I am pleased to have the opportunity to present the Electricity Regulation (Amendment)(EirGrid) Bill to the House. The Bill, which was initiated in the Dáil in April, forms a key part of the Government's priority legislative programme and underpins a number of key elements of the Government's energy policy. The Bill provides for an expanded role for EirGrid, the national transmission system operator, as a strong independent State company. It also underpins the development of electricity interconnection generally. In this context, the early enactment of the Bill will facilitate the delivery to schedule of the east-west electricity interconnector with the United Kingdom by 2012 at the latest.
The Bill makes some minor amendments to the Electricity Regulation Act 1999 in this context, which I will refer to as the 1999 Act. To ensure consistency with provisions for other licensing activities, a new subsection is inserted into the 1999 Act to provide that a person operating an interconnector without the appropriate licence is guilty of an offence and liable to a fine or term of imprisonment. For example, it is already an offence to supply or generate electricity without the appropriate licence.
The Bill also provides clarification of the position of interconnectors with respect to the transmission system. The 1999 Act provides that the cost of interconnectors would be recovered through transmission system charges. This Bill provides that those costs are only to be recovered in the case of a regulated interconnector, such as the east-west interconnector, or in circumstances where the Commission for Energy Regulation determines that it is in the public interest to do so.
The new provision facilitates the development of merchant interconnectors, which are privately funded and developed. Merchant interconnection projects are financed through charges for the use of the interconnector rather than being compensated through transmission system charges. These new provisions are in line with the European Union regulations in respect of merchant and regulated interconnectors.
As I have mentioned, the Bill expands the statutory functions of EirGrid in respect of electricity interconnection. I will briefly outline these functions. As the fully independent transmission system operator, EirGrid plc is licensed by the Commission for Energy Regulation, the independent energy regulator. Since it became the licensed operator for the transmission system in 2006, EirGrid has developed into a dynamic player in the Irish electricity market.
EirGrid's current statutory functions as transmission system operator include the operation, planning and development of the Irish electricity transmission system; the development of opportunities for interconnection of the Irish transmission system with other systems, with a view to ensuring all reasonable demands for electricity are met; the critical task of monitoring and reporting on security of electricity supply and generation adequacy; and the independent operation of the single electricity market in co-operation with EirGrid's Northern Ireland equivalent, SONI. This Bill provides that EirGrid may construct, own and operate an interconnector subject to the grant of the appropriate licence and authorisation by the Commission for Energy Regulation.
In addition to the provisions already outlined, on the advice of the Office of the Parliamentary Counsel to the Government, this Bill restates certain provisions of the European Communities (Internal Market in Electricity) Regulations 2000, SI 445 of 2000, under which EirGrid was established. Restating these provisions in primary legislation provides the strongest possible underpinning for EirGrid's new role. At the same time, the Bill revokes the corresponding provisions in SI 445 of 2000 to avoid duplication.
The restated provisions relate to subsidiaries of EirGrid and borrowings and capital expenditure by EirGrid. These provisions are restated in slightly amended form and include an increase in EirGrid's borrowing limit to a total of €750 million. The increased borrowing limit provides EirGrid with the financial leverage and scope to develop its expanded role and progress a challenging agenda. The issues of climate change and energy security are urgent and imperative priorities for Ireland, the European Union and all governments worldwide.
The achievement of the ambitious national targets we have set for ourselves in terms of emissions reduction, renewables and energy efficiency improvements present key challenges for the electricity sector. At the same time, this sector has recently entered a new era with the establishment of the all-island single electricity market. At this time of unprecedented change, EirGrid has an increasingly important strategic role to play.
I look forward to the publication shortly of EirGrid's Transmission Development Strategy 2025, which will be critical in identifying how we can support the increasing penetration of renewable energy generation and address the technical challenges in terms of the development and operation of the electricity transmission system. It will contribute to our continued economic, social and regional development.
For the longer term, I have commenced a process to examine the transfer of the electricity transmission assets. I expect that EirGrid, as a key State stakeholder, will provide an important input into this analysis and process. With regard to electricity interconnection, EirGrid is progressing the development of the second North-South interconnector in co-operation with the Northern Ireland authorities, which is due to be completed by 2012. The publicly expressed concerns in regard to this and other essential transmission system developments underline the complexity of the task facing EirGrid in the coming years. In this context, I commissioned an independent study on the relative merits of constructing and operating overhead transmission lines as compared with underground cables. The study focuses on technical characteristics, reliability, operation and maintenance factors, environmental impacts, possible health issues and the cost of both types of electricity infrastructure.
In anticipation of the enactment of this Bill, EirGrid is advancing the development of the east-west electricity interconnector. The Government attaches the highest priority to this project which will contribute to security of supply and competitiveness as well as providing increased potential for the export of wind-generated electricity. I will expand on just a few of the potential benefits to Ireland from interconnection with the UK market. With regard to the security of our electricity supply, the generation adequacy report is produced annually by EirGrid and sets out the forecasts for both the supply of and demand for electricity over a seven-year period. The most recent report has identified a need for additional generating capacity over the next seven years to maintain security of supply. East-west interconnection will afford Ireland direct and secure access to the British energy market where, I am advised, there is significant generation capacity available to enhance security of supply on this island. In addition, the United Kingdom is developing interconnectors with mainland Europe to contribute further to security of supply and market integration.
In this context, I am pleased to note a breakthrough earlier this month at the Council of Energy Ministers' meeting in Luxembourg, where broad agreement on the essential elements of the internal energy market package was reached. This package will contain new measures to ensure further co-operation among transmission system operators across the EU and for the further development of regional energy markets. Another significant benefit of the east-west interconnector is that it will enhance the competitive environment in the Irish electricity market by allowing third party access in a fair, consistent and transparent manner. This, together with the all-island single electricity market, should, over time, exert downward pressure on electricity prices.
Competitiveness is a primary objective for Government. Reliability and competitively priced energy supply is critical for future economic growth. Government policy is geared towards delivering a supportive, sustainable energy environment for enterprise and for consumers. Structural change in the energy sector and delivering essential strategic energy infrastructure are among the priority commitments for the Government.
In terms of fuel diversity, the introduction of the east-west interconnector will be a major benefit by providing an external source of electricity that will reduce our dependency on gas-powered generation. At present, a significant percentage of Ireland's electricity needs are generated from gas, some 60% overall. The east-west interconnector will help therefore to decrease our exposure to price movements and geopolitical instability factors in international energy markets.
Another key potential benefit of the east-west interconnector is that it will help support the increased penetration of renewable generation, especially non-dispatchable wind generation, in the Irish market. Reserve supply is required to provide backup for wind generation at times when the wind is not blowing. The east-west interconnector will provide the capacity and stability required and will increase the extent to which renewable generation can be accommodated on the transmission system.
The east-west interconnector will offer potential opportunities for export of Irish wind-generated electricity. In times of high wind generation, surplus power would be shared with Britain. In times of low wind generation, power would be imported from Britain.
The Government has set ambitious targets for progressively achieving 33% of our electricity consumption from renewable sources by 2020, with a target of 15% for 2010. The recent all-island grid study shows the possibility of up to 42% of electricity being provided from renewable generation by 2020. The all-island grid study also identifies the east-west interconnector as a key enabler for delivering our ambitious national and European Union renewables targets. It is to exploit these crucial benefits that the Government has attached such a high priority to the delivery of the east-west interconnector.
In this context, I wish to advise the House of the significant progress to date on the delivery of the east-west interconnector. In 2006, the Government requested the Commission for Energy Regulation to arrange the design of a competition to secure the construction of a 500 MW interconnector with the United Kingdom at the earliest possible date before 2012. The Government also decided that the interconnector would, as a national strategic asset, remain in public ownership and would be owned by EirGrid. To oversee and ensure completion to schedule, a high level co-ordination group has been established under the chairmanship of the Commission for Energy Regulation and comprising representatives of EirGrid and my Department. I am advised that work on the project is progressing well. EirGrid, overseen by the CER, is finalising a competition for the design and construction of the interconnector. I am also advised that the contract for design and construction will be completed by the end of September this year when the successful bidder will be announced.
EirGrid is also advancing work on route selection, planning and foreshore authorisation and technical specification of the interconnector. Woodland, County Meath, will be the connection point for the interconnector on the Irish transmission system. EirGrid has also obtained a formal connection offer from the UK national grid for a site at Deeside in Wales, which it has accepted. In addition, EirGrid has carried out a marine survey to determine the most suitable route for the undersea cable. Based on analysis of this work, the final route to link the two connection points will be determined.
This Bill provides a clear signal of the Government's support for the project and I trust I can count on the support of Senators for its provisions and smooth passage. As outlined, the Bill also will provide EirGrid with the legislative underpinning to advance to the next stage of the east-west interconnector project and ensure there are no delays to timely delivery. I am advised that the end of September 2011 is targeted for the completion of construction work, with the end of March 2012 targeted for the completion of commissioning and testing and the start of commercial operations.
In a European context, greater interconnection between member states is a key priority for the European Union to ensure the effective operation of the internal energy market. The importance of the east-west interconnector project has been formally recognised at a European level and it has been designated a project of European interest, which is the category of projects with the highest priority at EU level. The fact that the east-west interconnector is included in the EU trans-European networks priority interconnection plan underlines its strategic importance. The priority interconnection plan proposes specific measures for the progressive completion of critical energy infrastructure projects. As a tangible measure of support, funding totalling more than €2 million is being made available under the EU trans-European networks programme to advance the study phases of the east-west interconnector project.
As a peripheral island nation, Ireland strongly supports the progressive development of European regional electricity markets underpinned by greater interconnection. This project is a natural progression from the development, in co-operation with the Northern Ireland authorities, of the all-island energy market and the launch of the single electricity market in November of last year. My Department, the CER and EirGrid, along with their UK and French counterparts, are actively working towards the development of a regional electricity market as part of the European Commission's initiative to develop regional energy markets. This initiative will be underpinned by greater interconnection. The current focus is on the delivery of the second North-South electricity interconnector and the new east-west electricity interconnector no later than 2012. At the Government's request, EirGrid will also undertake cost benefit analysis and feasibility planning for further interconnection with the UK and potentially with Europe in the longer term. This analysis will take account of any proposals to develop interconnection on a merchant basis.
The Bill is an important measure in the delivery of critical objectives in the energy area, including enhanced security of electricity supply, greater competition and increasing use of renewable energy sources. I look forward to listening carefully to the views of Senators on this important legislation and to their assistance in progressing it into law.