Economy will pay high price as ESB turns to wind power
We rely on gimmicks for cheaper power in Irish homes
THE ESB's position as the dominant force in the Irish energy sector has come under sustained attack in recent years as a combination of regulation and green policies eat into its core business.
Earlier this month the company announced a major jobs initiative, most of it under the banner of green technologies. The announcement provided Energy Minister Eamon Ryan with another opportunity to air his views on the Irish energy industry and to make the audacious claim that the plan represented "the green economy writ large and in action".
It is not the first time words have become a by-word for action. Indeed, most of the initiatives announced by the ESB in its jobs stimulus plan had already been well aired.
More than a year ago the company had launched a Strategic Framework to 2020 that included a major investment in renewable energy with the aim of halving of its carbon emissions within 12 years.
The plan involved spending some €10bn on renewable energy projects and investments to facilitate renewable energy on the grid, including smart metering and smart networks.
The initiative on electric cars was also old news, having being announced weeks before the stimulus plan.
This left the redevelopment of its Fitzwilliam Street HQ as the major new item in the ESB stimulus plan. Simply put, a major construction project, costing in the region of €200m, will be the most immediate job creation element in the proposed spend.
For the rest, it is all a case of 'jam tomorrow', or as Mr Ryan himself noted, the ESB is "helping provide the jobs of the future".
But this is all pretty harmless stuff. What consumers should be concerned about is the direction our electricity industry is heading, or at least the role being played by the energy regulator in the shaping of this future.
Under the plan, by 2020, the ESB will be delivering one-third of its electricity from renewable generation. This will include over 1,400 megawatts of wind generation -- some 14 times the amount currently on the grid. The ESB is just one player looking to go down this route as the Government aims to secure some 40pc of our power from wind by 2035.
In truth, however, the ESB has little choice. As the Commission for Energy Regulation (CER) sets about implementing policies which will help achieve government targets on renewable energy, companies like the ESB and Bord Gais are being obliged to do their bit -- both are now heavy investors in wind power. Controlled as it is by the Energy Minister, the ESB has been forced to play along with the greening of the Irish energy business. There may be nothing wrong with such a strategy; indeed, most would agree we need to take action on climate change. But for the ESB and the Irish consumer, the price being asked is simply too high.
Ever since the CER set about dismantling the power base of the ESB, the company has been fighting a losing battle in the home market. The CER has imposed a radical solution to the issue of competition in electricity, forcing the ESB to sell a substantial portion of its generating assets while at the same time keeping electricity prices artificially high in a bid to attract new entrants to the market here. The aim is to create greater competition, though whether consumers will ever benefit from this is a moot point.
In return for playing ball, the ESB has been allowed to embark on a major expansion overseas and it is hard not to see initiatives like the jobs stimulus plan announced for the home market as part of the price it must pay to continue with the pursuit of this expansion.
Its wings clipped in the home market, the company is doing what it does best, not here but abroad. Decades of experience in conventional power plant are being put to use in other jurisdictions including Spain and Britain, while we at home rely on new entrants with a fraction of the know-how held within the state-owned electricity company.
Meantime, we are relying on gimmicks to deliver cheaper power to Irish homes. Bord Gais and Airtricity have both launched offers to consumers promising to undercut the ESB, but short-term promotions such as these are not a replacement for real competition and long term only serve to illustrate the huge profit margin embedded in the regulated price of electricity.
Unfortunately, the regulator's insistence on the creation of a false market to attract new entrants means it is unlikely to ever act as a champion for consumers and anyone who thinks this is an exaggeration need look no further than a recent study carried out for the all-island energy project.
This document makes disturbing reading, not only because of its conclusions, but for the willingness of the authors to ignore commercial realities in coming to those conclusions.
Prepared jointly by the CER and its Northern Ireland counterpart the report was titled Impact of High Levels of Wind Penetration in 2020 on the Single Electricity Market and outlines the results of a modelling analysis carried out by the regulators on either side of the Border. It also illustrates what consumers may be facing a few years down the road.
Alarmingly, the report indicates that oil prices would have to hit around $200 a barrel if there are to be significant electricity price savings from the installation of large amounts of wind power on the national grid.
It comes down in the end to price. The fact that the CER has maintained increased prices to consumers is bad enough, but the idea that the regulator is also laying the foundations for a system which looks set to reward renewable producers regardless of the efficiency of their business is deeply disturbing. And it completely debunks a common misconception, revealing that wind power will only lead to savings as long as energy prices return to record levels.
It says, assuming that the level of wind power generation on the grid was raised to around 38pc of installed power capacity, then lower electricity prices will result as long as fossil fuel prices are high.
But by high the CER said it means 50pc more than the record prices achieved last July, when oil was trading at $147 a barrel.
Under this scenario wind power would only result in cost savings if energy prices are the equivalent of around $200 a barrel.
Rather than redraft the report, the authors appear to believe that prices will indeed return to those levels, if not, then the consumer will end up holding a very expensive tab. Even at oil prices of as high as $100 a barrel, new wind power generation on the grid will need to be subsidised, according to the report.
In other words wind is not a competitive source of power, something highlighted in Dublin this month by Chevron chief executive Dave O'Reilly. He makes the point that at some stage technologies like wind will be competitive, but that day is not yet upon us, indeed it may well be decades away.
Many economists had predicted in the middle of 2008 that oil prices would reach $200 a barrel this year, but that was before the financial world went into meltdown.
Just to maintain prices at around $50 a barrel OPEC has been forced into steep cuts in production and, with speculators largely out of the oil market, the oil producers cartel has hit on $70 a barrel as a realistic long-term price for its product.
If wind needs a subsidy at $100 a barrel, it certainly needs one at that level.
But this is only half the story, as that CER report was far from the finished article and contains the stunning rider that it is based on "an ideal scenario where other factors such as system constraints, cost of ancillary services and network reinforcements were not considered".
Presumably that renders its conclusions meaningless as if these had been considered, then the cost of wind power would be even higher. As the authors state: "The results should be interpreted with some care as a result." You could be forgiven for taking the publication of such an incomplete report as evidence of a somewhat cavalier attitude to energy pricing and its impact on the wider economy.
It is hard to see such a slipshod approach to major strategic planning being tolerated in the private sector. But unfortunately for consumers and industry this is the reality of the regulated market, or more precisely one pre-occupied with the delivery of a green agenda.
For those who believes there is a viable alternative, things are not looking too good. Green policies, driven by the need to tackle climate change, have been adopted by almost every political hue.
Indeed, the reality now is that political opponents of the Green Party are busy stealing the agenda, out-greening the Greens on an issue which is now part of the political mainstream.
If proof of this were needed look no further than the response to the proposal, announced earlier this month by Mr Ryan and the ESB, to roll out the infrastructure to make Ireland a world leader in electric transport.
Mr Ryan had said that under a new collaboration between Government, ESB and car manufacturer Renault-Nissan, electric vehicles will be on Irish roads within two years. Mr Ryan had announced a government electric-vehicles target of 10pc by 2020 and stated that the deal with Renault-Nissan will help us not only realise, but surpass this target.
But that was not enough for the Simon Coveney-chaired Oireachtas Joint Committee on Climate Change and Energy Security. Mr Coveney said more ambitious targets are needed to foster greater use of electric vehicles and cut Ireland's transport-related carbon emissions. The electric vehicle project can and should be advanced in a more dynamic manner, the Fine Gael spokesman on energy urged.
"A fully costed strategic roadmap for Ireland to become a global research laboratory for the deployment of new battery and electric vehicle technologies should be in place within six months."
And not content with the realistic target of 10pc for sales of electric cars which has been set by Mr Ryan, the committee wants to go the whole hog, quickly.
"It is both feasible and realistic to set and meet a target whereby all new cars on sale by 2020 would be powered by electric engines, with at least 350,000 electric cars in use by 2020," Mr Coveney said. The Green agenda, it seems, knows no bounds.