JOINT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES debate

Energy Review: Presentations.

Chairman

The joint committee resumes its energy modules with a review of energy today. While it was indicated on the agenda that we would receive a presentation from Professor Mark O'Malley of UCD, a member of the renewable strategy group, the professor cannot attend due to other commitments. Today's agenda is still a full one, however. The committee will hear from Dr. Brian Ó Gallachóir of UCC on energy policy development with reference to wave energy, wind forecasting, energy in buildings, biofuels, transport and photovoltaics. We will also hear from Mr. Martin Howley of Sustainable Energy Ireland and author of Energy in Ireland and, in the afternoon, from IBEC whose representatives will make a presentation on energy issues for Irish industry. The IBEC presentation will be followed by one from the ESB.

In early September, a delegation from the joint committee visited UCC to see at first hand the very valuable work taking place at the institution. The presentation to the delegation on wave energy was especially informative, interesting and educational for those of us who attended. I am delighted Dr. Brian Ó Gallachóir will make a presentation to the joint committee. What we will hear will be of vital importance in compiling a report on energy which we hope to publish in the next few months. We will hear a short presentation approximately ten minutes long which will be followed by a question and answer session. I draw everybody's attention to the fact that while members of the committee have absolute privilege, the same privilege does not extend to witnesses appearing before the committee which cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

Dr. Brian Ó Gallachóir

During the course of the presentation I will provide an overview of the research being carried out in UCC on sustainable energy. We have been active in this field since the late 1970s and have over 25 years of research under our belt. Initially, we researched areas such as wave energy, hydropower and photovoltiacs and, more recently, geothermal energy in buildings, energy performance of buildings, wind power and energy policy research. We are working collaboratively with Cork Institute of Technology on biofuels for transport.

The research is informed by our current situation. Essentially, Ireland has a 58% dependence on imported oil; 2% of our energy comes from renewables. Overall, we have a high level of import dependency and a strong dependence on fossil fuels. Where UCC sees its strength, in terms of research, is in the breadth and depth of its focus. Research is focused on energy supply, wind, the oceans and photovoltaics and the end use of energy, 40% of which occurs in the area of transport. Another 40% is used in buildings. We concentrate our research on these two key end use sectors. We also carry out energy trends analysis and policy research.

Wind energy can be produced in Ireland cheaper than the best new entrant into the electricity market, as calculated for the energy regulator. However, there are two main challenges associated with increasing the amount of wind energy on the system. It is not accurately predictable when wind energy will be available and, equally important, when it will not be. Even if it were predictable, wind energy is still variable. This creates a challenge in trying to integrate increasing amounts of wind energy on the system. The challenge is particularly apparent in Ireland because of our weak level of interconnection in comparison with that in countries such as Denmark where there is a much higher level of penetration but it has a strong interconnection with the Nordpoolelectricity grid. We are working with ESB National Grid in a project supported by SEI on developing a wind energy forecasting system for Ireland.

The graph shows how the work developed in UCC is in the process of being implemented in Denmark. The error in wind energy prediction is mostly in the numerical weather prediction model, that is, predicting the weather. Our focus has been on trying to improve the accuracy of weather prediction models in a way that makes them suitable for wind energy forecasting. Quantifyng the uncertainty is as important as improving the accuracy. The graph on the slide shows that at certain times the band of forecasts is very narrow, which indicates a high level of certainty in the forecast. At other times, depending on the weather system coming in, it is very difficult to predict what the amount of wind energy will be. It is important to be able to quantify this for system operators in order that they can accommodate increased amounts of wind energy.

The second aspect of wind energy relates to variability. Addressing this can be done in a number of ways and depends on the level of interconnection and the flexibility of other plant on the system. The work on which we are focusing is energy storage. We have been involved in an EU project looking at wind hydrogen systems in which one uses wind energy to produce hydrogen. Essentially, one stores the energy in the wind as hydrogen in order that it can be used later either to produce electricity or as a transport fuel.

Turning to page 4 of the presentation, another of the key supply areas is wave energy. In a sense, wave energy can be viewed as a concentrated form of wind energy. Ireland has a significant resource. Wave energy capacity is shown in comparison with what is currently available on the Irish system. In theory, the whole coastline could provide 48 Terawatt-hours of energy. Taking the theoretical available amount of wave energy it is necessary to see what would be constrained by physical infrastructure, as well as the grid infrastructure. Members should see on the slide the reference to a quantified amount of 2.5 Terawatt-hours in the medium term.

Page 5 indicates that the work on wave energy is carried out in the hydraulics and maritime research centre within UCC. Based on some recent work, it suggests a target for Ireland of up to 80 MW to be installed by 2012 and after 2012, installation of 20 MW per year. The focus in wave energy is twofold; meeting our own targets in renewable energy and also our commitments on climate change under the Kyoto Protocol. It can also be viewed as a starting point for an industry in technical development that can be exported. The world market is estimated to be worth in excess of €50 billion according to the DTI in the United Kindgdom. Therefore, it is a potentially significant market that Ireland can have a role in supplying.

The third aspect of energy supply is covered on page 6. This is an area in which our president in UCC has a long standing interest and involvement and is carried out in the Tyndall Institute in Cork. Work is being done on thermophotovoltaic solar cells and also minitiaturised solar cells for ambient light harvesting. A number of key areas are concentrated on within photovoltaics. An example is given on page 7 of one of the thermophotovoltaic projects under way in UCC.

Moving on to energy use in buildings, much of this relates to the EU buildings directive on how to actually assess the energy performance of buildings. A sample energy certificate or label is shown at the bottom of the slide which we are used to seeing on appliances. Essentially, what the directive will bring is a labelling system for buildings. The next page of the presentation shows that what we are focusing on in UCC is measuring the energy performance of buildings.

We are very fortunate to have some interesting case studies. The group has access to the energy, temperature and air circulation data for theMardyke sports arena in Cork. It can use this information to test its performance simulation models to ascertain how they can be validated and improved. Page 8 of the presentation contains a photograph of the Glucksman art gallery, an example of a building with a different function and purpose. An important part of the group's work is its assessment of the energy performance of a number of building types.

Page 9 of the presentation relates to energy and transport and contains a sketch from the Toyota hybrid system. UCC's department of electronic engineering is doing some work on power systems conversion. Details of a different type of fuel system for cars, based on biogas and compressed natural gas, are outlined at the bottom of the page. The research group is trying to bring its strengths in the areas of electrical engineering and system analysis to the energy problems and challenges faced by Ireland.

An explanation of how biogas can come from waste and be used as a fuel in transport is cited on page 10 of the presentation. The group is developing a biofuels project in collaboration with Cork Institute of Technology, the Economic and Social Research Institute and Teagasc. It is drawing up a road map of Ireland's progress in this area between 2010 and 2020. It is determining whether there is potential for indigenous biofuels production and examining how such biofuels compare with imported biofuels.

Page 11 of the presentation relates to energy policy, the final area of the group's research. The group provides external support for Sustainable Energy Ireland by analysing energy trends. It investigates the technological and policy barriers to sustainable energy. It examines the conflicts between the various pillars of energy policy — cost competitiveness, environmental responsibility and security of supply. The project examines how a mechanism in place in Spain to support wind energy might be applied in the Irish context. It has considered the revenues which could be received for wind farms which are supported in Ireland with an adapted version of the Spanish mechanism.

The research group's work with Garrad Hassan on behalf of the regulators on both sides of the Border is outlined on page 12 of the presentation. The work involved an examination of the future of wind energy production and its limits as a system. We tried to determine the point at which wind energy would need to be curtailed and the impact of such a curtailment. The research group has been monitoring the progress made in the achievement of wind energy targets. Members can note the various rates of success in this regard on the bottom of page 12. The AER I programme had a 153% success rate, whereas the most recent competition, AER VI, had a success rate of 10% at the end of 2004. The book has not yet been closed on AER VI projects. This country has not yet managed to deliver on the targets as they have become more ambitious. While it has delivered least-cost energy, it has not delivered on the targets set down.

Page 13 of the presentation relates to some work the research group did with the energy economics group in Vienna University of Technology. I have examined the targets set for 2010 and 2020. The presentation provides a glimpse of the circumstances which would obtain if we were to put in place a target of 20% of electricity originating from renewable sources by 2020. For example, it examines the cost of meeting such a target when compared to the cheapest alternative or the market price for electricity. It also outlines how the short-term 2010 target of 13.2%, our obligation under the directive, compares with a more ambitious 2010 target of 15%. The output of the analysis showed that setting a higher short-term target reduced the costs of meeting a longer-term target. This is to do with learning curves and the stage at which new technologies are introduced.

The final slide on page 13 shows another area we have been examining with Bord Gáis, the security of gas supply. Security of energy supply has a different meaning for people. There are different ways of measuring and examining it in price and risk in terms of what may happen. Are we talking about disruption of supply or a significant increase in price, as we saw recently with oil prices? Our work focused on disruption of gas supply to discover where the weak points were on the network. It pointed to the 50 kilometre single line stretch on the Scottish mainland from which the supply to both the Republic of Ireland and Northern Ireland emanates. This is in addition to our indigenous supply from the Kinsale and Corrib gas fields.

In its research UCC has always been anxious to engage in the policy development process. Committee members can see on page 14 a list of the review groups and panels on which we are represented in the effort to move forward on renewable and sustainable energy sources during the past ten years, both in national fora and the European Union context.

The last slide shows a poster from our recently launched Master's programme. We are conscious that, as well as carrying out research, we should try to train engineers to deliver and respond positively in the workplace to the challenges facing us. We have a one-year taught Master's programme to equip engineers with some of the information techniques and skills associated with sustainable energy. I hope this brief presentation has provided a glimpse of the areas we cover and the breadth of what is involved.

Chairman

I thank Mr. Ó Gallachóir.

Deputy Durkan

I compliment Mr. ÓGallachóir on his presentation and the research work he and his colleagues have been doing. This area needs that level of dedication and more. Changing energy requirements here mean much more time and money will have to be spent on research and development in respect of alternative energy sources. I am glad this is being done in a few places. I congratulate UCC for the work it is doing.

The slide on page 9 suggests the use of alternative or combined fuels in motor cars. I am concerned about the safety factor, something about which many questions have been asked. I am concerned about the use of compressed gas under the floor of a car. How safe is this?

Another question I have concerns wind energy grid dependability, to which Mr. Ó Gallachóir referred. The ESB, for example, has a particular view on this, which is understandable as it is responsible for delivering power to the community. The extent of the grid's dependence on wind generated electricity has to be conditioned by the degree to which the wind is blowing. What are the possibilities for research into storage or the obvious alternative of a second interconnector in order that energy supplies can be sold when the wind is blowing strongly and bought back when it is blowing elsewhere? Has there been sufficient investigation into the possibility of providing a second interconnector to achieve a situation where we could reasonably expect to have continuity of supply, even with the present increased industrial and domestic requirements? We must keep in mind at all times that industrial and domestic requirements will continue to grow. Against this background, I want to ask the degree to which we compare with the leading producers, of wind energy in particular, in other European countries.

My last point relates to wave or current energy. The work Dr. Ó Gallachóir is doing with his colleagues in Cork is very interesting. This area will require special attention from now on, given the huge resource implicit in it and that, generally, it would be environmentally friendly in terms of visual impact and potentially offers a great return.

Dr. Ó Gallachóir

On the issue of safety, this is of key concern, not only with CNG but also with hydrogen. Essentially, as with any technical development, it has to be and should be a key concern. If safety is at risk, it is unsustainable. A lot of work is being carried out.

On the dependability of the grid within the context of increasing wind energy penetration, storage is an issue very close to our hearts in UCC. We have done a desk review, looking at all the storage technologies available and narrowing them down to the ones which might be the most applicable to wind energy and to dealing with the specific issue of addressing intermittency in wind energy, and then looking further within the context of what would be suitable in Ireland. We are developing proposals to look at two possible storage technologies. A number of options are available, some of which are at different stages of development.

I mentioned hydrogen technology which we have looked at in terms of a desk modelling exercise. Within this area there is a lot of research being done on fuel cells and electrolysis for producing hydrogen. We believe it is more suitable to start with technologies that essentially can be taken off the shelf to test how they would work in addressing wind energy intermittency to reduce the level of technical risk. Our focus is on looking at small-scale pumped hydro systems and battery storage. A particular battery is being used in Japan for dealing with day-night variations to provide an uninterrupted power supply. We are discussing with the ESB the possibility of testing this in the Irish context to see how it might complement wind energy sources.

As regards the interconnector, there is a benefit to be gained in addressing wind energy intermittency associated with interconnection. That is why countries such as Denmark can achieve such high rates of penetration without having to face some of the issues we face. However, the interconnector does not offer the total solution. One of the issues associated with it is which way the electricity will flow. The price of electricity in Britain is lower than here. Therefore, one could have a situation where electricity produced in Britain could be offered at cheaper prices to Irish consumers.

Chairman

Why is electricity cheaper in the United Kingdom?

Dr. Ó Gallachóir

There are a number of reasons, including the size of the market, the type of plants and the system.

Wave energy offers significant potential in the Irish context. Because commercial devices have not yet been developed, it is still at that stage where there are opportunities which we do not have with wind energy such as developing technologies which are exportable. As regards wind energy, much of the technical development has taken place, but there are still issues associated with grid integration which will face Ireland sooner than other countries because of the island nature of the electricity network. We are learning things and this knowledge is exportable. I gave the example of forecasting. The findings of work we are doing in UCC are now being implemented in Denmark. As regards wave energy, because commercial devices are not yet available, there is a range of other opportunities associated with the market as it grows.

Senator McHugh

I apologise for being late. My energy levels were at a low ebb this morning.

Chairman

We will not ask the Senator to explain.

Senator McHugh

I appreciate that.

Perhaps I am being parochial, but one of the first slides shows Errigal mountain with the name "Ó Gallachóir" beside it. Perhaps Dr. ÓGallachóir has a link with County Donegal, although his accent does not suggest this.

As regards the technology required for wave energy, I do not know how it operates. There have been difficulties in County Donegal in getting planning permission for wind turbines. There has been trouble, although there have been positive developments in terms of the use of wind turbines.

Would an issue arise in terms of the technology used to produce wave energy? Dr. Ó Gallachóir has outlined the economic benefits of wave energy. However, would it have an environmental impact on our beaches? Is it necessary for wave energy devices to be located on beaches? I ask Dr. Ó Gallachóir to outline the practicalities and the technological requirements in respect of wave energy. I notice from the submission that we are in a K4 region. Are there differences among various areas of the country? Would the Donegal coast, for example, have better potential than other parts of the country?

Dr. Ó Gallachóir

No, these are indications of where we have a measurement of wave energy potential. It can be seen that two areas, K2 and Pembroke are circled. The graph shows that they follow the same trace but that they do so with a time delay. If the measurements are taken from the outer buoys, such as K2, K3 and K4, by the time that wave energy comes ashore we have a good idea what it is. So it is a more predictable form of energy than that generated by wind. That was the point of the slide.

In response to the question on technology vis-à-vis planning issues, currently the devices being developed are suitable for onshore or near-shore use. This is due to the challenge of moving into the far offshore environment, which is a similar challenge to the one faced by wind energy. They are classified as first, second and third generation devices. They typically move further offshore as the research and technology improves. In terms of environmental impact, if the wave energy device does its job, it will take as much of the energy out of the waves as possible. However, as a stretch far offshore would typically be involved, the effect it would have on the inshore coastline would be minimal. If anything, it could, in a simplistic way, be beneficial in that it would reduce coastal erosion. However, the impact would not be significant.

If we move offshore, the challenge would be to get the electricity onshore. The research group has found that some of the areas that are best for wave energy along the coast also coincide with areas weakly served by the electricity network. This is one of the major challenges associated with wave energy. We have the same issue with wind energy. As the Senator mentioned, Donegal is a very good site from a wind energy perspective. However, the strength of the electricity network in some parts makes it difficult to harness that energy.

Deputy Broughan

I apologise for missing the earlier part of the presentation. The kind of industry, fabrication, etc., as well as research and development required to achieve a serious target in wave energy, involved are outlined on page 5 of the submission. Are there costs in terms of the energy consumed etc.? Dr. Ó Gallachóir has said that Ireland is in a unique position vis-à-vis many other EU countries. What kinds of supports would be required to get up to 80 MW by 2012? What would it entail, who would accomplish it and how would the necessary conditions be created? How does it compare to wind power which, despite the problems we have had with the AER process, is at least up and running?

The British Government today announced a major programme for microgeneration. I note the reference in Dr. Ó Gallachóir's document to the Mardyke sports arena at UCC and the Glucksman art gallery, though I missed that part of his presentation. Did he refer to microgeneration projects in the context of those buildings and does he see much scope for the different elements of a microgeneration approach through which companies and householders could be encouraged to begin to provide for their energy needs using certain technologies? I thank Dr. Ó Gallachóir for his presentation.

Dr. Ó Gallachóir

A significant investment is required in wave energy to achieve our goals. It is a question of taking a decision — whether that decision is appropriate — to make a significant investment based on the size of the market and the potential to benefit from it. The bullet points on the first slide on page 5 of my submission indicate what other countries are beginning to do. Portugal is offering 23 cent per kilowatt hour, which is a significant sum per unit of electricity.

Chairman

There has yet to be a successful project though.

Dr. Ó Gallachóir

While that is correct, the purpose of the concession is to send a strong signal that there is a market for projects which can come in. Part of the solution is to establish a market mechanism and framework which facilitates wave energy in the initial stages. By contrast, the UK offers 15 cent plus a capital grant, which is a mix of market supports. The capital grant is an up-front provision that is supported subsequently through a generous payment per unit of electricity delivered. What is initially required in the Irish context is a form of market mechanism that combines a generous tariff coupled with capital grant aid to support the construction phase. In addition, appropriate support should be provided at each stage of the development. This is part of what we hope to see emerge from a co-ordinated research strategy. Applied research, demonstration and market support are required. In the context of the Portuguese payment (23 cent per kilowatt hour for wave energy), it should be noted that Irish wind farms can be built where there is a provision of five cent to 5.5 cent per kilowatt hour. The difference is quite stark.

The buildings are being wired to extract data from them to allow us to assess energy performance rather than to facilitate microgeneration specifically. While neither of the buildings at UCC have microgeneration, they have heat pumps which supply geothermal heat energy. One of the ideas we are exploring in the context of a new building, which is due to be opened soon to house the environmental research institute, is a hybrid renewable energy supply using wind and hydro power to provide electricity. Geothermal heat pumps and solar energy would provide the heat. The goal is to model the project in a way which assesses the building's energy performance and optimises supply to determine how the various renewable technologies can complement each other.

Deputy Eamon Ryan

I must apologise as I was drawn away at the beginning of Dr. ÓGallachóir's presentation.

I am particularly interested in wave energy. The fact that the whole coastline could provide 48 Terawatt-hours of energy is significantly encouraging, given that the alternative supply for the country is at the end of a gas pipeline running all the way from Siberia. If Dr. Ó Gallachóir does not mind, will he discuss some of the details? When he states the potential in the medium term is 5 Terawatt-hours, what is meant by the medium term? Why does he further say the potential in the technical medium-term is only 2.5 Terawatt-hours? What is limiting us in tapping some of this potential? When Dr. O Gallachóir states the whole coastline has the potential to provide 48 Terawatt-hours, I presume this is feasible in the long term and would not mean the energy from every single wave would have to be harvested? Surfers would be upset if we were to use every single wave. In ballpark terms what level of supply in Terawatt-hours could we expect in 2050, if we were to give an absolute commitment, with assisted capital grants, grid development and so on?

I have seen an Airtricity presentation on grid connections for offshore wind farms where it is looking at the possibility of long-term development projects where a series of offshore wind farms would be connected together, in a herringbone type grid, which in a sense would have the potential to power Europe. If it were to run from the North Sea downwards, it would get us over the problem of inconsistency because in a grid of a certain length there would always be wind to power it. Would it be possible to connect wave power sources with such an offshore wind farm grid in the sense that it would have to have proper connections to national and the European grids? Would it offer potential for joining two renewable energy supply sources together in a large-scale long-term project to get over the problem of grid access and provide a complementary renewable energy system? Wave energy is slightly more reliable than wind energy. I imagine there is a delay from the time the wind blows as a cold front passes to creating energy. Wave energy is probably further delayed as it takes time for the energy to build. I would be interested in hearing Dr. Ó Gallachóir's views on this as a potential major long-term project.

Has Dr. Ó Gallachoir information on what is happening in Scotland? I believe there is a research facility north of Edinburgh where significant research work is being done. Is there a danger that the Scots will be ahead of us in the technology field? If we were to say to SEI and the Department that large capital grants would be required for wave energy research, who would take them up? Do we know from experience that even where we have provided capital grants or research project funding that we lack the enterprise infrastructure for companies which would take them up? Would Dr. Ó Gallachóir have an indication as to who might introduce this technology? Are there engineering companies or is there an Irish skills base that would help to develop this technology, or would we be better off bringing in international companies and working on a partnership basis?

Dr. Ó Gallachóir

I will deal with the question of connection and grid infrastructure. Wave energy sources could certainly connect with infrastructure put in place to deliver wind energy supplies. There is very good complementarity between offshore wind energy and wave energy sources.

In terms of quantifying the resource — that is, essentially, looking at how much wave energy would be available — it would not be feasible, particularly when one considers surfers, shipping lanes and various other matters, to connect the entire coastline. The purpose of the estimate was to give a sense of scale and an idea of the quantity, which is, roughly speaking, approximately twice what we currently use in electricity.

The medium-term potential development is looking at a timeframe of 2020. The difference between the unconstrained and constrained is essentially the grid infrastructure at the coast. We end up with a technical medium-term potential of 2.5 terawatts which is, broadly speaking, approximately 10% of our current electricity requirements.

Deputy Eamon Ryan

On that basis, 2020 going forward would be the equivalent of 1990 going back. I clearly remember 1990. At present, we are investing significantly in our grid development. ESB National Grid has invested €4 billion in developing the grid. Based on what Dr. ÓGallachóir said, would it not make sense, in terms of existing constraints, to develop the grid from the coast back rather than from large gas power plants out, which appears to be the way the ESB is doing it? Given that wind and wave energy may be reliable future sources of power and that we are now estimating 15 years for a grid, surely that is a short-term approach? Are we investing the money wisely at present to harvest such power?

Dr. Ó Gallachóir

The current approach is based on anticipating where customers will be and then investing in the grid accordingly. In terms of investing in anticipation of supply being there, that is not currently a part of the framework or the decision-making around grid investment.

Deputy Eamon Ryan

Does Dr. Ó Gallachóir think we should switch to that form of thinking?

Dr. Ó Gallachóir

Sitting suspended at 11.24 a.m. and resumed at 11.25 a.m.

Chairman

From Sustainable Energy Ireland I welcome Mr. Martin Howley, author of Energy in Ireland, and Mr. Morgan Bazilian. I draw the attention of witnesses to the fact that, while members of the joint committee have absolute privilege, this privilege does not apply to witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

Before Mr. Howley begins, let me state that we exceeded the allocated time on the previous presentation because we found it extremely interesting. That is not to suggest that Mr.Howley's presentation will not be interesting. However, I would appreciate if the presentation were confined to ten minutes and then we will take questions because the members have other meetings they must attend before they return at 2.30 p.m. to hear presentations from IBEC and the ESB. Some of the other members have had to leave for other meetings.

Mr. Martin Howley

I have provided two presentations. I will use the shorter one to keep the slide numbers synchronised. I head the energy policy statistical support unit of Sustainable Energy Ireland. We are based in Cork and we have a staff of three. Our purpose is to collect and publish energy statistics. We gather energy statistics from the main energy suppliers and we conduct small surveys of renewables and CHP. From these we produce the national energy balance and satisfy Ireland's reporting obligations in regard to energy to IEA, EUROSTAT, UNFCCC and EPA for the calculation of the inventory. We conduct analyses on the data and produce a range of reports which some of the members have, including Energy in Ireland and sectoral reports. We try to develop energy statistics and work closely with the CSO. We sit on the EUROSTAT energy committee, the IEA committee and the Odyssey network, which tries to develop energy indicators.

When I show the third slide on economic growth, CO2 and emissions growth at international fora, there is usually a gasp when they see the growth of GDP. What I want to draw attention to is that since 2001 there has been a step-change. In the following three years GDP increased by 15% but primary energy increased by only 1.8% and CO2 emissions fell by 4.4%. The main reasons for this are the developments in the electricity generating system and I will deal with those in more detail later.

The next slide deals with the total primary energy requirement. This refers to the development of primary energy consumption in Ireland since 1990. Growth in energy consumption was 59% over that period whereas growth in GDP was 145%. We are producing far more for the amount of energy we are using. This graph shows that in 2004, 56% of our primary energy requirement came from oil.

The following slide shows the energy flow in 2004. Normally, when we see an energy balance it appears as a table of figures and it is very hard to decipher so this is an attempt to put that into a meaningful format. The left-hand side shows energy inputs into Ireland and the right-hand side shows where that energy is used. Again we see the dominance of oil as an input. There are hydro and other renewables, which are the sum total of the renewables' input into the primary energy system in Ireland. One can see the scale of the problem in displacing the other fossil fuels. As regards output, 21% of energy is lost in the transformation process. The largest final consuming sector is transport, which has increased considerably over the period.

The next slide concentrates on electricity generation. The inputs are on the left and the outputs are on the right. The inputs are dominated by natural gas. Some 47% of the energy inputs in 2004 came from natural gas. The slide also shows electricity imports and hydro, wind and landfill gas as the renewable inputs. Members can also see the vast amount of energy which is lost to the atmosphere. In 2004, this constituted 59% or almost two thirds of the energy lost. It is less than in previous years because there have been improvements in the efficiency of the system. That would have been put to good use in other countries that have district heating and CHP systems. As regards the consuming sectors, services is now the largest electricity consuming sector.

The next slide shows the CO2 intensity of the electricity generated in Ireland. Members can see how it progressed since 1990 and how it has been decreasing. There has been an acceleration of that decrease in CO2 intensity since 2001. That happened in 2001 and 2002 with the coming on stream of new combined gas generating stations. That led to the increased efficiency of those stations and to the fuel mix changing to a higher share of gas, which is a lower CO2 fuel. However, the decrease in 2004 was due to a reduction in peat consumption in electricity generation with the closure of the old peat plants.

Why are we concentrating on the carbon intensity of electricity? The next slide gives an example of industry. The different fuels used in industry are shown from the bottom up. Emissions from the fuels consumed by industry have remained relatively stable since 1990. That is despite the fact that industrial output has increased by approximately 230%. Industry is doing more for the same amount of energy. That is not necessarily energy efficiency. It has been brought about by structural changes in industry. We are moving away from low value added, high energy consuming industries to high value added, low energy consuming industries. Many structural changes are taking place and there is some energy efficiency. The blue part of the slide shows the upstream emissions caused by the demand for electricity in industry. It is almost the same amount of emissions again compared to all the other fuels.

The next slide shows the emissions from transport, which have grown by 132% since 1990. GDP grew by approximately 140% and transport emissions grew by 132%. There is one for one growth in energy related transport emissions compared with economic growth. There is a direct coupling between the two. As regards the rate of change between petrol and diesel, petrol emissions grew by 84%, while those relating to diesel grew by 220%. Although cars contribute a great deal to the increase, the economy and transporting freight throughout the country, contrary to popular belief, contribute more. The business as usual projection for energy emissions from transport for 2010 is 180% above 1990 levels. We were already at 134% in 2004.

The next two slides complete the sectoral view of energy. Services energy consumption is the second fastest growing sector in terms of energy. It grew by 75% over the period and, as can be seen, it is the highest electricity-consuming sector.

The next slide shows residential energy consumption. The interesting point about this slide is the change in fuel mix from 1990 to 2004. A considerable amount of coal and peat, which have been replaced primarily by oil, to a greater extent, and gas was consumed in the early days. The number of households in that period increased by 43%, whereas energy consumption only increased by 33%. That was achieved because of an increase in the efficiency of uses of energy by moving away from open fires and back-boilers to higher efficiency oil and gas boilers.

The next slide shows how high our import dependency is compared with the EU average. There is a slight dip in 2004, which is an anomaly created by changes in stock levels of peat. We are probably still at around the 89% or 90% level.

The next slide deals with how change in energy costs affects industry. This analysis was carried out in conjunction with the CSO. We obtained access to the anonymised micro-data of the 2001 census of industrial production of approximately 4,800 enterprises. For each enterprise we calculated the ratio of total energy costs to their total costs. We rank ordered them, as members will see from the slide. The green trace rank orders them from the smallest ratio to the highest. We drew a line at 5%. So enterprises that spent less than 5% of their costs on energy are below——

Deputy Eamon Ryan

What is it called?

Mr. Howley

It is called "energy expenditure over direct cost" and is built up over three sections. Just under 96% of enterprises spend less than 5% of their costs on energy. We then considered where those enterprises were in the context of the entire industry. We also summed up the level of gross added value, the output they generate, which, in effect, is the value they create for the economy. Those 96% of enterprises generate 97.2% of all industry gross added value.

We should get away from this target because it is limiting us in our thinking. We should be aiming for 20%. We already heard from Dr. Ó Gallachóir that we have some of the best wave conditions in the world.

Chairman

They have had enough heart attacks in the Department already.

Deputy Eamon Ryan

We should lead the world in this area. One of the problems is that the targets we set limit our ambitions. The work Mr. Howley is doing is some of the clearest, best presented, most useful and significant work I have seen in this field. The report from 2003 was remarkably good. It could feed into everything the committee and Department are doing. Mr. Howley and Mr. Bazilian are to be congratulated. The original report was based on 2003 figures but all the graphs have now been updated to 2004. I am full of admiration that they can present us with such up-to-date figures so soon after the end of that year. The report is to be commended in that regard. The work is of immense significance and importance.

We only picked three sectors because it was quite detailed on account of the amount of analysis involved. We picked the sectors we thought were the highest energy consumers.

Deputy Eamon Ryan

There is so much here that would be affected. Let us return to the point I made regarding annual reductions we might need to make. There is a new European energy efficiency directive seeking a 20% reduction in energy consumption by 2020. On an annual basis that must be compounded at slightly less than 0.8% per annum. Can we simply measure what our primary energy requirement was and whether it is up or down by looking at the total primary energy requirement and the total primary energy supply? Would that be an effective way to measure energy efficiency or is that too simple an analysis?

I agree. However, it would normally take more than is used in the fire to heat the entire house in any event.

Chairman

I thank Mr. Howley and Mr.Bazilian from Sustainable Energy Ireland for attending today. We will resume at 2.30 p.m. when we will hear first from IBEC and then from the ESB.

Sitting suspended at 12.10 p.m. and resumed at 2.30 p.m.

Chairman

I welcome the representatives from IBEC, Mr. Brendan Butler, Mr. Donal Buckley and Mr. David Manning. I understand that they are accompanied by Mr. Dick Budden from Wellman, Mr. Bert-Ove Johansson from Boliden Tara Mines, Mr. Alan Buckley from Lisheen Mine, Mr. Colin Mills from BOC Gases and Mr. Patrick Dunne and Ms Karina Howley from Intel. We will hear from them about energy use issues for Irish industry. I do not doubt that the cost of electricity will be a feature in the next session with the ESB, for which the witnessed are welcome to stay.

Before I ask Mr. Butler to begin, I advise everyone that there will be a short presentation which will be followed by a question and answer session. I draw attention to the fact that members of the committee have absolute privilege but that this same privilege does not extend to witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

There have been increases in gas prices internationally. There is also a very significant investment in infrastructure. The tariff structure for gas is very complex and inflexible. This is causing problems, for the heavy energy users in particular. At a minimum, gas users are facing an increase of 25% from 1 January 2006. Gas prices do not compare with electricity prices when benchmarked. Gas prices are more towards the average, but we have moved from a position three or four years ago where we had the lowest prices in Europe. We are now in the middle. This does not include the 25% increase due in January.

There is one other point I want to make regarding the impact these price increases are having on business. We conducted a survey some months back with Amárach Consulting. We asked companies what the situation was in terms of energy and energy prices. Of the companies which replied, 75% stated Ireland and their business, in particular, were at a competitive disadvantage because of energy costs. Companies are not able to pass on the increase in energy costs. Only 3% of the companies which replied stated they were in a position to pass on the costs; 97% had to absorb all of the increase or part of it. The situation now is that increases in energy costs are coming off the bottom line and impacting on business. A frightening statistic is that almost one quarter of the companies which responded stated that because of energy prices and other price factors they were considering relocating their business out of Ireland.

Manufacturing is a sector of the economy which is suffering very badly. It is also the sector which uses the highest amount of energy. We have lost 30,000 jobs in the past three years. We have moved from a position where there were 320,000 people employed in manufacturing industry five years ago to one where there are now 290,000. We are losing at least 500 jobs a month. The energy component of a manufacturing company's cost base is very considerable.

IBEC is trying to present the committee with the fact that a very difficult and stark reality is being faced by Irish business. However, in making the presentation we also felt we should try to propose some solutions to the issue of energy prices. There were particular decisions that could have been taken by the regulator that could have greatly reduced the impact of the most recent price increases. There is an ESB revenue stream of €89 million that has been deferred for a number of years. This year the regulator decided to grant that €89 million to it. Of itself that had an impact on the cost base.

The Government continues to take a dividend from the ESB. In the past three years it has taken €184 million from it. If that money had been reinvested in the network, it could have reduced the price increases. The regulator could also have offered much greater flexibility in how companies purchase and deal in gas. We have met and discussed the situation with the regulator who says every €20 million is the equivalent of a 1% increase in electricity prices. This year alone the Government took €77 million from the ESB. If this money had not been taken but reinvested in the system, the increase by the Commission for Energy Regulation could have been reduced by almost 4%. That would have almost wiped out the increase for domestic consumers and greatly reduced the increase for the business community.

Looking ahead at what needs to be done, there is a new national development programme being prepared. In the existing National Development Plan 2000-2006 the energy sector is almost totally ignored in terms of infrastructure. This is a sector that needs massive investment in infrastructure, yet in the first national development plan it received €140 million while education received €2 billion; health, €2.5 billion; public transport, €2.8 billion; the environment, almost €4 billion; local infrastructure, €4 billion; and national roads, €6 billion. The new plan is now being prepared. We strongly argue that energy infrastructure needs to be supported.

There is no policy on energy, although we understand it is in preparation. We are saying to the Government that in developing its policy it needs to look at how we develop the energy market, the role of incumbents, the fuel mix, the potential to support renewable energy, meeting the issue of security of supply and also funding network development. There is also considerable potential in the medium to long term to develop an all-island energy market. We also need to look east-west.

We need to ask whether the regulator is applying the right level of increases and whether we need stricter scrutiny of the role of the regulator, given the increases being announced. The business community is dissatisfied at the level of increase being awarded by the regulator. In many cases, the increases are excessive.

Deputy Broughan

Is that on the basis of the Hunt report?

Mr. Butler

There have been a number of analyses. I will show the committee later a figure which demonstrates that the figure the regulator brings forward for business fails to reflect actual costs. While the regulator bases his prices on the ESB client base, the company admits it does not have heavy industrial users among its customers. I will set out exactly the level businesses have paid for electricity in the past two years.

We must be sure organisations such as the ESB and Bord Gáis operate at the highest levels of efficiency. While we hear they are working hard to improve their efficiency levels, they must adopt the practices adopted in the private sector. A question remains as to guaranteed security of supply. We remain in a catch-up phase in the provision of energy infrastructure. While generating plants will open next year at Aughinish in Limerick and Tynagh in Galway, there are no further proposals to open new generating facilities. We require the equivalent of one major new generating plant to open every two years. Given the difficulty of providing new infrastructure, the absence of plans beyond the provision of two plants next year means our prospects beyond that date do not look sound. In the context of security of supply, we argue very strongly on the need to support renewable energy options. We are much more heavily dependent on fossil fuels in Ireland than any other country in Europe. This has left us exposed, especially in the context of the recent coal and gas price increases.

Rapid changes in energy prices have had significant negative impacts on business. Industry has responded. The businesses represented here today have done what they can to make energy consumption as efficient as possible through the introduction of many innovative measures. We need a competitive environment which meets the needs of all stakeholders in the energy market, whether providers or users. Ireland has the worst of all worlds in the absence of both security of supply and competitive prices. They are the fundamental challenges we face and the issues the regulator is supposed to address. We have failed on both fronts.

I congratulate the members of the delegation for the manner in which they have made their case. A number of serious issues arise from what we have heard. I do not know whether it is necessary for members of the committee to ask questions at this stage, given that we have been asked whether we can bring influence to bear on the powers that be to address these issues.

The first matter that arises is the efficacy, or lack of it, of the regulator. I have said on many occasions that there are more regulators in this country than there were in the aftermath of the American Civil War. I think they were called reconstructionists at the time. I agree with those who have queried the efficacy of the regulator — there is no contest in that regard.

In regard to wind energy, some time ago the regulator suggested no further funding should be provided because of the danger to security of supply. There are other ways of dealing with the issue of security of supply and we all know what they are, for example, the provision of an interconnector needs to be thought about as a matter of extreme urgency. The delegation presents to the joint committee the fact that heavy industry draws heavily on energy and the major consequences in the event of a failure in supply. That is the first issue. Rather than ask the delegation what it thinks we should do, we have to ask ourselves what we need to do about this. All parties are developing an energy policy as a consequence of rising international fuel prices. I do not accept the notion that we should automatically keep pace with international fuel prices because we have several disadvantages. If we have an opportunity to compete with lower fuel prices, we should not automatically jump ahead with price increases as that would have a double negative effect.

Some 250,000 of the workforce at least as well as many ancillary workers work in construction and there is a relentless passing on of costs. Is that not a fact?

Mr. Butler

The other statistic of which we must be conscious is that 30,000 jobs have been lost in the companies which have closed down. The cost base was a factor.

Deputy Broughan

Yes, but part of the problem, as the economist Jim O'Leary said recently, is the dominance of construction in all its forms, including land speculation, that it is skewing the economy. We are ending up with a high cost economy which is largely driven by the construction industry. This puts us in difficulty with valuable companies such as the two which have testified before us, which we treasure and do not want to lose because of their massive workforces. There are fundamental issues to be addressed by IBEC.

In regard to Mr. Butler's presentation, it is an indictment of the Government which has been in office for the past nine years — bitter years from an Opposition spokesperson's point of view——

I am grateful for the opportunity to speak to the Oireachtas committee about the issues affecting my company. Wellman has been operating in County Cavan for more than 30 years. It is a manufacturing business with a turnover of just over €100 million. We employ more than 300 people. In addition to the operations in Ireland, we also have small subsidiaries in France and the Netherlands. We consume more than 42 million kilowatt hours of electricity in Ireland annually, which puts us in the top 35 users. In addition, we use approximately 52 million kilowatt hours of gas, which puts us in the top 30 gas users. Gas is more important to us than electricity. Taken together, on aggregate, we are one of the top 25 consumers.

The current round of energy price increases threatens the viability of our company. The committee has already spoken about the loss of manufacturing jobs. Energy represents the third largest cost at our Irish plant after raw materials and the cost of employing people. Our energy bill this year will amount to more than €4 million. Our business is low margin. We are operating in tough trading conditions and have strong competition from the Asians and European producers in the accession states of the European Union. Our energy bill this year will be approximately twice our profits after tax. Between 2000 and 2004 the cost of energy increased by approximately 4%, 5% or 6% a year. This year it has increased by more than 20%. Next year we forecast it will rise by a further €1 million a quarter. By next year our energy bill will have risen cumulatively by more than 80% since 2000. These increases in energy costs have significantly eroded our profitability.

We can contrast our experience in Ireland with that of our subsidiaries in the Netherlands and France, which are smaller. Depending on whether one compares electricity or gas, our Irish plant consumes between six and 15 times the amount of energy they use. We have been able to take advantage of the opportunities deregulation has brought there by playing one user off against another and achieving multi-year contracts in both cases. As regards electricity, our costs on the Continent next year will be approximately 10% above the costs in 2000. By contrast, in Ireland costs will be more than 55% higher than in 2000 and 25% higher than at those smaller operations on the Continent. Similarly, we have been able to negotiate multi-year contracts for gas on the Continent. The cost of gas has risen faster than the cost of electricity. The cost of gas in the continental operations next year will be twice what it was in 2000. However, if one takes a one year contract from today for the price of gas in Ireland, it will be three times what it was in 2000. The price of gas next year for us in Ireland will be 30% higher than for our tiny French subsidiary and more than 40% higher than for our Dutch subsidiary.

The committee has heard what IBEC proposes in the case of electricity. However, of greater concern to my company is the fact that trading conditions in the market for gas need to be liberalised. In the absence of multiple supply options, greater emphasis must be placed on strengthening users' flexibility and bargaining power. In setting up tariff controls to govern how Bord Gáis may sell, the regulator has removed the flexibility we previously enjoyed. We are a significant gas consumer in our own right. As electricity is largely generated from gas, it is the principal cost of the electricity we buy. If we were able to combine our requirements for gas, we would be higher up the purchasing scale and would be able to strike a much keener deal with Bord Gáis or any other provider.

We have no wish to become a trader in gas, but we seek the freedom to access the benefits offered by the wholesale market — through our supplier — either Bord Gáis or another company of our choice. Bord Gáis would purchase gas on our instruction and refloat if we choose, either using that gas for our own consumption or having others convert it to electricity on our behalf. Having access to the wholesale market in this way, we would be able to focus our negotiations with electricity suppliers on the costs and price of conversion, introducing a significant quantum of freedom compared with the present restrictive tariff arrangements. To achieve this, the regulator would need to remove restrictions in the regulated tariff formula, RTF, that deny us the freedom to purchase gas, monthly or daily, or refloat it and that tie us to three-month contracts. This restriction above all constrains our ability to obtain real value from the international market. If long-standing and substantial users such as us are not to be disadvantaged, perhaps fatally, the regulator should focus on reforming and liberalising demand side structures to give large customers greater clout.

I apologise that I had to leave for part of the presentation; I was obliged to be in the Dáil for Question Time. The witnesses will be glad to hear that I got to ask a good question in support of Irish businesses in Europe.

I take Deputy Broughan's point that we will have to work together towards a new energy future in this country and a co-operative partnership will be required. I look forward to working with IBEC and other parties on that basis. In terms of energy, the future will be radically different from what happened in our lifetimes. It behoves all of us to address the challenges we face.

I will address my remarks to IBEC rather than the individual companies because it is more difficult, when dealing with such companies, to look at particular circumstances. My questions on general policy agreements are directed to Mr. Butler and possibly Mr. Donal Buckley.

Would IBEC agree that the first important principle in looking at energy policy is that we should take a long-term view, particularly as current investment, whether in a grid, pipeline or plant, will have implications in 20, 30 or even 40 years' time? I also contend that we must take cognisance of long-term trends in terms of the supply of energy and begin to act in respect of these. The committee has agreed, on a policy basis, to consider the position in 2050 and work back from there as to the likely future scenarios. It is difficult to look so far forward but it is important to do so in terms of energy policy.

I would be interested to hear the views of IBEC on two issues that, in my opinion, dominate the future of energy policy. The first of these is the inevitable peak in global oil production and, almost certainly by 2050, a correspondent peak in gas production. The heads of Chevron, Exxon and a number of other companies have indicated that once the peak occurs — I believe it is years rather than decades away — we are looking at an inevitable annual reduction of anything between 2%, 4% or 5% in availability of oil and a corresponding dramatic change in future costs of energy. Do the representatives from IBEC agree that has been of significant consequence and that we need to begin taking action now rather than waiting until it occurs?

In regard to climate change, the Government has signed a commitment to reduce emissions by anything from between 15% to 30% from 1990 levels by 2020. Countries, such as France, England, Germany and Holland have all agreed to a reduction of between 60% to 80% by 2050. Given that our emissions will, by 2012, be something of the order of 30% above 1990 levels, we will be obliged to reduce them by 40% to 50% in the eight years to 2020. Do our guests accept that this is the scenario with which we are faced in terms of long-term energy policy and that it will have dramatic implications for everything we do on a policy, if not on an individual company, basis? Does IBEC accept that these two crucial scenarios will dominate not just energy policy but also economic policy in the medium to long term? Perhaps we can flesh out the detail of this question later.

The perception is that IBEC's policy has been set by a small number of very large companies. I raise the issue of Cement Roadstone Holdings in this regard, although it might be slightly glib to do so. If, for example, we consider the issue of carbon tax, which might have affected companies such as CRH, the perception is that IBEC's involvement was to effectively move us away from the use of such a tax. The information supplied earlier by Sustainable Energy Ireland provides a remarkable picture of where the genuine interests of Irish businesses lie. SEI indicated that 95% of companies spend less than 5% — a remarkably small amount — of their cost-ratio on energy. Sustainable Energy Ireland stated that ten companies — individual company details are confidential — account for 20% of national emissions. Are we not concentrating too much on smaller companies and failing to recognise the reality for the vast majority of companies or the significant potential that exists in terms of developing new businesses, particularly in the area of renewables?

Mr. Buckley mentioned that the tax take from the ESB accounts for approximately 4% of the price increase, which brings us above the European average. In a presentation made to the committee in the summer — at a meeting at which Mr. Buckley was present — it was stated that excess emissions from the electricity generating sector are 2.5 million tonnes above that sector's quota allocation under the European trading scheme. In that context and in light of the current market rate for carbon of approximately €25 per tonne, this represents an annual cost of €60 million in respect of electricity generation. Some months ago, that figure was €70 million. Mr. Buckley may correct me if I am wrong but the level of our emission of excess carbon is currently 2.5 million tonnes per year. At a cost of €25 per tonne on the European trading market, that is equal to a national bill of approximately €70 million. However, the Minister for the Environment, Heritage and Local Government ignores that reality and only counts what he must pay. This additional cost has the potential of a 4% price hike on our electricity bills because we must buy it under the European trading system. Does it not make more sense, as Professor John Fitzgerald suggested, that we should try to reduce our carbon emissions through measures such as a carbon tax, rather than send the money out of the country through the emissions trading system?

Chairman

We will take the answers to those questions.

Mr. Butler

Deputy F. O’Malley

I apologise for not being here to hear the presentation. If my questions have been answered, our guests should refer me to what was said earlier. I was interested in and shocked by what Mr. Budden had to say. If his experience of where we are going in terms of energy price increases is typical, we must be alarmed. One of the slides shows that the sharp rise in prices coincided with the introduction of the regulator. What is the IBEC attitude towards the regulator and regulation in general? What, in simple terms, is IBEC's attitude to the Corrib gas field? Where are we heading in this regard and has IBEC a view on the big picture?

Another slide shows a question mark about the medium-term long-term liberalisation model. This infers that IBEC may feel the liberalisation model has not been successful for Ireland. With regard to the future of the ESB in particular, does IBEC have an opinion on ESB dominance and how it might be structured in the future in terms of liberalisation?

Mr. Butler

What IBEC wants from any regulator is a system that is fair to both sides. The role of the regulator is to guarantee security of supply and to have competitive prices. At present, however, we have neither. On the Corrib gas field, we have just had a detailed discussion on our propensity to import fossil fuels from abroad. The Corrib gas field could meet 70% of our gas requirements for the next 16 years, which, I think, answers IBEC's view on it.

Deputy F. O’Malley

Will Mr. Butler outline that view? Is IBEC keen to see the Corrib gas field developed?

Mr. Butler

Sitting suspended at 4 p.m. and resumed at 4.05 p.m.

Chairman

I welcome Mr. Padraig McManus, who is the chief executive of the ESB. He is accompanied by Mr. Aidan O'Regan, the ESB's head of regulatory affairs, Mr. John Shine, the executive director of its networks division, Mr. Pat O'Doherty, the executive director of its power generation division, and Mr. Bernard Byrne, its group finance director.

Before I ask Mr. McManus to begin, I advise everyone that the joint committee will hear a short presentation of approximately ten minutes which will be followed by a question and answer session. As the members have had an opportunity to read the ESB presentation, I ask Mr. McManus to summarise it. I draw attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I draw Mr. McManus's attention to the IBEC delegation's comments about the ESB. I am not sure whether someone was listening to the IBEC presentation on behalf of the ESB. Mr. McManus can respond to those comments if he wishes.

Mr. Padraig McManus

My colleagues and I are pleased to attend this meeting. We hope to give the joint committee an overview of the developments that have taken place since we last addressed it. We will be more than happy to answer the committee's questions on various aspects of the ESB's business.

I do not intend to go through our presentation in detail, as the committee has already been furnished with a copy of it. I will, however, highlight some of its key points. I propose to highlight the trends that have emerged in the European electricity generation sector since representatives of the ESB last came before the joint committee. I refer, for example, to the full opening of the Irish electricity market and the progress that has been made in respect of the creation of an all-Ireland electricity market. The ESB has been very supportive of such projects. I would also like to discuss the ESB's international investments in recent years, as well as the capital investments it is continuing to make in Ireland. I will mention electricity prices and the issues that will be faced by the ESB in the years to come. I hope I will cover most of the issues of interest to the joint committee.

The ESB used to be responsible for the security of energy supply but that responsibility has been passed to the electricity regulator. The market liberalisation that took place in 2001 was followed by considerable volatility in the fuel markets. I refer in particular to the oil and gas markets and, to a certain degree, to the coal market. Environmental issues have appeared on the agenda in recent times. Electricity companies throughout Europe have been getting bigger, sometimes with the support of Governments. The latter have invested capital resources and restricted fuel supplies and carbon dioxide credits to give companies more power. While the deregulation of the industry in the UK initially led to companies breaking up, such companies have been getting bigger in recent times.

I would like to speak about full market opening. The process of ensuring that all electricity customers are free to choose their suppliers has been completed two years ahead of 2007, which was the date set by the EU for the completion of the process by companies in all member states. I am happy to say that the complex information technology programme which was needed as part of that process was delivered on time and within the budget. Not only has the ESB helped to open the market, it has also facilitated competition by reducing its market share and creating space in which its competitors can operate. It has offered bulk power as discount to allow new players to come into the market. It has also offered and given ESB contracts to independent generators and wind generators. The main players in the marketplace — Viridian, Bord Gáis and Airtricity — have developed significantly. Aughinish and Tynagh will enter the market next year.

The ESB has been a great supporter of the development of an all-island market because it favours the creation of bigger marketplaces in which it can operate. There has been considerable support from the regulators in Northern Ireland and in the Republic in that regard. The civil services on both sides of the Border are totally committed to having the all-island market in place by 2007. When it is in place, the ESB's market share will be reduced to between 40% and 45%. During the seven-year period between 2000 and 2007, 2000 MW of new plant — 70% of which will be owned by independent producers — will have been installed. The ESB has stated on many occasions that it intends to continue to develop its own generation and business. Plans are at an advanced stage to repower the Aghada station in Cork with a combined cycle gas turbine.

On the issue of investments, we have always taken the position that we have to lose market share in Ireland and we are looking at making investments overseas. I have here a photograph of the Amorebieta 800 MW plant in northern Spain which we commissioned recently. We also commissioned the 400 MW combined cycle plant at Coolkeeragh. We are not fully happy with the way the regulatory systems have developed in Northern Ireland. It is not yet a fully open market and, from a regulatory perspective, it is far less transparent than the market in the Republic. That is a matter we are pursuing there. In regard to the Amorebieta project, the strength of the project we developed has been proved by the fact that Osaka Gas, one of the biggest Japanese gas companies, has taken a 50% stake in it. We would like to see similar projects being developed on the overseas market.

I return to what is a significant issue, namely, the acceleration of the development of the network in Ireland. The only way the ESB could have retained prices at 1990s levels would have been by not investing. The level of investment made since 2001 in producing a network on which the Irish economy can rely is significant and we will continue to do that. We have spent approximately €3 billion in redeveloping and extending the ESB network. Since the 1980s, that included a doubling of demand for electricity and 370,000 new customers being connected in the past five years. I will not go into the detail but I will give the joint committee a summary of the highlights, which include: some 65,000 km of MV network renewal; 370,000 new connections; 250 km of new transmission circuits; 62 new transmission stations; more than 60 sub-stations refurbished — members can see, on the map provided, how these are spread across the country; and a total capital spend of €3 billion. We intend to continue to complete that programme but it cannot be completed in five years. The next five years will see continuing investment to ensure that Ireland has a network capable of sustaining its economy.

In regard to generation, it has always been our intention to modernise and develop the portfolio and to implement best practice. Since we last came before the joint committee, the two new power stations have been commissioned in the midlands at a cost of €460 million. We have also concluded best practice agreements in some of our stations and are committed to doing that in all our stations. We have committed a €360 million investment to the Moneypoint coal-burning plant in County Clare to meet all our regulatory requirements and allow the plant to continue to operate. We intend to rebuild the Aghada power station.

On the issue of renewables, by the end of the year the ESB will have 77 MW of wind in operation. Our intention has always been to have approximately 25% of the share of the renewable markets. Current indications are that there will be more than 1,000 MW of wind generation in Ireland by 2010. Some 300 MW have been connected already. Another 600 MW have accepted offers to connect to the system and another 380 MW are being offered to connect. This will allow us reach the national target of over 13% by 2010.

I wish now to refer to the price of electricity because that issue has been foremost in the minds of many people. From 2001 to 2006, including the increase due on 1 January 2006, the price of electricity will have increased by approximately 40%. Generation and fuel accounts for 34% of that increase, 4% relates to the redevelopment of the networks and 2% relates to public service obligations. The latter mainly involves support for the peat and wind industries. That is a view of from where the price increases come.

I have read many articles by enlightened people about wind energy and the fact that it is the way forward. The ESB and the Government talk about wind energy and the fact that the rate will be 13.2% by 2010. Is the ESB interested in wind energy?

We had this discussion in the past. I will provide an example in respect of this matter that relates to west Limerick. I have given these facts to the regulator who is supposed to come back with the information. Planning approval was given over four years ago and an ESB grid application was made in November 2001. It has now been accepted into the gate one category. However, by the time the ESB goes through the planning process in terms of what it wants to install and sorts out the way-leave, it could take a further three years. The lifetime of the planning application will be at an end by then. The enthusiasm of the people who were originally encouraged to become involved in the project will have dissipated. The project may not be viable now. The terminology, such as gate one and gate two, may be right but impediments seem to be put in front of people who want to enter the wind energy market. The ESB is a vital component because the people must get into its grid system. I will not elaborate any further because I know the information was circulated to the Chairman and members.

Chairman

The document which was circulated was addressed to the Chairman of the committee and has been published. The Senator can refer to it.

Senator Finucane

That is correct. I do not want to quote it chapter and verse but it highlights the level of procrastination and the fact that assistance or encouragement was not given. If that encapsulates the view of other wind projects around the country, which I believe it does, I question the seriousness of the intention to get involved in wind energy.

Deputy Collins

I support Senator Finucane. I understand that planning permission was granted for a wind farm in September 2001 but it will expire in 2006. That project is currently fully funded. The people involved are not seeking any financial aid, they only need what was agreed with the ESB. The ESB grid application was made in November 2001 and the ESB offered a grid connection before it had secured full planning permission for the necessary ESB line. That was due to a precedent setting condition which was introduced in the planning permission by Kerry County Council, which wanted an extra bond of €250,000 for road repairs. The ESB was unhappy with that and it was appealed to An Bord Pleanála which overturned it. The ESB then expected the developer to sign the contract, which committed it to €237,000 plus VAT, and required it to make a payment of €589,000 plus VAT. While the appeal was underway, Airtricity was not reckless with its shareholders' money and it did not sign the contract until full planning permission was granted, by which time the deadline given by the ESB to sign the contract had expired. Airtricity had already paid the ESB €121,000 towards the design and planning permission application for the promised grid, which I presume will now be lost.

Chairman

We have sprung this on the chief executive who may not be in a position to answer questions about individual applications. There are 2,000 megawatts of wind connections to be made. It would help the committee if Mr. McManus could tell us the procedures the ESB adopts when carrying out such connections and the timeframe involved, which are at the kernel of the problem.

Mr. McManus

It is difficult to answer questions on a particular case, but we will look at that case. There are two issues related to wind development. The first is that some are connected by the ESB national grid, which is ring-fenced from the ESB and will be the future Airgrid, and some smaller connections are handled by networks. I will ask Mr. John Shine, our director of networks, to address the procedure by which people can get connected.

We have extensive issues in terms of planning permission, as have wind farm developers. We must go through many difficulties, objections and appeals when trying to secure planning permission for specific projects. However, there are approximately 1,300 megawatts of wind connections which can go ahead.

I do not have any difficulty with that.

Deputy Eamon Ryan

Let us take up to 2050 as our long-term policy year or target. Given the inevitable or imminent peak in global oil and gas production by that time and the effects this will have on the costs of those fuels, and given the related issue of climate change and that Governments across Europe agree that we must reduce emissions by 60% to 80% by 2050, what is the future for electricity? Where will we get our electricity in 2050? What future scenario does Mr. McManus see developing?

Mr. McManus

I suppose 2050 is a long way away. We must try and forecast from the different technologies being examined. Whether we like it, much of our equipment comes from America. America has looked at the situation and decided that for the next 300 years it will get its electricity from nuclear, clean coal technology and renewables. It has supplies of coal for 300 years and has decided it will burn it and intends to develop clean coal technology to do this. The American view is that if it takes 15 years to develop clean coal technology through which it can capture the CO2, that is what it should do. I suspect small countries such as ours will buy that technology.

The other potential for the development of electricity is hydrogen but it must be developed. There are no hydrogen mines or stores of hydrogen, we must make it and currently that is very expensive. Time will tell if there is further development in that technology. We must just wait and see.

With regard to the forecasts as to when oil and gas will run out, the first forecast as to when we would reach peak production of oil was 1997 but we have not reached it yet. It is reasonable to assume that oil will run out during this century and gas some 20 or 30 years afterwards. The options the bigger players are considering in the long-term for electricity supply over that period are nuclear, coal and renewables.

Deputy Eamon Ryan

This country has limited amounts of coal and last week the Minister adamantly ruled out nuclear energy. Does Mr. McManus not think therefore that for us the development of renewables by 2050 is our brightest prospect? We had a presentation this morning on the potential from wave, tidal and biomass energy. There are 21 different renewable energies available to us, all indigenous. Let us forget about 300 years into the future because for the next 3 billion years the sun will shine and provide endless energy.

I am surprised that Mr. McManus only mentioned renewables in passing as a third part of the triumvirate of nuclear, clean coal and renewables. In terms of security of supply, price and cleanliness are renewables not the future for this country?

Mr. McManus

There is a long answer to that, but I will try and keep my answer as short as possible. If we look at the slide I showed demonstrating the cost base for electricity generation across Europe, Ireland can be optimistic about the future in the medium-term. I must look at the next ten years as well as looking at up to 2050. The future for Ireland must be greater interconnection; we must make Ireland part of a bigger marketplace. If we manage to create a bigger marketplace, there will be far more scope for us to develop renewables.

Deputy F. O’Malley

That put me in my place. I am happy to wait if the two gentlemen need to go.

I thank Deputy O'Malley. I welcome the delegation. Many people were looking forward to the market opening in February. Has anybody seen any impact? Mr. O'Connor of Airtricity mentioned that his company was ready to supply and some of the other companies such as Viridian were mentioned earlier. Effectively, however, household consumers only have the ESB.

Regarding the all-island market, I take the point that Mr. McManus made about the advantages countries like Denmark and Finland have because of the contiguous relationship with other huge energy markets when developing their wind power. They even have the backup of strategies like nuclear power, which is unacceptable to us. Mr. McManus seems to be critical of the Northern Ireland market. Is the ESB in the same position as other energy companies in the Republic in that it is being maltreated by the incumbent in the North? Is that part of the problem or is there a problem with the structure of regulation? What is the problem with the North? This morning we heard about the higher prices in Northern Ireland. How will it pan out in 2007 when we have the all-island market?

Mr. McManus referred to the 200,000 houses built or in the process of being built in the past three years, a matter we have discussed in other contexts in politics recently. However, we still have homeless people and others struggling to get a home. Obviously the network delivers electricity to the 370,000 new customers. However, is any choice of energy supplier given to those with new household and commercial connections?

In recent interviews with representatives of the ESB, some journalists may have got the wrong end of the stick. They asked how ESB's senior management saw its long-term future. We have heard the Minister's view and obviously my party has a very strong view about the State infrastructure including the generators remaining in State hands. How would Mr. McManus answer some critics who would claim that the marginal cost of generation is a problem for the ESB if we really want to reduce prices?

Some of the delegation may have been present for the previous presentation, which members found frightening as they listened to industrial icons such as Intel, Tara Mines and Wellman refer to the increase in electricity prices. In each of the past three years since I became my party's spokesperson we have suffered a whammy. Obviously the gas price increase this year was much worse. For householders what used to be a reasonable ESB bill has now become a very serious imposition, particularly on low-income vulnerable households given that we have always had significant fuel poverty.

Deputy Durkan

I emphasise the points made by the Deputy regarding IBEC and the major captains of industry that have compared electricity costs in this country unfavourably with those in France and various other countries. We are at the top of the league. While I am sure the representatives of the ESB referred to this matter before we arrived, we could not be in two places at one time. There is an urgent need to tackle the issues at a fundamental level and try to bring our costs into line to some extent.

I also emphasise the need to exploit alternative sources of energy to the maximum possible limits. I do not agree with the notion of only having a long-term policy, there must be short, medium and long-term policies on energy which should be updated annually. Otherwise it will not be possible to bridge the gap between requirements and production. It would be very dangerous to go down only one road and I would strongly advise against it. Unless we do this some morning people will plug in their kettles to find no purr from the kettle and only from the cat.

Mr. McManus

I find this so disappointing. As Deputy Ryan said, when considering a strategy for 2050 we should be much more open to the possibilities for renewable sources of energy. While I stand to be corrected, since the regulator was appointed the ESB no longer has responsibility for fuel security. Is that correct?

Mr. McManus

That is correct.

Deputy F. O’Malley

That is the problem. I am not sure how long it is since representatives of the ESB last appeared before the committee. The ESB has built two fantastic peat-burning stations, meaning they were terribly expensive. They still consume fossil fuels and will not help us meet our targets for reducing carbon emissions under the Kyoto Protocol. I am disappointed that the ESB is not ambitious in pursuing renewable energy sources. I encourage its representatives to open their minds to it. The wind flows free. I agree that the capital costs are high. A year ago the price of gas and oil were considerably lower and we cannot be sure where they will go. I urge the ESB to change its thinking slightly.

Mr. McManus may answer all the questions without interruption.

Mr. McManus

We must take a practical approach to wind energy because the wind does not blow all the time. In winter the wind profile is not great. We can develop wind energy only to the level that can be handled on a small system. We can develop it to a greater extent by pushing ahead with interconnection directly to the United Kingdom and by developing an all-island marketplace. We have always supported both initiatives and continue to do so but that is an issue for the Government and the regulator. We will strongly support any initiatives taken which will allow greater security of supply and development of the wind energy industry. That is the way to do it. The ESB will develop wind energy resources but will never be a dominant player in the market. We support its development and want to see its potential realised.

Deputy O'Malley mentioned the figure for the average wage which has been publicised in the newspapers at approximately €70,000. Traditionally, across Europe those involved in utilities are paid more than the industrial wage. Unlike other industries, many of those involved do shift work and have call-out duties to repair faults and breakdowns. In the 1980s the ESB had 13,500 staff for its core business at home. Today, when the system is twice the size it was at the time, we have 7,000 staff with a total of 8,500 in the group.

By any standard, the ESB's productivity is exceptional. People are quick to produce EUROSTAT statistics on many issues. The statistics show that the level of productivity of utilities in Ireland is one of the highest in Europe. Our action is aimed at improving the cost base and efficiency has been exceptional. We have nothing to hide in that regard.

Deputy O'Malley suggested that in some way we would not run generation facilities. We would never leave anyone short at any stage unless there was nothing we could do about it. I will ask Mr. Pat O'Doherty, our executive director of generation, to give a brief answer to that question.

Chairman

Does Mr. McManus wish to respond to other questions?

Mr. McManus

Yes, I will deal with them. We can then return to the previous issue.

It is not a question of whether we are happy or unhappy about regulation but of transparency. The regulatory process is transparent and everything that happens is included in the website for all to see. That is not the case in Northern Ireland. That is the problem.

Chairman

IBEC holds a different view on that point.

Mr. Pat O’Doherty

Responsibility for security of supply, which now resides with the regulator, previously resided with us. Each year the regulator, supported by ESB National Grid through its annual generation adequacy planning process, produces an updated five year plan. On that basis there will be no shortage of generation capacity in the coming winter. Based on new entrants, Aughinish and Tynagh, and the planned Huntstown 2 investment project, there will be no shortage of generating capacity in the next four or five years.

Chairman

There are several questions to come. I will call Deputy Fitzpatrick and then finish up because we have run overtime and there may be a vote on the Order of Business. Deputy Broughan would object if I did not turn up to vote.

As I stated, networks and our supply business can avail of the services of the national contract centre. In an emergency there is a specific number to call. We recognise there is an issue because of the sheer volume of calls and their complexity. We have availed of the services of an outside company and are recruiting additional staff. Our own staff work very hard. Anyone who has seen the operation knows how professional the service is. We were told that when one installed such a new system the productivity of the existing system decreased by about 40%. That is the internationally accepted standard. We put a great effort into preparing ourselves for this. We are determined to achieve best practice. I hope we will do so in the next few months.

Chairman

We shall keep an eye on it. This does not refer only to the ordinary consumer but affects the entire business spectrum. Businesses trying to make new connections are not able to do so. Nobody seems to be available. Nobody wants to give out the appropriate mobile phone or work number, even to business people conducting business on an ongoing basis. Looking in from the outside, with all due respect, it appears that it is very difficult to make contact with a human being in the ESB. This is what is happening all around the country. As public representatives, we might have a better opportunity to make contact with officials in the ESB network system, but as can be shown — Mr. Shine can check this tomorrow — it is impossible to make contact regarding an emergency or an outage such as occurred in Blarney last Friday week. Fortunately, we received a telephone call from Mr. Shine's office to alert us to what had happened and the fact that consumers had not been notified in time. In my constituency we receive many calls if there is a power outage. I am sure other Members have encountered the same difficulties.

I understand the restrictions on the ESB in building new stations present difficulties for the company. I ask for Mr. McManus' view on the matter. Does the ESB have any plans to fire peat with biomass, a more carbon neutral fuel?

Is security of supply mainly the responsibility of the ESB? If so, should it be passed to the Commission for Energy Regulation? Do long-term issues arise in this regard of which we should be aware?

IBEC which is not satisfied that the ESB is providing best value for money or is as efficient as a privately owned company made some points with regard to an audit. However, it also conceded that most of its members were not customers of the ESB but contracted with other energy suppliers. If the ESB is the main energy supplier, why have IBEC's members taken their custom elsewhere?

Mr. Shine

We had weather related difficulties in County Wexford which resulted in power outages for several hundred customers from lunchtime yesterday. The Chairman's question may relate to the call we received from Wexford General Hospital at 8 p.m. last night. Upon investigation of the matter, we discovered that there was a problem with the hospital's equipment whereby the auto-changeover for its standby generator attempted to operate. The ESB's contracts organisation worked late into the night to resolve this and other problems. This morning it was implied on radio that the problem lay with the ESB, but the hospital has since clarified that its equipment was at fault.

Chairman

My thanks to Mr. Shine for that clarification. We are aware of the work carried out by network staff during the terrible storms of the past few years. I recall in particular a storm one Christmas but my house escaped a power cut, which was just as well as we had a large number of people coming for dinner.

Mr. McManus

We would like to be able to address the issue of renewables to a greater degree. It must be understood that this is a small country and we are a small company in the electricity sector. Ireland cannot afford to be a leader in research and development of some of these technologies but that does not mean we would not——

Deputy F. O’Malley

Why?

Deputy Eamon Ryan

The best companies in the world spent a significant percentage of their resources on research and development.

Mr. McManus

Deputy F. O’Malley

I wish to deal with the question of the future of the ESB. I did not get a direct answer to my question about whether the break-up should be about separating generation from the rest of the business. I discovered only last week what the grid is. I had thought it was the wires, but it is not. Am I right in understanding it is the capacity to switch on and off generation, by and large, what is in the computer control room currently located at huge expense in Fitzwilliam Street but which is about to be relocated when a separation of the businesses takes place? The separation process has been ongoing for four years. Mr. McManus mentioned that it is an issue for the Department, but why is that the case?

Mr. McManus

Mr. Shine

Dr. Ó Gallachóir

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Senator McHugh

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JOINT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES debate -
Wednesday, 2 Nov 2005