posted 5 Apr 2007 in Volume 9 Issue 10

Country report: Ireland’s energy future – a beacon of hope

By Mark Varian, partner, O’Donnell Sweeney Eversheds

The Irish government published a Green Paper on Energy in 2006 and published its White Paper on Energy, ‘Delivering a Sustainable Energy Future for Ireland’, in March 2007.

Both papers caused quite a stir. Why? It was the first formal all-embracing policy statement on energy by an Irish government in over 30 years. As a political issue, energy had never gone away. In an election year, energy policy was now considered a vote winner. Ireland has one of the highest energy costs in Europe. Any help for consumers and industry would be appreciated.

However, it would be too cynical to suggest that the Green and White Papers are simply electioneering. Issues of climate change, security of supply and effective competition had been widely debated before. However, the formal policy announcements brought these issues into focus collectively.

So what does it all mean?

The three cornerstones of the policy are:

Security of supply;
Sustainability;
Competition.

With its location on the periphery of Europe, Ireland has always been a net importer of fuel. Previously this risk was not seen as significant. However, recent events in Russia, the Ukraine and Iraq have changed the risk profile. As a result, indigenous sources of energy are now being championed. The government has upped its target for renewable energy consumption from 13 per cent to 15 per cent by 2010. In the White Paper it has raised this target to 33 per cent by 2020.

Interconnection with the UK
(and perhaps, in the future, with Europe) forms part of the policy to ensure security of supply. This project had been announced previously, but again new focus has been brought to it as a result of the White Paper. Eirgrid has also been asked to review the physical infrastructure of the national electricity-transmission network and ensure its “physical development with a 20-year horizon”. In the National Development Plan, substantial funds are earmarked for this development.

To increase competition the Electricity Supply Board (ESB) will be asked to divest itself of 20 per cent of its assets – in effect to competitors. Along with Eirgrid, it is also to identify sites for future power stations that would be built and operated by the private sector. The White Paper also states that it will actively encourage Bord Gais and Bord na Mona, two semi-state companies, to enter the power-generation business.

Finally, officially established in July 2006, Eirgrid will be transferred the ownership of the national grid transmission network. It is currently only the ‘operator’ of this network.

So what are the issues?

Opportunities for all, it would appear. However, opportunities of this scale don’t come without their issues. Currently, the ESB, a semi-state company, owns the national grid transmission network. It also generates over 80 per cent of the power consumed in Ireland. This is clearly a dominant position, and one, perceived or otherwise, so that could stymie competition.

The ESB unions have already come out strongly in opposition to the transfer of ownership of the national grid transmission network to Eirgrid, another semi-state body. The government’s stated policy is for the transmission-grid network to remain in government ownership. Some would ask what all the fuss is about. It is hardly privatisation. Perhaps the unions see this transfer of ownership as the thin end of the wedge given the stated divestment programme. Furthermore, ESB management does not favour such a transfer of ownership. Turkeys, as we know, don’t vote for Christmas!

In an election year, will the Government have the political will to take on the unions? Probably not. Can security of supply and competition be achieved without full implementation of the Government’s White Paper? Probably not.

For example, other than buying wind turbines in a sellers’ market, the biggest obstacle to constructing a wind farm is obtaining grid connection from the ESB. Substantial delays have been experienced by numerous developers. Furthermore, the cost of connection has increased substantially, without the developers being satisfied as to the transparency of those costs. It’s hard for developers to take a benign view of this when the dominant player in the Irish power-generation market is also the person who connects them to the national grid.

In this case perception is everything. Would developers get a better deal from Eirgrid? They can’t be sure, but lack of cost transparency means they are certainly willing to believe they will.

The elephant in the corner

Nuclear energy has long been a political issue. No political party in Ireland advocates its development. This appears to be irrational.

Logic would tend to dictate that if lower energy costs are to be achieved, nuclear energy should be included in the fuel mix. However, the Government’s White Paper merely confirms the already stated position that the statutory ban on nuclear energy should remain. It seems that nuclear is ‘off the table’ for now.

Opportunities abound

The all-Ireland electricity market (the ‘SEM’) goes live in November 2007. Government policy on renewable energy has led to a significant increase in the development of wind farms.
Now the Government is seeking to replicate this development in other renewable technologies. Equally, the Government is encouraging other semi-state companies to enter the energy-generation business. Greater interconnection with the UK and Europe will also lead to more opportunities for suppliers and consumers alike.

Until the dominant position of the ESB is tackled, however, a fully liberalised market and effective competition is some way off. The entry of other state-owned companies can hardly solve this problem.

Conclusion

It’s a very exciting time to be involved in the Irish energy market. Opportunities abound, but impediments to implementation are obvious. The White Paper goes a long way to bringing focus to these opportunities and impediments and should therefore be welcomed. However, effective competition will be difficult to achieve without implementing the proposed ESB-divestment programme. The White Paper looks forward from 2007 to 2020. However, there is an election in three months time. Much hinges on the make up of the next Irish Government.