I welcome from the ESB Mr. Padraig McManus, chief executive, Mr. Aidan O'Regan, deputy chief executive, and Mr. Bernard Byrne, group finance director. I ask all those present to switch off mobile telephones. I see a few familiar faces in the Visitors' Gallery. I welcome a former colleague, Maol Muire Tynan, who is now an ESB press officer.
Energy Security: Discussion with ESB and Irish Wind Energy Association.
Mr. Padraig McManus
I will run through the presentation and briefly discuss the relevant issues as well as the ESB's response to them. I will also outline our views on the RES directive.
Members will be pleased to note that I do not propose to discuss the first slide in great detail. My intention here is to indicate that this is a complex matter which raises many different issues. Although I live with this issue all the time, I must admit I find it hard to keep up with the many different targets and percentages. There are multiple objectives in terms of climate change, security of energy supply, competitiveness and sustainability.
We are all familiar with the 2020 multiple targets for emissions cuts, energy efficiency and renewable energy supply, which is the main focus. There are also multiple instruments such as the emissions trading scheme, the possibility of carbon taxes, renewable obligations and feed-in tariffs. There are many different methods of dealing with the issue. Today we will focus on the 20% renewable energy target. To meet that would require a 10% effort in terms of transport and a 33% requirement in terms of electricity.
I wish to focus on the ESB's response to the various directives, including the RES one, and the long-term future of the ESB. Earlier this year we set out a 15-year strategy for the ESB. Our traditional cycle is for five years but given the long-term nature of the issues we decided to look at a 15-year timescale and beyond in terms of our overall commitments re carbon emissions. Going back to 2005, of the 70 million tonnes of CO2 that Ireland emitted, the ESB was responsible for more than 14 million tonnes of that figure. We have committed to reducing CO2 emissions to net zero by 2035. Because that date is such a long way off we wanted to set interim targets so that people could see over the timescale that we were meeting our commitments. Our first target is to have a 30% reduction by 2012, which in our sector is not very far away. In order to do that we will have to dispose of our oil stations and that process is currently ongoing. By 2012 the ESB hopes to commission 600 MW of new wind power. We have committed to a 50% reduction in our CO2 emissions by 2020. We will have more retirements from our own portfolio.
We are looking to increase substantially the amount of wind energy generated. We also intend to have 150 MW of ocean technology in place. The latter figure may not seem significant by 2020 but the technology is such that at the moment it would be a considerable stretch. We expect ocean technology to develop dramatically, as the wind sector did in more recent times. We are also committed to investing in new open cycle gas turbines, which would provide the resilience that the amount of wind that we are building would need. Wind is the renewable technology that works at the moment but, unfortunately, at the coldest time of the year one gets very little wind blowing so one needs that resilience. We believe it is within our control at the moment to reduce our CO2 emissions by 50% by 2020. Between then and 2030 we will have to replace the Moneypoint station. We are looking to replace it with a clean coal plant. We accept that clean coal technology does not work at the moment but there is a significant amount of coal in the world. The US, for example, has approximately 300 years of coal on its own land and it intends to burn it. The belief is that it will crack the clean coal technology. Although it has not been developed yet, that is the only solution that will allow us to get to net zero emissions by 2035.
We have made an absolute commitment to keep our market share down to below 40%. The PowerPoint display shows a pie chart of what we believe the ESB will look like in 2020. Total ESB emissions would amount to 37%, of which 26% would be conventional and 11% renewable. Approximately one third of the ESB's portfolio by 2020 will be from renewables but our commitment is only a third of the country's target of 33%.
Of the total of €22 billion, €4 billion will be spent directly on renewables, €10.5 billion on network development, which I will focus on later, €3.5 billion on domestic, including things like the open cycle gas turbines, district heating plants, which we are looking at, and €4 billion on our international business. The ESB will continue to develop the infrastructure with up to €650 million per year being spent on it. By 2012, the integration of 3,000 MW of wind-generated electricity will be included in the national grid. This includes all suppliers and not just the ESB's generated power. By 2020, 6,000 MW will be integrated into the grid.
The ESB is required to deliver performance improvements in accordance with its five yearly agreements with the Commission for Energy Regulation, which has always been done to date. The ESB is committed to and has started a pilot programme with smart metering systems. Smart networks, which would allow people to have their own electricity generation fed back into the system, are being examined.
Studies to make the ESB's vehicle fleet, approximately 2,700 vans, more green are being examined. Mechanisms to reduce power loss on the network system are also being examined. With recent investments this has been successful and becomes more of a challenge each time.
The ESB is committed to becoming Ireland's leading renewable energy generation company. Investment is being made in research, development and innovation in new technologies such as ocean power. We have committed to onshore development of 800 MW by 2012 and a further 800 MW by 2020. We are involved with the Marine Institute and Sustainable Energy Ireland in developing a plug-and-play system off the Mayo coast which will allow people to connect their ocean technologies to the system. The previous schemes in the test bays were not connected to the system. By 2020, it is hoped to have 150 MW electricity generated by ocean energy technology.
The ESB will implement pilot biomass programmes in its peat-fired stations. District heating is another area that is being examined with the docklands directorates. Cork docklands will probably be the first area to benefit from this.
The ESB supports the RES directive as it will support security of supply and the reduction of CO2 emissions. The proposed target for Ireland is 16% to achieve the overall European commitment of 20%. The 16% target is not a lesser target for Ireland as there are only four other countries which have higher targets. In the horse-trading that will go on, we strongly suggest there should be no movement on the 16% target. It is only Luxembourg, Britain, Belgium and the Netherlands which have more stretching targets to reach. Any reduction in emissions is to the European account.
The largest challenges will be in heating and transport and we suggest supports will be needed for these sectors. We are aware supports have been provided for the wind energy sector. Bio-fuels are one way to meet this challenge. We are working with some producers of electric vehicles to see if we can progress much more rapidly with the introduction of electrical vehicles into the company fleet. Heat pumps should be considered as renewables and receive much greater support in the overall process.
It is critical for the ESB to retain certainty for investors. Investors in the energy sector need long-term commitments. While flexibility for interim targets is fine, the rules cannot be changed every few years. Investors must have confidence in the longer-term requirements.
There are two issues with renewables that we would consider. The first is the physical connection. A study has already been implemented which stated it could account for 42% of energy supply. That will take a considerable amount of time. We believe that 33% is a realistic target for 2020, but the other side is the economic factor. We will have to ensure the single electricity market can take that amount of renewables. It is certain the single electricity market cannot stay exactly as it is. It will have to change as the components on the system change, but it is very important that the study is also carried out. We will be involved in developing the network to match the physical assessment, but the economics will have to be examined to see how the market can adapt to our changed circumstances.
There are many directives and we need to ensure they are all taken in harmony. We cannot lose our way in this area.
I thank Mr. McManus for his informative presentation. Even if we never had any targets, the reality is that owing to peak oil and the possible lack of supply in the future, we should be pressing ahead as far as we can with renewables.
Mr. Padraig McManus
That is absolutely the point.
We are inclined to look at targets because of climate change, but we should look at the way the world is developing and at the resources we have. I am very interested in the target of 150 MW by 2020 for wave energy. We went out to Galway Bay to see the prototype. It is the sort of thing that can take off very quickly, so I take Mr. McManus's point that while 150 MW may not appear to be a great amount of energy at this stage, if it develops in the way it is hoped it will, the natural resources are in place and we could get an enormous supply. We have been trying to make the point to the Government that we should look forward to the day when we are net exporters of energy and are self-sufficient.
We will be investigating the planning system in this area before the end of the month. We are getting complaints from people who wish to invest that there are long delays in getting permission. Not only do we deal with directives and proposed directives from Europe, as a country it is important to recognise the natural resources we have for energy production. I take Mr. McManus's point about targets and so on. We have not been very good to date at meeting certain targets, but we should be looking at this as an opportunity for Ireland to become one of the leaders in wind and wave production.
I thank Mr. McManus for the presentation. I congratulate the ESB on the progressive view taken on renewables. Mr. McManus has warmed the cockles of our hearts by saying he is a bit befuddled by all the complexity, because if he is, then we certainly are.
The 42% objective was presented as a realistic objective in the all-Ireland grid study, but I get the impression that Mr. McManus does not think that is the case. Can he clarify this? It seems to me we should aim for the 42% on the basis of that study, but if Mr. McManus knows better, perhaps he could tell members what his issues are with it.
I am a little unsure by what Mr. McManus means when he says the market needs to change. We are considering the directive today, and there is some difficulty in understanding how this thing will work under the requirements if we are interconnected with other countries. I am not clear on what percentage will and will not be accounted for by renewables. Perhaps the ESB representatives will explain how this can be done.
Before the representatives arrived, we had a preliminary discussion about the proposed system of guarantees of origin in regard to the directive. The representatives might give us their views on that issue in terms of credits.
The Commission for Energy Regulation made an announcement on the licensing of wind energy projects and renewables - I understand the scheme is called Gate 3. Will the representatives comment? It seems many applications have not been included in the scheme and that offshore wind energy projects will not be an element in all of this. We have heard many presentations on offshore wind energy projects and the benefits but it seems the reality is different.
On grid development, the ESB has a figure of €650 million per annum. When I raised this issue in the past, the response I received from the ESB was "This is what we do. We have done it and will continue to do it. We are up for the job." While I have no reason to doubt this, it seems there are now special requirements because of the change of policy on renewables and also given newspaper reports in the past few days that the Government is to take a lot more money from the ESB. It would be useful for us to know what impact this will have, as €200 million a year is a lot of money, even though the overall ESB budget is very large. What concerns me is that the Government is planning to take away seed capital the ESB needs to build the networks and ensure it can keep up with demand.
My next question concerns the reality in terms of commitments. When it comes to climate change, many targets are being set and statements made but the reality limps along and is completely different from the big objectives set. I was promised that smart metering would begin by this summer and, while it may have done so, I have no idea if that is the case. It was to be a pilot scheme. I appreciate that the programme has begun but have smart meters actually been installed under the pilot scheme and, if so, how many and where?
My final point concerns clean coal. While I accept this involves projecting into the future which is very difficult for the ESB representatives to do, why do they believe they can depend on something that has not actually been developed? What are their reasons for their confidence?
I will call further speakers before asking the representatives to respond.
I welcome the ESB representatives and acknowledge the efforts they are making to raise public awareness. I notice the latest ESB bills contain information on renewable energy percentages, which is welcome. The ESB also has undertaken public awareness initiatives such as the Croke Park carbon footprint initiative, which is a good way to increase awareness, although I do not believe there will be too much bother with global warming next Sunday when my home county of Waterford takes on its neighbour, Kilkenny - I am sure there will be many contributors to global warming on that day.
Senator Coffey can save his energy.
Like Deputy McManus, I believe there are large assumptions in the ESB's targets. With regard to the figure of 150 MW of ocean energy, I was one of the visitors to the pilot project under way in the Atlantic Ocean. While the project is progressing, I feel in my heart it is not doing so at the rate it should be. It is a large assumption that we will reach that level of power from that source by 2020.
To agree again with Deputy McManus, the targets with regard to having clean coal technology by 2030 involve large assumptions based on a technology that is not fully developed. There is a message in this for the committee and for the Government. We must incentivise these projects and the associated technologies in order to attract investors. There must be a simplification of the procedures associated with the development of this type of renewable energy.
What is the delegates' view of the potential for the development of district heating? I understand there has been substantial progress in this area in other parts of Europe. Is there potential for such development in this State, particularly in areas close to industry?
We are all aware that transport is one of the greatest contributors to global warming. Are the delegates of the view that action to facilitate the electrification of transport should be a priority for the Government? I understand the ESB is considering such a move in regard to its own fleet. There are many fleets in the public sector that could be electrified, including those of Dublin Bus and An Post, as well as our train stock. Would it be feasible to provide plug ports on main highways for domestic cars? This is the approach we must take if we are serious about tackling the impact of transport on climate change.
We will discuss wind power in detail later in this meeting. All Members encounter complaints, whether accurate or otherwise, from constituents that the ESB is difficult to deal with in regard to connectivity for wind power investment and development. What is the ESB's focus in regard to investment in the grid and the co-ordination and development of the grid to facilitate connections to wind power?
I understand there has been significant development in the area of heat pump technology in the domestic market. Is there space to develop that further in the case of large-space, off-peak heating projects? Is this an avenue the ESB is willing to examine? Heat pumps use substantial amounts of electricity but the capacity to produce renewable electricity and generate heat for large-space projects means the net effect will be significant savings in fuel and energy usage.
The ESB has provided a substantial dividend to the Government in recent years. The delegates are to be complimented on the success that has facilitated this. However, as Deputy McManus observed, that dividend will be required for seed capital if the company is to reach the targets it has set. Given the investment in infrastructure one assumes will be required to achieve those objectives, can the ESB afford that level of dividend to the Government?
I welcome the delegates. Some of the points I wish to make have already been raised by Senator Coffey, particularly in regard to the grid. I too have a list of complaints from people who have encountered difficulties in gaining access to the grid for the purpose of developing small, community-backed wind farms. I acknowledge that the ESB is a separate entity and that primary responsibility in this regard rests with EirGrid. However, it seems to be case that the leopard has changed but the spots remain the same. It is the perception of some of those with alternative visions or enterprises that the ESB is to blame in terms of blocking access to the grid.
The ESB has the largest customer base of any energy company in the State and the largest audience in terms of raising awareness of future energy needs. Customer bills now include a great deal more information, but what people are interested in is the advantages to be gained from using renewable energy sources. Has the ESB looked at a way of rewarding households for such use? This would be more effective than circulating information leaflets and discount vouchers for light bulbs and so on. There must be a way of measuring, whether by smart metering or otherwise, the level of energy usage of individual households. This would allow for the imposition of a surcharge for those households which exceed a specified usage during peak hours. That is the only way to focus people's minds. I understand the intention is to roll out the smart metering project by 2012. What is the status of the pilot? I have faith in this project because by allowing householders to see how much energy they are consuming, it will encourage them to take a more sensible approach. Why is the ESB only now beginning to address its fleet, given that the issue of bio-fuel energy and so on has been on the agenda for several years? Even CIE has managed to start work on that issue. Is there a particular reason the ESB has only begun to address this issue now? What consideration has the ESB given to Senator Coffey's point regarding the initiation on a formal basis of an electrically powered fleet?
Mr. Padraig McManus
First, the ESB does not have an objection to the 42% target and I apologise if I gave that impression. My point was that reaching the 42% target will take a great deal of investment in both the network and in wind projects. While it has been proven that we can get to that level, the real issue is how long it will take us. My point was that the target of achieving 33% by 2020 would be stretching it. While the ESB has no difficulties with reaching the 42% target as soon as we can, it will take a great deal of investment to meet it, both by wind farm developers and in respect of the network. I was suggesting that one should try to set some kind of realistic target and that reaching 33% by 2020 was a really stretching target for us. However, 42% is possible and we are not opposed to it in any way.
The second point, which is a little complicated, is that were one to put 42% wind into the single electricity market today, it would collapse. Many technical details arise in this respect pertaining to people's planning regarding how much running they will get. Investing in a new power station is a long-term investment that costs a lot of money and people forecast how much wind will come in, how much they are going to make and how much running they will get. Growth in the amount of renewables on the system can distort the single electricity market. My point is that we must examine both economic and technical feasibility. However, this is the natural course of events and no electricity market remains the same over a long time. It is a matter for the regulator to work with the various players to examine and give consideration to the economic valuation. This is to support rather than to be a blocker in respect of what will happen in respect of renewables. There is no difficulty in this regard.
The ESB always has been a great supporter of interconnection and once offered to proceed with it. However, it is proceeding now and we are supportive of as much interconnection as we can manage. The benefit of interconnection for Ireland is twofold. First, it provides us with a certain amount of security of supply. It also allows us to develop even more of the sort of renewable technologies that we have and allows us to export them to a much bigger marketplace. Everything supports us having as much interconnection as possible as soon as possible, particularly with our neighbours in the United Kingdom. The ESB is highly supportive in this regard.
While I am uncertain regarding the issue of credits, I support the opening of credits. There is a limit to the credits one can earn in the emissions sector in respect of Third World development and I consider that to be wrong. Europe took the view that were credits to be given to people who were developing projects in the Third World, they would develop projects that would not ordinarily have been developed. I completely disagree with that point.
Mr. Padraig McManus
Only 40% of the world's population has electricity. Electricity companies in the western world that are prepared to invest in renewable technologies in the Third World should be allowed to so do. At present, the world's population is approximately 6 billion people, of whom only 2.4 billion have electricity. The population of the world will increase in the future and were we to succeed in supplying electricity to 50% of the world's population, such developments would take place anyway. Getting western companies to invest in renewable technologies in the Third World and giving them the credit for it would be good for everyone and I disagree completely with the limiting of credits in respect of the more global view.
Surely the limits only apply if they do something that would have been done anyway. My understanding was that if one cleaned up a sink industry to produce energy therefrom, it would be counted.
Mr. Padraig McManus
While it is not completely closed, limits should not be placed in this regard. While certain measures are allowed, limits should not be imposed. I am unsure what the question was in respect of licensing. Offshore power generation is still very expensive. We will examine offshore technology over the coming years but in terms of making it viable, our best strategy, as a small country, is to follow what is happening in the United Kingdom. The UK suggests the development of some fairly substantial offshore projects. We should follow technological developments there and perhaps develop our own projects in the future, but we cannot be leaders in this field. One of the greatest difficulties with offshore power generation is the cost of servicing the plant. It is only if one builds something substantial that one can invest in the support technologies to make it work. The United Kingdom will definitely be a leader in this area and our best strategy is to follow its lead. I do not envisage offshore power generation here in the short term. However, we will pursue the issue.
On the issue of investment in networks, we have spent approximately €650 million per year over recent years developing our networks. The sum of €10.5 billion that we forecast we will spend over the next 15 years will be required to connect wind power to the grid, to develop the network using new technologies as well as to create the possibility for people who develop their own locally-distributed power generation to feed back into the national grid. There will not be any lack of investment in the ESB networks.
I am concerned about the cost to the consumer. If the Government plans to take more from the ESB, while the company has plans to increase its investment to build up capacity, it is quite clear that the consumer will have to pay.
Mr. Padraig McManus
The €10.5 billion investment will not result in increased prices for customers. Every five years we reach an agreement with the regulator whereby very stretching targets are set for us regarding how we manage the network, both in terms of capital investment and operations, and we have always met those targets. We know that when we return to that cycle in 2010 - without giving the regulator too much ammunition - the process will be the same again.
In real terms, the cost of the network to the customer has gone down since deregulation. Up to 2020, that will continue to happen because we will make our business more efficient all of the time.
A question was also raised about dividends. The Government owns the ESB and is entitled to a reasonable dividend. We have an agreement with the Government--
What would Mr. McManus consider a reasonable dividend?
Mr. Padraig McManus
We currently pay 30% and the dividend this year is €127 million, to which the Government is entitled. There was some speculation in the newspapers regarding the dividends that would be paid in the future but we have had no interaction with the Government on that and nothing has changed in that regard. It is not unreasonable of the Government, as an owner of the company, to seek a dividend. A 30% dividend on our profit is reasonable.
Payment of such a dividend may conflict with Government policy in terms of achieving targets on the use of renewable energy sources. That is why the question was posed.
Mr. Padraig McManus
In our forecasts regarding the investment of €22 billion, we have included continuing to pay a 30% dividend to the Government. Any change to that would involve changes to our investment plan. No such change has been made to date and we have had no approach from the Government on that. We forecast a €22 billion investment over the next 15 years and that we will return a dividend to the Government during that time which is similar to what is currently being delivered.
Has the ESB calculated the overall cost increases for consumers, allowing for the fact that the network development will not have an impact on the consumer, according to Mr. McManus? Since the company is making forecasts, I ask Mr. McManus to give us some indication because consumers are still reeling from the most recent price increases and those that have been promised in the near future.
Mr. Padraig McManus
The real issue with regard to the price of electricity is the price of fuel rather than any of the other input costs. We have seen substantial increases in the price of fuel over the last 12 months. Gas is the fuel that is mainly used in Ireland for generating electricity. We are very dependent on imported fuel and we have a low level of renewable energy use. Among European countries we are the most dependent on imported fossil fuels. Twelve months ago gas cost about 37 pence per therm but it is now 90 pence per therm. Fuel accounts for up to 45% of the price of electricity. The sums are easy enough to do. We obviously want to see an amelioration in world fuel prices but we are very dependent on imported fossil fuels and until we develop the level of renewable energy supply for which we have the capacity, we will always be dependent on fuel prices.
I thank Mr. McManus.
The name of this committee is the Joint Committee on Climate Change and Energy Security and we are currently wearing our energy security hat. Even if there was never a problem with climate change, there is a warning out there to everybody that we are so dependent on imported oil and gas that this country could come to a standstill. Leaving aside party politics, if the Government is taking a dividend, it must invest the money in order to produce the energy we will need as an alternative to gas and oil. We cannot go on this way. We saw what happened in Georgia, where people became so dependent on imported fuel from Russia that everybody was afraid to say "Boo" to the Russians. Ireland is on the periphery of Europe. We must accept that we could be waiting for gas to come all the way across Europe to us and that anything could happen to it in the interim. If this committee is ever to achieve anything we must force the Government to provide ongoing investment in alternative sources of energy for the good of this country.
I do not accept the views of Mr. McManus with regard to wave power. I do not see why we should sit back and wait for the British to institute this technology. We have the greatest possible facility on the west coast of Ireland. We have learned that the east coast is the place for wind power because of the depth of the sea and the climatic conditions, while the west coast is more suited to wave power, although it is difficult. Some of the people we met were cock-a-hoop about the progress that was being made. We should get it into our heads that we could become world leaders in this area. If the Government takes €200 million from the ESB, what will it do with it? That is what I would like to know. If I thought it was to be reinvested in the development of other energy sources I would be happy. There is nothing wrong with borrowing if it is done for productive purposes. I would hate to think we did not intend to develop the natural resource that is there. We should get the best expertise in the world to achieve this.
I know this is not the ESB's problem and it is a bit of a rant from me in the chair. However, I feel strongly that we must stop waiting for somebody else to take action. We should go out and do it ourselves. I saw the Chinese prepare for the Olympic Games in the space of a few short years. We can do anything if we put our minds to it.
Mr. Padraig McManus
I wish to clarify one thing. I am sorry if I have created an incorrect impression. My comments about the UK were with reference to offshore wind farms rather than wave energy. I support the Chairman's position with regard to wave energy. The ESB has invested in the only wave technology that has been connected to the system and we are considering many different wave technologies in which to invest. I agree with the Chairman that we should invest in wave and tidal energy. However, what I was talking about with regard to the UK was offshore wind farms. I am sorry to have created confusion.
We can talk about dividends and anything else if the money is put to productive purposes in this area. There is no point discussing energy security unless we are going to do something about it. I am interested in seeing investment in all of these areas and I hope that the committee can encourage whoever is in government to continue this sort of investment.
Is it not unfair to dump all this on the ESB? Is there not a case for saying from a left wing point of view that if the company does not pay a dividend to the State then some Government will sell it off as soon as it can? In addition, by paying a dividend to the State it is then up to the State, through its policy, to reinvest that back into the system.
That is my point.
The fact is that the dividend is being paid. I agree with Deputy McManus that this could be troublesome and it is a Government decision to invest it into something else.
I am not getting into the debate about left and right. What I want is more investment in alternative sources of energy. I am sorry, I am as bad as everyone else.
Does the Chairman accept that it is not the payment of the dividend to the Government that stops the reinvestment of the money, but a Government decision?
I am only interested in what it does with the money.
As the biggest energy company in the country which has sat on a monopoly for a long time, the ESB has a very specific responsibility. It is not purely the Government's job. I am glad the chief executive clarified his remarks regarding wave energy and that the ESB does not intend to wait for someone else to do it.
The job of the ESB is to make money from selling electricity.
Mr. Padraig McManus
The smart metering programme addresses some of the questions raised about how we charge customers and the way customers who behave well benefit. We have a pilot programme that is being managed by the CER and all the participants are involved in the steering group. There are two fronts being examined, namely, customer behaviour and technology, which includes both metering technology and the telecommunications technology that will make it operate. We have selected several technology partners for the pilot who are due to install the meters, although they have not been installed yet. The customer usage patterns and energy profile project is under way. People have now been selected to install the technology for the pilot which is being run by the CER and we are implementing it.
When will the first smart meter be installed in a house?
Mr. Padraig McManus
Our aspiration is that it would be done this year and the plan is to have the pilot up and running in the coming months and then we will investigate how it is working. These are very big decisions. There is a €1 billion price tag attaching to the programme and we have to get it right.
Some 20 years ago the ESB had the ability under the gold shield home product to issue a bill showing the number of units used during a given day and night. Since it has taken this long to get several meters into houses, is it not possible to offer consumers the choice to have their bill in this format? Surely the ESB has the technology to inform a customer of the amount of electricity used during the most expensive and cheapest times of the day and let the customer make a choice based on that information. At present the bill only outlines the number of units used and it does not make sense.
I have that; is that not night metering?
Mr. Padraig McManus
The vast majority of meters are not able to do that. It is only people who have opted for night and day metering who have that option and we can read what they use during the night and day. The vast majority of energy meters are single and just record usage. The whole smart metering project is designed to resolve those issues.
There is no way of informing single meter people about their usage? What percentage of houses have night meters?
Mr. Padraig McManus
A very small percentage. I do not know exactly and I would be guessing, but it is a very small percentage. The vast majority of meters can only record usage.
Regarding clean coal, I acknowledge that the technology is not yet commercial, but it exists and it works. Some people worry whether this would or would not happen. The USA has decided that oil and gas are running out. It does not believe they are running out as fast as some people believe. It believes there might be 60 or 70 years of oil and gas left. However, that is irrelevant in our business. Even 60 or 70 years is a relatively short period of time. The US has decided to fuel its energy requirements by way of nuclear energy, clean coal and renewable energy. As it has 300 years of coal stock on its lands, there is great confidence that it will develop clean coal technology. The US Government has already provided considerable tax benefits for investment in clean coal technology and all the major suppliers are currently working on it. Admittedly, the technology is not developed commercially, but given the level of investment in it, we believe there will be many clean coal plants in operation before we will need one in the mid-2020s. That is the issue in that regard.
To be economic, district heating requires a fairly dense population to make it viable. One of the areas we consider appropriate for such a project is the docklands development in Cork. We have a power station at Marina which would be ideal in terms of developing the first project. We are pushing ahead with it and will work with the docklands in Cork to make sure we get the district heating project up and running.
In regard to transport, we very much support the idea of electric vehicles. The vast majority of charging of electric vehicles will occur during the night when there will be an abundance of supply. We have bought a number of electric vehicles, both cars and vans, to test this technology. It is very much to the fore and will play a huge part in achieving the overall emissions reduction target. We will support this technology.
I would be disappointed if people were of the view that the ESB is hard to deal with - that comment was made. There are an enormous number of wind applications for supply. The regulator has divided them up into various blocks. Huge progress has been made in recent years to deal with this resource and that will continue over time. I am not saying the position is perfect at present, but it is both a grid issue and an ESB issue. Some plants are connected to the distribution network and some are connected to the grid, depending on size. Both groups are working in this respect. That is what all the investment in the networks is about, namely, to try to match the level of wind that can be harnessed. If there are bottlenecks, we cannot solve all of them, but we would like to think that the ESB can be easily dealt with on any issue.
We support the development of heat pump technology. Its development should be supported and it should be a renewable technology.
An issue was raised concerning our customer base. While we have the vast majority of domestic customers, we now have a very small proportion of the industrial and commercial customers.
I have talked about the programme for smart metering. We do not consider the vast majority of material we put in envelopes to be bumf even though some people may be of that view. The bulbs we used were long life bulbs and very good value. If anyone cares to read the bumf, they will note that they can contribute greatly to a reduction in overall emissions.
The next group of members to put questions includes Deputy Doyle, Senator O'Toole and Deputies Fahey and Finian McGrath.
I thank Mr. McManus and his colleagues for their contribution. Will Mr. McManus explain the demarcation line between the grid and the network, namely, the role of the ESB and the role of EirGrid? He spoke about an investment of €10.5 billion in the network, but there is confusion in this respect. In terms of criticism about access to wind energy, it is confusing to understand where the ESB or EirGrid is responsible for such access. Mr. McManus might clarify that point.
Mr. McManus mentioned in his presentation working with the peatlands development of biomass fuel. He might clarify if that is a developing relationship with Bord na Móna. He also mentioned the development of bio-fuels. Considerable concerns have been expressed about bio-fuel production as a primary crop, irrespective of how it is developed, the conflict of such product with crops for food supply and the impact of bio-fuel production on the global environment, particularly in Third World countries. The ethanol Sweden uses is as a result of a bilateral arrangement with Brazil. That has a negative impact on Brazil but it looks good on Sweden's bottom line.
When I look out my kitchen window each morning I can see Turlough Hill. Are there any plans to develop any other storage facilities because I do not believe it was mentioned in the presentation? On the issue of coal and oil, depending on who gets elected in the US, we will see if the oil reserves, which are allegedly in Alaska, become available?
The issues Deputy Doyle raised are ones for me and I have already raised them with EirGrid. I also believe the ESB has done a fantastic job producing electricity efficiently and effectively with a workforce which has decreased from approximately 13,000 to 8,000 or 7,000 over the past ten years.
I would like a clear answer to the following question. Was the establishment of EirGrid a good idea from ESB's point of view? I do not understand where we are going strategically and do not believe anybody has explained that to this committee.
In terms of the work of this committee, I wish to make a proposal which I do not believe will be accepted. It would be a good idea if, as part of the test programme for smart meters, members of this committee were included. No money or otherwise would be involved but we could see exactly how it works. That should be considered.
There is a major conflict between EirGrid's role and that of the ESB. I am trying to put this in simple layperson's terms because no debate is taking place.
I refer to somebody in County Mayo who wants to buy electricity and who can get it cheaper from Bord Gáis than ESB. Let us forget about the current issues regarding different sized companies and so on - I am looking down the line to five or ten years' time. It will come through EirGrid onto the networks. EirGrid is buying power on an hour-by-hour basis. In five years' time there will be an interconnector over the Border and two interconnectors across the Irish Sea. EirGrid is buying on a spot market on an hour-by-hour basis. Why should it buy power from the ESB if it can buy it cheaper from Électricité de France, for example? Will the ESB not be squeezed between many different suppliers, such as Bord Gáis and others, on the one side and EirGrid buying from whoever it wants on the world market on the other?
EDF, the new European empire, will be able to buy power at knock down prices in Moscow, at trough, and sell it instantaneously, at peak, in Ireland. Who is regulating that? How will the ESB survive in the middle of that? I did not hear a statement from the ESB, apart from the fact it is a creature of Government, on the impact of EirGrid.
I have much time for EirGrid and believe it is very effective and efficient. This is not a criticism of it. I would like to see the strategic element. I do not understand it nor do I suspect anybody in Leinster House understands where this will finish strategically.
Électricité de France bills show the source of the energy, such as 87% from nuclear power. It would be a good idea for ESB to show the source of the energy on the bottom of the bill as well as day and night usage which is also important. That leads to the question of how it would know that information.
Can EirGrid refuse to take the ESB's generated capacity or is it required to give the ESB movement to the grid to get it onto the network? I have asked this question before but I do not know the answer to it.
This committee, or another one, was told that Turlough Hill will be managed by EirGrid. Where does that leave the ESB's storage capacity? Is it looking at nitrogen storage, battery storage or other forms of storage? I would like to know what is happening in this regard. Is there a conflict between saving and selling electricity? Why should the ESB want to save electricity? What is its interest in climate change? Our guests are charged with doing business on behalf of the company's shareholders and making the biggest profit possible in the most efficient and effective way. The only reason for such efficiency and effectiveness is that it is demanded by the Commission for Energy Regulation. Is it not the ESB's objective to create a profit in the best way possible? Does a conflict of interest not exist? I do not intend to get personal by asking these questions which are philosophical in nature. I merely wish to know whether a problem exists.
Who will ultimately control the electricity market in this country? What would be the position if EirGrid stated that as far as it is concerned, it will not supply energy to Blacksod in County Mayo because the grid finishes at a particular point? Such a process was used in New Zealand where the grid was not connected to the capital city. How will people be protected and where does the ESB stand?
I thank the Chairman for allowing me to attend. In respect of wave energy, the Marine Institute has wonderful expertise available to it and is doing great work. I am glad the ESB has been supportive and has invested in the first facility at Lough Swilly. I compliment our guests on the work done by ESB International in the area of wave energy.
The chief executive stated that 45% of the cost of electricity emanates from fossil fuels and highlighted that we are dependent on importing such fuels. He also stated that we are at the end of the pipeline that runs across Europe from Russia. Has the ESB engaged in negotiations with the Corrib gas consortium regarding the purchase of gas when it is finally piped ashore? Must such negotiations be carried out through Bord Gáis? Is there a possibility that the ESB could obtain gas at an attractive market price or is the position regulated? Does the company have plans to build gas-powered generating stations in the west? Until now the only way we could produce electricity was by using peat, stocks of which have been exhausted.
Is there any prospect of a breakthrough in the area of solar energy technology that would make the generation of electricity by means of using such energy a possibility for Ireland? It is fascinating to see the level of activity in this area that is taking place in Freiburg in Germany, which I accept enjoys more sunshine than Ireland. Some 700 people are involved in research and development relating to solar energy at the university in that city. Is there any possibility that solar energy might be used in Ireland in the future?
I welcome Mr. Padraig McManus and his team. I join colleagues on commending the ESB on the work it has done in respect of these and the broader issues.
I have two questions relating to energy security. Mr. McManus referred to high costs and recent massive increases in oil and gas prices. I accept that he must take such matters on board in the context of the day-to-day operations of the company. As Members of the Oireachtas, however, we are charged with defending the interests of consumers. What factors have contributed to the massive increases in the cost of oil and gas? From where does the ESB source the oil and gas it uses? What is the ESB's position in respect of the future use of nuclear power, which power has been referred to in the context of the debate on climate change?
I welcome our guests. I have served for five years on the two committees with responsibility for the area of energy and I welcome the way in which the ESB has changed its attitude and adapted to the reality of renewables. The company is to be commended on doing so. The organisation has been rebranded very successfully and it should be applauded for that. Mr. McManus was insistent in his presentation that Ireland should not seek movement on the 16% target. My impression from his comments is that he feels we are going far enough. Given that our attitude to renewable energy sources needs to be developed, I am surprised at his emphatic insistence that the target should not be increased. Will he elaborate on that?
I share Mr. McManus's attitude to clean coal in that by the time Moneypoint is changed, the technology will be commercialised. I agree with his faith in it but, equally, I wish he had the same attitude to the development of offshore wind energy in Ireland, particularly as it is something from which we can benefit. Our offshore capacity is similar to the Americans' coal at home capacity. It is our safeguard in the context of energy security. I would like to think that the ESB would invest resources and examine the research in this regard given its faith in clean coal in America. I do not agree we should be followers. Ireland can develop research and development capacity because we are on site. I am slightly disappointed that Mr. McManus is prepared to allow the ESB to follow rather than lead.
The question of the dividend was addressed earlier. I doubt very much if it is in the Government's interest not to provide for investment in research and development and to starve the ESB in this regard. Nobody need worry about the dividend. The issue is not funding Government policy. Mr. McManus is right to be positively disposed towards paying a dividend to Government as it is good to run a tight ship.
I refer to the question which others have raised, of the relationship between the ESB and EirGrid and how they have got on since they separated. It was vital for the development of the domestic electricity market that the suppliers and generators of energy separated to ensure a level playing field. Nonetheless, as others stated, the ESB has a particular relationship with EirGrid because it is the bulk supplier of power to the grid. It is not the ESB's business to worry about smaller operators. However, if I was a smaller operator, I would be concerned about the relationship between the ESB and EirGrid because of the historical association and the ability of the ESB to dictate where and how developments take place. If that is not the case, I would be delighted to be proved wrong.
Mr. Padraig McManus
The relationship between the ESB and EirGrid is very good and people are working well together.
We knew that.
Mr. Padraig McManus
However, I need to clarify a number of issues. First, the ESB is in no position to dictate to EirGrid. EirGrid decides exactly how the network will be developed and it operates the network. When the company has decided on a project it wants to implement, it informs the ESB, for example, about building a line between A and B or a station. Given the way the ESB and EirGrid are regulated, there is no possibility of the ESB having any control over what EirGrid does.
Surely the ESB has a strong influence because of its dominant position.
Mr. Padraig McManus
How? There is no logic to that. I do not understand it. When a new energy generating company wants to connect to the system it has no interaction with the ESB, whatsoever. The company goes to EirGrid. EirGrid decides that to connect this new generator a line will be needed from A to B and asks the new generator for a contribution. When the contribution is made the generator comes back to the ESB and says it wants a station, line or whatever. The ESB has no role in establishing a new generator.
Has the ESB an obligation to provide a line? EirGrid is going back to the ESB, as a third party, in such an operation.
Mr. Padraig McManus
If EirGrid tells us it wants a line from the ESB we have an absolute obligation to deliver it.
No arguments. The ESB will provide it.
Mr. Padraig McManus
No arguments. We have an absolute obligation.
In Kilkenny planning permissions have been given for wind generators. The erection of these windmills is delayed because they are not allowed into the substations. Who owns the substations? Companies are not being allowed into substations. As a politician, I want to know why this is happening. Why are companies which have planning permission for two and three years told they cannot get into substations? Who controls the substations?
Mr. Padraig McManus
The substations and lines all belong to the ESB. However, EirGrid takes all decisions in relation to them. I do not know the particular cases cited by Deputy Aylward but a number of factors could influence the decisions taken. The fact that a wind developer has planning permission does not necessarily mean planning permission has been granted for the works needed to connect the wind generator to the grid. Delays often arise in such situations. I am sure I do not have to explain to the committee how difficult it is to build transmission lines at present. A number of issues could affect such developments. I do not wish to generalise from the example of a particular area. I would prefer to answer a particular query off-line and give a specific answer.
EirGrid does not buy electricity. It manages the operation of the grid. It has no role in buying electricity. It merely controls the access of those who make electricity to the system. Generators are provided with access by EirGrid to the transmission grid. EirGrid has no role in buying electricity. It provides a settlement for it. If one puts electricity onto the grid one must pay for the use of the grid. The pool decides the price and how much the provider will be paid. EirGrid is not involved in the buying or selling of electricity. It is involved only in managing the operations. If we had an interconnector to the UK and EDF wanted to sell into the Irish pool it could do so. It need only apply to EirGrid for access and EirGrid could not deny that.
How is that managed? If power is available from EDF, the ESB, Bord Gáis and other generators--
Mr. Padraig McManus
Every half hour a supplier must bid into EirGrid. EirGrid must balance supply and demand. If, in a particular half hour, EirGrid needs 3,000 MW all suppliers bid in and EirGrid takes the cheapest 3,000 MW on the system. The supplier of those 3,000 MW is paid and the others are not paid. If EDF offered to supply electricity for nothing that would be competition.
That is not competition. EDF has the deep pockets of a state-subsidised international company. Europe has closed its eyes to what is going on.
Mr. Padraig McManus
If a company is accused of operating in a non-competitive way it can be challenged. I may have used an extreme example. EirGrid simply manages those who want to supply electricity against the demand for it.
Does EirGrid take the cheapest price every time?
Mr. Padraig McManus
If 3,000 MW are needed EirGrid takes the cheapest 3,000 MW and the supplier is paid that rate for it.
That means the ESB could find itself with a surplus.
I am conscious of time. Representatives of the Irish Wind Energy Association are waiting to make a presentation to the committee. Perhaps Mr. McManus will confine himself to answering the questions asked.
Mr. Padraig McManus
How EirGrid operates with the ESB is a complex issue. We are prepared to discuss this issue at a later stage if the committee so wishes. I will respond now to the remainder of the questions.
On biomass, Bord na Móna is first in the queue. It will examine the use of biomass in its peat plant. We will pursue at a later stage with Bord na Móna the possibility of burning biomass in our plants. Many issues arise in regard to bio-fuels and the source of bio-fuels, including development in Third World countries and bilateral arrangements. A great deal remains to be done in that regard before any of us can be sure exactly how things will develop. Some Third World countries have concentrated on growing only one crop. For example, Bangladesh grows jute only for which there is currently no use. This this may present an opportunity for some countries to grow bio-fuel products. A great deal needs to happen in this space before we bottom out of it.
On storage, the development of another project such as that at Turlough Hill is unlikely. Consideration may be given in the future to gas storage or compressed air storage and so on. Members asked the reason coal and oil prices have risen so high. A combination of demand in the western world and a hugely rapid growth in demand in India and China, where fuel is subsidised, are responsible for the increases. There have been problems in the Middle East. Oil and gas are sourced from parts of the world that are volatile and demand is soaring. This has driven up the price to a level which people could hardly have believed was possible. An amelioration of demand in the western world that causes the demand in China and India to abate may result in improvements.
Staff numbers in the ESB for core business, excluding ESB International which is growing all the time, is 6,500. On the nuclear issue, the ESB is not involved in that area. It is not investigating or examining the issue. It is illegal to develop nuclear power in Ireland. As I have said before, we will be having an Irish solution to an Irish problem by having an interconnector.
The ESB will not make nuclear power but will buy it.
Mr. Padraig McManus
Yes.
Could we find ourselves in the position where we will be producing 16% of our energy in the way Europe wants but will be undercut by nuclear producers of electricity? In other words, we could fulfil all the objectives and could still find ourselves without a market.
Mr. Padraig McManus
There is a great deal of nuclear power out there. France produces a great deal of it. However, nuclear power is expensive to develop. New developments of nuclear power will take a considerable amount of time - it takes about 12 years to build a nuclear plant. It is more competition but we will have to deal with it.
In approximately four or five weeks time two groups will come before the committee to discuss nuclear power. We are providing a forum for people to express their views.
Mr. Padraig McManus
The ESB has no plans in that regard.
Mr. Aidan O’Regan
There is a limit, in capacity terms, on what one can import over the interconnector. That is the ultimate safeguard in relation to--
Mr. McManus mentioned the SEM. What does that mean in terms of two forms of power going across the Irish Sea and on to Europe?
Mr. Padraig McManus
They will be able to sell electricity into it.
Exactly. The single market is the Single European Market as opposed to a single electricity market.
Mr. Padraig McManus
We are planning for that in the future.
I would be amazed if Corrib Gas gave us an attractive price. It will be trying to maximise price in terms of its commercial remit. If it is available, ESB will consider buying it.
The ESB will not be permitted to develop another plant in the medium term. Building a plant anywhere in Ireland is not an option for the ESB in the medium term. As regards the solar project in Freiburg, which is an interesting project, the ESB is currently examining whether it could use solar energy in Croke Park as part of its Cúl Green project. We want to see if we can generate electricity on site to meet the overall target of getting Croke Park to a carbon neutral stage. We are looking at the Freiburg project to see if we can use that technology.
Is that solar energy?
Mr. Padraig McManus
Yes.
Are there possibilities generally for solar projects?
Mr. Padraig McManus
There are two types of solar energy - direct, where one installs solar panels to heat water, and photovoltaic technology, which is the type we are more interested in looking at because it converts light into electricity. Significant research is taking place in that area and we are following that research and seeking to invest in the technology.
The target of 16% is a difficult stretch for Ireland and it would be an aggressive approach for us to take on more at this time. We will do fantastically well if we meet the 16% target and we should not overstretch ourselves.
Mr. Aidan O’Regan
The figure of 16% represents an increase of 33% in terms of renewable energy sources.
From when does it represent 33%?
Mr. Aidan O’Regan
The current RES target is 15% by 2010. We seek to double that and more, to 33%, by 2020. That target is an extreme stretch for us and two thirds of that target must be achieved by companies other than the ESB.
Mr. Padraig McManus
The last question was on off shore energy. This is not a question of research and development because the technology exists and it can be done. However, what I said was that it is an expensive technology. We intend to look first at the prospect of getting involved in a project in the UK and hope to bring back that experience. It is still very expensive technology.
Did Mr. O'Regan state that two thirds of renewable energy supply must come from companies other than the ESB?
Mr. Aidan O’Regan
Yes.
The ESB is a progressive company. How much of its earnings come from abroad? The ESB is leading the way in technology in Third World countries and creating new grids and businesses. I compliment the company on its expertise in that area, but how much of its business is international?
Mr. Bernard Byrne
Currently, approximately 15% of our business is international and the target is to double that over the next five years.
It is good to see an Irish company lead the way in technology in foreign countries.
On behalf of my colleagues, I thank Mr. McManus and his team for an inspiring presentation this afternoon. With regard to the difference between the grid and the network, I suggest the clerk to the committee should make an arrangement with the ESB for someone to give a half an hour some lunch-time to answer questions. We made a similar arrangement with EirGrid and found it very useful.
Mr. Padraig McManus
We will be happy to do that.
I wish the ESB well in implementing its green fleet policy. I would love to see a green fleet of 2,700 vehicles as it would be a great example to everybody else. We have been trying to press for our transport network to turn to renewable energy sources. An instruction should come from Government that companies such as CIE should purchase green vehicles. That sort of example would encourage other people. If the ESB can do it, people may believe there is no reason they cannot do it also. We wish the ESB well in that regard.
Mr. Padraig McManus
Thank you, Chairman.
I welcome Mr. Tim Cowhig, Ms Carmel Hynes and Ms Maureen DePietro. I apologise to them for the delay and I hope they found the discussion with the ESB of some use. We look forward to their contribution.
Mr. Tim Cowhig
Mr. Michael Walsh will make the presentation.
Mr. Michael Walsh
Thank you for the opportunity to address the committee. I will introduce the Irish Wind Energy Association. We were very encouraged by much of what we heard in the previous session. Many of our aims were touched upon by members of the committee earlier and we were very encouraged by that. During this presentation we hope to point out some issues where we believe the committee can offer practical assistance in achieving our aims.
We believe strongly that Ireland can be a world leader in renewable energy. This will have significant benefits for Ireland as an economy and society. It will obviously reduce CO2 emissions. There are great opportunities to create investment in Irish companies and thereby create jobs. It will increase our energy security. Many of the points made in the previous session about energy imports from increasingly unstable parts of the world are of great concern to all of us. Developing energy sources from indigenous supply is a key way to address that. There is a possibility of creating a thriving export industry in Ireland. We have a tremendous natural resource available to us. Over time we should consider developing it to the point where we can start exporting the energy from that resource and developing our economy on that basis.
The Irish Wind Energy Association promotes energy development from onshore and offshore wind. We represent the entire sector. We also support the development of other renewable energy sources. We are focused on marine energy at the moment. That area has great potential in Ireland. We are very keen to see any moves to encourage the development of that technology. The Irish Wind Energy Association has more than 300 members. By looking at the sorts of companies involved it is possible to understand the kinds of employment and other opportunities available to the economy through developing this sector. The people are not just involved in the maintenance of wind turbines. They are involved in supply companies, banks, construction companies, insurance companies, legal firms, consultancies and many local businesses. This is a key industry that can generate employment and profits throughout the entire economy if we allow it to develop to its full potential.
I will outline some of the benefits of renewable energy. It reduces and stabilises energy costs. Wind is currently one of the cheapest sources of energy available to us. In the current year it will reduce the electricity bill for the consumer by €35 million. Into the future we know what the price of wind energy will be. We have seen the volatility in gas prices over the past two or three years. There is no reason to expect that volatility will decrease in the future. Wind energy has a stable cost base. When one's wind energy facility has been built and installed, one knows what one's wind price will be for the next 15 years. That adds a great element of stability to energy costs, which is very useful for all industry in Ireland.
The use of wind energy leads to a reduction in carbon dioxide emissions. I agree with the representatives of the ESB that a great deal of work needs to be done if targets are to be reached. It is vital for us to do that work. Achieving a reduction in carbon dioxide emissions is a challenge. We have to step up to the plate if it is to be addressed. It is no longer a notion. I appreciate that 2020 seems like a long way away for many sectors. The energy sector needs to act now if it is to take real steps towards achieving the 2020 target.
We have spoken about the potential for investment in jobs in Ireland and the need to access a secure energy source over the long term. These are important issues for Ireland. We need to start thinking about Ireland's potential as an exporter of wind energy. If we were talking about another industry, such as pharmaceuticals or computers, and promising the sort of investment that the wind energy sector can offer, we would be welcomed with open arms by all stakeholders, including Government bodies. We would like the wind sector, as a potential export industry, to get the same sort of encouragement and development from the State bodies involved in it, thereby allowing it to reach its potential.
I would like to mention some issues that are causing difficulty in the industry at the moment. I will refer to each of them in detail as this presentation continues. The earlier debate focused on the idea that the 2020 targets do not represent a limit. We should not constrain ourselves by saying we should not try to exceed the 33% electricity target that has been set for 2020. We should not suggest that we do not need to proceed beyond that.
A member of the committee asked earlier about the Gate 3 process, whereby 3,000 MW of wind, out of a queue of 8,000 MW, has been selected to be processed over the next couple of years. We welcome the moves which are being made to start processing the applications. There is much more potential in the sector and many more applications are in the queue. One should not take the view that we are producing enough energy and therefore need to stop, simply because we have added up the numbers. There is much more potential in this sector. If we can move forward in this regard, it will have benefits for Ireland.
Many problems are being caused at present by the failure to align planning regulations with grid connection timelines. I will speak about this matter in more detail in a moment.
We need to start working on support systems for the next tranche of renewable generation. Not enough capacity has been allocated within the current support system to deal with the connection application that is currently being processed. It is important to start work on the detail of how the next support system will operate.
It is clear that the delivery of infrastructure is vital. We have heard a great deal about the amount of money that needs to be invested over the next few years if this infrastructure is to be delivered. The infrastructure needs to be built on the ground if this industry is to move forward. We want EirGrid and the ESB to make more progress in respect of that challenge.
I wish to speak about renewable energy targets. The White Paper set a target of 33% of electricity from renewable sources. While that was a progressive target at the time, it looks much less progressive now in the context of what is going on in Europe and of this country's potential. The all-island grid study illustrated that it is economically and technically possible to get 42% of our electricity from renewable sources. If this country's dependence on imported fossil fuels were reduced, and our target was moved up to that level, it would have huge benefits for Ireland. Jobs would be created, external investment would be attracted and domestic industry would thrive. We strongly believe that the target should be increased to try to encourage people in the State and private sectors to help this country to meet its potential. When a target is set, there is a danger that people are happy to do the minimum required to achieve it. It would be a shame if Ireland were to take such an approach. The Government and this committee need to act constructively by taking a lead, pushing forward and sending a strong signal to everyone involved in the industry. We should try to deliver on our potential rather than meeting an absolute minimum target.
Planning permissions generally expire after five years. Extensions are generally only awarded to developers who have completed substantial works on their sites. There is no tight legal definition of what "substantial works" means. Many developers have told us about the differing interpretations of "substantial works" on the part of various local authorities. This creates a significant problem for wind farm developers. It can take up to six years to process a grid connection application. The developer who wishes to develop a project will submit grid connection and planning permission applications on the same day. However, by the time the connection application has been processed, the planning permission will have expired and the developer will not be able to have the latter renewed automatically. This is a significant issue for the IWEA and one which the joint committee could play a useful role in helping us to resolve. We recommend the introduction of a legislative change to address the issue.
The Department of the Environment, Heritage and Local Government recently issued helpful guidelines in this respect and also acknowledged that it could be addressed in a recent circular to county managers. A legislative change is required for a number of reasons. It would clean up the whole framework and make extensions automatic for planning permissions in cases where grid timelines have been delayed. In the event that an applicant's planning permission has expired by the time an offer to connect to the grid is made, the planning permission would be extended to allow the applicant to avail of the grid connection offer. This would also allow a degree of equitable treatment. At present, some applicants receive extensions while others do not, based on the same definition of "substantial works". This is due to individuals in the planning departments of the local authorities taking different interpretations of what "substantial works" might mean. Such subjectivity is not desirable for the industry as it substantially increases risk. All new applications should be given ten year planning permissions to fit with the timelines evident in the gate 3 and connection processing by the ESB and EirGrid.
On support systems, the current refit scheme is capped at 1,500 MW, most of which will be taken up by projects which have received connection offers. Of the 3,000 MW being processed, it is likely that only a very small percentage will be eligible to avail of the scheme. Developers in the application process who do not know what support system might be available at the end of the process face considerable uncertainty. For this reason, initial work on a follow-on scheme should commence.
The IWEA welcomes the concept of strategic development of infrastructure being pioneered by the ESB and EirGrid. While this is the correct approach, it should reflect the industry's potential rather than minimum Government targets. It should focus on what wave, tidal, offshore and onshore wind potential we have and develop a strategy to develop a grid to allow investment to proceed.
It is vital that network owners and operators accept real responsibility for the delivery of the infrastructure which is needed to enable the whole economy. This responsibility extends beyond allowing wind and renewable energy to connect to facilitating continuing growth in demand by allowing factories and other power plants, whether green or non-green, to connect. Without this infrastructure, the industry will not be able to proceed and will become stuck in a rut. It is imperative that the parties responsible deliver the infrastructure. Appropriate incentives need to be introduced to make it incumbent on these parties to move forward and get the plans delivered on time. We recognise that it is difficult in the current environment to progress infrastructure development but the incentive for moving forward and finding solutions is assigned to the responsible parties.
On the new directive, renewable projects should receive priority access, an area being developed at present. The IWEA accepts the necessity to recognise systems security requirements. Where brown generation is needed for systems security, it should receive access as required. However, this should not be used as carte blanche to connect large tranches of brown generation for no reason other than that applications have been made by such generators and it is the easiest option.
Our recommendations are that national targets be increased to reflect available resources and potential. It is important that a strong signal is sent to ensure the development of the grid, processing of applications and planning permissions are all done in the context of an ambitious national target which is realistic, fits with our potential and allows society to receive the benefits available. A legislative change is required to planning requirements to ensure planning permissions are extended where there is a delay in receiving a grid connection. Without such a change, many projects will be stuck in a legal abyss caused by the absence of an overlap in terms of timelines between the awarding of planning permission and connection permission. This is an administrative failure rather than a good reason not to proceed with a project.
Work should commence on the next support system. In addition, the grid strategy should reflect the potential of renewables rather than a minimal target interpretation. This will be a key strategic decision which will have a major influence on the way in which the energy and electricity system develops in the coming decades. We believe that the network owners and operators, both EirGrid and the ESB, should be incentivised to deliver on this infrastructure into the future. I thank the committee members for their time and attention and for the opportunity to address them.
I thank Mr. Walsh. We very much appreciate the contribution. Before I open the discussion to the floor, does the association have concerns about any particular aspects of the proposed directives, given that the committee will present a report to the Government and, I hope, to those negotiating in Europe? The committee would welcome Mr. Walsh's views.
Mr. Michael Walsh
There are many positives in the new directive. The spirit of the directive is encouraging and it is taking steps in the right direction. The priority of access arrangements are important. Currently in Ireland there is a limit on the number of renewable applications that will be processed in the short term at a time when there are significant amounts of brown generation. The closing date has not come in yet for when brown generation applications can be made. For example, a brown generation application could be made tomorrow that would be processed ahead of a green application that was submitted a year ago. That is the wrong way to do it. It is important that the directive puts some emphasis on priority access for renewable generation but we realise that some provision for security of supply is necessary. We would not like to see an open door for brown generation that would allow it to be connected ahead of green generation.
The guarantees of origin is an interesting concept. We understand there is a proposal to make it an opt-in clause. That has a lot of benefit in that it would allow us to continue with our own support systems to meet our national targets quota but if we are looking at becoming an export industry it puts in place a framework for Ireland so that the economy can reap the benefits of the renewable product we are delivering.
We are also keen to ensure there is a possibility in the directive that if the renewable or electricity sector is able to do more than its share that national targets would get the benefit. The current draft does not get into too much detail but we are aware there has been some discussion about that at the moment. It is vital that if electricity can do more than 33% in renewable energy, it would count towards Ireland's overall renewable target.
I thank Mr. Walsh. I do not have a problem with the amendment of the planning regulations but can anything be done to speed up the six year wait for grid access? Reference was made to priority access. Is that to do with the capacity of the network to absorb wind energy into the system? I am aware of one case where planning permission was granted in the south east - Deputy Aylward made reference to it earlier. Currently, people are only being allowed to construct five wind turbines because the capacity of the local sub station will not allow for more. Had the dividends not been paid to the either the ESB or EirGrid for the connection those concerned would have lost their place in the queue. The projects may not come to fruition for ten years and by then the planning permission would have expired, which presents a challenge. Is the average grid access six years because of that type of situation?
On the development of export capability, if the interconnectors are available would that change the target figures dramatically?
I welcome the members of the Irish Wind Energy Association. I commend the magnificent work and positive contribution it is making. There is an onus on all Members of the Oireachtas. The proposals put forward today by the IWEA are sensible, clean and are the way forward in terms of future energy generation.
The phrase "stuck in a rut" was used. What are the three most important issues the committee could take up to support the association in getting out of that rut? Where, in the industry's view, should the EU's and State's research resources be targeted? Is there a mood in the association that the powers that be are not taking wind energy seriously?
Mr. Michael Walsh
There are two delays, the first in the actual processing of applications. Applications from as far back as 2004 are still in the current queue. Based on current figures, it is expected that offers will go out to the applicants between September 2009 and September 2010.
What are these applications?
Mr. Michael Walsh
These are applications from wind farm developers for connection to the grid through EirGrid and the ESB. The Commission for Energy Regulation is determining the rules by which these will be processed. EirGrid and the ESB will implement the process but the commission decides on how the process will work and what the rules will be.
The six-year delay means a wind farm that applied in 2004 will not receive an offer until 2010. Then the network capacity issue kicks in where the offer may not be valid until 2016. The first delay is getting an answer as to when a wind farm will have access to the grid. The second delay is in the area of when firm capacity will be available to the wind farm to connect to the grid.
What can be done to kickstart the process? It is a complex process and there is much work involved in processing these applications as it is an intensive technical issue. We do not want the commission, EirGrid and the ESB to sit on the current lot of applications for another four years before moving on them. Once processing is begun on the current tranche, we would like them to process the rest of the applications to prevent another six-year timeline with applications stuck in the system for so long.
The capacity of the network is a key issue which is why we focus on the need for investment in the infrastructure. This will be the pinch-point for the industry for the next ten years. It is important that the ESB and EirGrid get on with their infrastructure plans and deliver them on the ground. The strategic approach is correct but delivery is what is important.
On the development of an export and targeting potential, the current target is based on minimal targets to meet EU requirements. It does not examine our potential with available resources and technical studies such as the all-island grid study. Bringing the target to 42% makes much more sense of our domestic energy needs. In the future, with more interconnection and more wind-generated energy coming into the system, we should examine greater targets with Ireland becoming a net exporter. This would result in higher quantities of electricity generated by renewable sources on the island.
Of the three practical issues the committee could address, the most immediate is planning. It may seem like an administrative issue but no one expected it would take six to ten years to get grid connections. As planning permissions for wind farm sites are expiring, we believe it should be quickly fixed.
The second issue is the faster development of the grid infrastructure. There is much difficulty in physically building lines and developing infrastructure. Our society needs to find a way to address developing the energy infrastructure needed for economic growth and a sustainable energy system.
The third issue concerns our support systems. The current refit system is capped at 1,500 MW. The projects developed six years ago will avail of this system. The current stream of projects being developed now, however, will need new support systems. It is important work starts on addressing this soon.
One thing often misquoted is the degree of private investment going into this sector. The queue for applications at the moment comes to 8,000 MW, which represents private investors with about €16 billion looking to come into this sector in the State. That is a very significant amount of private finance that is ready and available. The key thing for the State is to allow that to go ahead, to allow for the infrastructure to be built and for the administrative process to develop quickly. There is obviously a need for proper checks and balances, but it should be done in a fashion that allows investment to proceed.
The final point on the mood of the authorities with regard to our measures is an interesting one. We have engaged intensively with the ESB, EirGrid and the CER over the past year and the mood has certainly improved. There is much more willingness to be constructive and things are definitely moving in the right direction, but work remains to be done. The energy sector has been there for a long time and has operated on an unchanging set of assumptions for the past 50 or 60 years. Due to rising fuel prices, global warming, more volatility, improvements in technology and in renewable energy there has been a very radical shift in focus in a very short period. It is incumbent on the authorities to move their thinking forward a little bit faster, but they are moving in the right direction and they have the right intentions.
Has there been any research on the savings to the State made by reducing the necessity of oil and gas for energy generation by 50% and what it would cost to replace such a reduction by renewable resources within the State? What is the cost benefit analysis made by moving from imported fossil fuels to renewable energy? What is the cost of the investment required to do this, assuming that the capacity is there? Such research is necessary. If we can point out that an investment to develop the industry generates a positive cost benefit analysis because we will not have to import the energy, that would be a very interesting exercise. People do not take this matter seriously enough, so solid facts and figures need to be produced.
If one waited six years for planning permission to build a factory in some rural town in Ireland there would be marches in the streets. We will start a review at the end of this month of the planning system for onshore and offshore wind developments. What are the procedures? Why are there backlogs? Who handles them? The people who dealt with the foreshore licence used to work out of the old Department of the Marine, which has since been abolished. Responsibility for the foreshore licence then moved to the Department of Agriculture, Fisheries and Food, and it is not to be moved to the Department of the Environment, Heritage and Local Government. However, the officials who deal with this licence are refusing to move to Clonakilty, so nothing is happening. This is the sort of nonsense that should be exposed. We cannot expect people to invest billions of euros if the structures are not in place so that an investor can put in his application, fulfil the requirements and allow somebody to make a decision, and has a right of appeal if rejected. We can then argue about access to the grid. However, as I understand it, one does not need the other. In other words, somebody could have planning permission but must wait for access, or could obtain access to the grid but have to wait for planning permission, or permission could have lapsed. We will never develop an industry with this carry on.
We would be very interested in any information the IWEA could pass on to us, as persons involved in the business, and any suggestions it would like to make to us formally. It can write to the clerk. We would welcome its proposals as to how the planning structure should be reviewed, whether new legislation is required, and whether a separate body should deal with each application or whether it should be a matter for local authorities to decide, or otherwise. I would like to hear its views and proposals from a practical perspective. Its representatives stated the association has 300 members. There is sufficient expertise among those members to guide us. It would be an opportunity for the IWEA to have a major input into any proposals we will make. When I say we will be making proposals, we will not just be making them and staying quiet. To a man and woman, we see tremendous potential in this regard. As long as we are around, we will be hounding people to make certain these recommendations will be implemented. The sooner we can get up and running, the better. With the help of the IWEA, perhaps we will get action. I would welcome its submission.
If any other member of the IWEA delegation wishes to contribute, he or she should feel free to do so.
Mr. Tim Cowhig
We have been lacking an energy policy all along. For the past 12 months we have had one, which people are beginning to accept and which is developing and evolving. Many of the issues involved, be it with regard to planning or access to the grid, are being worked through and considered. We argue these are issues that should have been considered a long time ago.
It is important we do not fall into the trap of waiting to see where we want to end up. We must decide where we want to end up and work towards it. We must have investment in infrastructure, an issue on which the committee can help. Once Government energy policy is followed through, bodies such as the regulator, EirGrid and the ESB will implement it. That is what has been missing all along but it is now coming into place and beginning to form.
Was the figure €16 billion for potential future investment?
Mr. Michael Walsh
Yes, based on the total of 8,000 MW in the queue.
Is that what the ESB is proposing spend to upgrade the network?
Mr. Michael Walsh
Even if there were no renewables, the ESB has stated it has been spending €650 million a year for some years. The figure of €10 billion is not an incremental cost to connect renewables. A large proportion of that figure would be required just for standard network upgrades.
For streamlining.
Mr. Michael Walsh
Yes, as well as for demand growth and other generation projects.
This exercise would be worthwhile because we would know what the savings would be. We are inclined to shy away because we believe this will cost billions. However, it is better if we say this is a once-off investment and that if it is made, it will save twice as many billions on importing fossil fuels.
To be fair, the interconnector is critical.
I accept that.
If one intends to develop a renewable energy source, one either needs to build in capacity or conventional storage of at least the same amount. The interconnector allows us to provide for storage within the interconnector when the energy is not produced from renewables.
The Chairman referred to planning and a separate authority. I understand 10 m wind turbines are exempt from planning permission. What is the opinion of the IWEA on larger projects being reassigned in order that they can be dealt with under the critical infrastructure legislation as opposed to through local authorities?
Mr. Michael Walsh
I might answer some of the earlier questions and then hand over to Ms Hynes, chairperson of our planning committee, to deal with the planning issues. I fully endorse all of the Chairman's comments on the cost benefit aspect. He has hit the nail on the head in terms of what is required in regard to the application process. Research into savings is vital. The all-Ireland grid study published last January indicated it would be economical to move to a 42% renewable energy scenario based on oil prices at that time, which were in the region of $30 to $40 per barrel. In the context of rising oil prices, we are looking at significantly greater savings into the future. I understand the National Offshore Wind Association of Ireland intends to produce in the coming weeks a cost benefit analysis of offshore wind energy production. That will represent an interesting piece of the puzzle. The Chairman asked about the cost benefit outcome of moving to 50% wind energy production versus a business as usual scenario. Such an analysis would represent an important undertaking which could be of significant assistance in informing policy. It is something in which we could be keen to participate and pleased to facilitate.
The Chairman correctly identified foreshore licences as a key issue, which is relevant both for offshore wind and wave and tidal energy production. We are completely supportive and reiterate that the administrative arrangements must be addressed. We would be pleased to accept the Chairman's invitation to make a submission on planning. I invite my colleague, Ms Hynes, chairperson of our planning commission, to comment on this in more detail.
Ms Carmel Hynes
I will begin by addressing Deputy Doyle's comment regarding the strategic infrastructure legislation. As it stands, it does not accommodate the range of projects coming through. The sizes of wind farm developments vary from 5 MW through to 75 MW. It is encouraging to hear that a review of the planning process is being undertaken. The Deputy also referred to the substantial amount of time it can take to bring forward new legislation. To that end, the IWEA's planning group has drafted legislative proposals, which we would be happy to share with the committee, dealing with the expiration of planning permissions as a result of the difficulty in accessing grid connections. We would welcome the opportunity to communicate these proposals to the committee, if appropriate, in order that they may be conveyed through the appropriate channels. I hope that addresses the Deputy's question.
Is it not the case that the planning authority has discretion to grant a ten-year planning permission if such is requested by the applicant? In that regard, can Ms Hynes cite examples where applicants who have sought a ten-year permission have been refused and, therefore, run into difficulties with their grid connection?
Ms Carmel Hynes
Unfortunately, I can cite such examples. We have carried out a review among our members since the wind farm development guidelines came into operation in June 2006. Although local authorities are aware of these regulations, they are not implementing them. Despite requests by developer applicants for ten-year permissions, those permissions are not being granted.
Is Ms Hynes of the view that the board is better disposed to granting ten-year permissions?
Ms Carmel Hynes
Yes, when an application is brought to appeal. We deal with such applications by way of planning extensions, or extensions to existing permissions. Because of the time lines, we have not yet reached that stage. In respect of the applications that have gone through to appeal stage, the board seems to have been favourably disposed. I understand two or three have gone to appeal. We are looking, in the first instance, at applications made to local authorities.
I thank the delegates for offering their co-operation. We look forward to receiving their suggestions and proposals which will be useful to the committee. We plan to publish a report on the directives on 24 or 25 September. If the delegates wish to make any further comment in this regard, they should feel free to communicate those comments to us. Members will discuss the report next week and if the delegates wish to refer anything to us, it would be helpful were they to so do between now and next Tuesday.
I thank the delegates for their attendance. I found today's discussions with the Irish Wind Energy Association and the ESB to be highly stimulating. Members see more potential in this area each time the joint committee meets. People are inclined to view climate change with a long face and have the perception of miserable sods who go around worrying. However, when one considers its positive aspects, which is what members try to do, there is tremendous potential. I thank the delegates for their help.
Mr. Tim Cowhig
I thank the joint committee for providing the opportunity to make a presentation.
The joint committee adjourned at 4.50 p.m. until noon on Tuesday, 9 September 2008.