Seanad Special Committee on the Withdrawal of the United Kingdom from the European Union debate -
Thursday, 1 Jun 2017

Engagement on Energy Matters

Chairman

Apologies have been received this morning from Senator Gerard P. Craughwell, who will be substituted for by Senator Billy Lawless. I welcome everybody this morning and ask those present to please turn off their mobile phones or switch them to airplane mode at this stage. Unfortunately, silent mode is not good enough as it interferes with communications. We have a really busy agenda covering a range of topics but we will deal first with energy matters. I am delighted to welcome representatives from EirGrid, SSE Airtricity Ireland and Gas Networks Ireland who will each make a presentation, after which we will have a detailed discussion with questions and answers. The order agreed is that Ms Madden will go first, followed by Mr. Wheeler and Mr. Doyle, respectively.

Before inviting Ms Madden to address the committee, members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her, or it identifiable.

I will invite the witnesses in sequence to make their ten minute presentations before inviting questions and comments from Senators. I will come back to the witnesses then for replies.

Ms Claire Madden

I thank the Chairman and committee members for inviting us here today to outline Gas Networks Ireland’s position on Brexit. I am the head of legal and regulatory affairs at Gas Networks Ireland and I am joined today by my colleague, Mr. Padraic O’Connell, head of human resources and public affairs.

Before I outline our position on Brexit, let me first give some brief background information about natural gas in Ireland. Gas Networks Ireland operates the gas network in Ireland. There are three entry points to the Irish system. The entry point from the UK, at Moffat in Scotland, supplied 40% of Ireland's gas demand in 2016. Two indigenous entry points at Inch and Corrib supplied 6% and 54% of 2016's demand, respectively. It is anticipated that the Corrib gas field will supply on average up to 57% of Ireland’s gas demand out to 2020. We also have a business in Northern Ireland, details of which are contained in the slide pack provided.

Ireland’s gas market is heavily interconnected with that of the UK. Whereas Great Britain currently supplies 40% to 50% of Ireland’s gas demand, this has historically been as high as 92%. In turn, 100% of the gas supplies to Northern Ireland and the Isle of Man are delivered through Gas Networks Ireland’s network in Scotland. For this reason, Gas Networks Ireland has a strong record of co-operation with neighbouring system operators in the UK. With the advent of Brexit, Gas Networks Ireland, as part of the Ervia group, has considered carefully the implications for the Gas Networks Ireland business and for the Irish gas market. Our findings to date have identified three main areas of focus, which are "day one" versus "day two" issues, security of supply and cost of gas. I will consider each of these in turn.

With day one versus day two issues, we understand it is the intention of the UK Government to transpose all existing EU legislation into UK legislation. Should this be the case, then no immediate - what we call "day one" - negative repercussions are foreseen in terms of the daily functioning of the gas market but further discussions with the UK network operator, National Grid, are needed to confirm this.

Of more concern is a scenario wherein at any point post-Brexit - what we call "day two" - new EU legislation is introduced which Gas Networks Ireland is obliged to implement but the United Kingdom chooses not to implement, or vice versa. In such circumstances, Ireland could be forced to seek derogations from such legislation. Without further information as to the nature of the UK's participation in, or interaction with, the single energy market, the nature of these derogations cannot be anticipated. However, Gas Networks Ireland notes that derogations are possible under the third European gas directive, the key legislation underpinning the European single gas market. In addition, many of the cross-border requirements under European gas legislation already provide that they may not apply at interconnection points to third countries, namely, countries outside the European Union, subject to a decision of the Commission for Energy Regulation.

With regard to the second of the three main areas of focus, the issue of security of supply can be further subdivided into the physical security of gas supply and regulatory compliance. The physical infrastructure linking Ireland to the rest of Europe will not change following Brexit. More generally, the fact that the supply of gas to Northern Ireland and the Isle of Man is reliant on Gas Networks Ireland's infrastructure can only serve to underpin continued co-operation between Ireland and the UK on gas supplies. In this context, it is worth noting that within the framework of existing intergovernmental agreements in place since 1993 between Ireland and the UK concerning Ireland’s two gas interconnectors, Gas Networks Ireland and National Grid have agreed a voluntary protocol for dealing with gas emergencies affecting the UK and Ireland. We see no reason for these arrangements to change post-Brexit.

With regard to regulatory compliance, Regulation (EU) 994/2010 concerning gas security of supply and a revision thereof which is due to be approved in 2017 require all member states to take necessary measures in order that, in the event of a disruption of the single largest piece of gas infrastructure in that member state, the remaining infrastructure is able to satisfy total gas demand on a day of exceptionally high gas demand occurring with a statistical probability of one in 20 years. This is known as the infrastructure standard or N-1 test. Ireland is currently grouped together in a region with the UK, the north-west region, for the purposes of compliance with the regulation and passes the infrastructure standard or N-1 test on a regional basis with the UK. The United Kingdom has an installed capacity of 140% of its demand, such that in the event of an infrastructure outage it would have sufficient supply to meet Ireland's gas demand. Ireland’s gas demand equates to 6% of that of the UK. In the event that the infrastructure standard was applied on a stand-alone basis to Ireland, it would not be met. As such, in the absence of legislative change or other accommodation or derogation from the European Commission, there is a possibility that Ireland would be obliged to build additional infrastructure to comply with the infrastructure standard post-Brexit. Gas Networks Ireland notes that the physical security of Ireland's gas networks will not change following Brexit. As such, any decision to build new infrastructure should not be based on compliance requirements alone, but should take full account of the costs and benefits to Irish gas consumers.

With regard to the third area of focus, there has been some commentary about possible negative effects of Brexit on the cost of gas. Our analysis to date does not support this view. We have also specifically considered the possible imposition of a trade tariff to gas. Currently, all members of the EU Single Market benefit from having zero tariffs on imports, which is essentially a free trade agreement. As the UK Government has already signalled its intention to depart from the Single Market and the prospect of having a free trade agreement in place with the EU does not currently appear likely to be completed prior to Brexit, it appears likely that the UK will default to World Trade Organization, WTO, rules for tariffs.

Analysis carried out by external economic advisers on behalf of Gas Networks Ireland has identified that the maximum tariff that can be applied to imports of all gases is 0.7%. In practice, the European Union currently applies a zero tariff on all gas imports but it could apply a tariff ranging from 0% to 0.7%. The imposition of any such tariff, while not posing a direct financial risk to Gas Networks Ireland, would naturally increase the cost of gas for the end user and, depending on tariffs applied to other fuels, could reduce the competitiveness of gas. If such a tariff were applied against the UK, the most favoured nation provisions of the WTO provide that it would also need to be applied identically to all imports of natural gas from any WTO member. Tariffs cannot be applied on a discriminatory basis to just one country. As both the UK and Europe are net importers of gas, it appears that neither party would benefit from the introduction of such a tariff. We believe, therefore, that Ireland should not be disadvantaged in terms of gas pricing from the perspective of WTO tariffs.

In summary, high level conclusions to date suggest that, as the UK is expected to transpose all existing EU regulations into national law, there will initially be no major changes to the structure of the gas market or to Ireland's daily interaction with the UK in the transportation of gas. In addition, we anticipate very little, if any, impact on the cost of gas for Irish customers. Naturally, there may be greater fluctuations in the exchange rate in the short term. However, analysis to date suggests that the overall cost of gas has not fundamentally changed directly as a result of the Brexit announcement. The two key concerns Gas Networks Ireland has in relation to Brexit are the future divergence between UK and EU gas regulations and how Ireland will continue to comply with the EU security of gas supply regulations.

Gas Networks Ireland continues to monitor and manage its position regarding what is potentially a very significant transformation for the energy sector in Ireland. Gas Networks Ireland is actively engaging with all relevant key stakeholders in Ireland, Europe and the UK. In particular, as a member of both Gas Infrastructure Europe, GIE, and Eurogas in Brussels, we seek to represent the views of the Irish gas market in Brussels. Gas Networks Ireland is co-chairing a GIE working group tasked with representing the views of European system operators and infrastructure owners to the European Commission and the task force on Article 50 negotiations with the United Kingdom.

I hope this briefing has provided some useful information to the committee. I thank the chairman and the committee for affording us the opportunity to outline Gas Networks Ireland's current position on Brexit. We will be pleased to answer questions from members.

Chairman

I thank Ms Madden and Mr. O'Connell for appearing before the committee and for their presentation. I invite Mr. Wheeler to make his statement.

Mr. Stephen Wheeler

I thank the Chairman and members of the committee for inviting me to participate in today’s meeting of the special select committee. I am the managing director of SSE Ireland and I am joined by Ms Marian Troy, director of corporate affairs. SSE Ireland is the second largest energy utility on the island of Ireland, supplying more than 800,000 customers and employing more than 800 staff on the island. We generate renewable and conventional energy from 26 wind farms and four conventional stations. The company is in the process of constructing Ireland's largest wind farm, Galway wind park, with our partners, Coillte.

Over the past six years, SSE has contributed more than €5 billion to the economy, supporting more than 4,700 jobs. SSE is intractably invested in the UK and Ireland and will continue to have a collaborative and co-operative relationship after the UK formally leaves the EU. SSE is the largest company by market capitalisation in the FTSE 100 whose revenues are derived solely from the UK and Ireland.

SSE did not take a position on the European Union referendum prior to the vote, believing it to be a matter for the people of the United Kingdom. We understand that managing political and regulatory change is part of our role as an energy company to provide the energy people need in a reliable and sustainable way. We believe, however, that it is important to gather stakeholder views and perspectives on the Brexit process. In that respect, we welcome today's session and the Brexit civic dialogue on energy held by the Minister for Communications, Climate Action and Environment, Deputy Denis Naughten, in February last. Continued engagement will serve us well during the Brexit negotiations and beyond.

I will focus on the material issues for our customers, business and employees across the island of Ireland. Energy customers want prices to be fair and Ireland requires cost-effective investments in energy infrastructure to decarbonise our economy and maintain security of supply. As we proceed, we should not lose sight of these overarching aims.

Our industry is subject to a range of European Union rules and regulations, many of which have wider application than the energy sector. At this stage, none of us knows exactly what will be outcome of the negotiations. With this in mind, rather than plotting out every possible scenario or examining every legal provision relating to energy, we argue that the following three principles should be prioritised in the exit negotiations. First, the single electricity market on the island of Ireland should be maintained and the integrated single electricity market project completed. Second, the flows of electricity and gas between countries through interconnection should continue to support energy security. Third, Ireland must recommit to meeting its energy challenges and thereby provide policy certainty to investors.

The combining of the Northern Ireland and Ireland electricity markets into the single electricity market or SEM has been a success. It was the first project of its kind to operate with dual currency and across multiple jurisdictions. The SEM has improved competition and the investment case for the construction of new and cleaner generation, as well as optimising the achievement of renewable targets. Put simply, there are benefits of larger, integrated electricity markets, whether this is across the island or across Europe.

For customers, the benefits take the form of lower costs and increased security of supply. Under EU policy, markets are progressively coupling in order to remove barriers to trade and enable efficient free flow of energy across Europe. The integrated single electricity market ISEM, project, takes this step for our market. SSE believes ISEM is desirable with or without Brexit and will deliver benefits for customers. We ask the Governments in the Republic of Ireland and Northern Ireland to do what they can, within their own powers, to provide for the maintenance of the single electricity market and completion of the ISEM project, the introduction of which was a product of domestic legislation in the first instance. The single electricity market and ISEM are supported by all sides in the Brexit negotiations. Policy makers and industry stakeholders such as SSE must follow the negotiations and regulatory developments carefully and find solutions to remove barriers that may be encountered on exit or in the future.

Our second priority is security of supply. We seek to ensure gas and electricity will continue to flow through the interconnectors. As set out in the Government’s Brexit priorities, approximately 88% of Ireland’s energy needs are met by supplies from abroad, much of them from the United Kingdom. Ireland imports approximately 40% of the gas it uses from Great Britain, a figure which has decreased markedly since the Corrib gas field was brought into operation. The figure is to increase to an estimated 85% by 2025 as the Corrib gas field is exhausted. Gas makes up a large part of the resources used in electricity generation, circa 50% in 2016.

Ireland's gas imports come through the interconnection with Scotland. The United Kingdom produces gas and also imports through interconnectors from other EU member states and Norway, as well as importing liquefied natural gas from further afield. Depending on market conditions, the United Kingdom exports gas to continental Europe. Therefore, maintaining the flow of gas between Great Britain and the European Union is mutually beneficial to all concerned in the negotiations, none more so than Ireland. If the United Kingdom was to continue to participate in EU security of gas supply arrangements post-Brexit, this would have obvious benefits for Ireland, as, in particular, the current rules for sharing resources in a supply emergency would be maintained. The United Kingdom and Ireland have long had bilateral security of gas supply agreements to ensure gas will continue to flow and they should be reaffirmed, if necessary.

On electricity interconnection, the Moyle and east-west interconnectors give Ireland flexibility to take advantage of lower prices elsewhere and optimise management of renewable energy generation. They provide additional comfort that security of supply can be maintained in case of emergency. SSE believes the flow through the interconnectors must be maintained and that any additional interconnection should be considered by way of a thorough cost-benefit analysis.

As the North-South interconnector project is before the courts, I will not discuss it at length. I note that the project would address impediments to transporting energy supplies within the single electricity market, as the cheapest electricity supplies cannot always travel to where they are needed. Northern Ireland faces generation shortages in the early 2020s if the North-South interconnector is not delivered. SSE supports the provision of this important piece of infrastructure, given the more than €20 million in savings it will bring to customers on the island.

My third and final point is that the Government must recommit to addressing Ireland’s energy challenges. Brexit should not subsume all of the focus in the upcoming, crucial years. There is a need for a clear, long-term and robust energy policy in Ireland to deliver affordable, secure and sustainable energy supplies. As set out in the energy White Paper, the needs of the empowered energy citizen are paramount in this respect.

About 25% of the electricity we generate is from renewable sources; we need to get to a figure of 40% by 2020 and set our ambitions for 2030 and 2050. A vision has been set out in the White Paper and 2030 renewable energy targets are under discussion at European level. SSE would like to see progress on the more detailed policies required to implement this vision. We know that the Minister for Communications, Climate Action and Environment, Deputy Denis Naughten, and his Department are working on a scheme to support renewable energy project development. As it takes a number of years to deliver such projects, we encourage a speedy conclusion in order that companies such as ours can continue to invest to deliver a decarbonised economy for the island of Ireland.

As for the technology mix, Ireland should continue to build its world-leading ability to deliver and operate onshore wind energy projects. It is the most cost-effective way for it to decarbonise its electricity supply. There is significant potential for projects with a low impact on communities to be developed in consultation and co-operation with them. Ireland must also begin to build capacity in the generation of offshore wind energy which offers huge potential. It has wind power capacity of approximately 2,600 MW and it is estimated by EirGrid that around 5,000 MW will be required to maintain our 40% target by the mid-2020s and that is without considering meeting Ireland’s upcoming 2030 target which will only be achieved by advancing in all areas, including the development of onshore and offshore wind energy projects.

We know that Ireland’s renewable energy credentials have been a factor in attracting foreign direct investment, as well as in creating jobs and reducing dependency on imports, but there is the capacity to do more. We must also ensure investment is encouraged in the provision of flexible infrastructure to complement renewable energy generation through schemes such as the DS3 programme. We must be careful that investments or policies made now do not lock in the use of high carbon technologies. Furthermore, electrifying the heat and transport sectors provides a means to decarbonise them and the move towards smart technologies will enable the consumer to flex consumption to reduce their carbon footprint and the price they pay. Ireland can be an example for the rest of the world in how to integrate high levels of renewables with the electricity system. We have the necessary skills and industry clusters to create a world-leading innovation hub in this area. We now need holistic policy measures to maximise the benefits of our energy transition. It is essential that the transition to a low-carbon economy is delivered cost effectively; the customer must be central in decision-making. Decarbonisation needs a strong overarching policy driver. The European Union’s emissions trading scheme, ETS, has been designed to be just that, although it is not delivering the price signals to support decarbonisation. Ireland should take an active role at EU level in ensuring the ETS is on a pathway to delivering a robust carbon price. If this is not achieved, Ireland should consider introducing domestic measures to supplement the scheme.

SSE sees three energy priorities as the Brexit process plays out: maintaining the single electricity market and completing the ISEM project; ensuring flows of energy through the interconnectors; and the need to double-down in meeting Ireland's energy challenges. Irrespective of the wider UK-EU relationship, as networked industries that are vital to the functioning of our economies and communities across the United Kingdom and the European Union, it makes sense for both to retain closely linked electricity and gas markets and wider co-operation in the energy sector. Energy customers want prices to be fair, while Ireland requires cost-effective investment in energy infrastructure to decarbonise its economy and maintain security of supply. As Brexit proceeds, we should not lose sight of these overarching aims. It is in that spirit that I have presented these three priorities.

Chairman

I thank Mr. Wheeler and his colleague, Ms Troy, for presenting to us. I invite Mr. Doyle to make his opening statement.

Mr. Rodney Doyle

I thank the joint committee for giving us an opportunity to outline our views on the potential impact of Brexit. I am the director of markets for the EirGrid Group. I am joined by my colleague, Ms Rosemary Steen, director of external affairs.

I will give the committee an overview of EirGrid, the State-owned transmission system operator on the island of Ireland. It is charged with developing the high voltage electricity grid to cater for the demands of society and the economy. It is also responsible for the operation of the single electricity market. In addition to ensuring security of electricity supply, it also plays a key role in delivering decarbonisation of the system through the integration of renewables. With our colleagues in the industry, we have been successful in delivering this to date, while maintaining security of supply. As well as its role as system operator of the grid, EirGrid has developed and owns the east-west electricity interconnector which links the grid on the island with grid in the United Kingdom. We are very conscious that the mandate of the committee is to present solutions to the challenges presented by the decision of the United Kingdom to exit from the European Union. In that regard, in our presentation we will outline the challenges and hope to give some guidance to members on possible routes for Ireland in devising future energy solutions.

In many senses, EirGrid can be seen as a key success story which peace on the island of Ireland has made possible. It owns the company which runs the grid in Northern Ireland, SONI, and is a fully integrated business. Our executive team has responsibility on a 32-county basis and we endeavour to deliver to customers the synergies and savings that operating on an all-island basis allows. We are firmly of the view that the current all-island energy approach is best for the customer – both domestic and business - in the Republic of Ireland and Northern Ireland. If Brexit was to change this approach and introduce any form of tariff or change in the all-island electricity market, it would be bad for energy customers and business. Brexit also has the potential to lead to divergences in energy policy between the two jurisdictions on the island.

As members will understand, we have been keeping a careful eye on developments since the Brexit vote last year. We have spent considerable time ensuring we understand the potential impact of Brexit on us and in the wider energy arena. In this respect, we have been very active in the Taoiseach's citizens' dialogue initiative and the sectoral forum on energy organised earlier this year by the Minister for Communications, Climate Action and Environment, Deputy Denis Naughten, in Boyle, County Roscommon. To date, we have seen strong political support to ensure the model of delivery of energy policy in Ireland, in particular electricity, is seen as an aspect which should be both retained and safeguarded. There is widespread and explicit recognition at official and political level in Brussels, London and Dublin that the energy sector on this island should not be impacted on negatively by Brexit. It includes voices such as that of the British Prime Minister, Theresa May, as well as senior voices in the European Commission. We welcome and encourage this.

An all-island energy market has operated on the island of Ireland very successfully for the past ten years, being of huge benefit to customers on both sides of the Border. EirGrid has operated the electricity market and the electricity transmission system over that period and has seen at close quarters the huge benefits the all-island approach to energy has had. The next stage for the all-island market is the integrated single electricity market, ISEM, which will see us link the all-island energy market into the wider European internal energy market. The project to deliver ISEM is currently under way. When it goes live next year, the ISEM will bring real and tangible efficiencies to how we manage the generation and supply of electricity across the whole island. This will ensure that prices of electricity will be minimised and help to ensure the Irish economy retains cost competitiveness. Every effort should be made to ensure Brexit does not impact on the efficient running of ISEM. Retaining the single electricity market will ensure the costs of electricity are kept to a minimum for homes and businesses. Any move from the current system would likely only serve to drive up electricity prices both here and in Northern Ireland and negatively impact competitiveness and security of supply on the whole island. We can all concur that this would be a regressive step. Recently a study was conducted by Grant Thornton, which I am happy to make available through the chair to the members, which outlines the benefits of the single electricity market and the ISEM approach.

In addition to safeguarding the single electricity market, we also highlight the role played by the east-west electricity interconnector which links north Dublin to north Wales. This key piece of infrastructure has been in place since 2012 and has delivered significant efficiencies and also strengthened our security of supply. The interconnector is capable of transmitting electricity in either direction, thereby allowing market participants to trade electricity in both directions between the electricity markets in Ireland and Great Britain. This works in favour of customers in both jurisdictions. In addition, it also provides ancillary support services such as frequency response, reactive power and black start capability to system operators at both sides of the interconnector, further improving our security of supply measures. In the event of Brexit triggering any tariffs on the trading of energy, this could have an obvious negative impact on the function of the east-west interconnector. This would be a retrograde step and should, in our view, be avoided.

While we may all agree that a hard Brexit is least preferable, we do recognise that the mandate of this committee is to identify solutions and not just highlight problems. In that regard, we would like to give the committee some details of the work we have ongoing on assessing the feasibility of a direct electricity link to the EU post-Brexit via Brittany in France. We believe this could act as a real solution in the energy sector post-Brexit. As brief background, part of EirGrid's work as the transmission system operator is to identify future interconnection potential with other countries. This is in line with Jean-Claude Juncker and the EU’s priority policy on the goals for the European Union. Following studies since 2009, the Celtic electricity interconnector between Ireland and France has proven to us to be both feasible and beneficial to ourselves and the French. Since the Brexit vote last June, the importance of a direct link to France has clearly grown and will provide a very positive solution to reducing our reliance, in terms of energy, on the United Kingdom.

Detailed studies on the Celtic interconnector have been under way with our French counterpart, Réseau de Transport d’Electricité, RTE, the national transmission system operator in France, since 2012. This work continues after a landmark signing of a memorandum of understanding signed by an Taoiseach and former President Hollande. The Celtic interconnector itself will entail 500 km of cable under the sea and it would be able to import and export 700 MWs of electricity. This is the equivalent power for 450,000 homes. To date, the proposal to link the Irish grid with France has been favourably commented upon here at home and at EU level and has received funding for the feasibility stages of the project. Over the coming months we hope to have more detailed studies to underline the value of such a project, and we believe that it could provide the country with a real energy solution, with this further intensified if a hard Brexit should transpire.

While most voices commenting on Brexit and energy issues have to date concurred that energy issues should not become part of the negotiations, we would urge caution. In our view energy co-operation on an all-island basis, as well as between ourselves and our counterparts in the National Grid in the UK, makes sense. Growing from a peace on this island, energy co-operation makes sense for us all and we should work collectively to safeguard it in the negotiations that will be under way in the coming period. In particular, we would like to see the continued support for the North-South interconnector, the maintenance of the ISEM project and the all-island approach to energy matters and the continuance of tariff free trade for electricity.

I thank the committee for this opportunity to present and for its attention today. We would be happy to take any questions that the committee may have.

Senator Joe O'Reilly

I welcome the witnesses today. As a person from the Border region, it occurs to me that the one sphere in which we have a united Ireland is in the energy market. All of us who aspire to a united Ireland, and that includes virtually all of us, should be looking at a united Ireland in the context of people and services rather than something more abstract and romantic. It has to be at that level, and energy is one of the great successes. This is a very significant discussion for that reason alone.

Would the witnesses agree that we will be assisted in the Brexit negotiations and arrangements? We are not negotiating specifically on energy, but do the witnesses think that we will be aided by the fact that Northern Ireland stands to have an energy deficit shortly if we do not implement the interconnector and the all-Ireland policy? Northern Ireland stands to be the big loser, so should that be a huge advantage to us? It is not a question of the Republic being at risk for supply, but rather Northern Ireland being at risk. Should that not make for a unity of hearts and minds across the two sets of negotiators, from both Mr. Barnier's position and his UK equivalent? Both negotiators should be on the same page in that respect in that neither of them would wish Northern Ireland to have an energy deficit. Perhaps the witnesses could respond to that point.

It is great news that we are working on a connection to France through Brittany and on the Irish-French connection. Is that another incentive for the UK to be co-operative in this sphere?

Everyone around this table, including the witnesses, hope for no tariffs in any sphere and would love something akin to free trade post-Brexit, and indeed a special arrangement on the island. That is our aspiration, but assuming there are tariffs and customs duties in other areas, can the witnesses foresee a scenario where energy would be exempt because it is of critical importance?

Wave energy was not mentioned. I am a complete layperson in this area, but I am told that Irish wave energy could be like oil to Norway, on the south-west coast in particular. It could be Irish gold. What is the potential for Ireland developing a wave energy industry post-Brexit? Will it be easier for us to get investors into that and will it work? The witnesses might inform those of us who have less knowledge, scientifically and otherwise, where we are at with wave energy now and what the obstacles are for moving forward on that.

Would the fact that the decarbonisation policy is mutual to the UK and to the EU help? Nobody is against decarbonisation. Perhaps Mr. Trump is, but hopefully not. Nobody in the UK or the EU is seriously suggesting that we do not go ahead with decarbonisation, so should that lead to a ready solution? There is a mutuality of view there.

The witnesses said that it has been the view that we should not negotiate on energy. Is that based on the assumption that we are going to win on energy anyway and that there is no question around it because nothing will change with it, or is it a bit naive that we are not making energy a central part of negotiations? I would have thought that energy is crucial. It is almost like water, although we do not want to go back to a discussion on water. Energy is life-sustaining and life-giving. It is a very crucial area of discussion. I thought it would have been central to negotiations, unless the assumption is that there will be no problem with it and that everything will be as it stands. Perhaps there is social knowledge that this is the case and there is no need to negotiate. Is that the position? Why is it that we are not having negotiations about energy? To be honest, it is kind of weird, to use a popular term. I would appreciate answers to those questions.

Senator Michelle Mulherin

I thank the witnesses for the evidence they have given us today. In response to Mr. Wheeler's three priorities, I would like to refer to his third priority, which is that Ireland must recommit to meeting its energy targets and must provide certainty to investors so that we can reach the targets. What does the witness specifically have in mind in that regard? We are obviously bound to certain targets anyway. As the witness said himself, the Minister, Deputy Naughten, is trying to achieve these along with the whole of Government. I also want to ask about the EU renewables directive that was published in November 2016. How will that impact on what we are discussing here today in terms of targets in the context of Brexit?

Mr. Wheeler mentioned that he is also engaged in conventional energy generation. On the renewable side, particularly wind, how are things progressing with regard to storage in order to allow more wind energy to be used? It may be more of a question for EirGrid, but I know that in the recent past when it was more topical to talk about transmissions and pylons and stuff like that, there was a lot of talk about smart grid technology and maximising the capacity that is there. Is that assisting in this? I know that there is a question mark over Grid West, for example. Perhaps Mr. Doyle could comment on the position in that regard.

I know that we have electricity targets. Is SSE Airtricity involved in any way in transport or heat targets or in meeting our carbon emissions reduction targets? Internationally, with the exception of the US, which we will know more about today, there is commitment at official and political level, which Mr. Doyle mentioned, to the decarbonisation of our economies. Closer to home, we have had issues with the delivery of electricity infrastructure such as pylons, transmission infrastructure and wind farms. The general view is that the biggest obstacle for us achieving our carbon emissions reductions, specifically our renewable electricity targets, is community acceptance. I am from a part of the country in which there is a big resource with regard to wind, wave and other renewable energies. I wonder what are Mr. Doyle's thoughts as we go forward. It seems to me that many of the projects, especially transmission projects, are slightly in limbo at the moment. How do we go forward to make sure that the infrastructure we need is delivered and that people are engaged with it in order for it to be seen as a common good rather than people having concerns about having a pylon or a wind farm in their back yard?

At this point, I would like to compliment SSE Airtricity. I am familiar with a number of its wind farms. It seems to have overcome that obstacle of community acceptance in areas in which it has operated more so than some of the State companies that are involved in renewable energy, which seem to have the communities and localities that are required to take on this infrastructure up in arms. There is the whole idea of community gain as well. Where are we going with that? How can we make the people who have the burden of this electricity infrastructure, which to me for the most part is the visual impact of it as opposed to anything else, see how are they distinguished and see how they gain? As opposed to that, Dublin city is going to benefit because a wind farm is built, though it will not have to have a wind farm or a biomass power station. Dublin does not have to take on this type of infrastructure, yet it will benefit. How do we recalibrate that and allow people to understand and believe that their concerns are being taken on board?

With regard to the proposed interconnection of the grid with France, who would pay for that? Is there provision in the EU in line with ramping up the use of renewables in order that we could be assisted in some way in funding this type of venture?

In the more medium to long term, what will electricity prices look like for the domestic consumer? Much of it comes back to that. If we can say to people that after initial investment in wind, biomass or whatever it is, once the cost of it is supported, we are ultimately going to see energy prices coming down, it would be a very hopeful message to send out from a committee such as this. What is the future for electricity prices not just for the domestic consumer, but also for business consumers?

Senator Paul Daly

I have a couple of broad observations and questions. We are here to try to come up with a report that pinpoints the solutions to potential problems or perceivable problems. We cannot even pinpoint the problems, never mind the solutions. We need to tease out every last detail. While we have a unique status because of our geography and our historical links with the UK, at the end of the day when the negotiations really kick in, we are one of 27. As a bargaining chip, how high up will energy be? It was mentioned briefly, but I would like to hear a little bit more about the relationship between the UK and continental Europe. How dependent are they on each other? From the viewpoint of the other 26 negotiators around the table, how high up will the question of energy be?

It was mentioned earlier that in one of the worst-case scenarios, a tariff of 0.7% could be put on gas. As we found out, Brexit hit once the votes were counted and there was an immediate sterling fluctuation for people who were exporting. They took major losses. Have there been gains? Has there been a little silver lining on the cloud with regard to the fact that we are probably net importers from the UK and the sterling has been weak and is weakening? Going forward, when negotiations are complete, if the sterling was to level out at a weaker stage, could there be a silver lining from an energy costings point of view for us on this island?

In a real worst-case scenario, we may end up with the aforementioned hard Border, checkpoints, etc. It has been mooted that because of our history, checkpoints on the Irish Border will not be there too long as they will be removed by people who may not have the authority to remove them. Have the witnesses looked into that worst-case scenario with a view to the security of their infrastructure, such as cross-Border interconnectors, etc.? That is the worst-case scenario, but we have to ask these questions and look at every inevitable or possible outcome.

Senator Niall Ó Donnghaile

I am curious to hear some more about the nature of the interconnector, particularly the proposed Celtic interconnector. If that was to come online tomorrow, I presume it would be providing for and servicing the all-Ireland market as it stands currently.

If, as a result of Brexit, there is a change in the current interconnector proposals and the energy provision across the entire island, how is it envisaged that a solution will be achieved? Various suggestions have been mooted. Senator O'Reilly has referred eloquently to a kind of special status that recognises the unique and bespoke energy arrangements on this island, which involve not just this State and the British Government, but various other EU member states as well. I am sure Mr. Doyle will agree that if there is further energy development, perhaps involving the Celtic interconnector, we will need to put down an early marker by arguing strongly that it will have to provide for the entire island and feed into the model of best practice and service that currently exists. I am trying to tease out the further arrangements or strategies that service providers and other companies believe they need to ensure Ireland's overall energy provision interests are upheld.

Chairman

I wish the witnesses the best of luck in answering all the questions that have been asked in the remaining ten minutes.

Mr. Rodney Doyle

A couple of questions were asked about the 700 MW Celtic interconnector between Ireland and France. I hope I will pick up on some of the points that were made in this respect. The feasibility studies that are under way have been very positive to date. There has been an examination of whether the route is feasible. It looks very positive that it is. I was also asked about the funding. To date, 50% of the cost of the feasibility studies that have been conducted have been supported by the EU Commission. Grant funding will be available for the overall project, depending on the qualifying criteria. Under the right conditions, we will seek to maximise the funding that is available. A full detailed cost-benefit analysis of the project will be conducted. The project will need to stand up for Irish and French consumers. The French authorities are positively disposed towards it and have been supportive of it.

As things stand, it seems that the Celtic interconnector project would have a positive impact on prices. When we examine a project of this nature, we need to consider how prices would be in its absence. In this case, the analysis shows that prices would be higher without it. This project will allow Ireland to link into lower price zones. Prices in Ireland are higher than the EU average. When we link into these zones and engage in market coupling, which the all-island single electricity market will deliver between ourselves and Britain, we get the benefit of being linked into a lower price zone. Lower-price energy flows as a result, and overall we are seen to have lower prices than we would otherwise have had. The Celtic interconnector will provide us with another route into another market. The market in this case has a much wider base in terms of the kind of generation supply, a wider portfolio in terms of the generation that is available and a lower price zone. It is positive from that perspective.

The Celtic interconnector project will absolutely be conducted on the basis of a cost-benefit analysis and will only go forward on its own merits at that stage. It is currently proposed that it will link into the all-island energy market. If the North has to separate from that market as part of a hard Brexit, we will look at that stage at whether the project continues to stand up when it involves the Republic of Ireland market only. Of course it would still provide a security of supply benefit for the island as a whole because we would still be interconnected with the North of Ireland, even in the event of a hard Brexit.

A question was asked about whether views are aligned on the benefits of the Celtic interconnector for Northern Ireland. Our colleagues in the North on the regulatory and governmental or departmental sides have been hugely positive about the benefits to date of the single electricity market approach and the proposed implementation of the all-island single electricity market project. Our colleagues in the regulator and across both Departments are positively disposed to the project and continue to support it. They see the all-island single electricity market project as the all-island solution for the energy market as we go forward because it has brought huge benefits to customers in Northern Ireland and the Republic of Ireland. From that perspective, our outlook on the benefits this project will provide to both sets of customers is very much aligned. My colleague, Ms Steen, will answer the questions that were asked about Grid West, the introduction of technology and community gain.

Ms Rosemary Steen

I am EirGrid's director of external affairs. Grid West is an excellent example of a project where EirGrid is taking a changed approach. When the project was originally conceived in 2008, there were approximately 647 MW of renewable generation projects in the west that required a connection. An overhead project was developed and put out to public consultation on that basis. In 2014, we agreed with the feedback from the public that we had ruled out the underground alternatives too early in the process. We agreed with the concerns of the public in this regard. We have reassessed the project in the context of the options that now exist.

Earlier this year, we published our new grid development strategy, which has resulted from public consultation. This document sets out three main options for the Grid West project. Some of the options include overhead lines and others involve undergrounding. We are considering whether local reinforcement might solve the issue. We are currently engaged in a process of consultation with those customers to move the project forward. We are working with the original renewable developers who were seeking the connection to ascertain where their projects now stand, whether the connections are still required and the timeliness of their projects. On that basis, we hope to bring a revised solution into the public domain for public consultation later in the summer. This is an example of where we applied a new approach to the considerations around a project. We hope to be able to reveal the outcome of that later this year.

Senator Mulherin is correct that we are currently in the process of reassessing fundamentally whether the Grid West project is required. That links to what we are trying to do in terms of public acceptance. Under the new framework for grid development that we have adopted, which involves a six-step process, we engage much more carefully with those who will be affected at every stage of every project to make sure they can make a greater input at an earlier stage into the types of projects that are proposed. We have a number of pilot trials at the moment.

The document I have mentioned has been very well received. It received an award from the National Adult Literacy Agency earlier this year. It is part of a suite of tools we are using as we work to improve public acceptance. We accept that we might not have used engagement tools like plain English, which are useful in accurately capturing the feedback of local communities, to a sufficient extent in the past. We are committed to trying to do that as we go forward. Following a Government policy directive in 2012, we put in place and rolled out a new community fund for various projects. We recently piloted that on a line between Mullingar and Kinnegad and it has been very well received by the local community. We have a centralised fund, but we also provide proximity payments to residents who are affected along a route.

All of those initiatives have enabled us to continue developing lines across the country. Maybe there is less commentary about them from media and other sources. We are working harder on the ground to ensure we take on board the feedback about the way the projects are rolled out. I have to say we are committed to ensuring that, as an organisation, we learn the lessons of what happened in 2014 and put new approaches in place. I am happy to provide those publications to the clerk for circulation. They might help the committee to understand the current position.

Senator Joe O'Reilly

Why is an operational strategy similar to that being applied to the east-west interconnector not being applied to the North-South interconnector? I commend what Ms Steen has said, but I would like to know why the same approach is not being taken in our case.

Ms Rosemary Steen

As the North-South project is before the High Court at the moment, I am prevented from getting into a detailed discussion on it. After the project has been through the High Court process, I will be happy to brief on the background to it.

Part of the issue, on which I cannot comment further, is the form of public engagement which the court is reviewing.

Chairman

Senator Mark Daly wants to come in and ask a question. He should be brief because we are going over time and I want to get everyone in.

Senator Mark Daly

I apologise for having to leave. I had to do a radio interview.

I thank the delegates for coming. If they have answered the following questions already, I will read the replies in the Official Report. They may have already outlined the costs associated with the Celtic interconnector. Is there a precedent for having such interconnectors, for example, in Cyprus or Greece? Is there an interconnector with Italy and, if so, how much did it cost? What are the timelines for the provision of funding between the European Union and partner countries? In the example of Greece, if there is an interconnector with Italy, does it pass through a third party country and, if so, how does the process work? What support and recommendations are required because it is quite obvious the project needs to go ahead? We are all aware of what happened in the south east with the pylons campaign and that people do not realise Brexit will have an impact on the country's energy security. Is there a precedent? Is there a precedent in the case of non-EEA countries? Britain states it will not follow the Norwegian or Swiss model. What are the precedents for countries that are not part of that arrangement? What precedent can we use in the supply of energy to Northern Ireland and the supply of energy through Britain to here? Will the delegates supply that information to the Chairman because we are running out of time?

I have a question about the Shannon LNG project, the 500 MW power station and the 28.3 MMscm of energy it will provide daily. It has the potential to be a stopping off point for US gas imports which would then be transferred around Europe. After so many decades, are we nearer to it? Do we need it? How critical is it? Should we put it on the same pathway as the Celtic interconnector?

Chairman

I thank the Senator.

Mr. Stephen Wheeler

I will start with Senator Michelle Mulherin's questions about committing to reaching Ireland's targets and Irish policy. The Minister, Deputy Denis Naughten's Department should be commended for the great work that has been done on the White Paper which is an excellent piece of work. The engagement and collaboration with the industry and local communities have been incredibly positive. What we now have is a really strong vision for the future for Ireland. Underneath it, we need details, in particular of support for the use of renewables. REFIT is coming to an end and we need details of what will actually replace it. We understand it will be a competitive option, which we welcome and call for its timely completion.

The other big challenge in delivering on our vision is presented by our connection policy. We have a significant number of megawatts stuck in a grid queue. While the CER recognises this and is working towards an enduring connection policy, we need to see the details and it completed in a timely way.

There are some challenges in planning, of which we are all aware. A pragmatic view and conclusion would be helpful.

The last issue is carbon pricing, in particular how Ireland can strengthen its EU ETS scheme to have a true price for carbon in the system in order that future investment can be made on a secure basis. In that regard, what is most important is certainty as investment is driven by it.

There was also a question about the 2016 EU renewables directive. It is important to remember that the directive is in addition to an existing one. While it focuses on reaching the 2030 targets, SSE believes maintaining the figure of 40% to 2030 will present a significant challenge, but it is something Ireland should be encouraged to continue to do. We do not see huge change in the new directive. It is really about deciding and determining the final target for 2030 and how Ireland can play a part in reaching it. That brings us back to the issue of a competitive advantage. We talk about the Brexit negotiations. Ireland has a huge competitive advantage when it comes to the generation of renewable energy, particularly wind energy. We need to look at how we can maximise it and continue to be a leader in Europe.

Senator Michelle Mulherin talked about storage. I commend the great work being done by EirGrid on DS3 and the issue of flexibility in how renewables will integrate with a previously conventional system. Work on the issue of storage is progressing and the cost of the technology use has reduced significantly in the past few years, but it still has some way to go. The work we are seeing on DS3 means that we will get to a point where we will have a 75% penetration rate on the system at any one time. It should be acknowledged that Ireland is leading across Europe and the world in that regard.

Senator Joe O'Reilly talked about wave energy. When one looks at Irish waters, there is an abundance of opportunities. The challenge is presented by technology. The advancements in technology for wind energy production far outweigh those in the case of wave energy. That is the reality. When we look at how we will continue to decarbonise the economy in the future, we need to look at new ways of producing more renewable energy. We strongly believe offshore wind energy projects present a fantastic opportunity in that regard. Recent studies show that we could produce over 4.5 GW of wind energy offshore along the east coast. We should think about where the demand is. It is very much on the east coast and can be matched with the production of renewable energy, including wind energy offshore along the east coast. As the cost of technology is continuing to fall, the production of energy offshore presents a real opportunity for Ireland.

Senator Joe O'Reilly also talked about the deficit in Northern Ireland. While security of supply in Northern Ireland is obviously an imperative, we must also look at the overall benefits, not only the North-South interconnector. I spoke about the single electricity market and the integrated single electricity market. The completion of the integrated single electricity market will deliver further benefits for our customers. What we are trying to do is to deliver a system that will provide a sustainable and reliable power supply for our customers in the most cost-effective way. Projects such as the single electricity market, I-SEM and the North-South interconnector will continue to do this.

I will pass on to Ms Madden who will speak about interconnection.

Ms Claire Madden

I will pass on to Mr. O'Connell.

Mr. Padraic O'Connell

I will start with Senator Mark Daly's questions. He asked about the LNG project and the possibilities associated with it. We would welcome the development because it would improve security of supply. Gas Networks Ireland has supported Shannon LNG in its applications for EU funding in that regard in the past 12 months. Gas Networks Ireland is also looking at developing renewable energy technologies in the gas industry, one of which involves the use of bio-gas. It captures methane created in the agriculture and food industries and supplies it to the gas network. There will be the first injection point on the gas network this year and there is the potential to meet 20% of the demand for gas in time.

Senator Paul Daly asked how dependent the United Kingdom was on the EU. The United Kingdom gets about 35% of its gas supply from the North Sea, 35% from Norway, 20% from LNG tankers and 10% via interconnectors from mainland Europe. As Ms Madden said, there is an installed capacity in the gas network of 140%. If one were to take out any one of these pieces of infrastructure in a catastrophic event, the United Kingdom would still have the capability to meet demand and Ireland would play its part.

Senator Paul Daly asked about the worst case scenario in planning. It is part and parcel of the work we and Eirgrid do on a daily basis. It is part of our remit as a network operator. We work very closely with the national grid to scenario-plan. We engage in planning every year for emergency cases. The gas sector in the United Kingdom has an installed capacity of 140%.

In response to Senator O'Reilly's question on EirGrid and not negotiating on energy, I am the co-chair of the Gas Infrastructure Europe Brexit working group or task force and that is one of our key findings. In all essence, energy is almost a human right. It is a fundamental part of life, it is around us everywhere and in Gas Infrastructure Europe, we do not think it should be used as a negotiating chip in any negotiations between Europe and the UK.

Senator Mark Daly

The witnesses may have answered this already, but are there precedents in non-EEA European countries? This is a very important part of the role of this committee. We have been asked to come up with the solutions and it is very easy to come up with solutions when one can point to a precedent. Is there anything in Cyprus or Greece to which we can point where there are networks going across non-EEA countries? Is there funding for that which would assist us in making the case for the Celtic interconnector or Shannon LNG or any of the other infrastructural projects? While we have spent a lot of time listening to groups about what is required, the real nuts and bolts of this is not that we need an interconnector, it is that we need an interconnector, here is the case for it and here is the precedent for it. Do the witnesses have examples of the kind of precedents we could utilise?

Mr. Rodney Doyle

As the Celtic interconnector will be from what will continue to be an EU country to another EU country, it will qualify for any of the available funding. It has also been recognised in Europe as a priority infrastructure project. As it has been nominated as such, that sets it up in terms of funding. It still needs to qualify, however, on its own merits as a project, which the analysis will show.

There are precedents of interconnections between Poland, for example, and other parts of Europe and into third countries. There are trading arrangements across those interconnections and projects. There are arrangements in place today which work and continue to work between what is seen as the central European market and countries outside of it. It is all a matter of how these so-called third countries accept the rules of the internal energy market in Europe. If they are willing to buy in and accept what goes with it, then one moves forward. If they are not then that potentially is where problems arise. There certainly are precedents there of how it can be done. It also depends on how the parties who are going to sign up to it negotiate and what they agree to do. Consequently, the stance Britain would take on something like the European Court of Justice, for example, would become very important from that perspective.

Senator Mark Daly

For example-----

Chairman

I am just going to let Mr. O'Connell come in here as well. He might answer the Senator's question.

Mr. Padraic O'Connell

I have one observation about gas. The Senator asked a question about LNG, which is in the UK. A lot of that gas comes from Qatar. As the Senator himself mentioned in his question, it could also come from the United States. That is outside and is part of the free trade market. This happens with gas and there are legal frameworks for it to happen. This does not happen with gas by way of physical pipelines. It happens with tankers, where one freezes the gas and ships it across the oceans.

Senator Mark Daly

What is the timeline on the French interconnector in the best-case scenario?

Mr. Rodney Doyle

We are currently talking about 2022, so it is a number of years out.

Senator Mark Daly

Everything else is coming through the UK. It is the issue of the transfer-----

Mr. Rodney Doyle

Absolutely.

Senator Mark Daly

It is not like the Polish precedent where it is going from Poland to a third country. Our problem is that it is coming from Europe to a third country and then to us, so that is the precedent we are looking for. What is the agreement we need to have in place for it to traverse that country? We are all talking about worst-case scenarios here. As we keep being told that no deal is better than a bad deal, what does that look like? What kind of agreement do we need to have to allow it to come in to us through the UK? Are there precedents for that anywhere?

Mr. Rodney Doyle

There is probably no precedent for electricity transiting across two island nations but there are precedents for how one might negotiate bilateral arrangements to get from one point to another. Before the internal energy market, IEM, was implemented there were methodologies in place for transiting other countries. It has been done before. What we have at present are some bilateral arrangements between ourselves and Britain for certain timeframes on the trade of electricity. We have those precedents already. We understand how to put in arrangements for bilateral trade between ourselves and Britain, particularly on the electricity side and I am sure it is similar with gas. It then comes down to how one applies the further legal rules from Europe on top of that and that would need to be assessed at that point. We do, however, have precedents for those kinds of bilateral arrangements.

Chairman

I think we have teased that out nicely at this stage. I thank all six witnesses for coming in and giving so much of their time and their thoughts on this matter. This is vitally important and is possibly an area we have not looked at in enough depth in this entire debate, in terms of the public body. This is a standing committee and we will be going for another few weeks. If anything emerges or if there is anything the witnesses would like to feed back in, please contact us. We would like to hear from them again. I will now suspend the meeting briefly in order that we can change over our witnesses.

Sitting suspended at 11.16 a.m and resumed at 11.20 a.m.