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JOINT COMMITTEE ON COMMUNICATIONS, ENERGY AND NATURAL RESOURCES debate -
Wednesday, 7 Oct 2009

Electricity Supply: Discussion with Airtricity.

I welcome Mr. Kevin Greenhorn, managing director of Airtricity, Mr. David Manning, public affairs manager, Mr. Ian Wright, regulatory manager in the Republic of Ireland and Ms Elaine McGovern, head of marketing and e-commerce. We have received apologies from a number of members who will join us later.

Before beginning the discussion, I draw everyone's attention to the fact that, while members of the joint committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee which cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members 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. Mr. Greenhorn is welcome and I ask him to make his opening remarks.

Mr. Kevin Greenhorn

I thank the committee for inviting us. As the managing director of Airtricity Supply I am representing the supply business and not the renewable energy side of the business. I would be grateful if members do not ask me difficult questions about the renewable side of the business. My colleagues, Mr. Iain Wright, Ms Elaine McGovern and Mr. David Manning are accompanying me. The presentation is divided into three parts. The first part of the presentation examines SSE, Scottish and Southern Energy, the parent company of Airtricity, and we will then speak about the scale and experience that SSE can bring to the market, especially in Ireland. We will then consider electricity prices and finish by considering what the future holds.

SSE is the 30th largest company on the FTSE 100. Until RBS was resuscitated by the British Government SSE was the largest company in Scotland. The market capitalisation of the company is £10.2 billion and it has 18,700 employees. The company has 9.25 million energy customers, which is significantly larger than the ESB and Bord Gáis together. In Ireland we have more than 100,000 energy customers.

I hope to show not only our experience in the market but our market position in important sectors. We are the second largest energy supply company in the UK. We have five supply companies including Scottish Hydro Electric, Southern Electric in England, Swalec in Wales, and Atlantic Electric and Gas covering the Internet brand and Airtricity, the third largest supply company in Ireland. We are the second largest company in generation, with 10,500 MW of generation, making us the largest non-nuclear generator in the UK. We are the largest renewable generation company in the UK and Ireland, with more than 2,200 MW of renewable energy. We are the third largest company in electricity transmission and the second largest in electricity distribution. In gas distribution we are the second largest, meaning we deliver gas to more than 5.6 million customers in the UK. We have the largest onshore gas storage facility located in south Yorkshire. We are building another a mile along the coast. We are the second largest company in electrical contracting and the largest street lighting contractor. We are the second largest operator in metering and in energy services we have more than 100,000 customers who use our gas boiler maintenance services. We have more than 250,000 telecoms fixed line customers and we also deal with infrastructure in the telecoms sector.

Is this in Britain?

Mr. Kevin Greenhorn

This is all in Britain.

Is this in the UK? I am sorry for the interruption.

Mr. Kevin Greenhorn

Yes. It is an important point because what I am trying to show is the scale of experience and that we can do this in Ireland.

We are speaking about giving the customer choice in areas where customers had no choice. We look to provide a choice of supplier and an alternative to the semi-states, Bord Gáis and ESB. We can provide a choice of tariffs, including a fixed price and a fixed period, a floating price for a floating period and an energy efficiency tariff. By the early spring we hope to be in the dual fuel market, supplying gas as well.

We can offer customers a choice of billing methods, paper or electronic. We can also consider the frequency customers would like to be billed and provide a choice of payment method including variable or fixed direct debit and cheque. A trial is taking place at our parent company, SSE, whereby customers receive bills on their mobile phones. They can respond and pay their bills by mobile phone. We will see if we can introduce this technology to Ireland if it is successful. We offer a choice of energy source, a matter that is close to our heart. Customers can either have renewable or fossil fuels. This is about providing exceptional customer satisfaction, something for which SSE has consistently won awards over the past six years. A favourite phrase of mine is that one does not have to be sick to get better. With Airtricity in Ireland, we are looking for continuous improvement.

I will now consider electricity prices and generation sources, how we hedge customer demand and where energy comes from. It comes from four sources, including our wind farms and independent wind farms in Ireland, annual auctions for directed and non-directed contracts by ESB, from UK imports over the Moyle interconnector and from system marginal prices. We have a trading team that can bring us a hedging advantage in the market. The trading team operates the most flexible plan in the UK and Ireland. This trading benefit gives us an advantage and having a hedging advantage in this market gives an advantage to customers and helps to reduce prices.

We can see the reliance on fossil fuels in Ireland's fuel mix over the past decade. Only 18% is non-fossil fuels. Ireland is now 91% dependent on imported fuels and is the second highest greenhouse gas emitter in the EU 27. It is an island nation off an island nation. Wind energy can push prices down and we have already seen the benefit from wind generated electricity on the single electricity market pushing prices down. These graphs show the period towards the end of July this year, 24 July and 31 July, in a trial done by the Irish Wind Energy Association. The study shows what happens to system prices when there is high wind and low wind. Low wind effectively equals high prices and high winds leads to low prices.

We are aware that electricity is priced every half hour.

Mr. Kevin Greenhorn

That is correct.

Can Mr. Greenhorn explain how this works in respect of the graphs on display?

Mr. Kevin Greenhorn

The graph begins at midnight and continues until midnight the following day, reflecting the half-hour prices over the day. In general, when there is lot of wind in the system, prices are lower. On the two days in question system demand was very similar. It would be unfair to choose very different days. The difference between the high case and the low case in fossil fuels amounted to a figure between £46,000 and £63,000 in savings, demonstrating that wind can bring down prices in the energy market.

The next slide looks at the cost components of the energy bill, which is very important for us to get across. People think that it is made up entirely of high energy prices and obviously that is something we need to do something about. However, only 55% of a domestic customer's energy bill is made up of generation and supply. Effectively, our control will cost only 55%. The rest of the bill is made up of distribution and transmission charges, SEM charges and VAT. Therefore, our control costs are very low. To be fair, if one considers what influence we have on world energy prices, our control is very small.

There is much debate on electricity pricing and cost competitiveness but to put it simply, for almost ten years Airtricity has been delivering consistent savings to energy customers in Ireland. Information on our price movements for small business customers in Ireland over the past ten years shows a consistent approximate saving of 10%. We have been in the domestic market since March so we do not have a slide showing information on it. Since March, we have been offering customers a 13% discount which is being maintained.

Competition can help deliver customer cost savings. However, we need to address a number of issues. Cost transparency is crucial. "K factors" are correction factors which compensate for price forecasting errors. The ESB should be made to bear the same risk as us. At present, it does not do so. If it makes an error in its forecasting or price fluctuations occur it is passed on to customers the following year. We do not have that luxury. We do not have a level playing field in the cost of entry and the cost to acquire customers. The ESB and Bord Gáis did not have to pay any money to acquire their customers but we do. Our IT system set-up costs alone were millions of euro.

With regard to marketing, we do not have brand strength to the extent that Bord Gáis and the ESB do. We do not have vans with "ESB Networks" or "BG Networks" on them. These promote their unregulated businesses through their regulated businesses. Ease of switching is also an issue. Believe it or not, our marketing costs should be spent on telling customers how wonderful we are and how much money we can save them. Unfortunately, some of our marketing budget must be spent on telling customers that it is easy to switch, that their meters will remain the same, that there will be no power cuts and that all they will see is a cost saving on their bills. Part of our hard-earned marketing budget must go on a switching campaign, a type of campaign which the ESB and Bord Gáis do not have to run.

The ESB and Bord Gáis have vast databases against which they can leverage but we do not. Issues of cross-subsidisation arise between regulated and non-regulated businesses. They use the same billing systems and sales force and have the same customer bases and collections. We do not have that luxury and it is not a level playing field.

The single electricity market, SEM, and the British market are different. I could explain the differences but I will not do so at present. Because they are different, hedging is difficult. The market with which we do most trade in Ireland is the British market. The fact that the Irish and British markets are different makes hedging difficult and when hedging is difficult, it makes it difficult to make cost savings that can be passed on to our customers.

There is no control or competition on metering. I acknowledge that the ESB's performance in metering has improved recently. However, if it does not read our customers' meters, they suffer and we pay. If the ESB has not read our customers' meters, they receive an estimated meter reading. The customers then phone our customer service staff — who represent a cost to us — and are told by them to read the meter. The customers read the meter and send us a reading. We then bill the customer again — at an administration cost — and recoup the money from the customer from an accurate bill, which has cashflow implications. The point I am trying to make is that there is no competition in that market space and competition is required.

Cost transparency is crucial and we must have a level playing field. Competition in regulated assets will bring down costs. We have vast experience and the purpose of an earlier part of my presentation, when I described how we were second and third in various matters, was to show our great experience in these markets. We should be using this experience for the benefit of Ireland. At present, we trade with the British market. We believe a single Ireland British traded market is the way to go, is the logical route to the European market and underpins the market for renewables. We should be expanding renewable generation with more wind, wave and tidal energy. We have these in Ireland and we should be using them and exploiting our natural resources. We should be trading with Britain and helping everybody to lower the cost of carbon reduction.

To sum up, what we are stating is that competition means customer cost savings and, more to the point, that we believe Airtricity is the real competition. I thank the committee.

I thank Mr. Greenhorn and I invite members to ask questions. When they have finished we will revert to Mr. Greenhorn and his colleagues may get involved at that stage.

I thank Mr Greenhorn for his very interesting presentation. I would like clarification on whether Scottish Power is a related company.

Mr. Kevin Greenhorn

No, and I will qualify that by stating that Scottish Power is a Spanish company.

Yes, I knew that. Nobody at this table needs convincing about the importance of wind power but I want to give a political view on it. Everybody here has been asked why the electricity regulator will not allow the ESB to reduce its prices to cope with Bord Gáis and other groups. We hear two sides of the regulation issue and Airtricity will recognise that fact. The presentation included an outline of the wide range of areas in which Airtricity is involved. The committee is interested in the area of micro-generation and we feel that small producers are not helped along the way. Airtricity is involved in everything from maintenance to servicing to infrastructure. Does Mr. Greenhorn have any views on support that might be given to micro-generators?

Mr. Greenhorn mentioned gas storage but not electricity storage. This is crucial for energy security and encouraging wind-generated electricity. What are Mr. Greenhorn's views on an offshore wind grid, which he did not mention in his presentation? I recall that a couple of years ago Eddie O'Connor spoke about a connected grid for all of western Europe. In recent times, some Irish commentators spoke about an offshore grid connecting all of the offshore wind farms off the coasts of Ireland and the UK. What are Mr. Greenhorn's views on this?

The issue of synergies goes to the core of what Mr. Greenhorn is asking. We are always under pressure on the question of electricity prices. What Mr. Greenhorn outlined to us as unfair competition we might state is an efficient public service using the synergies within its own groups to ensure it is not increasing its cost base and therefore keeping it costs as low as possible. Mr. Greenhorn describes that as an unfair playing pitch. However, for us the point of encouraging competition is to have the price as low as possible to ensure competition will lower it even further. If we were asked to do something which would increase the cost base of some of the existing groups, that would create political difficulties.

Mr. Greenhorn did not fully explain the issues surrounding the cost of increasing the customer base. A new entrant to an industry which tries to take on existing players will have to factor in this issue to its game plan from day one. I do not know what we are being asked to do. If the number of customers increases in line with population growth, the only choice to break into the market is to spend on marketing and services.

I do not quite understand the benchmark for a reduction in charges. Reference was made to a percentage reduction for SMEs and other groups. Is this set against the prices charged by the ESB and Bord Gáis? Bord Gáis claims to charge 13% less than ESB prices.

I support the general thrust of the argument but we hear from all sides and I wanted to share some of the problems we have encountered.

One of the big issues faced by public representatives is the grief we receive over the location of wind farms. Senator Walsh and I are former members of Wexford County Council. Whenever the construction of a substantial wind farm is proposed, a group of objectors forms because negative views about wind farms continue to obtain. The benefits in terms of fossil fuels are unquestionable but opposition is expressed in every area in which construction of a wind farm is proposed. That gives us grief. As the largest player in the field, what can Airtricity do to turn that negative view into a positive one? My opinion is that all wind farms are positive. I live close to one of the largest wind farms in the country at Ballygarett, near Gorey.

I would like to hear more about Airtricity's energy purchasing strategies. Some companies seem to have better strategies than others. Bord Gáis, for example, informed the committee that it was facing additional costs in the region of several tens of millions of euro because it had purchased energy at the wrong time. Unfortunately, that bill will have to be paid by the company's customers because it will not come from its profits. Fuel accounts for 55% of the total cost of energy. Does Mr. Greenhorn see any possibility of reducing this figure?

What is Airtricity's scale of operation in comparison with the ESB and Bord Gáis? We have heard from representatives of the offshore wind energy sector but from an economic perspective, offshore production is more expensive. To what extent will that delay offshore wind energy production?

I compliment the company's branding and would not be as concerned about it as Mr. Greenhorn. The ESB and Bord Gáis do not always generate positive reactions. The Airtricity brand makes people think clean energy is being produced.

I thank the representatives for their presentation. It is evident that they are trying to increase their market share. I should know Airtricity's parent company but do not.

Mr. Kevin Greenhorn

It is Scottish and Southern Energy.

The Airtricity brand is being used in Ireland because the company is already familiar to consumers. Mr. Greenhorn emphasised customer choice and energy efficiency. There are suggestions we should be investing in conservation rather than increasing generation as a way of reducing energy costs. Our energy market is very uncompetitive and I can understand the reason outsiders would want to enter it by marginally undercutting the main player but I do not think that will result in real competition. I would need to hear a strong argument to be convinced that there is competition.

In regard to the choice between renewable and fossil fuel energy, is there a price differential, depending on what the customer decides?

As I unavoidably missed the presentation, I will merely note that my experience of a wind farm built by Airtricity in Cootehill, County Cavan, contrasted with that of my colleague, Deputy D'Arcy, in that it was almost universally accepted. All the stakeholders are very happy about it and it has provided an income for local small farmers. It may be worth considering the Cootehill experience as a model because it has worked in a dreamlike way. Perhaps Mr. Greenhorn will comment on the issue.

Airtricity is involved in the generation and distribution of electricity. Does it not also purchase electricity wholesale from other generators? Do the company's suppliers charge a set price which includes distribution and transmissions charges? Does it outsource the task of meter reading to the ESB? Competition in the energy sector is important.

Does Airtricity's parent company operate solely in Scotland or throughout the United Kingdom?

Mr. Kevin Greenhorn

The United Kingdom.

Will some of its UK operations be bolted on to its strategies for Ireland? I refer to areas such as street lighting, in respect of which the ESB has a monopoly. There is considerable concern at local authority level about the quality and standard of services. Is this something Airtricity would consider in Ireland? Does the company intend getting involved with telecoms?

Mr. Kevin Greenhorn

We will go through the questions one at a time, beginning with those posed by Senator O'Toole. I will hand over to my colleague on the question of microgeneration.

Mr. Iain Wright

We support the use of microgeneration because there are fewer losses associated with generation on site but there are certain practical difficulties in the market as it is currently structured. The committee may be aware from previous presentations that the market is operated in a way which calculates the demand of independent suppliers and then the residual demand in the system is attributed to the ESB. This means a process is required to allocate energy to the right supplier.

Unfortunately, currently the microgeneration processes are outside the market and handled manually. Even if we contracted with individuals who had microgeneration on their site, the value of the energy would, by default, be attributed to the ESB.

We are aware of that. We hope that might be changed at some stage.

Mr. Iain Wright

There are plans in the market to move to a process where all supplier demand is calculated on the same basis. At that time it will become feasible for us to interact with microgenerators.

Mr. Kevin Greenhorn

We will move to the point raised by Senator O'Toole and Deputy D'Arcy regarding offshore grids and wind. My colleague will be able to answer those questions.

Mr. David Manning

I have two points on the offshore issue regarding the opportunity that lies within offshore projects and the prospect of a regionalised energy market and the benefit that might bring. We view offshore energy very positively as there is a significant amount of opportunity available in offshore wind energy. As we know, Ireland has one of the longest coastlines in Europe, and it is the longest coastline per head of population in Europe. As a consequence, there is much opportunity that can be maximised.

I will draw a comparison with the UK, which is currently going through a process called round three, which allocates areas of sea bed for the development of offshore wind. That is considering approximately 25,000 MW of offshore wind development by 2020. Unfortunately, in Ireland we are moving much more slowly in that process. We have grave concerns about this missed opportunity. It is not necessarily about the development of wind energy but rather the ancillary services and jobs that come as a consequence of that investment in Ireland.

For example, along the east coast is Dublin Port and other ports in Louth and in the North are the shipyards of Harland and Wolff, with a capability to meet the needs of offshore delivery investment.

EirGrid has a proposal on renewable resources from now until 2020. Is the witness saying that it is acting much more slowly than the bodies in the UK?

Mr. David Manning

The proposals which EirGrid have for Grid 25 development is predominantly focused on onshore wind development. There is currently no plan for offshore grid development, as it is only in its very early stages.

It has outlined to the climate change committee a view on an offshore project.

Mr. David Manning

A project is being undertaken at the moment called the isles project. The delivery on it is not there. There are 25 GW planned in the UK and there is a very clear strategy on how it is to be achieved. Unfortunately, we have not yet got to that stage.

Effectively, we are way behind the game on this.

Mr. David Manning

Exactly. The investment that will come as a consequence will go to other jurisdictions rather than to Ireland.

My concern regards funding that may be available. The witness is effectively saying that the funding is to be gobbled up by the UK.

Mr. David Manning

Yes. It will be taken by other jurisdictions as well as the UK.

It would be helpful if that could be given to the committee in written form. It could be put on the record.

Mr. David Manning

The second point relates to market regionalisation. We can talk about competitiveness and scale in the Irish market. We have seen the formation of the single electricity market and the combination of those markets brings economies of scale. The same can happen by linking with the Great Britain market and in the middle of those two markets in the Irish Sea there is massive offshore potential. By linking those markets, we get that competitive benefit.

Mr. Kevin Greenhorn

We will move on to other points. Senator O'Toole asked whether the ESB could deal with similar discounts if it was not regulated. The regulator authorises tariffs annually based on costs provided by the ESB, and these are published. Our view is that those tariffs should be cost-reflective and exactly the same as where we are. We do not believe deregulation would, therefore, result in a reduced tariff.

With regard to increased cost bases against other groups, all we are seeking is true cost transparency across the whole business. We would be happy to compete on a level playing field. The point was made about really wanting to break into a market, as everybody must do this, and I agree with it completely. We are trying to do this fairly and in a level market. The prices inquired about were compared to ESB prices. There has been 10% or 13% discount when compared to ESB prices.

Deputy D'Arcy asked about the negative views of windfarms. I appreciate the point made about branding, and long may such opinions that it is good continue. The positive view is that we provide a community benefit to these schemes. There are benefits which we provide to the communities where there are wind farms and these can help schools and so on. We would ensure they are part of the overall project. The idea behind the process, as mentioned by my colleague, is that Ireland has a commitment by 2020 to push up renewable energy sources. It must happen.

On the purchase of energy, the question was along the lines of why are we so good. That is so because we have been in the business for more than 50 years. I made the point in the presentation that we have, through Great Britain and Ireland, the most flexible portfolio. This means we have a coal, gas, hydro, pumped storage, methane and biomass plans. We have wind farms and we have some tidal projects. There is also a clean coal and gas plant as well. These are different mechanisms. My previous background was in trading and there are many ways to trade on that market. We trade in the gas, oil, coal and carbon markets, and having that expertise in trading can give a competitive advantage to Ireland and customers.

There was a question of our scale versus those of Bord Gáis and the ESB.

Ms Elaine McGovern

The ESB has just short of 2 million customers.

Mr. Kevin Greenhorn

It has just short of 2 million regulated customers and Bord Gáis has 600,000 gas customers. We have 100,000 electricity customers.

Are they private customers?

Mr. Kevin Greenhorn

Yes. Senator Walsh asked about our parent company, which is Scottish and Southern Energy, as was mentioned at the beginning. Airtricity is one of five supply companies within it; the others are Scottish Hydro Electric, Southern Electric, Atlantic Electric and Gas and Swalec.

The other four operate in Britain.

Mr. Kevin Greenhorn

That is correct. Energy efficiency is a massive area for us and SSE as a group is very interested in it. I did not mention with regard to the scale and experience side that we have a team of installers who put insulation in people's houses and refit both cavity and loft insulation and so on. It is a big area which we understand from a customer's perspective, as costs should be reduced by as much as possible. We think we can do that with a hedging policy on tariffs and costs and at the root source in customer's homes. We will give them more efficient boilers and put in insulation. I would love it if our group brought all this to Ireland.

What is in that for the company? It would seem to run contrary to its raison d’être.

Mr. Kevin Greenhorn

It goes back to what I said about giving the customer control over their costs and giving them options. It is not just about a price, which will save a customer X or cost him or her Y. We are indicating that there are other actions to be taken in reducing energy costs, such as insulating homes, putting in a different boiler, or installing a monitor. We have advisers who work with people on making their homes energy efficient. We would like to bring these and other elements which have been mentioned to the Irish market if possible. Energy efficiency is a big focus for us. We are seeking to launch an energy efficiency tariff and I hope that will happen before the spring. I cannot read my own writing now.

Perhaps Mr. Greenhorn might let us have information on that in writing because it would be useful for us to study the concept.

Mr. Kevin Greenhorn

Certainly, I can provide the material on energy efficiency and the tariff that is to be introduced.

Senator O'Reilly asked about wind and community benefit. As I said to Deputy D'Arcy, we see community benefit as a fantastic thing for our wind farms.

The Chairman asked if we supply and generate fuel. Yes, we do, some 10,500 MW of generation. The actual customer demand of SSC as a group is probably about 14,000 MW so we are net short and must buy for all our companies. As to when we buy and on which type of contract, that price information is obviously confidential but prices are various. We can buy fixed term or long term, exactly as we provide for our customers. We can hedge that to coal, oil or gas prices.

I was asked whether meter reading is open to competition in Ireland. It is not. Would I would like it to be? Yes. Are we good at it? Yes. I hope the slide shows the scale of our experience. We would love to be able to do all these things in Ireland.

If that was open to a tendering process would Airtricity tender for it?

Mr. Kevin Greenhorn

Absolutely. I included on the list everything we would be interested in doing. That was the whole point of the slide. We actually do this work and are keen to do it in Ireland, given the opportunities.

Airtricity can provide electricity to private customers. Although I said the company's banding is good, it has done poorly in relaying that message to people. Airtricity can sell cheaper than the ESB. Its product is cheaper, whether to the private citizen or the person in business, but the company has not relayed that message well. From speaking to people in business, I know the Bord Gáis campaign has been very successful. It has caught some version of some wave but Airtricity has not. I offer this as constructive criticism. The company has not marketed this aspect well. Again, from speaking to people in business I know everybody is going after their costs. This time 12 months ago people were starting to look at their costs but now at the end of 2009, when I speak to business people who are finalising accounts for the Revenue, they say that one thing is clear, namely, that 2009 will not be much worse than 2008 because last year people had not got on top of their costs. In 2008 three-quarters of the year had gone before the realisation dawned this had to happen. The price of energy is one of the biggest costs to business.

That is my view and if I am wrong Mr. Greenhorn will tell me so shortly. That is an opinion from a citizen in business who uses a significant amount of electricity.

Mr. Kevin Greenhorn

I appreciate the Deputy's candour and I agree with him. The Bord Gáis campaign was larger than ours but there are reasons for that. It has a much larger marketing budget than Airtricity. We had to try to deliver our cost savings message in the most cost-effective manner. I would prefer to have no campaign and pass on all the cost savings to our customers than have a multi-million pound campaign and not give our customers the best deal. That is perhaps the reason our campaign has not been as widespread or as vocal as the Deputy would like. We hope to increase that campaign and that our 100,000 happy and successful customers will pass on the message by word of mouth but we will maintain a marketing campaign, try to increase it and make it more effective. I thank Deputy D'Arcy for his comments.

Deputy McGrath has a supplementary question on that point. I agree with Deputy D'Arcy. We are creatures of habit and through the years the ESB was the forum. It will take a big effort by Airtricity and other companies to change us from that mindset.

I support the view that people need to know. They are anxious to make the change now because of costs.

I note that Airtricity is the second largest company in electrical contracting and the largest in street lighting. Is it allowed to tender for supply, and, as the Chairman mentioned, for erection and maintenance of street lighting? If not, would it like to be so allowed?

Mr. Kevin Greenhorn

We are allowed to tender for it and are in the process of looking into that market again. We would like to get into it and that is the reason we are looking at it. The street lighting contracts are available for tender. The issue we have now regarding tendering is that it is very difficult to make head or tail of the information within a tender. It is very muddled and only an incumbent supplier such as the ESB, which has been providing that energy for the past 50 years, has experience of understanding that customer demand and hustling to supply it. We need to have the tendering information in a better format to allow us make a competitive bid.

Does that include maintenance?

Mr. Kevin Greenhorn

Absolutely. We are the largest street lighting contractor in Great Britain. Previously it was exactly the same there as I described just now. Incumbent regional electricity companies did their own thing. What we did was to go in there, take it away from the host companies and try to bring it up to scratch with competitive tenders. We were the most successful company in the UK at this.

I assume if Airtricity becomes involved here it will change the bulbs.

I will follow that point on tendering. What is the difficulty with the tendering process which prevents the company from being able to compete?

Mr. Kevin Greenhorn

In the tendering process we do not have the 50-year history of the ESB.

Why would that matter with a tendering process?.

Mr. Kevin Greenhorn

In any tendering process information is absolutely crucial to the price. One can reflect it.

I am not an expert in the area and Mr. Greenhorn is. First, if he has the expertise in Britain I presume street lighting there is no different from the system here. Second, if he obtains the bills or learns the overall costs to the local authority, presumably that puts him in the same position in that he has as much information as he needs to tender effectively.

Mr. Kevin Greenhorn

I cannot speak with absolute clarity but I would say that if the information in the tender was of the same quality as we had in Britain then it would not be difficult for us to bid.

If the Chairman agrees perhaps Mr. Greenhorn might come back to us in writing and spell out the comparative systems in Britain and here and the difficulties he finds in tendering effectively. He should certainly be able to tender and if there is a problem within the system, whether deliberate or inadvertent, we should try to have it corrected, perhaps through another committee.

That is something we would like to see and if Mr. Greenhorn has a particular angle to demonstrate we would like to see that too.

I share Senator Walsh's view. Without washing any dirty linen in public, in my area street lighting is a disaster. There appears to be a monopoly and one cannot get lights erected. One was erected in my village when I served on the county council in 2007. It was paid for and erected but does not work. There are many such instances. Must the company tender for each county individually or is the tender a national one?

Mr. Kevin Greenhorn

That is part of the issue. Individual county councils have to be tendered separately.

It is not done in regions.

Mr. Kevin Greenhorn

It is at county council or local authority level.

We will return to this matter and afford Airtricity another opportunity.

I apologise for not being here for Mr. Greenhorn's presentation. I am familiar with some of it from previous discussions, especially with Airtricity. However, there is a great deal happening in politics at present and I had to attend another meeting. When one sees the number of Fianna Fáil backbenchers sitting behind the Taoiseach right now, one realises that people are starting to get nervous and may be heading back to their constituencies.

I did not hear what Mr. Greenhorn said and do not wish to repeat points raised but I have a number of questions. In meetings like this it is helpful when companies such as SSC and Airtricity outline policy blockages that prevent them from competing properly, whether in the gas or electricity markets or in developing wind farms, or whatever the case may be. I assume Mr. Greenhorn addressed some of those issues. Did he outline when the company is likely to enter the retail gas market in Ireland? He might answer that if he has not already done so. We need more competition in that area and Airtricity is a company that has the scale to be able to compete with Bord Gáis on gas, at both retail and wholesale levels. I would like some detail on that.

I am interested in the company's experience of metering because Airtricity provides both gas and electricity. Has it moved to the new smart metering concept available in the UK that might link gas and electricity metering? We are embarking on a hugely expensive pilot project of smart meters for electricity in Ireland and may have to start again as we may need meters for gas and water. It would make sense to plan to have all three in one smart meter in a home or business. I would like to hear the delegation's experience of that in the UK.

In terms of the development of wind farms, I assume Airtricity wants to continue to be a major player in the renewables sector in Ireland as we try to meet the targets the Government has correctly set to try to have 40% of our electricity coming from renewable sources by 2020. The delegation has experience in the UK of the planning process, where early decisions were made to put infrastructure underground rather than over ground, which is becoming a huge issue in Ireland. In some particular projects it jumped the gun and said it will put infrastructure underground to avoid problems and potential delays in the planning process. What is the delegation's experience in the UK as to what is possible regarding the expense of that and what is technically feasible, in terms of the type of powerlines which cannot be put underground? One can put one 10 kV line underground, but has the delegation had to deal with anything with a higher capacity?

What is the delegation's experience with grid connection in Ireland and the expense of it? It is something we hear many wind farm developers complain about, that is, that they have the choice to get the ESB to do it and pay for it or do it themselves and face all the challenges involved in terms of putting the grid infrastructure in place. One of the major stumbling blocks to developing wind farms quickly in Ireland is grid connection.

In regard to the policy we have on the gate 3 process, whereby one has to be in a queuing system for a long time before one can get a contract to provide power to the grid from wind, I presume the delegation has plans to develop large new wind farms onshore or offshore. Such projects are not part of the gate 3 process. What do we need to do from a policy point of view to be able to fast-track projects which are commercially viable and attractive but which are not part of the gate 3 process? What policy changes do we need to facilitate such development?

Has Airtricity considered going into partnership with groups which have planning permission for wind farms and an agreement for the grid connection but which, because of the current position of the financial markets, have difficulties being financed? Has the delegation considered a partnership approach? A significant number of grants of planning permission will fall outside the period in which structures will have to be built and will not be financed. Airtricity probably has deeper pockets than any such groups. Would it consider that?

I wish to take up one point which Deputy Coveney made. Does the delegation think the target of 40% generation capacity by 2020 is realistic?

Mr. Kevin Greenhorn I will pass some of the questions on wind farms to my colleague, Mr. Wright. To answer Deputy Coveney’s initial question on the gas market, we are already in it. We have gas customers in the high-end user sector.

I was referring to the retail household market.

Mr. Kevin Greenhorn

To answer the Deputy's question on the retail household market, we hope to be in the retail domestic market for gas by April, and if we can get there sooner we will. It is as simple as that.

The Deputy also asked about the smart metering experience in the UK. We are currently a leading player in it. I understand it does not currently involve gas metering. We are trying to become involved, wherever possible, with smart metering projects in Ireland and we are bringing our UK experience to that process.

How is Airtricity proposing to do that? Does it propose giving its customers smart meters or offering them the opportunity to buy them? I understand the current smart metering programme is a pilot project agreed between the ESB and the Government, which the regulator has agreed to finance by regulating the price of electricity to take account of it. This is not a criticism of the ESB; it needs to do it. My criticism is that we know smart meters are the way to go, so I do not know why we are messing around with pilot projects for two or three years and then making an assessment before we start a proper roll out of smart meters in 2012, the date we are now considering, when companies such as Airtricity already have a lot of experience with smart meters in the UK. Perhaps that is the pilot project, which has already been paid for. In terms of Airtricity getting a piece of the action, is it talking to the regulator or Government about smart meters? Will it be part of the pilot project? If it will be a big player in the electricity market it probably should be.

Mr. Kevin Greenhorn

We are not part of the smart metering project in Ireland. We would welcome the chance to be a major part of it. Part of the reason we were not is because we focused all our resources on the project in the UK in which we are heavily involved. We have offered to pass on any experience or knowledge we gained from that project to the regulator here and help move the Irish project forward. We would welcome any moves to be further involved with that project, should we be able to. However it seems to be very much ring-fenced around the ESB, for understandable reasons. We would love to try to become involved, if possible. I will pass the questions regarding winds farms, the planning process, grid connection and gate 3, in particular, to Mr. Manning.

Mr. David Manning

There are a number of questions. I will start with the Chairman's question on the 40% target. It is achievable in Ireland. We have more than enough resources here to easily meet and exceed that target. The difficulty with alternative energy is linear delivery of the target. There are currently substantial blockages as a consequence of the grid and getting it delivered — I will pick that point up in another guise in a moment. Until that matter is resolved and until we can get the offers out and get the grid physically built, achieving the 40% target will be a major difficulty because it will all be back ended. The date will be post-2016 or 2017 and we will be suddenly trying to get a huge glut of this infrastructure onto the ground. The problem is the resources of manpower to achieve it.

The 40% target can definitely be achieved but we must start seeing progress and activity on the ground now, and that must be delivered quickly. The grid argument is also an issue of community acceptance. There is a strong debate on over ground and underground. Deputy Coveney raised the point that in some areas we have underground cables for our wind farms. Generally they are for distances of less than 20 km, from a technical feasibility perspective, something EirGrid has referred to in a number of its reports on delivering underground lines. It is more costly. I do not have the number off the top of my head, but I understand it is approximately six or seven times more expensive than over ground. I am sure EirGrid has come before the committee to speak on that matter.

There is a decision to be made on whether underground or over ground will be the preferred option. As an industry, we prefer over ground because of technical and cost perspectives, which will benefit the consumer. If it will be underground, the consumer needs to understand there is a substantial cost element associated with it. We need to communicate that to the customer. We regularly have preconsultation phases, and in advanced projects during planning we talk to local communities, explain to them what we are doing and have them involved in the process. It is not about us going in and telling them what we are going to do, it is about getting feedback from them on what they would prefer to see happen. We will try to cater for that as much as possible. It will take political leadership from local politicians, Deputies and councillors on the ground, helping people to understand the differential, to get over this hump. If we do that, and get to a linear path for delivery of renewables on the island, we can achieve the 40% target. That is one element.

The second element is the grid. The committee referred to cost. When a person gets a grid offer, he gets a price from ESB Networks or he can go out and build that line. If that happens, he then hands it back to ESB Networks and it is included in the regulated asset base. The person does not hold on to the value of the investment. That sounds incorrect to me. It would be more sensible if we, as a company, could invest in our own infrastructure.

Deputy Coveney asked what policy measures the committee could seek. At present, there is a legislative prohibition on anyone else owning distribution assets in the Republic of Ireland. We encourage the committee to push for that legislative change to allow other players to enter the market. As a consequence, competitive forces would interact in the market, driving down the price of grid connections. It would also help community-based wind farm developers, who at the moment might find it difficult to secure financing because of the cost of their grid connection.

Deputy D'Arcy asked if we would enter a partnership with those who have grid connections and the answer is that we certainly would. If someone has a connection and wants to develop a wind farm, we are happy to explore how it might be delivered.

I mentioned offshore generation. The Arklow Bank project and a couple of others in the Irish Sea are under way but there is no grid for them. While the project has kicked off there is no clear intent on how the grid will be developed. This is a missed opportunity because the investment will go to other locations. If we want to secure that investment for Ireland, we must think outside the box on getting it in advance. The British Government has opened up to the possibility of non-indigenous renewables connecting to its system. For offshore projects in Ireland there could be an initial investment that would build directly into the British system. The jobs, investment and revenue would come to Ireland while the connection would go to Britain. If that was done with half of the initial project, the second half could be connected to Ireland in the later stages, allowing for de facto interconnection and market regionalisation. That is how we could make offshore happen quickly, securing the investment and jobs that go with it.

That is only on the east coast.

Mr. David Manning

Predominantly, but that is where most of the offshore projects are located.

It would be hard to connect to the British grid if the facilities are built on the west coast, which is where wind speed is more consistent.

Mr. David Manning

True, but on the west coast there are much greater depths of water. The majority of offshore investment and initial projects that are ready to go are on the east coast.

What is the situation with the Arklow Bank project? Will it be extended?

Mr. David Manning

The Arklow Bank project has 25.2 MW of generation capacity in the water at present, seven turbines. We want to develop the project — there are potentially 500 MW there but there is no grid.

We would not support gate 3 and did not support it when it came out first. It is a date order approach to connecting wind farms that does not take into consideration any qualitative assessment of the projects that have applied. We undertook work when gate 3 was published which showed that to deliver the grid to meet gate 3 would cost €400 million more than doing it on an optimised basis, taking clusters of wind farms in renewable energy zones and delivering the infrastructure through infrastructure corridors.

Why is the grid not available for the Arklow Bank?

Mr. David Manning

Gate 3 is a date order process so it depends on when the grid application was submitted. Those who came in later are much further down the queue. In Britain and elsewhere there is a separate parallel grid process for offshore wind farms but that is not the case in Ireland. Here, everyone is lumped into the same system for offshore and onshore wind. Our projects are way down the list and, as a consequence, there is no timeframe for when we will get processed and a commitment for delivering grid for the Arklow Bank.

If the grid was made available, would the project be extended?

Mr. David Manning

Absolutely.

Is there consultation with EirGrid on that?

Mr. David Manning

Yes but the gate 3 process is determined by the Commission for Energy Regulation.

The Commission for Energy Regulation is required to implement policy, and there have been different gate processes — we are at gate 3 at present which is to deliver 3,000 MW from wind between now and 2020. The problem is that if a project is not on the list, even if it is highly impressive in terms of wind speed, planning permission and finance, there is huge uncertainty. Large companies that have money to spend and want to develop large-scale wind farms onshore and offshore, because they must wait five years for a grid connection, are not considered under gate 3, unless the Minister makes an exception.

There is an inherent fairness about the gate 3 process in that those who have been waiting for a long time, many of whom have spent a lot of money, even if their wind farm is not as commercially attractive as some of the newer proposals, must be considered because they have been waiting for years and, therefore, deserve a decision and connection. The problem for the country, then, is that consumers must pay for the grid to get there. There are all these little projects dotted around the country that require a grid upgrade and they are being connected because they have been waiting a long time. It does not make sense in terms of macro-development even though it is fair in terms of those who have invested money. It is not fair on consumers, however, who will pay a fortune to make it happen.

The Arklow Bank project is potentially able to generate 500 MW of the 3,000 MW we expect to provide before 2020, is that right?

Mr. David Manning

Of the 40% target, it is 6,000 MW. There are about 1,100 MW installed on the island at present and gate 2 and gate 3 will add 5,900 MW if all projects are delivered.

So this one project approaches 10% of the requirement.

Mr. David Manning

Yes.

It has not, however, been permitted to go ahead with the project.

Mr. David Manning

No. If we come back to policy measures, we have pushed for a parallel process of offshore grid development.

To what extent would it be possible to go ahead with a project that would meet 10% of the requirement for 2020?

Mr. David Manning

If the grid situation is resolved, our company will be ready to develop Arklow.

The resolution of the grid situation requires the consumer to pay. It is not proposed to upgrade the grid to facilitate Arklow. It is being suggested that EirGrid does that with ESB Networks and the wind power would then be provided to the grid.

Mr. David Manning

It could be done that way or we could look at other models of how the grid might be financed. At the moment the committee is talking about a regulated return on an asset that would be built but it could be built on a risk basis.

Would Airtricity or EirGrid do that?

Mr. David Manning

If we look at what is being done in Britain, if there is a seabed area that will be developed, there is a need for the necessary offshore grid and that is tendered. The tender is to develop the site and to deliver the grid. The company that can deliver it at the most cost effective price wins. If our company's network division can deliver that grid at the right price and quality, brilliant, but some others could come in and say their company could do it better, cheaper and faster. That company would then secure the tender.

It is an interesting recommendation that we should be looking for competition in the market for delivery of grid infrastructure rather than assuming that ESB Networks does it in consultation with EirGrid. It is a controversial request but we should examine it.

We will put that on our agenda for a future meeting. I thank the witnesses for coming in. We found the information very helpful. I have no doubt we will be in further contact with Airtricity in regard to public lighting and the other issues also.

If there is no other business the committee will adjourn.

The joint committee adjourned at 11 a.m. until 9.45 a.m. on Wednesday, 14 October 2009.
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