JOINT COMMITTEE ON EUROPEAN AFFAIRS debate -
Thursday, 19 Mar 2009

EU Green Paper on Energy: Discussion.

Chairman

We will now proceed with the discussion on the EU Green Paper: Towards a Secure, Sustainable and Competitive European Energy Network. It is a consultation paper produced by the European Commission aimed at aligning EU network policy with wider EU energy policy to ensure an integrated European energy network through which the EU internal energy market can function. The committee agreed to invite representatives from the Department of Communications, Energy and Natural Resources, EirGrid and Bord Gáis Networks to meet it to discuss the Green Paper. A representative of Gaslink was also invited. However, Mr. Aidan O'Sullivan of Gaslink is unable to attend and has sent his apologies.

On behalf of the committee, I welcome Ms Sara White, deputy secretary; Mr. Michael Daly, principal officer, and Mr. Martin Finucane, principal officer, from the Department of Communications, Energy and Natural Resources; Mr. Dermot Byrne, chief executive; Mr. Fintan Slye, operations director, and Mr. Mark Needham, engineer, grid development and commercial, from EirGrid; Mr. Will Roche and Mr. Gerry Keane from Bord Gáis Networks; and Mr. Liam Hearne and Mr. Jack O'Connell from Gaslink. I will call Ms White to make her presentation first, after which we will hear presentations by the representatives of Gaslink, Bord Gáis Networks and EirGrid.

Before we begin, I draw attention to the fact that members of the committee have absolute privilege but this does not apply to witnesses appearing before the committee. Members are asked to observe the usual parliamentary practice of not naming, or causing to be recognised, anybody outside the Houses in a derogatory way. We would not want to fall foul of the privilege procedures. I call on Ms White to begin her presentation.

Ms Sara White

I thank the Chairman and other members of the committee for giving us this opportunity to discuss the important matter of European energy policy and how it resonates with Irish energy policy. I am honoured to be accompanied by colleagues from EirGrid, Bord Gáis and Gaslink to further the debate.

The Green Paper is part of a wider European energy policy focus. It is fundamental for security of supply and future investment in energy infrastructure. It is a component of the wider energy strategic review which began in 2007 and part of an ambitious and wide-ranging work programme the European Commission has proposed across the spectrum of energy issues. Above all, it reflects the way in which energy issues have moved back up the agenda, both in economic and social policy terms, for the European Union. I will return to this point.

I considered we might open the presentation by contextualising the issue as regards where Irish energy policy sits. The Government's energy policy framework for the period 2007 to 2020 delivers policy certainty in the short, medium and longer term and is centred on the three pillars of competitiveness, energy costs for enterprise and consumers, and investment and competition in the energy sector. These are the dimensions of the competitiveness agenda. Other issues include security of supply, with delivering capacity, infrastructure, networks and fuel diversity. Environmental sustainability is about delivering on our renewable energy efficiency and climate change targets, among others.

The sustained implementation of actions across all these pillars is a key Government priority. It is also about delivering in partnership with all stakeholders in the energy sector and across the economy. Energy infrastructure investment is a fundamental priority for the country. It includes EirGrid, the electricity transmission operator, Bord Gáis, the ESB and the private sector which includes companies such as Endesa which has just entered the Irish scene. The semi-State companies and the private sector are delivering investment in electricity and gas networks, transmission and power generation — both from conventional and renewable sources. The east-west electricity interconnector, one of the fundamental projects mentioned in the Green Paper, will for the first time connect this part of Ireland with the United Kingdom. The national context for our work in EU terms is the energy policy framework, the programme for Government and latterly the framework for sustainable economic renewal, Building Ireland's Smart Economy, which was published before Christmas.

The all-island energy framework agreement, signed by Ministers in 2004, has seen perhaps the most significant achievement to date on an all-island basis in the creation of a single electricity market. We now have an all-island wholesale electricity market. It is a significant flagship project in European terms and is recognised as such by Commissioner Piebalgs and the European Commission generally. EirGrid and SONI have a key role to play in the project. The most recent interesting development is that EirGrid has purchased SONI, the Northern Ireland transmission operator. A whole of Government approach to implementation is critical for energy policy, as is the integrated approach to delivery because it is interrelated with areas of economic and social policy. Irish energy policy must and does fully reflect and respond to EU energy policy developments. The framework for energy policy has been broadly endorsed by the International Energy Agency, which is effectively an OECD organisation, as a comprehensive and mutually reinforcing package of measures and targets.

The context of the Green Paper on energy networks is that global and European developments have seen the new energy paradigm of energy security and climate change rise to the top of the agenda. Europe has taken a leadership role, particularly on the climate change agenda, but also in the sphere of energy policy. It is responding to the considerable challenges facing it. The EU is now dependent on energy imports to the tune of 50% of need. Admittedly, most of that is oil but there is a significant proportion of gas and coal.

The energy challenges are exacerbated by the current global economic environment. There may be opportunities in this to which we can refer in discussion. I refer to the highly volatile global fossil fuel price. The price for oil and gas peaked last summer and has see-sawed since. Volatility will remain the order of the day. I refer to the geopolitical risk to supply. Committee members do not need to be reminded of the Russia-Ukraine difficulties at the start of the year. This led to significant disruption and suffering, especially in eastern and central Europe.

Energy infrastructure deficits across Europe are legion. Major power deficits are looming, networks are ageing and there is a need for investment in gas networks and infrastructure, including storage and liquefied natural gas, LNG. Interconnection across Europe is a key priority identified by the Commission. Allowing energy to flow across the 27 member states is one of the linchpins of the second strategic energy review published in November 2008 which focused on security of supply from all its perspectives. The urgency of this was thrown into sharper relief by the Russia-Ukraine dispute which could restart at any moment with consequent disruption of European supply. The Green Paper is part of this piece. It examines the issues inherent in building an integrated European energy network linked to delivery of the third package on the internal market. Work is in trialogue with the Parliament this week and next week with the objective of concluding it before the recess. It is of major importance in creating a robust, functioning internal energy market to incorporate a more co-ordinated and cohesive role for transmission system operators across Europe, of which EirGrid is one.

Mr. Dermot Byrne will speak on the role of the European network transmission system operators. Delivery on EU energy policy objectives is good for the Irish economy and good for national energy policy objectives. We work in Europe to support and influence the EU energy agenda. Many of the challenges are shared, in some cases because of our isolated and peripheral market and our considerable dependency on fossil fuel imports. These challenges can be more profound for Ireland than other member states. Nonetheless, there is a similarity of challenge in the energy sphere across Europe. The urgency and scale of infrastructure investment is identified and agreed to ensure security of supply underpins the regional and internal market and supports environmental sustainability. There are funding issues and the Green Paper points to the need for a major review and revision of the TEN-E mechanism, which we fully support. The present circumstances put a particular focus on the response of capital markets to the investment challenges, although the ability of energy utilities across the world to engineer finance in recent months has been striking. They are still seen as a good safe bet by capital banks and it is a general syndrome in America and Europe that such utilities are not finding it impossible to organise funding.

The role of the European Investment Bank, is coming to the fore and the Commission sees that one of the keys to revising and focusing the funding approach is to leverage additional funding from the bank, which has declared it is very much open for business in terms of energy investment, and we agree with this. Community acceptance of energy infrastructure is a Europe-wide concern. It is not confined to this country nor is it unique to any country. It is a problem everywhere and there are difficulties with planning in a number of member states through delays and the "not in my back yard" syndrome.

The strategic infrastructure Act is being tested currently with major energy projects in play through that process. We have a more streamlined process than was hitherto the case. However, this does not diminish the challenge for all governments in Europe to persuade and develop public understanding of why investment in energy infrastructure is in the interests of citizens, the economy, regional development and developing renewable energy. The public understanding of that has to somehow match itself to what might be seen as the personal inconvenience or distress that might be related, but that is a theme to which we will return.

Connecting renewable resources is a major priority for Ireland. We have ambitious renewable energy targets for the electricity sector and this is reflected across Europe as well. Addressing the skills deficit in the energy sector is a European and Irish problem. This refers to engineering and IT skills. The sector has an aging profile across the world and it is quite clear a major supply chain of first class graduate engineers is needed in both the Irish and European contexts. The innovation and research imperative is a critical part of the energy agenda and it is reflected in the Green Paper in the sense that the smart networks ambition requires research into the grid and a variety of challenges inherent in delivering smart, efficient networks.

There is a range of opportunities and outcomes for Ireland and the Union through delivery of the second strategic energy review and the essential directions of the Green Paper. The ultimate outcome is that Ireland and the Europe will have a secure, competitive and sustainable energy environment for enterprise and consumers; a modern efficient energy infrastructure; a fully interconnected Europe; smart grids delivering for a smart green economy at home and across Europe; a fully functioning internal energy market, which links peripheral markets such as our own with the centre and which also ensures central energy networks in Europe are equally interlinked; a more sustainable and more diverse mix; and energy that flows into and across the 27 member states from the western periphery to the eastern borders and from the Baltic to the Mediterranean. This is important for Europe. It is equally important for Ireland that Europe is interlinked and works efficiently in energy terms so that both Ireland and Europe can meet the renewable energy, energy efficiency and climate change targets for 2020, that we have a stable energy investment framework that attracts new investors for the long term, that we have a reliable and competitively priced energy supply for Irish and European business and all consumers, and in that context, that the question of energy affordability for vulnerable consumers is kept to the forefront of our minds.

A Europe working together to deliver a secure energy future is a Europe that is working together for all its citizens. Energy is tangible and real for every individual. A Europe that is seen to be working effectively to deliver on the energy front and an Ireland working in Europe to ensure Ireland's interests are Europe's interests — which on most points of energy policy happen to coincide — is about delivering real outcomes for citizens.

Chairman

I thank Ms White. I now call on Mr. Dermot Byrne to make his presentation.

Mr. Dermot Byrne

I thank the Chairman and the committee for the opportunity to address it. I have supplied copies of my presentation and I will now talk through it. Eirgrid is relatively new to the energy industry. It is Ireland's independent transmission system operator and operator of the wholesale power market in Ireland. It is a commercial State-owned company and is committed to delivering on public policy, which it was set up to do. It is, therefore, very aligned with the presentation made by Ms White, so please forgive any repetition in my presentation.

The second slide shows the transmission grid. There has been much talk about the grid, so I would like to explain what it is. The grid is the network of high capacity transmission circuits linking generators right around the country to load centres in every county and region. Effectively, generators generate and feed up onto the grid and we distribute the electricity around the grid and bring it to where it is needed in the load centres. We operate the grid through the national control centre, which is a 24-hour seven-day week operation.

We also have the additional role of developing the grid. Security and reliability of the grid on a day-to-day basis now and for the next ten or 15 years are paramount to what we do and to our perspective on the grid. The grid can be likened to the motorways of power. Underneath the grid lies the distribution system, which consists of the local circuits that take power from the grid and bring it to houses, farms and industries. We provide the motorways for the transmission of electricity right around the network. The grid is also the vehicle for interconnection with neighbouring utilities. We have an interconnector with Northern Ireland which enables the single electricity market, which is an all-island market, to operate. Therefore, generators North and South compete with each other on an hour by hour basis for despatch.

The Green Paper looks at what needs to be done to promote investment in the European networks to achieve competitiveness, security of supply and sustainability. We are very supportive of the thrust of the Green Paper and of the complementary reforms attached to it such as the third package which refers to the unbundling of the transmission grid from the competitive elements of the industry — the generators or suppliers, the second energy strategy review and the renewable energy and climate change package.

All these present particular challenges for EirGrid as the operator of the power system. Following on from Ms White's overall policy presentation, I want to look at what EirGrid is doing with regard to those critical pillars of strategy — security of supply, competitiveness and sustainability. I picked three particular projects or initiatives to which Ms White has referred. The first is the single electricity market. Members of the committee will be aware that this is a market operating on the island of Ireland between North and South. It is unique in European terms in that it is a single market between two jurisdictions, two separate currencies, two separate tax regimes and is therefore quite complex in its operation. However, it is operating very effectively since it was initiated on 1 November 2007. It is a wholesale power market which is cost-reflective of the underlying fossil fuel movements and is monitored on a weekly and monthly basis to show that is the case.

The second initiative is Grid 25 which is about taking a strategic look at the current transmission grid that evolved from the very first elements of the grid which came into being back in 1927 with the Ardnacrusha scheme, taking the power from Ardnacrusha to Dublin and Cork, with a line to Dublin and a line to Cork. Since then it has evolved to more than 6,500 km and this is shown in the map accompanying the presentation. This provides reliable power to every farm, house and industry in Ireland. Our task is to ensure that it continues to do so in ten or 15 years' time. We have taken a look at what kind of a grid will be needed for 2020 or 2025, which is where the name of the initiative came from. We looked forward to 2025 to see what kind of transmission grid would be required to fulfil policy objectives here in Ireland. One key issue is the sustainability objective of 40% renewables by 2020 and I will talk about that later. I also wish to elaborate on what Ms White said about the east-west interconnector linking the Irish grid with the UK grid in Wales.

The single electricity market is an all-island platform for the wholesale trading of electricity and it is totally consistent with EU policy on regional markets. EU policy is about developing regional markets and integrating those regional markets towards a single internal market at a future date. We have taken the first step here on the island of Ireland and it is operating successfully.

It is also a very significant step in developing a truly competitive industry. If the market is made bigger this reduces the effect of dominant players in the market. By having a bigger market, there are more players in the market and therefore there is more competition. It is the first market of its kind in the world. It is a gross mandatory pool operating with dual currencies and in multiple jurisdictions. It provides a competitive, sustainable and reliable wholesale market in electricity, aimed a delivering long-term benefits for customers, North and South. It encompasses about 2.5 million electricity customers, 1.8 million in the Republic and 700,000 in Northern Ireland. It is a significant first step in terms of developing a regional market. Further steps will come when we build the east-west interconnector. When it is finally commissioned in 2012 we will then be looking at market coupling arrangements between the UK and the island of Ireland.

With regard to the internal market reforms set out in the Green Paper, EirGrid supports the reform of regulation and the directive, the third energy package, to promote full competition. One of the key elements in that package is full independence of the transmission grid. We are a step towards that but we are not fully there yet. The policy is to create a single transmission company in Ireland and we are looking forward to the implementation of that policy. We support the integrated market to promote efficiency with cost savings to end users.

I turn to Grid 25, our long-term strategy for developing the transmission grid. It was published in October 2008 and it takes a long-term perspective. Our thinking is that taking a long-term prospective results in a more effective and efficient grid because it prevents the incremental approach to developing the grid which can lead to higher costs at the end of the day. The key drivers for taking the strategic perspective are as follows. I think all members of the committee will be aware that electricity is essential for economic growth. We are in difficult times at the moment but we will recover. The grid and the infrastructure need to be there to provide a platform for renewed economic growth. Tied with that is an enabler for regional development. We do not want the grid to be a barrier to any region or county sharing in that renewed economic growth when it re-establishes itself. The grid is absolutely essential for every region and county to be able to develop indigenous industry. This is really about jobs in every county and region. We need to be cognisant of that and develop the grid to deliver it.

Regarding access to indigenous renewable resources, Ms White outlined the key policy issues and challenges facing us on climate change and diminishing fossil fuels. We have tremendous renewable resources, with wind, which is commercially available at this stage, and ocean energy, which is being developed. In order to access that tremendous resource which is primarily located on the west coast — the north west, west and south west — we need to be able to access that energy and take it from where it is generated to where it is needed, and that is where the grid comes in. We need to be able to develop the grid to deliver that policy objective of 40% of energy from renewable sources.

I have a slide that shows the strategy. We have put a cost of €4 billion on the Grid 25 strategy. It is a €4 billion investment over the 17-year period to 2025. That is shared out and the slide shows expenditure by region. It is essential that each region is equipped with the right infrastructure so that it can share in future prosperity and growth.

The next slide is titled "Accessing Ireland's renewable resources". That just shows the tremendous resource we have in Ireland. It is colour coded. The purple areas indicate the areas of high wind resource. Members can see that they are mainly in the north west, west and south west. Accessing that is a primary objective in terms of developing the grid. If we do not develop the grid we will not be able to deliver on that policy objective. It is critical that we tackle that issue and develop the grid accordingly.

The next slide shows the east-west interconnector project. We were tasked with this project in early 2007. Since then we have hit the ground running in terms of developing the project. We have secured access in both the Irish grid and the UK grid for the full import or export of 500 MW of power. We have completed a seabed survey and are on the point of awarding a major contract to develop and build that. We are on target for 2012 as set for us by the Government. We are in the planning process. Last week we completed an oral hearing on the Irish side of that project with the strategic infrastructure board. In the context of the Green Paper, it is important to say that we are completing a feasibility study on further interconnection between the island of Ireland and the UK or continental Europe. The results of that study should be available by the middle of this year. We will make them publicly available.

The Green Paper refers to the need to reform funding mechanisms. In the past eight or nine years, we have benefited from TEN-E funding to the tune of approximately €8 million. Those moneys have been primarily used for feasibility studies, for example in respect of the east-west interconnector. We are also developing an additional interconnector with Northern Ireland. We have been a beneficiary of that. We work closely with the European Investment Bank, which has invested in the processes and systems that are needed for the single electricity market. We are talking to the bank about the possibility of getting it to partly fund the east-west interconnector. The European Investment Bank is a key institution for us as we develop infrastructure.

We believe reform is needed. Given the scale of some of the bigger infrastructural projects, we would like Europe to make a bigger contribution to some of them. The projects in question, which are on a European scale, are delivering on European policy. We welcome the integrated approach to the support instruments. There is a need to follow up the TEN-E funding mechanisms that are mentioned in the Green Paper.

I would like to speak about the further role of the EU. The Green Paper asks what the EU can do to overcome obstacles. As Ms White has said, we face major challenges when we try to get large infrastructural projects built. We believe in working on the ground with local communities. We are doing that in a number of our projects. Historically, we have been successful. As I have said, the grid is now 6,500 km long. We have successfully delivered the transmission grid by listening to local communities and mitigating the inevitable impact of such infrastructure on local environments. The EU has a role in providing public education to ensure that citizens are informed. It is obvious that co-operation is valued across Europe and information is shared, for example.

I would like to pick up on a point made by Ms White. EirGrid works closely with its fellow transmission system operators across Europe. It was a founding member of the original organisation of European transmission system operators, known as ETSO. More recently, it has been active in the foundation of the ENTSO-E organisation, which is now up and running. We are well represented on all of that organisation's committees.

The final slide I would like to show the committee shows that to a large extent, Ireland is ahead of the curve. Much of what we are doing is entirely aligned with Irish policy, as set out in the White Paper and as elaborated on by Ms White. It is also entirely aligned with the thrust of EU energy policy. We are very supportive. We will be happy to answer any questions members of the committee might ask.

Chairman

We will receive a joint presentation from Bord Gáis Éireann and Gaslink. Are the witnesses happy to continue with the meeting rather than adjourning for half an hour? Is it agreed to continue? Agreed. I welcome Mr. Liam Hearne and Mr. Jack O'Connell of Gaslink.

Mr. Jack O’Connell

On behalf of Gaslink and Bord Gáis Éireann, I thank the Chairman and the members of the committee for inviting us to discuss the Green Paper. Mr. Byrne suggested that EirGrid is a relatively new arrival on the Irish energy scene. Gaslink Independent Systems Limited is probably the newest arrival on the scene. The company was established in 2007 following the transposition into Irish law of the second European directive on the unbundling of energy companies. The Irish legislation, SI 760 and SI 377, placed an obligation on Bord Gáis to establish an independent subsidiary with extensive governance arrangements and ensure this subsidiary carries out its responsibilities in a manner independent of Bord Gáis.

As in the case of EirGrid, Gaslink is an independent system operator. It is also a licensed entity and holds the licences from the Commission for Energy Regulation for the transmission and distribution gas networks which supply the Republic of Ireland. Under these licences, which the company acquired in July 2008, Gaslink is responsible for the full operation, maintenance and development of all Bord Gáis-owned natural gas systems, both transmission and distribution. The model established pursuant to the CER approved arrangements is one in which Bord Gáis is the key service provider to Gaslink, a company of approximately 20 people, and carries out much of the day-to-day activity on behalf of Gaslink. At this point, I invite Mr. Will Roche of Bord Gáis to conclude the presentation.

Mr. Will Roche

I have tried to focus narrowly on the gas industry and the international scene, rather than the domestic sector. Networks are key to delivering secure, sustainable and competitive gas supplies. The presentation examines demand at local, European and global level as well as the location and scale of gas reserves. Networks connects all these elements. I will first give a European and global perspective, after which I will examine the British and Irish market and then set Ireland within the broader context.

Increasingly, the world and European Union gas markets are characterised by the pipeline and liquefied natural gas trade. Most of the gas markets emerged from natural gas finds, for example, in the North Sea in the case of Great Britain, the Netherlands and Denmark and in finds close to Ireland. In many of these countries local supplies are no longer sufficient and trade in natural gas is increasing. The importance of natural gas will continue to grow.

Significant reserves of natural gas are available. When I first became involved in this area 30 years ago known gas reserves on the planet amounted to 80 trillion cu. m. Europe uses approximately 0.5 trillion cu. m of gas every year. The most recent figures indicate that gas reserves have increased to 180 trillion cu. m. This substantial increase in reserves has created an unprecedented requirement for infrastructural projects to connect reserves with markets. This infrastructure, which must be developed quickly in the next two decades, will take two forms, long distance pipelines and liquefied natural gas or LNG.

LNG is a growing form of natural gas transportation under which the gas is transformed into a liquid at the point at which it is produced. This reduces its volume by a factor of 600. The product is then carried by ship and reconverted to gas at the point of usage. The Shannon facility is a regasification facility which takes reconverts liquid natural gas into gas. It is also capable of storing the gas and delivering it into the system. From an Irish perspective, we have secure interconnection with the British market. We have current production and we also have significant future production coming on-stream from the Corrib field. There are also plans in place on the island for the Shannon LNG terminal and for future gas storage. We are in a relatively sound position. The debate shows that networks are necessary for security of supply but they are not sufficient and more than that is required. The gas business has discovered in recent years on a few occasions that having networks and pipeline capacity does not guarantee that the gas will flow.

I wrote an equation for myself that says global and EU networks added to EU frameworks with good relationships with the producers — to which we will return — taken together will provide Europe with secure gas supplies. It is not often that those of us from the industry get the chance to address politicians, although much of what goes on is in the political sphere in foreign affairs and the relationships we have with the countries both within the EU but more particularly outside the EU that are important to supply security.

I will run through my presentation which includes a set of pictures. The first slide shows the extent to which gas moves around the planet. The movements to date have tended to be from Asia into the Japanese market. That is almost a stand-alone market. The Japanese began to import natural gas to deal with environmental issues, especially air problems. To date the United States has been broadly self sufficient but that is about to change and the big movements of gas around the planet have been from producers into Europe more than anything else. If members get a chance to scan the material at some point they will see that the movements are going to increase significantly and that some new markets are going to open up also. We can expect China and India to become net and significant importers of gas into the future.

The next slide shows broadly where the main reserves are on the planet. European gas usage is 0.5 of one of those units in any given year. That gives a sense of the scale of where the reserves are. It becomes obvious on looking at it that while Europe has some indigenous supplies the key reserves are in Russia, the Middle East and Africa, especially in North Africa. The arithmetic on the page would suggest that based on current consumption there are approximately 60 years of proven reserves available relative to what we are consuming. I will return to the location of the reserves later.

We gathered demand and supply data from publicly available sources, for example, the International Energy Agency. They are probably aligned with the reference case used by the International Energy Agency. Demand for natural gas is expected to grow in the coming decades. If the chart were to be drawn up on a global basis one would see an even steeper slope. One of the biggest uses of natural gas is in power generation and that is where the major use is evident across the planet.

The next slide shows what might be possible for Europe in the future. Europe's gas supply will come from a large range of sources; some relatively local in terms of the indigenous production in the United Kingdom, the Netherlands, Norway, Germany, Russia and it is evident that African and Middle Eastern countries – Algeria, Nigeria, Qatar and Egypt — are also becoming quite important. The view is that the gas supply to Europe will come from a diverse range of sources. Generally in the industry, there are two choices in getting gas to the market. One is by pipeline and the other is LNG. The greater the distance from a market, the more there is a bias towards LNG.

LNG production is a growth sector in natural gas supply. The key producing country, Qatar, which has the largest gas field on the planet, is involved in the construction of an LNG facility, South Hook LNG, at Milford Haven. Malaysia is growing its LNG sector and, through its state company Petronas, constructing a second LNG terminal at Milford Haven, the Dragon LNG. Another terminal is being built at the Isle of Grain in London. Algerian and Egyptian gas supplies will find their way into the British market though LNG transportation. There is major growth in such terminals at which gas can be stored and reinjected into the system. With the interconnector, these developments are of benefit to the Irish energy market. LNG does not have to be landed in Ireland and there will be no impact on the supply demands between the British and Irish markets or pricing. The Green Paper recognises LNG capacity, by way of regassification terminals, is necessary in all member states, or at least all member states should have access to another with LNG terminals in place.

The construction of new pipeline networks is the subject of much debate in Europe. This brings us back to the point made by Ms White about the perceived dependence on Russia and the issues with transit countries such as Ukraine. Two of the pipelines listed in my presentation have strong Russian backing, the Nord Stream which runs through the Baltics and the South Stream. Both are an effort to find ways of delivering gas supplies to Europe without using transit countries such as Ukraine. The Nabucco pipeline which has strong EU backing is intended to create a southern corridor for bringing Middle East pipeline gas supplies, particularly from Iran, into Europe.

There are many political debates around and issues behind these projects. From reading American newspapers, it appears the American view the South Stream pipeline as an effort to upset them, while the Russians view the Nabucco pipeline as competition. In the end, we will eventually need to move to a single market and a single transportation regime in Europe. In 1997, three of us visited Houston and the offices of Enron and another natural gas clearing house. Even back then, the Americans were able to move gas across the United States without barriers. Gas was bought and sold by traders every morning and "schedulers" on the same trading floor were able to move the gas from where it was being produced to where it was being consumed through the different pipeline networks across the country. We are no nearer today to that kind of open market system in Europe than we were in 1997. We need to get there.

It has been well flagged that the British supplies in the North Sea are depleting and that production will fall significantly, so the British market will radically change from being largely self sufficient to running its gas business on a traded basis. Imports will rise from 40% of total use to 70% or 80% by 2020. The positive aspect is that the gap can be made up through significant increases in imports from Norway, through major growth in LNG which will come from Qatar, Algeria, Malaysia, Egypt and elsewhere, and through the impact of the interconnection with the Continent. Continental gas, be it from Russia or elsewhere, will be brought into the British system. The recent dispute between Russia and Ukraine had a negligible effect on the British market this time. It bumped the prices up for a few days, but they came down again and life went on as usual. At the British-Irish level, it almost proved the resilience of the system, even though at a broader European level it is probably a different day's work.

Our story is a little bit different from the Eirgrid story, in that there are no significant network issues to be addressed within the island of Ireland. We have a secure connection with the British market and we are at the point of having significant indigenous production coming on stream. We are looking at a possible LNG terminal in Shannon and more gas storage facilities. We are in a reasonably secure situation on the island, and that is reflected by the fact that the focus of this presentation has been on wider issues rather than local issues.

There is no doubt that networks are key to delivering secure and sustainable supplies, but there are other factors involved as well. The main reserves that will supply Europe's future gas needs are located outside the EU, and that raises its own issues. The key issue to pipeline interconnection is not within Europe, but between Europe and the producing countries. The development of LNG export and import facilities is very important, as is the funding required to make that happen. It is also important that there is enhanced interconnectivity within Europe, so that when gas is landed, it can be easily moved around, as occurs in the US.

However, there are other important components to delivering secure supplies. These include the political relationships between the EU and the producer countries. The experience in the past few years has been of bilateral efforts, rather than European efforts, so that needs to be examined, especially given the strength of the producer countries. There is a very small number of countries which even at company level are quite concentrated – one will find one company in Algeria and one in Russia, for example — therefore they may be best dealt with through a united European front.  We need European level planning and security and emergency frameworks.  The way the law operates in Europe, each regulator can in a sense only look to the interests of its own consumers when it is taking decisions. Perhaps we need something a little broader that allows other factors to be taken on board.  In the end, the commercial Single Market is important to underpin the competitive supplies.

Chairman

That is a very comprehensive report.  I have a couple of points with regard to the European scene.  I agree that the strength of the European population needs to be felt in all the negotiations and development that takes place in order to achieve benefits by way of economies of scale throughout the European Union.  Individual countries operating on their own are unlikely to have the same impact, except the bigger countries, so it is important for the smaller countries to identify common cause in this area.

It is interesting to note that peak oil and gas prices were achieved last year – it is said one can still get peak prices at some distribution centres and petrol pumps. Prices are 75% of what they were one year ago, which is extraordinary, although it is not in the witnesses' remit. This is an issue that needs to be examined, perhaps at European level. It is not possible for one country to tackle the issue. An example of the problems that arose was that oil in tankers was being bought at sea and stored. This is an issue that only an entity as big as the EU can handle. It is not a matter for a single country and the utilisation of the strength of Europe is important.

Strategic infrastructure in terms of the development of networks and transmission is an interesting issue. I make the point, and members will have concerns, that we need to be even-handed and balanced and not just decide that in the overall interest it is better to proceed in a particular direction.  It may be offensive to people living in a particular region, although I am not suggesting for a moment that we must always acquiesce with regard to what people say by way of objection.  At the same time, that must be considered. I am a little worried in this regard. Some time ago, I did a count on the number of cases dealt with through the new legislation and found that in the vast majority of cases, permission had been granted, which can be beneficial but can also have negative impacts.

I would like to hear more on how smart metering will affect the stability of the grid, an area in which I have had an interest for some time. Members will certainly have something to say about access to the grid. For example, we hear regular complaints from alternative energy producers to the effect that access to the grid is not as simple it should be, although the producers are ready, able and willing to provide for this. I am sure EirGrid can enlighten us further on that point.

The same applies with regard to alternative bio-fuels. There is much discontent and many parliamentary questions have been put down to ascertain what is happening in the area of bio-fuels. Sometimes, we get the information we request but at other times we have had to put down a subsequent question asking for the information requested but which was not contained in the reply, which is code for an issue I do not want to get into today. However, this matter must be dealt with because if those involved in production become restive or disappointed in the rate of progress and so on, it will be a major turn-off for them and now is not a good time for that.

I refer to security of supply. The joint committee met both the Ukrainian and Russian ambassadors some time ago. While they did not necessarily sing from the same hymn sheet on these issues, it is hugely important, from Ireland's perspective, that the European Union recognises the need to ensure that relationships are kept open and positive at all times in respect of both parties. For instance, the alternative pipeline into Europe can be seen by the Russians in one light and by the Ukrainians in another. However, one always should have regard for the fact that if it wishes, the European Union can sell the gas back to the Ukrainians, if the latter consider themselves to be disadvantaged in any way.

I note no one mentioned the Corrib gas field, which must be part of the equation. While it will be of great importance from the perspective of Ireland's economy, it must be brought on board. No one has mentioned putting cables underground. While this is a sensitive subject, the Netherlands is mentioned in the continuing debate as a place in which this can be done readily. I acknowledge there are vast differences between the terrain in the Netherlands and Ireland, as the former does not have massive mountains such as Carrauntouhill. The witnesses should comment on this issue later.

Senator Terry Leyden

I welcome the delegation and compliment it on its presentation. As for the Department, everyone greatly depends on it pushing the agenda regarding alternative energy in respect of wind, solar and ocean power. I presume the Department is giving a lead role to manufacturing capacity for the production of, for example, wind turbines as there is no reason such equipment should not be manufactured here. Although Denmark and many other countries produce them, Ireland is not as advanced as it should be at present in respect of using wind as a source, in particular on the west coast. All aspects of such production should be provided here, if possible. We also are working on solar energy and there is much potential in that regard. Moreover, there is enormous potential in respect of the oceans.

Another possibility is the return to smaller production plants. For instance, quite a number of mills are situated on strongly flowing rivers. I have cited such a mill in a place called Athleague, which has a wonderful flow from the River Suck and which was able to drive the milling activities that used to take place there. If equipped with small turbines, it would produce a considerable amount of electricity that could be fed into the system. Every measure will contribute in this regard and we should not ignore any potential to provide alternative energy because each source of alternative energy will reduce our dependency on imported energy.

As for the national grid, the Chairman mentioned the concern regarding the east-west connector and the question of whether to opt for underground or overground cabling. I recently noticed a further protest meeting in this regard in north County Roscommon. People are extremely worried about large pylons. As EirGrid is undertaking some research in this regard, what is the latest position regarding this concern? While the case has been made regarding the ease of maintenance of lines, they also are highly secure underground. Gas goes underground and it is a very secure source. Some more co-operation in this regard between both parties might be no harm.

As for the interconnector with Britain, I note the proposed route into Ireland is fairly long. Perhaps there is a reason for this. Is there a potential economic reason that the route will go from near Liverpool to Rush, as opposed to the shorter route through Scotland into Northern Ireland? There are concerns regarding the national grid and overhead wires.

The Corrib has considerable gas potential. We must utilise it, as it could supply 60% of the Republic's demands. Although negotiations have occurred, I do not know why we could not renegotiate the deal to purchase gas from Shell in the region. The region that Ms Harkin and I represent has not benefited from the national grid to the proper extent. Unless policy is changed, no line from the Corrib field will go through, for example, Ballaghadreen or Sligo. Given the fact that the former is a good area for manufacturing, there is potential for high demand. Will the Department review the situation in light of the current demands and further exploitation of other gas fields? If the Corrib field seems viable, what encouragement is there for additional investigation in the region? Negotiations concerning the Rockall area are ongoing with the British.

We must consider this issue, as it could create jobs and ensure that natural gas imports would be reduced as much as possible. The Corrib matter has lasted for too long. The approach to it has been difficult. No other country would tolerate such delays where 60% of its potential gas demands were involved. It is time to get our act together and to bring the gas ashore without further delay.

Ms Marian Harkin, MEP

I thank everyone for the comprehensive presentation given to the committee. I am not an expert on energy. Like most politicians, however, I understand the need for energy supply and security. Sometimes, people ask why Europe is necessary. In light of some of the maps produced at this meeting, the need for Europe in terms of energy supply and security is clear. While Senator Leyden has stated the Corrib field, at peak performance, might provide up to 60% of our energy needs, we must still import energy. If we can export it, so much the better. Energy is one area in which the importance of action at European level is shown.

Someone mentioned that each regulator only looks to his or her own EU member state and consumers. While this is fine within member states, we must go beyond it at EU level if we are to have any type of internal energy market that works efficiently and well. I support the Nabucco pipeline.

Ocean energy was referenced in a presentation. The Minister, Deputy Eamon Ryan, proposed a budget of €26 million for the development of the ocean energy sector. While I am open to correction, approximately €7 million should have been spent last year. I have an interest in this matter from the perspective of balanced regional development, which was alluded to in one of the presentations. The west has an opportunity to develop the ocean and wind energy sectors. Money was earmarked for Belmullet and the development of ocean energy technology.

Everyone is discussing how to escape the credit crisis. People are looking towards green energy and new ways to produce energy. Ocean energy is on our doorstep. While I do not know our guests' opinions or how much they can say at this meeting, we must start spending the investment earmarked for the development of wind and ocean energy. We are not waiting for foreign direct investment. We already have it and not only those living in the region can benefit but we can all benefit nationally. From this perspective, I call very strongly on the Government to put its money where its mouth is. There is no point in having plans to develop wave energy projects if one is not prepared to make the investment. While we need public investment, we also need private investment. This is not an area about which I know much and perhaps someone else would like to comment on it. What are the possibilities? I am not speaking about individuals but about companies and public private partnerships for investment in this area.

Comments have been made on overhead power lines and pylons. No more than Senator Leyden, I am very well aware of many of the arguments made by people living in Roscommon, Monaghan and other places. It is not appropriate to debate the scientific aspects here because people will probably disagree. However, I noted very carefully the comments of Ms White on the issue. She spoke about personal inconvenience and I was glad she used the word "distress" because I have had some very distressed individuals sitting across the table from me who were not just personally inconvenienced. She also spoke about persuading and developing public understanding. That is fine but the project will go ahead; therefore, it is not really about persuasion.

I understand Monaghan County Council has proposed a variation of its county development plan, whereby no overhead power lines in excess of 220 kV will be located within 100 m of homes, schools or churches. Will EirGrid clarify whether it will challenge this? Regardless of what is stated in this committee room and whatever arguments will be made, many people are extremely concerned about this issue. The words "not in my back yard" were used and the truth is that it is not in my back yard. Until it is, one does not have an understanding of how people feel about it. Consultation is of little use if people make presentations and one goes ahead as planned. The issue of undergrounding was discussed and I know it raises matters such as cost. If there is to be a shared movement, why not consider the proposal made by Monaghan County Council? Perhaps it is being considered and I have the wrong end of the stick. Will the delegation comment on this?

Deputy Joe Costello

I thank the delegation for such a fine presentation on where we stand in terms of the grid, transmission and distribution. The general thrust is to have an all-island policy and then link with Britain and the rest of Europe to have diversity of supply and sources to ensure security. Expenditure on the provision of supply lines and interconnection seems to be very much related to existing and new pipelines and transport. In other words, expenditure is related to fossil fuel sources. There are three sub-sea links with Great Britain and the interconnector will provide another. The thrust of expenditure is on existing oil and gas production, transport and storage, including gas storage facilities in Kinsale, the planned gas stores in Northern Ireland, the liquid gas terminal planned for the Shannon Estuary and our indigenous production in Corrib.

In regard to the target of 40% renewable energy by 2020, which is double the current target, will we be able to transmit renewable energy through the grid currently being developed? Will EirGrid's planned expenditure of €4 billion in Ireland include projects for pipelines, pylons and storage? How will the systems be integrated? It is one matter to integrate with Europe but another to integrate the future, which will hopefully involve renewable energy in Ireland, with the present. If we have three subsea links with Great Britain and are moving towards sustainability, do we need further connections? Does the €100 million offered by the EU for the interconnector comprise a loan or a grant and is the money still available? What will be the total cost of the interconnector? Ms White mentioned 2012 as the target completion date for the project.

When the interconnectors are installed, we will have links between Ireland and Northern Ireland and the United Kingdom, Norway and Europe. The greatest resources are in Russia, which is extraordinarily unstable. Supplies from that source can be cut at any time. What negotiations have been entered into with Russia to secure supplies? We may build the supply and distribution infrastructure only to find that the taps are turned off for some geopolitical reason. The localised rows ongoing at present in that region could give rise to such circumstances. Does a pipeline connect Qatar and the Middle East to Europe? Supplies from the Caspian region pass through Russia. Europe therefore relies on one major source for its energy needs, other than shipments of liquefied gas.

Is the Department considering the fact that a proportion of our electricity imports will be produced through nuclear power? It appears that nuclear production is now being presented as a clean energy source in countries such as Germany and France.

Other speakers have referred to alternative energy supplies. Have we examined geothermal sources in this country? This is a little outside the delegates' domain. Trinity College uses such sources to a considerable degree. Have we examined the more localised development of such energy sources? Dundalk Institute of Technology supplies all its needs from its wind turbine. A large number of housing estates and towns could be self-sufficient very easily with a localised supply from a natural source. It could be linked with the national grid to ensure a supply when there might be a shortage from that source.

How does one import energy supplies from the Russian Federation? Who controls the price and at what level? Do we expect each country through which they pass to take a cut as time passes? How will the issue be managed until there is a single EU transmitter and distributor? That is not likely to happen very easily.

Customers look at regularity of supply and price. In recent times we have had extraordinarily high energy prices. The Chairman has referred to the fact that although the international cost of oil has reduced dramatically, the price at the pumps has remained extraordinarily high and increased in recent weeks. Our domestic supplies have been maintained at an inordinately high level to introduce artificial competition in the domestic scene. Competition should be real and organic, not virtual for its own sake. Bord Gáis has come onto the scene but this was done through artificially keeping the market price high to encourage competition because it is a small sector. Perhaps somebody might comment on this.

Does anybody have an opinion on the value or otherwise of the Lisbon treaty? It seemed to increase the European Union's determination to deal with security and climate change issues, but it may not lead to an increase in funding. Ms Harkin, MEP, has spoken about the small amount of money that has gone into indigenous renewables, particularly ocean energy projects. EirGrid plans expenditure of €4 billion in transmission alone, yet we can only secure a miserable couple of million euro for the development of ocean, geothermal or air energy projects. Why can there not be significant investment in an area that is of central importance to an Irish sustainable energy programme, namely, ocean energy? If it were harnessed effectively, we could almost overnight become suppliers to the Irish market and an exporter.

Senator Maurice Cummins

Liquefied natural gas was mentioned. What storage, transport and port facilities do we have for such gas supplies?

Chairman

Who would like to speak first?

Ms Sara White

We have not had a chance to apportion the questions to respondents but we will try.

Chairman

In rugby parlance, passing could be the order of the day.

Ms Sara White

That is not what I am saying. I will start and then pass on to my colleague, Mr. Finucane, on renewable energy. Mr. Byrne will also want to make some points. Some questions related to gas. If we miss anything someone will remind us.

I will start with the points made by the Chairman. He and Deputy Costello referred to the difficulties presented by oil and petrol prices. To the best of my knowledge the European Commission has decided to take a look at what is going on across Europe in this regard. We will report back on developments. This is an issue the directorate general for competition is getting exercised about and we would welcome further investigation of prices. The oil market is liberalised and we would welcome the shedding of light on whether customers are being dealt with in a timely way.

Chairman

Does the strong euro put Europe in a better position to use its muscle in a positive way in this regard?

Ms Sara White

Yes. I will keep the Chairman posted on that. The smart meter programme is in its pilot phase because this is a highly complex area. Both electricity and gas meters make this a highly complicated endeavour. We work with representatives of the regulator, ESB Networks, Bord Gáis and others to ensure, from a cost-benefit perspective, that all the work is done. This issue is closely integrated with the area of smart networks and distributed generation. In the Green Paper, the Commission mentions moving away from the highly centralised production of electricity to the more distributed generation system scenarios spoken of by the Chairman and others. Such a system relates to auto-generation and would provide a huge opportunity for businesses to generate their own power. Micro-generators would allow domestic customers to sell surplus electricity back to the grid.

This is all part of the landscape we are working on and it reflects the smart network and smart meter concepts Europe brings to us. As Mr. Byrne said, we have been ahead of the curve in our thinking on some of these issues, although we should not be complacent and pat ourselves on the back. We are moving ahead in the steps we are taking, although we are not alone. Other member states are very advanced. It is striking that Italy, for many interesting reasons, is very advanced in terms of smart meters.

The Chairman spoke of meeting the ambassadors to Russia and Ukraine. We met them around the same time. One of the interesting points relating to the most recent Russia-Ukraine crisis was the strong sense of solidarity across EU member states. They spoke with one voice. This probably would have been strained had the dispute been prolonged for further weeks were it not that the Czech Presidency and the Commission represented all member states in the difficult moments of the process. The crisis was also marked by a striking sense of sympathy across Europe. Elderly people in Sofia were dying of the cold. Businesses in Slovenia and Slovakia were shut down. There was an appalling degree of misery. We and the Minister made a point of providing solidarity on this — taking part in the gas co-ordination meetings, providing data, working with European colleagues and so on. It was a testament to the strength of Europe working together.

Deputy Costello mentioned the Lisbon treaty. I do not think it would be appropriate for us to comment on that in this forum. However, I reiterate the point that a Europe working for its citizens on the energy front is a Europe working effectively for every citizen, including vulnerable consumers as well as enterprise. I might ask Mr. Byrne to talk about the issue of underground versus overground, as EirGrid is very much in the forefront in this regard.

Lest we give any sense that we are a faceless juggernaut delivering infrastructure across the country in spite of inconvenience and distress, I remind members that there is a planning process which is designed to operate through consultation. The planning process will decide whether things go ahead. It is profoundly difficult for some individuals. We are not saying: "It is a public good; we need it; therefore it happens." I would not like members to have that impression. Mr. Byrne can talk more on the issue of consultation at community level about where these things should go and whether they are needed. Everyone realises this is a difficult and sensitive issue in many areas. No one is trying to run juggernauts through anywhere. We need to work on these issues. The planning process is there to assure all concerned that the results will be as optimal as possible. Sensitivity, particularly environmental sensitivity, is obviously crucial to all energy infrastructure, as it is to any infrastructure.

I would welcome Mr. Byrne's view on the interconnector with regard to the question asked by Deputy Costello. Do we need it? This part of the island does not have an electricity interconnector with the UK or continental Europe. There is the Moyle interconnector between Northern Ireland and the UK, but it is quite small. An interconnector between Ireland and the UK has been an objective for a number of years, and this is now well on its way to completion.

A question was asked about the €100 million in funding which was proposed by the Commission in the energy package associated with the European economic recovery plan. The whole package is still under discussion, as members of the committee will be aware, in various forums and for various reasons. It will feature at some point in the discussions of the spring European Council today and tomorrow. We do not know what the outcome will be but we regard the proposal of funding by the Commission as an important acknowledgement of Ireland's peripheral position and isolated energy market. It was also an acknowledgement that the project was mature, well advanced and capable of delivery. There are many infrastructure projects around Europe about whose timeframes the Commission would be less sure.

Geothermal energy is an area in which there are many interests and stakeholders, including the Geological Survey of Ireland, our own Department, and some of the institutions mentioned. There is a working group which brings everyone together to examine the potential of the resource, the legal issues, the necessary legal framework and whether it is a mineral or something else. Work is ongoing and we can gladly update the committee as it progresses.

We could spend a whole day discussing the price and competition issue, but there is an unregulated market for large energy users. Most large businesses do not operate in a regulated price environment. There are five or six independent suppliers serving big business. That is not to say there are no concerns about the systemic differential between energy prices here and in other countries in the UK, throughout Europe and the world, which is the case for a variety of reasons. That is a major concern for business and enterprise. We are working very closely with the food and drink and information and communication technology sectors, the regulator and suppliers, among others, to establish what we can do in this area. Price is a profound concern for enterprise right now.

I was struck by what was said about artificial domestic competition. There was never competition in the domestic market until four weeks ago. The ESB was the incumbent with 99.9% of the domestic customer market for the past number of decades. Today, some four weeks after Bord Gáis Éireann and Airtricity entered the domestic market, it still has approximately 95% of the market. There is still a good distance to go before one could say the dominance of the incumbent has been reduced. It is to be welcomed that BGE and Airtricity have entered the domestic markets in a very vigorous way. They are offering a significant choice and an attractive option to consumers and this is reflected in the fact that more than 80,000 customers have made the switch in four weeks, a significant achievement. More domestic competition is to be welcomed if only for the reason that it allows people choice and an option on price. That is the only reason one has competition and we seek competition for that reason, not for some such reason in its own right.

Mr. Finucane will elaborate a little further on the matter of ocean energy. It is correct to say there is a multi-annual commitment of approximately €26 million. There was a modest level of spend in 2008, because the project was starting up at that stage. The ocean energy unit established in SEI, Sustainable Energy Ireland, is a partnership between the Marine Institute, SEI and the Department. All the components of the ocean energy package are under way, including the work on the Belmullet plug and play site, investment in UCC and a prototype funding support scheme for people who are developing devices. That was launched before Christmas and is under way. It is estimated there will be a spend of approximately €7 million in 2009 and this will progressively increase, because the Belmullet site is in a developmental phase and there will be further investment in 2010 and 2011. Mr. Finucane may wish to elaborate on some of the detail, but I assure the committee it is under way. I will leave it to Mr. Finucane to discuss some of the renewable energy dimensions, including any further questions on ocean energy.

Mr. Martin Finucane

Ocean energy is very much a developing technology on a global basis. There is nowhere in the world where it is at a commercial deployment stage. Most developers in the area are somewhere between a quarter scale, half scale and full scale testing. Very few devices anywhere in the world are generating any electricity. Those which are do so on a research and demonstration basis as opposed to a commercial deployment basis. As Ms White outlined, we established a dedicated ocean energy unit within the ambit of Sustainable Energy Ireland. We have carried out the first phase upgrade of the Hydraulics and Maritime Research Centre in UCC. The wave tank resource centre located there, which is now available for early scale prototype developers, is probably one of the finest operating sites in Europe, if not in the world. The next phase of development of the HMRC will see it co-located alongside the national maritime campus and naval training facilities in Hawlbowline, which is expected to happen in the next number of years.

Following on from that, we have seen SEI and the Marine Institute open a test site in Galway Bay, which has seen the deployment of some quarter-scale devices for testing in that location. The next stage for developers moving from the Galway Bay site will be to move to a fully grid connected site at Annagh Point in Belmullet. There has been quite significant work carried out on this, in terms of seabed surveys necessary for the sea deployment part of the cabling and also some analysis of the onshore works which are required to put the grid connection in place. We expect the first major expenditure on that, in terms of the cable and substation works, to commence this year.

As we have outlined, the development prototype fund was opened late last year by the ocean energy development unit of SEI. There are quite a number of applications from developers for that support, and I understand the first assessments are almost finalised in respect of those individual applications. We are also looking at the overall role, together with our colleagues in the Department of Agriculture, Fisheries and Food, where it currently resides, and in the Department of the Environment, Heritage and Local Government, of foreshore licensing, and the interaction between foreshore licensing for ocean energy developers and onshore planning issues which will also arise in connection with these future deployments, with a view to streamlining the overall permitting process for developers.

We have tried to set out and ensure an ocean energy deployment policy is in place which is capable of taking developers from early drawing board-type developments all the way through the appropriate testing levels, up to helping them move towards full-scale commercial deployment, when the technology is ready to actually make that. However, at this point technology is not in a position to deploy commercially.

There were a number of questions on the whole area of access to the grid for renewable technologies and EirGrid and Mr. Byrne will be anxious to answer some of those. In recent years, quite significant advances have been made, particularly in the amount of renewable electricity and the capacity of renewable generation on our system. In 2004 just over 4% of our electricity came from renewable resources. The first estimates of electricity I have seen for 2008 show that approximately 11% of our electricity is coming from renewable resources. There has been quite significant growth.

There is in the region of 1,300 MW of renewable capacity already connected to the system. Over 1,000 MW of that is renewable wind capacity. On top of that, approximately 1,400 MW of additional renewable generation capacity is contracted with EirGrid and ESB Networks for connection in the next short number of years onto the grid. Further to that, the gate three process, which was announced in the last number of months by the energy regulator, now contains a further 3,900 MW of capacity which will be entering into the connection process in the next number of months. There has been, therefore, very significant progress in terms of connection into the grid and the renewable output from it in recent years.

Our move towards more sustainable and greener energy is creating economic opportunities for us. The greener home scheme, for example, which is run by Sustainable Energy Ireland is a domestic deployment for heat renewable technologies. It has operated for three years, has approved more than 25,000 applications and there have been over 16,000 installations, divided equally between heat pumps, solar water heating and biomass boilers. This has led to the development in Ireland of several biomass boiler manufacturing industries and quite significant development in the raw material, wood pellet and woodchip industry, which did not occur before the scheme. A large installer training programme was created to back up that development in the domestic market because plumbers and electricians were trained in traditional technology but not in the new renewable ones. We started this with our colleagues in Northern Ireland on an INTERREG-funded cross-Border programme and have extended it to mainstream FÁS training.

Mr. Dermot Byrne

We have connected 1,000 MW in wind energy generation projects. The peak load on the system is 5,000 MW. We are aiming for 15% renewables by 2010 and are on target to meet that. The more challenging target is 40% by 2020. To achieve that we need to get from 1,000 MW to 5,500 MW. We welcome targets because they focus people's minds on solving the problems and overcoming the obstacles. We have an active team in EirGrid working to identify and overcome the problems.

We have set ourselves the goal of being world leaders in facilitating integration into the system in Ireland, and we need to be world leaders if we are to reach the 40% target. There are challenges for us as grid operators and for developers to get finance and planning. I do not underestimate those challenges.

Our challenges are threefold — operating a power system with an intermittent resource that is there one day and gone the next; developing infrastructure and providing access to the grid; and developing the backbone infrastructure that can take the power from where it is generated to where it is needed. Grid 25 is our response to that challenge. The third challenge is to make sure we have the portfolio of other generation types that are available when there is no wind. We work closely with the industry, the Department and all the players. The industry is marked by close collaboration and discussion between all the players. We attend the Irish Wind Energy Association conferences. I will speak at one next week. We will listen to others and they will listen to us. We are a founder member of the Electricity Research Centre which examines the research issues that need to be tackled in order to integrate renewables with the system.

We have focused on wind because that is commercially available but we welcome diverse renewables, such as geothermal and ocean, because they help us tackle the intermittency problem. If the wind is not blowing, there will be ocean or geothermal energy supplies.

A number of years ago EirGrid came forward with the group processing system for getting applications through more quickly because there were hundreds in the queue. The system is broken down into gate 1, gate 2, gate 3 and so on. Gate 1 was for 384 MW, which process is complete. Gate 2, offers for which were completed last year, was for 1,300 MW. The connections are being built as we speak. Gate 3 is for a total of 4,000 MW from renewables, plus an indeterminate figure from conventional sources; it could take up to 7,000 MW. That is more than we have connected since the foundation of the State. Therefore, it is a huge task to get through that level of applications. We work closely with ESB Networks and the Department and it will take us two years to work our way through and arrive at a situation where all of the developers in that gate will have connection agreements with us or ESB Networks. We are geared up to tackling this and are on track.

Deputy Costello asked about the long route. In this case it is not just the interconnector, we must also connect with strong points on the Irish and British networks. There is no point attaching to a weak point where it is impossible to secure a power supply. We found a strong connection point on the British network in Deeside that can take 500 MW in and ship 50 MW back out. We put a lot of effort into finding the right points on both networks. It gives rise to a longer interconnector but less onshore development in both areas. The benefits of the interconnector are threefold. They introduce additional competition to the Irish market. Until now it was a smaller market but strong interconnection creates a bigger market. Therefore, a dominant player becomes smaller. It adds an additional source of energy into Ireland at times when the wind may not be blowing. Conversely, it facilitates the integration of more renewables. At a time when demand is low such as at night time in the summer, but when the wind is strong, we can export energy supplies to Britain through the interconnector.

People talk about smart grids but they really mean smart power systems. The transmission grid is smart because we have 142 computers across the country sending real time information to our computers in the national control centre, turning the raw data every second into information for our engineers to anticipate problems and allowing them to know where the power flows are. We also interact through the smart technology with the generators. If a major plant develops a fault, a signal is immediately sent to our computer, as it might trip the system. Without manual intervention, it sends another signal to Turlough Hill. Before the plant trips the system, Turlough Hill is already on the way up. The new issue is how one integrates the myriad smaller customers. How does one get them to be actors or players in the electricity system on a minute-to-minute or hourly basis? That is where smart meters apply. Smart meters provide the information to customers to enable them to say: "That is too expensive, I do not want to take my electricity now, I will defer." It brings more people as actors or players into the operation of the power system and that has to be of benefit. We welcome that and obviously we will work with all the parties to make that happen.

There was a question from Deputy Costello about the future technology portfolio and nuclear energy. People have talked about a debate on nuclear energy but it has not taken place. My perspective on this is that by 2030 Moneypoint and peat will be closed. What we will have is a system run on renewables and gas, with some interconnection. Everybody understands the issues with gas — where it comes from, the volatility in price, its potential availability and so forth. Do we really wish to be dependent on gas to that extent? There will be times when renewables will not be available; the wind will not be blowing so we will be totally dependent on gas. The question then is what do we need in the portfolio besides renewables and gas. Do we need a third leg of the stool and what will that be? That is the issue in the debate. There are a number of options, such as nuclear power, clean coal technology or, perhaps, some new breakthrough in renewables. We propose to carry out a study and make it available as an input into a debate on this issue. The study should be completed before the end of this year and we will make it available to the committee if it wishes to participate in that debate.

The grid is the backbone of the power system; it is essential that we have the right grid. There are 6,500 km of grid, which has been developed since the foundation of the State. Some of it is underground, especially in Dublin city areas. Poolbeg, for example, feeds its generation into the grid via underground cables. Cables, therefore, have an application. In Europe there are approximately 100,000 km of overhead 400 kv cables. They are the motorways of the power system; it is the high capacity system. Less than 1% of that is underground. It is underground in cities, where one cannot build overhead networks.

Many committee members raised this issue because it has surfaced strongly in a number of projects we are currently developing. In the north east we are in a consultation process with communities along the proposed alternative routes for the north-east 400 kv project. We have identified three possible routes and are in consultation about them. We have received a tremendous response to that consultation. The consultation has helped us to identify issues we were not aware of on the three routes and to mitigate the impacts a route might have on the communities through which it passes. We have received very good information which will enable us to narrow it down to a preferred route.

Obviously, in the course of that consultation a number of significant issues were brought forward. One was the issue of underground versus overhead cables. Rather than rush headlong into the project, we decided to deal with this issue. We worked very closely with the Department and we are in discussions with the North East Pylon Pressure, NEPP, group. There have been a number of reports on this issue. An independent study was undertaken by the Minister and the Department, known as the Ecofys report, which was published in May last year. NEPP commissioned a report by Askon Consulting, which reported in September last year. We have the PB Power report — we had to commission the report for the submission to the SIB. That report was undertaken over a year. It is a detailed report which identifies and costs a potential cable route along that corridor. There is a remarkable degree of agreement between the three reports in terms of the capital cost implications. Our PB Power report, which is the most detailed and most site specific, came up with a capital cost difference of €500 million between overhead and underground. The Ecofys report put it at €400 million and Askon — the NEPP report — put the capital cost difference at €300 million. One can see that there is a range, but the issue of capital cost is certainly clear — it is far more expensive. Perhaps more important, the bigger issues are reliability and technical feasibility. The latter issue has not been done anywhere else in the world and there are good reasons for that. The longest underground cable route, at the voltage levels we are talking about, is in Tokyo. There is such an urban sprawl there that they have built a 40 km cable from outside the city into the centre. They used a particular type of technology which is very expensive, called tunnel technology. They built a tunnel and put the cable into it. They are the world leaders in this technology. We engaged the Tokyo Electric Power Company to look at what can be done in Ireland in the context of Grid 25 and it is doing work for us at the moment because they are the world leaders in this area. We have asked it what is technically feasible.

In terms of reliability, it is clear, certainly from the Ecofys report, that underground wiring is less reliable than overhead. With overhead, one can find and repair a fault quickly. In most cases it is self-repairing. If a lightening strike hits an overhead line, the breaker switches on either end of it open, which clears the fault, and they automatically close. That all happens within a second so it is self-healing to that extent.

If a fault develops in an underground cable, however, one must find it first. There are technologies that can help to find it quickly, but the repair of a cable fault takes weeks. That is not just our experience, it is also the international experience. There are very good statistics on that issue. We have taken our time on this one and we have listened to what people have said. We are still in discussions with the NEPP and have offered to meet it and pay for its consultants to come over here. I understand that meeting is being set up for 31 March and 1 April. We intend to sit down with the NEPP's consultants to work through the issues. They are technical people and they understand the issues. We will work through them and get a common understanding on where we agree or differ. That process in under way.

We have initiated a judicial review on that decision by Monaghan County Council to vary the development plan. I am not sure how much I can say about this because it is in judicial proceedings, but it is very important. We would have been negligent had we not done so because it would have had the effect of not being able to build the network. In the broader interests of society in general we must establish the boundaries.

Chairman

We will be careful on that subject because of the courts.

Ms Marian Harkin, MEP

I am not an expert on this matter, but it seems extraordinary that Monaghan County Council would make such a decision if, as Mr. Byrne said, that would be the outcome. That may be something for another day, however, and we will have a look at it then.

Chairman

I thank Mr. Byrne very much. Bord Gáis is now back into the fray.

Mr. Will Roche

I will deal with some of the gas issues. Russia has been quite a topic of conversation here, particularly the issue of relationships with that country. The bottom line is that over many decades Russian gas has never stopped flowing except on a few occasions when it had a spat with its neighbours. In that sense, it has never been switched off and even through previous regimes the gas still continued to flow. They were stunned on the previous occasion by the strong reaction from Europe when the gas was switched off. There was a sense of almost a loss of trust between themselves and their European consumers. It is something to be addressed.

The Chairman pointed out that most of the relationships are bilateral as they are managed and, therefore, Germany and France go to Moscow. We are at a point where we need to do something at European level and it must be a mix of friendship on one hand and strength on the other. Europe must use its might but, perhaps, in a manner that builds relationships. The relationship between ourselves and Russia is one of interdependency. It has come from a long way. It has had a hard time over the past few decades going from being a world power to not being a world power. Suddenly, it found itself in a position where it commanded significant resources in which the west was interested. Every now and again we all use the leverage we have. On the other hand, the Russians need technology and other know-how which we can provide. There must be a basis for interdependency between their resource base and the technology and other skills we have on our side, with them having the funds to grow more industries.

On the question of pricing, there are almost two different worlds between the Continent and the GB-Irish market. Generally, gas supplies into the European market involve long-term contracts of between 20 and 30 years. There are certain requirements of those markets in that the purchasers must pay for a certain volume of gas each year regardless of whether it is used and they have flexibility around how much they use. The price is crucially linked to the price of oil.

Chairman

That is a problem. The UK currency is relatively weak in comparison to the euro, which is strong relative to all currencies, including the dollar. The issue raised by Deputy Costello and others is that consumers feel they need a fair crack of the whip. There is not much sense in being in the elite school of Europe unless positive elements are generated. The negative aspect is that there is a distinct feeling among commercial and domestic users that we are being done.

Mr. Will Roche

That is not the case. There is a single price at wholesale level in the British and Irish markets. It is strongly influenced by the Continent because both are interlinked and, therefore, when the continental price goes up, the continentals will pull gas out of Britain until the British gas price matches it. Irish suppliers deal with two classes of customers. The price to industrial customers tends to be close to the market price and it changes as the wholesale price changes in Britain. On the other hand, when we deal with small consumers, such as households, we tend to even out the price over time. The gas is bought on a laddered basis. Some may be bought three, six or 12 months ahead and we allow some flexibility to buy it a month, a week or a day in advance. Over time, when prices increase in the wholesale markets, we tend to increase more slowly but, unfortunately, when the wholesale prices come down, we have bought the gas at the higher prices and we tend to reduce the price more slowly and consumers have difficulty with this.

Most suppliers, including Bord Gáis, attempt to keep the price even for the year, which allows residential and small industrial and commercial customers to plan their budgets but it is difficult for us to do that against a background of volatile prices. This laddered approach is what is used. It does not contrast greatly with what British utilities do. They purchase on a laddered basis. One would never take the risk of letting all the purchasing for consumers go to the day because heaven knows what price it might be and, therefore, one tries to temper and balance the price over time.

Deputy Joe Costello

Is that what the regulator does too?

Mr. Will Roche

The framework is agreed between ourselves and the regulator and we operate to that as a regulated entity. Other unregulated suppliers will follow that pattern because that is the sensible thing for them to do. It is sensible for them to attempt to match our purchasing competitively so that they are broadly on a par with us at any point in time.

Chairman

Mr. Roche mentioned oil prices. Oil prices on the world market are approximately one third of what they were a year ago, but the price of oil generated energy for industrial, commercial and domestic consumers is 80% of what it cost a year ago. It is very difficult to explain this. It seems, as Deputy Costello suggested, that this is being done to encourage more people into the market. It is fine to encourage more people into the market, but not if that discommodes many other people or puts industry at a disadvantage. Competition in that area is also important. This committee's members are concerned about this and have been raising these concerns over recent months. I apologise for interrupting Mr. Roche, but I wanted to explain where committee members are coming from on this.

Mr. Will Roche

Undoubtedly, the oil price has a strong impact on the gas price, but it does not determine it completely. The failure on our part and on the regulatory side is that we have not communicated as well as we could how the system works. I guarantee that we only pass onto gas prices the costs we incur and that we pass them on as soon as we can through the regulatory mechanism. This year we have gone ahead and will reduce the prices sooner than the regulatory process would require. It would not have changed prices until 1 October, but we are reducing them on 1 May.

No one is more conscious of the needs of the customer than the suppliers. We have every wish in the world to minimise bills because that makes life easier for us. Our customers prefer us then and it is easier to bring in the cash. Therefore, we try to pass on cost reductions as quickly as possible. The process is very transparent in terms of how gas is purchased, how we build it up each month and what prices are applied to it. This process is open to analysts to examine and see how the British wholesale prices find their way to Irish consumers.

Deputy Joe Costello

Bord Gáis was able to move into the electricity market at a lower price than the ESB charges, even though the ESB had the monopoly. Does that imply the ESB was abusing its monopoly?

Chairman

Was it failing to pass on savings from economies of scale?

Deputy Joe Costello

Was it artificially maintaining its price so it could not pass them on?

Mr. Will Roche

I could not say that. From the Bord Gáis perspective, the more cost reflective prices are, the easier it is for us to compete in the market. We have no wish for prices to be anything other than cost reflective. However, there is a marketing dimension to what we are doing. If we turned up on customers' doorsteps with an offer of less than 10%, we would not be entertained. Therefore, there is an investment by Bord Gáis in terms of taking a reduction in the revenue it will get from customers in the first to third year of the relationship. It hopes it will look after customers well enough in that time so that they stay with it in the longer run and allow it recoup the market investment it has made to build the market.

Chairman

I do not wish to interrupt again, but in the current economic situation and given the competitive market worldwide for goods and services, our services in the energy area should be reducing in price and becoming more competitive. Mr. Roche said these energy prices are largely determined by oil prices. Oil prices have fallen through the floor, but there is no comparison between them and energy prices. The oil producing countries have reduced production in order to keep prices up artificially. We attended a meeting on the issue of oil in Paris in May last year. An oil producing country representative said that while there was a lot of talk about peak oil, there was no question of oil supplies running out. He told us they could produce as much as we wanted, even if this was another 200 million or 300 million barrels a day. He said they had plenty of sources with lots of reserves which had not yet been touched. He said there was speculation in the world market, with speculators purchasing product on the high seas, and that as a result, consumers, industrial, commercial and domestic, were being skewered and held to ransom. The point made by Deputy Costello is that the energy sector is of crucial and critical importance in the current economic climate and that everyone, including the regulator, needs to recognise that this is no time for fancy footwork but a time for very serious decisions in order to make the industry and the services and manufacturing sectors more competitive. If this cannot be done, we can have all the high flying notions we like but we will not be able to sell our goods and services on world markets. That will be a problem. I apologise for all this.

Ms Sara White

I apologise for interrupting the flow of conversation about gas supplies, but this is a very important point. Embedded costs for Irish industry, including energy costs, are an issue for the export sector and inward investment. The extent to which we do something about this, given that one of the themes today is peripherality, is affected by the fact that this is a peripheral and isolated market which is overly dependent on fossil fuel imports and whether this is a factor in keeping our energy prices higher on a differential basis than the rest of Europe. In the light of the issues referred to by the Chairman, the Minister asked the regulator to engage in a review of tariffs and not to wait until mid-year but to do so in January, which is what happened. Members of the committee will be aware that double digit reductions from 1 May, as mentioned by Mr. Roche, in both gas and electricity prices form the basis of the regulator's published proposition which is available for consultation. Alongside this and mindful of the need for a collective endeavour in support of the economy and enterprise, both large and small and medium-sized businesses, we are working with various formations of IBEC and independent suppliers. We are also in very close contact with the regulator. The office of the regulator, as an organisation and commissioners, is fully seized of the matter. Its representatives are not here to speak for themselves but I will do so. They are part of the energy family and fully seized of the enormity of the challenges facing the economy.

Chairman

Is there any truth in the rumour that the regulator was encouraging the ESB to keep prices artificially high to encourage more investors into the arena?

Ms Sara White

No. To be frank, there is a myth and a legend beginning to develop around this. The main place where competition was needed for a number of reasons was in the generation of power. For a number of decades the ESB was pretty much the sole generator of power in the State which it did very well. The need to reduce the dominance of the ESB in power generation was clearly recognised and signalled as part of the challenge in allowing competition to develop at the high end of the supply business. As part of the move to the single electricity market about which Mr. Byrne spoke, a reduction of the ESB's market share in power generation was fundamentally necessary for a variety of reasons. In order to reduce ——

Deputy Joe Costello

When was it fundamentally necessary? The ESB is both a domestic power generator and also an international player.

Ms Sara White

Absolutely. It does it very well.

Deputy Joe Costello

It is, essentially, a multinational company.

Ms Sara White

It has a multinational wing.

Deputy Joe Costello

Therefore, it is competing abroad on the international market also. Is there any need to introduce competition? While competition is welcome, whose function is it to introduce the competition? Surely we should wait for the private sector if it is able to do it.

Ms Sara White

That is effectively what has happened. There were a number of strands to this strategy. We were building an all-island electricity market. One of the concerns in Northern Ireland was that there was an incumbent. It could be argued that on the island there was a kind of duopoly with Viridian essentially the incumbent in the North and the ESB in the South. Reducing market share in power generation was important for the independent players in the marketplace, Airtricity being a case in point. Viridian itself would have recognised that and indeed went ahead and having built two power generating stations in Huntstown is competing in the power generating business on this part of the island. Bord Gáis is building a power generating station which I believe will be complete by early 2010. Mr. Roche can correct me if I am wrong, but that is the scheduled date.

Crucially Endesa, the Spanish utility company which is a large global player with a major presence and footfall in South America, Europe and the rest of the world, has now entered the Irish market. It has entered the Irish market because it bought the assets the ESB divested itself of under the strategy agreed with the regulator. That has shifted what was almost a logjam. Now we have a number of players and there are others. Bord na Móna is developing its renewables portfolio. It has its own peat station which it is developing on the co-firing model.

Obviously there are a number of private sector players in the wind sector, Airtricity being the obvious one, but there are plenty of others. We now have a degree of competitive tension which we did not have before, with people operating in the wholesale pool market in a way which must have the effect of putting downward pressure on prices. Have we seen much evidence of this yet? I do not think so. However, it is not really about competition. There is a theory that the way the wholesale market works is somehow keeping prices high. I think this may be a debate for another day.

Chairman

We might even have Ms White back again.

Ms Sara White

The Chairman should invite the regulator also.

Chairman

We might have the regulator back also and encourage a fusion of thinking in that area.

Ms Sara White

There is plenty of collective thinking and I would not underestimate——

Deputy Joe Costello

The argument about introducing competition is that the purpose of competition is to ensure the monopoly player is kept on its toes and prices will be kept cheap. The only effect we have seen to date is to keep prices high. It may happen in the long term but so far it does not seem to have happened in that way.

Ms Sara White

That would not necessarily be a shared view by all and sundry that prices have been kept high. We now have five suppliers.

Deputy Joe Costello

No, but by comparison with any other country virtually——

Ms Sara White

We have to be somewhat conscious about comparisons by the way. Are we sure we know how prices are constructed in a number of European member states? There are questions about that.

Chairman

We know one thing. Irish manufacturers are very quick to tell us about energy prices. We are also members of the eurozone. We know that we have some control over the buying power of energy whether it is controlled by outside sources. We also know that we are competing with our UK brethren who have a relatively weak currency at present and the US dollar is also very weak and has been weak for the past two or three years. There are a couple of imponderables. It would be helpful and reassuring to have a fairly strategic review of what is happening. It is becoming very difficult to explain to our consumers across the spectrum, including industrial consumers, that we are doing the right thing and are investing in the right areas. That is correct. Long-term investment is important, as is short-term investment. However, there is a grave danger that we can overburden the economy at a time when it is sensitive and we need to be very careful.

Incidentally we met some members of the Commission and some Members of the European Parliament some time ago. We have considered the climate change proposals for Europe. If those are pursued, with the economic downturn, to the same extent envisaged, without fear of contradiction there will be desolation across Europe in the industrial area. It is coming quicker than we thought. We have seen the French, Italian and German motor industries all suffering. They will suffer considerably more. We need to be very cautious not only as a member state but also in using our influence across Europe to state that while we believe the move towards alternative energy is excellent we need to be careful to have balance as well. Otherwise the price to be paid as a country on the periphery of Europe is colossal.

Mr. Roche was in full flow if that is not an inappropriate description.

Mr. Will Roche

I think I am testing the forbearance of the committee at this stage.

Chairman

The spirit is willing at the same time.

Mr. Will Roche

For the record, Irish gas prices are at or below the EU average.

Deputy Joe Costello

That might be true in the case of Bord Gáis Éireann.

Mr. Will Roche

It is true for other suppliers as well. We will not take all the reward for that. I will revisit the point that was made about depending on suppliers such as Russia. There is a strong debate at EU level on the issue of security. It is interesting to reflect on the development of the energy policy triangle. Liberalisation was popular in the mid-1990s, but we are now more concerned with climate change. Security is also a key issue. We could respond by building significant gas storage facilities to ensure we are resilient, or insulated from supply stoppages. The oil sector has responded by ensuring it always has enough stocks for 90 days. That insulates consumers against security difficulties. The problem with such an approach is that it is very expensive. If we were to use a significant proportion of our resources to provide a level of storage in excess of that commercially needed to insulate ourselves against supply shortages, it would be a tangible indicator of our lack of trust in our supplier countries. I imagine that this deep issue will be debated in the coming years.

It is clear that other means of protecting ourselves are available. We could diversify our sources. The only way Qatari gas can be brought to Europe is if liquified natural gas is used. Qatar is investing in the South Hook regasification terminal at Milford Haven, Wales, which is about to come on stream. Gas will be moved through that facility. We do not have a terminal in Ireland. The Shannon liquefied natural gas plant is being developed so that Ireland will have a liquefied natural gas terminal. I note that the Green Paper referred to a new development whereby liquid gas can be turned back into gas on a ship. A terminal would not be required in such circumstances. All that would be needed to give one access to liquefied natural gas would be a connection point, which would be rather cheaper. Some such facilities are being developed. There is a belief that liquefied natural gas will be quite plentiful in the next few years. I hope it will help to reduce prices further in the next two or three years.

I would like to make a passing comment on the Corrib project. I do not think there is anything we can add to the debate at this stage. The project will make a valuable contribution to the diversification of Irish gas supply. With regard to the extension of the grid, the Corrib project has had a phenomenal effect in making gas available in towns in the west, notably in counties Galway and Mayo, which would not otherwise have benefited from gas. The benefits of the project are already clear.

Bord Gáis works within a regulated commercial policy and proposed extensions to the gas network must meet certain economic criteria. The company cannot complete such extensions without regulatory approval. We continue to examine markets in various towns as well as our costs. It is our aspiration to extend the grid as far as we can within the confines of the connection policy. To do otherwise would, in a sense, levy the cost of connection across consumers. To proceed where it was uneconomic to do so would require someone to pay. Given the way in which we operate the system, it would be other consumers who would pay.

On the more profound issue of peak oil, which is related to the move towards renewable sources of energy, the gas industry regards natural gas as a bridge to the future. In other words, natural gas is a way to move from the current position to a world based on renewable energies. It is a clean, benign and environmentally friendly way of doing this. In recent years, we found that even if peak oil were not an issue, climate change would cause us to review our use of fossil fuels and examine the generation of carbon. It is in our interest to obtain the longest life possible from the precious resources available to us, whether natural gas or oil.

Bord Gáis invests in wind energy and will get involved in other areas of renewable energy. The intermittency of wind creates an issue, however, as the wind does not blow on certain days or at certain times of the year. This creates a requirement for another source of energy, which is where natural gas comes into the plan. New, open-cycle technology is available which is very flexible, can come on and go off very quickly and will complement the wind on the system. Plans are in place to establish this form of generation at various sites around the country and Bord Gáis, in its role as the natural gas transporter, will ensure gas can be brought to these locations and made available where it is needed. There is, therefore, complementarity between what wind and natural gas can offer.

Bord Gáis is very interested in renewable energies. The company has, for example, made an innovation fund available to entrepreneurs, colleges and others for research in this area. The utility companies such as the ESB, Bord Gáis and other major players have a role to play in encouraging the development of renewable energies. In particular, they must work with research facilities and entrepreneurs who are involved in wind energy, specifically offshore generation.

There are many things we can do to make life easier and bring renewable energy to market. It will become an issue for an Irish entrepreneur or developer to have an Irish utility company behind him or her to develop markets in Ireland. This would increase the chances that we will find markets abroad and add brand and credibility to the developments taking place. Bord Gáis is very supportive of these developments. I thank members for listening.

Deputy Joe Costello

I do not wish to delay members or the delegation, all of whom have been very patient.

Chairman

Deputy Costello has also been very patient.

Deputy Joe Costello

The European Investment Bank was mentioned. Does the bank operate an open-ended loan system and, if so, how is money drawn down for innovative projects in sustainable energy and so forth?

Ms Sara White

The European Investment Bank works like a bank.

Chairman

I hope it works better than some of the banks.

Ms Sara White

It works like a good bank. What has struck me in the past year — this development goes back at least 12 months — is that as part of its remit, which is effectively to invest in Europe, the European Investment Bank has placed energy and energy efficiency very high on its agenda. Mr. Byrne will be able to confirm that it works in a commercial way but it also has a strategic interest in looking at projects in a thematic way, for example, energy efficiency for Europe. It works with member states, state companies and the private sector. It is open for business to drive that agenda. It is most welcome, especially in the current circumstances, that the might and weight of the European Investment Bank, is behind energy in all its facets. Mr. Byrne might wish to add something in terms of general discussions he may have had.

Mr. Dermot Byrne

The importance of the European Investment Bank cannot be overestimated. When it gets involved in a project it can take up to 50% of the cost of the project and that gives confidence to the other banks that a solid bank is already involved in the project. That gives the critical mass for the other banks to make up the other 50% and to get involved in a project. It is critically important that the role of the EIB continues and is developed and that it continues to be a strong lender.

We have had many discussions with the EIB and it is fully aligned with the policy objectives at European and national level. The interconnector project ticks all its boxes because it is of European significance. Its purpose is to interconnect two countries and it is delivering on Irish policy and EU policy. We are a strong supporter of the bank. Long may it remain a good bank.

Chairman

I thank the delegation. The discussion was interesting in terms of our review of the Green Paper. We expect that this country will have a major role to play. I presume that even as we speak discussions are taking place in Brussels on the matter.

One of the things I noticed about Europeans is that they have always had a great reliance on wood burning such as in stoves. Many people have forgotten that it is the most efficient, eco-friendly system of heating. One cannot burn anything that is more eco-friendly than plain, ordinary wood. I refer to unprocessed wood that has not been made into pellets or chips. I am talking about wood that has not undergone any industrial or manufacturing process. It is carbon neutral and very effective. Other European countries have an advantage over us in that regard. I often wondered why they had stacks of wood all over the place and I now know that is why they have them.

We should have some advisory system on micro-generation. Many consumers want information on whether it is a wise thing to do and what a cost-benefit analysis should involve. We cannot answer such questions. We do not know whether people should get involved in wind generation or what they can do if they live out in the countryside and they have a stream or river, but that is a different story. A micro-generator on a chimney only works up to a certain point. From my knowledge of it, I would not invest too much money in one. It is essential that we develop a bio-fuels system. Again, it is important to be able to give advice to those involved in the manufacturing of bio-fuels.

A whole host of heating alternatives, and a combination thereof, have been proposed by domestic householders. The problem is that when someone asks me which one is the safest, most reliable and cost-efficient system, it is not always easy to answer. That is the question that is in everyone's mind. The sales blurb is naturally going to promote the systems of those who are in the marketplace producing and selling. We do not wish to see individual householders or groups investing in a product where they will not reap the benefit of their investment unless they live to be 175. There are such schemes available which I have examined. I have had a private interest in this business since the 1960s, hence my continued interest, even at this stage of my career. If I were to spend money on such a scheme, I would like to be advised as to which would be the most advantageous. A cost-benefit analysis is not always possible, as there are many competing in the marketplace for sales.

I thank the delegations for attending and apologise for the rant at the end of the meeting. The committee may call upon them again before the year is out.

The joint committee went into private session at 3 p.m. and adjourned at 3.05 p.m. until 2 p.m. on Tuesday, 31 March 2009.