Favourable wind behind green energy

Support for renewable energy is unlikely to be undermined by a change of government, writes BARRY O'HALLORAN

COMPETITION IN the energy market stepped up a gear this year with Airtricity’s entry to the domestic electricity and gas markets, in competition with the ESB and An Bord Gáis; but it was an awkward twist in State policy that got all the attention in the middle of the year.

During the summer, the Commission for Energy Regulation announced that the public service obligation would total €157 million for the 12 months from October 2010.

The move added €5.46 to every household bill, irrespective of supplier, but left businesses and employers carrying the bulk of the charge. They were to be compensated by a windfall charge on power generators that did not benefit from the public service charge.

The row over the levy highlighted a contradiction in Government energy policy. About €40 million of the money will go to pay for supports for renewable energy, mainly wind power, while more than €70 million will go to keep peat-burning plants going.

While it was mistakenly dubbed the “green levy”, about half the money was going to support plants that produce quantities of greenhouse gas. Just over one quarter was going to supposedly environmentally correct wind power.

Wind farm developers say they need the support, which guarantees a minimum price for the electricity they generate, in order to raise the cash needed to develop their facilities, a fact that the banks that lend to the sector will confirm.

The official line was that it was needed to cut our dependence on imported fossil fuels for power generation.

Electricity prices track gas prices and, as gas prices fell between 2009 and 2010, electricity prices dropped below the level needed to support wind and peat. Therefore the levy, which had been dropped when hydrocarbon prices rose between 2007 and 2008, was reintroduced.

There is little likelihood of a fall in renewable energy supports, as Government policy is to encourage its further development, even to a point that may not be physically possible.

The Republic aims to have 40 per cent of its electricity generated from renewables by 2020. In our case, this means wind.

As wind speeds are suitable for power generation only about 30 per cent of the time, achieving the target means that, when speeds are suitable, between 70 per cent and 80 per cent of the electricity being used in the Republic will come from wind power.

Were this to happen, it would be a first. Eirgrid, the State company that operates the national electricity grid, produced a report this year showing that it was theoretically possible, but doubts persist, even within the wind industry, that it can be done.

It would also mean that consumers and businesses could face future increases in the public service levy, because the assumption is that gas prices will rise over the next decade.

The target exceeds the level the EU requires the Republic to meet, which in turn is tied to international agreements such as Kyoto. There is no clear logic behind either the Republic’s target or that laid down by the EU.

Richard Tol, an economist with the Economic and Social Research Institute (ESRI) who specialises in energy and the environment, points out that targets are set by politicians and are as much about giving them the opportunity to say that they are taking action on climate change as they are about tackling the problem.

Tol says that there are already signs that the bigger EU economies, such as Germany, may have difficulty meeting their targets. Given such a situation, says Tol, the EU may quietly abandon its renewable energy targets.

Separate from renewable energy, the Republic also has to meet targets for greenhouse gas reduction. The ESRI believes that it will get close to meeting them in 2012, largely because of the recession, but will have trouble attaining the 2020 target, which would require a fall of about 20 million tonnes a year. Emissions are currently more than 60 million tonnes a year.

Against this background, it emerged that many households have far more immediate problems than meeting politically determined greenhouse gas targets. The ESB, An Bord Gáis and Airtricity have confirmed that they are cutting off customers for not paying their bills. It is a consequence of what John Mullins, Bord Gáis chief executive, describes as a middle-class recession.

All of the companies say that they encourage people who are having problems meeting their payments to come to them to see if there is a way of resolving the problems without recourse to cutting off supply.

The Commission for Energy Regulation (CER) still sets the prices charged to consumers and small business by the ESB for electricity and by An Bord Gáis for gas. Both it and Airtricity are competing in the dual-fuel market, that is, supplying both electricity and gas. The ESB announced recently that it intended entering the consumer market for gas in 2011, something that was widely expected. It also announced plans to rebrand itself as Electric Ireland.

The next milestone will be the deregulation of the consumer market which, it is now thought, will also happen in 2011. As the regulated prices for both gas and electricity set the benchmark for the market as a whole, it will be interesting to see if deregulation prompts further falls in costs for households.

Both the ESB and An Bord Gáis have ambitious investment and development plans, particularly in areas such as renewable energy, and they are likely to continue pushing ahead with them over the next year.

Going into 2011, there are a few other questions to be answered. It is now likely that by the end of the year, the State will have made clear which, if any, of its energy companies it intends to sell.

For the time being at least, it is also likely that the push to get more wind power on the Irish system will continue.

The opinion polls indicate that there will be a change of government, which is likely to mean that the current Minister for Communications, Energy and Natural Resources, Eamon Ryan, will be replaced.

As things stand, the two main opposition parties also seem to believe that more wind-generated power is a good thing, so assuming that the polls are correct and that Mr Ryan’s stint as Minister will end with the current Dáil, there is unlikely to be any major change to this policy.

This year Energy highlights

MAY

Airtricity enters the household electricity and gas markets in competition with both the ESB and An Bord Gáis.

JULY

A mistake in the planning permission request forces Eirgrid, the national grid operator, to withdraw its application for a North-South interconnector in the middle of a long, drawn-out public hearing.

AUGUST

The Commission for Energy Regulation announces that the public service levy will result in households paying an extra €5.46 on their bills. It emerges that business will pay the bulk of the €157 million that the levy is intended to rise.

SEPTEMBER

An Bord Gáis begins commissioning its first gas-fired electricity plant in Whitegate, Co Cork.

DECEMBER

A Government-commissioned report suggests that the State does not need to split the ESB and transfer ownership of the national grid to its manager, Eirgrid. The ESB announces that it plans to begin supplying gas to consumers next year and says it will be rebranded as Electric Ireland.