Friday 20 October 2017

Why is the State forestry company building windfarms?

Three semi-state companies are competing with each other to build wind farms across the countryside. Why have Bord na Mona, Coillte and ESB all poured millions into the exact same activity?

Windfarms in a hayfield
Windfarms in a hayfield
Sarah McCabe

Sarah McCabe

three separate State-owned companies currently own and operate windfarms.

Peat briquette maker Bord na Mona, forestry owner Coillte and ESB have all poured hundreds of millions into building vast rows of turbines, in direct competition with one another, while owned by the State.

Bord Gais Energy, until recently owned by the State, also built up a huge windfarm portfolio before it was sold last year.

All amassed large teams to do so, from planners to engineers to financiers to operators.

The ESB has the largest wind business. Run by UCD graduate Pat O'Doherty since 2011, it now controls about 10pc of the country's wind assets.

It operates 10 windfarms in the Republic and seven in the UK, two of them co-owned. It is installing many more, including what will become the country's largest windfarm at Oweninny in Co Mayo, which will not be finished until 2017. In total ESB wants to build enough facilities to produce 800MW of power by 2020.

It is also obliged to connect private windfarms to the grid, and has completed grid connections with a combined capacity in excess of 2,000MW in the UK and Ireland.

Bord Gais Energy built 17 windfarms in eight counties across the island while under State ownership, with an estimated value of around €700m, about 15pc of the market. Eddie O'Connor's Mainstream Renewables tried to buy its wind-energy business before it was sold to international group Brookfield Renewable Energy last year.

"That sale didn't make sense at all," says economist Colm McCarthy. "The State was selling windfarms on one side with BGE, and building them on the other hand with ESB, Bord na Mona and Coillte. Do they want to own these things or not?"

Coillte, the forestry company, is arguably the oddest member of the group.

It has a portfolio of projects totalling 550MW and a development pipeline of another 1000MWs. It is not clear who made the decision for Coillte to move into wind, or why it didn't simply hand its land over to the ESB for the development of wind projects rather than start from scratch itself.

Bord na Mona built the country's first windfarm in 1992, but its wind-energy activities have been largely dormant until recently.

Having endured years of downsizing as peat work fell away, the company recently revealed plans to reposition itself as a major player in the wind-energy space by building one windfarm a year for seven years on cutaway peat land.

It has just opened the first of these, at Mount Lucas in Offaly. The project cost €115m to build. It is developing another at Oweninny in Co Mayo with the ESB, which will be Europe's second largest.

"It makes sense to me that ESB, the State's energy company, would have a wind division - but there is no obvious reason for Coillte and Bord na Mona to do the same thing," says Colm McCarthy.

He estimates that between €3 and €4bn has now been spent developing wind-energy assets.

On top of the multiplicity of State organisations building and running windfarms, the State has also heavily invested cash in the sector.

The National Pension Reserve Fund has amassed a huge wind portfolio. In 2012, it invested €300m into an enormous €1bn fund established by Irish Life Investment Managers, called the Irish Infrastructure Fund (NRPF), which has pumped money into wind-energy assets.

The fund's first investment was a controlling interest in a portfolio of 10 windfarms bought from Viridian, eight of them located in the Republic.

Late last year, the NPRF took part in a €60m loan awarded to Mainstream Renewables for expansion purposes. Mainstream builds windfarms all over the world, not just in Ireland. In 2013, the NPRF invested €30m in Gaeletric, also for expansion purposes.

When queried why so many different State-backed organisations were involved in the same activity, this was the Department of Energy said operational decisions at semi-states "are made on a commercial basis independent of Government."

The construction of windfarms, a spokesperson added, is necessary to meet EU renewable energy targets.Some 16pc of Ireland's energy to come from renewable sources by 2020, under EU Directive 2009/28 EC.

Heavy fines are threatened, estimated at between €100m and €150m for every 1pc Ireland falls below that 16pc target.

For this reason, the Government introduced subsidies for wind energy, including a guaranteed minimum price in 2007.

This is paid for by energy consumers, incorporated into electricity bills. Wind producers also don't pay the full costs they impose on the transmission network; they pay only the immediate connection cost.

McCarthy argues that it is the lucrative nature of these subsidies, rather than any real demand, that has prompted redundancy-hit State companies to turn to wind energy. "Windfarms don't provide a lot of jobs beyond construction but they were highly lucrative. The basic truth is that if there were not subsidies, these organisations would not be building windfarms.

"Neither would the rake of private companies who are doing the same thing. Those subsidies are not real money - they are artificial charges that raise the cost of bills for consumers. And don't forget that the State is responsible for connecting windfarms to the grid, and energy consumers pay for that too, via their bills."

The price paid for energy produced from wind is high enough that Bord na Mona is predicting a return "in the high teens" on its Mount Lucas project, and expects the €115m raised to build it to be paid off "in seven or eight years", according to head of power generation, John Reilly.

But subsidies for wind projects are only guaranteed for those built before 2017. There is a review of the system already underway. Any attempt to renew it must be cleared with the EU Commission under state-aid rules.

Interestingly, despite being one of the biggest operators of windfarms in the country, the ESB, in a recent submission to a public consultation process on the matter, said it does not want them removed beyond 2020.

"It is because the ESB has such a diverse power generation portfolio that the company often has a more independent position on energy issues than other companies," says anti-windfarm campaigner Owen Martin.

Subsidies for wind and other renewables have discouraged traditional energy generators from investing, the ESB says. This is problematic because wind cannot be relied upon to provide security of supply - it doesn't always blow.

"Support for specific forms of generation, especially those that have zero marginal cost, has the inadvertent effect of undermining the investment economics for other forms of generation that remain necessary to provide back up to these intermittent renewables," says the ESB.

"It is a reality that the technology choices that Ireland and Europe need to make to arrive at a sustainable and secure energy system at a reasonable cost are not yet clear. For example, a sustainable form of generation that can be switched on and off as needed, and is not reliant on the weather or sunlight, is required," the ESB say.

One thing is certain: Irish consumers pay some of the highest energy costs in the world. Figures from the EU's statistical service, Eurostat, show that for the first half of 2013, industrial consumers in Ireland paid 41pc above the EU average, while households paid 42pc more.

Virtually every expert and business person in the country agrees this is hurting competitiveness. Jobs minister, Richard Bruton, openly blamed Cadbury's decision earlier this month to close a Tallaght plant and cut a total of 200 jobs across its Irish business on our high cost base. "Unfortunately due to a cost base which is significantly out of line with competitor countries it appears likely that the company will proceed," he said.

Some jobs went to Poland, which has some of Europe's cheapest electricity. It has also been one of the slowest countries to introduce subsidies for renewable projects.

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