We have three presentations today, by Airtricity, the Irish Wind Energy Association, and Meitheal na Gaoithe. We will invite Airtricity to make the opening presentation.Dr. O'Connor and Mr. Ennis are very welcome. We are in the energy module, and the clerk has made the gentlemen aware of the different sessions that we are having. At the end of our period of assessing the energy market and the direction that the country should be taking, the committee may very well decide to make recommendations to the Department and the Oireachtas. I understand the presentation will take about ten minutes. Is that correct?
Wind Energy: Presentations.
The joint committee met in private session at 2.02 p.m. and went into public session at 2.07 p.m.
Dr. Eddie O’Connor
We would say 20 minutes, just to be sure. I will be as brief as possible.
I ask Airtricity to be as brief as possible because we have three groups before the committee today. I want to give them all as much time as possible. We hope to finish by 4 p.m.
Dr. O’Connor
That is fine.
Dr. O'Connor will probably find that the questions from members of the committee will be more helpful. Before he begins, I draw attention to the fact that while members of this committee have absolute privilege, the same privilege does not apply to witnesses appearing before it. It is generally accepted that witnesses have qualified privilege. The committee cannot guarantee any level of privilege to witnesses appearing before it. Members of the committee are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.
Dr. O’Connor
I thank the Chairman for that clarification. I would like first of all to say something about Airtricity, to establish our credentials. It was founded in 1997, has 160 employees and 30,000 small business customers, and that figure is rising every week. The turnover in 2003 was €92 million and will be about €130 million this year. It will have 228 MW of generating capacity - about 60% of all that is in Ireland - built by the end of this year, and ten wind farms. Some €130 million has been invested to date and, but for one exception in Spain, it is the leading renewable energy company in Ireland, Britain and possibly Europe. This is just a map for the benefit of the committee showing where all the wind farms are. We will not waste any time on that.
I will now outline the key issues. We want a clear energy policy based on objectives set by Government. This is absolutely necessary. Otherwise the result is "default" to the short-term cheapest option, as we are doing at the moment. We are just building gas plants willy-nilly. There is confusion among regulatory bodies as to what priorities to follow and lack of investment in a diverse portfolio. I would like to briefly take the committee through the lessons of history. Having scars on my back and having been managing director of Bord na Móna, I would like to share my experience. The ESB was set up in 1927 when Ard na Crusha was built. Then the country ran out of water in 1932. It was dry so they had to re-open some of the old thermal plants and finished up reacting to unforeseen events.
In the Second World War the country ran out of fuel and relied heavily on peat. Mr. Todd Andrews, who had left the ESB in 1936, was not listened to until after the country ran out of fuel. Bord na Móna was set up in 1946 and went on to supply 30% of the country's needs. This was another reaction to events that happened. Throughout the 1950s and 1960s the price of oil fell in real terms. This led to the building of a whole series of power plants, Ringsend, Great Island, Tarbert and Poolbeg, all of which were oil-fired. The country was completely reliant on generated oil.
One night in 1973 the price of oil multiplied by four. Aghada was immediately turned from firing from oil to gas and Poolbeg was retro-fitted. Moneypoint was planned and constructed. Here we had a policy set by events that were not planned.
To optimise Ireland's competitive position, there has to be proactive planning . It is not good enough to react to events. If we react to events, we will continually pay the dearest price and lose out competitively, mainly in terms of industry. Our industrial base is at risk. Reacting to events costs, mainly in terms of the industrial economy. As regards the drive to renewable energy, here are pictures of the polarised cap, separated by 30 years. I do not have to explain this, but it is dramatic to remind ourselves that the polarised cap has been disappearing at rate 30 times higher than it was before the industrial age. We are in severe danger of annihilating ourselves.
On security of energy supply, the peak rate of discovery of oil and gas reserves was in the mid 1960s. The rate of production overtook the rate of discovery in the early 1990s. The rate of production of oil and gas will plateau in 2015. Here is a picture of what we use to supply our power at the moment in Ireland. Gas is at 40%, coal at 28%, oil at 18%, peat at 11% and renewables at 3%. If one takes hydrocarbons by themselves, something like 58% of all our energy comes from that source. We are not just here to talk about renewables to the committee. We are here to talk about a rational energy policy for Ireland for the next 30 years. We are in a high-risk dangerous position at the moment because the Irish people are paying far too much for energy owing to lack of planning at central level.
Here is the picture of the sources of natural gas around Europe, currently. There are big reserves off Britain and Norway. If we go forward to 2010, the committee will notice that the dots on the left-hand side of the screen have got smaller. Here is what happens in 2025. We are completely dependent on Russian gas and gas from the Caspian Sea. Do we want to put all our eggs into that basket or are we going to start to behave rationally?
To make it more dramatic, here is a graph of the great Norway field, including the Troll field. As one can see, the current figure is 180 million. By 2010 it will be seven million. That is about a 70% reduction in gas production from Norway in the space of ten years. It is like falling off a cliff. Here is another indicator that policy makers would need to know about, namely, the spurious OPEC position. OPEC members all regraded and upgraded their reserves in 1987, in the case of Abu Dhabi from 31 to 92. The committee will notice how the reserves at Abu Dhabi have not gone down since 1988. Here we have the spectacular and wonderful story of renewable hydrocarbons. None of the reserves in OPEC have gone down since 1987. In fact, some of them have increased. This is what many planners in the west are basing their predictions on, the fact that OPEC has not been telling the truth about its reserves for a very long time.
Here is the picture that symbolises everything, the oil and gas production peaking. Lines are somewhat fuzzy here. It could be 2010, but not later than 2015. Thereafter we start to pay huge amounts for all our hydrocarbon reserves. Here is a picture of the gas prices as they have spiked over the last three years. When the gas price spikes, economies suffer. The American economy loses 0.3% of its gross domestic product, GDP, for every one dollar increase in the price of gas per million BTUs. Economies are interfered with dramatically if there is an over-reliance on gas.
As regards issues for policy makers does it matter that Ireland is so heavily reliant on imported oil and gas? Remember Ireland's experience with oil prices in the 1970s and before that. Ireland has a serious electricity generation shortage. The default position is more gas-fired generation. Decisions on general plant mix in the next five years will increase or decrease Ireland's fuel price exposure for the next 20 years.
Mr. Mark Ennis
I would like to take the committee through some of the commercial and competitive aspects. Ireland's exposure to gas is two and a half times the European average. It imports 85% of its fuels in contrast to an EU average of 50%. We are very exposed to volatility in fossil fuel prices. I want to show that contrary to some of the misinformation being put out, wind actually reduces the cost of energy for Ireland. The committee will see from this map that Ireland has the best wind resource in Europe and we should be taking advantage of that. One of the arguments often put forward is "intermittency". This is a myth and we welcome the Sustainable Energy Ireland report, to be published fully in August, which shows that if the forecast techniques available today are used, wind reduces the cost of reserves, with up to 10% penetration. Even at 35% penetration it only adds half a cent to a kilowatt hour of energy.
We need to go beyond that, however, and take hold of two important themes. One is that risk needs to be embraced if one wants to really evaluate the cost of fuel. I put it to the committee that if one had the choice of investing in a bank account that gave a 10% return or in Internet stock that gave a similar return but which involved volatility and risk, one would plump immediately for the safe bet, namely the bank. When we value the cost of energy, we do not take the valuation on board. We plan it by looking at the standard discount rate and we do not take any risks. We have got to take risks when we evaluate. We recommend that we need a portfolio of generation products. We are not saying that everything must be renewable. We need a set portfolio of energy products that are divided into renewables and fossil fuels. We should examine the proposal and its cost structure.
I shall now explain the impact of volatility and how it impacted on different countries. The best comment was made by the US Energy Secretary, Mr. Spence Abrahams. He said: "The nation's last three recessions have been tied to rising energy prices and there has been strong evidence that the latest crisis is having a negative impact."
I want to take members to the next level by showing them my chart which challenges some of the information that is in the public domain. It is based on the work of Professor Shimon Awerbuch in El Paso. My chart details the 20-year price and cost of every piece of generation from coal to gas to bio-energy to solar power to wind. In the diagram the blue line demonstrates the traditional costs and ignores risk. Once risk is added to the equation, we can see that wind generation is far more competitive and is almost half the price of gas CC and gas CT. Ireland has just invested in two gas CT plans and there is talk of a third plant. We must sort out the matter.
Ireland has two options for energy production. On the one hand we are constructing more gas plants and fossil fuels account for about 60% of the cost of running a plant. Therefore, we are exposed to fossil fuels volatility. It is the customers and Irish business that take the volatility risks and it has a huge impact on business and the risk multiplies. Energy prices increase and the local economy and businesses are depressed.
The alternative option is to construct renewables as part of a future portfolio where the fuel cost is free allowing us to have a natural hedge between volatile fuel prices and a free option. The customer does not have a fuel price risk and it provides an insurance against volatile fossil fuels. My colleague shall now discuss renewable targets.
Dr. O’Connor
As everybody knows, the default case is that we must produce 13.2% of electricity from renewables by 2010 according to an EU directive. It is very easy to do and should be done, but current actions threaten these targets. There has been some talk about constraining wind generation in Ireland which is nonsense. As much as 30% of Denmark's energy needs is produced by wind in Jutland and it has never constrained wind plants. Fossil fuels are no longer burned. Wind power is a much better and cheaper idea and benefits the economy and the environment.
We should set targets to reduce overexposure to fossil fuels such as more than 25% of generation from onshore or offshore wind and more than 25% of generation from other renewable sources. We are not here today to talk about research and development. However, we recommend that the committee gives its attention to fostering wave power, solar power and various renewables. Our policies should be aligned with these targets.
One of our current experiences is the ineffective multiple AER programmes. We have had AER programmes since 1994 and we have built 100 MW. By the end of this year Airtricity will have built 224 MW. In four years of building in the private sector Airtricity has multiplied its output while AER has only contributed 100 MW. That does not work.
The Department of Communications, Marine and Natural Resources has not issued a clear statement on renewable support. Northern Ireland has adopted a more renewables friendly approach and its regulations and support mechanisms are aligned with England. It gives renewables solid support.
The ESB national grid's call for a wind connection moratorium damaged renewables investor confidence. When we met investors in Tokyo and London they knew that the Irish Government had put a moratorium on wind generation at 1% penetration. Members can imagine how that made investors feel and none of them invested in Airtricity.
The Commission on Energy Regulation, CER, designed a market system that took no account of renewable technology but favoured fossil fuel technology. We are on our way to between 60% and 80% reliance on gas here and the customer, as Mr. Ennis has said, will pick up its cost. Ireland will also build more gas fired generation stations. Shall we repeat our past mistakes or will the Dáil and Seanad take this issue by the horns and not leave national planning in the hands of the ESB that controlled it for the past 70 years?
We need to create a competitive Irish energy market and establish a 20-year plan. The Government should provide specified targets where no fuel, such as gas generation, will account for more than 40% of generation. There should also be specific renewable targets. Regulatory bodies, such as the CER and the ESB national grid, should be mandated to deliver the plan. The national grid recommended the moratorium and it should inform the Irish people about what it is doing to foster our greatest natural resource. When I worked for Bord na Móna as a manager, I felt proud when 450 MW were produced from peat. Wind generation may now produce 4,500 MW, yet all I hear are objections. There is constant carping that there is no system to support it. Why not build the system? Why not instruct the people with responsibility for building the system to make it capable of supporting a high output?
Support mechanisms should be harmonised between Northern Ireland and Great Britain. If Airtricity has a limited amount to spend, it will do so in the marketplace where it will get the most reward. At the moment there are far more rewards to be gained in both those countries rather than here.
Infrastructure investment must include interconnection with Northern Ireland and Great Britain. We are grateful to the Minister for his initiatives in this direction. We must also work towards a single Irish market within an EU context.
Without a definite energy policy Ireland's over-exposure to fossil fuel price levels and volatility will be cemented for the next 20 years. We must remember that a decision to build a power plant, whether it is coal, oil, gas or nuclear, lasts between 25 and 50 years. Some plants are still being fired after 50 years. A wind farm is good for 50 years. It is an important decision what type of plant is used to power our factories and homes. There is a real uncertainty about oil and gas supply and its price. We have already showed members graphs of prices. Renewables can offer a real alternative and act as an insurance. Mr. Ennis spent some time talking about the natural hedge they represent. It is required that other bodies, such as the ESB national grid and the CER, be mandated to follow a newly articulated and formulated energy policy. We have ample renewable resources but we need a commitment to exploit them.
Dr. O'Connor can take some solace from the fact that this committee took a deep interest in energy this year. It indicates how seriously we view energy and its policies here.
I agree with Airtricity that we lack a clear energy policy plan here. Last week during the Dáil debate on the Electricity (Supply) (Amendment) Bill 2004, we spent an hour and a half trying to tease out the views of the Minister on the future of the ESB. Unfortunately, he was unwilling to engage in a debate. That is where the real questions lies. I hope that we can nudge him in that direction.
Given that it seems that the regulator will not proceed with the local market pricing mechanism, what mechanisms does Airtricity think should be put in place? When the ESB national grid and the ESB attended a meeting of this committee, they recommended that we move towards a gross pool arrangement. What is Airtricity's opinion of such an arrangement? I am interested in what the delegation said about frequent constraints and the Danish experience in this regard. Is there ever a stage at which one needs to constrain? What market mechanism does Airtricity think should apply to wind energy in terms of its ability to secure a greater market?
The delegation has stated the need to harmonise our support mechanism with that in place in Northern Ireland and Britain and I presume this implies a system of renewable obligation certificates, ROCs. Does the delegation accept the view, which may come from other people in the industry, that such a system might well suit large operators like Airtricity but not smaller operators which would not have the contractual or other economies of scale to benefit from such a system? How would Airtricity answer that criticism? I would like the delegation to give an indication of the economies of scale that exist in terms of wind farms. What is the smallest farm that would be workable? I am generally concerned with the attractiveness of developing small-scale wind farms because of the local support and ownership that could be encouraged. Is there a competitive advantage in the area of wind production for a company such as Airtricity which is competing on the international market? My concern is how to ensure dispersed ownership in wind farming and avoid the emergence of one large supplier, replicating the situation with regard to the fossil fuel burning plants.
Dr. O’Connor
I shall ask my colleague, Mr. Ennis, to answer the question regarding the emerging shape of the market.
Mr. Ennis
Airtricity has been involved with many industry participants and has been working with the Commission for Electricity Regulation to discuss market shape. The CER held an important meeting at the beginning of June to discover the views of industry participants from whom there was a general sentiment of discomfort with a locational marginal price system. Such a system is fine in theory but constitutes a very complicated process in practice, which adds a layer of complexity without a proper understanding of the value it might offer to the country. ESBNG stated at the meeting that it would be happy with the progression of a gross pool arrangement which omitted the LMP aspect and Airtricity supports that view. LMP introduces an element of unnecessary complexity to an island of Ireland's size.
Dr. O’Connor
I shall deal with the matter of the ROCs, as referred to by Deputy Ryan. There is a very small geographical distance between Ireland and Britain. The money that is flowing from this country for the purchase of property in Britain sloshes around from place to place to order to attain the highest return. One will find that if there is a ROC system in Britain that is working well and is paying a relatively high price in comparison to a similar system in Ireland, the money will flow into Britain and the system here will not work.
Decisions have been made to allow for exploitation of the Arklow banks wind park and several others in the sea and this requires integration with Britain because a single market is essential. We must also be integrated with Britain if we want to have sharing of brown power. Ireland, with a population of 4 million, has no purchasing power in terms of gas. We are at the end of every gas pipeline and they all finish up coming from Russia. Britain, with a population of 55 million, has genuine purchasing power and we must tag ourselves onto that. Therefore, there are both green and brown reasons we should be integrated with the United Kingdom market.
With regard to small players, Airtricity considers itself an integrator in the marketplace. Over the last few months, it has secured a deal with the owners of a 2.5 MW wind farm in County Carlow whereby it has been offered a power purchase agreement. This is the type of approach we take.
When I was chairman of the Irish Wind Energy Association, we did a lot of work to help Meitheal na Gaoithe, a delegation from which is appearing before the committee today, to get off the ground. I remember urging the then Secretary of the Department of Agriculture and Food of the necessity of establishing wind turbines on individual farms with a decent wind regime, of which there are many, in order the secure the stabilisation of farm incomes. People should be entitled to connect to the national grid and the electricity from wind farms should become another agricultural crop.
Airtricity's personal record is very strong in this regard, as is its corporate record in offering power purchase agreements. For real developments in wind energy, it must be saturated in the minds of the Irish people. I see no contradiction between big and small and some of those small players will become more significant.
I remember driving to County Donegal in 1997 as the sole employee of Airtricity without any leads or contacts, where an old friend introduced me to Mr. Seamus Herron. Airtricity has come from one man in his car to a company employing 260 people and a valuation of €258 million. It does not wish to prevent the development of small companies into larger ones but it is prepared to offer power purchase agreements to any of those small companies.
Does Dr. O'Connor think it possible to run a feed and fixed price system in conjunction with ROCs in terms of a size guide as to which system should apply, whereby farms above a certain size would use ROCs and those below would use a fixed price?
Dr. O’Connor
That has been the position of Airtricity for a long time. There is no scale in one turbine and one pays maximum dollars for it. One only begins to see scale when one gets up to more than 50 MW. It is at that point that some purchasing power is achieved and the big companies start listening. Scale is quite elusory, however, and is not very material until perhaps one goes to sea and starts building 500 MW facilities, in which case it really matters.
If Dr. O'Connor were to specify a level for the use of ROCs, what size of farm would it represent? Is it 25 MW or 50 MW, for example, or some other figure?
Dr. O’Connor
A ROCs scheme is appropriate from approximately 3 MW and upward. We are talking about support for individual farmers and the best scenario would be for them to have one or two wind turbines on their land as well as forestry and biocrops - biodiesel in particular, which I am keen to see being produced from rapeseed and other sources. In this way we can stabilise economies in rural Ireland, from which we have all come and which we wish to see continue to thrive.
That is a matter we will consider at a later stage.
What is Dr. O'Connor's vision for the future of energy in Ireland and what would he do if he had sole national responsibility for energy?
Dr. O’Connor
I would immediately set about becoming an object lesson for how to do it right in Europe. The grid would be organised and built to accept plenty of renewables and I would designate a lot of upland areas in the west which are not scenic as areas where there would be a presumption in favour of wind energy. A scheme for farmers and a ROCs scheme would be introduced and I would build the interconnector to enable integration with Britain. I would also introduce an offshore support mechanism which could cope with the initial high cost of building offshore. All of my plans would be set out in a document for the consideration of the public.
I am impressed with the way the Finnish came to their decision regarding the construction of a nuclear reactor after ten or 15 years of debate. A document was published which incorporated every element of the plan, even peat. That is the type of document I would like to see presented to the Irish people and to energy economists around the world for review. A key element would be the establishment of a grid infrastructure which would accept a penetration of renewables up to 50%, allow us to export one of our greatest national resources to a power hungry Europe and have support mechanisms to get us over the initial high cost of wind energy. A gas plant, per megawatt, is cheaper than a wind plant. However, taking risk into account wind is almost half the price of gas over a long-term period. These facts should be brought to the attention of the Irish public. Dail Éireann has responsibility to initiate and formulate policy through debate and make a difference. These are the sorts of issues that it can promulgate.
I apologise for being late and welcome Dr. O'Connor and Mr. Ennis. Deputy Kelly took one of my questions. The representatives mentioned the policy makers regarding wind energy. How far behind do they think Ireland is with regard to wind energy?
I come from Wexford, a rural county. The representatives spoke of planning applications for wind farms and the many objections to those applications. I was in touch with the director of planning in Wexford to request a wind energy or strategy policy. He promised this would be completed by the end of September. Every county council lacks clear policy on where wind farms should be located within the county. County councillors represent all areas of their county and they do not want to agree or disagree. They want to agree with the objector and agree with the applicant. It is a serious problem.
The representatives also mentioned the idea of promoting the concept of wind energy in the minds of Irish people. How would they recommend that we, as public representatives, promote wind energy as the most clean and positive way to go forward?
Have the representatives spoken with each county council? Airtricity must speak with the county councils because they have a major role in granting planning permission for wind farms.
I acknowledge Dr. O'Connor's pride in wind energy.
I am conscious of the time. We must bank some of the questions.
I apologise for being late. Wind energy is a subject I am interested in and have closely followed. Did I hear correctly that there should be no impediment to the amount of wind energy and megawatt consumption based on wind energy? In previous discussions with the national grid and others they maintained that although they have no objections to wind energy, its capacity to generate power is variable and would interfere with supply.
I welcome the ending of the moratorium last Friday. I am interested in the representatives' view on this and whether they think wind energy will now develop. The Derrybrien experience has led financiers to be ultra-cautious about providing funding for developers. They have introduced more stringent standards with regard to the amount of funding that is now provided up-front. Perhaps the representatives might comment on this matter.
There are over 200 MW in the national grid at present, 800 MW approved under AER VI, and almost 1,000 MW in the queuing system of the national grid. What is the maximum possible amount of megawatts that the national grid can take? Nationally, it is approximately 5,500 MW. If one includes Northern Ireland it is approximately 7,000 MW. Can the representatives explain how wind energy, at maximum capacity, fits in with these figures?
Dr. O’Connor
I thank members for those interesting questions. Planning is not the most difficult issue for wind developers in Ireland. Of the planning applications submitted by Airtricity, 85% have been successful. It is necessary to deal in an open and forthright manner with the bird people, the planners, and the photo montages. Turbines should not be built in scenic areas. One must work with people instead of fighting with them. This leads to success.
"NIMBYism" is everywhere. There is a new phenomenon, "NOTE", Not Over There Either. Denmark has 3,000 MW with 6,000 turbines throughout the countryside. However, there are no objections. Germany has 10,000 turbines, without much objection. Guidelines are laid down for planners. These are not perfect but they look perfect compared to those in Northern Ireland, Scotland and the rest of England and Wales. It is much easier to get planning permission for wind turbines in Ireland than it is elsewhere.
On the issue of how the Dáil should take leadership in this matter, politicians always respond to the concept of jobs. Historically in Europe for every megawatt installed 2.85 jobs are created. Let us imagine a scenario where most of Ireland's power is supplied by wind and we export half of that across interconnectors to power-hungry countries unable to produce wind energy because of lack of manpower or wind. Ireland has plenty of wind. Implementing a policy of 10,000 MW of wind energy would create an enormous number of jobs. One should multiply 10,000 by the historical European average of 2.85 jobs. In Denmark 10,000 people are employed in the wind industry. It is an important point for us in Ireland and can be used by politicians to persuade colleagues within the policy-making community.
On the issue of Derrybrien and the difficulty in funding that arose from that experience, I am not criticising the ESB or Hibernian Wind Power. However, they accepted full responsibility for the events and paid out on the insurance. Within six months of that situation, we are now building the biggest wind farm in Ireland and England in Donegal which will produce 73 MW. Anglo Irish Bank has no problem with providing the funding. As long as one is careful and environmentally responsible, not causing bog slides, for example, there is no difficulty in getting funding for wind farms.
We are delighted the moratorium has been lifted. We were disgusted it existed in the first place. It was unnecessary at 1% penetration of wind energy in Ireland. We have a natural resource which will supply us with electricity whose energy source is free. That is the main consideration. It will employ Irish people, replace imports and stop environmental pollution. Life is viewed differently from a pro-renewable, pro-wind position. There is no technical limit. Mr. O'Brien, the head of Eirgrid, said as much. He then produced a document to show the high level of costs associated with it on the ridiculous fuel-saver option. Mr. Mark Ennis has presented a slide to the committee which demonstrates the fuel-saver option is similar to what a five year old child would produce. One should not close down all one's power stations. One cuts off the efficient power stations. From 1% to 10%, a positive contribution can be made. We are getting paid 7% more than the output of the wind farm in Donegal because we support the voltage in that county. I do not know if the committee realises this. We are making a massive contribution along with all other distributed generation. This goes back to the initial question about farmers' massive contribution, through their little wind farms, to stabilising the voltage around the country. Real energy policy means big farms generating between 30% and 100% of the electricity from renewable sources as is the case in Jutland in Denmark and Schleswig-Holstein and Lower Saxony in Germany which generate 30%, 36% and 56%, respectively.
In regard to the problem of intermittence, it must be immediately obvious to everyone that the wind does not blow everywhere all the time. However, the corollary is that the wind is always blowing somewhere. Therefore, if one has enough connections between places, one has constant power. A number of studies from the University of Kassel in Germany and Risø National Laboratories in Denmark have shown that if we separate wind farms by 1,000 kilometres we will get firm power. For instance, if we have interconnection with Britain, the average output from a 10,000 MW wind farm in the North Sea, one in Scotland and one off Kerry, is the mean average - it hardly varies at all. The average on an individual turbine on a wind farm, an individual wind farm or two wind farms separated by 100 miles vary, but big wind farms, separated by a significant geographic difference, where 1,000 kilometres seems to be the cut off rate, will produce smooth power.
I welcome the witnesses. The moratorium on issuing offers to wind generators for connection to the transmission and distribution systems was introduced at the end of December 2003 but was subsequently lifted. The criteria seem to have changed, which is worrying for ordinary country people getting involved in wind energy. They are worried that because the criteria have changed, they will be put to the back of the queue. What are the witnesses comments in this regard?
I will bank that question because I am conscious of the time.
I welcome the delegation from Airtricity and thank them for their briefing today and in the past, which has helped me and the Labour Party. I apologise for being a little late.
I note from the briefing material that the German steel industry received a massive boost from the development of wind power in Denmark. In that context, were construction or steel fabrication jobs created in Ireland by the manufacture of the turbines for the Arklow Bank structures? Will Irish sub-contractors benefit most in terms of jobs in the construction of the turbines and in their operation?
I was glad to hear Dr. O'Connor state that, despite the fact that the planning process is simpler in Ireland, the company is very conscious of the need to ensure that the visual and other problems associated with wind power are addressed in the context of, for example, locating major wind farms in areas of scenic or historic importance. In that context, is it anticipated that much of the development will be offshore? Where exactly will that be and what are the plans?
Mr. Ennis answered a number of the questions about the grid code. However, members do not understand why ESB and the National Grid did not address this area five or six years ago by examining the technical problems such as intermittence which seem to be their basis. It has been explained to us that the size of the grid in which we participate is the key factor. Therefore, I assume that Britain and Ireland will ultimately be the grid of which Airtricty will become part.
The witnesses make a very powerful case, as always, for wind power. However, I wonder a little about their diagrams on reserves because they have historically been under estimated. Are the witnesses aware of that fact because it will affect the comparative cost of wind energy? From where did the figures on reserve costs, the intermittence myth and so on come? The cost element will be important in the context of educating consumers if we go "green" in this area and put in place a diverse structure for energy supply. I assume there will be a cost but our job, certainly in the case of the Labour Party, is to ensure that the cost will not impinge on low income sectors of society.
In February next year, I understand we will have a totally competitive market. How will that impact on Airtricity in terms of the service it will offer to the country as against how it does at present?
Before Mr. O'Connor answers, we will take a short question from Senator O'Meara.
Like Senator Finucane, I was held up in the Seanad for the first half hour or so of the meeting. I apologise if this question has been addressed already but will the witnesses specify the gain to the consumer from wind energy, if one exists? In other words, how will this cost the consumer less, if it will?
Mr. Ennis
I will answer the questions on the grid code and some of the cost issues and hand back to Dr. O'Connor to take the rest.
There was no need for the moratorium at all in regard to the grid code. It was largely to do with our opposition and response to ESBNG that the CER was under pressure and actually forced ESBNG to form a grid code panel. On the grid code panel all the technical issues were exposed for the first time. Until then, the grid people hid behind a technical black box. Now they had to pull out the specific issues which needed to be addressed. That grid code panel could have been called on and put in place without any moratorium which would have done a great deal to enhance wind energy and renewables in Ireland.
Having said that, there is a fair amount of technical input in the grid code and Deputies are correct that there is some concern, particularly among small wind farm developers, that the code has been driven upwards in terms of the demand from wind farms and their requirements. We share some of those concerns, although some are unrealistic in terms of where the technology is today, because it is driving the cost. However, we have suggested to the grid code panel that, similar to Dr. O'Connor's 3 MW wind farm, if one has a small wind farm there should be some derogation to the grid codes.
In terms of cost and how we compete, at present Airtricity has obviously been competing in the marketplace and, as Deputy Broughan correctly stated, from February 2005 it will be fully open. We already offer a discount on what ESB customers pay to our customer base. Therefore, our customer base is already enjoying the benefits of competition in the marketplace. When the price of oil and gas feeds through, we will be in a fairly strong competitive position going into 2005 as against fossil fuel producers. We will continue to offer a competitive package in the marketplace which will compare well with existing ESB rates. Therefore there is real benefit going to our customers.
There was a question about constraints and intermittence. The intermittence data comes from the latest SEI report, which was talked about at the Energy Ireland forum and which will be a formally published document with proper costings in August. The data is consistent with what we already believed and we have in-house studies. We are pleased because it is a fully independent report by ILEX consultants and funded by SEI, and we cannot be seen to be influencing the results of this. The report shows clearly that up to 10%, we reduce the cost of reserves. It changes only when one gets past that 10% and even up to 35% it is only 0.5 cent.
Constraining off really only impacts the island of Ireland on hot summer nights. The need to constrain off has to do with one not wanting too much energy coming on the system. We are about to embark on a fairly comprehensive study involving both operators, North and South, to try to get a more factual understanding of it, but the initial information we have is that one does not need to constrain off because on a hot summer night there is very little wind and one gets a natural constraining off from mother nature.
The document put out by ESBNG on the cost of wind was very misleading and we have challenged the CER to ask ESBNG to explain the assumptions on which it was based. The regulator has written to ESBNG asking that it do so. ESBNG has refused to date to debate, in an open or closed forum, the issue of the assumptions ESBNG made to come up with that report. We think that report is totally misleading and totally wrong. The recent independent report from SEI blows holes in all the assumptions on which that report was based.
Dr. O’Connor
I thank Mark Ennis for that. I want to continue the theme because it would be remiss of us if we went out from this room thinking that wind energy costs the Irish people more. When one builds a plant, that is a decision for 30 years and this will result in much cheaper electricity for the Irish people. For example, Denmark had a feed-in scheme which rewarded the people who built wind turbines by giving them a higher price for ten years, and thereafter the price falls to the pool price.
When Ireland was hit by this crisis, which has caused ESB to look for an increase of between 15% and 20% in its tariffs for next year, the Danes were selling their electricity for about half the best new entrant price. The 30% coming from wind was being contributed on to the system at very low prices.
Deputy Broughan was rightly concerned with the cost to the domestic customer. If there was a thorough wind programme, the ordinary person would pay much less for power because the risk of gas prices spiking is carried by the customer. When one puts in a wind plant, there is no wind risk. The wind will always blow in Ireland.
The banks asked this question in the beginning when we went to them about seven years ago. They asked how did we know the wind will always blow. We replied by asking were they Irish and when they said they were, we asked did they ever play golf in Lahinch. The wind always blows. It hedges and it is a natural hedge.
I must remember that when I am next looking for money from the bank.
Dr. O’Connor
You can tell them where you heard it.
I have one further comment about the offshore issue and steel. The wind industry is the second largest user of steel in Germany. The first one is obviously the automobile industry because it is very well established there. It just shows what can be done.
There was no capture of the jobs in the Irish marketplace. There is not a single manufacturing plant in Ireland dedicated to wind energy. The reason is there has been no target set, there has been no support regime and there has been this ridiculous AER set-up which has not worked for the past ten years. Intermittence like that - this is real intermittence because it affects people's lives - causes no jobs. The same effect is noticed in America, which also has a very inappropriate support regime. It is a production tax credit scheme, and it goes up and down. There are very few such jobs in America as a result. Where there is a regular support scheme, like in England with the ROCs or in Germany with the feed-in system, where a manufacturer can see cash flows coming for the next five, ten or 15 years, they will build plant and will employ people. It is important that whatever comes out of these deliberations, Ireland should have a programme which states that we will have so much wind energy every year in the future.
Is Dr. O'Connor stating that the turbines were not built here?
Dr. O’Connor
Nothing was built here, not even the rolled steel for the towers. The latest we are using is being built in Denmark. It seems ridiculous to transport big rolled sections from Denmark to here.
That is the opposite of what representatives of ESBNG have been saying. They have stated that one can have wind energy but the consumer may have to pay more for the privilege of having more wind energy.
Dr. O’Connor
They would say that, would they not. Machiavelli had the answer to this. These boys represent the current order, and in particular Mr. O'Brien does. There is a big debate going on in EirGrid. That company is not unanimously against wind energy. We are delighted to see him come out in the open and say he did not like wind and that wind costs money because now we are able to answer it and address it. It does not cost the Irish people money. The committee's best way to check this is to have a chat with Dr. Shimon Awerbuch and have a talk to Dr. Colin Campbell about the reserves. A member asked how do we know that the figures for fossil fuel reserves are accurate. The world's leading expert in peak oil and gas lives in Ballydehob. That man should be invited in front of the committee to talk about the amount of oil and gas that is left.
If Dr. O'Connor is stating that ESB, in a Machiavellian way, is representing the current order, how would he characterise the position of the regulator and the Department of Communications, Marine and Natural Resources in the promotion of wind energy?
Dr. O’Connor
Not in the same terms as we would characterise the head of ESBNG. That person seems to have taken it upon himself to cure the ills of wind energy in Ireland by having none.
By default, a great deal of debate goes on at national level here. Some 56 American industries have created the Celtic tiger. I dare say every single one of those charges into a certain Department and says, "Forget wind, think about fossils which are good for us and we know how to do it". The debate is heavily weighted by the Department Enterprise, Trade and Employment. Policy has more or less been decided in that Department that we will not go for wind energy.
The Department of Communications, Marine and Natural Resources is wrestling with the idea at present and has asked for input. Airtricity and all my colleagues in the wind industry have input into that and I expect to see something out of it.
To date, in this country there was one engineer working in the traditional Department of energy. It never formulated a proper policy on electricity; it left that to the ESB. If I was in its position, I might have done the same thing. However, it finished up that we always reacted to events. In 1973, for instance, we reacted. After the Second World War, we reacted by setting up Bord na Móna. After 1932 when it got dry, we reacted by recommissioning the Pigeon House. We have the opportunity to do something now rather than look back and criticise what happened in the past. After all, we are here, we have had the Celtic tiger and we have an economy that works extremely well. Why not look forward. There are many good people and good civil servants and the Minister has stated he wants to make wind energy mainstream. What we are trying to do here is explain to the people with real influence and the policy makers like the committee members how this can be done at low cost to the Irish economy. That is our job.
I want to finish because we have two other groups to meet. Dr. O'Connor, we may ask you back in the future before we finish on this energy module to assist the committee with some more of your thoughts and visions. You had a vision earlier about what you would do and what your policy would be. Perhaps you might commit that to print and send it to us. It would help the committee, when it is evaluating other submissions from other visionaries, to come up with a final report on the future of energy policy here.
I thank Dr. O'Connor for attending. We have taken more time than we normally would because there were a number of probing questions to which the committee wished to obtain answers. We wished to hear your views on them, as well as those of Mr. Ennis. You are welcome to remain for the remainder of the session.
Dr. O’Connor
I thank the committee for its courtesy and for the extremely perceptive questions that were posed. They form the charter and we would be both delighted and honoured to reply to you, taking into account more fully the questions that have been posed by the committee members. I thank you for your courtesy, Chairman, as well as the intelligence with which you quizzed us.
We will suspend the meeting for a few minutes to allow the other two groups to join us.
Sitting suspended at 3.11 p.m. and resumed at 3.14 p.m.
I invite Mr. Tim Cowhig of the Irish Wind Energy Association and Mr. Thomas Cooke of Meitheal na Gaoithe to address the meeting. We have received both your submissions and members of the committee have read them. Perhaps you could summarise the submissions for five minutes, due to the time constraints involved. Another committee will use this room when we have finished. We will take a five-minute summary presentation and members will then ask questions. We will start with Mr. Cowhig.
I draw your attention to the fact that members of this committee have absolute privilege, but the same privilege does not apply to witnesses appearing before the committee. It is generally accepted that witnesses would have qualified privilege, but the committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, members of the committee are reminded of the long-standing parliamentary practice to the effect that 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.
Mr. Tim Cowhig
Thank you, Chairman, for giving the Irish Wind Energy Association an opportunity to present its views on what needs to be done to ensure that we have a vibrant wind industry. The Irish wind industry represents developers, professionals, environmentalists and manufacturers who see wind as providing a major percentage of our electricity needs for the future. Rather than going into the history of wind energy over the past ten years and trying to explain why we are in the current situation, our paper identified six areas which, if much work was put into them, would see a large improvement in the amount of wind-generated power on the grid.
The six identified areas are: energy policy, market support mechanisms, market trading mechanisms, our grid infrastructure, interconnection and the current AR system to ensure it is completed in a satisfactory manner.
In his presentation Dr. Eddie O'Connor identified energy policy as one of the main areas that must be addressed to ensure that we have a proper wind industry. The policies and targets should not be set just to achieve the minimum EU requirements, but rather to maximise our national interest through exploiting our indigenous natural resource in a thoroughly sustainable manner. The Irish Wind Energy Association believes we should have 660 megawatts of wind on the grid by the end of 2005. With proper planning, we could have 775 MW by 2010, if proper measures are put in train now.
A cohesion and renewables policy is sorely lacking, however. There is a number of Departments involved in renewable energy policy, with no single entity being responsible for the situation in which we now find ourselves. New policy targets must be set by those who can implement them. Another issue addressed by Dr. Eddie O'Connor was that private capital investors need a stable and predictable climate in which to make the necessary investments. This is lacking in Ireland and immediate action needs to be taken to ensure that confidence is restored.
As I have stated, wind is highly sensitive to support schemes. Much debate has revolved around this issue in the wind industry. The Irish Wind Energy Association has held a number of fora to establish what should replace the existing systems and what form it should take. The view was that, while in the long term a ROCs - renewable obligation-type scheme - would serve the industry well, the consensus was that in the short to medium term, a fixed feed-in type of tariff would be most appropriate for the Irish market, given its modest size and the fact that it is not fully deregulated.
With this mandate from major market players, the Irish Wind Energy Association made a submission on a new market support mechanism based on a Spanish system. This was based on a fixed feed-in tariff and/or a tariff of the average price of electricity plus a premium which could form a tradable renewables energy certificate. This allows for the introduction of ROCs when market conditions allow.
The market trading mechanism was also mentioned by previous speakers. We welcome the CER's decision to put implementation of the new market trading arrangement on hold. It was our view that the market arrangement, as proposed, discriminated unfairly against wind.
Last Christmas, the grid operators sought and received a moratorium on connection offers for wind, bringing the industry to a standstill. If there was anything to be taken from this, it was that a serious problem had been identified and now had to be dealt with. There has been a debate on how much wind the grid can accommodate. We do not accept the ESB national grid's archly conservative estimates, which mark the extreme bottom of the range. Informed views indicate that there is no hard limit and that considerable study is required before the economically optimum level can be agreed upon. It is likely to be continually refined as markets, environmental concerns, geopolitical developments and technology evolve.
Serious questions must be asked as to why these studies - in which the ESB national grid was an acknowledged international trail-blazer in the early 1990s - have not been progressed and brought to an agreed conclusion by now. Notwithstanding this, we are confident the time scale for the targets we have set out, allow for the completion of rigorous studies, which will demonstrate in good time that the targeted levels can be comfortably accommodated.
The Irish Wind Energy Association fully supports the Minister's proposal to seek tenders for building the east-west interconnector, which can create more competition in the Irish market and will increase the amount of Irish wind energy that can be developed. With regard to AER 5 and AER 6, the AER system has delivered less than 130 megawatts connected to the grid in a decade and will be best remembered as an example of how not to get things done. We now find ourselves in a mess, with more than 640 megawatts of power purchase agreement offers, nearly 1,500 megawatts of signed and live grid connection offers and a number of developers wanting to build wind farms with third party access contracts. These lists are compiled using different criteria, with no link required between a successful award of a PPA and a grid connection offer. It is likely that we will again only see a fraction of projects built under AER 5 and AER6 because of failure to secure grid connection.
Ireland is heavily dependent on imported fuels and vulnerable to fluctuations in price and supply. There is no justification for failure to exploit our indigenous national wind resource in favour of imported, expensive, polluting fossil fuels. It does not make economic sense and is damaging our environment.
Before you finish, Mr. Cowhig, I ask you to introduce the members of your team.
Mr. Cowhig
The Irish Wind Energy Association operates under the guise of a council, and each of my colleagues are chairpersons of various committees within that council. They are Ms Maureen DePietro, chairperson of the market, regulatory and policy committee, Mr. Dave O'Connor, chairperson of our grid committee, Ms Inge Buckley, a former chairperson of the Irish Wind Energy Association, and Mr. Aidan Sweeney, chairperson of our offshore committee.
I ask Mr. Thomas Cooke of Meitheal na Gaoithe to introduce his colleagues and then to summarise the submission he sent us in five minutes in order to allow the members to ask questions.
Mr. Thomas Cooke
I thank the committee for the invitation. It is our second day out this week on this subject. We met the Minister and some of his officials yesterday so we are fairly well up to speed on what is happening here. I am joined by Mr. Ronnie Owens, our secretary, Mr. Jens Petersen, who has been involved with us for many years and was the inspiration behind the setting up of Meitheal na Gaoithe following the Danish model for wind development owned by communities, and Mr. Grattan Healy, an engineer who is a member of Meitheal na Gaoithe and works very closely with us. His expertise is being utilised by his participation in the grid code discussions. Any questions on grid code, market regulation and so on could be directed to him.
If you do not mind, Chairman, I shall pass the buck to Mr. Jens Petersen, to summarise his view of where the industry is now and our position within that industry.
Mr. Jens Petersen
I am from Denmark and have been working in the industry for some years. I have developed sites around the world, but I have a great deal of experience of Denmark in particular. We did a market analysis of Ireland before we came here, and if one looks at some of the parameters, it has the best wind resources in Europe. It has plenty of space for wind turbines, a very high generating price for electricity, a very high dependency on imported fuels, a booming economy that is fragile to that energy price, difficulty in complying with the Kyoto Protocol as it stands, and is the most polluting energy producer in the western EU from its existing power plants.
Ireland provides an enormous subsidy to the fossil fuel industry. I do not know if the committee knows that, but that is including both the internal and external cost of fossil fuel. It has the necessary legislation, and UN policies on climate change and the Kyoto Protocol supporting renewable energy. There are numerous EU directives, including those on "user pays" principle, removal of barriers for renewable energy, promotion and prioritising of renewable energy, emission reductions and emission trading.
Ireland has enormous export potential. It can produce ten times its own consumption of electricity. That is what it can export if it wishes. That is enough to finance the country's entire social welfare and education system. In comparative terms, Ireland is for renewable energy what Saudi Arabia is for oil. That is the potential. The industry is ready to go, as we have just heard from Airtricity and IWEA. More than 2,000 megawatts of planning is already there and we are moving on with probably another 1,000 megawatts. Plenty of grid connections have already been issued.
This is an extremely attractive market. One cannot find a better market in the world to enter at the moment. We have been at this for ten years. The rest of the EU has raced forward in that ten year time frame. Wind power has been installed in every single European country in the meantime. Even the UK is moving forward but in Ireland nothing is happening. Why?
There is a simple answer. What is missing in this country is political drive. There is absolutely none. There is nobody sitting behind the wheel and driving this industry forward and making sure it happens. Everybody is discussing it and coming up with new suggestions, reports and studies but nobody is driving it forward. The Danish industry really took off because we had a Minister for Energy who was appointed Minister for Energy and Environment because up to that the two departments discussed with each other who was actually responsible this. He drove the industry forward very forcefully for ten years. That is why Denmark today is the world's leader in this industry. It could have been Ireland. It still could be Ireland. It will be Ireland in the future.
Ireland has a Department that consistently under performs. It never delivers on time or delivers targets. We have not seen that, except when it is asked for excuses. The CER disfavours wind. It is the institution that has imposed the most barriers on this industry, not solutions. The ESB is using its market monopoly to exercise its power against developers, especially small developers like the ones we represent. It does that through its advisory role and lobbying, especially through its connection with the CER, its size, its control over and knowledge of technical assets and because its balances finance.
We are asking for free grid connections. There are very good reasons for that. If wind farms are connected with no charge to the wind farm itself to the grid, the energy will be about one quarter of the price to the consumer and we do not have to hassle for this grid connection. That policy was implemented in Denmark a long time ago after many years of discussion and is now being implemented in the UK also. There should be free grid connection for the wind farms and the metering point at the boundary at ten or 20 KV. These are simple, straightforward rules that do not require great courage to implement or all kinds of difficulties in finding out how it works. We also always have priority dispatch. We are also asking for a fixed price for our energy. This is not State aid but a State economic risk management system. We heard very well from Dr. Eddie O'Connor earlier that if we are given a fixed price which is only a fraction higher than the best new entrant price at the moment that price can be fixed for the next 15 years.
I encourage the committee to go out and ask industries to come to Ireland by guaranteeing them a fixed price for electricity over the next 15 years, including all environmental issues. Does the committee think that will be attractive to them? You bet it will. They cannot find that anywhere else in the world but it can be done here. Those are the two main things we are asking for. There are a many underlying points which we can come back to discuss if the committee wishes. The real question is not if or when this happens, but which party is going to drive this forward, which individual will make it happen and who will take the credit for it?
Europe is a hungry animal for energy. Do you think with wind energy development we could export it to Europe and have cheap electricity to support these exports?
Mr. Petersen
Very much so. There is nowhere else in Europe where electricity from wind is accepted at the low price we are being offered here in the AER 5 competitions. Europe would be more than happy to take power from Ireland at that type of rate. Also, if the developers or farm owners are given a fixed rate the State has the option of selling that power to Europe at a higher rate. Germany is currently paying more than 8 cent per kilowatt hour. The same is going on in most other European countries. Of course they will take the power. The difficulty is in getting it to the market.
I thank Mr. Petersen for that presentation.
I will address my first questions to Mr. Petersen. What fixed price per kilowatt hour would he need to ensure this turnover? His presentation of the positives and negatives was very strong and I agree that in certain parties here there is no political support for the vision he set out. One of the top items in the agenda of the Green Party in Government would be immediately to introduce a radical change in the electricity market to bring in the massive wealth we have yet to tap.
I was slightly confused by some of the references to grid policy in Mr. Petersen's presentation. They may relate to free grid connection. What does the ESB national grid charge for a connection and is that the fee Mr. Petersen seeks to have waived? Why would that lead to a lower price for the consumer?
Mr. Petersen
We would look for a fixed price in the order of 5.5 cent or 6 cent per kilowatt hour but it depends on the time scale for that fixed price, for example, is it ten or 15 years? It also depends on the indexation. If it is 15 years with no indexation it probably needs to go above 6 cent. If it is a ten year contract we still need a slightly higher price because we must ensure we can recover our investment. The longer the contract and the more indexation allowed on that fixed feed-in tariff the lower the price we can start from. There is a balance there depending on how the fixed feed-in tariff is mechanised.
That price is very similar to that which the Government has just issued to the combined cycle gas plant in Tynagh Mines of approximately 5.5 cent or 6 cent per kilowatt hour. Is that right?
Mr. Petersen
We do not know.
At any rate it is not a large jump. The consumer price of electricity would be approximately 13 cent per kilowatt hour so the wholesale cost is approximately 5.5 cent or 6 cent per kilowatt hour.
Mr. Petersen
If the price is added to the gas-fired power station which has external costs, the price is much higher to the taxpayer, not the consumer. In general, we do not have those extra costs in wind energy and that is why it is much cheaper than any other energy source available now in this country.
In general the price depends on whether one includes the connection cost.
Can Mr. Healy or Mr. Petersen explain the free connection cost?
Mr. Petersen
In Denmark we have been through all the discussions that have taken place here. We do not have a grid moratorium because we did not reach that capacity that early in the development of the business. We have had all the discussions about why we should pay and where the connection point should be, what we should pay for or not. If one creates several small developments beside one another because the wind areas are often quite closely related, the securing mechanism means that the wind farmer must develop his or her own grid connection and will pay only for what he or she must use. The wind farmer will ask for a connection for 3 megawatts or 5 megawatts, regardless of what the neighbouring wind farmers do. There is no strategic planning and the farmer will not pay for the next connection coming in.
That is one of the most important points in the strategic part of the grid connections but if one asks national grid to develop the infrastructure to promote this industry it can do balance finance. It does not have to make a profit. It can write off over 30 years. We cannot do that. We must finance our debt, and make a profit and write off over ten years. It is much more expensive. If the Deputy does the numbers he will see that it is approximately 400% more expensive if the small wind farms pay for the grid connections, that is, before going into the strategic aspect of developing the entire grid. It will be patchwork if we do it but strategically correct if the national grid does it. That is what Dr. O'Connor asked for, a strategic plan.
Have any of Mr. Cowhig's members anything to add in response to Deputy Eamon Ryan's question? We would like to get their view on it.
Mr. Aidan Sweeney
I agree with Mr. Petersen, one of the main requirements on the grid policy in particular is that it is very easy to plan for the construction of wind farms and their connections to the grid. There is a wind atlas in Ireland which has been around for some time. Combined with the county plans it will show where the wind farms will be located. It applies equally to a big wind developer or Meitheal na Gaoithe and the farmers. They are the prime areas in which to place a connection point to the grid. It is quite simple for the ESB national grid to plan in the long term and establish an infrastructure to support the grid. It is then quite cheap and the ESB can do it over a regulated period, get its costs back over 30 years instead of the short term.
There is also a quick solution, namely, it could change its attitude to how it operates the grid. It has a very restrictive operating practice and if it copies what has been done in Denmark, Spain and the United Kingdom it can put 30% more capacity on to the grid as it exists. By changing its operating regime and coming in with a planned nodal system that has clusters of sub-stations to allow good areas with energy potential to be connected to the grid, it can do this very quickly.
Before I call on Deputy Broughan, if any of the witnesses wants to contribute to the response to a member's question they can so indicate to me and we can have a round table discussion.
We have discussed policy with ESB national grid on how it should strategically plan the grid and it agrees that this policy should be changed. It needs to say this itself but our discussions indicate that we agree on this point. It has grave difficulty dealing with the plethora of wind applications and competition between applications for the same connection point. It would much prefer to do as Mr. Petersen and Mr. Sweeney have described, namely, think ahead, plan the grid on a more strategic basis and develop it in anticipation of the wind capacity which is much better for the industry. It makes it cheaper and easier, and is a more efficient way to deal with this.
Is Mr. Healy saying that the €4 billion or €5 billion enhancing the current grid is misplaced, given that we have not put in the necessary entry for wind?
Yes. It is not possible for ESB national grid to do what we have just described because the regulator will not allow the grid to recover the cost of such a strategic plan for some reason. EirGrid has asked the regulator to allow it do this but it has been refused this permission so it is not built into the €4 billion investment.
Mr. Sweeney
The new grid upgrade takes no account of any new generation, be it thermal, wind, or renewable. It is upgrading the supply of power into the country but not upgrading the generation of new power. The €3.5 billion or €4 billion does not take account of any new generation.
I welcome both delegations whose contributions have been very interesting and informative. Mr. Petersen said the Department "consistently underperforms". Ultimately, as he knows, Departments and all organisations should respond to leadership. Is he criticising the Minister in that regard? Is it he who has consistently under performed for the past two years of his administration? There would be income benefits to particular areas. However, would areas that cannot generate their own electricity from wind be disadvantaged? Will it be an economic option for areas that will be affected by changes in the Common Agricultural Policy? How is that transmitted to communities that are not in a position to partake in this type of electricity generation?
I remember when cycling in Denmark seven years ago, there were not that many turbines, particularly around Nykøbing. I understand there are forests of wind turbines on offshore wind farms. A case has been made for a separate energy department. Denmark has a department of energy and environment with wind-generated electricity production as one of its remits. There has been a massive increase in the wind-generated electricity. How have the Danes coped with the environmental issues? The delegations gave us a good analysis of what went wrong with the AER 6 system which has come to the end of its life. What do Mr. Cowhig and the IWEA expect to come after it?
Mr. Cowhig
The history of wind-generated electricity has been stop-and-go. We have to get away from that and decide a short-term policy with targets and fixed feed-in tariffs while we establish what energy portfolio we want. After the studies are completed and it is decided what type of wind generation we want, we can go on from there.
Mr. Cooke
Regarding Deputy Broughan's question on rural areas, it is unusual in that the wind resources are available in the most disadvantaged areas. It would be a rebalancing of advantages. The wind resources tend to be in the higher and more exposed areas that are disadvantaged from an agricultural perspective. We do not just represent the agricultural sector. Local development and community groups from Cork to Donegal are involved with us.
There are low-income urban groups too and, for example, wind turbines will not be built on the northside of Dublin city.
Mr. Cooke
No. The Western Commission published a report promoting the idea of widespread involvement. The Middelgrunden offshore wind farm is owned by a co-operative based in Copenhagen. The type of development that is taking place is fine but it needs to be balanced. It is not good enough for a country to decide that it wants big companies to undertake the development. Those companies can easily move their capital. In the future, ownership of these companies could change, leaving us with all the windmills but no ownership. The owners should be embedded in the rural communities where it cannot be levered out.
The term "extra costs" is often used by the Department and others. They argue that the costs of these small scale developments should not be borne by the consumer. However, the costs to the consumer will be much less if the ownership of those wind farms is dispersed across the community. All the money will come back into the community. Any fractional additional costs will only come to half a cent. Dr. Eddie O'Connor stated that the advantage of scale is 5% of costs. We need a tiny fraction above the lowest price to make this project work with widespread ownership. However, the problem is that the risks are too high. The Western Commission's report nailed it on the head when it stated that the risks for communities are too high. We need to protect an area of this industry that allows widespread community ownership. I am behind the idea of ownership extending into the broader community.
Mr. Petersen
I must be careful in commenting on what the Minister is doing as I understand the Deputy is on the Opposition benches. The Minister is extremely frustrated by his Department's performance in this area. I have had to revise my perception of time. When the Department claims it is imminent that it will deliver something, it is probably within the next six months. When it claims that it will deliver something in two to three weeks, it usually is two to three months. When the Department says it will happen soon, it is within the next few years. When it says it will do it, it will not be in my lifetime. It is under performing timewise and one can never trust any of its time lines. I believe the Minister is very frustrated by this.
I agree with Mr. Cooke on his points about local involvement from areas with low wind potential. Co-operatives can be brought in for widespread ownership, not just at local community level but county level. If there is a fixed power price, then there is a risk reduction in the price the areas have to pay for electricity. No other energy producer in the market economy can give this. With local ownership, taxes are lower because of the additional local income. As stated earlier, the whole social welfare system can be funded on this industry alone, so taxes would not have to be raised. This is a benefit to people who live in areas where there are no turbines. Pollution is also reduced and therefore risks to health. The list goes on. A frequently asked question of wind turbines is what is in it for the local communities. There may not be direct impacts to someone who lives in a wind poor area.
In Denmark, we have our opposition to wind turbines. For a time, it was strong because of media attention. However, most of the arguments put forward were quickly dismissed and eventually became ridiculous. When a wind farm is proposed for an area, local people get concerned. The main concern is not about the visual impact which seems to be the main one in Ireland. The main concerns are about noise or rotating shadows from the sun shining through the rotor. People are concerned that they will not be able to watch television because of a flickering light show in the room. This can be solved by stopping the turbine. Noise pollution is reduced by ensuring the right distances from dwellings. When this is done, the opposition dies away. After 25 years of wind-generated energy and 6,000 turbines in Denmark, surveys show that 75% of the population is in favour of the industry. There are no problems with the short term extra cost. Only 3% have a problem with the industry. They are typically the people who are asking what is in it for them. In Denmark, there are no issues with public relations and wind farms.
I welcome both delegations and I know Mr. Cooke has been seeking a meeting with the committee. Mr. Petersen referred to shadow and flicker issues with wind turbines. When I was a Deputy, I was subject to criticism from a large delegation opposed to a wind energy project which I supported. Its concern was that it understood from auctioneers in the area that properties would be considerably devalued as a result of having these giant turbines in this location. What is coming through in both documents is a terrible disappointment with what we have achieved in the wind energy area in the past ten years. We have missed opportunities. This committee has had before it Mr. McManus, the chief executive of the ESB, and we have had National Grid representatives answering questions. Mr. McManus refused to answer any questions I asked him on wind energy and said that was a matter for the National Grid. When I asked the National Grid representatives about the matter they said they had no objections to making watt capacity from wind energy but that there was a downside, namely that because of the variable nature of it, the consumer would probably pay more. This was disputed earlier by the Airtricity representative, Dr. Eddie O'Connor.
There is a lack of vision with regard to the scale of wind energy. Local authorities around the country are currently drawing up county development plans. Most county developers are trying to incorporate in the plans areas which they think would be suitable for wind energy projects to negate the type of planning effect which may subsequently follow, based on an application if certain areas are designated. In my own constituency we have had well-attended meetings regarding the hen harrier versus wind turbine controversy. That dispute has been solved. Mr. Cooke spoke of ownership embedded in local communities. That is laudable, but what I see is many planning applications which are successful for one, two or three turbines in rural locations, taken in isolation. I am sure that County Limerick is no different to other counties with regard to where that is happening. One sees the farming community, probably under pressure, seeing this as a very good alternative source of revenue and embracing the idea. The frustration sets in afterwards because one must have connections to the national grid and so on, with many delays. The moratorium created a further delay, and the witnesses have disputed the necessity for the moratorium in the first place.
Ultimately, what capacity is there for megawatts from wind energy? Is it finite, or is someone considering a figure? Is anyone telling the local authorities that if people apply for a wind turbine project, permission will be granted, but that other people will get permission too? Many people are applying and there are already numerous applications stacked up within the national grid, waiting approval, and held up by the moratorium. There are the applications already in existence as well as those already approved but held up for various reasons. Nobody is quantifying the scale of all this on a national basis. Local authorities are still giving out planning permissions, as they should, depending on the application, but in many cases they are building up the expectations of the people to whom they give planning permission, people who see the wind turbines as an alternative form of income. In many cases those people are not aware of the impediments to getting into the wind energy area.
As I told the ESB, someone must complete this jigsaw puzzle. There should be a coherent national wind energy plan. If the ESB says there is no restriction on wind energy, so be it. Let us proceed and develop a long term market. We all applaud the wind energy concept. However, the two documents reveal a series of frustrations. I begin to question the merits of the Energy Regulator's office. He has appeared before the committee regarding discussions with the National Grid and the ESB. What is the Energy Regulator's office doing? Does it consider wind energy a good concept in the area of alternative energy, and to what degree? What guidance is it giving in the area? I can appreciate and share Mr. Cooke's frustrations in that area because there is frustration at local level. If one sticks one's neck out on behalf of a project which does not see the light of day, one has strongly supported the project developer who is dealing with one particular family, because one believed in the concept; but one has meanwhile alienated an entire segment of people within that community, people will go to other politicians in the area who will agree to do their best on their behalf, and thus appeal to the wider masses. It is time for a proper national wind energy plan. We must place all the pieces of the puzzle.
I welcome the witnesses. I concur with what Senator Finucane said. Listening to ordinary people, there seems to be much frustration. First there was the moratorium, which was then lifted. Everything seemed to change then. Many of the ordinary country people I meet are involved in farming in rural areas and they are frustrated because the process is so slow and takes so long. They think the rules have changed and that it is very hard to get the projects going. They are worried. Can the witnesses give any words of encouragement for such people?
I heard that Senator Finucane did a very good job as committee vice-chairman when I was out of action for a few months and he did not allow any speeches. We have only a few minutes left which is why I am anxious that the series of questions be answered.
Ms Inge Buckley
I concur with Senator Finucane's comments. For the past few years I have been working closely with a number of Meitheal na Gaoithe members, with farmers and local land owners in bringing projects forward. I still have many contacts from land owners and farmers throughout the country who want me to look at their sites. I currently tell them that I cannot recommend that they bring a project forward until we see a clear Government policy. Even on a small project a farmer could easily spend up to €50,000 getting wind measurements and putting in the planning application. The farmer is then left waiting. I tell farmers there is no point in making applications now unless it is appreciated that the investment is very high-risk. We must have a new Government programme in place sooner rather than later. The AER 6 programme has still not been approved in Brussels. While the Department felt it had to look for State aid, it is clearly documented that it is not state aid. The programme is still stuck in Brussels. It was announced at the beginning of August last year and has still not been approved. The projects on the reserve list still cannot move forward. Finance cannot be had until one has the offer of the power purchase agreement.
This process involves meeting a number of energy groups - all the interested players and parties. We hope that as a committee we can add to that and to the direction policy should take. We will not have a great deal of time today to explore all the avenues Ms Buckley wishes to explore, so I will leave it open for the Clerk to contact her again to seek clarification on her submissions or to seek further help when we are formulating our views as a committee at the end of the energy module.
I allude to page three of our submission. The report I have with me is a seven-year-old study of the total renewable energy potential in Ireland, a very interesting document. It begins by indicating the theoretical potential, in terms of what can be done. We quote some of the figures in our submission. As Mr. Peterson said, the potential amounts to ten times our total energy needs, and possibly more. Ireland need not worry about energy if we just get on and do the work. Senator Finucane asked what the limit is. If we approach this issue on the basis of only connecting wind turbines to the electrical system, at some point the intermittence issue will become a bigger issue. Mr. O'Connor indicated that if one connects Britain, Ireland and perhaps France, and we have large wind farms spread about, we can smooth it out. We have much greater potential here. I know the committee's deliberations are concerned about electricity. However, we must think about linking electricity energy with the overall energy policy, since the two will become inextricably linked. One of the areas I believe will develop is the conversion of electrical energy into transport fuels. That will do two things. The first is to start to provide our transport industry with fuels that are sustainable. The other is to deal with the intermittence and storage questions. We use roughly seven times as much energy overall as we use in the form of electricity. There are transport, heating and all sorts of other areas to cover. The idea that I am trying to suggest is simple. Especially with sustainable energy, we must think in broader terms. Transport and heating fuels will help solve the overall grid question, and ultimately there will be no limit.
It is the committee's intention to examine all the different fuels we have. We will be considering the different State bodies involved. The committee also has a deep interest in bio-fuels.
I have one or two short questions. Perhaps we might run a few minutes over.
I am advised by the clerk that the room is wanted.
I am sure that any committee coming in might be able to yield us just one or two minutes. It is important that I get one or two questions on the record. We must come back to the regulation and address the points. Perhaps each group might be able to indicate to me what market trading mechanisms it thinks the regulator should now consider, given that the LMP system is being dispatched. I must ask Mr. Dave O'Connor about what support mechanism we have. Why does the Irish Wind Energy Association believe the ROCs system should come in only in the long term? Why should we not immediately allow companies to trade across an interconnector - perhaps even the current interconnector - into the UK using a ROCs system? Could we not do both at the same time? Must we choose between ROCs and feed-in? I am interested in each group's views on that.
Perhaps we might return to the grid investment. Something like €680 million was invested in it last year. Are the witnesses saying to us that the investment is not going towards developing wind and that it is, in a sense, being wasted when it comes to developing long-term or renewable resources? Was that €680 million investment in the grid last year alone misspent? I would be interested to hear whether that is the witnesses' view.
The network company, ESB, said that it was operating certain clusters of wind farms which it is supporting. Has that had a big effect? Is it working regarding its investment in the grid? It said that it was working with wind clusters. Is that a significant support or a red herring?
I must leave for another meeting, so I must ask our Deputy Chairman, Senator Finucane, to take over. He has been doing a superb job in recent months. I have no doubt he will get a promotion out of this. Somebody should send word to see if there is anything in line for me. According to the media, there is not. I will let Senator Finucane take over.
I thank the groups for coming in. It is certainly not the end of the discussions, and the witnesses will find that the members are very much clued into the area of wind energy.
Senator Finucane took the Chair.
Perhaps I might add a brief postscript to Deputy Ryan's questions. Regarding ESB subsidiaries, the interesting thing about the ESB to lay people is that it seems to have been heavily involved through subsidiaries such as Hibernian in applying for AER 6 licences and so on. Given what the witnesses have said, is that therefore not a serious interest by the national electricity company in wind? We have been getting criticism in the form of e-mails and faxes from Mr. Cowhig and his group regarding alleged discrimination against his members, who are small, local operators. Is there a paradox or contradiction here, or is it all phoney? Is the national company not interested in this? Why would it not be? Why would it not also take this route?
Mr. Cooke
Deputy Ryan asked which system we would favour. We would certainly favour the fixed-price system for the time being. We have already made points about that and why it is a money-saver over time. If one chooses a system linked to the market price of electricity, it will track the price of fossil fuels. That has nothing to do with the fact that there is no fossil fuel involved in wind energy. Let us examine that as absolute reality. It is like building anything in one's house or anywhere else. It sounds expensive the first day that one does it, but afterwards one sees it as a job well done. It is an investment in one's future. That is exactly what one is doing. It sounds expensive, but looking at it over a period, it is the cheapest way forward.
The grid investment going on now means nothing at all to the renewable energy industry. It is totally separate, and I could give an example of that myself. My own local grid was renewed. We are replacing an old, Third World grid with a brand new, shiny Third World grid. We are not looking at dispersed generation. We need to turn the grid around and put generation lines in dispersed areas. We are renewing an old system that is no longer applicable to this country.
Mr. McManus and the ESB told us the opposite and that they were trying to reconfigure the grid, not only regarding wind but other possible forms of generation.
Mr. Cooke
I applied for a grid connection more than a year ago for a small bio-gas plant. I have still not received the quote from the ESB for it. In the meantime, it has renewed the grid without any regard to the fact that I applied. That is an example of the sorts of things that are happening. On the AER 6, the problem is the scarcity of contracts. At the moment we have a dysfunctional market where the market players are beating each other up. Big companies are subdividing large projects into small ones and bidding for small-scale contracts. The Government set out a target before this ever started of 85 MW for small-scale projects. It qualified that and said that it wanted to encourage community co-operative developments. It created a category that gave a slightly higher price, but more than half of that capacity has been taken by large companies subdividing their projects. One can argue about whether that is right or wrong; we would say that it is wrong. It is the product of a dysfunctional system. There is such a fight out there for capacity that people will do anything they can within the law to get it. However, we believe that we are entitled at least to what we were promised.
We do not like the AER system. Competitive tendering is very inefficient. However, we at least expect delivery on what we were promised. We will have invested more than €400 million from our members in small-scale projects. About €1 million of that has already been lost in planning. We have a much higher loss rate in planning applications than Airtricity, which is extraordinary. One would expect that a community project would naturally have the support of the community. While they might have that, we do not have the planning resources to hire very expensive planning consultants who will do whatever needs to be done to get a planning application through. One is fighting from a position of great disadvantage where the smallest problem is important to a small developer. Derrybrien has had an impact. Now we are having to conduct geological and viability studies in areas that have no such issues. More costs and risks are being lumped on, so it is becoming almost impossible. However, it could be turned around in the blink of an eye with a proper policy framework, and that is what we are saying today.
Mr. Cowhig
On ESB subsidiaries, the IWEA would have felt that it was quite difficult for independent companies to compete against a semi-State company. As we pointed out, it was felt that there was a limited resource there and that the playing field was not level. Ms De Pietro will deal with MAE and ROCs. Mr. Dave O'Connor will deal with investment.
Ms Maureen De Pietro
Although for the long term, ROCs may be the answer for larger-scale generation, to encourage more, one needs a market. As small developers, if we have a wind farm of perhaps 5 MW and want to sell the renewable obligation certificates, there are very few people to whom we can sell them - the ESB and perhaps one or two others. Until that market is there, or until we can sell into England or Europe, we have not really got a fair market. We would be squeezed and not be able to do it. We would be very limited.
Would there be any objection to us running both a ROC and a feed-in system at the one time?
Ms De Pietro
No. At the moment the market arrangements are discriminating against wind. The regulator is setting up a pool system. A pool system works in Spain where they have an extra premium incentive for wind energy because they are unable, as yet, to rely on the average pool price. About five years ago there was very little wind energy in Spain. The Government decided it must have renewables and wanted wind energy. It set a target and in this way were able to make it happen. In Galicia, a level of about 2,500 MW was achieved within three years. They needed that power badly. It is economic and of course it is environmentally beneficial. It is the global target that is needed and can be achieved. The Government needs to make it happen. In looking to the long term we must have renewables.
Both Eirgrid and some other body supported the idea of a pool arrangement, trading alternatively. When it came to putting locational signals into that, Mr. O'Brien indicated this might be possible. Could it not do that in a way that would favour wind - providing locational benefits to areas of the country where there is a good deal of wind power?
Ms De Pietro
It is positive discrimination. We are trying to put wind into any reasonable place we can. The problem with locational marginal pricing is that it is very complicated. Ireland still has a small grid of 4,000 MW or 5,000 MW. It does not need a complicated system to indicate where generation needs to be located. That is what locational marginal pricing is supposed to do.
A pool arrangement would work for the broad electricity market, as long as there is a fixed price for the wind energy and guaranteed despatch.
Ms De Pietro
Yes. On top of the pool market there has to be the additional incentive.
Mr. Dave O’Connor
Just before I answer the question about the grid, some of the committee members would know me as an employee of Hibernian Wind Power, which is the ESB subsidiary company for developing wind energy projects. I would hope that members of the committee are fully familiar with the setting up of Hibernian Wind Power, which was done with formal separation of ring-fencing arrangements, arms length relations with the parent company and full agreement with the CER. All the details of that agreement, the rules and regulations and the compliance reports are in the public domain. Although I am not representing Hibernian Wind Power here today, I wanted to set the record straight on that.
Does being a subsidiary of the ESB confer a natural advantage when it comes to tendering for wind energy projects, with regard to getting connections to the grid?
Mr. O’Connor
Absolutely not. The whole thrust of the rules and regulations laid down for us is to specifically eliminate any such possibility. It is entirely effective, as is demonstrated by the fact that we are seen by all our competitors to be experiencing at least the same levels of difficulty as they are, if not more.
Would Mr. O'Connor agree that there is a perception that it gives Hibernian Wind Power a natural advantage?
Mr. O’Connor
I am aware that a perception of that nature might exist. However, if it does, it is a total misconception.
I would like to ask a question in terms of investment in the grid.
Mr. O’Connor
I thank the Deputy. The investment in the grid by Eirgrid and the distribution system by ESB Networks, as I understand it, is driven entirely by the perceived need to improve the standard and volume of supply capacity. The framework under which those organisations determine what investments they feel should be made, which in turn have to be approved by the regulator, specifically rules out any speculative investment in anticipation of the expected renewable energy projects or perhaps fossil fuel-burning generation projects. It is driven purely by the supply side and is not allowed, under the current rules, to consider generation. That means ultimately that it is not directly helpful to the wind energy development sector.
What about the wind clusters that the grid operator was talking about?
Mr. Aidon Sweeney
Perhaps I could answer the question about the wind clusters because Ms De Pietro and I are involved in the first and only wind cluster. The wind cluster is not funded through the budgets that are in place for the upgrading of the system. It is funded through a small amount of money from the EU, which is recycled into the system again. We have to pay a portion of the cost of the development, which means it is expensive. In fact, the actual cost is probably three times that which could be done by ESB on the supply side.
There is no investment by the State in the grid to develop the massive wind resource potential we have. In fact, there is an additional cost involved.
Mr. Sweeney
There is, to the individual developer.
What is the advantage of clusters? Are there economies of scale involved?
Mr. Sweeney
There are two types of connection to the grid. One, which Mr. Cooke is talking about, has a short distance to go, at the distribution network. Many of the areas where the wind is are remote from even the main generating plant, so there is a long connection to that point, maybe up to 20 or 30 km. at a stretch. Therefore, the developer has to pay for that complete connection to the nearest major substation. This involves a significant increase in costs. If it is clustered, the theory is that the cost of the development would be shared with like-minded developers in the neighbourhood. That is true. The trouble with this is that the cost may not be contested. Mr. O'Connor, for example, if he connects to the transmission system, can contest the actual cost. If he does not like the price he can build it himself and hand it over to the national grid. A cluster is not contestable, so one has to take the price specified by ESB Networks and build it at that. The cost that Mr. O'Connor pays and the cost that I would pay are about three times the price. I know that for a fact because I built Mr. O'Connor's connection in Kingsmountain two years ago. I am now trying to build my own and I know it is three times the cost.
Mr. Petersen
Starting off with the ESB advantage, which is the point I brought up earlier, I believe the ESB is heavily advanced in terms of connection with small wind farms because it has the size and knowledge to achieve this. The grid connection process has been made extremely complicated over the last five years by the CER and by the national grid. Just to go through the procedure of trying to get a grid connection is extremely expensive and complicated and is only for experts to deal with. Of course the ESB has an enormous advantage and therefore we do not stand a chance to even compete. It can template it because it has multiple products running through. It can run the procedure again and again and knows exactly what to do. We have no way of doing that, so of course the ESB is significantly advanced in this sector.
Mr. O’Connor
Again, speaking as an employee of Hibernian Wind Power, we have about eight staff. Dr. Eddie O'Connor spoke about his company earlier, which has 20 times that number. There is nothing special as regards the expertise we have in matters of grid connection. The regulator made rules and we are following them to the letter and the spirit of the law.
Does Mr. Petersen think the energy regulator views wind energy as a speculative venture rather than as a serious part of the energy framework?
I want to add a rider. Twenty years ago there were no EU directives. My party has some grave concerns about so-called competition directives in different markets. We have seen how they operated in telecommunications and the impact on us. We lost our national grid. Would wind generation have been a cheaper option if the national power company had opted for it? I disagree with that notion.
I know that everyone must be careful about what they say. The political head makes all of the decisions. We are the Opposition and the Government makes things happen. Senator O'Meara sends her apologies for being absent from this meeting because she is in the Seanad attending a debate on the controversial Bill dealing with Aer Rianta. The Government has decided to split up Aer Rianta no matter what.
The three delegations have made a powerful case for wind generation. The committee must recognise that and think what is best for the country. We should take cognisance of Denmark and how successful it has been in many ways. Would it have been simpler for the national company to adopt wind energy?
Mr. Petersen
Over the past five years the CER has created the greatest barriers to the industry. It is difficult for small developers like us to work with the CER and we cannot see the company helping us in the future.
The committee met the CER first and then it met the ESB National Grid, Eirgrid and Meitheal na Gaoithe. As a result we will request the CER to come back here again to answer more questions.
Mr. Petersen
The CER does not support our activity when its uses phrases like "support for renewables will be over my dead body" and "developers drive Mercedes cars."
That is why I mentioned the mindset earlier.
Mr. Petersen
The mindset is not there. With regard to the pool system and competition, we need to introduce a mix to the market. Scandinavia has the best functioning pool system for electricity and it has worked for several years. Denmark gets very cheap hydro-power from Norway and Sweden. We also have nuclear power and a lot of fossil fuel plants. Some wind generation is embedded in the latter. High enough production leads to a price reduction and vice versa. We have had periods, in the open pool system, where prices have exceeded 60 cent per kilo per hour. We have also paid for the system to produce power. Competing is tough. Prices will fall if a company establishes a new gas-fired power plant when prices are high. Therefore, a company cannot secure finance under those conditions.
The Scandinavian market has not increased its capacity under free market conditions. Some Norwegian hydro-power stations were phased out and they cannot construct any more due to environmental issues. As stations are phased out the difference between capacity and consumption decreases. The next time Norway has a dry year there will be a blackout in Scandinavia. We must be careful because the pool system will not work in the long term when there is a fairly limited market.
Allowing the ESB to manage everything is not a good idea either. In Denmark utility companies were mandated to develop wind power but nothing happened. They could not deliver their wind projects on time. Instead a dual system was created. The utility companies were asked to deliver 200 MW over a five-year period and my company was given a fixed feed-in tariff to work with them. We probably developed ten times the capacity of the utility companies in the same period. Today 85% of all wind capacity in Denmark is owned by local people either as corporations or as individuals and the remainder is owned by the utility companies.
The utility companies were also asked to construct large offshore wind farms and that is why they are more numerous now. My company cannot participate in the market because it is a small developer.
There are obvious dangers to entering the pool system. A split market consisting of mandated utility companies and motivated free market companies should not be created.
With regard to managing a grid and exporting excess power, there are some good examples. When Denmark discovered oil and gas in the North Sea a Government Minister said it must be marketed. He decided that a pipe system should extend from the central North Sea to every household. It was an extremely costly venture and led to a major uproar. People wanted to know why we did it for a possible limited resource. The system is now fully owned by a state company. It is the most profitable company in Denmark and all it does is transport gas from the North Sea to the consumer. The same can be done here. The State can simply construct and control a grid and charge a minimum price to transport power from here to Europe to finance its social welfare system.
What percentage of AER V projects have been constructed? What percentage of AER VI projects will be constructed? What shall we do when the deadlines for those contracts are not met? If it is on such a scale should we use the reserve list?
We heard a presentation by the national grid company and were informed that there is a risk of a blackout in the winter of 2006. Can we swiftly adopt wind generation to avoid the potential crisis or should we look at a combined oil and gas plant just in case?
I want to answer Deputy Ryan's question on pooling. Some of the non-renewable utility companies read the weather forecast and anticipate wind generation. As a result they can manipulate the market price used by the pool system to disfavour wind energy. I only learned of this danger recently. I have not experienced it myself but it may be happening in Denmark. There are many dangers attached to pool systems. Prices are deliberately increased when the wind does not blow and vice versa. Wind generation prices are compromised.
ESB National Grid said the following, and perhaps it was said to the committee, that for any electricity market to work in Ireland, or indeed anywhere else, the issue of incumbent dominance must be effectively tackled. If it is not, then investors will be deterred and the best that one can hope for is an inefficient oligopoly. After five years of effort, this is precisely what we have at present.
In other words, it is not possible to design a pool system that will function here until the ESB's dominance is tackled.
Did the Competition Authority say it?
No, it was ESB National Grid.
Mr. Sweeney
A question was asked about the AER competitions. AER V has produced approximately only 40 MW of the 363 MW total.
That is approximately 10%.
Mr. Sweeney
Yes. One or two wind farms will hopefully be built by the end of the cut-off period but no more than 15% to 20% will be attained under AER V.
Given that AER VI was a more competitive bidding process, one might predict that less would come on stream.
Mr. Sweeney
No. The AER VI system has the benefit that one could front-end the pricing which meant it could be artificially high for approximately five to seven years. This got one over the hump. It has full indexation on the price, which is the key to it, whereas AER V had only a quarter of the price indexed. AER V was a disaster. Its only benefit was that one could drop out of it. The national grid estimated that it would get 75% to 80% from AER VI but until the grid offers and AER offers are co-ordinated, it would be lucky to achieve half this estimate. If the grid offer is co-ordinated with the power purchase agreements offered under AER VI, the national grid's estimate of 75% could be achieved.
Could that be sufficient to meet the expected energy crisis in winter 2006?
Mr. Sweeney
It should go a long way towards meeting that projected crisis.
Mr. Ronnie Owens
Most of the issues raised by the committee members are an aspect of the ineffectiveness of policy in this area. As Dr. Eddie O'Connor observed, the starting point must be a grid that is designed to take wind so that advantage can be taken of this wonderful free fuel into the future. That is the bottom line.
Members asked questions about the models which should operate to ensure that local communities benefit from the income generated by this development so that it acts as an incentive for other small-scale industrial development, not least biofuels and other complimentary renewables that would run alongside wind energy. Wind energy is the primary "oil well" and guarantor for the development of other renewables because of the wonderful advantages enjoyed by Ireland, as identified by Mr. Petersen who visits us from Denmark. He has outlined to us the importance of establishing small locally-distributed wind farms. The distribution of small-scale wind farms around the country partially mitigates the need to upgrade the grid to a significant extent.
The Western Development Commission's study, supported by Sustainable Energy Ireland, represents a litany of the obstacles facing small-scale wind energy operators. At the launch of the report last week, Mr. David Taylor of SEI was virtually warning people against the risks involved. The Minister for Community, Rural and Gaeltacht Affairs, Deputy Ó Cuív, was there and he expressed his ongoing frustrations in this regard. It seems insane that so little thought should be put into the policy regarding such a wonderful national resource. I concur with Dr. Eddie O'Connor that there must be a serious national debate about this issue. It should not be a question of catching the wind or not, as implied in the title of the Western Development's report. There should be no question about it. Wind is a wonderful natural resource and the doors should be opened to allow ordinary people to be given free grid connection or whatever else it takes to ensure that we have the national security of supply into the future and that local communities can benefit from that. The situation is hopeless if the money derived from the development of wind energy should go to the national monopoly that is the ESB and be lost in the national coffers, or alternatively to large-scale companies which busy themselves developing abroad.
People in local communities are urged to be good consumers, keep their mouths shut and desist from becoming involved in the energy debate. The energy debate is as old as humanity and it should be just as important that we have security of energy supply as of food supply. Everybody should be allowed to participate in the effort to ensure this security of energy supply. That was always part of the national culture, as evidenced in the cutting of the turf on the bog in order to have the fuel in for the winter. Even the Minister acknowledged that he must be an agnostic in this matter and juggle the interests of his own Department, interested agencies, the ESB and the CER. The implication was that the ESB represented God in this matter and that we should all bow and genuflect to its requirements. The solution is that people must be able to participate easily and happily to ensure the sustainability of their communities into the future.
What megawattage will be produced from wind by February next year?
Mr. Sweeney
Approximately 350 MW will be produced from wind, of which approximately half goes to electricity and the other half to independent grids such as Airtricity.
Is it true that output could be doubled by the end of 2005 with the assistance of a changed national policy?
Mr. Sweeney
Yes. If the operating rules for the grid connections are changed, at least another 300 MW could be put onto the system within the next two years.
Are we talking about a market support mechanism of approximately 5.5 or 6 cent per kilowatt? In Germany, wind producers are getting 8.5 or 9 cent per kilowatt. Is this a mark of our advantage in that we are 30% cheaper?
Mr. Sweeney
The average wind farm in Germany has a load capacity factor of approximately 27% and 25% in the more recent installations. In Ireland, the corresponding figure is between 35% and 45%.
Does that mean wind is being generated here approximately 40% of the time on average with a subsidy of 6 cent per kilowatt, in comparison to only 25% of the time in Germany with a subsidy of 9 cent per kilowatt?
Mr. Sweeney
Yes.
I thank the Irish Wind Energy Association and Meitheal na Gaoithe for their presentations which have been very informative.
The joint committee adjourned at 4.40 p.m. sine die.