A powerful plan

ESB's €22bn strategy aims to cut emissions, develop renewables and expand its overseas operations, writes BARRY O'HALLORAN.

FIVE-YEAR plans are not really the thing in the energy industry. The nature of the business, which needs big investments in big projects, means that the sector plans for decades rather than years.

So in that context, the ESB's new strategy, which will cost it €22 billion over a 15-year time span, looks like the State electricity supplier plans to move very quickly indeed.

Its chief executive, Padraig McManus, says that it is "an aggressive plan", but he argues that the ESB has always responded rapidly to changing market demands. Competition and global warming may be new issues, but this is no different.

The strategy is built around key elements, cutting greenhouse gas emissions, increasing the contribution of renewable energy, redeveloping the company's network, and looking to the international market for expansion.

The last element should come as no surprise. Regulations bar it from getting any bigger in the Republic. But its immediate international strategy is based around developments in Ireland. Under an EU plan, the Irish and British markets will be one by 2020. At least two large capacity power lines - interconnectors - linking the two islands will facilitate this.

"What we want to do is to have generating capacity at both sides of those interconnectors," McManus says. As they will allow power to flow in both directions, some of the electricity that the ESB produces in Britain could end up in Ireland.

However, its expansion is not geared at selling power into the Irish market. McManus sees Britain as a natural starting point. Through ESB International (ESBI), the company co-owns a power plant in Corby in the east midlands. In partnership with Scottish and Southern Energy (SSE) it is building a generating station in Southampton.

From Britain, McManus says that the ESB will move into the rest of Europe. It's already there to a certain extent as it has one project in Bilbao in Spain, and is working on getting permits for a second in Asturias. It is setting €4 billion aside for its international ventures. ESBI, which runs these and which has contracts as far away as the Middle East, will be in the driving seat.

Gas-fired plants will loom large in its international portfolio, but at home, the ESB will go down the renewable route. In fact, McManus says that the €400 million plant it is building in Aghada in Cork harbour, could be the last conventional power station that the company will build in Ireland.

By 2020, the ESB intends that one-third of all its electricity will come from renewable sources. That will be mainly made up of wind, backed up by open-cycle gas plants which will kick in when the wind is not blowing.

Overall, it is planning to install 1,400 megawatts (MW) of wind power, which it predicts will cost it €4 billion. It will spend €6.5 billion on facilitating renewable power, some of this will be spent on the networks, some will go on metering and other structures designed to facilitate this. The company intends spending a total of €11 billion on its networks. This will underpin its own renewable commitment, but will also aid competitors, as the investment will allow the Irish system to carry a total of 6,000 MW - just over current peak demand in the Republic - in wind power.

All this effort is in the name of eliminating greenhouse gas emissions. The ESB produces 15 million tonnes of carbon. McManus says its aims to cut this to "net zero" by 2035. This does not mean it will cut it out altogether.

He estimates that it will still produce around two million tonnes, which it will have to "offset" by trading carbon permits on the international market.

Getting to this stage will be no small task. "If we were to continue on a normal growth pattern, we'd be looking at producing up to 30 million tonnes by 2035," McManus says.

Under the deadlines that it has set out for itself, the ESB will have cut 30 per cent of its emissions by 2012, and half by 2020. "Everybody accepts that climate change is a reality and that we have to do something about it," McManus says.

He adds that carbon emissions are central to tackling the problem and points out that if utilities fail to do something, they will get "hammered" as regulations and financial penalties get tougher.

Wave and tidal power will also play a role. However, they are infant technologies. The ESB has installed the first system in the world for producing tide-generated electricity on a commercial basis in Strangford Lough. It's early days, but McManus believes that the technology will advance. He points out that wind power developed very quickly once it got momentum. Individual offshore turbines now produce up to 5MW, 10 times the power that the original units could generate.

As always, the ESB will pay for this by combining its own resources with borrowing. Its debt stands at €2.5 billion, some of it owed to international banks. This will increase by about 10 per cent a year.

The ESB is worth about €6 billion, but it could lose its national grid to another State agency, Eirgrid, in the future.

McManus agrees that this would have ramifications for its ability to borrow cheaply.