisons between the underground and over-ground options. Members of the committee will be interested to hear Mr. O'Neill's potential solutions for that problem.

As regards the HVDC light systems technology, Mr. O'Neill gave me an actual size model of what it would be like if one took a slice of the cable. It certainly looks impressive but we are not technically capable of judging that. Perhaps Mr. O'Neill can go into some of the projects that have already been completed, comparing them to what we are being asked to do here. If the North-South interconnector was a DC or direct current line there would be no problem in putting it underground — it would be a genuine interconnector but it is not. An AC line is being proposed because they want to be able to take power from that line at different points, which is why it is not really an interconnector at all, it is a piece of the grid infrastructure. Does IMERA's technology allow it to take current off that line intermittently at different stages, coming above ground to do so?

To stick to our specific agenda I will keep my questions at that. Perhaps we can talk in a bit more detail afterwards on the east-west interconnector. If Mr. O'Neill has specific problems this committee is most anxious to help him in terms of the legislative requirements needed to make it happen.

Deputy Liz McManus

Unfortunately, I regret I had to leave earlier and I must attend to another matter at 10.30 a.m. I wish to add two short questions because Deputy Coveney has already covered much of the ground. I welcome Mr. O'Neill to the committee. I apologise for my earlier absence but I had to attend a Lisbon treaty event.

The all-island grid study showed that we could have up to 42% renewable energy sources providing electricity in Ireland. Does Mr. O'Neill think the renewable energy policy is feasible or will increased interconnection have an impact on it? My understanding is that IMERA has not yet made an application to EirGrid. Perhaps Mr. O'Neill can comment on whether he has done that. He mentioned that 15% through interconnection is EU policy, but that has not been reached anywhere. Is that objective feasible by a certain date or is it something he feels will vary from place to place? How does he see that being realised?

Mr. Rory O’Neill

I shall deal with Deputy McManus's points first. Our grid connection application has been made. ESB International, who are our retained technical consultants, are managing that process completely on our behalf. We are making good progress with EirGrid and with the CER. We are in discussions with the CER to have our grid connection application fast-tracked to ensure that we can make the grid connections in good time to allow the interconnector to go ahead in 2010. We spent a great deal of time and effort with ESB International doing a significant amount of grid and load-flow studies with software to superficially model the impact of the HVDC system on the Irish grid. We provided that modelling software to ESB International and facilitated knowledge transfer from ABB. We also facilitated EirGrid by providing it with the same software to model the impact of an interconnector on the grid. We again facilitated some knowledge transfer there.

With regard to Deputy McManus's other question, the target for renewable energy sources is achievable but interconnection is a significant requirement. The intermittency of renewable energy is such that when the wind stops blowing one must have a back-up source of power and interconnectors are generally a good way of doing that.

Deputy Coveney asked whether we could have too many interconnectors, but I do not think so. Our view is that competition for the capacity is a good thing. We will auction our capacity shortly and we have appointed somebody to manage that process for us. If we can build the renewable sources that are planned, Ireland certainly has the potential to become a net exporter of electricity. We see that as being a good thing. We already forecast export across our interconnector. There is really not a market in Ireland for renewable power off-peak, so the windmills are blowing but there is no demand for it. We have had a great deal of discussions with users in the UK who are keen on accessing renewable power from the Irish market off-peak for various activities, including manufacturing, but most likely for pumping duties, to pump up storage facilities in the pumped hydroelectric facilities. There are three such facilities in north Wales. We see that as one of the likely potential early uses of the interconnector to facilitate the export of renewable power from Ireland.

Deputy Coveney mentioned the North-South interconnector that we have spent a great deal of time examining. We heard some strange sums of money being mentioned for the costs of undergrounding the North-South interconnector. We have much experience in this regard, both internally and with our partners ABB, and have spent some time looking at this matter. We examined it as an interconnector project as opposed to a reinforcement of the gird which it appears to be. As an interconnector project to facilitate the all-island market, we looked at a HVDC light-based solution — a 1,000 MW, 300 kV solution — which we think could be used, although we do not know the full extent of the plans for the grid in terms of where off-take points would be required along the way. It is certainly possible to build additional converter stations along the way to have off-takes and have a multi-terminal HVDC system. ABB estimates that it can lay and bury up to 15 km of HVDC light cable per day. That is quite an interesting figure. We would be delighted to explore in much more detail with the committee the installation techniques for HVDC light.

We have video footage of the cable being installed. It is traditionally in a bundle and for the east-west interconnector project, our trenches are very narrow. The NVDC light cables are buried quite deep and protected rather well, but no measurable electromagnetic fields come from them as there is a positive and a negative and they balance each other out.

The cables can be laid quickly. For example, from our landing point to our convertor station in Arklow, we estimate the cable laying activities take just two or three days.

Deputy Simon Coveney

What is the distance there?

Mr. Rory O’Neill

Approximately 4 km. We are being generous with the time. There is much road opening required, but over land one can simply dig a small trench, install the cables on a bed of sand and then backhoe with the necessary protection.

Underground AC cables are a different matter. They require a significant amount of spacing between them for thermal purposes and the land sterilisation associated with that, in terms of the wayleaves, is much broader.

At a later stage, if the committee wishes, we would very much like to come back with actual footage of this cable being installed so that the committee can see just how quickly it is installed and more details of a multi-terminal system.

Deputy Coveney mentioned the legislation in support of EirGrid going through the Houses. I have not had an opportunity to review it. In terms of the existing legislation, the Energy (Miscellaneous Provisions) Act puts in place the necessary provisions to support interconnection and the licensing of interconnection. We see no need for further legislative support for our project. What is not in place at present is a licensing regime to support interconnectors, but the CER tells us that it is forthcoming. There is an authorisation to construct process in place for interconnectors with CER and we made our authorisation to construct application in December last.

Senator Jim Walsh

One of the delegation's illustrations showed that Ireland and Italy were the two most costly countries in Europe for electricity, but I also note that costs in Britain, Spain and Holland, peculiarly enough, were also quite high. Could it give some explanation for this? It also mentioned matters such as peripherality and the cost of imported fuels but, generally, why do some countries have efficient cost-effective electricity generations and others do not?

My second question has to do with the east-west 2 route, although this probably would apply to either of the routes. On the Welsh side, what are the primary fuels involved in the generation of the power into which we are likely to connect? On east-west 2, Great Island generation station was mentioned, which, as the delegation will be aware, is the subject of a tender process at present. I am from that area and therefore I have an interest in it. I wonder how Mr. O'Neill's proposition might knit in to the system there and whether the generation station would benefit from the interconnector.

I understand from Mr. O'Neill that IMERA will develop and operate this connector. How is the price it charges for the interconnector determined? Who controls it and how is it controlled? What is IMERA's overall investment in the interconnector and what is its targeted internal rate of return?

Deputy Michael D’Arcy

Does the company have a time schedule for the EW2? I note it will be landed in Wexford, which is my home county. Where — it looks like south County Wexford — does it intend to land the second interconnector and what stage is the plant at?

Mr. Hessel Habersman

We will split up these questions between us. On the countries, I can easily answer. It all is to do with access and availability, and the import or export of the resources one needs to make it. Ireland is one of the places which has got the kind of resources required, or it will have soon, with all the renewables, but then one needs sufficient back-up. The UK is right in the middle of a process to get lots of nuclear in. Ireland definitely does not want nuclear and therefore that part is being cut off.

France is positioning itself in Europe as being the main net exporter. It is virtually impossible because they have got no connections to anybody, if one looks at the map submitted. It is also part of the EU actions. That more or less answers the question.

If one looks at Holland, we have had the Dutch disease. I am a Dutch man and therefore I have been a victim of that. We had very cheap gas. We used it in abundance. We wasted it on our country and, subsequently, we had a very sick place in which to live. Now they have finally got it under control again and we are back where we were supposed to be. That is another explanation of something that I have got from being close by.

I also lived in Norway for a long time. Two years ago we had a power shortage and over a couple of days consumers were charged double, then triple, the amount for electricity. It is something that everybody remembers, especially in a country such as Norway where power is abundant. What is obviously not abundant is the ability to pass it on to the areas where one needed it.

That is what these interconnectors are all about, and why the EU is going after it, to get from one area to another. Italy is notorious for the amount of power cuts. Certain companies chose to come to Ireland rather than Italy because they cannot get stable and proper power supplies.

Mr. O'Neill will answer on EW2. On the price and the investment, the price will be determined by the market. If the market wants to pay this, then that is what they get. We are a commercial company and our interest is to get proper returns on our investment. However, the ceiling of that price is determined by the system in place — the Moyle cable. It is not a free-for-all. There is no possibility of reaping benefits beyond reason.

Mr. Rory O’Neill

The Moyle interconnector, which is an existing interconnector between the two markets, the SEM and UK Beta market, will act as a natural cap on the ability to charge for the capacity. Ultimately, we let the market decide and let the market price, and place whatever value it sees on, the interconnector as being appropriate.

In saying that, the project is being developed as a fully merchant project and therefore we take on board all of the risk. If the market decides that market prices may move over time or there may not be an appetite to import Irish renewable energy into the UK, then we face a down side. Part of what we are doing to mitigate some of that is we are applying for what is known as an EU exemption from regulated price control. The CER next week will publish a joint public consultation with Ofgen on our application for an EU exemption to see have we fulfilled the necessary criteria to be granted these exemptions to allow such a merchant project take place. As part of that, we have provided a great deal of analysis on price forecasts and simulations on what we think the market will be prepared to pay. We have done what is known as a prospective analysis. That is being carried out independently by the University of Leuven in Belgium. The forecasted payback is then taken into account in giving us the exemption. The latter must meet the financing period of the project, which is quite long. The forecasted revenues must also be taken into account. We see the return being in single digit figures. It is not something we will have the ability to price gauge.

Senator Jim Walsh

It will be in single digit figures.

Mr. Rory O’Neill

Yes. That would be in line with the utility industry norm.

On the EW2 project, which is the second phase of the development — we are committed to building both interconnectors — I am not quite sure what will be the exact landing point in Wexford. However, it will come ashore in south Wexford. Our connection point will be Great Island substation. It has been forecast that the power station there will be decommissioned and the site is the subject of the tender to which the Senator refers.

Senator Jim Walsh

The tender contains a provision that it must be retained as a generating station.

Mr. Rory O’Neill

Yes. However, I am unsure as to whether this will involve a new build. I had understood that the ESB land banks that were released are to be used solely for the provision of new power generation. In terms of the interconnector, it is a point on the grid. In the context of HVDC technology and the voltage stability control, the interconnector will greatly enhance the grid in that area and should be of benefit to anyone who wishes to build a power station there.

Deputy Michael D’Arcy

What timeframe is envisaged for EW2?

Mr. Rory O’Neill

We are looking at the end of 2011 or early 2012. The main time constraints for that development are the long lead times for manufacturing the cable and transformers. We will be obliged to identify a suitable manufacturing slot in this regard.

Mr. Hessel Habersman

On EW1, we have secured the slots for all the equipment. That is why we have got this extremely short period. The installation and the preparations around it have taken approximately 18 months. That is how matters stand. We are officially seeking the financing. This is ordinary financing for a project with proper returns. There is a need to comply with requirements for any safe type of investment. The number of banks and companies — these want access to the capacity that will be on offer — is obviously encouraging, particularly in the context of a project of this nature. It shows that our focusing on Ireland and the connection to the UK was the correct decision. We focused all our resources on this connection and from this point we will make it a showcase in order to illustrate how it can be done. We will subsequently move on to the next project.

We have five licences for installing systems. As soon as a system is in place, we can begin transporting electricity from places where it is cheap to locations where it is not so cheap. Oceanteam, together with ABB, is involved in the BritNed project which involves the installation of 260 km of very heavy interconnector cable. It is not a merchant operation, it is a utility operation.

Mr. Rory O’Neill

UK National Grid is developing that project in association with the Dutch national grid, TenneT. This project involves an interconnector between the UK and the Netherlands and Oceanteam is responsible for installing the cable.

Mr. Hessel Habersman

The same people move from working on one interconnector project to the next. This is all driven by EU regulations. We are all part of the EU and, therefore, it there should be no difficulty in supporting such projects.

Deputy Peter Kelly

On the east-west connector, do our guests have access to the British grid? Reference was made to grid access on both sides of the sea. Does the latter exist at present? Has Oceanteam previously been involved in projects similar to that relating to the east-west connector? The latter is different from the North-South interconnector so we would not want to confuse the two.

Deputy Shane McEntee

I welcome our guests and thank them for their presentation. Work on this interesting project has been ongoing for the past six to eight months. It is everyone's objective to improve the position in Ireland with regard to the price of electricity. Given that we depend on oil to such a large extent, it is crucial that we receive presentations on how we can accomplish the latter.

I represent County Meath, through which the North-South interconnector will be run to County Cavan. The people in the three counties affected want the project to proceed but there are arguments as to whether it should be run overground or underground. If our guests were given the contract to run cable from Batterstown, County Meath to County Cavan, could it be done on an underground basis without exceeding the envisaged costs as regards providing electricity?

Mr. Rory O’Neill

It would be no problem. There would only be a marginal difference in cost.

Deputy Shane McEntee

I notice Oceanteam does not use oil or liquid cooled technology. We are being educated in respect of this matter at present and it is difficult to obtain all the necessary information. Is it Mr. O'Neill's honest opinion that the cable could be run underground at the same cost?

Mr. Rory O’Neill

Yes.

Deputy Shane McEntee

Would the same level of electricity be provided?

Mr. Rory O’Neill

Yes.

Deputy Shane McEntee

Would it make Ireland competitive as regards the importation or exportation of electricity?

Mr. Rory O’Neill

Yes. We would be delighted to facilitate a visit by ABB, a company with which we work very closely. Some of our senior staff are former employees of ABB and they have been engaged with the development of interconnectors across the globe in recent years. Our head of offshore networks was the project manager on the Troll project, which involved running a large interconnector out to an offshore platform to provide it with electricity. We would like to bring before the committee an independent adviser to provide members with the necessary information.

Deputy Shane McEntee

What is the position in the context of costs?

Mr. Rory O’Neill

We discussed this matter with ABB. For a 1,000 MW HVDC light interconnector of 68 km length, the budget was €250 million to €280 million. That was without carrying out a detailed analysis.

Deputy Shane McEntee

How long would it take to put such an interconnector in place?

Mr. Rory O’Neill

The largest lead item would be the manufacturing of the cable. In light of current manufacturing constraints, it would be within 24 to 26 months.

Deputy Shane McEntee

I thank Mr. O'Neill.

Mr. Rory O’Neill

Deputy Kelly asked if we had previously been involved in projects of this nature. Oceanteam has evolved as a company over 30 years and has been extensively involved with the development and installation of interconnector projects across the world. IMERA is responsible for managing the east-west interconnector project. We simply pull everything together. We have a full turnkey design and installation with ABB, which, as stated earlier, has developed 11 similar HVDC light interconnector projects worldwide. Ours is the sister project of one to put in place an interconnector between Estonia and Finland. We would like to facilitate members in travelling to visit that project.

Within our team, we have a number of very senior staff who previously worked for ABB and who have been involved in the development of these projects for a long period. Associated with this, ESB International acts as our technical consultant. In addition, there are a large number of well known and well thought of consultants on environmental issues, finance and economics, who all support us and who have worked on these projects previously. IMERA acts as the project manager and ABB is the turn-key supplier and provider of the interconnector with full responsibility for delivery and installation.

Deputy Peter Kelly

I take it the answer is "Yes".

Mr. Rory O’Neill

Yes.

Deputy Peter Kelly took the Chair.

Senator Joe O’Reilly

We have a classic problem in the Meath-Cavan area. We want to produce cost effective electricity to maintain and enhance the local economy but thousands of people are attending meetings who are understandably and correctly concerned about their health and the impact of such production on the environment. The classic dilemma is to strike a balance between both. For that reason, Mr. O'Neill's comments are of great importance. If he and his colleagues can convince us they can do this work underground for the same cost as overgrounding, it must be the option we accept in the interest of the environment, public health, tourism and providing electricity as cheaply as possible in order that vulnerable industries can maintain their competitiveness. Manufacturing industries are vulnerable and electricity is one of their great costs. Option A is to lay a DC line underground with multiterminals and Mr. O'Neill said that could be done at a similar cost to overgrounding.

Mr. Rory O’Neill

It would depend on how many terminals would be on the systems. The converter terminals are expensive pieces of equipment. This would be worthy of analysis. Under the Energy (Miscellaneous Provisions) Act 2006, which enabled the development of interconnectors, a North-South interconnector is technically an international interconnector and it is open to development by the private sector. We are more than willing to examine this as a development. Using the VSC technology with which we are familiar, it should merit further study.

Senator Joe O’Reilly

Option B is the AC underground line and EirGrid argues vehemently AC is the only option. Mr. O'Neill was vague about the cost of this option. The committee needs more clarity but we have a duty to go for option A if he can convince us. Will Mr. O'Neill respond to EirGrid's contention and to the cost of this option?

Mr. Rory O’Neill

The Norwegian and Swedish Governments recently entered into an accord whereby new high voltage transmission lines would be undergrounded and, therefore, everything from now on will be undergrounded. There has been a strong reluctance among TSOs across Europe to underground anything because the first company to do that will make many enemies as it will set a precedent. That accord has been agreed between Norway and Sweden.

On AC versus DC, we are not aware of the grid development plans, including what loads are required along the way. There is an electrical constraint between North and South due to historical issues and given the two markets have merged to form the SEM. Prior to that, an AC interconnector was in place and capacity was auctioned on it. There is a physical constraint between the two. Normally, where individual grids are connected, it has been proven over longer distances DC is a more appropriate solution but if there is a specific need for loads to be off-taken along the North-South route, about which we are not aware, the AC option would probably be preferable. We have not conducted an analysis on the cost of undergrounding an AC line. However, we will do that or we can arrange for an independent party to make a presentation to the committee.

Vice Chairman (Deputy Peter Kelly)

No decision has been made yet by EirGrid and the committee was informed that following the study conducted by the independent person and commissioned by the Minister, no decision would be made.

Senator Joe O’Reilly

Can we be assured the delegation will be able to have an input to the independent study?

Vice Chairman

An independent person has been commissioned by the Minister to conduct a study.

Mr. Rory O’Neill

We would be delighted to arrange for a senior person from ABB, which is the manufacturer of the equipment for both AC and DC, to present the facts to the committee.

Deputy Simon Coveney

We will receive the results of an independent study in a number of weeks. It would be appropriate for us to evaluate the report and draw conclusions from it then. If it would be helpful following the report to invite technical experts from ABB before the committee, we should consider that.

Vice Chairman

No decision has been made.

Senator Joe O’Reilly

I accept that.

Deputy Simon Coveney

One of the great aspects of confusion surrounding the East-West interconnector to be built by EirGrid is who will pay for it. Is Mr O'Neill concerned that, if the State picks up part of the bill, which, therefore, will not require the interconnector to wash its own face by ensuring a return on the cost of constructing it, he potentially faces unfair competition with another interconnector or is that not a concern because the interconnection price is regulated anyway and the company can make its case to the regulator?

Mr. Hessel Habersman

That is not our concern. It is a risk but it is up to Ireland to decide how to look up upon it. We are interested in EW1 and we have not looked into the EirGrid package. There is plenty of space for adequate interconnectors and we can provide an interconnector at no risk or cost to Ireland and no need to connect up. We know very little about what EirGrid is doing and it is outside our interest. We do not consider the company as a competitor. It will have another interconnector.

Regarding who will carry the cost, any project that is 50% Government funded will need to be confirmed.

Mr. Rory O’Neill

Our project requires no cost to the taxpayer or the consumer.

Deputy Simon Coveney

Oceanteam-IMERA's project is privately funded but we do not know how the EirGrid project will be funded. It may be partially funded by EirGrid through borrowings and partially through State investment in the infrastructure. Does Oceanteam believe that if it must compete against infrastructure that has been partially paid for by the State, the margin may be too tight for its interconnector, based on the fact that Oceanteam must make its repayments on the basis of 100% borrowings to build whereas EirGrid may not have to do that?

Mr. Rory O’Neill

Our project is one where the market will ultimately set the price for the capacity. That will be the case for the EirGrid project, as it is for the Moyle interconnector between Northern Ireland and Scotland. There are options. If an EirGrid project goes ahead, it is an alternative option. We are currently in discussions to auction and allocate air capacity for users and this will be done on an open and transparent basis that is fully in line with EU guidelines relating to capacity allocation.

The EirGrid project will have to compete against our project and against the Moyle interconnector. Our interconnector will be in place by 2010 and the Moyle one already exists. The EirGrid project will be the third one at the races and will have to compete with the other two.

Vice Chairman

Has Mr. O'Neill's company access to the British grid?

Mr. Rory O’Neill

We have made our grid connection applications on both sides. ESB International is managing the process on our behalf and we have had extensive negotiations with the UK national grid people.

Vice Chairman

I thank Mr. Habersman and Mr. O'Neill for attending the meeting and replying to the many questions raised by members.

I remind members of the committee that consideration of the Electricity Regulation (Amendment)(EirGrid) Bill 2008 will commence on Tuesday next at 2.30 p.m.

The joint committee adjourned at 10.55 a.m. until 9.30 a.m. on Wednesday, 28 May 2008.