I welcome the opportunity to address this House on the subject of Ireland's energy policy.
When I became Minister for Energy in 1989, it was clear to me that the single most important objective of energy policy must be to maximise the contribution which this sector can make to the nation's overall economic development. A modern-day economy must have adequate and secure supplies of energy available at the lowest possible cost if it is to prosper, if it is to generate employment for our workforce and if it is to provide the modern standard of life to which Irish people now rightly aspire.
The thrust of the Government's energy policy is very practical and simple. It is to ensure that consumers can obtain energy at the minimum possible cost consistent with security of supply and environmental considerations.
There are a number of complicating factors which have a significant impact on how that policy is implemented. First, Ireland's position as an island on the edge of Europe places us at an immediate disadvantage as regards access to the world energy market. Secondly, there is as yet no integration between our electricity and gas systems and the European networks. Thirdly, we are not rich in energy resources and are thus obliged to import some 70 per cent of our energy needs. Fourthly, we have a small and widely dispersed population and this adds to the cost of supplying energy.
It is for these reasons, therefore, that the security and diversity of energy supply must be given primary importance. In recent years two other key objectives have emerged.
First, as our economy has come to depend more and more on exports the relative price of energy in Ireland, compared to that of our trading partners, has gained in importance. This has highlighted the need for greater competition within the energy supply system so as to enable Irish business improve its competitiveness through lower energy prices.
Secondly, the growing concern to protect our environment has forced us to look closely at the relationship between supply and demand and, in particular, to focus on improving demand side management so as to achieve greater efficiencies in the use of fuels and greater conservation of primary energy.
The energy scene in Ireland cannot be viewed in academic isolation. It involves significant interactions which are affected by internal, and especially external factors as exemplified by the three major threats to security of oil supply since 1973.
The Irish energy scene has evolved considerably over the past decade. In 1980, some 70 per cent of our total primary energy requirement was met by oil. Only 22 per cent of our energy needs were met from our own resources. This position left us very vulnerable to supply disruptions and price rises associated with the volatile oil market.
As a result of consistent Government policy since then, the picture in 1990 was much better. While total energy consumption has increased by 20 per cent we now depend on oil to meet only 46 per cent of our needs. Indigenous energy has increased by 10 per cent and now accounts for 32 per cent of our requirements with all the benefits that implies in terms of our balance of payments and employment. The use of natural gas has increased from 6 per cent to 16 per cent over the decade while peat and hydro have remained static at 15 per cent and 1 per cent respectively. Imported coal and Irish natural gas have replaced a large part of our oil requirement.
The development of indigenous energy resources is an important element of national energy policy from the point of view of increasing security of supply and diversity of fuels in the market. The impact on the balance of payments position and on employment must not be overlooked either. In this context, the Government are determined that Bord na Móna will continue as a major contributor to Ireland's energy needs in the national interest.
The company's core business is the provision of milled peat to the ESB for the generation of electricity. Bord na Móna must continue to concentrate on reducing, to the lowest extent possible, the cost of producing milled peat for the ESB. Given current world energy prices, it is likely that having achieved these reductions the cost of peat for electricity generation will still be comparatively high.
This raises wider issues not solely relating to energy policy. Bord na Móna employ more than 2,000 people, concentrated mainly in the midlands region. In the absence of new employment opportunities being brought onstream, any substantial reduction or phasing out of peat fired electricity generation would have major social and economic consequences for the region. These issues will have to be tackled collectively by the Government to ensure that the policy objective of low price secure energy is achieved.
A number of Senators have made reference to the problems facing Bord na Móna and particularly the recent announcement by the board that the briquette factory at Lullymore is to close. As I have already indicated publicly, I very much regret the necessity for this decision but there does not appear to be any alternative. Total briquetting capacity in the four factories amounts to almost 560,000 tonnes whereas projected sales in the current year amount to about 400,000 tonnes. In effect, capacity exceeds current and foreseeable demand by a little more than the equivalent of a factory's production. Bord na Móna estimates that sales of briquettes will decline over the next decade so that overcapacity will continue to increase.
The reason Lullymore was chosen were detailed by Bord na Móna in information issued to public representatives which I will quote and put them on the record of Seanad Éireann. Factory production costs at Lullymore are close to 20 per cent greater than the average of the other factories. The numbers of employees and the costs associated with redundancy payments at Lullymore are less than 75 per cent of those involved in any of the other factories. The factory at Lullymore is considerably disadvantaged by comparison with the other factories in relation to indoor storage facilities. The impact on sales revenue arising from the closure of Lullymore is considerably less than would occur if any of the other factories were closed. If a factory is to be closed, the combination of factories which optimise the remaining production capacity in relation to demand is that which excludes the factory at Lullymore.
I am convinced Bord na Móna must continue to be a major contributor to the Irish economy for many years to come. This contribution must be based on the provisions of viable and sustainable employment within the company's operations. In the short term, this requires that the board must reduce its level of borrowing and concentrate its attention on reducing costs. I am acutely conscious of the importance of Bord na Móna to the economy of the midlands in particular and it is for precisely that reason that I want to ensure that Bord na Móna is positioned to operate as a viable company, providing secure and viable employment.
Senator Dardis asked me some specific questions in relation to the situation at Lullymore, particularly as to whether there would be compulsory redundancies. I am pleased to inform the House that the chairman of Bord na Móna has informed me that there will not be compulsory redundancies. There will be an offer of voluntary redundancy and an offer of redeployment. He also asked me if I would meet with workers representatives. If the workers representatives would first seek a meeting with the management of Bord na Móna, and possibly with the chairman and members of the board of Bord na Móna, and if after such a meeting they still wished to see me I would be pleased to meet with them. I must make it clear that I fully support the board's decision.
Senators Finneran and Naughten spoke at length on the need for development of bogs in the Derryfada area. The problems which face Bord na Móna generally and which gave rise to the closure of Lullymore, also apply to Derryfada. The bogs in Derryfada were developed with the intention of building a fifth briquette factory. That plan had to be abandoned when it became clear that there was no market for the output.
While the change in the fuel mix over the past decade has reduced our dependence on oil and has improved security of supply, it is accepted that the greatest threat to security still relates to oil supplies. In order to further reduce this risk I have given special attention to emergency measures, including improving our national stock position.
Oil supply security is also directly related to the quality of our oil infrastructure. If, in order to cut down on expenditure, we reduced the infrastructure simply to a product import and distribution operation, then our economy would become an oil "price taker", being forced to accept Rotterdam prices. Also, a slimmed-down infrastructure would leave the country vulnerable to supply disruptions as we are positioned at the outer edge of the oil supply chain.
The Whiddy oil terminal is a very valuable national asset. Its million tonnes of oil storage capacity would cost at least $120 million to build today. Its important strategic role was emphasised during the Gulf crisis, when I directed that 205,000 tonnes of crude oil be placed there to help keep the economy moving in the event of oil shortages, which were then widely expected.
The thrust of my policy, therefore, has been to retain as many elements of the oil infrastructure as possible in order to deliver secure supplies at the most economic cost. Consequently, the return of the Whitegate refinery to normal commercial operation and the reactivation of the Whiddy oil terminal is a high priority. An operating, profitable, oil terminal together with a profitable refinery, supplying competitively priced products, would confer both local and macro-economic benefits in addition to extra security at no net cost.
The ideal solution, of course, would be a discovery of an Irish oil source and that now leads me on to deal with matters relating to exploration policy. In order to intensify the search for oil and gas my Department are currently conducting a complete review of our licensing terms for offshore exploration. The purpose of this is to ensure that our terms are attractive in today's exploration climate. The other major initiative in the exploration sector is the introduction of petroleum tax legislation in this year's Finance Bill. The new licensing terms will be in place by June this year and, combined with the certainty which will then emerge on the taxation front, will provide the encouragement to international exploration companies to once again operate in Ireland.
I am pleased to say that Marathon Petroleum has agreed to undertake a programme of seven exploration wells in addition to a significant amount of seismic data acquisition. Also, in 1993 a licensing round will be held for "frontier" acreage off the west and north-west coasts and already there has been a significant level of interest in this area since the announcement of the round.
The development of our natural gas resources has meant a saving of £2 billion on our imports bill to date. 1991 also saw the first production from our second gas field at Ballycotton. Although modest in size, Ballycotton has proved that it is possible to commercially develop such deposits.
While I hope we will discover more gas offshore it is only prudent to act now in order to ensure that gas continues to be available in the future. To that end, Bord Gáis Éireann in close co-operation with my Department, have planned an undersea gas pipeline from Dublin to Scotland. This interconnector will enable us to import gas. The pipeline will cost some £287 million in current prices and we will receive a grant of some 35 per cent of the cost from the EC. Work on the installation will start later this year and will be completed in 1993.
In the event that a new large Irish gas field were to be discovered, the existence of this pipeline will enable us to export gas. In fact, the gas interconnector between here and the UK could give a stimulus to gas exploration activity as exploration companies would no longer be constrained by the limited size of the Irish market. They would be free to export gas to the UK if the home market were unable to absorb additional supplies.
In recent years the greenhouse effect has become a focus of attention in the EC and the UN. The House will be aware that the EC decided in 1990 to limit CO² emissions in the Community as a whole to that year's level by year 2000. The strategy proposed to meet this objective includes energy efficiency and conservation, switching to fuels with lower CO² emissions, and fiscal measures.
The policy being developed contains first the "no regret" form of action such as energy conservation and efficiency, then fuel switching from high emitters such as oil or coal to low such as natural gas. In order to stabilise CO² in a cost-effective way, however, it is likely that higher energy pricing through the use of fiscal instruments may be needed to complement national and Community energy efficiency programmes. This is where the notion of a "carbon tax" stems from.
I strongly believe, however, and my EC colleagues agreed with me at the Council that other major questions must be addressed before we embark on that course of action. One important question is whether the imposition of a tax would lead to a reduction in energy consumption and ultimately achieve the desired environmental effect. We also have to examine the macroeconomic effect a tax would have on the country as a whole and whether it would be compatible with a sound energy policy.
Events last week in the former Soviet Union will have reminded Senators of the dangers inherent in nuclear power generation. Government policy has consistently over the years stressed that safety issues and the risk of serious accidents with trans-boundary implications are still at the very basis of the nuclear question. As this debate is concerned with national energy policy, I do not propose to deal further with that issue on this occasion.
In Ireland, fuel substitution is a limited option. While renewables technology is still under-developed, it can make a major contribution to fuel saving and must be utilised as fully as possible.
In the case of hydro the potential for any major increase is limited as there are no suitable large-scale sites available. There is a range of small-scale sites, generally in remote locations dotted around the country, which offer potential for mini hydro schemes. Where it is shown to be viable in economic and planning terms, I will continue to support the development of this resource.
The other renewable sources most likely to be relevant in Ireland are wind and wave and we have an abundance of both these resources particularly along the western seaboard. Exploitation of both wind and wave power is highly capital intensive. In order to produce a reasonable return on investment in wind energy, assuming there are no grants or other financial supports available, a considerably higher price would need to be paid than that currently available from the ESB for bought in electricity. However, it also has to be recognised that unlike fossil fuels, there are no social or environmental costs associated with renewables and consequently there is a case to be made for paying a higher unit price for the electricity produced from these sources.
The 6.45 megawatt wind farm which will be constructed at Bellacorick in County Mayo later this year, with assistance from the EC Valorean Fund, will play a key role in the development of renewables in Ireland. Wind has the potential to supply a much greater quantity of energy than hydro-electric power which is why it is worth pursuing even if the technology is not as well developed. I hope the Bellacorick project will be a great success and a forerunner of greater things to come.
Measures to improve energy conservation and efficiency have an importasnt role to play in reducing fuel and environmental costs and in deferring the necessity for capital expenditure on new capacity for as long as possible.
Consumer information is probably at the core of trying to secure a new vision of the part of the final end-users to the benefits of energy efficiency. Unfortunately, energy conservation is not given as high a priority as it deserves by most householders and businesses. Insufficient or poor quality consumer information can lead to misguided decisions and distorted expenditure priorities. Therefore, consumer information, encouragement and persuasion have a key role to play in the promotion of greater energy efficiency.
However, the role of legislative and administrative actions must also be examined to supplement these efforts and to ensure, if necessary, that the community's interests as a whole are not neglected. At European Community level, Ireland is playing its part to ensure that the current momentum is maintained leading to the early adoption of further measures to promote energy efficiency.
The development of reliable, fully automatic, combined heat and power (CHP) generating systems, capable of unsupervised operation for long periods has opened up a new field of energy saving. However, the economic viability of CHP projects depends critically on the demand for heat and power at particular sites being reasonably well matched so that overall energy use can be optimised and energy losses kept to a minimum.
I believe our utilities also have a vital role to play in energy conservation. The ESB are engaged in a campaign to promote the efficient use of electricity. They are actively promoting the use of more efficient lighting, water heating and insulation in Irish homes. The ESB are also engaged in surveys and energy audits to promote greater efficiency in the industrial and commercial sectors.
I also believe that there is need for a co-ordinated approach by ESB and BGÉ in relation to certain aspects of energy policy. It is important that State companies, pursuing separate corporate objectives and competing with each other for market share, would not lose sight of broader national policy objectives.
I would like to move on now to consider some of the wider issues in the energy scene. The European Commission is pushing hard for liberalisation of gas and electricity markets in member states and for maximum use of trading opportunities between member states. I have already indicated to the EC that Ireland strongly supports the effort to achieve a Community market for energy and that the markets for electricity and gas are central to that objective.
A major step in that direction was made during Ireland's Presidency in 1990 towards the adoption of the transit directives for electricity and gas which provide the right for electricity and gas utilities to negotiate transit across neighbouring transmission grids and the transparency directive which provides for publication by the Commission of information on prices charged to industrial consumers.
The Commission holds the view that the liberalisation of electricity and gas markets will be of enormous benefit to consumers. They are convinced there are considerable in-built diseconomies in existing systems which are defended by vested interests in both industries. I must say there is a natural logic to this view and, independently of the EC, I have for some time now given careful consideration to changes which might be made in the structure of the Irish electricity system.
I recently brought proposals to Cabinet and I am pleased the Government have approved my proposal for a major review of the ESB with the intention of introducing competition into the electricity sector and increasing the transparency of costs.
I want to make it clear to Senators, who may have misinterpreted these proposals, that there are no proposals in my Department for the privatisation of the ESB. I envisage that the ESB will be split into two separate State companies, one for transmission and distribution and the other for generation; both companies would remain in public ownership. Any private company could choose to build a power station at any time and its power would be made available for sale to the distribution company on equal terms and in a competitive manner. The distribution company would charge for use of its network but would not profit from buying and selling electricity. It would also be responsible for construction and operation of international electricity links. The reason for this approach is simple; there is scope for competition in the generation business and no necessity for a monopoly. There will also be scope for competition between generators in Ireland and those in other EC member states if an electricity interconnector were to be established.
I want to refer to some of the points made by other Senators. The potential for buy-up fuels and energy crops has been raised during this debate by Senator McDonald. The major obstacle to the use of vegetable oil as an alternative to gas, oil and diesel is the cost of production. Having listened to Senator McDonald I wish to give the House the other side of that picture. If Irish farmers were to be rewarded for growing oil seed to the same extent as they are at present rewarded for growing cereal crops the cost would be twice as great. Furthermore, to meet Ireland's need for road diesel with sunflower or rape seed, it would be necessary to devote about half of Ireland's arable land to oil seed crops. I am sure the House will agree this would not be practical or economically viable. I will, however, continue to monitor progress in relation to that technology.
Senator Kiely asked when unit one at the Tarbert power station will be reopened. I am pleased to inform him that I understand the likely date for its reopening is April 1993. I was asked by Senator O'Keeffe about electricity interconnection between Northern Ireland and the Republic of Ireland. The ESB and the Northern Ireland Electricity Company have recently announced a joint plan for co-operative strengthening of electricity networks in Donegal and Fermanagh, in areas where networks are weak and consumers are particularly at risk from breakdown due to equipment failure and storm damage. Both companies are anxious to see the North-South interconnector restored, but unfortunately, as the House knows, the problem is related to terrorist activity rather than technical or economic matters.
I am grateful to the House and to the Senators for the points they have made. Any points I have not responded to will be carefully considered in the Department.
