I welcome Mr. Dermot Byrne, CEO of EirGrid, Mr. Andrew Cooke, director, grid development and commercial and Mr. John Fitzgerald, director, east-west interconnector project. The joint committee has invited the delegation to a discussion on the east-west interconnector. I draw its attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee which cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. Before I call on Mr. Byrne to make his opening remarks, I stress that the purpose of the meeting is strictly to discuss the east-west interconnector. Normally I am prepared to allow discretion, but I do not want this to turn into a discussion on the North-South interconnector, which is a different issue. Mr. Byrne has kindly come before the committee to update us on progress. I wish to have business completed by 10.30 a.m. I put members on notice that the committee may need to reconvene during the day to elect a new Chairman. We will keep members informed during the day. I call Mr. Byrne.
East-West Interconnector: Discussion with EirGrid.
Mr. Dermot Byrne
On behalf of EirGrid, I thank the joint committee for giving us the opportunity to address it and answer any questions members may have. I appreciate that everybody is busy and I am grateful for the time accorded us to present on a project of significant strategic importance to the energy market in Ireland, namely, the east-west electricity interconnector. I propose to begin with a brief presentation. I understand everybody has received a copy of the presentation slides. I with go through the presentation and then answer any questions members may have.
I am accompanied by Mr. Cooke, director, grid development and commercial and Mr. Fitzgerald, director, east-west interconnector project. The items I wish to discuss include the case for interconnection. I will also give some background information on the project. Mr. Fitzgerald will provide a description of the project and outline progress made to date. We will finish with comments on financing and the next steps to be taken in the project.
There is a slide containing the question: "Why do we need interconnection?" That slide contains a map which shows Ireland which, as the committee knows, is a relatively small electricity market on the edge of Europe. Ireland has a peak demand of 5,000 MW. If one takes the island as a whole, it is about 7,000 MW. The neighbouring island, Great Britain, has a peak demand of 62,000 MW so it is an order of magnitude bigger than the market in Ireland. The mainland European market — the greater interconnected market — has a total capacity of about 400,000 MW.
We are quite small and the market is limited and tends to dominated by a small number of bigger players. Energy policy, as everybody here recognises, is focused on the three pillars of security of supply, competitiveness and sustainability. I believe that increasing interconnection delivers significant benefits across all three areas.
In respect of security of supply, EirGrid publishes the generation adequacy report every year, which takes a seven-year look at the supply and demand balance looking forward. Our last generation adequacy report, which was issued just before Christmas, identified the need for new capacity in Ireland from about 2011 onwards. That takes into account new plants currently being built plus the potential closure or sale of some ESB plant. In that sense, interconnection with our neighbour will contribute very significantly to security of supply. It will bring much needed additional capacity into the market to a total of about 500 MW.
Bringing that capacity into the Irish market will increase competitiveness within the market. Traders, generators and suppliers will be free to trade over the interconnector, to buy generation in the UK and to ship it into Ireland to make Ireland a more competitive market. Similarly, where there is surplus generation in Ireland, traders will be able to ship that across to the UK, depending on the relative prices between the two markets. This will bring a very significant increase in competitiveness in the Irish market. It represents a real step towards a regional market which, as the committee knows, is part of the policy of the European Commission towards developing a single electricity market in Europe. The other major competitiveness advantage it has is that it dilutes the dominance of the big players in Ireland. Clearly, if one has a big player in a small market, one has dominance. If one has a big player in a much bigger market, one is diluting that dominance.
In respect of sustainability, everybody in the committee recognises that strong interconnection will be a significant step towards integrating significant amounts of renewable generation into the Irish market. We have set a target of 33% by 2020. The all-island grid study, which was recently published and presented to the committee, shows the possibility of going beyond 33% and perhaps as high as 42%. That represents a major step increase in renewables. Most of that will be wind, which is intermittent. Of course, interconnection will be able to add to our armoury in terms of managing the intermittency of the renewable resource we have.
Strong interconnection is a critical enabler across all three pillars. This is recognised both in the national development plan and the energy policy White Paper. In respect of the background to the project, interconnection has been examined a number of times over the past 30 years. I started working in the ESB in 1973 as an engineer. One of my first tasks was to be involved in a feasibility study of interconnection with the UK. I have been involved over the years and led the last one back in 1990 or thereabouts. It has been examined a number of times but for various reasons, no decision to proceed was taken.
We are now at a stage where the Government has made a decision to build the east-west interconnector and for it to be owned by EirGrid. As the committee is aware, EirGrid is a State-owned company dedicated to public service. We believe this is a critical piece of strategic national infrastructure. Once the decision was made and the Commission for Energy Regulation, CER, was asked to progress it, we had discussions with the CER around the governance arrangements and who would develop the interconnector. Once we put in place the governance and project management frameworks at the end of 2006 and the beginning of 2007 and signed that document with the CER, we hit the ground running on this project.
In early 2007, we appointed Mr. John Fitzgerald as the project director. I think the committee will see from the presentation that we have made great strides in progressing what is a key project for Ireland. EirGrid and the CER have been asked to arrange for the construction of a 500 MW interconnector to Great Britain. This is 500 MW each way so it is not like a generator which is only inputting into the grid. This is plus or minus 500 MW. It must be able to import 500 MW when we are short in Ireland or where there is a strong economic reason to do so or export it. It is a potential swing of 1,000 MW between importing and exporting. This is a large swing in the context of a peak demand in Ireland of 5,000 MW, at approximately 20%.
This is entirely in line with European policy which aims for increased market integration. It is designated as a project of European interest and is included in the EU trans-European networks priority interconnection plan. We have received and are receiving some assistance from Europe in terms of developing this project.
As I have said, we have hit the ground running. I will ask Mr. Fitzgerald to take us through the project itself, where we are and what the next steps will be.
Mr. John Fitzgerald
High voltage direct current technology is the technology we are employing for the east-west interconnector. It is a well-established technology that has been around since the 1950s. One of the first uses of it was between North Island and South Island in New Zealand. It has moved on considerably since then. It is ideal for long-distance sub-sea interconnections. There are now two technology types. One is the traditional line commutated technology. I will not go into the technology too much but it has been around for more than 50 years, is well established and has moved steadily along. There is a new type of technology called voltage sourced conversion which has been in operation for less than five years. EirGrid is out to tender and is considering both technologies. We look at the pros and cons. One has higher losses, while the other can provide better ancillary services. Ultimately, the price and delivery times will play a large part in deciding which technology we will progress with.
We are looking at a route from Woodland near Dunboyne in County Meath, which is a strong point on the transmission system here, to a point in north Wales called Deeside, near Liverpool. This is not the shortest crossing of the Irish Sea but it is the shortest crossing between grid points where the capacity is available within the timeframes contemplated by Government for this project.
A plug in one's house is alternating current, AC, technology but one's mobile phone is direct current, DC, technology. I have just remembered to turn mine off. Effectively, the converter stations convert the AC on the transmission systems here and in Great Britain to DC for transmission under the Irish Sea. The converter stations will be in Woodland and Deeside where the established use is for transmission on both sides.
There is also a golden opportunity here to provide fibre optic capacity between Ireland and Great Britain, which is a busy route with increased demand for broadband-enabling capacity and back-up capacity. That is a business case which we will be evaluating over the next nine to 12 months. We will do this work prior to issuing full notice to proceed.
On the next slide there is a schematic that shows the Irish AC transmission system and the British AC transmission system. In this example, the exports are from Ireland to Britain. A warehouse on one side converts the electricity to a DC current, while a warehouse on the other side rectifies it to AC. This is a critical set-up in using long-distance sub-sea transmissions, which is what we are doing. As we are operating in two jurisdictions, the infrastructural project is complex. There are two licensing regimes, two planning regimes and two legal regimes.
Since I started on this project in January 2007, there have been significant milestones. A major risk in any interconnector project is presented by the question of whether the interconnector will have the capacity to import and export 500 megawatts of electricity, as Mr. Byrne stated. Our first task was to try to remove that risk and achieve our connection capacity. I am happy to report that we did so in the third quarter of 2007. We evaluated the desired points, applied for and were successful in acquiring them, a considerable milestone for the project. At that point we considered that the project was a concrete one.
We are subject to the utilities directives on procurement and were required to commence a lengthy procurement process last year. With the CER, we designed the best competition structure in two months and initiated competition. We have prequalified five of the major high-voltage direct current, HVDC, equipment manufacturers, of which there is a limited pool. We put the project out to tender in December 2007, an ongoing process that I will discuss.
The marine survey marked a milestone for the project. As soon as one is at sea, the risks increase. The Irish Sea is not the easiest to survey, but we have recently concluded our three-part survey — geophysical, geotechnical and environmental. Consultation has commenced with statutory bodies in Britain and Ireland, including planning authorities and we have identified good sites for converter stations on both sides that tie in with the grid connection points we have secured.
The next slide contains three pictures, including one of the MV Meridian, Fugro’s survey boat. A shallow vessel, it can survey near shores and in deep waters. We tendered for this service. Also pictured is how the operation is undertaken 24-7, when the weather is good and conditions are appropriate for surveying. In the picture the boat is shown off Rush in choppy waters near dusk. There is also a picture showing crew members reviewing a seabed sample to be sent to laboratories. This large exercise is done to fill in the gaps in order that those who tender to build the infrastructure for EirGrid will have sufficient information to price it and design the cable to ensure it can last for 30 to 50 years. Consequently, the survey is a key piece of the project and its completion is a significant milestone. Given the level of offshore activity in terms of wind farms, such ships are busy and we are happy to have completed the survey in advance of tender receipts.
The next slide shows a section of the seabed. We have digital images of approximately 160 km of the seabed. In the image shown, the strip is approximately 250 m wide. We have widened the strip to 2 km in some areas to avoid mussel beds. We carried out extensive surveys to cause minimal disruption.
The next slide shows an illustrative route from the 400 kV station at Woodland near Dunboyne, County Meath. We examined three routes at sea and narrowed them down. We are examining other routes, predominantly roads, in south County Meath, Fingal in County Dublin and Flintshire and Denbighshire in Wales. We hope to submit planning applications in respect of this ongoing work in the third quarter of this year.
The next slide addresses the interconnector. People have asked what is meant by a regulated interconnector as opposed to a merchant interconnector. Being regulated means that we comply with all European regulations because the European Union wants interconnector projects to be open for competition and free market access. The interconnector will make capacity available in a transparent manner through periodic auctions which will maximise its effect on competition in Ireland and Britain. The returns will be regulated by the CER, protecting consumer interests and helping to finance the interconnector. The flight to quality has been discussed. Underwriting will help to reduce the financial cost, an issue Mr. Byrne will discuss further.
The construction and annual operating costs of the interconnector, including the repayment of loans, will be funded by three revenue streams, the first of which involves charging generators and suppliers who will use the interconnector. The second stream involves ancillary services, referred to in terms of the intermittency of wind power and the interconnector being a facilitatory infrastructural project. Generators charge system operators to supply ancillary services such as backup for trip generators when the wind is not blowing. Interconnectors are well placed to provide such services and we will seek to secure this revenue stream on both sides of the Irish Sea. Underwriting through the use of system tariffs on electricity consumers is the third revenue stream.
We have passed several milestones, but work is ongoing. Manufacturers have spent six months preparing tenders in response to our invitation in December and submissions are due before the end of June. We will evaluate the tenders to ensure they are technically fit for purpose and represent value for money. We will also evaluate them in legal terms to determine what terms and conditions apply because this will be a major engineering procurement-construction contract. We must ensure everything is like for like, fair and transparent. Thereafter, we will negotiate the contracts and revert to the Government for approval to award them by the end of this year.
We have identified a limited number of converter sites on both sides and are in negotiations with their owners to secure them. Our detailed pre-application consultations with An Bord Pleanála and Flintshire County Council in Britain have been going well and we intend to submit applications in the third quarter of this year. Consultations will ramp up prior to planning applications being made. Enabling works must be finished before contractors arrive at the sites; wayleaves are required for the cable's route and basic services such as water and electricity are required to support the infrastructure once it is in place. The next step is to secure finance, an issue Mr. Byrne will discuss.
Mr. Dermot Byrne
The Government has tasked us to deliver a critical piece of strategic national infrastructure. It will be a regulated interconnector, as outlined, which will help in financing such a project. We have been in discussions with banks and are confident that there is a significant appetite for a quality investment of this type. Typically, project financing is composed of 80% debt and 20% equity, mezzanine finance or a combination. We are in discussions with a number of parties, including the Government, to determine the possibility of securing national development plan financing, as mentioned in the original letter in which the CER was asked to progress the project. We are also in discussions with the National Pensions Reserve Fund, NPRF, which operates an infrastructural fund.
There are possibilities. From our discussions with banks and various institutions, we are confident that the project will be easily financed. We have done the cost benefit analysis and we are confident the project will cover itself in terms of the benefit to cost ratio. We are in discussions on these issues but we are not ready to move towards financial close. A milestone will be when we get bids in at the end of June and when we negotiate the final contract with the successful tenderer towards the end of the year. Then we will have certainty on the cost of the project and at that stage we will be in a position to finalise the financing.
The project is progressing well. It has arrived at a number of milestones already, one of which was, as Mr. Fitzgerald has outlined, securing connections. There is a risk if one does not secure connections. We have those connections and a licence from Ofgem for the operation of the interconnector. As Mr. Fitzgerald has said, we completed a detailed seabed survey and this information is available to potential contractors so that they can finalise the bids. We expect bids at the end of June. The HDVC market is buoyant so there is a risk that one will not get a manufacturing slot with a cable manufacturer. For that reason we arranged the project to get best value for money, to minimise time and get quickly to a stage where we can award a contract. In that way we minimise the risk of there being no manufacturing capacity. In discussions with the tenderers we are confident the project will slot in with cable manufacturing capability. We are on target for submitting detailed planning applications in 2008 and for awarding the contract in late 2008.
We must then get planning permission. Once we get planning permission we are in a position to issue notice to proceed to the successful tenderer. At that stage the successful tenderer can commence manufacture of the cable. It would be unwise to start manufacturing ahead of planning because one could be left with a stranded asset if for some reason planning was delayed in any way. All of this leads us to commencing construction in about 2010. We are targeting completion by the end of 2011, for commissioning in early 2012. We are on target. I thank the committee and we are available for any questions.
We will begin with Deputy Coveney, followed by Deputy McManus and Senator O'Malley.
I thank EirGrid for appearing this morning. This is a significant item of infrastructure and we are in the process of passing legislation to facilitate it. The delegation does not need to convince me of the benefits for Ireland of interconnection. This committee has discussed the arguments about security of supply, competition and sustainability at length, as has the Joint Committee on Climate Change and Energy Security. This is the direction Irish energy is going and if renewables in Ireland are to reach close to their potential, we need substantial interconnection. That may include other interconnectors, whether provided by the private sector or by EirGrid.
Another company appeared before the committee to discuss its plans for interconnectors between Ireland and Wales. That company chose a different location. Can the delegation give a detailed response on why it has chosen Meath and Deeside, north Wales in respect of the advantages of grid connection at those locations?
My major frustration with the east-west interconnector is that it is not in place. We have been talking about the need for this for eight years. I understand that EirGrid has only taken responsibility for it in the past two years so I do not blame it but it is the responsibility of EirGrid to get it delivered in a cost-effective way as quickly as possible.
From that point of view, the original tender documents went out last December. Five companies have pre-qualified, as it is described. How can companies pre-qualify if EirGrid has not chosen the routes? There will be three routes at sea and a number over land. Presumably we have had expressions of interest and this will proceed to a more detailed tendering process when EirGrid has chosen the route, whereby companies can bid exact prices for the infrastructure.
Can the witnesses clarify that point?
Mr. Dermot Byrne
Pre-qualification is about ensuring we have the right tenderers in the race and not those who say they can do it but whom we do not believe.
It is a vetting system.
Mr. Dermot Byrne
It is a vetting system to ensure we have the right people in the race. They are not bidding on price; they are bidding on experience, qualifications and capability.
What links does EirGrid have with the Marine Institute in respect of the marine survey? We visited the institute recently and it has done much seabed work in Irish waters. Presumably there has been a link-up with the Marine Institute on that matter. I assume EirGrid must add to that information when it looks at detailed routes. What is the timescale for finishing the marine survey?
Does the critical infrastructure legislation apply to the planning process or will this project go through the normal planning process with the involvement of local authorities? The Chairman has asked us not to get into arguments about overground versus underground with regard to the North-South interconnector. There is much concern in areas such as Meath about electricity infrastructure generally. It is important to understand what planning process this project will undergo and whether the critical infrastructure legislation applies so that local authorities will have a serious say on what is being done.
My final comments relate to financing the project. In anticipating national development plan financing, this will be a little tighter than what people anticipated. Will EirGrid be able to finance this if it must find all the money, which may be a likely scenario?
Mr. Dermot Byrne
I will start with the last question and pass the other questions to my colleagues. We are in discussions with the Department about NDP financing. It was mentioned specifically in the letter. We are satisfied that the cost benefit analysis stands up. The only issue is the impact on the end-user price. The more NDP funding that is provided, the less the impact on the end-user price. The benefit to cost ratio exists and the project will deliver significant benefits for customers, irrespective of how it is financed. The fact that it is a regulated interconnector, as Mr. Fitzgerald stated, reduces the impact of financing costs because regulating it reduces the risk associated with the project for a lender. With regard to financing, there is a significant difference between it being regulated and being a merchant development.
Mr. Cooke will address questions on the location and provide a detailed response as to why the route Woodland to Deeside was chosen.
Mr. Andrew Cooke
In looking at the best location on the Irish side we sought the connection arrangement with the lowest cost to the electricity customer. We considered the cost of the interconnector, as well as the cost of any necessary reinforcements in the Irish system to allow the import and export of 500 MW of electricity at that location. We evaluated a number of locations on the transmission system along the south and east coasts. Taking all of the costs into account, we found that Woodland was the best location. A merchant developer would tend to consider the lowest cost for the interconnector and this is perfectly reasonable. That is what is of interest to a merchant developer. Our objective was different and Woodland is the most advantageous point.
On the UK side, ideally we would have used points nearer to Ireland than Deeside, which involves a longer route than from Holyhead or Pembroke. The transmission system in Wales is limited. It is strong along the north and south coasts, with not a great deal in between. The locations along the north and south coasts are heavily congested. Capacity has been booked for a number of years to come. Deeside was the nearest point at which we could secure transmission capacity in the United Kingdom by the target date of 2012. For other locations in the region of Holyhead or Pembroke we were looking at a date of 2015, 2016 and beyond before we would be able to secure capacity from the national grid company. That is what has driven the selection of points on each side.
Mr. Dermot Byrne
Mr. Fitzgerald will deal with the questions on the Marine Institute and the planning process.
Mr. John Fitzgerald
We were aware that the Marine Institute had carried out extensive mapping work around the coast of Ireland and we tied in with it. We put our marine advisers, JP Kenny, in contact with the institute. Our survey is taking place along a detailed route from A to B and we needed to take detailed soil samples and move beyond what the institute had done. We took the findings of its work on board but needed to carry out our own dedicated survey. That survey is contractual in nature and complete. Upon awarding contracts to the main contractors we intend to assign the survey contract to the successful contractor. Therefore, any issues arising as to whether it was carried out properly and the results will be between the main contractor and the surveyor. That is how the contracts are designed. This design is intended to remove risk from EirGrid and end consumers. It is standard practice in large energy projects to do it this way.
We believe the Planning and Development (Strategic Infrastructure) Act will apply. We have had consultations with Meath County Council and Fingal County Council on the route. They will be key stakeholders in commenting on the application. While there was uncertainty last year about what route we would take in planning terms, we have had three pre-application consultation meetings with An Bord Pleanála. We are working together to interpret the Planning and Development (Strategic Infrastructure) Act.
I welcome the delegation from EirGrid. This is an impressive project. It is a concrete expression of the greater co-operation between these islands and the idea of integration in Europe. I wish it well.
The nuclear argument is raised from time to time with regard to self-sufficiency and whether we can be secure in depending on sources outside the country. Will the delegation comment on this? How will the issues of full capacity or over-supply be dealt with?
I am intrigued that there was a doubt about the application of the Planning and Development (Strategic Infrastructure) Act. I would have thought this was exactly what the Act was for. I am perplexed as to why it is still a matter for discussion. With regard to the convertor stations, I have no idea what size of structure is being discussed. Will the delegation describe them?
Piggy-backing on the work carried out by the Marine Institute should be enabled as far as possible, particularly with regard to fibre optics. The institute has an interesting project whereby for research purposes it intends to lay cable in Galway Bay, including beyond the Aran Islands and eventually to the Porcupine Bank. The cable will have sensors to send back information. I do not know whether this is feasible but I would have thought there would be an interest in researching the area. I do not want to make the delegation's life more complicated but this provides an opportunity in the work they are doing. There are possibilities which should be considered.
Will the delegation comment on the use of fibre optics? A lifespan of 30 to 50 years was mentioned. I presume this applies to the cable as opposed to the structures. This does not seem to be a long time. How will it be replaced? Will it be done in sections?
With regard to developments in the sea, having major offshore wind farms is being discussed. With regard to our EU requirements, we are discussing having five times the wind capacity we currently use by 2020. This is a massive increase and offshore wind energy projects will be a major factor. Will the delegation elaborate on how they will be protected and how development can take place offshore without any difficulties?
I did not follow what was stated on periodic auctions. How does this work? With regard to the use of system tariffs for revenue, I presume what was meant by "users" was people feeding into the grid rather than the electricity customer. I do not think anybody would expect the NDP to produce the money for this project. However, national pension funds would be an ideal source of funding and appropriate from their point of view. I hope this is successful. Relying on the banks when we have this resource available does not seem to make financial sense.
Mr. Dermot Byrne
I will start with the last question on national pension funds. We are in discussions with the National Pensions Reserve Fund, NPRF, and there is interest in the project. We must ensure we get the best value for the end customer. It is not clear at this stage what the cost of finance from the NPRF will be. We must balance all of this against our mandate to deliver best value for the end customer.
When Mr. Byrne refers to the customer, is he talking about the generator or the customer that we think of, namely, the person who pays the ESB bill?
Mr. Dermot Byrne
At the end of the day, it is the end customer who pays for all of the costs, right across the value chain. If generators or suppliers incur costs, they pass those on in their charges. At the end of the day, all costs are paid for by the consumers of electricity. Whether the payment is direct or through the suppliers or generators, all the costs end up being paid for through people's electricity bills. When I talk about end user customer, I am thinking of the cost to the end customer who pays the bill.
On the issue of major offshore wind farms, we are very conscious that this is a developing industry. In the queue at the moment we have some very significant offshore wind farms and the Minister has recently announced some support mechanisms for offshore power generation. They will require connection to the grid. I was involved with Mr. Eddie O'Connor in getting the project at Arklow Banks connected, which was a first for Ireland. We are very interested in participating in this area but obviously it is not until we receive applications and specific details about where those offshore farms will connect to the grid that we are able to evaluate them.
In our grid development strategy we are developing a 2025 view of what the grid will look like and what it needs to be to deliver on the objectives of balanced regional development, catering for growth and catering for renewable energy sources. We have factored renewable energy sources into that grid development strategy, including offshore wind farms. In that sense, we are planning ahead for a time when we will see more and more of such farms coming on stream.
The Deputy's comments on the Marine Institute are very interesting and we will have further discussions on that matter among ourselves. We will explore what the Deputy has suggested in terms of whether there are any potential benefits of working with the institute to achieve our objectives and to assist them in achieving theirs. We will have further discussions with the institute.
On the issue of self-sufficiency, the interconnector will have significant benefits in terms of security of supply. When there are shortages in Ireland, we will get help from the United Kingdom and vice versa. The market, to a large extent, will govern those flows and what the prices are on any particular day. In terms of mutual support on security of supply, we are already using that on the Moyle interconnector. We buy spinning reserve, which is immediate reserve needed in the event of, for example, a generator tripping, from the Moyle interconnector. Interestingly, on 27 May last, there were major supply disruptions in the United Kingdom and the Moyle interconnector operated in the reverse direction, whereby we supported the British in dealing with their widespread power outages. It was interesting to see that mutual support mechanism in operation and the new interconnector will further support that type of arrangement.
Specific questions were asked about the size of convertor stations and the life of the cable. Mr. John Fitzgerald is more qualified to answer those.
Mr. John Fitzgerald
On the life of the cable there is project finance lifetime and for a thermal plant large combined cycle gas turbine, typically it would be 20 years economic life, but it would last for approximately 30 years. Power stations get decommissioned and reinstated. Our preferred site in Britain is on an old decommissioned power station site. The convertor station would probably require refurbishment on an ongoing basis and plug-and-play new equipment after 20 years. On the Moyle interconnector they are already seeing some obsolescence and are involved in an ongoing replacement and upgrading process.
There are some cables in service for more than 50 years. The cables will last a long time but typically warranties from cable manufacturers are only for three to five years. After 50 years, one would start thinking about the cable and monitor it closely to see if it will last longer. The cable should last a long time but exactly how long, we do not know. One of the cables we are examining has not been in service for longer than five years. The track record is not as great as for traditional cable, which has been in service for up to 50 years.
The Deputy referred to uncertainty but it is clear that the Planning and Development (Strategic Infrastructure) Act will apply to this project. We are having discussions with An Bord Pleanála in relation to, for example, the foreshore. It is not clear where the jurisdiction of the strategic infrastructure division stops and there is a question over where the project stops and starts. Obviously, half of the project is in Britain. We are discussing the scope and how we apply, rather than whether the Act is appropriate for this infrastructure project.
In terms of size, a converter station is like a large warehouse or barn. It would not be a significantly large.
Mr. Dermot Byrne
There were a couple of questions on the periodic auctions and the use of system tariffs, which Mr. Andrew Cooke will answer.
Mr. Andrew Cooke
There are evolving European regulations about how access to interconnectors is managed. Typically, one would see a series of auctions, perhaps starting out with auctioning some capacity as much as a year ahead, moving down through monthly and daily amounts. Increasingly people are starting to look at having auctions in near real time. The exact design of all of that depends on the market structures on each side and what is most effective in allowing people to buy access to the interconnectors at the right times. The new interconnector will be a regulated one so it will fully comply with those regulations and the exact design will depend on what is most appropriate on the day and will be approved by the regulator in Ireland.
Typically, there are a series of gates, where people can buy a year ahead, a month ahead, a day ahead and even an hour ahead. Capacity is released in various amounts at different stages through the auction. There are also arrangements in place to make sure that if someone buys capacity on a long-term basis but is not using it, it must be released back to the market and cannot be hoarded or held.
On the use of system tariffs, the first source of revenue for the interconnector will be what people are prepared to pay to use it through the various auction mechanisms. There will also be some revenue from ancillary services, as Mr. Fitzgerald described. In the event that those revenues are not sufficient to cover the costs, it will be backed up by the electricity customer. If there is a shortfall, the electricity customer will back it up. On the other hand, if it over-recovers, the electricity customer will benefit from that. The Moyle interconnector, to date, has typically generated more revenue than is required to cover its costs and that excess revenue goes back to the electricity customer in Northern Ireland, who invested in that interconnector in the first instance. That is where the reference to use of system comes from.
Is Mr. Cooke saying that it may happen that an ESB bill, for example, will show that there is a special charge for the interconnector?
Mr. Andrew Cooke
It may happen, yes. However, that does not necessarily mean that it is not of value to the customer. Even if the customer is contributing to it, it is still introducing competition to the Irish market and bringing down the price of electricity. The customer is benefiting from the interconnector being in place.
In that sense, competition increases people's bills rather than reduces them.
I presume the auctioning structures have yet to be designed. Who will design them, given that there are two regulators involved in this project? Who has the ultimate authority in designing how access will be delivered?
In regard to competition, Mr. Cooke stated that a mechanism will be put in place to stop people sitting on capacity. How will that work? It strikes me that larger electricity providers will have the capacity to dominate, so how can we be assured of competition?
This is a very exciting development in the energy sector in that it facilitates the expansion of wind generated power and our ability to sell electricity to the European energy market. However, the investment required appears enormous. What will be the ultimate cost of the project? At the end of the day, it will be met by all those who pay ESB bills, so by how much will our bills increase? Energy costs are already a significant problem for industry in terms of competitiveness.
In regard to the 500 MW capacity, does the energy have to go in the same direction or is it a two-way system? Is that amount of capacity sufficient given the size of this investment? I have great faith in the ability of offshore wind to generate Ireland's future electricity needs in terms of selling to the European market. What are the constraining factors on building capacity up to 1,000 MW? I would have thought that higher capacity could produce better economies of scale.
I was glad to hear Mr. Fitzgerald's clarification on the Planning and Development (Strategic Infrastructure) Act. I acknowledge that the matter causes anxiety in communities but they will have other problems if their lights are turned off. We are too used to having electricity at our finger tips. The threats are never communicated to people, so perhaps they should be reminded that we cannot necessarily rely on affordable electricity. People need to be more responsible about electricity.
In regard to the survey commissioned by EirGrid, numerous surveys have been conducted on road projects where the final costs were multiples of the original estimates. While local authorities and the NRA might disagree about who must pay the final bill, the contractors often argue, for example, it was not their fault as they did not know the types of rock they would encounter. I am concerned EirGrid will encounter similar problems with this survey, although I understand its reasons for commissioning it. When we complete the interconnector in 2012, what guarantees will we have that the successful bidder will not present an inflated bill?
EirGrid's proposed interconnector is regulated, whereas the merchant interconnector projects are not. Surely, however, all interconnectors are subject to the same rules and regulations in terms of buying and selling. What is EirGrid's relationship with the companies developing the merchant projects?
Mr. Dermot Byrne
We are in a competitive tendering process and will not begin to get a real sense of the cost until this is complete. I cannot reveal the budget at this stage because that would negate the entire process. Issues of cost will become clearer later in the year, at which point we can return to them.
In regard to the respective benefits of regulated versus merchant interconnectors, our focus is on the benefits to the end customer. I am sure there is room on the Irish Sea for both projects but that is an issue for the merchant developer. However, a significant difference exists in that a merchant interconnector must get an exemption from the regulators on the open access arrangements we have to put in place. This exemption is usually granted and I do not anticipate any reason for refusal in this instance. I understand the application for exemption has now been made.
What will be the effects of that?
Mr. Dermot Byrne
I cannot speculate on a merchant's business case. One of the key issues for a merchant regulator would be finance and one possible way of ensuring backing would be to sign long-term contracts, which are not open access.
Why is the merchant not regulated in the same manner as EirGrid? Presumably it is operating in the same markets and is subject to the same conditions.
Mr. Dermot Byrne
Again, I cannot comment on the intentions of a developer. The Senator would have to put her question to the merchant.
Mr. Andrew Cooke
The primary auction mechanisms would be approved by the Commission for Energy Regulation in Ireland because the interconnector would be owned and operated by EirGrid, which is subject to regulation in this jurisdiction. Certain other approvals may be needed from the EU and the UK to confirm that the auction arrangements comply with the regulations, but these would be approvals for compliance rather than detailed design.
An example in practice of the use it or lose it concept, whereby purchased capacity is released to the market if it is not used, is the North-South connection, which was operated as an interconnector until the advent last November of the all-island market. Auctions for capacity on that connection were held on an annual and a monthly basis. Anyone with the appropriate authorisation and licences from the regulator could bid for capacity but certain rules were imposed, such as a prohibition on any single party buying more than 40% of the capacity, in order to maintain competition. There was a requirement on those who held capacity to tell us whether it would be used and, if it was not, we released it to the market on a monthly or daily basis. The details regarding what is appropriate to this interconnector remain to be addressed but a number of well-established mechanisms can be applied.
The construction of the Moyle interconnector can provide clarity on the question of merchants. The investment was made by Northern Ireland Electricity and approximately half of the initial capacity in that interconnector was tied up for approximately six years. It was part of the approved arrangements that this capacity would not be released to the market but would be available to the investors. To finance a project, a merchant interconnector would typically need to sell a certain amount of capacity on a long-term basis to provide a guaranteed source of revenue. None of that will be necessary in this project, where all the capacity will be fully open to third-party access from day one.
Mr. Dermot Byrne
One other question was asked about the size of the interconnector. Originally there was talk of a 1,000 MW or two interconnectors of 500 MW. This is seen as a first step. The reinforcement of the network to take plus or minus 1,000 MW at any one point would be excessive so one is probably talking about two separate locations. We will examine this further into connection. We have undertaken to do that and it is in the White Paper. We will examine further interconnection, perhaps to mainland Europe. That is on our work programme.
I welcome the delegation. I have three brief questions. Mr. Byrne mentioned EU funding. What percentage of EU funding will be available for this project in either monetary terms or the percentage of cost? With 8,000 MW hours waiting outside gate two, will there be priority for the existing developers? On instilling confidence in new onshore entrants, what timeframe will be involved in their getting access to the grid in light of this new interconnection? They are developing business plans and want to know the timeframes realistically involved. Mr. Cooke has mentioned the North-South interconnector and I will be a little parochial. In terms of wind turbines in County Donegal, where will the interconnector go? Would the realistic option look at an interconnector across the Border or an upgraded 110 kV connector coming from south Donegal into the Ireland-Wales interconnector? Perhaps Mr. Cooke could answer that.
I will be as brief as possible. It is good to have everybody back in and have a second presentation on the east-west interconnector. The last time we had an EirGrid meeting approximately 80 questions were asked and we were told all questions would be answered. Perhaps those answers are in the pipeline and maybe we will get a response to all the questions asked at other meetings. I am being hounded for them in my county. Could the witnesses send the replies to questions asked two months ago?
On the east-west interconnector, the longer we hold up these projects the less beneficial it will be for Ireland. We had a presentation here a couple of weeks ago and EirGrid feels that anything underground is far more costly and unreliable than overground. Yet EirGrid has picked the longest route. Does this benefit the Irish consumer? EirGrid's competitor company said it could do this job for half the price. The tunnel from France to England took the shortest route. Will the interconnector from Ireland go underground from the Irish coast into Woodland? Is EirGrid happy that it is using the most up-to-date technology available? Does it agree that there are other methods of transferring electricity that are accepted in other countries such as Sweden and Estonia? As late as last night I learned that other countries are using more modern technology.
Many questions have been asked but nobody asked whether a foreshore licence will be necessary. The strategic infrastructure Bill applies only to the island but when one goes offshore it is a matter for a foreshore licence. They can be very problematic and can slow matters considerably. There a several private interconnectors in the pipeline, forgive the pun. How will they impact on consumers? Will there be a benefit to opening the market to further competition?
Could Mr. Byrne respond to Deputy McEntee's query on unanswered questions from the previous meeting outside this meeting? I do not want questions from a previous meeting answered now as it might confuse the issue. However Mr. Byrne might engage with Deputy McEntee and arrange that the questions be answered for him.
Mr. Dermot Byrne
We have received €3 million from the EU for development costs. This is not a major contribution to the infrastructure but is for studies during the development phase. Because it is seen as of strategic national and European importance there is support for this type of project, but only at the development stage. On Deputy McEntee's question on technology, as Mr. Fitzgerald explained, we are examining both conventional HVDC technology and the newer voltage sources conversion technology. We are open to both and there are pros and cons with each. There is an issue of increased losses with the newer technology so we must ensure we do a proper evaluation between the two technologies, taking on board the full lifetime costs, including the costs of losses. We have factored that into our evaluation process on the east-west interconnector.
Has EirGrid done that in all aspects of its programme, for example, for underground throughout the country?
Mr. Dermot Byrne
We have been very innovative in our development of the grid in terms of applying new technology. We are probably up there with the best in our application of new technology, including flow control devices on the system and the most advanced electronic type of support mechanisms on the system. EirGrid is very innovative and proactive in using technology but there is a place for every technology. We have to evaluate the technology against the application and determine what is best for the Irish people.
We had a presentation and people are becoming a little confused. At a previous presentation, to which EirGrid listened, we were told the same job can be done for——
No, I have been as patient as I could. I have allowed some discretion. We are talking strictly about the east-west interconnector.
I will stick to that. The east-west interconnector goes from Deeside to Woodland. Why is it underground through part of County Dublin while we are told the same technology can be used to go the rest of the way?
That is fair enough.
Mr. Dermot Byrne
There was also the question about the longest route being taken instead of a shorter route. I ask Mr. Cooke to answer that.
Mr. Andrew Cooke
Selecting Woodland as the connection point gives the lowest overall cost, taking account of the cost of the interconnector, which is higher than it might be if we were able to use a shorter route, and the cost of the reinforcements of the transmission system that would be necessary to accommodate it. If we were to take a shorter route, such as a landing point at Poolbeg or Louth, substantial reinforcement of the transmission system would be required on land to allow import and export of 500 MW at those points. Woodland is the best in that it has the least overall cost from everybody's point of view.
Why does the project not go overground once it comes into Woodland?
Mr. Andrew Cooke
We are talking about HVDC technology so what we are doing is connecting two separate systems which operate independently of each other. One is in the UK and one is in Ireland. We are talking about a long sub-sea crossing, so HVDC technology is the only type possible for that kind of crossing. The cost of the converter stations described by Mr. Fitzgerald earlier, a substantial cost to the project, is already incurred. It is necessary because we need to convert at each end.
Once we are at DC and have the cost of the converter stations in place, the cost of staying underground for the section in Ireland is relatively small. It is more expensive than going overhead but the difference is relatively small in terms of the overall project cost. It is a very different application to the North-South example, although the committee does not want to address that matter. There are very different requirements and the same solution does not work for both.
Are they using it in other countries?
Mr. John Fitzgerald
There are few things less useful than a HVDC interconnector without connections. The nearest connection we could get within the timeframes — everybody wants this infrastructure in place as soon as possible so we can reach our targets — was Deeside where we have a connection agreement and firm access both ways for 2011.
I do not want to be argumentative. Why can a company come in, go the shorter route, and say it can provide this for half the price to the taxpayer? We were presented with that information. Is it wrong? The people involved said they could go from Arklow via the shortest route at half the price to the Irish taxpayer. It was presented to us and members of the delegation.
Mr. Andrew Cooke
I am not sure I understand the reference to the Irish taxpayer. If we build a shorter interconnector, we would have to invest more in the transmission system and upgrade it to be able to import and export at the point we connect. If we were to go to Arklow, for example, substantive reinforcement in the transmission system would be required to be able to import and export at Arklow. That would have to be paid for by the Irish electricity customer. All in all, going to Woodland is the best solution for the customer for this project.
May we have a reply to the questions from Deputies D'Arcy and McHugh?
Mr. John Fitzgerald
We have already secured a foreshore licence for the survey, which is just complete, and we are engaged with the coastal zone management division in Clonakilty to get our foreshore licence for the installation straight away. That is under way, although we understand it can be a lengthy process.
Is there any mechanism by which that can be sped up so it does not lead to delays?
Mr. John Fitzgerald
We will do everything we can to get a licence as quickly as possible.
It is an open question to the committee, effectively. Perhaps we should ask the relevant officials to come in and give them the opportunity to make a presentation on why it takes so long for an application to be considered.
It is a fair comment.
Mr. Dermot Byrne
We are working with our own Department in that regard as we recognise there is an issue. Deputy McHugh asked a question on the 8,000 MW supply and the North-South interconnector.
Mr. Andrew Cooke
With regard to the wind queue, we are expecting the commission to announce the structure of Gate 3, the next tranche of wind offers, in the very near future. While it has not been finally decided, the commission has talked about a gate of the order of 3,000 MW. We have had two gates already and this was the first time. Gate 1 provided for connections to approximately 250 MW and Gate 2 is 1,300 MW. Gate 3 will be approximately 3,000 MW. If that all went ahead, it would bring total wind energy in Ireland to approximately 5,500 MW by the completion of Gate 3.
Given that 8,000 MW is available to Gate 3 at the moment, will there be an opportunity for those who are preparing at present to go into the development of wind turbine energy?
Mr. Andrew Cooke
The commission will determine the rules governing which 3,000 MW will get offers as a result of Gate 3. I am sure there will be follow-up and once Gate 3 is complete, we will move on to the next stage.
The interconnection will help that.
Mr. Andrew Cooke
Further interconnection certainly will help that. There is now much more wind in Ireland than electricity demand at certain times, so interconnection is clearly a key way of ensuring best value for the investment. On the Donegal issue, we are undertaking a study with Northern Ireland Electricity, the transmission planners in Northern Ireland, to look at the best solution going forward for serving Donegal as well as the west of the Northern Ireland province. There is also much wind development in Tyrone, Fermanagh and Derry. There are still a number of options in that under early examination, which could well include bringing wind from Donegal through Northern Ireland or directly to the Irish system through the Barnesmore Gap area. There are a number of options still being looked at.
I had asked a question regarding the survey and how EirGrid could protect against cost if it is inaccurate.
Mr. John Fitzgerald
On the surveys question, all EPC contracts will eventually have claims and counter-claims between the contractor and purchaser. It is standard fare. We have brought in the five pre-qualified parties and told them we will be assigning contracts to them. Any dispute about the ground conditions will be between surveyors and contractors.
Clearly we must negotiate contracts when we pick our tenderers. The risk transfer will be part of the negotiation. It is a key area which we must monitor and police so the outturn cost is not significantly different from that anticipated at tender receipt. That is a big challenge as these projects come with uncertainty.
We have a schedule of rates on which people will be competing. If there are changes due to planning conditions imposed after tenders have been received, tenderers will have, under competitive pressure, what they will charge to vary the route by 1 km or through different terrain. We are doing everything we can either to ensure this does not happen or to minimise it.
I thank Mr. Byrne, Mr. Fitzgerald and Mr. Cooke for their attendance. We had a very informative and worthwhile discussion and I thank the witnesses for replying to the questions. I thank members for their contributions.