OPINION:We must diversify our energy mix so we are not overly exposed to rising oil and gas prices, writes ELEANOR DENNY
WHILE PUBLIC debate rages about bailouts, interest rate cuts and contagion, a more subtle threat to Ireland’s economic sustainability looms on the horizon. Faced with rising oil and gas prices, will we be able to keep the lights and heating on and our vehicles running in the years to come?
As one of the key inputs to economic activity – security of energy supply – should be a key concern for policymakers. Interruptions in supply, even for short periods, can have very serious economic consequences and the impact of rising prices is a constant threat to standards of living and international competitiveness.
To enhance security of energy supplies, policymakers need to ensure three main elements are in place. First, physical infrastructure must be installed to allow delivery of energy to the end-user. Second, we must diversify the fuels we use so we’re not overly exposed should there be an interruption in the supply of one fuel. Third, we must reduce our reliance on imported fuels.
Achieving security of energy supply requires integrated infrastructure planning. Unfortunately this has been an area of weakness for Ireland. Compared with other EU countries, Ireland has a historical trend of low-density housing resulting in urban sprawl around major cities and large numbers of one-off housing in rural areas. In 2009, just 3 per cent of Ireland’s population lived in apartments, which is the lowest in the EU27, where the average is 42 per cent. This planning legacy has dramatic knock-on implications for energy usage in all sectors.
The most obvious implication is for the transport sector; when people live closer to their workplace, commuting distances are lower and a transport system can be optimised to meet the needs of the population more efficiently. In the electricity sector, our dispersed population has led to Ireland having four times the EU average length of power lines per customer. While unsightly and more costly to construct, longer lines also have the disadvantage that more energy is lost in transmission.
A history of poor spatial planning decisions also has consequences for the development of new power stations and renewable projects, with the selection of sites and the routing of power lines more challenging when houses are distributed widely outside towns and villages. In the heating sector, our distributed housing impacts on the availability of mainline gas, one of the most efficient fuels for domestic use, and also reduces the potential for district heating.
After infrastructure, the second pillar of energy security is energy diversity. Ireland’s dominant fuel source is oil, accounting for around 55 per cent of total energy use.
This demand is primarily driven by the transport sector, where 99 per cent of fuels are oil based. Natural gas is increasing in importance (currently meeting 27 per cent of energy demand), mainly driven by its usage in electricity generation and domestic heating.
As diversity of fuel supply goes, Ireland is not doing well with 82 per cent of supplies from just two sources, oil and gas. Twinned with the challenge of diversity of fuel supplies is our reliance on imported fuels. When a country can produce energy locally it can reduce its energy costs and protect against interruptions in supply. It also saves on important foreign exchange outlays.
Oil and gas are by far the most dominant energy sources in Ireland of which almost 100 per cent and 92 per cent respectively are imported. Thus, Ireland is very heavily exposed to international oil and gas price fluctuations (gas being the predominant fuel used to produce electricity in Ireland).
To protect itself from fluctuating prices, Ireland needs to diversify further its energy mix away from imported oil, particularly in the transport and heating sectors, and from imported gas in the electricity sector. This also highlights the importance of the Corrib gas development and planned electrical interconnection to Britain.
One way of achieving a reduced reliance on imported fuels (as well as for environmental and sustainability reasons), is through an increase in indigenous renewable energy. With this in mind, the Irish Government has set an ambitious target of achieving 40 per cent of electricity from renewable sources (predominantly wind generation) by 2020, exceeding the targets of any other country worldwide.
Touted by some as the panacea to our energy problems, nuclear energy would also diversify fuel supplies (albeit not the import dependency issue) but it would also create significant infrastructural challenges. The majority of nuclear power stations are large at over 1,000 MW. A power station of this size would represent over 22 per cent of Ireland’s peak electricity demand in 2010.
This would require a dramatic upgrade of our existing electricity network and a large increase in required back-up capacity. An intermediate nuclear waste storage facility would also be required.
With a large and growing wind penetration what Ireland needs are flexible power stations to accommodate the variable wind output, ie power stations which can increase their output when renewable generation is low and decrease output when renewable generation is high. Nuclear power stations are not flexible in their operation and thus are not complementary to renewable generation.
Thus, Ireland can either pursue nuclear or renewable sources of energy, but probably not both.
In all cases a reduction in energy demand is the cheapest and most sustainable solution to our future energy challenges when compared with the supply alternatives. To ensure security into the future Ireland will have to develop indigenous energy supplies, be they renewable or fossil fuel, and increase electrical interconnection to Britain and mainland Europe.
Ireland’s legacy of ribbon development has greatly increased the challenge of infrastructural development, however, to ensure our security of energy supply it is an unfortunate truth that it will be necessary for the public to swallow some bitter infrastructural pills into the future.
Eleanor Denny is professor of economics at Trinity College Dublin