Answer to our energy needs blowing in the wind

 

ANALYSIS:Electricity prices could be reduced by extensive wind generation.

IN IRELAND, substantial reductions in greenhouse gas emissions from electricity generation can be achieved at little cost to consumers if the correct policies are pursued. Developed countries are pushing for action against global warming and most scholars agree that decreasing greenhouse gas emissions will be costly. For EU countries, and Ireland in particular, the action will have to involve a change in how electricity is generated, moving away from carbon-intensive generation towards a more widespread use of renewable sources.

In countries such as Germany and the UK, the deployment of renewable energy will increase consumers’ electricity bills significantly over the coming decade.

The Government’s objective is to raise the proportion of electricity generated from renewable sources to 40 per cent.

Our research, published today, shows that if oil prices were to remain low to 2020, achieving this target would impose some additional cost on consumers in Ireland. However, for high oil prices, or even those in the mid-range of international forecasts, Irish electricity prices could be reduced by extensive wind generation. Thus investment in renewables provides a valuable insurance policy against the risk of future high oil (or carbon) prices as well as achieving a significant reduction in emissions.

This relatively favourable scenario is conditional on a number important measures being implemented by policymakers.

First, there will need to be greatly enhanced interconnection between the Irish and British electricity systems (and possibly also with that of France). The interconnection between Ireland and Britain will be doubled by 2012 by new investment by EirGrid. However, it will need to be further increased by 2020 if new wind investment is not to prove a costly waste. The only case where Irish consumers would lose from more interconnection arises if Britain has difficulties replacing its closing nuclear and coal plants and turns to gas plants, which are cheaper and easier to build. While Irish consumers would lose in that scenario, Irish generators would increase their profits.

Second, following from this, rules need to be established to protect consumers north and south of the Border from potential policy failures in Britain since it is consumers who are ultimately paying for the increased interconnection.

Third, there will also need to be substantial additional investment in new transmission wires onshore in Ireland. Failure to deliver on this could result in Ireland facing an expensive failure in climate policy.

Finally, the current support mechanism for renewables needs some adjustment. Our research suggests that, while the scheme to support wind generators by guaranteeing them a minimum electricity price is broadly appropriate, the level of this guaranteed price is probably a bit too generous.

Nonetheless, in 2008, wind generators received an adequate return at little cost to consumers. The price guarantee scheme, appropriately adjusted, is probably the best way of ensuring the investment in wind generation takes place at minimum cost to consumers.

However, the guaranteed price scheme extends to other renewable generators in ways likely to impose substantial unnecessary long-term costs on consumers. The current policy provides a similar type of incentive scheme for offshore wind generators (and tidal and wave generators) and offers offshore wind at a minimum price more than twice that of on-shore wind generators. This could be very expensive if the scheme is successful, without improving the environmental outlook.

Our research suggests all the renewable electricity the Irish system could absorb can be provided more cheaply by land windmills.

If this cheap source is displaced by heavily subsidised renewable generation offshore, there will be no reduction in emissions but consumers will pay a higher price.

If it is desired to finance research in offshore technology, this should be done by explicit funding from the taxpayer, not the consumer.

As with all funding for research, the allocation of resources should be considered in the light of the full range of other areas competing for funding.


John FitzGerald is research professor with the Economic and Social Research Institute and is responsible for research on macroeconomics, energy and environment and for the institute’s Energy Policy Research Centre.

Laura Malaguzzi Valeri is an ESRI economist and works with the Energy Policy and Research Centre