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Tithe an Oireachtais An Comhchoiste um Chumarsáid, Muir agus Acmhainní Nádúrtha An Seachtú Tuarascáil Athbhreithniú ar Fhuinneamh Meitheamh 2006 Houses of the Oireachtas Joint Committee on Communications, Marine and Natural Resources Seventh Report Review of Energy June 2006 CONTENTSChairman’s Preface Acknowledgements Executive Summary Summary of Recommendations SECTION 1. Chapter 1 Introduction Chapter 2 Security of Energy Supply Chapter 3 Sustainable Energy Chapter 4 Energy Market and Competitiveness SECTION 2. Chapter 5 Society and Community Chapter 6 Consumers Chapter 7 Government Chapter 8 Producers and Suppliers Chapter 9 Regulation Chapter 10 Research and Development Chapter 11 Europe Appendices Appendix I Orders of Reference of the Joint Committee Appendix II List of Members of the Joint Committee Appendix III Glossary of terms Note: The transcripts of the hearings and copies of the presentations made to the Joint Committee are available on the Oireachtas web site. Chairman’s PrefaceI am pleased that the Joint Committee has adopted this report on energy. This report ranks with the Joint Committee’s two reports on Broadband as being a seminal report that identifies issues and charts a road-map for the policy initiatives that are required to address the issues. As the Irish economy develops one of the principal critical requirements is access to affordable and dependable supplies of energy. If Ireland is to meet the challenges of the future then it is essential that a co-ordinated energy policy be put in place as a matter of national importance. Ireland has a very heavy dependence on imported fossil fuels. The reality is that the transport sector is the largest energy consuming sector, is increasing at the fastest rate and is almost totally dependent on imported liquid fossil fuels. There is validity in the argument that it will be easier to reduce demand rather than increase supply. I recall that Mr. Bernard Rice from Teagasc told the Joint Committee that “it should be possible to get 5,000 miles per acre of rapeseed, roughly 100 gallons at 50 miles to the gallon”. Therefore, in terms of using biofuels it will take upwards of two acres per car for every car in Ireland to continue to drive 10,000 miles per annum – the normal average. Accordingly, using land to grow biofuels so as to continue to give every Irish motorist that 10,000 mile driving per annum experience will take up to a very large part of the stock of arable land in Ireland. This must be a wake-up call and it clearly shows that Ireland needs policies to address the changes that the future will bring. During the second stage debate on the Energy (Miscellaneous Provisions) Bill 2006 I made reference to the appearance before the Joint Committee of EU Energy Commissioner Piebalgs. I set out in my contribution how the Commissioner identified the six main issues facing Europe, namely, fully competitive energy markets in Europe, security of supply, energy mix, a climate change goal, technology and external energy policy. I made the point then and I make again - if these are the concerns of Europe, then they must be the concerns of Ireland. The Energy (Miscellaneous Provisions) Bill 2006 makes a start on some of these issues, but it is only a start. The principal problem is the lack of a coherent, strategic national energy policy. the Energy (Miscellaneous Provisions) Bill 2006 moves to facilitate full gas market opening, seeks to underpin the all-island energy market, grants power to the Minister to provide for the taking of emergency measures by ministerial order in the event of a sudden crisis in the energy market in addition to conferring on the Minister the power to issue policy directions to the CER and finally seeks to expand the functions of the CER allied to the removal of the legislative constraints so as to facilitate regulated electricity interconnection not owned by the ESB. However, these, while important, are only operating on the periphery and are symptomatic of a piecemeal approach to policy. If there is one thing to be learnt from the work that has gone into the publishing of this report it is that Ireland not alone needs, but deserves, an energy policy that deals effectively with responsibilities that cross several Departments. This report with its 38 recommendations is an analysis of the issues that face Ireland and a road-map to the development of an energy policy. Energy policy is critical to the Irish Economy and I hope that the Government will bring forward a Green Paper to start the debate and that this leads to White Paper that will detail the policies to be pursued. Energy has become the one area where I truly understand that you get only one opportunity to make a first impression. Taking this point on, it is vital that the Government, in the context of the next National Development Plan (NDP) put the emphasis on energy and support the strategic, structural, infrastructural and R&D requirements. Nothing illustrates the lack of cohesiveness that exists in policy determination when you understand that under the current NDP energy infrastructure received €140 million compared to road infrastructure which received €6,000 million. I would like on behalf of the Joint Committee to pay a special thanks to staff of the Houses of the Oireachtas, the staff in the Office of the Editor of Debates, the staff in the Broadcasting Unit, the sound engineers, the Superintendent, Captain of the Guard and the Ushers, the Director of Committees, Mr. Art O’Leary, the Deputy Director Mr. Padraic Donlon, the Clerk to the Committee, Mr. Ronan Lenihan and all the staff of the Committee Secretariat in particular Mr. David Alwright and Ms. Siobhan Murtagh for all their hard work and assistance to the Members in bringing this report to finality. In conclusion, special thanks to Mr. Pat Bell, Mr. Jim O’Malley and Mr. Eugene O’Malley of ENTRAC – Energy Transport Actions, the energy consultancy engaged by the Joint Committee for the work, effort and expertise they put into this assignment and for the invaluable advice and guidance they provided to the members of the Joint Committee. Noel O’Flynn T.D. Chairman of the Joint Committee on Communications, Marine and Natural Resources June, 2006 AcknowledgementsThe Joint Committee wishes to place on record its sincere thanks to the following who advised, made suggestions, presentations, submissions and gave evidence to the Joint Committee, either orally or in writing. Without these efforts this report could not have been written.
Executive SummaryThe Joint Committee, over 18 days of hearings engaged in a very wide ranging debate with the key players in the Irish energy scene. Further, the Joint Committee heard from an International Energy Economist, an UK Energy Consultant, a Member of Danish Parliament and the EU Energy Commissioner. Energy is a major key driver for the Irish economy. However, Ireland with a very high dependence on imported fossil based fuels is more exposed to the dual threats of price increases and supply disruption than any other country in Europe. The alarm bells are ringing and action to develop policies that deliver sustainability and ensure economic growth are an immediate national imperative. Having engaged in such a wide ranging debate, the Joint Committee reached a number of conclusions that have been developed into 38 recommendations with indications as to whether their timescale is short term (2010-2012), medium term (2020) or long term (2050). This, therefore, is a most comprehensive, open and transparent parliamentary review of Irish energy requirements and policy needs. Over time it became apparent to the Joint Committee that there were three main threads or themes, which the debate touched on. The Joint Committee have decided, in this Section of the report to group the recommendations made under the themes as follows:- Security of Energy Supply, Sustainable Energy Energy Market and Competitiveness. ‘Introduction’Ireland has a very high dependence on imported fossil based fuels. It is estimated that nearly 95% of all the energy consumed in Ireland is fossil fuel based and with the exception of the dwindling resource that is the Kinsale gas field this has to be imported. This places Ireland in a potentially invidious position. There is no cast iron guarantee on supply and the economy is open to price volatility. There are other dangers for Ireland – a very high dependency on imported fossil based fuel sources is compounded by the amount of electricity that is generated from gas, oil and coal. Ireland now uses gas to generate over 50% of all its electricity. Security of supply is, therefore, of major national importance, the more so the longer it takes to get the Corrib gas field into production. Part of the security of supply is sustainable energy and market competitiveness in the energy market. There are major issues that need to be addressed and while the Joint Committee identified that Security of Energy Supply, Sustainable Energy and Energy Market and Competitiveness were three themes that emerged from the 18 days of hearings it is true to say that the three issues are interlinked and any policy response by Government must be thought out and not isolated. The Joint Committee would make the general observation that an ‘isolationist’ policy approach would seems to be the normal policy response of the Department and this is bourn out by the surfeit of legislation which the Department has had to being to the Dáil in an effort to fix problems with legislation previously proposed. The Government has to take policy action and the Joint Committee recommends that this action is taken as a matter of gravest urgency. ‘Security of Supply’Ireland is very dependent on imported oil and natural gas. The Joint Committee has examined how to avoid supply shortage; these include the broadening of the existing fossil fuel portfolio and substituting imports with indigenous energy sources. The Joint Committee has concerns about the strategic issues of fuel reserves and the control of both the electricity and gas networks. Natural gas supply was identified as being potentially vulnerable which has major consequences for Ireland as gas constitutes a significant part of the overall energy supply and electricity generation is highly dependent on gas as a fuel source. Natural Gas There is no stored natural gas in Ireland. Indigenous gas supplies comprise the depleting Kinsale gas field with the Corrib gas pipeline yet to be built. Recent supply difficulties with Russian sourced gas highlighted the critical nature of this situation. The Joint Committee considers that LNG could fulfil the triple function of providing gas storage, a diversified source of natural gas supply and independence of gas sourced only by pipeline. The Corrib gas field, currently subject to construction delay, will be able to supply a large segment of the indigenous gas market in the short term; “30% of a peak day” was the estimate of the CEO of BGE. The Joint Committee considers it vital that this gas supply be brought on-stream without further delay and in a safe manner. The Corrib gas pipeline is identified as an opportunity to extend the gas supply to the previously unserviced area of the West, Northwest and the Midlands. The Joint Committee recommends that such supply be made available. The Joint Committee considers that the natural gas network is a strategic national asset. In the light of the recent experience of privatisation of the telecommunications infrastructure the Joint Committee deems it essential that the gas network remains in public ownership. Electricity Deregulation of the electricity industry required that control of the transmission network be taken from the ESB and vested in the independent entity, EirGrid. That transfer has yet to happen in full. The Joint Committee considers it imperative that the transfer be finalised as a matter of urgency. The condition of the electricity transmission and distribution network is acknowledged to have deteriorated due to lack of investment in recent years. Investment in interconnection with Britain and Northern Ireland is also required. The Joint Committee recommends that this investment in infrastructure be prioritised. Further, it considers it essential that the electricity network remains in public ownership. In order to facilitate more electricity generation from renewable sources reinforcement of the electricity grid is required to accommodate wind energy, in particular. It is necessary to have in place adequate fast-response central power generation plant as back-up. The Joint Committee recommends that greater emphasis be put on these issues. Other sources Clean coal technology was identified as offering particular potential for diversifying fossil fuel sources. The Joint Committee also recommends that a debate on nuclear generated electricity should be entered into by the Oireachtas. The Joint Committee makes 11 recommendations under the theme of ‘Security of Supply’ as detailed in the summary of recommendations. ‘Sustainable Energy’The Kyoto Protocol, under the auspices of the United Nations Framework Convention on Climate Change, was agreed in 1997 and entered into force in February 2005. Under this Protocol the EU has committed to reduce annual greenhouse gas emissions to 8% below the 1990 levels. A burden sharing agreement was negotiated and agreed between Member States in 2002. For Ireland, the aim is to achieve an emissions target of 13% above the 1990 base year figures during the Kyoto commitment period of 2008-12. The Joint Committee notes with regret that Ireland is currently approximately 12% in excess of its Kyoto Protocol target for greenhouse gas emissions as Ireland is currently 25% above the 1990 level. Decisions taken in regard to energy policy and how the energy sector develops over the coming years will affect Ireland’s ability to meet its Kyoto targets and will have long-term implications for Ireland’s ability to address future climate change commitments Renewable Energy The Joint Committee is of the opinion that policies and targets for renewable energy should not be set just to achieve minimum EU requirements. Ireland has the best wind resource in Europe and should be taking advantage of that, just as Greece and Spain take advantage of their photovoltaic resource and the Scandinavian countries take advantage of their hydro-electricity resource. The Joint Committee is disappointed that there has been no capture of jobs and not a single manufacturing plant in Ireland dedicated to wind energy. In the longer term ocean energy can become a significant contributor with bioenergy making a significant contribution to heat and transport needs. Ireland has one of the highest wave energy levels in the world and our whole coastline could theoretically provide approximately twice what we currently use in electricity. Wave energy also offers significant industrial potential in developing technologies which will be exportable as the world market grows and Ireland could develop a wave energy industry, similar to the way in which the Danish have developed a wind industry that did not exist a generation ago. In this context, the Joint Committee supports further investment on research into the development and integration of all renewable energy sources. Two figures are usually quoted for renewables, one relates to their contribution to electricity supply and the other to total primary energy requirement. The renewable energy share of gross electricity consumption was 5.2% in 2004 and, for the first time, the amount of electricity generated by wind exceeded that from hydro. The 2010 target of 13.2% electricity from renewables is equivalent to approximately 1,100 MW of wind energy. The Joint Committee was informed by the CER that we will have exceeded this target by 2007 or 2008. The Joint Committee wants to look beyond the minimum target of 13.2% electricity from renewables and set a target of 21% by 2010 and at least 50% by 2050. A key element in achieving these targets will be the establishment of a grid infrastructure which will accept a penetration of renewables of at least 50% and allow Ireland to export electricity generated by wind. The contribution of renewable energy to Ireland’s total primary energy requirement has been hovering around 2% since 1990. The largest component of this is biomass burnt in the board manufacturing industry. The Joint Committee wants to set a target of 20% of total primary energy requirement by 2020 and at least 50% by 2050. These are ambitious and visionary targets as the Joint Committee believes that we should maximise our exploitation of our indigenous natural resources as against importing expensive fossil fuels that damaging the environment.. Renewable energy sources constitute a potential replacement for vulnerable fossil fuel imports which are more certainly the subject of continuing price increases. Therefore, renewable and sustainable energy sources are most important. The following, by way of introduction, are the essential elements:- Wind Wind energy is already a well established component of the national electricity generation programme. There is a limit to the size of the fraction of total electricity that wind can contribute. The size of this contribution is a matter of continuing debate, for instance Denmark produces 20% of its electricity from wind and this percentage is planned to increase in the coming years. Biomass Biomass (a sustainable resource) has the potential to replace peat (a finite resource) to generate electricity. It also is capable of replacing fossil fuels for heating. The modern forms of biomass, such as pelletised fuels are growing in competitiveness and they are also becoming more widely available. At current prices and delivered in bulk to suitable consumers, they are highly competitive. Biomass is part of. but not the entire solution. Biomass can be described as a high volume low-energy product in that a lot of Biomass is needed to produce the required energy output. However, It is a useful part of the solution and will play a major role in the development of renewable energies into the future. Biofuels Biofuels including Biogas offer a new and alternative fuel source. Liquid biofuels are an important element of the emerging market for energy from crops, trees and waste products. In this regard the Joint Committee notes that Cork City Council has initiated some relevant projects on biofuels. In 2002 the City Council committed itself to run 5% of their transport fleet on alternative fuels. This involved 17 vehicles which run on rapeseed oil. The significant point about Biofuels and Biogas is that Irish agriculture has the capacity to maintain land utilisation by the production of liquid biofuels/biogas derived from oilseed rape, sugar beet and other crops including agricultural by-products such as tallow. This type of enterprise has benefits outside of substitution of vulnerable fossil fuel imports in that it can provide for a cleaner environment and for job creation in the rural/agricultural sector. Wave Energy Wave energy is being researched at the hydraulics and maritime research centre within UCC. Wave energy has an advantage over wind in that wave energy is more predictable. Ireland is well situated for wave power, however, there is a limiting factor caused by Ireland’s grid configuration (transmission and distribution). The grid is at its weakest where the resource is at its greatest. Therefore, the wave power industry requires special treatment to get it started and derive the benefit of developing a new industry. The Joint Committee would suggest measures such as generous payments per unit of electricity delivered together with an up-front capital grant. The medium-term potential for wave power in Ireland is 2.5 terawatts or 10% of our present requirements. By leading the development of wave energy technology Ireland could benefit in the way the Danish benefited from wind technology. Transport and Energy The Joint Committee notes that current biofuel output in Ireland is equivalent to only 0.1% substitution compared to the EU target of 2% required by 2005. Biodiesel can be produced not only from rapeseed oil but also from recovered vegetable oils collected from the catering industry as well as beef tallow from the rendering industry. The advice to the Joint Committee is that there is no reason a fleet could not be run on a 5% mix of biodiesel and ordinary diesel, with no need for modification of engines and without compromising warranties, as long as the biodiesel was produced to EU standards. The Joint Committee considers that biodiesel and vegetable oil need full excise relief to be economically competitive. On the basis of Teagasc data, to achieve a 2% bioethanol substitution would require approximately 30,000 hectares of sugar beet or approximately 40,000 hectares of wheat to be grown. At a reasonable scale, the Joint Committee is advised that such processing would be just about viable and it is in this context that it recommends that the possibility of providing state assistance to encourage the conversion of the Mallow sugar factory to bioethanol production should be investigated. The Joint Committee notes that the transport sector is the largest energy consuming sector, is increasing at the fastest rate and is almost totally dependent on liquid imported fuel. Emissions from transport have grown by 132% since 1990. The Joint Committee supports public transport initiatives which bring about a shift away from commuting by car. The Joint Committee also recommends that vehicle registration tax (VRT) and motor tax be biased more radically in favour of energy efficient vehicles at no net cost to the State. The Joint Committee notes that Government Departments other than the Department of Communications, Marine and Natural Resources have responsibility for this sector and there is a need to co-ordinate action with these other Departments. Energy Efficiency The Energy Performance of Buildings Directive will make energy a visible factor, in the process of property purchase and rental of both new and existing stock affecting over 100,000 transactions per annum, through what is essentially an energy labeling system for buildings. The Joint Committee recommends that its implementation proceed with urgency in an effective and cost effective way across the Irish construction and property sector. A vast amount of energy is lost to the atmosphere in power generation. In 2004 this constituted some 60% and the Joint Committee wants to see some of this waste heat put to good use as it is in other countries. In this regard the Joint Committee recommends, in the context of the next National Development Plan, support incentives for the development of district heating and CHP (combined heat and power) systems. The Joint Committee considers that the public sector should take the lead relating to all sustainable energy initiatives and that 20% energy savings in public buildings is a readily achievable target. The Joint Committee considers that a lot more needs to be done than at present and that energy efficiency should be applied as a criterion in assessing competitive tenders for public contracts. The reality has to be that it is easier to reduce demand than it is to increase supply Consumers need better attention paid to them, not the ever more complex data and discussions into which they have no effective input or cannot understand. Consumers are aware. However, consumers need to be shown how to get involved and be provided with incentives, both real and monetary, to do so. Consumers also suffer from a lack of transparency; what is happening on the regulatory side is not working for the consumer due to the lack of interaction and the inability, of the consumer, to contribute in a focused and organised manner. The Joint Committee therefore recommends the establishment of an Energy Consumer Users Body which must be consulted by all Government bodies and NGO’s such as the CER and SEI in the development of all aspects of policy that impact on or are related to energy. The Joint Committee also considers that consumers should be empowered to contribute directly to the reduction of their own energy use and recommends that keypad metering, as operates in Northern Ireland, should be introduced so that consumers can control their own consumption of electricity. The Joint Committee considers such demand side management type schemes to be very appropriate and encourages Government bodies such as ESB National Grid and SEI to develop a similar programme. This could be facilitated through the Energy Consumer Users Body recommended above and become part of a national energy efficiency campaign. In June 2005 the Danish Government signed off on an agreement on future energy-saving initiatives for the period 2006-2013 and further extended the agreement to electricity grid, natural gas, district heating and oil companies. The signatories to the agreement were the two Government parties and four opposition parties. The agreement sets the framework for energy saving initiatives, as well as the main elements of those initiatives, for the next several years. This agreement was roughly the 12th such major agreement in a period of 20 years covering different aspects of the Danish energy sector. The Joint Committee, to provide stability and consistency, recommends all-party consensus on energy efficiency and conservation policies along the lines of the Danish model. The Joint Committee makes 20 recommendations under the theme of ‘Sustainable Energy Policy’ as detailed in the summary of recommendations. ‘Energy Market and Competitiveness’Prior to the transposing of the EU Council Directive 96/92/EC, the vertically integrated electricity utility, the ESB, carried out nearly all the commercial scale electricity generation, transmission, distribution and supply to the consumer as well as being the regulatory body. The requirement of the Directive was that the Member State would set up a regime, by February 2000, whereby consumers would be able to choose their supplier in a new competitive market. This meant that an independent regulatory regime had to be established and that an independent role must be given to the function of dispatch of generating stations and the operation and planning of the transmission system. This led to the setting up of the new bodies, the Commission for Electricity Regulation and Eirgrid. Later natural gas supply and distribution was also added to the responsibilities and the regulatory authority became the Commission for Energy Regulation - CER. In 2004 the Joint Committee started its investigations into the effectiveness of the new regimes that had been put in place. The Joint Committee considers that the achievements so far are not all that could have been expected and that this is having a negative effect on the competitiveness of the Irish Economy and is reflected in higher costs to consumers. In effect, Irish consumers have had to suffer the costs of setting up the new regimes with increased prices but Irish consumers are not getting the benefits they are being forced to pay for. There are several reasons for this lack of achievement. To some extent this was caused by there being no clear objective or energy policy on behalf of Government to which the authorities could focus but also it is a function of the actions of these bodies themselves. Energy producers need to be able to be confident that there will be an ongoing market into the future for their product before they will take the commercial risk of investment in plant that has twenty or more years of life. This is why there is a crucial need for an energy policy, but this cannot be a short-term policy, if investment decisions are being taken over a 50 year timescale. A fundamental for a competitive market is the need for the maximum number of generators participating in the market. Therefore, there was a need to get new players into the market and in normal circumstances a rapidly growing market should have been attractive. However, there are only one or two additional players in the market. This is because of the complex way the first trading and marketing system was structured. The Joint Committee considers that the system heavily relied on regulatory controls. This is now recognised as a second best to having the correct structure in the first place, only Italy, initially, tried a similar structure and it has since abandoned it as unworkable. Regulatory control does not give the certainty that an effective structure can command. Therefore, for potential new entrants there is a major risk factor as the control of the market price of electricity still remains with the dominant incumbent. The Joint Committee recognises that there is an opportunity to correct some of the past mistakes by the introduction of the Single Electricity Market in Ireland. This will enlarge the market which, of itself, will reduce dominance. To be effective the physical infrastructure for the transmission and interconnection between both parts of Ireland, which has not kept pace with our growing economy, will have to be considerably improved. Further, interconnection with Britain and possibly directly to the continent should proceed as it will further increase the market size and competition as well as providing a connection for the export of low carbon generated electricity from renewables. The need for these additional interconnections to complete the internal market was recognised in the recently published EU Green Paper. The co-operation between the regulatory authorities North and South in agreeing on a simple pool type trading system for the Single Electricity Market is welcome as it was clear from the presentations made before the Joint Committee that this will make it easier for new entrants to participate. Additional simplification may be considered by having a single regulatory structure on both parts of the island thereby reducing administrative costs resulting in lower prices. It is essential that the new regulatory body is structured in such a way that it fosters close contact with the market place and consumers. The Joint Committee is concerned about the rapidly increasing and overwhelming dependency of Ireland on imported fossil fuels, which were increasing both in scarcity and in price. At the same time the Joint Committee was advised of the abundant renewable resources throughout the land and how their use could reduce the economic risks to the country by providing stable prices. The Joint Committee regrets that little is being done to assist their pragmatic usage. The Joint Committee considers that the more rapid development of renewables is in the best overall interest of the people of Ireland; it may require support to develop the market in the short term but in an era of rapidly rising fossil fuel prices, it is our only hope of retaining reasonably priced energy in the medium to long term. It would also show to our partners in the EU and to the global community the seriousness of Ireland’s commitment to honouring the commitments made. The Joint Committee makes 7 recommendations under the theme of ‘Energy Market and Competitiveness’ as detailed in the summary of recommendations. Summary of Recommendations:Recommendation 1Ireland’s dependency on imported fossil fuels has reached 90% which compares to an EU-25 import dependency of 50%. The recent Forfás report shows Ireland’s exposed position to a future peak and decline in Global oil production. Accordingly, the Joint Committee makes the following recommendations:-
Recommendation 2Ireland, most particularly in terms of electricity generation, is increasingly dependent on imported natural gas. Due to geography Ireland is at the end of a long supply chain which is liable to disruption. Currently there is no substantial gas storage capability within Ireland. In an emergency only a two-day supply of gas is available from line-pack. In the case of oil a mandatory three-month reserve storage policy applies. The Joint Committee recommends
Recommendation 3The gas infrastructure is a natural monopoly. The Joint Committee recommends that this infrastructure, together with the current and any future gas interconnectors, remain in public ownership. (ST) Recommendation 4The Joint Committee considers that the Corrib gas field must be brought on-stream without delay. The Joint Committee recommends
Recommendation 5In regard to expansion of the national gas grid network, the Joint Committee recommends
Recommendation 6The Joint Committee notes that within Scotland there is only one land-pipeline to the interconnector supplying Ireland. The Joint Committee recommends that the provision of a second land-pipeline to the interconnector is required so as to avoid a critical supply choke issue. (ST) Recommendation 7The Joint Committee, having regard to divergent political views in relation to how the dominance of the incumbent electricity generator should be addressed, recommends
Recommendation 8The Joint Committee recommends
Recommendation 9The Joint Committee recommends, in order to give better access to distributed generation
Recommendation 10The Joint Committee recommends that, owing to Ireland’s dependence on imported natural gas, new technology and diversified fuel sources must be introduced. In this regard clean coal technology is identified as being of particular importance. (MT and LT) Recommendation 11The Joint Committee considers it imperative that there should be informed debate on nuclear generated electricity. The Joint Committee recommends that the vehicle for this debate must be the Oireachtas and accordingly recommends that the Government, by way of Motion in the Dáil, requires the Joint Committee to consider and report on this matter. (LT) Recommendation 12The Joint Committee notes, with regret, that Ireland is currently 12% in excess of its Kyoto Protocol target for greenhouse gas emissions. The Joint Committee regards it as crucial that an even greater effort be made to ensure that Ireland meets its initial Kyoto target for 2012 and, in the longer term, that Ireland sets a target of 60% reduction over our 1990 levels by 2050. The Joint Committee considers that this will have the additional benefit of reducing imports of fossil fuel, improving efficiencies, minimise the cost to Ireland of purchasing carbon credits and provide businesses with a consistent signal on the reductions that will be required. (ST and LT) Recommendation 13The Joint Committee considers that the implementation of energy policy would have increased impact if Government bodies, such as SEI and CER, consulted with consumers. This would include demonstrating how consumers can be involved, whether incentives are required and the potential for carbon tax. Accordingly, the Joint Committee recommends that the Minister establish an Energy Consumer Users Body which must be consulted by all Government bodies and NGO’s in the development of all aspects of energy policy. (ST) Recommendation 14The Joint Committee considers that Ireland must look beyond its 2010 target of providing 13.2% of gross electricity consumption from renewable energy. The Joint Committee recommends
Recommendation 15The Joint Committee recommends
Recommendation 16The Joint Committee wants Ireland to be a world leader in wave and ocean energy sources. This would make Ireland more energy independent. The Joint Committee recommends
Recommendation 17The Joint Committee notes that co-firing, in peat stations, of biomass from both conventional forestry and short rotation sources has been proven and is both carbon neutral and indigenous. The Joint Committee recommends
Recommendation 18To promote the use of local indigenous biomass production and provide a kick start to this new industry, the Joint Committee recommends
Recommendation 19The Joint Committee notes that current biofuel output in Ireland is equivalent to only 0.1% substitution compared to the EU target of 2% required by 2005. The production and use of liquid biofuels should be greatly expanded to reach the EU target of 5.8% substitution by 2010. The Joint Committee considers that this could be achieved by an overall biofuel blend requirement being placed on suppliers. The Joint Committee recommends the standardisation of biofuels and the continued support for research and development. (ST) Recommendation 20The Joint Committee recommends that biofuels should be supported by the removal of all excise duties. (ST) Recommendation 21The Joint Committee notes that to meet these targets there is a need to establish large-scale biodiesel and bioethanol plants. The Joint Committee recommends that the possibility of providing state assistance to encourage the conversion of the Mallow sugar factory to bioethanol production should be investigated. (ST) Recommendation 22With a view, under the Biofuels Directive, of meeting the 2% hydrogen substitution 2015 target the Joint Committee recommends that proposals for the creation of a centre of excellence for the advancement of hydrogen fuel use in Ireland be brought forward as a matter of urgency. The Joint Committee also notes that under the Biofuels Directive there are targets of 7% for biofuels and 5% for natural gas in 2015. (ST to MT action with LT impact). Recommendation 23The Joint Committee recommends Public Transport initiatives to provide some measure of control of the rapid growth in private car numbers, and the spiralling energy use in the transport sector, and to bring about a shift away from commuting by car. These initiatives must include: improved infrastructure, increased availability, integrated ticketing and information systems so as to increase the use of public transport and the increased use of rail for goods transport. (ST) Recommendation 24The Joint Committee recommends that vehicle registration tax (VRT) and motor tax be biased radically in favour of energy efficient vehicles (at zero net cost overall). (ST) Recommendation 25The Joint Committee notes that as the cost of oil and gas rises, national exchequers will receive a revenue ‘bounce’ in the form of additional excise and VAT receipts. The Joint Committee recommends that, within an EU CEP context, a policy should be developed that requires such a ‘bounce’ in Exchequer receipts to be ring-fenced to be used as fiscal supports for all forms of renewable energy in addition to supports for R&D. The Joint Committee notes that the effect of such a measure will continue to guarantee the level of funding the national exchequer estimated and no exchequer revenue would have to be foregone in fiscal supports for renewable energy. (ST) Recommendation 26The Joint Committee recommends that the Joint Committee on Finance and Public Service, in the context of its work programme, undertake a review of the above proposal. (ST) Recommendation 27The Joint Committee recommends that the Energy Performance of Buildings Directive should be fully implemented on time by January 2009 and that local authorities must be given the ability to set higher energy efficiency standards than those contained in Part L of the building regulations. (ST) Recommendation 28That the Government, in the context of the next National Development Plan (NDP), support incentives for the development of CHP and district heating. The Joint Committee notes that this would enable the use of some of the 60% of energy that is currently wasted from power generation plants and will help to raise the efficiency of the electricity supply from 40% to closer to the 60% level which is being achieved in Denmark. (MT) Recommendation 29The Joint Committee supports the European Parliament Industry Committee’s call for an 11.5% energy saving after 9 years. The Joint Committee recommends that the public sector should take the lead in this and set higher targets e.g. a 20% energy saving in public buildings and the application of energy efficiency as a criterion in assessing competitive tenders for public contracts. (MT) Recommendation 30The Joint Committee recommends that consumers should be empowered to contribute directly to the reduction of their own energy use. The Joint Committee recommends that keypad metering, as operates in Northern Ireland, should be introduced so that consumers can control their own consumption of electricity. The Joint Committee recommends that micro-generation or mini-generation CHP for individuals or communities should be permitted including the use of local distribution over the network (wheeling). (ST) Recommendation 31The Joint Committee notes that sustainable policies, by definition, cannot just be short term. The Joint Committee recommends all-party consensus on energy efficiency and conservation policies along the lines of the Danish model. The Joint Committee considers this imperative to providing the stability of knowing that the plans and targets for energy efficiency and conservation policies will be consistent in the longer term. (LT influencing MT and ST decisions) Recommendation 32The Joint Committee considers that it is essential that the Government sets clear policy guidelines under which the energy producers and regulator will work. This will remove some of the current perceived uncertainty and risk of investing by potential market participants. (ST) Recommendation 33The Joint Committee recommends that the all island Single Electricity Market should precede on schedule. The Joint Committee notes that this will enlarge the market, reduce dominance and will provide the conditions for more competition therefore potentially leading to reductions in the price to the consumer. The Joint Committee considers that the establishment of the interconnection with Britain, in line with EU policy, will increase competition with Ireland becoming part of a much larger regional market. The Joint Committee considers that it is therefore essential that the Government should proceed with the proposed 500MW interconnector and should further consider the commissioning of a second interconnector possibly directly to the continent. (ST and MT) Recommendation 34The Joint Committee recommends, in order to encourage a more rapid penetration of renewable energy into the market and foster confidence, a fixed feed-in tariff system for renewable energy is required. In the longer term, more market based schemes can be considered. (ST) Recommendation 35The Joint Committee notes that the current regulatory system is perceived, by consumers, to be unfair, that it has led to the high cost of electricity and gas, and that it is in need of restructuring. The Joint Committee recommends that the views of business and domestic consumers in any new structure needs be heard. This is so that the regulator is cognisant, at all times, of the impact of its planning and decisions. (ST) Recommendation 36The Joint Committee recommends in order to deliver sustainable competition the electricity sector that it should be structured in such a way as to reduce dominance and therefore enable companies with a portfolio of generation capacity to compete with one another. (ST) Recommendation 37The Joint Committee recommends that the Government publish the Deloitte and Touché report on the electricity market in Ireland and that it set out the means by which it wishes to ensure that we have a competitive energy market. (ST) Recommendation 38The Joint Committee recommends that the Government support the new European Union Green Paper and have particular regard to the development of a more open and competitive European electricity and gas network. (ST) ST = Short Term (2010-2012) MT = Medium Term (2020) LT = Long Term (2050) Section 1Chapter 1 - IntroductionThere are a number of issues that impact on the security of supply of energy. The Joint Committee considers it important to note that the issues concerning the security of supply of gas, whether for home heating or the generation of electricity are not the same issues concerning the security of supply for oil, whether this is for transport, agriculture, home heating or generating electricity. Further, the Joint Committee also notes that there are issues related to the security of supply in regard to renewable sources of energy. Responsibility for Security of Energy SupplyFormerly the ESB held responsibility for the security of Ireland’s electricity supply. Following the enactment of legislation which established the Commission for Energy Regulation (CER) the CER was given responsibility of Ireland’s electricity supply as a core responsibility. Further, in regard to gas the CER has responsibility for infrastructure. Targets for availability of electricity generation plant are set for the ESB by the CER. The Commissioner, Mr. Reeves, informed the Joint Committee that currently he has set the target at 82% availability. If the ESB does not meet that target it is penalised. If it exceeds target “then it will make some money” Current Situation in IrelandOn the positive side, Mr. O’Brien of ESB National Grid informed the Joint Committee that the Chief Executive Officer of Intel Corporation, Mr. Craig Barrett, had singled out Ireland as one of a small number of locations with reliable power in which his company would consider future investment. ESB National Grid, the transmission system operator (TSO) when questioned as to what would happen in the event of a power strike referred to the events of 1991 when only two thirds of the required electricity was available. The Joint Committee was advised that the 1991 events were handled by a system of rolling black-outs which were signalled in advance in the national papers. A similar policy is envisaged in the case of a future strike or deficit in the supply of electricity. There is a question regarding the security of gas supply to power stations generating electricity. Given the high dependency on imported fuel the question is begged as to what would happen in the case of failure of supply. The experience, in January 2006 with the Ukraine gas pipeline is an example of the potential failure of gas supply. The Joint Committee was advised that in this event it would be possible to change over the power plants from using gas to generate electricity to using oil to generate electricity. However, the Joint Committee is not satisfied that it has been determined as to the extent to which this form of backup could be maintained. The security of supply relative to oil is predicated, primarily, on both price elasticity and oil production. The Joint Committee considers that price elasticity will impact on consumption, particularly in regard to the transport sector and notes the concerns of the haulage sector whenever the price of oil increases. While not in a position to perform the economic models for such effects the Joint Committee considers this an important factor in the security of supply of oil, as price elasticity is, and will continue to be, subject to geo-political consideration. Further, in terms of oil production, the same or similar geo-political considerations will also have an impact on security of supply. This latter point is germane in regard to zone of conflict as the transportation of the oil source to the market can be jeopardised. In regard to wind generated electricity, Airtricity in its submission to the Joint Committee proposed that offshore wind farms could be deployed in such a fashion as to ensure that some wind farms would always be in a wind zone. Theoretically this would address the problem of non-continuity of electricity supply from wind and the need to maintain conventional hydro-carbon based electricity generating plant. The Joint Committee does consider that the argument for the establishment of an EU wide electricity transmission and distribution grid has merit. Taking the Airtricity argument to an EU context, then such a geographically disperse grid would have a greater propensity to ensure generation of electricity from wind without a punitive need to maintain conventional hydro-carbon based electricity generating plant as back-up to wind. This argument is based on an apparent logical assumption that somewhere wind is blowing, if not in Bantry, then in the Balkans. Demand Side ManagementThe Joint Committee acknowledges that peak electrical demand is being driven, in the main, by the residential/domestic sector and not the industrial sector. The Joint Committee considered that by using ‘time of day’ signals it would be possible to modify tariffs in accordance with demand so that the domestic market can be given a ‘price incentive’ to limit demand during peak load periods. The Joint Committee understands that Sustainable Energy Ireland (SEI) has been working closely with ESB National Grid on the development of its demand side management programme. In this regard the Joint Committee considers that small scale Combined Heat and Power (CHP) in combination with local electronic devices, such as the keypad system used in Northern Ireland could also assist to reduce peak demand. Renewable EnergyRenewable energy sources constitute a potential replacement for vulnerable fossil fuel imports and therefore they are a most important ingredient in enhancement of security of energy supply. The following by way of introduction are the essential elements. WindWind energy is already a well established component of the national electricity generation programme. There is a limit to the size of the fraction of total electricity that wind can contribute. The size of this contribution is a matter of continuing debate, for instance Denmark produces 20% of its electricity from wind and this percentage is planned to increase in the coming years. BiomassBiomass (a sustainable resource) has the potential to replace peat (a finite resource) to generate electricity. It also is capable of replacing fossil fuels for heating. The modern forms of biomass, such as pelletised fuels are growing in competitiveness and they are also becoming more widely available. At current prices and delivered in bulk to suitable consumers, they are highly competitive. Biomass is part of, but not the entire solution. Biomass can be described as a high volume low-energy product in that a lot of Biomass is needed to produce the required energy output. However, it is a useful part of the solution and will play a major role in the development of renewable energies into the future. Biofuels and BiogasBiofuels including Biogas offer a new and alternative fuel source. Liquid biofuels are an important element of the emerging market for energy from crops, trees and waste products. In this regard the Joint Committee notes that Cork City Council has initiated some relevant projects on biofuels. In 2002 the City Council committed itself to run 5% of their transport fleet on alternative fuels. This involved 17 vehicles which run on rapeseed oil. The significant point about Biofuels and Biogas is that Irish agriculture has the capacity to maintain land utilisation by the production of liquid biofuels/biogas derived from oilseed rape, sugar beet and other crops including agricultural by-products such as tallow. This type of enterprise has benefits outside of substitution of vulnerable fossil fuel imports in that it can provide for a cleaner environment and for job creation in the rural/agricultural sector. Wave EnergyWave energy is being researched at the hydraulics and maritime research centre within UCC. Wave energy has an advantage over wind in that wave energy is more predictable. Ireland is well situated for wave power however, there is a limiting factor caused by Ireland’s grid configuration (transmission and distribution). The grid is at its weakest where the resource is at its greatest. Therefore wave power requires special treatment to get it started and derive the benefit of developing a new industry. The Joint Committee would suggest measures such as generous payment per unit of electricity delivered together with an up-front capital grant. The medium-term potential for wave power in Ireland is 2.5 terawatts or 10% of our present requirements. By leading the development of wave energy technology Ireland could benefit in the way the Danish benefited from wind technology. Policy considerationAn imperative to security of supply is policy direction. No sector of the Irish economy can function at an efficient level without policy direction. The transport, industrial, agricultural and construction sectors require a clarified and joined-up policy direction and this, the Joint Committee regretfully observes is not the current case. InterconnectionThe EU policy of attaining a 10% interconnection target between Member States will very much assist Ireland with security of energy supply. Moreover, funding may be available to achieve this level of interconnection. Basic information requirement for policy planningThe transport, industrial, agricultural and construction sectors require, in order to make informed plans and cope with the likely increasing scarcity of oil, basic policy information. The Joint Committee understands that oil producers tend to overstate their reserves for political/market reasons and that consequently the actual global reserves may be much lower than stated. The International Energy Agency (IEA), being funded by oil producing states, allegedly, passes on supplied energy information and as a consequence this may by not be sufficiently questioned. The Joint Committee considers that more accurate data may be available if diligently pursued, or pursued in a different manner. This data should be accessed and used to plan for the projected scarcity. Ireland could then reduce its dependence on fossil fuels by adopting energy conservation and moving to renewable energy sources in a coherent and structured manner. In this context it may be easier, in policy terms, to reduce demand rather than increase supply. Carbon TaxThe policy on carbon taxation needs to be reassessed so as to assist the economics of renewable energy sources. The present policy of giving thermal power stations three quarters of their carbon emissions for free is a clear disadvantage to renewable energy sources. This disadvantage will persist until such time as the full cost of carbon is reflected in the market. The Joint Committee suggests that the full cost, including the risk of an energy portfolio should be factored into the pricing of energy. Planning for RenewablesBecause they are sourced indigenously, renewable energy sources bring the added advantage of security of supply. Experience of policy development in other EU statesBoth Denmark and Austria are EU states which have agreed long-term energy polices which stays in place regardless of who is in government. In the case of Denmark, agreement is based on the voluntary involvement of local oil and heating companies and the Danish electricity saving foundation. These are responsible for reaching the targets set. Denmark has a relatively long tradition in not alone making broad agreements on energy policy but in other areas that require long-term investment. The Danish consider that they need the stability of knowing that the plans and targets for energy policy will not change following a change of administration. Scandinavian countries have low cost electricity prices which can be contracted for long term. However, this may have been made possible by their having an abundance of hydro power and in the case of Sweden a large scale nuclear power electricity generation capacity. Common EU Energy PolicyThe EC Energy Commissioner reported, in his presentation to the Joint Committee, the need to establish a common policy on energy so as to maintain security of energy supply. The Polish Minister for Energy had also raised this issue recently, therefore, Europe can be said to be alive to the issues which security of supply pose. This is most particularly a grave issue for Eastern Europe and so it seems likely that there will be a fundamental shift towards a common energy policy. Chapter 2 Security of Supply - Import DependencyRecommendation 2.1 Ireland’s dependency on imported fossil fuels has reached 90% which compares to an EU-25 import dependency of 50%. The recent Forfás report shows Ireland’s exposed position to a future peak and decline in Global oil production. Accordingly, the Joint Committee makes the following recommendations
Energy importsIreland has a very high overall energy import dependency compared to the EU average. Some 90% of total energy is imported. Ireland uses approximately15.6 barrels of oil per person per year; again higher than the European average. Accordingly, Ireland is very vulnerable in terms of supply or price. OilThe Joint committee was advised how oil was formed during two periods of global warming 90 and 150 million years ago by algae decaying and being washed into rifts. Modern understanding of this geology has resulted in the identification of these areas as being the main locations of oil accumulation. Accordingly, the Joint Committee is of the opinion that, most likely, the major discoveries have already been made and, therefore, future finds are likely to be less significant. For this reason oil will become an increasingly scarce and expensive commodity. Fuel DiversityFor Ireland its fuel mix is as follows. Oil – 55.8%, Natural gas – 24.3%, Coal – 12.9%, Peat – 3.8% Renewables – 2.2%. Therefore, Ireland’s fuel-mix is very dependent on hydro-carbons as Coal, Oil and Gas account for some 93%. What make this a more invidious position for Ireland is that, in the main, Ireland has to import of these hydro-carbons. While Ireland does have an indigenous gas supply - from the Kinsale gas field, this is now in decline. This, therefore, makes the Corrib gas field a matter of major national importance. Further, of concern to the Joint Committee is the large consumption of gas by electricity generation stations. Energy PortfolioThe Joint Committee heard from Professor Awerbuch (University of Sussex, UK) the case for revising the evaluation methodology for energy projects. Professor Awerbuch illustrated to the Joint Committee how traditional project evaluation methods are based on an engineering cost model and not on a finance cost method which investors normally use. If the finance cost method was used gas generation becomes more expensive than generation from renewables energy sources. The finance cost method takes account of the higher risk of price volatility for fossil fuels as against renewable energy sources, which possess little or no price risk. Having taken the risk factor into consideration, Professor Awerbuch proposes that energy projects should not be evaluated in isolation, rather a portfolio of projects involving a varying range of risk should be considered together. Such optimised portfolios would enhance energy security by reducing exposure to fossil fuel volatility. This argument, thought presented differently, was made by Airtricity who concluded that the best portfolio of energy products would include both renewables and fossil fuels. Chapter 2 Security of Supply – Natural GasRecommendation 2.2 Ireland, most particularly in terms of electricity generation, is increasingly dependent on imported natural gas. Due to geography Ireland is at the end of a long supply chain which is liable to disruption. Currently there is no substantial gas storage capability within Ireland. In an emergency only a two-day supply of gas is available from line-pack. In the case of oil a mandatory three-month reserve storage policy applies. The Joint Committee recommends
Ireland has a high dependence on natural gas. While some gas is produced indigenously, currently from the Kinsale Head field this field is in decline. There will be additional indigenous gas production when the Corrib field comes on stream. However, at present most gas is imported via the interconnector from Scotland. It is understood that up to 80% of all gas now consumed is imported. The UK, itself, while currently self-sufficient in gas will soon need to import gas. Accordingly, the UK is planning additional pipelines both to Norway and Holland. The Joint Committee notes, internationally, that reserves of natural gas are significantly greater than oil with estimation indication that supplies could last for 65 years. However, Ireland has no policy or action-plan for the strategic storage of gas and this must be addressed. Ireland’s lack of substantial domestic energy resources and consequent high level of imports means that security of supply has to be a core objective of Ireland’s energy policy. The Joint Committee notes that there is a legal requirement (EU mandated) to maintain a 90 day reserve of oil but there is no such obligation for a reserve of gas. The Joint Committee would content that logic demands that at least the same strategic storage regime as for oil should apply to gas and that this should not have to await an EU initiative, it should be pursued immediately as a national imperative. The Joint Committee considers that a two-prong approach could achieve a suitable storage reserve, namely, (1) storage in depleted gas wells and (2) investment in a liquid natural gas (LNG) storage and supply terminal. Depleted gas well storageThe Joint Committee understands that in the case of the Kinsale Head gas field there are some exhausted gas reservoir structures which are suitable for storage. The full potential of this method of storage needs to be explored, quantified and costed and the necessary contractual arrangements put in place with the gas field operator. Any additional storage requirement should be satisfied by means of LNG. Liquefied Natural Gas (LNG)Natural gas, in liquid form, occupies only a minute part of the space that its gaseous counterpart uses, consequently LNG can be transported in tankers and stored in tank farms for release to the gas transmission grid as required. There are additional costs involved in maintaining the very low temperatures needed to maintain the liquid state. However, there are two additional advantages accruing from using LNG.
Therefore, LNG creates a more diverse local portfolio with enhanced security of supply. In continental Europe currently about 30% of natural gas requirement is supplied by LNG, as an example. For example, Spain has been using LNG for many years. The use of LNG, in Europe, is predicted to rise to 50% by 2030. Further, a number of LNG projects are planned for the UK over the next few years and currently there is an LNG facility under construction in Milford Haven and this is due to open in 2007. When in full production Milford Have will produce some 6bcm per annum with ultimate capacity anticipated to be in the order of 24bcm. Diversity of gas supply to EuropeThere is a move in Europe, which predated the Russian/Ukrainian gas pipe-line dispute early in 2006, to have more diverse natural gas supplies. At present European gas supplies come from three main sources - Russia, Norway and Algeria. This number could be increased, to which end, the Caspian Sea countries and the Nabuko pipeline will bring more gas to the EU. Further, LNG terminals will facilitate the purchase of gas from parts of the world such as North Africa, the Middle East and countries in other regions. Recommendation 2.3 The gas infrastructure is a natural monopoly. The Joint Committee recommends that this infrastructure, together with the current and any future gas interconnectors, remain in public ownership. (ST) The Joint Committee is of the opinion that the natural gas network, being a natural monopoly, should be managed in the best interests of all. The Joint Committee considers that this is best carried out by a body which is publicly owned and therefore answerable to the public. In reaching this decision the Joint Committee was influenced by the privatisation, in recent times, of the Irish telecommunications infrastructure. The perception in that case is that the national requirement for increased development of that infrastructure is not as easy to attain as would have been the case had the asset remained in public ownership. Recommendation 2.4 The Joint Committee considers that the Corrib gas field must be brought on-stream without delay. The Joint Committee recommends
The Joint Committee expressed their disappointment with the delays being experienced with completion of the Corrib gas project. They were particularly concerned that the safety issues which have arisen are resolved in a manner which addresses the safety concerns of local residents. A further issue which concerns the Joint Committee is the absence of provision for distributing gas to major centres of population along the route of the Corrib gas pipeline. The present position is that any decision to provide such service lies jointly between the CER and BGE who between them carry out an economic justification for each project. The Joint Committee is of the opinion that the economic criteria being used in the economic justification are overstrict and must be set at more realistic levels. Recommendation 2.5 In regard to expansion of the national gas grid network, the Joint Committee recommends
Extension of Gas supply to the NorthwestThe lack of a gas network serving the Northwest, West and part of the Midlands prompted widespread criticism within the Joint Committee. Bord Gáis Eireann (BGE) contended that development of the grid must be done on an economic basis. BGE was aware that the Regulator had undertaken a feasibility study on the supply of gas to the North West but it was not aware of the outcome of that study. Representation to the committee on this issue was made by Ballina Chamber of Commerce. The thrust of the Ballina Chamber of Commerce argument, in terms of gas pipeline expansion proposals, was that the investment criteria being applied were much too stringent - the ‘economic justification’ as mentioned in recommendation 1.4 above - were. The Ballina Chamber of Commerce argued that while the asset had a 40 year life a seven year return on investment was being asked for. This is significantly less than the 20 year return required in Britain. The point was made that many of the towns which now have access to the natural gas network were connected when the criteria for assessing connection were not as strict. Therefore, towns in the West, which up to now have not had access to the natural gas infrastructure, face stricter rules and higher hurdles in the investment appraisal of their connection. The Joint Committee consider that this is not equitable. The CER has the responsibility to ensure that the pipelines built pay their way and that the general consumer in the country is not being asked to pay more than necessary. In this regard it was brought to the attention of the Joint Committee that the CER may have allowed both the ESB and BGE receive a bonus on the valuations of the networks. The Joint Committee, regretfully, in this report records that the response of the CER was regarded as being inadequate and the Joint Committee will pursue this issue separately, through further public hearings. Notwithstanding the issue of the network valuations the CER did indicate to the Joint Committee during the hearings that the existing criteria in the ‘economic justification’ for pipe-line expansion are probably too tight and too narrow, and that the CER was examining whether the existing criteria should be widened. The CER did advise the Joint Committee that any company that wishes can build a transmission line in the Northwest, can do so, and that BGE does not have a legal monopoly in providing transmission facilities. . The Joint Committee recognises that the economics should determine the issue, but the criteria must, in the opinion of the Joint Committee be based on reality. Recommendation 2.6 The Joint Committee notes that within Scotland there is only one land-pipeline to the interconnector supplying Ireland. The Joint Committee recommends that the provision of a second land-pipeline to the interconnector is required so as to avoid a critical supply choke issue. (ST) Interconnection with BritainTwo gas pipeline interconnectors between Scotland and the Republic have been built. Pipelines in Northern Ireland will be linked to the grid in the Republic by the end of 2006 via a South – North interconnector. There is, in addition, a gas pipeline linking Northern Ireland with Scotland known as SNIP. Long term, in the absence of offshore gas finds in Ireland, it will be necessary to look for external additional supply, at least in part, via the gas interconnection with Britain. The Joint Committee notes that the interconnectors with Britain are fully operational and that the projected demand for 2010 of 30 million standard cubic feet of gas per day can adequately be served by the existing infrastructure. The Joint Committee commends one major feature of the Irish gas network; that is that it has adequate capacity for several years and has the capability to deliver further capacity. However, the Joint Committee recommends investment in duplication of onshore pipe work in Scotland together with some additional gas compression. This duplicate pipe work is required to deliver a backup to the existing pipeline in the case of failure. Apart from the pipe work issues in Scotland, the Joint Committee considers that Ireland’s gas supply infrastructure is robustly configured given that it has two subsea interconnectors. The construction of the South-North Interconnector onshore will add to this robustness. The major construction and capital spend on infrastructure from a security and supply point of view is already in place and in the opinion of the Joint Committee there is no need to spend that money again. Security of Interconnection with BritainThe Joint Committee recommends that there is a need to upgrade facilities in Scotland, but another interconnector is not needed from a capacity perspective. The two pipelines crossing over from Scotland are on different routes. In the case of a break or interruption in supply, the subsea pipelines would have enough gas in them for two days; therefore the critical issue is where a break happens. If a break occurs on-shore in Scotland, it can be fixed within one to two days sufficient given the line-pack in the pipeline, that is, gas stored under high pressure. However, a break on one or other of the subsea lines could be more serious. Interconnection of Britain with Continental EuropeThe UK is unique in Europe in being self-sufficient in gas. Its reserves, however, are depleting and in time the UK will have to import gas. There is a queue of projects in place to bring more supplies into the UK, such as a pipeline from Norway, a second inter-connector link to Holland, as well as increasing the capacity of the existing link. However the UK is, in addition, making provision to increase its intake of gas in the form of LNG. In this context Ireland should prioritise, like the UK the provision of and LNG storage and distribution base. Chapter 2 Security of Supply – ElectricityRecommendation 2.7 The Joint Committee, having regard to divergent political views in relation to how the dominance of the incumbent electricity generator should be addressed, recommends
Grid ControlESB National Grid (ESBNG) is currently the Transmission System Operator (TSO). This arrangement, due to change with the establishment of EirGrid, has not been completed. ESBNG reports to a special two member committee of the board of ESB (not the full board). The CEO of the ESB is excluded from ESBNG affairs. The foregoing contract arrangement between ESB and EirGrid has posed difficulties for the CER and High Court proceedings on this matter have ensued. The delay in effecting full transfer of TSO authority to EirGrid has been the source of frustration to the CER. The Joint Committee expressed dissatisfaction about the situation just described and described it as “a fog of confusion”. Ownership of network assetsAs with the natural gas grid, the Joint Committee is of the opinion that the electricity network, apart from power generating stations, is a natural monopoly and should also be managed in the best interests of the State. The Joint Committee considers that this is best carried out by a body which is publicly owned and, therefore, answerable to the public. However, the Joint Committee was not able to agree whether this ownership of the network assets be vested with the ESB or the new transmission network operator (EirGrid). Recommendation 2.8 The Joint Committee recommends
Condition of the Electricity NetworkThe Joint Committee notes that here had been a lack of investment in the network in over a number of years. Consequently, the transmission and distribution network is in a less than optimum condition and needs to be upgraded. This situation came about because of the lack of price increase between 1986 and 2002 and the cost of no price increase was paid for by not investing in the system. This is now being addressed and the ESB is investing €3billion over 5 years for refurbishment of which €700million will be spent on the transmission system. However, priorities for reinvestment in the grid are set on future timeframes of 10 to 15 years and a future further than 20 years is not catered for. The CER would appear not to be catering for the supply of new transmission services to the far west until demand is evident - a demand led principal that has major and critical implications particularly for the connection to the grid of the very areas that are rich in renewable energy sources. There would appear to be one exception to this policy in that wind clusters are provided for in conjunction with the Dept of Communications, Marine and Natural Resources and wind energy interests. Electricity InterconnectorsSecurity of supply is the primary purpose of interconnection but it will also facilitate competition in the market and open up the possibility for the export of electricity generated from renewable sources. In addition, interconnection will allow for more wind generation capacity to be accommodated on the grid. North – South InterconnectionOne interconnector with Northern Ireland already exists and Northern Ireland, in turn, is connected with Scotland via the 500MW Moyle interconnector. The transmission system operators North and South have agreed to provide a second North-South interconnector. This is being built, not only to meet immediate needs but also to accommodate projected future needs. When fully developed, this second interconnector, in combination with the existing one, has the capacity to provide at least three times the level of supply currently available. This is important because there is a limit on how much electricity can be sent from North to South and it is already at capacity. Similarly, there is a limit on how much can go from South to North which is an even smaller amount due to congestion on the transmission networks north of Dublin. This is a significant problem for Northern Ireland. East – West InterconnectionTwo 500MW electricity interconnectors between Ireland and Wales are planned with construction due to commence at end of 2006. There is debate about the timing of the second of these interconnectors since the interconnectors must be in two different places, there are no economies in constructing the two interconnectors at the one time. The effect of interconnection on the electricity marketLarger and more integrated markets provide greater security of supply. Interconnection with Britain is, therefore, important for market creation. The ‘large customer’ market in Northern Ireland, for example, benefited from being able to access prices from Great Britain across the Moyle interconnector. In a sense, therefore, bringing a source of independent power into the Northern market has had an effect on the prices large business customers have been able to access. A barrier to effective trading between the two Irish markets is the restriction on the existing interconnector and this is especially the case from South to North owing to the congestion on the transmission networks north of Dublin. Recommendation 2.9 In order to give better access to distributed generation The Joint Committee recommends
Distributed grid planningCombined heat and power (CHP) generation allows much improved overall energy efficiencies to be achieved in comparison with large central power plants. The reason for this is that the CHP units can be located in areas where the waste heat generated can be usefully used for process or space heating. In Ireland waste heat from central power stations is, generally, not put to use. In order to accommodate the increase in such distributed generation the electricity grid structure will need to be reinforced accordingly. The ultimate in decentralized electricity generation is Micro CHP. These are small decentralized CHP units which can be used for individual houses or farms. They are particularly suited to small distributed loads such as dairy units. Generation Plant-mixTo support wind generation it is accepted that central power plants will need to be available to take up fluctuations in the wind regime. For example, consider a situation where 2,000 megawatts of wind is installed on a 4,000 megawatt system; if the wind is to be allowed to run at 2,000 megawatts, it must be possible to ramp up the remaining generation rapidly in the event that the wind dies and its output reduces substantially. The Joint Committee recommends, in the planning for centralised generation capacity over time that the wind support function be fully taken into consideration. This means that a sufficient amount of highly responsive capacity such as open cycle gas turbines be accommodated even though at a somewhat lower overall efficiency than combined cycle units which are more suited to base load generation. Recommendation 2.10 The Joint Committee recommends, owing to Ireland’s dependence on imported natural gas, that new technology and diversified fuel sources must be introduced. In this regard clean coal technology is identified as being of particular importance. (MT and LT) Coal once held a dominant position in electricity generation but over time it was replaced by gas as the dominant fuel. The problem with coal is that it tends to burn dirtier than other fossil fuels; that is it emits more ash, sulphur dioxide, CO2 and NOx. Reserves of coal worldwide, however, are relatively much more abundant than oil or gas and are distributed far more widely. Consequently it is desirable, from an energy diversification point of view, to try to introduce more coal into the fossil fuel portfolio. “Clean coal technologies” have evolved and continue to evolve and may, therefore, address the aforementioned problems. Already it is possible to “wash” coal so as to reduce ash and sulphur dioxide emissions and electrostatic precipitators can remove 99% of fly ash. Flue gas desulphurisation and low-NOx burners in turn tackle CO2 and NOx more effectively. Higher efficiency plants produce still less overall emissions per unit of energy generated. Newer technologies under development promise to perform even still better. The ultimate “holy grail” of coal burning technology is to achieve zero emissions by sequestration of the by-produced CO2 Recommendation 2.11 The Joint Committee considers it imperative that there should be informed debate on nuclear generated electricity. The Joint Committee recommends that the vehicle for this debate must be the Oireachtas and accordingly recommends that the Government, by way of Motion in the Dáil, requires the Joint Committee to consider and report on this matter. (LT) Nuclear energyThe Joint Committee heard that some countries are finding nuclear generated electricity an important factor in counteracting widely fluctuating energy prices. France imports only 10% of its fuel requirements, nuclear and hydro between them constituting 90% of its energy sources. Therefore, only10% of its fuel is exposed to price fluctuations. Scandinavia, Spain and Portugal are somewhat similarly positioned as regards their fuel mix and again are cushioned from external price increases. Finland, because of its high energy consuming industrial sector has recently reviewed its policy on nuclear generated electricity. The Joint Committee is cognisant of the very valid rationale behind Irish policy on this issue but feels that it would be helpful to revisit the debate in the light of the changed international energy supply circumstances even if only to confirm present policy. Chapter 3 Sustainable Energy PoliciesRecommendation 3.1 The Joint Committee regards it as crucial that an even greater effort be made to ensure that Ireland meets its initial Kyoto target for 2012 and, in the longer term, that Ireland sets a target of 60% reduction over our 1990 levels by 2050. (ST and LT) The Kyoto Protocol, under the auspices of the United Nations Framework Convention on Climate Change, was agreed in 1997 and entered into force in February 2005. Under this Protocol the EU has committed to reduce annual greenhouse gas emissions to 8% below the 1990 levels. A burden sharing agreement was negotiated and agreed between Member States in 2002. For Ireland, the aim is to achieve an emissions target of 13% above the 1990 base year figures during the Kyoto commitment period of 2008-12. Each country has individual reduction targets while some, including Ireland, have been allowed an increase in emissions on the 1990 base year figures (54 Mt/a). For Ireland, the aim is to achieve an emissions target of 13% above the 1990 base year figures during the Kyoto commitment period of 2008-12 (61 Mt/a). The Joint Committee notes with regret that Ireland is currently 12% in excess of its Kyoto Protocol target for greenhouse gas emissions as we are currently 25% above the 1990 level (which is equivalent to 67.5 Mt/a or 6.5 Mt/a above target). In terms of how we will meet our Kyoto target the Government agreed, as a broad framework for achieving greenhouse gas emissions reductions, a National Climate Change Strategy (NCCS) in 2000. In that context the current estimate of our distance from target, i.e. the extent to which we will exceed our emissions target if no steps are taken, is approximately 8 to 9 million tonnes. Among the measures being put in place 4.3 million tonnes is to be achieved by the trading sector by a combination of emissions reduction and the purchase of allowances. Emissions trading, under the Kyoto Protocol does not come into play until 1 January 2008. However, the EU decided to act ahead of this date and introduce a three-year pilot scheme, from 1 January 2005, before moving into the Kyoto scheme. The pilot scheme is to allow European countries to develop an understanding of how the scheme works and to iron out some of the problems that may become apparent before dealing with the more serious reductions envisaged in the real scheme. The allowances distributed are determined from a cap reached by way of a Government decision. The Environmental Protection Agency is responsible for distributing this to all of the installations within the scheme, of which there are more than 100. Under current policy the Government will buy permits to cover the sectors not covered by emissions trading, in other words households, and to meet additional shortfalls. The ESRI estimates that, at current prices, the best part of €100 million will leave the country to buy permits. It is against this background that the Joint Committee regards it as crucial that an even greater effort be made to ensure that Ireland meets its initial Kyoto target for 2012 and, in the longer term that Ireland sets a target of 60% reduction over our 1990 levels by 2050. Decisions taken in regard to energy policy and how the energy sector develops over the coming years will affect Ireland’s ability to meet its Kyoto targets and will have long-term implications for Ireland’s ability to address future climate change commitments. The strategy for a sustainable energy policy outlined by the Joint Committee in this report provides the ‘road map’ to achieve these targets and commitments. The Joint Committee considers that this will have the additional benefit of reducing imports of fossil fuel, improving efficiencies, minimise the cost to Ireland of purchasing carbon credits and provide businesses with a consistent signal on the reductions that will be required. Recommendation 3.2 The Joint Committee recommends that the Minister establish a Consumer Users Body which must be consulted by all Government bodies in the development of all aspects of energy policy. (ST) Consumers need better attention paid to them, not the every more complex data and discussions into which they have no input or cannot understand. Consumers are aware. However, consumers need to be shown how to get involved and be provided with incentives, both real and monetary, to do so. Consumers also suffer from a lack of transparency; what is happening on the regulatory side is not working for the consumer due to the lack of interaction and the inability to contribute, in a focused and organised manner, from the consumer side. The Joint Committee therefore recommends the establishment of a Consumer Users Body which must be consulted by all Government bodies and NGO’s such as the CER and SEI in the development of all aspects of energy policy. The Joint Committee also considers that consumers should be empowered to contribute directly to the reduction of their own energy use and recommends that keypad metering, as operates in Northern Ireland, should be introduced so that consumers can control their own consumption of electricity. The Joint Committee considers such demand side management type schemes to be very appropriate and encourages Government bodies such as ESB National Grid and SEI to develop a similar programme. This could be facilitated through the Consumer Users Body recommended above and become part of a national energy efficiency campaign. The Consumers Association of Ireland is currently examining the carbon tax situation to see if it might support the introduction of such a system whereby taxes on fossil fuels would be used to the benefit of consumers and put control into the hands of those who need it most. The Joint Committee notes that what is happening on the regulatory side is not working for the consumer and the Joint Committee considers that this is due to the lack of interaction and the complete inability, from the consumer side, to contribute in an effective, focused and organised way. The Joint Committee considers that the implementation of energy policy would have increased impact if Government bodies and NGO’s such as the CER and SEI consulted with consumers. Chapter 3 Sustainable Energy Policies - Renewable Energy ResourcesRecommendation 3.3 The Joint Committee considers that Ireland must look beyond its 2010 target of providing 13.2% of gross electricity consumption from renewable energy. The Joint Committee recommends
Recommendation 3.4 The Joint Committee recommends
Two figures are usually quoted for renewables, one relates to their contribution to electricity supply and the other to total primary energy requirement. The renewable energy share of gross electricity consumption was 5.2% in 2004 and, for the first time, the amount of electricity generated by wind exceeded that from hydro. The 2010 target of 13.2% electricity from renewables is equivalent to approximately 1,100 MW of wind energy. The Joint Committee was informed by the CER that we will have exceeded this target by 2007 or 2008. The Joint Committee wants to look beyond the minimum target of 13.2% electricity from renewables and set a target of 21% by 2010 and at least 50% by 2050. A key element in achieving these targets will be the establishment of a grid infrastructure which will accept a penetration of renewables of at least 50% and allow Ireland to export electricity generated by wind. The contribution of renewable energy to Ireland’s total primary energy requirement has been hovering around 2% since 1990. The largest component of this is biomass burnt in the board manufacturing industry. The Joint Committee wants to set a target of 20% of total primary energy requirement by 2020 and at least 50% by 2050. These are ambitious and visionary targets as the Joint Committee believes that we should maximise our exploitation of our indigenous natural resources as against importing expensive fossil fuels which is also damaging to our environment. Ireland has the best wind resource in Europe and we should be taking advantage of that. In regard to the question of intermittence, it is evident that while the wind does not blow everywhere all the time the corollary is that the wind is always blowing somewhere. Therefore, if one has enough connections between places, one has constant power. In addition, reports have shown that if the forecast techniques available today are used, wind reduces the cost of reserves with up to 10% penetration. The Joint Committee is disappointed that there has been no capture of jobs and not a single manufacturing plant in Ireland dedicated to wind energy. Where a manufacturer can see cash flows coming for the next five, ten or 15 years, they will build plant and will employ people. Private capital investors need a stable and predictable policy climate in which to make the necessary investments. The costs to the consumer will be much less if the ownership of wind farms is dispersed across the community, especially the rural community, with the money coming back into the community. The contribution of renewable energy to Ireland’s total primary energy requirement reached 2.2% in 2004 and has been hovering around 2% since 1990. The largest component of this is biomass, such as the waste bark and other wood wastes burnt in the board manufacturing industry. The Joint Committee is of the opinion that policies and targets should not be set to achieve just the minimum EU requirements but rather to maximise our national interest through exploiting our indigenous natural resources in a thoroughly sustainable manner as against importing expensive fossil fuels which does not make economic sense and are damaging our environment. Wind energy has just been discussed; in the longer term ocean energy can become a significant contributor. Further, bioenergy can make significant contributions to heat and transport needs. Another key element will be the establishment of a grid infrastructure which will accept a penetration of renewables up to 50% and allow us to export one of our greatest national resources. Ireland is exposed to fossil fuels volatility. For example, a gas plant, per megawatt, is cheaper than a wind plant. However, taking risk into account, wind is almost half the price of gas over a long-term period. It is the consumers and Irish business that take the volatility risks and it has a huge impact on business. The alternative option is to construct renewables as part of a future portfolio where the fuel cost is free allowing us to have a natural hedge, or insurance, between volatile fossil fuel prices and a sustainable option where the consumer does not have a fuel price risk. Recommendation 3.5 The Joint Committee wants Ireland to be a world leader in wave and ocean energy sources. This would make Ireland more energy independent. The Joint Committee recommends
Ireland has one of the highest wave energy levels in the world. The whole coastline could theoretically provide approximately twice that which Ireland currently uses in electricity. Allowing for the constraints of technology development and installation and the grid infrastructure at the coast, UCC has estimated a technical medium-term potential of 2.5 TWh by 2020 which is approximately 10% of our current electricity requirements. The UCC research has indicated a possible target of 80 MW of wave energy installed by 2012 with 20 MW per year being installed after that. Wave energy offers significant industrial potential in the Irish context. Because commercial devices have not yet been developed, it is still at that stage where there are opportunities which we are not available with wind energy such as developing technologies which will be exportable as the market grows. Part of the solution is to establish a market mechanism and framework which facilitates wave energy in the initial stages. The Joint Committee hopes to see Ireland emerge as the work leader in the wave energy industry; however, this requires a co-ordinated research strategy. The Joint Committee recommends that appropriate support should be provided at this each stage of what will be a world industry. UCC is involved in research that is examining the production of hydrogen from renewable generated electricity. This essentially enables the energy from wind or waves to be stored for later use either to produce electricity or as a transport fuel. Other forms of storage being investigated include small-scale pumped hydro systems and battery storage. There is good complementarity between offshore wind energy and wave energy sources. Wave energy sources, for example, could connect with infrastructure put in place to deliver wind energy supplies. In this context, the Joint Committee supports further investment in research into the integration of all renewable energy sources. Recommendation 3.6 The Joint Committee notes that co-firing, in peat stations, of biomass from both conventional forestry and short rotation sources has been proven and is both carbon neutral and indigenous. The Joint Committee recommends
Recommendation 3.7 To promote the use of local indigenous biomass production and provide a kick start to this new industry. The Joint Committee recommends
Bioenergy in its broadest definition includes the energy conversion of solid biomass and the use of liquid biofuels for transport. The main source of solid biomass is wood biomass but it may also include agricultural wastes (such as straw) and may even be broadened to include municipal solid waste. The current sources of wood biomass are sawmill and board plant residues (such as sawdust and shavings), small diameter roundwood (such as thinnings) and forest residues (such as lop and top). Future sources of wood biomass may also come from short rotation forestry. The Joint Committee received presentations from Coillte, Bord na MÓna and IFA; the scientific community such as COFORD and Teagasc, private developers such as Clearpower Ltd., the Irish Bioenergy Association and end users such as Cork City Council. It was made clear to the Joint Committee that the sector is committed and capable of playing its part in contributing to Ireland’s indigenous energy supply mix. It also gave the Joint Committee many suggestions regarding the energy policies needed to significantly increase the use of this indigenous energy source. There are two ways to move forward with wood energy. One is to bring about an opening up of the market in the three peat burning stations to allow market access for biomass. The other way is to look at a support scheme, such as a capital grant scheme, that would support the installation of wood biomass boilers in as many as 500 sites around Ireland over the next three to five years. The Joint Committee in its recommendations supports both initiatives and believes that such an integrated approach will provide the kick-start for the creation of a new indigenous wood energy industry delivering jobs, improved competitiveness and important rural growth and will help reduce CO2 emissions. The Joint Committee was advised by Bord na MÓna that it has undertaken a great deal of trial work on short rotation coppicing of willow. Bord na MÓna has developed the machinery and carried out many field trials. Bord na MÓna have, in the past two years, moved into co-fuelling. Bord na MÓna are currently carrying out short coppicing willow trials, are growing canary reed grass and hopes to develop miscanthus. An ideal solution from the Bord na MÓna point of view would be finding a product that will grow on bog that has not been fully cut out. Such a compatible product would mean that Bord na MÓna could co-fuel and transport the materials on their rail infrastructure. They are engaged in on-going work in this area. Bord na MÓna did demonstration work on one of the power plants at the beginning of 2004; over the course of one week Bord na MÓna put through approximately 4,000 tonnes of wood-based material with peat and suffered no deterioration in performance on mixtures of up to 25% of wood displacing peat. Apart from using willow trees as a biofuel, the growing site can be used also as a disposal site for certain effluents that cannot be disposed of on grassland or feed or food crops. In Northern Ireland sewage sludge from municipal authorities is being tested while in Southern Ireland several projects use brewery effluents on willows. In the heat sector, COFORD believes that small-scale, localised, heat-only operations are the most efficient in terms of energy generation efficiency. Another important factor is that the material can be sourced locally. There can be an issue for larger installations, that of transporting biomass over a greater distance. The price of wood biomass is competitive, being currently less than half that of oil including delivery. The difficulty lies in the upfront capital cost of a wood biomass boiler as opposed to an oil boiler. The Joint Committee is recommending the introduction of a short-term capital grants scheme over the next five years to stimulate market demand. The Joint Committee suggests support via a fiscal, tax-based or grant-based mechanism for capital expenditure in small scale commercial or industrial heating systems in the range 100 KW to 5 MW, for a total of 200 MW of new capacity. A biomass based CHP plant ideally needs to be greater than 5 MWe to be economically viable. A typical 30 MW CHP plant would produce 6 MW of electricity plus 15 MW of heat with an overall plant efficiency of 70%. Given that the limit of feasibility for transporting forest biomass in a concentrated form such as chips or bundles is 50-100 km, the likelihood is that a CHP plant would be regionally based (such as the North West). A use for the heat also needs to be found and the Joint Committee recommends that district heating needs to be examined. Approximately 10% of Ireland is covered in forest, which is about 700,000 hectares, and there is a strategic plan in place to take forest cover up to 17% by 2030. The forests of Ireland produce just under 3 million m3 of timber per annum and by 2015, as a result of historical growth in afforestation, roundwood production will be just short of 5 million m3 (equivalent to roughly 1.5 million green tonnes). Coillte owns about 50% of the country’s forests but is now only marginally involved in the expansion of its estate. The other 50% have largely been planted in the past 15 years and are now reaching first thinning stage. They are owned by small forest owners and farm foresters and this is where the greatest volume of future supply for the sawmill industry or energy market will come from. It is estimated that there are 290,000 hectares of young plantation in Ireland which has the potential to constitute a significant source of energy if the market is created. The issue is economies of scale; while a supply is available, it is not being addressed in a cohesive and sustainable manner at the moment. The Joint Committee considers that the market requires a sustainable supply chain to be established. The Government does need to take proactive steps to introduce catalysts to get the industry off the ground. It is important that whatever incentives are put in place do not distort the market whereby large subsidies are put behind energy at the expense of the supply to the panel board mills. Everything can be kept in balance if a longer-term view is taken of the development of the wood energy market. However, if initiatives only come in Dribs and Drabs from different Departments they will not have an impact. A statement from the Government outlining the direction of bioenergy development and the policy steps that will be taken will bring clarification and give those involved greater confidence. The need for a Common Agriculture Policy (CAP), post World War II, was very evident. The Joint Committee recommends the redirection of CAP supports into a Common Energy Policy (CEP) that will make use of Biofuels and Biomass as renewable energy resources. This shift from CAP to a CEP will ensure the utilisation of existing land, set aside land and maintain rural communities that are dependent on a viable farming sector. The Joint Committee notes that, in terms of climate change, there may be a bonus in carbon sequestration afforded by the development of a CEP. Chapter 3 Sustainable Energy Policies - Transport and EnergyRecommendation 3.8 The production and use of liquid biofuels should be greatly expanded to reach the EU target of 5.8% substitution by 2010. The Joint Committee considers that this could be achieved by an overall biofuel blend requirement being placed on suppliers. The Joint Committee recommends the standardisation of biofuels and the continued support for research and development. (ST) Recommendation 3.9 The Joint Committee recommends that biofuels should be supported by the removal of all excise duties. (ST) Recommendation 3.10 The Joint Committee notes that to meet these targets there is a need to establish large-scale biodiesel and bioethanol plants. The Joint Committee recommends that the possibility of providing state assistance to encourage the conversion of the Mallow sugar factory to bioethanol production should be investigated. (ST) Recommendation 3.11 With a view, under the Biofuels Directive, of meeting the 2% hydrogen substitution 2015 target the Joint Committee recommends that proposals for the creation of a centre of excellence for the advancement of hydrogen fuel use in Ireland be brought forward as a matter of urgency. The Joint Committee also notes that under the Biofuels Directive there are targets of 7% for biofuels and 5% for natural gas in 2015. (ST to MT action with LT impact). The Transport Biofuels Directive sets out targets and requires countries to report on progress annually. The % substitution targets are:
The Joint Committee notes that current biofuel output in Ireland is equivalent to only 0.1% substitution compared to the EU target of 2% required by 2005. The first progress report of the Irish Government set out proposals for excise relief on 6 million liters of vegetable oil which would be useful in getting five or six small projects off the ground. The remaining excise relief, proposed for 1 million liters of biodiesel and 1 million liters of bioethanol, is considered by Teagasc to be too small to be meaningful. One viable plant would need 40 times that amount and as little as 250 hectares of beet would produce the necessary 1 million litres of bioethanol, which is of little significance. Biodiesel is processed oil which has had the viscosity removed in order that it will run in almost any engine whereas vegetable oil, still being viscous, requires engine modification or blending at a low level in mineral diesel before it is acceptable as fuel. Vegetable oil can be used in modified engines; this biofuel can be produced not only from rapeseed oil but also from recovered vegetable oils collected from the catering industry as well as beef tallow from the rendering industry. Advice presented to the Joint Committee indicate that there is no reason a fleet could not be run on a 5% mix of biodiesel and ordinary diesel, with no modification of engines and without compromising warranties, as long as the biodiesel was produced to EU standards. The Joint Committee considers that biodiesel and vegetable oil need full excise relief to be economically viable although with the price of diesel increasing lately the economics will have improved somewhat. Vegetable oil based biodiesel is likely to move first as we are making some progress on vegetable oil but it has a definite upper limit however as to how far it can go. Ethanol, on the other hand, may be a more difficult industry to get established but its potential in the long run is much greater as it can be produced from a wider range of feedstocks. The Joint Committee considers that Ireland needs to proceed with both, that we need to get a biodiesel plant off the ground as soon as possible but that it may take a little longer to get at least one bioethanol plant going. Ethanol can be used in a 5% blend with petrol and these results in combustion efficiency. This is a topical subject with the debate centered on the future of sugar beet-growing. The Joint Committee considers that to get an ethanol industry off the ground, either wheat or sugar beet must be used. However, it must be done on a large enough scale. To achieve our 2% substitution target we will need approximately 30,000 hectares of sugar beet or approximately 40,000 hectares of wheat to be grown. It would also need full excise relief. At a reasonable scale, the Joint Committee is advised that such processing would be just about viable and it is in this context that it recommends that the possibility of providing state assistance to encourage the conversion of the Mallow sugar factory to bioethanol production should be investigated. Recommendation 3.12 The Joint Committee recommends Public Transport initiatives to provide some measure of control of the rapid growth in private car numbers, and the spiralling energy use in the transport sector, and to bring about a shift away from commuting by car. These initiatives must include: improved infrastructure, increased availability, integrated ticketing and information systems so as to increase the use of public transport and the increased use of rail for goods transport. (ST) Recommendation 3.13 The Joint Committee recommends that vehicle registration tax (VRT) and motor tax be biased radically in favour of energy efficient vehicles (at zero net cost overall). (ST) Recommendation 3.14 The Joint Committee notes that as the cost of oil and gas rises, national exchequers will receive a revenue ‘bounce’ in the form of additional excise and VAT receipts. The Joint Committee recommends that, within an EU CEP context, a policy should be developed that requires such a ‘bounce’ in Exchequer receipts to be ring-fenced to be used as fiscal supports for all forms of renewable energy in addition to supports for R&D. The Joint Committee notes that the effect of such a measure will continue to guarantee the level of funding the national exchequer estimated and no exchequer revenue would have to be foregone in fiscal supports for renewable energy. (ST) Recommendation 3.15 The Joint Committee recommends that the Joint Committee on Finance and Public Service, in the context of its work programme, undertake a review of the above proposal. (ST) The Joint Committee notes that the transport sector is the largest energy consuming sector, is increasing at the fastest rate and is almost totally dependent on liquid imported fuel. Emissions from transport have grown by 132% since 1990. Further, the Joint Committee notes that Government Departments other than the Department of Communications, Marine and Natural Resources have responsibility for this sector and there is a need to co-ordinate action with these other Departments. The Joint Committee recognises that the terms of reference establishing the Joint Committee limit the areas which the Joint Committee can investigate. Accordingly, mindful of the terms of reference, and cognisant of the importance of transport and energy use, the Joint Committee considers that this is an area that needs to be progressed. Therefore, the Joint Committee urges the Joint Committee on Transport and the Joint Committee on Finance and the Public Service to consider including, as a priority, investigating and reporting on these issues as part of their respective work programmes. The Joint Committee in referring to the Joint Committee on Finance and the Public Service is very cognisant of the need to address the fiscal measures that are required to foster and develop a renewable energy sector and that the State must also make provision for revenue generating measures that will have to be developed hand-in-hand with the inevitable decline in revenues from hydro-carbon based excise and VAT as these sources will inevitably decline. Chapter 3 Sustainable Energy Policies - Energy EfficiencyRecommendation 3.16 The Joint Committee recommends that the Energy Performance of Buildings Directive should be fully implemented on time by January 2009 and that local authorities must be given the ability to set higher energy efficiency standards than those contained in Part L of the building regulations. (ST) The Joint Committee notes that the Energy Performance of Buildings Directive is the responsibility of the Department of the Environment, Heritage and Local Government together with the Department of Communications, Marine and Natural Resources. The Joint Committee recognises that the terms of reference establishing the Joint Committee limit the Committee. Accordingly, mindful of the terms of reference, and cognisant of the importance of energy efficiency, the Joint Committee considers that this is an area that needs to be progressed as a matter of urgency. Therefore, the Joint Committee urges the Joint Committee on Environment and Local Government and the Joint Committee on Finance and the Public Service to consider including, as a priority, investigating and reporting on the issue as part of their respective work programmes. The Joint Committee in referring to the Joint Committee on Finance and the Public Service is very cognisant of the need to address the fiscal measures that are required to foster, develop, assist and reward/encourage householders who make their homes compliant with the Directive on Energy Performance of Buildings. The Directive will make energy a visible factor, in the process of property purchase and rental of both new and existing stock affecting over 100,000 transactions per annum, through what is essentially an energy labeling system for buildings. The Joint Committee recognises the work that SEI is doing in facilitating a coordinated approach by the two lead Departments - the Department of the Environment, Heritage and Local Government and the Department of Communications, Marine and Natural Resources – and recommends that this proceed with urgency at achieving effective and cost effective implementation across the Irish construction and property sector. Recommendation 3.17 That the Government, in the context of the next National Development Plan (NDP), support incentives for the development of CHP and district heating. The Joint Committee notes that this would enable the use of some of the 60% of energy that is currently wasted from power generation plants and will help to raise the efficiency of the electricity supply from 40% to closer to the 60% level which is being achieved in Denmark. (MT) A vast amount of energy is lost to the atmosphere in power generation. In 2004 this constituted 59% or, in other words, almost two thirds of the energy is lost. The Joint Committee noted that this transformation loss in electricity generation equals the amount of energy we use in our homes. The Joint Committee also noted that Ringsend could be heated by the recovered energy from the nearby Pigeon House chimney or Shannon could be heated by the heat from the chimney at Moneypoint. The Joint Committee was informed that this energy would be put to good use in other countries that have district heating and CHP (combined heat and power) systems. All the Nordic countries have significant district heating plants alongside where they generate electricity. They pipe the recovered energy, which would have gone up into the atmosphere, around buildings to heat them thereby obviating fossil fuels to heat those buildings. T he efficiency of the electrical system in Denmark is 60%. The Joint Committee was informed that this is the result of high levels of wind penetration, high reliance on CHP, integration of the electricity and heating systems and is enabled by their strong tradition of planning. The Joint Committee was informed that larger scale take-up of CHP would be enabled by a move towards a distributed grid system, where there is a myriad of small suppliers connected to the system, rather than the centralised large grid system that we have at the moment. The current system involves large power plants, such as Moneypoint, supplying power to Dublin. Countries that are serious about utilising renewable energy sources, for example Britain, are now moving towards a more dispersed, distributed grid system. Recommendation 3.18 The Joint Committee supports the European Parliament Industry Committee’s call for an 11.5% energy saving after 9 years. The Joint Committee recommends that the public sector should take the lead in this and set higher targets e.g. a 20% energy saving in public buildings and the application of energy efficiency as a criterion in assessing competitive tenders for public contracts. (MT) Emissions from the fuels consumed by industry have remained relatively stable since 1990 despite the fact that industrial output has increased by approximately 230%. This means that industry is doing more for the same amount of energy. That is not necessarily all due to energy efficiency as some of the effect has also been brought about by structural changes in industry. The Irish economy is moving away from low value added, high energy consuming industries to high value added, low energy consuming industries. The Joint Committee recognises the work that SEI is doing through the Large Industry Energy Network (LIEN), in which 80 of our largest energy users are included, and notes that only 4% of enterprises generate 39% of all industrial related CO2 emissions. LIEN facilitates the communication of Government policy objectives and the action requirements of industry in responding to them. This included a negotiated agreements pilot scheme whereby 26 companies volunteered to engage in a process by which, in exchange for waiving a recycling or putative tax, industry would undertake a set of energy saving actions. The Joint Committee considers that the public sector should take the lead relating to all sustainable energy initiatives and that 20% energy savings in public buildings is readily achievable. The Public Sector programme proposed by SEI to improve energy efficiency in public sector buildings can act as a catalyst. The programme had three elements, namely, design studies, model solutions and an energy management bureau, in which the private sector provides monitoring services remotely to groups of public buildings with a view to improving their energy management capability and performance. The Joint Committee considers that a lot more needs to be done and that energy efficiency should be applied as a criterion in assessing competitive tenders for public contracts. Recommendation 3.19 The Joint Committee recommends that consumers should be empowered to contribute directly to the reduction of their own energy use. The Joint Committee recommends that keypad metering, as operates in Northern Ireland, should be introduced so that consumers can control their own consumption of electricity. The Joint Committee recommends that micro-generation or mini-generation CHP for individuals or communities should be permitted including the use of local distribution over the network (wheeling). (ST) One quarter of NIE domestic customers are prepayment customers who use a ‘keypad’ system. They buy electricity at a discount below the price paid by standard credit customers. They can access an array of information about their usage through their keypad which puts them firmly in control and encourages energy efficiency. A system is to be trialled whereby a higher price will be charged at peak hours and off-peak charges will be discounted. This system is sympathetic to low income small users and it also provides incentives for people to invest in energy efficiency measures. The Joint Committee considers such demand side management type schemes to be very appropriate and encourages Government bodies such as ESB National Grid and SEI to develop similar programmes. This could be facilitated through the Consumer Users Body recommended in 2.2 of this report and become part of a national energy efficiency campaign. Recommendation 3.20 The Joint Committee notes that sustainable policies, by definition, cannot just be short term. The Joint Committee recommends all-party consensus on energy efficiency and conservation policies along the lines of the Danish model. The Joint Committee considers this imperative to providing the stability of knowing that the plans and targets for energy efficiency and conservation policies will be consistent in the longer term. (LT influencing MT and ST decisions) In June 2005 the Danish Government signed off on an agreement on future energy-saving initiatives for the period 2006-2013 and further extended the agreement to electricity grid, natural gas, district heating and oil companies. The signatories to the agreement were the two Government parties and four opposition parties. The agreement sets the framework for energy saving initiatives, as well as the main elements of those initiatives, for the next several years. It also establishes a solid framework for increased cost-effective and market-oriented energy saving initiatives which focus on achieving viable savings to the benefit of consumers, enterprises and Danish society. The Joint Committee received a presentation on the nature of these agreements from Ms. Anne Grete Holmsgaard, Danish MP, on 15th November. This agreement was roughly the 12th such major agreement in a period of 20 years covering different aspects of the Danish energy sector. Chapter 4 Energy Market and CompetitivenessRecommendation 4.1 The Joint Committee considers that it is essential that the Government sets clear policy guidelines under which the energy producers and regulator will work. This will remove some of the current perceived uncertainty and risk of investing by potential additional market participants. (ST) Energy policy has been the Cinderella of industrial policy for the past 20 or 30 years. A clear energy policy based on objectives set by Government is required so as to alleviate the current confusion among regulatory bodies as to what priorities to follow. If clear targets are set it should lead to more investment in a more diversified portfolio of generation which will reduce the risk of over exposure to fossil fuels. A statement from the Government outlining the direction of biofuel development and the steps that will be taken will bring clarification and give those involved greater confidence. Ideally there should be one policy instrument for one policy objective. If there are several it becomes very complex for the regulator, for the policy maker and for those who are being regulated, also it becomes very expensive so a minimum number of instruments is desirable. It is important that we have an energy policy that coordinates a range of different elements in terms of how we design the electricity and gas markets, along with how we deal with environmental issues. The policy should also address funding of the network. The transmission system is the equivalent of a motorway and is one of the most important items of infrastructure. Yet under the current NDP energy infrastructure received €140 million compared to road infrastructure which received €6,000 million. Without a definite energy policy Ireland’s over exposure to fossil fuel with its attendance issues of price volatility and security of supply will remain unchanged for the next 20 years. Recommendation 4.2 The Joint Committee recommends that the all island Single Electricity Market should precede on schedule. The Joint Committee notes that this will enlarge the market reduce dominance and will provide the conditions for more competition therefore potentially leading to reductions in the price to the consumer. The Joint Committee considers that the establishment of the interconnection with Britain, in line with EU policy, will increase competition with Ireland becoming part of a much larger regional market. The Joint Committee considers that it is therefore essential that the Government should proceed with the proposed 500MW interconnector and should further consider the commissioning of a second interconnector possibly directly to the continent. (ST and MT) An all-Ireland electricity market within will have 8,000 megawatts of capacity with up to 60 generating units competing. The Joint Committee does not believe it is impossible to organise a competitive market with that amount of generation. Internationally, markets smaller than the Irish, operate efficiently. The incumbent’s dominant position and market-setting power must be addressed. The inherent advantages in creating a single electricity market on the island is that a more stable single power grid will be formed and efficiency will increase. The demand peak in the single entity will be less than the sum of the existing two systems. Administration overheads should also be reduced by the elimination of duplication in the bigger single market. First estimates are that this will initially result in a 4% decrease in costs to the consumer. Further savings in the medium to long term from the economies of scale and from the installation of the additional new interconnector between the two parts of the island should relieve current restrictions and relieve a trading barrier. The single market is expected to be in place in 2007 and when it happens the incumbents’ market shares, North and South, will fall. It is estimated that in the South this will be to around 40%. This reduction is welcome but it is not at a point where market power is eliminated and so regulatory mechanisms will still be needed in the expanded market. The design of the new all island market will be for a gross pool into which all electricity will be traded and therefore generators have a ready made market for their electricity which makes entry by new generators easier than the existing market structures on both sides of the Island. This should be seen as the first step. In the medium term Ireland should become part of the larger EU regional market through interconnection with Britain and mainland Europe, which will keep downward pressure on the general price of electricity. Electricity generated from renewable sources is expected to be an essential component of the future generation mix in Europe and the inherent advantage that Ireland has in the production of renewable energy will be maximised by being connected to the larger markets in Europe. The interconnectors need to be at a sufficiently large enough size so as to enable optimisation of two way flow which would increase competitive pressure in the market. The first 500MW inter-connector should be started this year, as planned, and further connection to another location in Britain or direct to mainland Europe through the proposed super grid should be planned. Recommendation 4.3 The Joint Committee recommends, in order to encourage a more rapid penetration of renewable energy into the market and foster confidence, a fixed feed-in tariff system for renewable energy is required. In the longer term, more market based schemes can be considered. (ST) The renewables sector must be allowed to grow during the next decade. Renewable energy projects are capital intensive, approximately one billion euro of additional investment will be required over the next four years to enable Ireland’s commitments to having at least 13.2% of electricity produced from renewable sources. A stable and predictable environment is required to provide confidence for private investments to be made and the experience in Europe has been that this is initially best provided by a fixed feed in type of tariff. This is especially necessary for the smaller indigenous developers. It will also enable companies to see cash flow for the next five, ten or fifteen years and so provide the confidence to the market so that jobs can be created in manufacturing. The fixed price for renewables generation is independent of fluctuating and increasing fossil fuel prices. Therefore it lowers risk and overall cost when included in a portfolio of generation from other fuel sources, oil, gas or coal. Currently the market for the sales of renewable generated electricity is limited to a few players, in the longer term when connections to the larger markets has been developed and are readily available, more open competitive type trading should be considered Recommendation 4.4 The Joint Committee notes that the current regulatory system is perceived, by consumers, to be unfair, that it has led to the high cost of electricity and gas, and that it is in need of restructuring. The Joint Committee recommends that the views of business and domestic consumers in any new structure needs be heard. This is so that the regulator is cognisant, at all times, of the impact of its planning and decisions. (ST) The CER is responsible for the approval of end user prices for electricity for the public electricity supply from ESB. This sets the market price against which the independent supplier must compete. A bilateral trading systemThe first objective of a trading arrangement is to promote competition and incentivise entry. The prevailing trend across European countries, in terms of electricity prices, has been for prices to fall, although this trend has slowed in the recent past. This could be expected during the moves to competition in the market and also because of improved technology and efficiencies. In contrast to the EU trends, there have been sharp price increases in Ireland. A tightening has taken place in the margin between power supply and demand on the Irish power system. This arose because of the very rapid increase in demand over the past ten years which has increased by over 50 per cent, the delays in the building of new power generation; and the serious deterioration in the performance of existing generation stations in terms of availability and breakdowns. Generation which was available to be called on decreased from 88% 2002 to 76% 2004. The problem is that the performance of our current plant is poor. The Joint Committee observes that this plant performance is not alone due to plant age or the time available to carry out maintenance. We have consistently urged our generators to improve their availability levels. There is a national need that generating plant performance is brought up to best international practice and maintained there The new Market Arrangements for Electricity (MAE)The new system, decided upon by the CER, was known as Locational Marginal Pricing (LMP). This sought to encourage generators to locate in areas which minimise costs to all consumers and avoided congestion. The Joint Committee welcomes the decision of the CER to give further consideration to this issue before embarking on such major expenditure. Concerns which had been raised about the proposed MAE included complexity, cost, price volatility, and the strong likelihood that it would not be successful against the background of the dominance of ESB generation. In a regulated system, electricity prices are set in the regulator’s office. Investors are very reticent about investing in such markets as they see too much political and regulatory risk involved. Investors invest on the basis that by performing better than the dominant company, they win customers, take market share and make money for their shareholders. Not being assured about the investment environment is a huge disincentive. The CER controls which costs are allowed for strategic infrastructure network to permit renewables. In regard to the gas grid costs should be recovered over long time periods instead of in short time frame. The CER has been short term orientated and in the opinion of the Joint Committee has no perception of energy security. Recommendation 4.5 The Joint Committee recommends, to deliver sustainable competition the electricity sector, it should be structured in such a way as to reduce dominance and therefore enable companies with a portfolio of generation capacity to compete with one another. (ST) Competition depends on new players in the market. Creates the right market climate and environment and, in the opinion of the Joint Committee, there will be plenty of people interested in entering. Power companies from across the world look at various markets and pay specific attention to whether a market needs new capacity. A dominant player in the marketplace is a major issue for new investors. The investment community is not persuaded, nor in the case with Ireland does experience indicate that regulation can effectively curtail dominant behavior. The key area of design lies in the question of how to manage the dominant position of the incumbent because for over 90% of the time the current portfolio of the ESB plant will be setting the price in the market. This is not disputed by ESB. Since the establishment of CER only one company has entered the market of its free will - all others are contracted to ESB. The current dominance of the ESB is dealt with through contractual obligations on ESB power stations and that each station behaves as if it is independent. In common with the Competition Authority, Joint Committee believes that structural changes will be necessary. The reality is that ESB Power Generation holds most of the mid and low-merit, (i.e. price-setting plant) which means it has a virtual monopoly to set electricity prices each half-hour. The introduction of competition and of a new trading system will need to address dominance. If that does not happen, consumers would not benefit, as they should, from competition. The Joint Committee notes that there would appear to be a certain scepticism as to the likely success of the so-called “regulated” solution to dominance. The Joint Committee notes that successful competitive market in Europe (England and Wales, Scandinavia and Spain), have properly unbundled integrated utilities and structurally reduced participant market power. The Joint Committee considers that the current electricity market does not work in terms of either exerting downward pressure on prices or incentivising new investment. The dominance of the incumbent in generation in the market is perceived by potential investors as a major problem. The Joint Committee considers that at the moment Ireland is stranded between two policies that are proving very expensive for consumers. The Joint Committee considers that there are two aspects to having a successful electricity market. One is to have an efficient structure in the market which deals, among other things, with dominance and to some extent with market share. The other is the market rules or market architecture. Dominance results from price-setting ability, which does not have to be particularly related to market share, rather it is related to the ability of the incumbent utility to set prices because it controls mid-merit plant - that is the plant which starts up and shuts down every day. The Joint Committee notes that it is this plant that, in reality, determines prices. Even if ESB was to reduce its dominance to 60% or 40% of market share there is a suspicion that the ESB would still control most of the mid-merit plant. Therefore, in the opinion of the Joint Committee the structural issue of competition needs to be addressed. Spending money on rules and introducing new markets and new institutions will not provide value for money for the consumer. The Joint Committee’s concern is that very large quantities of money - not just tens of millions but hundreds of millions of Euro – could be spent trying to introduce market rules when the structure is not conducive to this. Recommendation 4.6 The Joint Committee recommends that the Government publish the Deloitte and Touche report on the electricity market in Ireland and that it set out the means by which it wishes to ensure that we have a competitive energy market. (ST) The Deloitte and Touche report on the electricity market in Ireland was commissioned by the Government. The report was made available to the Commission for Energy Regulation but it was not made available to the Joint Committee, however there were rumours that the report will recommend the break up of dominance in the electricity market. It was important that the report be published so as to provide openness and transparency. It is a major difficulty for a generator contemplating investment that the network owner, which is also the dominant incumbent generator, can essentially vary the price of electricity. This is entirely a policy matter and within the sole preserve of the Minister. Recommendation 4.7 The Joint Committee recommends that the Government support the new European Union Green Paper and have particular regard to the development of a more open and competitive European electricity and gas network. (ST) Notwithstanding the most recent EU Green Paper, the Joint Committee strongly recommends that the Government should support the development of a Common Energy Policy (CEP) that would utlaised the market supports formerly available under the Common Agriculture Policy (CAP). In this regard the Joint Committee notes that the CAP was necessary post World War II as Europe sought to guarantee the continuity and price of its food supply. Market forces would not maintain production stability nor the price of food as price fluctuation dictates production. Overproduction or abundance in a harvest depresses market price and under production or a poor harvest would increase the market price. The central tenet of the CAP was the guarantee of a production price. This stability allowed farm investment and facilitated the move to specialisation. The CAP guaranteed a farmer that if market prices fell (due to over production) then the surplus produce would be withdrawn for intervention and the farmer paid a guaranteed price that, at the very least, covered the cost of production. The storage of surplus produce in intervention allowed, in time of crop underproduction (due to harvest failure - inclement weather), for release of the stored surplus to the market. In theory the CAP was a mechanism to maintain the price/production market balance while ensuring that Europe had a sufficiency of food to feed itself. However, CAP was an inefficient method for ensuring market stabilisation as the emphasis was primarily on a guaranteed of price irrespective of production. As production became more intensive, farmers moved from mixed farming into specialisation and as technology ensured greater yields there arose a massive problem in over production relative to price/demand. To tackle these problems there were several attempts to reform the CAP – the move to set-aside, the move from intensification to extensification, the move from guarantee to guidance; however, while each had a limited impact the central problem of over production still remained. The latest CAP reform measure, de-coupling, will have an impact on over production but there is a potential problem with land utilisation. However, land utilisation can be tackled in conjunction with the CAP reform in a manner that maintains the viability of Rural Communities. The need for a Common Agriculture Policy, post World War II was very evident but what is now needed, in a European context, is a Common Energy Policy that will make use of Biofuels and Biomass as renewable energy resources with the bonus, in terms of climate change, that the carbon sequestration that that these will afford. Such a paradigm shift from a CAP to a CEP will ensure that utilisation of existing land, set aside land and maintain the Rural Communities that are dependent on a viable farming sector. Post the direct de-coupled single payment CAP reform the farming community could be encouraged to produce agriculture bases renewable energy sources (Biomass and Biofuels) that a CEP must deliver as Europe and the World comes to terms with dwindling fossil fuel resources. Land utilisation, which will be affected in the reform of the CAP is, within the context of a CEP, very important as the planting of Biomass and Biofuels will add to the carbon sink as farmers are supported in the move from cattle production (methane production) to the carbon filter that plant foliation affords. The need for a Common Agriculture Policy (CAP), post World War II, was very evident. The Joint Committee recommends the redirection of CAP supports into a Common Energy Policy (CEP) that will make use of Biofuels and Biomass as renewable energy resources. This shift from CAP to a CEP will ensure the utilisation of existing land, set aside land and maintain rural communities that are dependent on a viable farming sector. The Joint Committee notes that, in terms of climate change, there may be a bonus in carbon sequestration afforded by the development of a CEP. Section 2Chapter 5 Society and Community5.1 Access to the Natural Gas Network The Joint Committee recommends the expansion of the natural gas network to the Midlands, the West and the Northwest. The Joint Committee was addressed by several members Deputy Keaveney addressed the Joint Committee. “I was not long in the Dáil when I went to lodge a cheque in the Bank of Ireland branch on St. Stephen’s Green. When the bank assistant saw that my address was in County Donegal, I was asked whether I wanted the money in pounds sterling or punts. This is a similar case of “heads you lose, tails you lose also”. Bord Gáis has no plans to develop in the north west……I do not know whether the regulator should intervene but this is not something we should have to fight for with a State agency. The map speaks for itself. Unfortunately, as Senator MacSharry stated, the map does not speak for itself in regard to gas alone. This corner has been fought with different boards and there has been a similar fight in regard to improving east-west cross-Border road, rail and air links. When I am asked whether I want everything considered, I reply that I simply want what everyone else has. I declare my interest in representing Donegal North-East and Inishowen. I concur with the points made by Senator MacSharry and I thank the Chairman for the opportunity to contribute.” Is regard to questions, Mr. Walsh CEO of BGE responded: “Regarding network development in general, Bord Gáis Éireann is well disposed towards growing the network. It is our core business and our track record over the years has been to extend the network wherever possible. We are mandated by the gas Acts to execute economic projects that will earn a reasonable return on investment and all extensions are evaluated on this basis. The network is paid for by customers through the gas tariffs. If we were to add uneconomic projects with the blessing of the regulator, gas prices would increase. This is what drives our decision making. The criteria for evaluation of network extensions are set by the regulator in order to achieve a balance between growing the grid on the one hand and competitiveness of gas prices on the other.” Deputy Kelly, a member of the Joint Committee posed a question for Mr. Walsh: “Gas should be available to the people of Mayo, Sligo, Leitrim and Longford as it would be handy to run the pipe through those counties. Could the chairman and chief executive of Bord Gáis and the Chairman of this committee work together to make a case to the EU to provide grant aid for the infrastructure required to bring gas to areas such as Longford? Longford is a RAPID town and parts of the county are in a CLÁR area.” Mr. Walsh replied: “As stated, it is part of our core business. When there are opportunities in economic terms to do so, we embrace them. Deputy Kelly will be aware that we have considered the position of Longford on a number of occasions to see how it might be economic. We have not had a positive result in that evaluation. However, we would be happy to revisit the matter as suggested.” Senator McHugh addressed the Joint Committee: “I also represent the north-west region. If one looks at the map and the proposed extensions of the grid from the Corrib, one will be obliged to ask why such an extensive area of the country is being discriminated against. I accept Bord Gáis must adhere to economic criteria but this is discrimination. There are other criteria which must be considered. For example, Bord Gáis is a semi-State body and the larger part of its accountability is to the State. People in County Donegal or County Mayo pay the same amount of tax as people in County Cork or County Kerry and we expect the same return from those taxes in service delivery”. Deputy Perry addressed the Joint Committee: “I welcome the expansion of Bord Gáis into Northern Ireland. However, we are discussing equality of access and services and the stacked up costs involved in doing business in the west as opposed to the east coast or the south. The costs are considerably accelerated. An industrialist seeking to set up operations in the west would be discouraged if he or she looked at the map. What we have been presented with is not good enough. Mr. Walsh has stated it all depends on the criteria set by the board. It is stated investments were made on an economic basis in line with the board’s criteria and the company’s commercial mandate. What is its commercial mandate for the west? Does it have such a mandate for the region?……Senator McHugh referred to the BMW region and the huge incentives available. Why has Bord Gáis not taken advantage of these incentives, particularly those relating to taxation? I find it extraordinary from my perspective as a business person that it has not provided for a level of development on the western seaboard and that it is removing gas from the region and piping it to homes and businesses in every area of Ireland other than that from which it came.” The Joint Committee was advised by the Ballina Chamber of Commerce about the report they had commissioned to examine the feasibility of bringing a gas spur to Ballina: “I wish to indicate the benefits of a gas supply and its importance to regional development and consider current energy policy and its effect on the connection of western towns to the natural gas grid. It is important to note that County Mayo has endured significant energy deficits, with no access to natural gas supplies, and experienced significant difficulties with the electricity transmission grid. Gas is an efficient energy source that reduces production costs in a range of industries, especially when used in a combined heat and power, CHP, system. It is the cleanest of all fossil fuels with the lowest greenhouse gas emissions. Its use gives better fuel quality. It is an ideal fuel for supporting the use of intermittent renewables such as wind energy. There has been a major industrial uptake wherever it is available. A gas supply is important for regional development. As the gas grid has expanded, gas supply availability is now taken for granted in many areas and the lack of gas infrastructure in a town can become a disincentive to new investment. Industries without access to a gas supply have a restricted choice of supply options. They face higher emission charges and will face increased costs, thus becoming less competitive. As areas without natural gas supplies will find it harder to attract new industry, investment in gas infrastructure brings long-term benefits. Manufacturing industry is particularly important in the west where there are both traditional manufacturing industries such as food processing and advanced manufacturing industries with clusters of pharmaceutical and health care companies, some of which are high energy users. These and other industries need quality, modern and efficient power sources as their energy supply is important to their competitiveness. Good quality energy supplies are also important to attract other advanced manufacturers to the region. Natural gas supplies can allow us to attract such industries. They allow us to improve energy infrastructure quickly without some of the problems associated with planning for electricity transmission. They can also support generation in an area which can help improve the transmission system. Under current energy policy, energy infrastructure is provided at arm’s length from the Government by Bord Gáis Éireann, ESB Networks and ESB National Grid which operate in the market regulated by the Commission for Energy Regulation. The Western Development Commission believes policy for developing infrastructure should not be subservient to those for developing the market. Developing infrastructure is a policy issue and policy decisions should influence regulation. Today we will mainly talk about gas distribution pipelines, those pipelines or spurs that bring gas to individual towns. Transmission pipelines are the longer, larger pipelines for transporting gas across the country. In 2003 the Commission for Energy Regulation published its gas distribution connection policy for new towns. The policy involves investment appraisal methodology for new towns connecting to the natural gas network. The appraisal method comprises a net present value test, the NPV test, of estimated costs and revenues. The NPV must be positive if a town is to be eligible for connection. Unless the policy stance changes, none of the western towns is eligible for connection to the Bord Gáis Éireann Mayo to Galway transmission pipeline. Many of the towns which now have access to the natural gas network were connected when the criterion for assessing connection was not so strict. Towns in the west which up to now have had no chance to access natural gas infrastructure face stricter rules and higher hurdles in the investment appraisal of their connection. This is not equitable. Our concerns over this and the lack of access to a gas supply for western towns prompted the Western Development Commission to work with Ballina Chamber of Commerce on the issue and support the Enercomm study of the feasibility of gas connection for Ballina.” Mr. Greg Jackson, a member of the Ballina Chamber of Commerce infrastructure committee made specific reference to the feasibility report: “Ballina Chamber of Commerce has been aware for some time that the towns in County Mayo do not currently qualify for connection to the gas line. We commissioned this detailed report, choosing the consultants Enercomm International because they had already worked for Bord Gáis Éireann and the CER. The consultants spoke to every significant industrial and commercial entity in the area to establish the likely demand and liaised with the CER and BGE as to standards for capital costs and a methodology for appraising feasibility. The report is robust and conservative by any measure. At a recent meeting with the CER it commented that we had identified the key issues that would have to be reviewed in the context of the connection of new towns to the gas network. Specifically, the report looks at current CER rules for measuring feasibility of connection of a new town and applies these rules to the case study of Ballina. The CER methodology is central to our case. As explained by Dr. McHenry, the CER applies a return on investment appraisal methodology called NPV which sets revenue from commercial and residential users against the capital and operating costs of a new connection. It is normal and acceptable in commercial applications of this method to recognise revenues over the useful life of the asset, known as matching maturities. In the case of gas infrastructure, the useful life is 40 years. Despite the asset having a 40 year lifespan, the CER’s methodology only allows for seven years revenue from commercial and industrial clients in the calculations. When further considering that the CER defines industrial and commercial clients to include schools, hospitals, churches, Government buildings, hotels and offices - not exactly high risk sectors - the seven year rules seems bizarre. This guillotine approach is clearly inappropriate and central to the reason new connections in County Mayo are not deemed feasible under current rules. The seven year rule effectively suggests the commercial life of any subject town would completely stop in seven years and as of midnight in year seven there would be a commercial armageddon and no further revenue would accrue from the gas line from this sector, which is completely irrational. The British gas market, when appraising new infill towns, will use a timeframe of up to 20 years for industrial and commercial clients. These inappropriate rules raise the bar to an impossible level. In any commercial analysis many of the towns in County Mayo would qualify, yet it is impossible to do so using the current method. Clearly, the feasibility method is unfair vis-à-vis other towns connected prior to the introduction of these rules in 2003. Examples are Clara in County Offaly and Virginia in County Cavan. The current rules are too strict and may restrict the market in the long term. The key findings of the Enercomm report are that the sharing of operating costs with a cluster of towns, when several towns come together to connect to the pipeline, makes this more feasible. It would make sense for Ballina, Westport, Castlebar and Claremorris to connect at the same time. It is a clear finding of the report that the connection of Ballina to the gas network would be more than viable using a rational viability method and assuming the sharing of costs. Corrib gas is a natural resource that will bring benefits to the whole island. County Mayo is proud to be the bearer of this wonderful asset but we expect a fair and viable distribution of this resource once it comes ashore. Doubling the industrial and commercial timeframe from the current seven years to 14 would render the Ballina case study viable while still being significantly less than the 20 years used in the British model or the 40 year lifespan of the asset. Ballina, Westport, Castlebar, Claremorris and some other towns should qualify for connection. This would benefit all other towns throughout the county.” Mr. Jackson in reply to a question on seven year criterion advised Senator MacSharry: “A seven year term is used but because it is a start up scenario, there is an inevitable ramping up period while everyone is connected. This could take up to three years. Effectively, only the last four years of full usage are taken into account in revenue terms. By the time everyone is connected, four years of revenue must cover all the costs of an asset that will last for 40” Referring to a question on subvention Mr. Jackson continued: ”There is no question of that. This is done by commercial analysis. All the costs as recommended by Bord Gáis are taken into account in this report and it is estimated that it will cost €120,000 per kilometre to put this distribution line into the town of Ballina. The consultants add up all the costs and in measuring the revenue they are being very conservative. The DKM report for Letterkenny assumed a certain level of usage per head of population of 200 therms whereas the Ballina one assumes 150 therms. Everything is taken into consideration. One simply applies the revenue one gets to the cost of putting in the facility. If it achieves a certain return on investment it makes commercial sense that it should proceed. If costs are measured over the appropriate term, it is viable and needs no subvention” Mr. Jackson made reference to the position as seen from BGE’s point of view: “It is my understanding that the hands of Bord Gáis are tied. If it has to abide by the seven-year rule it will not happen because it will not be viable. When the initial policy was presented in 2003 various submissions went to the CER regarding changes that might be made, some of which were from Bord Gáis. Dr. McHenry will refer to that. Nearly all the submissions suggested that the seven-year rule was insufficient and that it would be more appropriate to use a ten or 15-year rule, although international standards set it at 20 years. It is my understanding that Bord Gáis would be delighted to proceed under those circumstances. It would make commercial sense to do so because there would be a return on investment. It is not possible for anybody to make a return on investment if it is truncated to seven years.” Deputy Broughan queried whether there would be an advantage if costs were shared with other towns: ”Under the existing methodology if the cost is shared between two towns the negative result of the test is approximately €1.4 million. If the industrial and commercial term is increased from seven years to 15 years that would have a positive impact of approximately €1.6 million. That alone would make the connection feasible. The sharing of costs between the towns is still essential. It costs approximately €350,000 for one cluster per annum, which is a significant cost over the term. If that is shared between three towns it is cut by one third” Senator MacSharry raised the question, with the CER, of a gas supply to the North West within the context of the national spatial strategy and Mr. Tutty of the CER replied: “We are aware of the national spatial strategy and will support it as much as we can…… we would be talking to Bord Gáis about the principles and methods of calculation which it would use in determining whether a pipeline or a spur from a pipeline is economic and should go ahead. Whatever costs are incurred have to spread among all the customers in the system. We heard earlier about the Northern Ireland situation where they simply ran a competition whereby whoever found it economic to run the system got the go-ahead. We have not taken that sort of action in the South as yet. Bord Gáis is the sole transmission pipeline developer………..If the pipeline to the north west is economic, Bord Gáis would be willing to build it, and others would be interested in building it. The issue is the economics, and how we deal with them……..The CER has tried to ensure that the pipelines built pay their way, so that the general consumer in the country is not being asked to pay more money.” The Chairman asked whether the methodology used in Northern Ireland for calculating the costs of spurs could be used in the case of the Corrib pipeline. Mr. Tutty replied: “In terms of the Corrib pipeline to Galway, we are looking at the basis on which Bord Gáis determines what is an economic proposition with regard to which towns along the way should be supplied. The existing criteria are probably too tight, too narrow. We are looking at whether they should be widened.” Senator MacSharry raised the investment criteria applied to gas pipeline extensions and the apparent lack of regard for the national spatial strategy by the CER. Mr. Tutty replied: “An obligation is not imposed on us to develop gas throughout the country. We have obligations to regulate the sector and to keep consumer prices down, among other things. In Northern Ireland there was a subsidy for the gas pipeline going over to Derry. If there was some type of subsidy in place here that made the project economically viable for the gas consumer, it would naturally be much easier to do it. However, we do not have the basis on which to provide a subsidy to Bord Gáis to run a pipeline. To some extent it is a question of Government policy on the development. The seven year period for industrials in the NPV calculation is undoubtedly one of the elements we are looking at in the review of the policy. Without revealing what is to emerge, I should be surprised if that seven years stipulation remains under the new criteria.” In reply to further questioning on the economics of providing gas pipelines in the North West Mr. Tutty stated: “Bord Gáis does not have a legal monopoly in providing transmission facilities. If any company wants to build a transmission line in the north west, it can do so. The economics would obviously need to be right for the company to do it. From a formal point of view, there is no monopoly so it could be done. A question was asked about bringing gas to Longford, but we still come back to the same issue of economics. There is no gas where I am living in Allenwood, County Kildare. Bord Gáis has to look at the economics of the situation. Ballina Chamber of Commerce mentioned the seven year issue when it visited us recently. We are reviewing the criteria under which decisions are taken and the seven year estimate will certainly go up. There is agreement that it is not really suitable.” 5.2 Agriculture and EmploymentThe Joint Committee notes that co-firing, in peat stations, of biomass from both conventional forestry and short rotation sources has been proven and is both carbon neutral and indigenous. It recommends full conversion of these stations to biomass by 2020. The Joint Committee considers that this will contribute to the long term viability of the Midlands area. To promote the use of local indigenous biomass production and provide a kick start to this new industry, the Joint Committee recommends an initiative that provides support for medium/larger boiler installations (100kW to 5MW) where there is a demand for heat throughout the year (such as hotels and hospitals). The Joint Committee notes that current biofuel output in Ireland is equivalent to only 0.1% substitution compared to the EU target of 2% required by 2005. The production and use of liquid biofuels should be greatly expanded to reach the EU target of 5.8% substitution by 2010. The Joint Committee considers that this could be achieved by an overall biofuel blend requirement being placed on suppliers. The Joint Committee recommends the standardisation of biofuels and the continued support for research and development. The Joint Committee recommends that biofuels should be supported by the removal of all excise duties. The Joint Committee notes that to meet these targets there is a need to establish large-scale biodiesel and bioethanol plants. The Joint Committee recommends that the possibility of providing state assistance to encourage the conversion of the Mallow sugar factory to bioethanol production should be investigated. Wood Biomass COFORD is an agency of the Department of Agriculture and Food. It is responsible for the research and development policy for the forestry sector. Its Dr. Eugene Hendrick advised the Joint Committee. “I would like to speak about wood biomass and why COFORD is very excited about its potential as a fuel. Unlike oil, wood biomass is a fuel of the future and we feel it has a significant future in Ireland. We have a growing and readily available supply of wood in our forests. There are no technical barriers to the use of wood energy as wood chip or wood pellet; the technologies are well proved. The development of this sector offers very significant business opportunities both nationally as well as for local and rural communities. It will make a significant impact on Ireland’s compliance with our Kyoto targets on greenhouse gas emissions. It is a win-win solution for energy policy and economic development. Most importantly with the right mix of policies it can be brought on-stream rapidly.” Mr. Joe O’Carroll, Operations manager of COFORD advised the Joint Committee: “As my colleague Dr. Hendrick pointed out, wood energy is a source of renewable energy. It is also sustainable and can be independently certified as being sustainable through Forest Stewardship Council approval. It is recognised as being carbon-neutral under the documents that go along with the Kyoto Protocol. We are only talking about a domestic resource and not about importing a product. It is a very positive story. We have a resource that is a solid fuel like coal, which can compete with oil and gas. The technology for converting it to energy is proven technology. If one throws a dart at a map of Ireland, there is a one in ten chance of landing in a forest. No matter where one is, wood biomass can be sourced locally. That is a key issue. There is a potential to displace fuel that we are importing from very significant distances overseas. This is a local resource that can enhance our security of fuel supply and it could be supplied by local farmers or forest owners. There are a number of ways of converting this material to energy, such as electricity or heat. There is also a prospect of converting this to liquid biofuel, but the technology is still some way off. The proven technologies produce electricity in isolation, heat in isolation or combined heat and power. There is one combined heat and power plant running on biomass called Grainger sawmills, which is based in Enniskeane in County Cork. The potential certainly exists to co-fire some of the existing power plants in Ireland. The peat burning power stations are the obvious locations to co-fire, because the fuel is quite similar to milled peat. However, our preference is to use it for heat only. Approximately 40% of our annual energy demand is in the form of heat. We would like to see the market opened up for woodfuel, both in the co-fired sector and the heat-only sector. We believe that the strongest case for Government incentive in the wood area is to support the installation of wood biomass boilers to help create the market for this material. We have done some work on that already. We feel that if a capital grant scheme was put in place to support the installation of 100 MW of installed capacity in biomass boilers, we would have 500 boilers around the country. The size would be suitable for heating a hotel, as we are not focusing on the domestic level and we want to get the biggest bang for our buck. Another example would be public buildings. Under the new decentralisation programme, all new buildings should put in biomass boilers where the fuel can be sourced locally instead of relying on imported fossil fuels. There is a strong financial argument for that, as well as a strategic argument. Such a scheme would displace approximately 130,000 tonnes of imported oil, would use some 200,000 tonnes of woodchip and would displace a very significant amount of CO2 emissions. There would be a payback period to the State of four years in terms of reduced CO2 emissions. Therefore, we believe there is a very strong argument for such a scheme to be introduced. There are two ways to move forward with wood energy. One is to bring about an opening up of the market in the three peat burning stations to allow market access for biomass. The other way is to look at a capital grant scheme that would support the installation of wood biomass boilers in as many as 500 sites around Ireland over the next three to five years. If that did happen, a grant scheme would not need to exist in perpetuity. We feel that a short, well targeted capital grants scheme over a three to five year period would be sufficient to bring about a critical mass, whereby the sector could be self sustaining after that.” Mr. George McCarthy on behalf of Coillte advised the Joint Committee: “We are dealing specifically with what is in the forest and what comes out of the sawmills. We are not talking about construction waste or demolition waste. On a European scale, the diagram shows Ireland’s renewable energy targets for 2010 and what we have to achieve. We have moved from a being a society which used coal and peat as domestic fuels to one which uses oil and gas. From a wood biomass perspective, sawdust and chip are used in the wood processing industry. Fuel wood can be used to produce electricity by firing it on its own or co-firing it for combined heat and power or for heat only. COFORD agrees that the advantages of fuel wood are more obvious in the combined heat and power and heat areas. We carried out a joint project with Edenderry Power on co-firing in which our wood chip was mixed with peat, which was found to work quite well in the company’s power plant. The issue is economies of scale. While a supply is available, it is not being obtained in a cohesive manner at the moment. The sources of wood biomass supply are sawmill residues, small diameter roundwood and forest residues. Coillte’s estimate, which does not contradict anything COFORD has said, is that 139,000 cu. m of forest and sawmill residues are available. The supply will rise to 1.139 million cu. m in 2015. 1.384 million cu. m in 2020 and 3.289 million cu. m in 2030, which projections are based on a continued afforestation programme of 15,000 hectares which we believe is feasible in the private sector. Coillte itself is only marginally involved in the expansion of its estate. While we replant and restock any of the areas we clear fell, the greatest volume of future supply for the sawmill industry or energy market will come from the private sector. It is an opportunity I am sure the IFA will address later on. The graph circulated to members outlines the potential residue balance assuming the industry grows with the available supply. As the supply grows, the industry grows. While there is excess capacity, it is not currently exploited. Our assumptions are based on the current rate of achievement in the programme of 15,000 hectares per annum. The Government strategy target is 20,000 hectares per annum. The figures relate to the island of Ireland not just the republic. In Europe, especially Finland and Sweden, potential and actual production depend on when private landowners want or do not want to harvest timber. It does not come on stream on an annual basis at a regular rate. Of sawmill residue, 70% is wood chip, which product is supplied to the processing sector. In our sawmill’s case it goes to Warehouser in Clonmel, M’asonite in Carrick-on-Shannon and, to a lesser degree, Finsa in Scarriff. Bark is supplied to the horticultural business or for panel boards or boiler fuel while sawdust is sold to processing plants or exported. Residue availability is affected by simple economics and price. Many mills have agreements with processing plants to supply clean chip. Many mills are considering the development of their own combined heat and power plants or wood pellet projects. The prices products from the sawmill get ex-yard are as follows; chips, €23 per wet tonne; sawdust, €7 per wet tonne and bark, €14 per wet tonne. Forest residues are produced where we thin or clear fell an area and have what we call the “lop and top”. This refers to the branches and tops of trees which are below merchantable material standards as well as broken bits and pieces. There is potential to produce 150,000 cu. m of wet, green fuel wood in this process. The current paying capability for energy is approximately €25 while the cost of harvesting and transporting residue is between €30 and €35 per cu. m. It is in this area that there is a technology gap. If one is simply felling for fuel wood, one must fell a tree, leave it in place for up to a year and then bring in technology to chip it. It is a long process as the wood must be permitted to dry to approximately 20 to 25 degrees of moisture. The other issue with residue supply involves the removal of “lop and top” which degrades a site from a future crop point of view. While there is potential in this area, a balance must be struck. One cannot take away all of the lop-and-top material if one is to avoid having to introduce other fertilizers to promote the crop. There is also the issue of extraction. I turn now to the potential of private forests. It is estimated that there are 290,000 hectares of young plantation in Ireland, which has the potential to constitute a significant source of energy. The cost of harvesting and chipping, however, is excessive, which is where the issue of technology comes in. At issue is whether to provide a subsidy for harvesting and processing or to support production with capital grants which provide institutions with funding to develop capacity. While there is no doubt that opportunity exists, something is needed to generate usage, which is not to say this is a chicken and egg scenario. There is a lack of tradition of using wood in Ireland. In Austria, logs are cut every year to a certain length and stacked outside houses for use and 80% of wood biomass is used for domestic heating. There is no market in Ireland for district heating as there is in other countries nor are there market support mechanisms to offset capital cost. Coillte considers these to be issues which must be addressed if we want to encourage the use of wood as an alternative source of energy. The volume of available wood over and above current demand is limited but that would change if there were incentives. One would get people bringing in technology to utilise it. Wood has the potential to contribute to the national energy requirements according as the current plantations develop and if the Government strategy on forestry continues; in other words, if there is Government support for a continuation of the effort to reach the target of 20,000 hectares. As Mr. Hendrick and Mr. O’Carroll stated, there are other benefits. Wood is carbon neutral and can be replaced. There are 12,000 forest owners. In Europe where there is no market a farmer will not harvest his timber. There is a need to create that market, whether it is for energy purposes or to encourage farmers to utilise the thinnings and manage their crops in the long term. Wood biomass cannot compete economically with fossil fuels at current oil and gas prices but that is changing. If oil goes to €60 or €70 a barrel then one would certainly be looking at wood as an alternative. It is important that whatever incentive is put in place we do not distort the sector, in so far as there is a good balance at present. We supply some 80% of the product going into the processing industry. If one were to put large subsidies behind energy then the supply to the panel board mills could be at risk. We can keep everything in balance if we take a longer-term view of the development of the energy market. In countries like Finland where the energy aspect kicks in, it is at the end of the chain. It has the lowest paying capability of any product along the value chain. In the immediate term, the commercial development of wood directly from the forest is limited. One could say there is 250,000 thousand tonnes of residue available, that is scattered all over the country. The average size of a clear fell is about 8 to 10 hectares. One would get approximately 150 tonnes off each site. One has all the attendant logistical problems of getting it from A to B to C and getting into a form where it is of value. However, it still presents an opportunity. If the market is there, it will be driven differently. The combined heat and power option is best where the sawmill brings in the log and gets sawn timber and residues. The latter can be used to heat a plant, make pellets or whatever. We are heating our new headquarters in Newtownmountkennedy with pellets. Balcas, which is located on the Border in Enniskillen is one of our major customers, and it has developed a pellet making plant. In Cork, South Western Services, SWS, has a combined heat and power plant at Graingers sawmill. Developments are taking place in this sector but the big issue is how to generate interest in it. In the medium to long term there are opportunities.” In answer to a question from Deputy Eamon Ryan as to why he was limiting his proposal to medium sized boilers and not extend down to the much wider domestic market, Mr. O’Carroll replied: “In the immediate short term, there will be a constraint on the amount of material available, certainly over the next three to five years. The volume of available material will increase and there is also the possibility to look at short-rotation coppice to further increase the amount of biomass available. The choice of 100 MW is based on using approximately 300,000 tonnes of wood chip. We believe that is what is realistically available in the short term. The 100 MW limit is really constrained by the raw material.” Deputy Ryan then posed the question: “Wind is one source of renewable energy electricity generation supplies, but as it is variable we need a backup renewable which would provide a base-load power plant. Coillte has stated that gasification, CHP options such as small-scale gasification from pellet to gas to a small turbine and a combined heat output is possible. Why is this not being pushed, given the technology that has been developed in Austria and elsewhere?” Mr. O’Carroll replied: “Combined heat and power is an option and we would not discourage people from doing that. In terms of electricity I mentioned there is the potential to co-fire the existing peat burning stations which would not involve capital expenditure. We could do that in the morning if certain other issues were addressed. We are not being negative about the potential to produce electricity but we believe small-scale, localised, heat-only operations are the most efficient in terms of energy generation efficiency. Another important factor is that the material can be sourced locally. If one goes for larger installations, one is looking at drawing biomass over a greater distance.” Deputy Ryan queried the absence of a market for wood pellets even though at present they are cheaper than oil. Dr McCarthy answered: “I was trying to say that it is a chicken and egg scenario. How do we create the market? As Joe O’Carroll and Dr. Eugene Hendrick were saying, if local authorities or the OPW committed to having wood biomass boilers or burners, it would be a start.” In answer to Deputy Ryan’s query about Edenderry Mr. Richard Lowe of Coillte stated: “I was involved with the project in Edenderry. We supplied pulp wood which we chipped on site. The sawmills worked with us supplying sawdust. As the Deputy will be aware, sawdust is constituted very similarly to peat and works in the system very easily. The chips were new to the power plant and the authorities were afraid it would not work out. However, the plant had a Finnish production manager who had worked in Finnish peat-burning stations. He had encountered chips before and the trial proceeded very successfully. Therefore, there is potential for co-firing. There are other benefits pertaining to sulphur.” Mr. O’Carroll replied to a number of questions relating to forest management: “In the normal management regime for a typical coniferous forest we are looking at a rotation of 40 years. One will thin the forest for the first time within 15 or 20 years, removing about 50 cu. m. of material, generally small in diameter, which is currently used only in the panel board sector and which is ideal for energy generation. Coillte has contractual arrangements in place with the sector. It owns about 50% of the country’s forests. The other 50% have largely been planted in the past 15 years and are now reaching first thinning stage. They are owned by small forest owners and farm foresters. Units are typically around eight hectares in size. It is the market for the first thinnings of these plantations that we are trying to stimulate through the promotion of wood energy, while allowing Coillte to continue to supply very large volumes of material to the panel board sector. With regard to concerns about security of supply, the forestry sector has always got its act together anytime there has been an indication that the market will develop. The volumes about which we are talking are relatively small. One Clonmel based centre uses 650,000 tonnes of material per annum. The ESB uses a similar tonnage. Therefore, the volumes about which we are talking will not significantly stretch the sector. There is a learning curve but I am confident the required level can be achieved. As all of the necessary harvesting technology is available, we honestly do not see security of supply being an issue. The price of wood biomass is competitive. At about €50 a tonne, including delivery, the price is less than half that of oil. The difficulty lies in the upfront capital cost of a wood biomass boiler as opposed to an oil boiler. The difference is largely due to economies of scale. Oil burner manufacturers have a significant lead but we are trying to make up ground. That is why we are suggesting the introduction of a short-term capital grants scheme over the next five years to stimulate market demand. In response to Deputy Durkan the willow certainly has potential. In getting all our ducks in the appropriate order we want to see market pull for the resource before we go about increasing it. The aim of the first Government intervention should be to create a market and ensure the necessary boiler numbers. Then, by all means, in future interventions one could look at supporting short rotation copses or the willow plantations to which the Deputy referred.” Deputy Durkan asked about domestic wood burners and Mr. O’Carroll replied: “The price of wood biomass compared to oil or gas tends to be more competitive the larger the scale. The capital cost of installing a wood biomass system in a domestic dwelling is significantly greater than either the cost of an oil or gas system and the payback period is much longer. One of the reasons for this is that in a domestic dwelling heat is not generated all year round. We are, therefore, looking at hotels, hospitals and other sites where there is a demand for heat throughout the year. That is why we suggest such premises should be given priority over domestic dwellings. For domestic users there is a very big gap to bridge.” Dr. Hendrick made a concluding point. “With regard to the supply of raw materials in Austria, it is important to point out that the wood pellet market has taken off there in the past decade. Compared to a decade ago the amount of pellets being used in Austria is unbelievable. They have become one of the main fuels, particularly in the domestic sector.” Mr. Simon Dick, managing director of Clearpower Ltd advised the Joint Committee: “The three items I wish to cover are the emerging biomass industry, specifically the opportunities for wood energy in Ireland, and what the State can do to support early growth. I am probably alone in that I am approaching the issue from a private limited company’s perspective. Clearpower is involved in the industry and I will be able to comment at first hand on the points raised by the previous speaker. We install heating systems, supply wood fuels and recycle organic waste nutrients through the energy crops we have established. We are generating a business sector in this newly emerging market. It is beginning to happen, presenting great opportunities for the country. As we are copying much of what has happened in other countries, we are not reinventing the wheel, meaning it is a low risk venture. The growing climate Ireland enjoys for ten months of the year versus six to eight months in the rest of Europe gives us a great opportunity. We are also exporting fuels. A point was raised about the Balcas project. It exports 98% of its pellets, of which it produces 50,000 tonnes every year. The ethanol projects have had first hand experience with the biodiesel projects. Those involved are talking about using Ireland as a growing base and exporting from it. Fossil fuel substitution is what people are talking about now. It is gathering momentum. Recently there have been significant fossil fuel price increases and ongoing volatility in the market. Previously, when renewables were examined, they were only seen as a cross to bear, an extra cost on industry. Now, with oil costing $60 a barrel, one can see how volatile the market has become. Governments, the people and companies are becoming concerned about security of supply. Ireland imports 90% of its energy requirements in the form of fossil fuels. If we remain reliant on volatile and expensive imports, competitiveness issues will emerge. Coupled with the market Driver, there is legal pressure from the European Union with targets and directives to increase the share of renewable energy sources. There has been the RES-E directive. Next year there will probably be an RES-H heat and cooling directive to increase share. There are building directives exerting legal pressure in that area and there are also the Kyoto obligations to reduce carbon emissions. As soon as one mentions renewable energy in Ireland people think of electricity and windfarms. Electricity is an important part of the overall solution but it is only minor compared to heating and transport. Heating represents 40% of our primary energy requirement, engine fuel for transport represents 35% and electricity 25%. If we are to focus on wind it needs to be on large areas. Ireland imports 90% of its requirements in the form of fossil fuels, which amounted to €7 billion in 2003 - €2.4 billion of that is for heating. It is a significant market. The biomass carbon-neutral fuel is growing in share across Europe. It solves the security of supply issues; it is homegrown and can be controlled as it does not have to go through multiple hands. It is on demand unlike some other renewables where one has to wait for the sun to shine or the wind to blow. This is like a fuel in the sense that it is there and one can turn it on and off. The conversion technology is well advanced and the economics well proven. There is nothing new here. Wood represents 90% of biomass. Worldwide, in terms of land-based biomass wood is approximately 90%. Chips and pellets are now commercially attractive in the heating market. There has been some confusion here about conversion efficiencies for power and heat. In a power station like Edenderry Power the energy from the wood resource is converted into power at approximately 30% efficiency. Modern wood boilers such as the one the joint committee will see on the screen are high-tech, fully automated, have low emissions and require low maintenance. The conversion efficiency is approximately 90% due in part to their dual burn chambers. The joint committee will also see there is an ash box, the ash in which weighs no more than approximately 1% of the incoming fuel. It is a very efficient burn. That particular system is a Heizomat boiler. We installed two last month, one in the RDS supplying space and hot water heating for the main RDS building and the kitchen behind. We also supplied one to a pig farmer who was annoyed with his oil bill. He felt he could halve his bill so purchased one of these through us. EU standards now exist for the fuel, the equipment and its installation. Any new fuel, like that for motor cars, must be validated by those standards as must the chips, the pellets and the equipment. The other attractive thing about wood fuel is price stability and security of supply. With control over the growing cycle, as COFORD, Coillte and the IFA will confirm, we can guarantee long-term prices for users of this fuel. We can sign a five year deal with a user at a given price because we have control over the growing cycle. As Mr. O’Carroll pointed out earlier the nub of the issue of wood energy for heating is that the fuel is about half the price but the equipment is twice or three times the cost. I heard one plumber refer to it as ‘high-flying hours’. The boiler needs to be in use all the time to get a payback on the extra capital. For hotels, leisure centres, hospitals and prisons which have high hot water loads every day the payback is very quick. According to our model paybacks it can be less than a year in some cases, where a wood boiler can be used to take part of the load so that it is operating all the time and a fossil fuel boiler takes the peak loads at different times. In industrial and commercial markets they can be modeled together. On the question of carbon fines, wood is carbon neutral and is not impacted on by carbon taxes. We are already well over our 1990 carbon levels and for organisations involved in carbon trading the cost is approximately €20 per tonne at the moment.” The Chairman queried Mr. Dick as to what he believes the Government should do and Mr. Dick replied: “In terms of fuel we are exposed but have in biomass an annually replenished raw material. The economic argument to convert from fossil fuels makes sense. The conversion technology and economics are well proven - nothing is being reinvented. The heating market is our largest energy sector and we can have a quick win in terms of increasing the share of renewable energy. There are none of the complications there are in the electricity sector such as regulations, monopoly providers and AER competitions. We are starting to create an attractive new industry sector delivering jobs, improved competitiveness and important rural growth which will help reduce CO2 emissions. Our experience of being in the market convinces us the market will look after itself once the supply chains are established. The Government will not need to commit itself to a long-term support programme but it does need to take proactive steps to introduce catalysts to get the industry off the ground. We suggest support of 50% via a fiscal, tax-based or grant-based mechanism for capital expenditure in small scale commercial or industrial heating systems in the range 100 KW to 5 MW, for a total of 200 MW of new capacity. Deputy Ryan will be pleased that I have doubled the initial amount. These medium sized installations will deliver the supply chains and the comfort necessary for the second wave of the market to come in on its own, including operators on the domestic scale, which will not need the same supports. SEI, the Government organisation working with the Department of Communications, Marine and Natural Resources could pass as fit project development companies which would then access funds from the Department to develop the projects, of which some 600 are involved. The UK has a good model for this in the Clear Skies programme so we are not reinventing the wheel. The evidence there is that it is not a difficult programme to administer. We calculate the cost to the Government at €30 million spread over five years - €6 million per annum. The benefits accruing would be that 200 megawatts of new capacity could deliver €28 million per annum. That would be in rural areas, creating new jobs and diversification opportunities for farmers. We are currently paying €40 per megawatt hour for our oil and that it is low at the moment. That is €56 million per annum that we would not have to spend on imports. The fines of €20 per tonne for CO2 emissions would amount to somewhere between €7 million and €12 million in savings, depending on whether one is substituting electricity or gas. It is like putting up €7 million and getting back much more in various ways. We feel there needs to be an active programme to kickstart the market. A number of new private investors and companies are emerging so the market is there. We are only copying what has happened in other countries and we have the raw material. Perhaps the Government could follow what Forfás did for energy efficient lightbulbs with its publically funded marketing campaign and training for installers to get the accreditation to the new standards. It is not rocket science but it is a great opportunity.” Mr. John J. Jackson, representing the IFA advised the Joint Committee: “Wood energy initiatives are evident in Scandinavia. Denmark and Austria brought in wood energy development associations during the oil crisis in the 1970s. That kick-started the industry in those countries, which have a proven track record of best practice and price. Finland is currently producing 20% of its energy from wood. This will increase to 30% by 2010, five years from now. Ireland could follow best practice in Europe. I will discuss the benefits of wood energy. Forests already exist in Ireland and a promotional forestry programme will add perhaps 500,000 hectares of forestry up to 2030. A good and established afforestation programme is already evident. Farmers want to diversify into forestry as an energy crop that is environmentally friendly. When thinnings are extracted from forests, best practice is being followed for managing the crop, and value is being added. Crops can be pruned and shaped. The I-beam of the ceiling of the new security gates at Leinster House show the changes that can come about, with beams of timber being used instead of steel beams. Steel rose 60% in price last year in Ireland. Much energy is expended to produce it. Timber as a low energy crop can be used for manufacturing and for wood energy. It has a very low cost and is friendly to the environment. Producing timber leaves a small environmental footprint. Many positives exist with timber. Ireland has the best growth rate of timber in Europe. I met an Irish man working for an Austrian forestry company who believed that Irish forestry has growth rates that can only be dreamed about in Austria. This is a national asset. The characteristics, strengths, know-how and technology exist in Ireland, but a more aggressive afforestation programme is needed. A strategy for wood energy is also needed. On climate change, with the introduction of the Kyoto Protocol, everybody knows the fines that the country could face. Growing the country’s own timber means there would be security of supply. A mosaic of farmed forest will exist throughout Ireland. Timber supply would be local and easily accessed by end users. With regard to rural development, people would work in the forests, extracting and chipping the material. The farmers and communities can form producer groups. The end product is employment. If an oil tanker is brought in, money is paid to the oil company and little employment or import substitution is created. Farmers have a raw material to extract. The first or second thinnings are low value and can be transformed into wood energy. A market exists in Ireland and will persist as long as energy prices rise. I have a map detailing the different sawmills and processing plants in Ireland. An alternate market exists for small diameter timber. This will encourage better forest management. If a forest is opened and the first and second thinnings are extracted, good quality end product is then within reach. Many energy-producing areas in Ireland lack mills and incentives should be put in place for these. Timber should be used at source, either for wood energy or added value, rather than hauling it long distances. As much timber is being produced, huge potential exists for creating more jobs in rural Ireland with native material. With regard to wood as an energy source, farm forestry can be used on a small scale in stoves, boilers, etc. A member of the IFA is currently installing a wood gasifier. He is harvesting his first thinnings, leaving them to sit on the edge of the wood to dry for a few months and he will then bring them in bulk into a boiler that works from gas and heat emissions. He intends to heat his new bed and breakfast premises and two other houses through this one system. The boiler is loaded once a week and is functioning well. The IFA has not visited the system yet but it intends to organise field trips to it. Wood energy will develop in this manner. On the medium scale, much potential exists for Government buildings, schools, hotels and offices to be supplied with wood chip. On a large scale, combined heating power plants are ideally suited for sawmills. Residue can be used to Dry timber and for combined heat and power. A possibility exists of including forestry material to burn alongside peat in peat power stations. Timber is a more environmentally friendly product than peat. Tradition is one of the barriers to wood energy. Ireland’s forest cover decreased at one point to 1% but is now up to 10%. The country has lost much tradition and culture regarding timber, but best practice abroad can be looked at. There are currently between 10,000 and 12,000 farm foresters in Ireland. Every year, groups of these farmers take study trips throughout Europe, paying their own way to study best practice in other countries. Farm foresters are willing to grow the industry and a belief exists in it. More policy and structure is needed. Government policy has failed with regard to the amount spent on renewable energy. The country has high potential to use wind power and there are great growth rates for timber, but the percentage of energy use taken up by renewables is not good. On a scale of one to ten, the country would score very low. A more aggressive stance must be taken on wood energy. Bord na MÓna could open its peat-burning stations for co-firing along with timber, providing a huge market for the product. Financial support is needed to start this for a few years. This has happened in Scandinavia and there is no reason it cannot happen here. With regard to the use of renewable energy, some people in positions of power are slow to switch to this energy. I participated in the Donegal energy forum two years ago and although most of the people involved talked about renewable energy, there were not enough representatives from the main energy users, such as the ESB, the oil companies, etc. Representatives from these users should be included in discussion about a renewable wood energy policy for Ireland. Clear targets need to be set for wood energy. Within the IFA, many members wish to diversify into forestry. A huge land bank is not being used productively. An aggressive afforestation programme must come about, as well as an aggressive wood energy programme. This would be a clean, green home-grown source of energy. Tax incentives or rebates are needed for domestic users. Capital grants are needed for medium scale installations such as hotels, guesthouses, hospitals, Government buildings, etc. As far as capital grants for harvesting are concerned, we need people who can convert our first or second thinnings into woodchip and who are able to supply the large co-firing plants. We have strengths in this country which are not being harnessed sufficiently. As I stated earlier, we need an aggressive afforestation programme and a wood energy strategy. It must be put in place quickly and must be done on a planned basis. We know our forest output over the years. To date, our renewable record is not good.” Biofuels Mr. Bernard Rice of Teagasc advised the Joint Committee on biodiesel/ordinary diesel fuel mixtures: “There is no reason a fleet could not be run on a 5% mix of biodiesel and ordinary diesel with no modification of engines and without compromising warranties as long as the biodiesel was produced to EU standards. The warranties would stand because the fuel complies with EN590, the mineral diesel specification at that level. If the figure exceeds 5%, it becomes an issue.” Senator Finucane enquired about the use of Miacanthus and Mr. Rice replied: “It is one of the energy crops that has potential. It fits into the same category as willows. It is a perennial crop that takes two or three years and some expense to establish. There is then a return every year with very little expense. As it would cost €2,500 per hectare to establish, assistance would be necessary.” Mr. Rice continuing his presentation: “Biodiesel is processed oil which has had the viscosity removed in order that it will run in almost any engine whereas vegetable oil, still being viscous, requires engine modification or blending at a low level in mineral diesel before it is acceptable as fuel. The transport biofuels directive, particularly the preamble to it, sets out where we are going with transport fuels in the next 20 years, what we will use when we must replace petrol and diesel and the role biofuels will play. A target has been set for a 23% substitution of petrol and diesel by other fuels by 2020; the three picked out were biofuels, natural gas and hydrogen. The 8% target for biofuels can be translated into hectares of crop production. It would take between 12,000 and 40,000 hectares of biofuels to achieve 1% substitution. Therefore, we are talking about between 100,000 and 300,000 hectares, which is significant in Irish terms, as the IFA would agree. On a day when we are concerned about 30,000 hectares of beet, here is potential for hundreds of thousands of hectares of a crop for which there is a definite market. It must be considered seriously in the long term. The directive sets out targets and requires countries to report on progress annually. The first progress report of the Irish Government set out proposals for excise relief on 6 million litres of vegetable oil which would be useful in getting five or six small projects off the ground. The remaining excise relief proposed for 1 million litres of biodiesel and 1 million litres of bioethanol, however, is meaningless. One viable plant would need 40 times that amount. A total of 250 hectares of beet would produce the necessary 1 million litres of bioethanol. Therefore, it is of no significance. Something must be done before we get into bioethanol production on any worthwhile scale. There will always be the problem that biofuels will be that bit dearer than their mineral equivalents. Projects that are likely to take off in the next few years will involve a cheap feedstock, enjoy market support such as excise relief or have an alternative revenue stream within them. In my submission I have listed biofuel projects, solid and liquid, that could be considered. I will deal with four of them: vegetable oil, ethanol, straw and willow. There are small projects producing vegetable oil and running modified engines on it. There are at least three groups working on substantial projects with biodiesel. Some are saying that if they do not get excise relief, they will make the fuel and export it. If the Government goes to Brussels in two years and says it cannot produce any more liquid biofuels and achieve its targets, while at the same time someone is producing and exporting it, it could be embarrassing.” Deputy Durkan enquired where as to the projects were located and Mr. Rice advised: “One group which includes a renderer, people involved in waste oil collection and a farming co-operative in County Wexford is seeking planning permission in New Ross. Another is located in Kildorrery in north County Cork while a third group of renderers is looking at a tallow project in the mid-west… …Vegetable oil can be used in modified engines. Projects in this area are going well. Biofuel can be produced not only from rapeseed oil but also from recovered vegetable oils collected from the catering industry as well as beef tallow from the rendering industry. Beef tallow is an interesting item because approximately 40,000 tonnes is used as heating fuel within the rendering industry. However, this will be banned because tallow has been reclassified as a waste material. The temperatures in the boilers in which it is used are not sufficient. It will, therefore, be phased out and become a waste product again if an alternative use is not found for it. Biodiesel is the one possible use I can see. In the submission to the joint committee I include details of the cost of biodiesel and vegetable oil. They need full excise relief to be economically viable. Since I compiled those details, the price of diesel has increased and the economics will have improved somewhat. However, they still need full excise relief to be viable. Ethanol is a topical subject with the debate centered on the future of sugar beet-growing. If we want to get an ethanol industry off the ground, either wheat or sugar beet must be used. Ethanol can be used in a 5% blend with petrol. At a reasonable scale, such processing would be just about viable. However, it must be done on a large scale. To achieve our 2% substitution target, the first step on the transport biofuels directive ladder, we will need approximately 30,000 hectares of sugar beet or approximately 40,000 hectares of wheat to be grown. It would also need full excise relief and a substantial investor per motor interest. For whatever reason, while people are queuing up to get into the biodiesel business, it has been more difficult to create an interest in ethanol use. If the excise relief issue was clarified, it would be a big help. As of now, there are few people examining ethanol production. Much has been said about wood residues. Straw is now becoming a waste product. Ireland produces approximately 1 million tonnes of straw per year. The animal industry that uses most of that straw is now taking less. The mushroom-growing industry is also tending to take less. As a selling product, a farmer will not receive much for straw. Given that grain growers are already in difficulty with grain prices, another outlet for straw is badly needed. I hope that as the wood industry develops in terms of wood fuel use, straw will be able to piggyback on it. However, it is not as good a material as wood to burn. Such matters as the use of straw pellets in boilers must be examined in coming years as we must find an energy outlet for straw. Apart from using willow trees as a biofuel, the growing site can be used also as a disposal site for certain effluents that cannot disposed of on grassland or feed or food crops. In the north sewage sludge from municipal authorities is being tested. In the south several projects use brewery effluents on willows. These effluents have a low nutrient content but a high biochemical oxygen demand, BOD, and, therefore, can be classified as pollutants. This is one method of disposing of it. A gate fee is given to the willow producer to help make the overall project viable as it is still difficult to make growing willows for fuel financially viable… …It would be a great help if the Government gave us a statement of intent. While Government initiatives have been taken, we appreciate excise relief is important as well as establishment grants for boilers and energy crops. However, if they only come in Dribs and Drabs from different Departments, they will not make a great impact. A statement from the Government outlining the direction of biofuel development and the steps that will be taken will bring clarification and give those involved greater confidence. There is much uncertainty among farmers and others involved in the industry. I am not sure what the future holds for them.” Mr. Colm McDonnell from the IFA in regard to biofuels advised the Joint Committee: “The presentation focuses on the production of the grains and rapeseeds used in these biofuels. I represent the tillage farmers of the country and we can grow rape as successfully as our counterparts in any other country. A member earlier asked what one gets from a tonne of rape. A tonne of rapeseed will produce approximately 360 litres of rape oil. A measure of winter oilseed rape will produce 1.8 tonnes of rapeseed or 648 litres of rape oil. There is much talk of using sugar beet to produce ethanol at present. A tonne of sugar beet will produce 100 litres of ethanol……….. A measure will produce 22 tonnes, which converts to 2,200 litres of ethanol per acre. Wheat will also produce approximately 300 litres of ethanol per tonne or, at four tonnes per acre, almost 1,200 litres of ethanol per acre. Hence we can produce as much as any other country in Europe. However, the cost is a prohibitive factor. The current cost of beet is approximately €50 per tonne. The price of wheat would need to be a minimum of approximately €140 per tonne and rape would need to be approximately €240 to €250 per tonne……There is a extractor plant in operation in Wexford, which was started approximately 18 months ago by a group of farmers. It is a Dry plant in that it squeezes the oil out. It is running fairly successfully but it needs the (excise duty) rebate on oil in order to be economic.” The Chairman invited Mr. McDonnell to sum up the points he wishes to make to the Government. He advised the Joint Committee: “The IFA is stating that it has the land bank to produce rape and the other energy products, if needed. The land bank is there if the will exists for industry to use them. Irish farmers will produce them as efficiently their counterparts in any other country. That is our basic point. The same applies to the grain sector. We can produce rape oil and the necessary goods for the production of biofuels in Ireland.” In a question addressed to Mr. Rice Deputy Ryan asked: “Given the alternatives between bioethanol, biodiesel or whatever variety, and mixing it in or else producing plant oil on a fuel-oil basis - it may need a change of Government to do this and a different attitude - would Mr. Rice concentrate his resources on a bio-fuel support system which was biased towards providing a 5% mix of bioethanol, biodiesel or whatever? Would that be better placed to locate our incentives rather than opting for plant oil?” Mr. Rice responded: “One would really like to try to move with both because what will happen is that vegetable oil bio-diesel will move first. In fact it is already moving. It has a definite upper limit as to how far it can go whereas ethanol is harder to get off the ground but its potential in the long run is much greater. We need to try to run with both. We are making some progress on the vegetable oil. We need to get a bio-diesel plant off the ground and as soon as possible, but it will take a little longer. We need to get at least one bioethanol plant going.” Mr. Tom Bruton of Bruton Bioenergy advised the Joint Committee: “I wish to refer to the EU biomass action plan. This was an industry survey conducted by the directorate general of transport and energy earlier this year. It took well over 500 verified submissions from bioenergy contributors and experts across Europe and took five proposals from Ireland. I will summarise the top five proposals sent in at EU and national levels. The top proposal related to fiscal measures for bioenergy and the most commonly encountered recommendation was to provide a carbon credits mechanism that would support thermal transport and electrical energy generated from biomass. The second proposal was standardisation for bioenergy products. This would ensure quality and reliability of fuels and equipment across the EU. That is very important for a developing market and would create confidence in it. Rapid implementation of the renewable energy heat directive at EU level was a high priority for the industry. The two other important points were to raise awareness about bioenergy and amend CAP regulations to support bioenergy products. At national level, five of the top recommendations, amalgamated from across the European Union in addition to the preceding five measures, were to fully and swiftly implement EU directives on energy at national level. The second most important measure was to provide a long-term stable vision and regulatory environment for the bioenergy industry. We heard frequent reference to willow, which has a four year establishment cycle. Most bioenergy projects have a minimum one-year lead time, so one is considering a very large capital investment and a long lead-in time. The projects require a very long-term stable economic environment in which to work. The third proposal at national level is to provide preferential tax treatment for bioenergy, something about which we heard much today. We wish to reinforce the notion that we would like tax breaks for bioenergy products, whether they be biodiesel, renewable heat supply or solid biofuels. We certainly lament the non-implementation of the carbon tax initiative last year. The fourth recommendation was to simplify administration procedures. The majority of organisations and businesses in the industry are small, with limited resources, and they find increasingly large and costly hurdles placed in their way in the form of administration. The last major recommendation was to increase awareness of bioenergy. Again, SMEs do not have marketing and advertising budgets. It is seen as the Government’s role to promote it. That is a summary of the EU biomass action plan and we endorse its recommendations. I thank the committee for inviting us and ask it to choose biomass for heat, transport, security, stability of price, rural development, jobs and carbon reduction.” The Chairman enquired if the Irish Bioenergy Association had proposals or suggestions to offer. Mr. Bruton advised the Joint Committee: “Our members participated in the bioenergy strategy group - run by the Department of Communications, Marine and Natural Resources - during the past 12 to 18 months, at meetings of which many mechanisms were discussed to support bioenergy products.” Deputy Ryan asked what specific support would Mr. Bruton like introduced. Mr. Bruton advised the Joint Committee: “…….we are looking for across the board recognition for the energy products BioEnergy can deliver. We are looking for an instrument which recognises heat energy as well as electricity energy. The most commonly suggested form would be carbon credits. We would appreciate rapid implementation of the Kyoto Protocol via the EPA as the enforcing body in Ireland, whereby we could have a system to apply and sell carbon credits generated by bioenergy projects. Currently this market is neither established nor nationally regulated. We would also welcome the introduction of the long-mooted carbon tax which would see bioenergy products favoured over and above fossil fuel equivalents. Many specific measures related to the individual bioenergy products could be implemented, such as full and unrestricted excise relief for liquid biofuels products, without any two-year caveat or restricted volumes. There are many schemes which we could recommend to the joint committee but we certainly support the implementation of a boiler capital grant scheme to kick-start the nascent wood energy industry. As has been pointed out many times today, there is a chicken and egg scenario where nobody will supply products until a boiler agrees to buy the energy and there is a certain amount of room to provide financial aid to that market. We would also appreciate an industry-wide awareness and information campaign on energy in general and also on bioenergy because many of the people in the industries are SMEs, small and medium businesses, and do not have the resources to promote energy products. We find our products and projects are a hard sell because of a lack of awareness and confidence on the part of the general public. I cannot be any more specific about measures. 5.3 TransportThe Joint Committee recommends that vehicle registration tax (VRT) and motor tax be biased radically in favour of energy efficient vehicles (at zero net cost overall). In his presentation to the Joint Committee Mr. Brian Cassidy, senior executive engineer with Cork City Council covered a broad spectrum of vehicle and fuel taxation issues. “The background to this project is that Cork City Council was anxious to get involved with using an alternative fuel to diesel. The incentive came in mid-2002 with the instigation of the EU part-funded Miracles project and the city council committed itself to running 5% of its fleet on an alternative fuel to diesel. The project began in February 2003 and we selected rapeseed oil for a number of reasons including its compatibility with diesel to which it has similar properties; minimal requirement for alterations to our vehicle fleet and engines and minimal impact on Drivers with a single tank system so they would continue to operate more or less as before. In addition it is an Irish-sourced fuel as the crop is grown here and pressed locally in County Wicklow. It is also environmentally friendly as there is no sulphur, nitrous oxides are reduced and it is CO2-neutral. In May 2003, we modified one of our fuel dispensing units and bought our first delivery of rapeseed oil which cost €1.1525 per litre, including the oil delivery charge, excise and VAT. At the time, diesel cost us approximately 72c per litre. By the end of May 2003, we had converted 17 vehicles to run on rapeseed oil. The company supplying the conversion kits selected the vehicles at a cost per unit of approximately €1,500, or €23,000 in total. Initially, we burned approximately 4,000 litres of rapeseed oil per month. That figure fell as winter approached, because of certain difficulties with the fuel and the engine conversions which are now being overcome. From the perspective of a fleet operator, some issues arise with the use of the fuel. As the members might be aware, rapeseed oil is not available in commercial filling stations and Cork City Council is obliged to have its own dispensing units. The current excise duty requirements mean that suppliers must have their own bonded warehouses. The Revenue Commissioners insist on this point, which took our supplier by surprise. Bulk tankers specialising in the delivery of rapeseed oil are generally not available. They are not difficult to convert but if an operator uses a bulk carrier to deliver fuel to us, it must then be washed out in order for him or her to continue with his or her usual diesel or food product deliveries. There are also issues with the fuel’s viscosity. When the fuel is cold, it is more viscous than diesel and has a greater resistance to flowing which had a number of consequences over the initial winter period. The engines tend to be sluggish, rather like old petrol engines with manual chokes where, if one started the engine without getting the choke setting right, it tended to chug along until it warmed up. We had similar experiences with rapeseed oil over the first winter. This can be overcome with a two-tank system, which involves starting with diesel and then switching over, preheating the fuel, extending the preheating time or increasing the idling speed of the engine when cold. These are all technical issues which we believe can be overcome with experimentation and action. From the Drivers’ perspective, some of our vehicles have a side-exhaust, so when they sit in traffic they tend to smell the burned “chipper” oil. For some Drivers, it is unpleasant and some prefer the smell of diesel. This is an issue of conditioning, not simply for the Drivers, but probably for all of us over time. We have been conditioned to the smell of diesel, whereas we are not used to the smell of burned rapeseed or cooking oil during the day. There are some issues regarding the future usage of rapeseed oil in Cork City Council. There is a big difference between the current price we pay for rapeseed oil, which, including transport, delivery, excise duty and VAT is €1.31 per litre and the current price for diesel, at 98c per litre. We also have difficulties maintaining our own dispensing facilities. Many fleets, including our own, operate using fuel cards from commercial petrol and diesel filling stations. The increased cost of diesel is also an issue. When purchasing vehicles, there is a question as to whether a petrol or diesel-powered vehicle should be purchased. At present, petrol is slightly cheaper in many instances than diesel, so from the perspective of fleet renewal, one might prefer to select petrol if one was replacing a vehicle in the not too distant future. That has implications if one subsequently decides to convert to rapeseed oil, as one cannot convert a petrol-engined vehicle to rapeseed oil. In order to reduce the impact of the “chipper oil” smell, the exhaust tail pipes must be at the rear of vans. Consequently, one will be unable to select a vehicle with its tail pipe at the side, if one wishes to keep one’s Drivers happy. There is an issue with improving the engine’s performance when the fuel is cold. However, that is a technical issue which is being worked on. The Government can provide assistance to increase the usage of rapeseed oil in a number of ways. It should keep the price of diesel below that of petrol so that fleet operators will continue to opt for diesel engines. It should remove or reduce the VAT and excise duty on rapeseed oil, which could be treated as an agricultural product. It should remove or reduce the VRT on passenger cars fitted with rapeseed oil conversion kits to offset the cost of fitting them. This would be similar to the reduction in VRT secured by Toyota for the Prius model. VAT on commercial vehicles, which can use biofuels or which have been converted to allow usage of biofuels, should be reduced. VRT on commercial vehicles is €40 so one cannot really do much there. As an alternative to those items, grant assistance could be provided to users who convert vehicles to run on rapeseed oil. The Government could promote a training programme among authorised or selected vehicle dealers and repairers so as to provide certified installation of the kit. This would bring the product more into the public eye and more “upmarket”, for the want of a better word. FáS or FETAC could get involved and possibly provide that training. Vehicles which specialise in the delivery of rapeseed oil should be grant aided. Initially, it will not be profitable for suppliers to deliver rapeseed oil only, so they would need some assistance to overcome that. Private and commercial filling stations which may wish to install rapeseed oil storage and dispensing units should be grant aided. Insurance reduction for vehicles burning rapeseed oil should be promoted. It is safer to transport and store rapeseed oil than either petrol or diesel.” Dr. Brian Ó’Gallachóir, UCD advised the Joint Committee in regard to details about the research work being carried out at UCC on transport and transport fuels. “Page 9 of the presentation which relates to energy and transport contains a sketch from the Toyota hybrid system. UCC’s department of electronic engineering is doing some work on power systems conversion. Details of a different type of fuel system for cars, based on biogas and compressed natural gas, are outlined at the bottom of the page. The research group is trying to bring its strengths in the areas of electrical engineering and system analysis to the energy problems and challenges faced by Ireland. An explanation of how biogas can come from waste and be used as a fuel in transport is cited on page 10 of the presentation. The group is developing a biofuels project in collaboration with Cork Institute of Technology, the Economic and Social Research Institute and Teagasc. It is drawing up a road map of Ireland’s progress in this area between 2010 and 2020. It is determining whether there is potential for indigenous biofuels production and examining how such biofuels compare with imported biofuels.” In his address to the Joint Committee Minister Noel Dempsey made reference to taxation issues affecting the transport sector, as follows. “I wish to briefly refer to the transport sector. This has a huge role to play in terms of how we manage future energy demand and our climate change obligations. The policy paper will contain a section devoted to transport issues and we hope to build on the start we have made in terms of raising the profile and usage of biofuels as a policy instrument into the future. Liquid biofuels are an important element of the emerging market for energy from crops, trees and waste products. Biofuels offer a unique opportunity to reduce emissions in the transport sector and also to provide a new and alternative fuel source. In 2004, my Department secured an amendment to the Finance Act 1999 that provided for the introduction of a scheme for mineral oil tax relief in respect of biofuels. A scheme under the Act was launched in April and eight projects have been awarded excise relief totalling €6 million. This will result in 16 million litres of biofuels being placed on the Irish market. I was very encouraged by the strong interest in the scheme, which clearly underlines the appetite in the market for the development of these facilities. We are closely examining the prospect of further measures to support this emerging sector and I have had discussions with the Minister for Finance about the possible scope for scaling up fiscal support for biofuels in the context of budget 2006.” Chapter 6 – Consumers6.1 Energy Consumer Users BodyThe Joint Committee considers that the implementation of energy policy would have increased impact if Government bodies and NGO’s such as SEI and CER, consulted with consumers. This would include demonstrating how consumers can be involved, whether incentives are required and the potential for carbon tax. Accordingly, the Joint Committee recommends that the Minister establish an Energy Consumer Users Body which must be consulted by all Government bodies in the development of all aspects of energy policy. Domestic Mr. Jewell, of the Consumers Association of Ireland, advised the Joint Committee concerning the ‘ordinary’ consumers: “the situation can become all the more unpleasant when they are either uninformed, or worse, ill-informed and as a result, are bewildered as to how to act effectively or support the introduction of true efficiencies that will go beyond the short term…. it is just not enough to tell that consumer that new sources of energy, preferably renewable ones, and energy conservation are needed immediately without telling them how to do it, showing them how to do it and providing them with incentives – both real and monetary – to actually do it! The starting point for future progress must be from the understanding that there is too much complex data, far too much discussion but all too little real advice or action. Statistics from Sustainable Energy Ireland indicate that electricity usage in Ireland increased by over 60% between 1992 and 2002 while total residential energy consumption rose by 22.5% in that same 10 year period. In energy terms, Ireland consumed the equivalent of 15 million tonnes of oil in 2003 which cost consumers over €7 billion and emitted over 45 million tonnes of carbon dioxide (CO2). The Transport sector is the biggest energy consumer in Ireland with 39% of total consumption – followed by residential at 24%, industry 20%, commercial and public 14% and agriculture 3%. The information that they receive on efficiency is limited to basic advisory cautions… …What consumers are not told is how to understand the system that locks them into provision of supply by dominant providers… …Although the Irish consumer is accountable for over 25% of energy consumption each year, there is no determined Government incentive to encourage that consumer to be progressively more energy efficient. This brings us to the question of why the Irish consumer is so ignored. This matter was raised by the Consumer Strategy Group (CSG) established by Tánaiste Mary Harney T.D. The CSG researched the area of utilities and highlighted through a key recommendation in its Report the need to: ‘Provide a strong consumer voice in the regulated sector to complement the regulators, especially in energy and telecommunications, in order to ensure full consideration of consumer issues in the regulatory process.’ ” ……Consumers are aware that renewable energies and energy conservation are required immediately. However, they need to be shown how to get involved in this and to be provided with incentives, both real and monetary, to do so” Business/Industry This sector has increased consumption by 19.5% since 1990 as stated in data presented by SEI. Mr. B. Butler of IBEC made a presentation to the sub committee concerning energy prices and their impact on industry, “Ireland has the highest electricity prices for industrial users not only in Europe but throughout many other developed economies with which we compete on a daily basis. The charts we have presented graphically demonstrate that Ireland is the leader in that regard. According to EUROSTAT, Ireland is 31% ahead of the EU average for energy costs. In 2000 and 2001 we were almost level with the EU average, but in the past four years we have moved to a position where we are 31% above the EU average. The tariff structure for gas is very complex and inflexible. This is causing problems, for the heavy energy users in particular. At a minimum, gas users are facing an increase of 25% from 1 January 2006. The situation now is that increases in energy costs are coming off the bottom line and impacting on business. A frightening statistic is that almost one quarter of the companies which responded (to a survey) stated that because of energy prices and other price factors they were considering relocating their business out of Ireland. We have moved from a position where there were 320,000 people employed in manufacturing industry five years ago to one where there are now 290,000. We are losing at least 500 jobs a month. The energy component of a manufacturing company’s cost base is very considerable.” Mr. Butler singled out the impact of decisions of the regulator: “There were particular decisions that could have been taken by the regulator that could have greatly reduced the impact of the most recent price increases. There is an ESB revenue stream of €89 million that has been deferred for a number of years. This year the regulator decided to grant that €89 million to it. Of itself that had an impact on the cost base. The Government continues to take a dividend from the ESB. In the past three years it has taken €184 million from it. If that money had been reinvested in the network, it could have reduced the price increases. The regulator could also have offered much greater flexibility in how companies purchase and deal in gas. We have met and discussed the situation with the regulator who says every €20 million is the equivalent of a 1% increase in electricity prices. This year alone the Government took €77 million from the ESB. If this money had not been taken but reinvested in the system, the increase by the Commission for Energy Regulation could have been reduced by almost 4%. That would have almost wiped out the increase for domestic consumers and greatly reduced the increase for the business community…. The increase for 2004-05 was 12.5%. In 2006 it will be 8%. We have surveyed businesses across a range of sectors to determine the actual increases they face. While the regulator said the average increase this year was 12.5%, the actual increase in mining, for example, was 21%. The increase in the plastics sector was 13%, 20% in the chemical sector and 18% in the building materials sector. From January next the regulator intends to increase prices by 8%, but the businesses represented here today will face increases of between 12% and 19.5% which are a long way from the published tariff figure. These figures represent a significant crisis for Irish-based businesses. Energy prices are impacting on our competitiveness and leading to job losses in the manufacturing sector. The real shame is that decisions taken by the regulator could have avoided some of the increases which have been applied. We need a competitive environment which meets the needs of all stakeholders in the energy market, whether providers or users. Ireland has the worst of all worlds in the absence of both security of supply and competitive prices. They are the fundamental challenges we face and the issues the regulator is supposed to address. We have failed on both fronts.” Mr. Patrick Dunne of Intel Ireland advised the Joint Committee of his concerns: “When we benchmarked our power costs five years ago against those in our other manufacturing sites across the world, we were in the lowest or best quartile in terms of the average price for power. Intel Ireland has seen an overall increase in its electrical power costs of approximately 60% since. When we benchmark current costs against those in other manufacturing sites, we are in the highest quartile. While we have been supplied in the period by independent power producers in the marketplace, the spiralling cost of power has meant our energy cost base has begun to reach unacceptable levels. Ireland is being positioned as an unattractive, uncompetitive place to do business, especially when we look at future growth at our site here.” Mr. Butler advised the Joint Committee of his views on the report by Mr. Hunt: “The Hunt report is a detailed one which suggests there are issues in terms of how infrastructure is being valued and how it is working through the system. Ultimately, IBEC cannot change this. That position was put to the regulator but, as I understand it, the regulator did not accept the findings of the Hunt report. Who determines energy prices? It is not the ESB, IBEC or this committee, but the regulator. We understand the regulator did not accept the position put forward in the Hunt report.” Mr. D. Budden of Wellman advised the Joint Committee.on energy cost increases impact: “in Ireland costs will be more than 55% higher than in 2000 and 25% higher than at those smaller operations on the Continent. Similarly, we have been able to negotiate multi-year contracts for gas on the Continent. The cost of gas has risen faster than the cost of electricity. The cost of gas in the continental operations next year will be twice what it was in 2000. However, if one takes a one year contract from today for the price of gas in Ireland, it will be three times what it was in 2000. The price of gas next year for us in Ireland will be 30% higher than for our tiny French subsidiary and more than 40% higher than for our Dutch subsidiary.” Mr. Budden continued regarding the restrictive controls imposed by the regulator: “of greater concern to my company is the fact that trading conditions in the market for gas need to be liberalised. In the absence of multiple supply options, greater emphasis must be placed on strengthening users’ flexibility and bargaining power. In setting up tariff controls to govern how Bord Gáis may sell, the regulator has removed the flexibility we previously enjoyed. We are a significant gas consumer in our own right. As electricity is largely generated from gas, it is the principal cost of the electricity we buy. If we were able to combine our requirements for gas, we would be higher up the purchasing scale and would be able to strike a much keener deal with Bord Gáis or any other provider. We have no wish to become a trader in gas, but we seek the freedom to access the benefits offered by the wholesale market - through our supplier - either Bord Gáis or another company of our choice. Bord Gáis would purchase gas on our instruction and refloat if we choose, either using that gas for our own consumption or having others convert it to electricity on our behalf. Having access to the wholesale market in this way, we would be able to focus our negotiations with electricity suppliers on the costs and price of conversion, introducing a significant quantum of freedom compared with the present restrictive tariff arrangements. To achieve this, the regulator would need to remove restrictions in the regulated tariff formula, RTF, that deny us the freedom to purchase gas, monthly or daily, or refloat it and that tie us to three-month contracts. This restriction above all constrains our ability to obtain real value from the international market. If long-standing and substantial users such as us are not to be disadvantaged, perhaps fatally, the regulator should focus on reforming and liberalising demand side structures to give large customers greater clout.” Mr. Butler of IBEC advised the Joint Committee in regard to regulation: “What IBEC wants from any regulator is a system that is fair to both sides. The role of the regulator is to guarantee security of supply and to have competitive prices. At present, however, we have neither. ……In terms of the energy market, the liberalisation model has not yielded the same results. We have some of the highest prices in Europe and we have only a small number of people participating in the market. The question we must ask, therefore, is whether there is a particular reason the liberalisation market has not worked as well in the energy area as it has in other areas. We suggest that the scale of the market in Ireland is incredibly small, while there are significant establishment costs in terms of energy and the development of infrastructure. We mentioned earlier that we have had 20 or 30 years of under-investment in infrastructure, which meant it had to be developed when the liberalisation model was introduced. This led to the double whammy that has contributed to the lack of success of the liberalisation process in the energy market.” Mr. Budden further advised the Joint Committee: “From my company’s perspective, the energy regulator’s focus has principally been on supply and methods to increase the number of providers. The means of achieving this end have focused, to too large an extent, on structuring pricing and tariffs to encourage new providers to enter the market. We contend that the regulator must also focus ways to empower us as a significant consumer to increase the flexibility with which we can negotiate for our own advantage on our own behalf and not merely on ways to incentivise suppliers.” 6.2 Public TransportThe Joint Committee recommends Public Transport initiatives to provide some measure of control of the rapid growth in private car numbers, and the spiralling energy use in the transport sector, and to bring about a shift away from commuting by car. These initiatives must include: improved infrastructure, increased availability, integrated ticketing and information systems so as to increase the use of public transport and the increased use of rail for goods transport. (ST) In a presentation by Mr. Howley, SEI he advised the Joint Committee that “The largest final consuming sector is transport, which has increased considerably over the period”. It showed that this sector has increased consumption at the fastest rate and is now 132.7% more consumption than in 1990 and the consumption was almost totally dependent on liquid imported fuel.” Mr. O’Mahony, Department of Environment, Heritage and local Government advised the Joint Committee: “The largest increase in emissions has been in the transport sector where there was a 130% increase between 1990 and 2003….. It includes measures for the various sectors but I will focus on two, namely, the energy and transport sectors. The main measures in the energy sector are fuel switching, partially through added penetration of natural gas, more efficient use of fuel through combined heat and power production and generating more of our energy requirement from renewables, mainly wind. The main measures in the transport sector are: using VRT and motor tax to favour more fuel efficient cars - for example, apart from the fact tax rates rise substantially with engine size, there is also favourable VRT treatment for hybrid cars; and investment in public transport to bring about a shift away from commuting by car ……Due to the introduction of the EU emissions trading scheme, our emphasis has shifted somewhat to the potential to reduce emissions in the sectors of the economy which are not participating in emissions trading, that is, the non-trading sector.” In a presentation by Mr. John Fitzgerald of ESRI he confirmed to the Joint Committee: “Carbon tax will have a small effect on transport because tax is already so high. The main environmental issue in transport is congestion. If congestion is tackled first it will solve the carbon problem or go a long way towards it. The solution is to be found in investment in urban public transport to make sustainable cities. Congestion charging would be part of that. There would be a much greater emissions reduction from doing that properly than there would be from carbon taxes” Minister Noel Dempsey in his address to the Joint Committee recognised that “the transport sector has a huge role to play in terms of how we manage our future energy demand and our climate change obligations.” 6.3 Control of own consumption of electricityThe Joint Committee recommends that consumers should be empowered to contribute directly to the reduction of their own energy use. The Joint Committee recommends that keypad metering, as operates in Northern Ireland, should be introduced so that consumers can control their own consumption of electricity. The Joint Committee recommends that micro-generation or mini-generation CHP for individuals or communities should be permitted including the use of local distribution over the network (wheeling). In a submission to the sub committee Mr. Demott MacCann of Northern Ireland Authority for Energy Regulation advised the Joint Committee.: “One quarter of our domestic customers are prepayment customers who use a ‘keypad’ system. They buy electricity at a discount below the price paid by standard credit customers. They can access an array of information about their usage through their keypad, which puts them firmly in control and encourages energy efficiency….In the period up to 31 March 2005 customers had spent £12 million and saved £119 million, while at the same time producing carbon dioxide savings of almost 500,000 tonnes. One reason NIE backs this programme is that it is incentivised to out-perform the savings target and earn additional profits”. In a written presentation to the Joint Committee, Mr. Jewell of the Consumers Association of Ireland stated: “Well established in mainland Europe, microgeneration is unknown to the majority of Irish consumers yet it is an affordable and an effective alternative. This is power supply on the smallest of scales, allowing consumers to produce their own renewable energy. The natural progression of this system would provide for community minigeneration in a limited capacity.” Mr. Jewell reinforced this when he addressed the Joint Committee: “where there are alternatives for the individual in micro-generation or mini-generation, which might serve communities, there is a lack of information. Every individual must physically put in a significant effort to find any form of information on those areas. Micro-generation is an opportunity for consumers to take control of, and responsibility for, their usage. If they can get that, change would begin and another form of change would be forced through the market against the providers who have the dominant position” Chapter 7 – Government7.1 Review Board on import dependencyIreland’s dependency on imported fossil fuels has reached 90% which compares to an EU-25 import dependency of 50%. The recent Forfás report shows Ireland’s exposed position to a future peak and decline in Global oil production. Accordingly, the Joint Committee recommends that: the Government must respond by now undertaking a review involving the Departments of Transport, Environment and Agriculture as well as the Department of Communications, Marine and Natural Resources to set out how we can reduce our dependency on imported fossil fuels and appoint an independent board to review, from the Irish perspective, the published scientific data. The Commissioner for Electricity Regulation, Mr. Tom Reeves, when asked about security of supply and if he was worried that we have a 90% dependency on imported fuels, replied: “’Worried’ is an interesting word. What can we do about it?” When asked if it is the job of the CER to ensure something is done, he replied: “We have almost beaten to death every windmill in Ireland. We have examined and debated the possibility of developing the renewable resources area. At present, wind is one of a few natural resources available to Ireland. Another is peat, which would not be the Deputy’s favourite fuel but is mine. After that, we are left with our gas fields. We do not have any other native sources of fuel.” When asked about the CER’s responsibility in the event of a red alert and the operator’s failure if we were we to have a red alert, he replied: “On an operational basis, we do not have responsibility. The responsibility of operating the system in a safe, secure and reliable manner, as stated in legislation, rests with the system operator. … …We have taken actions to keep this peak down. We have a winter peak demand reduction scheme, which has saved us in the order of 200 megawatts. Many small plants and factories around the country can be switched on at short notice, which is called a power save scheme. Some plants can be driven a little harder for the few hours that are needed. The people operating the system have a list of other people who would be prepared to turn off so that we do not run out of power. Our issues of concern are more long-term. The dependence on gas and imports is very high. Indeed, the dependence on imports in Europe as a whole is as high as ours and is of grave concern to the European Union because much of its gas comes from Russia. At least ours comes from the North Sea with local contracts here. This is not just an issue for ourselves.” When the Joint Committee noted that Ireland is located at the end of any gas pipeline and that we are particularly vulnerable, Mr. Reeves noted: “We are at the tail end, which adds to our costs. It is the reason we have two gas pipelines. As Mr. Tutty said, the issue of the single 20 mile section in Scotland must be addressed. We try to have physical remedies to these matters, such as enough power stations, and a diversity of fuels. Nobody will thank us for building another peat station but, as we do not have enough peat to do so, it will not happen. Should we build another coal station? Should we try to get clean coal? What should we do?” The geologist, Dr. Colin Campbell, advised the Joint Committee on Global Oil Production. He Drew attention to the fact that oil supply will soon begin to be in terminal decline and noted: “Society will be indirectly affected because the politics of the modern world is driven by meeting the dictates of an economic system that is living in the past. We are entering new territory and because of this it is hard to know how to react. However, it can be said that it is a historical change from the world we knew to one we do not know, and we arrive at this position absolutely unprepared. I compliment the committee on listening to my contribution because it is a step forward that some are paying attention to this matter. However, this is not universal, although things are changing. We have reached the end of the first half of the age of oil. It lasted 150 years and it stimulated industry, transport, trade, agriculture and eventually people. It stimulated the growth of an enormous amount of financial capital. We now enter the beginning of the second half, the decline of oil and all that depends upon it, including this financial capital that was built out of the whole system which evolved on the strength of this cheap energy.” When Dr. Colin Campbell moved his presentation to focus on Ireland’s situation he advised the Joint Committee: “Let us end on what this might mean for Ireland. I am by no means skilled in this area and perhaps do not know enough about it but I would offer a few comments. Ireland in some ways is blessed but it also has negative sides. The main blessing is a relatively small population, so it is a manageable situation, but it does have a very high per capita consumption of oil. The United States uses 27 barrels per person per year and Ireland is up there at 15.6, even higher than the European average. Ireland certainly uses a lot of oil on a per capita basis and that compares with India which does not even consume one barrel per person. Ireland has become very dependent on gas. It is very vulnerable in the area of gas supply and needs a lot of oil. One has to admit that there is only a slim chance of Ireland finding more significant oil and gas. Of course, they are still looking and hope reigns supreme, but realistically I do not think anything of consequence will be found. Ireland was not in the right place at the right time in geological history. That is not to say people should not look. Of course you could look, especially if you can use somebody else’s tax money, but do not build on it as an assumption for future planning.” Regarding the future of gas for Ireland, Dr. Campbell added: “Gas is less depleted than oil, with more of it, but it has a very different depletion profile simply because it is a gas and the end, when it comes, comes very steeply and suddenly, without market signals, as is now experienced in the United States. Gas, although it is a little lifeline, has certain dangers attached. Kinsale provided all that was needed for Ireland until quite recently in the late 1990s and then it declined steeply. Gas imports rose. The Corrib field off Mayo will be a lifeline for a few years but by about 2020 Ireland will be importing all its gas. British net exports will end long before then. That poses the question of where Ireland’s gas will come from. It should not be forgotten that it is relied upon for 40% of electricity generation. Britain will become a net importer in the next year or two. It will be importing first from Norway, then from distant places such as Siberia, central Asia, the Middle East and North Africa. There are many hundreds of transit countries between the source and the eventual consumer. Ireland is very vulnerable, being very much at the end of the line. Will Britain be willing to re-export to Ireland when it needs all she can get for herself? If she does so, at what price? As all kinds of infrastructure and pipeline connections will have to be rebuilt, who will invest in that to supply Ireland? There are many serious questions relating to this.” When Dr. Campbell concluded his presentation he recommended: “Ireland needs to use the brief time left to study this question and prepare in some way. I suggest a small plan of action as to what one might do in this situation. A small office should be staffed with a few people to dig into the real data, understand it properly, see the nature of the problem. It is not particularly difficult but it takes an effort to do. The starting point is to be properly informed, which is certainly not the case today. The second point is that everybody needs to be informed. It is too easy for everybody to switch on a light. People do not understand the energy element in their life. I do not think there is any point in waiting for Brussels. It would be much better for Ireland to take these steps on its own behalf and consider it an investment in the future, giving it an enormous competitive advantage over countries which continue to live in the past. That is the challenge.” 7.2 Electricity infrastructure investmentThe Joint Committee recommends that further and sufficient investment in the electricity network and interconnector infrastructure should be prioritised and that the Government, in the context of the next National Development Plan (NDP), support, by subsidy, this network investment so as not to increase costs for existing consumers. The Managing Director of ESB National Grid, Mr. Kiernan O’Brien, in his presentation to the Joint Committee referred to interconnection: “We are very supportive of the Minister’s initiatives in this area. Our only caution is that an efficient operating interconnection of any scale would require extensive further investment in the transmission network. We are anxious that the cost and time to do this should be factored into the decision. The Irish transmission system is complex, sophisticated and vital to the well-being of the nation. It is also vital that it remains in State ownership and is managed for the benefit of all. We support the Minister’s view on this. Both Ministers with responsibility for energy on the island recently expressed strong support for an all-island market. We are fully in favour of this initiative. While the market may be facilitated by further interconnection between the North and the South we do not have to wait to get this started. We need to get a compatible set of trading arrangements in place immediately in order to get the market started. We will support these in whatever way we can. The ESB National Grid is committed to playing its part to ensure Irish electricity customers receive the best quality, the most reliable and the most economic power possible.” When questioned about the interconnector, he advised the Joint Committee: “I strongly caution that we need to think about an operating interconnector as more than just a wire under the sea with two converter stations at either end. For ESB National Grid in particular, it will require a major re-jigging and probably significant investment in our own networks on land. If one considers the example of the Moyle interconnector from Northern Ireland to Scotland, the heads of agreement between Northern Ireland Electricity and Scottish Power were signed in 1991. I think both were private companies at that stage, but it was only ten years later that the interconnector was commissioned. The delays were not associated with putting a wire across the sea but with the building of the land networks associated with it. We should not feel that we will be immune to such delays. This project is not just concerned with a wire under the sea. In order to operate correctly, it requires significant investment on land, possibly on either side but certainly on ours. The time and cost associated with this should be factored into the interconnector project. Having said that, we are very supportive of interconnectors. As a transmission system operator, we can never have enough circuits and equipment in the system.” When questioned about his long-term analysis, in terms of grid investment, Mr. O’Brien advised the Joint Committee: “We consider the national grid to be the transmission business. There are a lot more wires in the distribution business but they are at lower voltage. We are talking about the 400, 220, and most of the 110 KV system, in which we will invest approximately €630 million over five years. In planning those investments we take at least a 10 year horizon and often up to 15 years. We do not normally take a 30 year horizon but we look perhaps as far as 20 years into the future, and we are always seeking projects that will be robust under different generation scenarios. We are demand-led in terms of our investment and we have an official instruction from the Commission for Energy Regulation which prohibits us from undertaking transmission investment ahead of demand. For example, the commission prohibited us from supplying new transmission services to the far west of the country before demand for such services was evident. That is the policy we implement and it is somewhat different from the roads programme, for example, whereby roads are being built to encourage demand.” When questioned if he agrees that wind resources will never be effectively developed unless the policy decision is changed to allow for production-led rather than demand-led investment in the national grid, Mr. O’Brien advised the Joint Committee: “There is one exception to this policy in that we have been asked to facilitate the development of wind clusters in conjunction with the Department of Communications, Marine and Natural Resources and wind energy interests. This project may well involve the imposition of some specific transmission infrastructure to cope with wind clusters. This is one area in which we have been able to take a production-led approach.” Mr. Michael Tutty from the Commission for Energy Regulation, as part of a wider presentation, advised the Joint Committee about interconnection: “I will be brief on this because we all agree that interconnection is a good thing and is needed. We have one electricity interconnector to Northern Ireland, as the committee heard today from the Northern Ireland authority. A second interconnector is at the planning stage and has been agreed between us. The national grids, North and South, are pursuing it as quickly as possible. We have agreed that it is desirable, particularly in the context of the single electricity market on the island. Northern Ireland is already connected to Scotland through the Moyle interconnector and we are all connected to the European mainland through the United Kingdom. The Government asked the CER to progress an interconnector from the Republic to the United Kingdom. It suggested first that we do it on a merchant basis but because public consultation showed there was no interest in doing it on a purely commercial basis, the Government asked us to consider doing it on a partly regulated basis, in which there is interest. We asked a set of consultants to advise us on how to structure a competition to do it on this basis. To do it on a partly regulated basis raises questions as to what sort of regulation applies, how much should be passed on to the private sector, how much it is willing to take on and how to achieve the project. We recently received the report of the consultants which we are reviewing and will soon report to the Minister to consider the next steps. The consultants have found there is interest among people in the private sector who are willing to compete for this project. Security of supply is the primary purpose of the interconnector but it would also increase competition in the market and open up the possibility of exporting electricity.” The Minister for Communications Marine and Natural Resources, Deputy Noel Dempsey, in his presentation to the Joint Committee advised: “In terms of security of supply, the Government continues to support enhancing existing interconnection, both North and South and, in particular, with the UK. I expect to hear shortly from the CER on the outcome of its consultants’ study into the financial, technical, commercial and procurement aspects of this eastwest interconnector project. This also raises the issue of how infrastructure should be funded in the future. Up to now, both the ESB and BGE have funded network investment, with costs being passed on to the consumer. This obviously contributes to higher prices. The issue warrants a cold hard examination in the context of the new NDP but, at this stage, I am not in a position to say much more about it. Such a development would certainly help manage future price increases.” 7.3 Fiscal support for renewable energyThe Joint Committee notes that as the cost of oil and gas rises, national exchequers will receive a revenue ‘bounce’ in the form of additional excise and VAT receipts. The Joint Committee recommends that, within an EU CEP context, a policy should be developed that requires such a ‘bounce’ in Exchequer receipts to be ring-fenced to be used as fiscal supports for all forms of renewable energy in addition to supports for R&D. The Joint Committee notes that the effect of such a measure will continue to guarantee the level of funding the national exchequer estimated and no exchequer revenue would have to be foregone in fiscal supports for renewable energy. The Joint Committee recommends that the Joint Committee on Finance and Public Service, in the context of its work programme, undertake a review of the above proposal. The Minister for Communications Marine and Natural Resources, Deputy Noel Dempsey, in his presentation to the Joint Committee advised: “Liquid biofuels are an important element of the emerging market for energy from crops, trees and waste products. Biofuels offer a unique opportunity to reduce emissions in the transport sector and also to provide a new and alternative fuel source. In 2004, my Department secured an amendment to the Finance Act 1999 that provided for the introduction of a scheme for mineral oil tax relief in respect of biofuels. A scheme under the Act was launched in April and eight projects have been awarded excise relief totalling €6 million. This will result in 16 million litres of biofuels being placed on the Irish market. I was very encouraged by the strong interest in the scheme, which clearly underlines the appetite in the market for the development of these facilities. We are closely examining the prospect of further measures to support this emerging sector and I have had discussions with the Minister for Finance about the possible scope for scaling up fiscal support for biofuels in the context of budget 2006.” Mr. Bernard Rice of Teagasc, when questioned about grants for biofuel crops, advised the Joint Committee: “The (Biofuels) Directive sets out targets and requires countries to report on progress annually. The first progress report of the Irish Government set out proposals for excise relief on 6 million litres of vegetable oil which would be useful in getting five or six small projects off the ground. The remaining excise relief proposed for 1 million litres of biodiesel and 1 million litres of bioethanol, however, is meaningless. One viable plant would need 40 times that amount. A total of 250 hectares of beet would produce the necessary 1 million litres of bioethanol. Therefore, it is of no significance. Something must be done before we get into bioethanol production on any worthwhile scale. There will always be the problem that biofuels will be that bit dearer than their mineral equivalents. Projects that are likely to take off in the next few years will involve a cheap feedstock, enjoy market support such as excise relief or have an alternative revenue stream within them. In my submission I have listed biofuel projects, solid and liquid, that could be considered. I will deal with four of them: vegetable oil, ethanol, straw and willow. There are small projects producing vegetable oil and running modified engines on it. There are at least three groups working on substantial projects with biodiesel. Some are saying that if they do not get excise relief, they will make the fuel and export it. If the Government goes to Brussels in two years and says it cannot produce any more liquid biofuels and achieve its targets, while at the same time someone is producing and exporting it, it could be embarrassing. ……In the submission to the Joint Committee I include details of the cost of biodiesel and vegetable oil. They need full excise relief to be economically viable. Since I compiled those details, the price of diesel has increased and the economics will have improved somewhat. However, they still need full excise relief to be viable.” Mr. Joe O’Carroll, Operations Manager of COFORD (National Council for Forest Research and Development) advised the Joint Committee on wood energy and opening up the market for woodfuel: “We believe that the strongest case for Government incentive in the wood area is to support the installation of wood biomass boilers to help create the market for this material. We have done some work on that already. We feel that if a capital grant scheme was put in place to support the installation of 100 MW of installed capacity in biomass boilers, we would have 500 boilers around the country. The size would be suitable for heating a hotel, as we are not focusing on the domestic level and we want to get the biggest bang for our buck. Another example would be public buildings. Under the new decentralisation programme, all new buildings should put in biomass boilers where the fuel can be sourced locally instead of relying on imported fossil fuels. There is a strong financial argument for that, as well as a strategic argument. Such a scheme would displace approximately 130,000 tonnes of imported oil, would use some 200,000 tonnes of woodchip and would displace a very significant amount of CO2 emissions. There would be a payback period to the State of four years in terms of reduced CO2 emissions. Therefore, we believe there is a very strong argument for such a scheme to be introduced. ……We feel that a short, well targeted capital grants scheme over a three to five year period would be sufficient to bring about a critical mass, whereby the sector could be self sustaining after that.” Mr. Simon Dick of Clearpower Ltd. when asked to summarise what he believed the Government should do advised the Joint Committee: “Our experience of being in the market convinces us the market will look after itself once the supply chains are established. The Government will not need to commit itself to a long-term support programme but it does need to take proactive steps to introduce catalysts to get the industry off the ground. We suggest support of 50% via a fiscal, tax-based or grant-based mechanism for capital expenditure in small scale commercial or industrial heating systems in the range 100 KW to 5 MW, for a total of 200 MW of new capacity. Deputy Ryan will be pleased that I have doubled the initial amount. These medium sized installations will deliver the supply chains and the comfort necessary for the second wave of the market to come in on its own, including operators on the domestic scale, which will not need the same supports. SEI, the Government organisation working with the Department of Communications, Marine and Natural Resources could pass as fit project development companies which would then access funds from the Department to develop the projects, of which some 600 are involved. The UK has a good model for this in the Clear Skies programme so we are not reinventing the wheel. The evidence there is that it is not a difficult programme to administer. We calculate the cost to the Government at €30 million spread over five years - €6 million per annum. The benefits accruing would be that 200 megawatts of new capacity could deliver €28 million per annum. That would be in rural areas, creating new jobs and diversification opportunities for farmers. We are currently paying €40 per megawatt hour for our oil and that it is low at the moment. That is €56 million per annum that we would not have to spend on imports. The fines of €20 per tonne for CO2 emissions would amount to somewhere between €7 million and €12 million in savings, depending on whether one is substituting electricity or gas. It is like putting up €7 million and getting back much more in various ways.” Mr. John Jackson, Chairman of the IFA Farm Forestry Section, when questioned as to the extent to which it is commercially viable for agricultural producers without a subsidy, advised the Joint Committee: “On the issue of tax breaks, how can the forestry end of the industry survive without subsidies? If a farmer has been asked to take his land out of production permanently and establish a forest, which they are being asked to do, they need a premium per acre so there has to be a subsidy. Once that forest is up at 25 or 30 years, it is generating an income for the farmer and he is under obligation to replant. That forest is replanted again and it is there permanently. To initially get the forest established the afforestation grant and subsidies are available. Once one plants a forest one gets no income from the land for 15 to 20 years for forest thinning and then it is only a marginal income.” On the subject of the cost of wind energy, Dr Eddie O’Connor, Chief Executive Officer of Airtricity, advised the Joint Committee: “I want to continue the theme because it would be remiss of us if we went out from this room thinking that wind energy costs the Irish people more. When one builds a plant, that is a decision for 30 years and this will result in much cheaper electricity for the Irish people. For example, Denmark had a feed-in scheme which rewarded the people who built wind turbines by giving them a higher price for ten years, and thereafter the price falls to the pool price. When Ireland was hit by this crisis, which has caused ESB to look for an increase of between 15% and 20% in its tariffs for next year, the Danes were selling their electricity for about half the best new entrant price. The 30% coming from wind was being contributed on to the system at very low prices. … …there has been no support regime and there has been this ridiculous AER set-up which has not worked for the past ten years. Intermittence like that - this is real intermittence because it affects people’s lives - causes no jobs. The same effect is noticed in America, which also has a very inappropriate support regime. It is a production tax credit scheme, and it goes up and down. There are very few such jobs in America as a result. Where there is a regular support scheme, like in England with the ROCs or in Germany with the feed-in system, where a manufacturer can see cash flows coming for the next five, ten or 15 years, they will build plant and will employ people. Mr. Tim Cowhig of the Irish Wind Energy Association, advised the Joint Committee: “As I have stated, wind is highly sensitive to support schemes. Much debate has revolved around this issue in the wind industry. The Irish Wind Energy Association has held a number of fora to establish what should replace the existing systems and what form it should take. The view was that, while in the long term a ROCs - renewable obligation-type scheme - would serve the industry well, the consensus was that in the short to medium term, a fixed feed-in type of tariff would be most appropriate for the Irish market, given its modest size and the fact that it is not fully deregulated. With this mandate from major market players, the Irish Wind Energy Association made a submission on a new market support mechanism based on a Spanish system. This was based on a fixed feed-in tariff and/or a tariff of the average price of electricity plus a premium which could form a tradable renewables energy certificate. This allows for the introduction of ROCs when market conditions allow. The market trading mechanism was also mentioned by previous speakers. We welcome the CER’s decision to put implementation of the new market trading arrangement on hold. It was our view that the market arrangement, as proposed, discriminated unfairly against wind.” Mr. Jens Petersen of Meitheal na Gaoithe, advised the Joint Committee: “We are asking for free grid connections. There are very good reasons for that. If wind farms are connected with no charge to the wind farm itself to the grid, the energy will be about one quarter of the price to the consumer and we do not have to hassle for this grid connection. That policy was implemented in Denmark a long time ago after many years of discussion and is now being implemented in the UK also. There should be free grid connection for the wind farms and the metering point at the boundary at ten or 20 KV. These are simple, straightforward rules that do not require great courage to implement or all kinds of difficulties in finding out how it works. We also always have priority dispatch. We are also asking for a fixed price for our energy. This is not State aid but a State economic risk management system. We heard very well from Dr. Eddie O’Connor earlier that if we are given a fixed price which is only a fraction higher than the best new entrant price at the moment that price can be fixed for the next 15 years. I encourage the committee to go out and ask industries to come to Ireland by guaranteeing them a fixed price for electricity over the next 15 years, including all environmental issues. Does the committee think that will be attractive to them? You bet it will. They cannot find that anywhere else in the world but it can be done here. Those are the two main things we are asking for.” The Minister for Communications Marine and Natural Resources, Deputy Noel Dempsey, in regard to support for renewable produced electricity, advised the Joint Committee: “Following an industry consultation and analysis by my Department’s renewable energy development group, I recently announced a move to a fixed, feed-in tariff system to support renewable energy technologies. The finalised terms and conditions of this new scheme, known as REFIT, are currently with the Attorney General for legal clearance and will be published as soon as this is completed.” Ms. Anne Grete Holmsgaard, Danish Member of Parliament, when asked if Denmark taxes consumers on the level of consumption of power and heat, replied: “Private consumers are taxed heavily on electricity and heating consumption directly through the billing system. Enterprises are taxed at low rates so there is a major difference between the two taxes. This was done to motivate people to use less energy. It also generates revenue for the state budget. Our taxes are higher than in Ireland, although I do not know how Ireland taxes energy. The more tax there is, the more sense it makes to save energy but it is becoming more sensible even if there is lower taxation because oil and gas prices are rising. They may fall a little again but they will rise again.” Dr. John Fitzgerald of the Economic and Social Research Institute, when questions as why he would suggest that Ireland lead the way in introducing carbon tax, advised the Joint Committee: “First, a number of member states have already led the way. This is not new. To answer the question, yes, I would suggest it. The Department of the Environment, Heritage and Local Government stated that current policy means we will buy permits for 3.7 million tonnes to cover the sectors not covered by emissions trading, in other words, households. At current prices, the best part of €100 million will leave the country to buy permits. If, instead, a tax is imposed to reduce the emissions by 3.7 million tonnes, all that money goes to the Government which either gives it back to reduce taxes or as expenditure and no money leaves the country. One can see this policy of buying permits seems cheap but that is because nobody values the money that goes to the Government. I believe taxpayers’ money is important, and that the tax which would accrue to the Government is valuable either to allow a reduction of taxes elsewhere or to pay for expenditure. It may be a short-term policy; it may seem the cheaper route but it is not a cheap route for the nation in the long term.” Chapter 8 Producers and Suppliers8.1 Bórd Gáis ÉireannThe gas infrastructure is a natural monopoly. The Joint Committee recommends that this infrastructure, together with the current and any future gas interconnectors, remain in public ownership. Mr. Tom Reeves, Commissioner for Energy Regulation addressed the Joint Committee on the natural gas market and BGE’s role as operator of the gas transmission system: “The natural gas (market) is unlike the electricity market in that nothing is manufactured. It is a question of moving the gas around. The commission assumed responsibility in April 2002 for the regulation of the natural gas market and had to try to put in place a system to have the market operate in such a way that people could compete in it……Those importing gas must have it transported through the high-pressure and low-pressure pipes. We have devised, in conjunction with the industry, tariffs for doing so. Regarding gas transmission, a question arose as to how to allocate the costs of the second interconnector, which is still not in full use. We also reviewed Bord Gáis’s retail tariffs, which had not been reviewed for a long time. These tariffs have grown up piecemeal over the years. In fact there are eight or nine separate tariffs in the residential sector alone and we have commenced putting some order on these. Although the tariffs were published tariffs, they were observed more in the breach than otherwise in that discounts and other criteria applied. We had to deal with a kind of mishmash but we have now dealt with it. Some had increases which were serious enough and others saw no change at all in their tariffs. The market is more or less settling down and we have in place most of the procedures for putting it in order. The commission has also assumed responsibility for safety in the gas system. Of course Bord Gáis makes sure it runs the system safely but we oversee its activities and set down some of the rules and obligations. We have established a committee to bring people’s attention to what is required. Unfortunately, during the year there were some deaths in houses from carbon monoxide poisoning. They were not due to anything done by the gas company but to poor installation of facilities and the blocking of vents in houses. People died in their sleep. We must bring to people’s attention to the fact that they must ensure the installation is carried out properly. There was also an explosion in which people were injured and a house damaged. This was due to a fracture in a cast-iron pipe. We still have pipes distributing gas which were installed by Dublin Gas in the 1960s. They break from time to time whereas the new plastic polyethylene pipes are far better. We have agreed an accelerated programme for replacing the old pipes.” In his presentation to the Joint Committee, Mr. Gerry Walsh, chief executive officer of BGE outlined the extent of BGE’s operations in Ireland. “Bord Gáis has more than €2 billion in assets and serves half a million customers. Business has been developed without recourse to Exchequer funds and has contributed more than €600 million in dividends to the Exchequer over the years. It has two business frames, one engaged in building and operating pipeline networks and the other, retail activity, which in recent years entered the electricity market. I will not talk about that because it was expressly excluded from the scope of today’s discussion. Bord Gáis employs more than 800 staff. There are up to 2,000 others working in the wider industry with contractors and service providers. The company is financially sound, as evidenced by our strong investment credit rating with both Standard & Poor’s and Moody’s. In the pie chart in slide 7 one sees that the lion’s share of gas sold in Ireland relates to power generation. This is to be expected as it provides a competitive solution to meeting the growing demand for electricity and reflects what other EU countries are doing in the absence of nuclear energy. Our retail activity has been subject to competition for several years and currently accounts for 49% of gas sales in the Republic of Ireland.” 8.2 Liquefied Natural Gas (LNG)/Gas StorageIreland, most particularly in terms of electricity generation, is increasingly dependent on imported natural gas. Due to geography Ireland is at the end of a long supply chain which is liable to disruption. Currently there is no substantial gas storage capability within Ireland. In an emergency only a two-day supply of gas is available from line-pack The Joint Committee recommends
LNG In the course of his presentation to the Joint Committee, Mr. Walsh addressed the issue of security of gas supply and the position that LNG could play. “In the past natural gas was only a local and regional market, which was defined by the catchment area of the pipelines. Now, however, the growth of liquefied natural gas, LNG - that is, natural gas transported on ships – is creating a global market for this commodity. This radically improves security, not just by creating a more diverse local portfolio but it allows the development of new sources of gas from fields that were inaccessible in the past because of the absence of pipelines. A good example is in Qatar, which has the biggest gas field ever discovered but yet is not producing. This will now be exploited through the development of global LNG. Over the coming years LNG has the potential to change the gas market in a radical way.” His colleague, Mr. Will Roche, expanded on the theme of LNG. “The biggest thing happening in natural gas is the growth in LNG, which is the movement of gas by ship. The technology in this area has greatly improved, so it is getting less expensive to move gas by LNG. There are a number of projects coming up for the UK in the next few years, which will improve its situation. There is even the prospect that the UK will be oversupplied in the next three or four years ……In the near term, about 30% of Europe’s requirements are provided by LNG, but this will rise to 50% by 2030. The supplies will come from a much wider range of countries and from further distances. The issues will become more political in the longer term. There are issues at EU level in its relationship with the gas producing countries and the stability of the political regimes in these countries.” Deputy Eamon Ryan enquired whether BGE had plans to build an LNG facility and referred to the LNG terminal being built at Milford Haven. Mr. Walsh replied that they had no plans directly and went on: “The LNG facility in Milford Haven is massive. While its initial delivery is of the order of 6 bcm, it has a capability of the order of 23 or 24 bcm. It is a business that requires a lot of scale and the question of whether such a facility should be provided in Ireland is one that should be considered. Our evaluation of the security of supply suggests it is a long-term local issue……At this time, we are in transition and there is no doubt that LNG is changing the landscape. As time goes on, there will be greater clarity as to what is available. Even though a country such as Spain has been using LNG over the years, we have not seen the full potential of the development. I agree with those who have described it as a revolution in the gas industry.” In his address to the Joint Committee Mr. Andris Piebalgs, EU Commissioner for Energy made reference to LNG. “LNG terminals can bring gas from any part of the world. North Africa, the Middle East and countries in other regions have resources we could use. We intend to increase the number of suppliers to the EU market.” Gas Storage Mr. Walsh made reference to a certain amount of storage being availed by using depleted Kinsale Head gas wells. “….. and members may be aware that Kinsale has some capacity for storage, where gas is essentially pumped back into the old well and used on peak days when supply and pricing can be reasonably tight.” Mr. Piebalgs referred to there being no obligation to hold gas reserves. “At this stage, there is no obligation for Ireland to have gas reserves. In the event of disruptions to the security of supply, it is always helpful to have such reserves. However, the European Union has not regulated in this regard. I believe the oil reserves are sufficient. We are well-equipped with a 90-day oil reserve. We can speak about how to co-ordinate our activities in a better manner but I still believe that we are well-equipped in respect of oil reserves. I have no doubt that this is the case. Our reaction to the disruption of supply caused by Hurricane Katrina showed that we are well-equipped ……It is not only a matter of diversification and dialogue with the producer countries; we must also prepare for the day when, owing to very harsh winter conditions, for example, Shtockman may not be able to supply LNG to particular parts of the European Union. In such instances, we should have enough reserve gas in storage to supply our citizens. It is our duty to consider this matter.” 8.3 Corrib GasThe Joint Committee considers that the Corrib gas field must be brought on-stream without delay and in a manner that ensures the safety of local residents. Spurs from the Corrib gas pipeline must be provided to key strategic locations on route and that both the Commission for Energy Regulation and Board Gáis Eireann be mandated or given a policy direction which requires that the economic evaluation criteria for gas provision to rural areas be set on more realistic economic criteria than is currently applied. In the course of his presentation Mr. Walsh made reference to the potential impact that Corrib Gas could make: “In the medium term, it appears the Corrib pipeline will deliver a significant volume of gas into the system - of the order of 30% of a peak day - and that will be sustained for quite a number of years.” Many complaints were addressed by the members to Mr. Walsh concerning the apparent lack of intention to distribute natural gas by way of spurs off the Corrib gas pipeline. Mr. Walsh’s response was: “The difference between the Corrib pipeline and the others on the map is that it has not been built but the project is proceeding. With regard to spurs and so on, they are part of an evaluation under way between ourselves and the CER, which is the normal order of business.” 8.4 ESBThe Joint Committee, having regard to divergent political views in relation to how the dominance of the incumbent electricity generator should be addressed, recommends that the transfer of staff and effective operation of Eirgrid as the network operator must be finalised as a matter of urgency. It recommends that the ownership of all network assets, including both High Voltage (HV) transmission and all Low Voltage (LV) distribution networks, must be maintained in public ownership. It could not agree on the issue of whether the network assets should be in the ownership of the ESB or the transmission operator. The Joint Committee recommends, to deliver sustainable competition the electricity sector, it should be structured in such a way as to reduce dominance and therefore enable companies with a portfolio of generation capacity to compete with one another. At the first Joint Committee hearing, Minister Dermot Ahern expressed his views on the privatisation of the ESB: “In any consideration of the future of the ESB, I oppose the privatisation of the transmission and distribution systems which are critical national assets and should remain in State ownership. I also oppose any privatisation which would result in a private monopoly or near-monopoly in the power generating sector.” Mr. Tom Reeves, Commissioner for Energy Regulation addressed the issue of EirGrid: “The establishment of EirGrid should have happened more than three years ago but that has not yet happened for various reasons. I regret that. It would be much better if things were cleaner and there were cleaner breaks among all the different aspects.” Mr. Reeves commented on the dominance of the ESB in the market and recommended restructuring. “There are many things about competition - it is not only the EirGrid function but the large size of the ESB power generation itself. If the ESB is allowed to work en masse with 80% or 90% of the capacity and one person has only 5% or 10%, it is difficult to compete against it. I have never said the ESB should be privatised but it should be restructured. I have always said the power generation part of the ESB should be restructured in order that these power stations would act as if they were independent entities, and in their own self-interest.” Deputy Broughan Drew parallels with the privatisation in telecommunications and expressed his opposition to privatisation of the ESB. Mr. Reeves replied. “I am in full agreement with the Minister that we should not privatise the networks. They are a national asset for the good of everyone in the country, and not for people to make individual amounts of money. Various other countries have done things differently. The legislation that emanated from Brussels with regard to electricity networks is far better than the legislation for telecommunications networks. We do not have hassle about the last mile or the local loop. We have nothing like that. People are simply entitled to get on the network in both electricity and gas. There is proper separation. The ESB, for example, is not allowed to chase after customers who have left them, as happens elsewhere. The electricity and energy legislation is far better than that for telecommunications. The networks should stay in State hands. On the basis of development plans and forecasts regarding the grid, we have approved these network investments, of which there is no scarcity. One would sometimes wonder indeed if there is too much, and think that we might have let it happen too fast, but there is no scarcity such as there is in telecommunications. Whether anyone will buy the power stations is currently a moot point, because there is always someone to buy them. I am vehemently opposed to a private monopoly. I would not under any circumstances agree that the suite of ESB power stations should be sold off as one. If they were to be privatised, they would have to be privatised by means of some smaller packages, and not in the manner things were done in Northern Ireland, where they are still paying for it. The legacy in Northern Ireland is pretty awful in terms of the price of electricity. The issue of ESB dominance has nothing to do with ownership, but with the mass of energy that is there, and against which people find it hard to compete. It means then that the ESB is given a hard time, because it is opaque. One does not know what is happening with it. If it were a little more open, and one could see what each power station was doing, the people of Ireland would be better off because there would be pressure on each power station to perform better. The situation Deputy Eamon Ryan mentioned regarding the ESB being down to 75% availability would change dramatically. We are not getting proper use from these stations.” The Chairman questioned the commitment of the ESB towards facilitating the setting up of EirGrid. Mr. Padraig McManus, CEO of the ESB responded. “From the perspective of the ESB, we are supportive of the establishment of EirGrid and have done nothing to stand in its way. The ESB cannot make it happen and we cannot interfere in the day-to-day operations of the national grid because it is ring-fenced in that way. As the Chairman correctly points out, the statutory instrument went further than required. However, to provide that level of separation a decision was taken to set up EirGrid as a separate entity. I would be very happy to see it happen to avoid being asked questions, as members have done today, about a part of ESB which is still part of ESB but because it is ring-fenced and I do not have authority to act in that area, I cannot answer the question.” In reply to a question from Deputy Ryan regarding the future possible status of ESB, Mr. McManus answered: “The issue of ownership has been raised many times. Fundamentally, it is an issue for the Government rather than for us. The Minister has made a number of comments on the matter and the situation is as he has outlined. The matter was last considered by the ESB about four years ago. Whether ownership is public or private will not affect the company’s competitiveness.” Deputy Broughan suggested the possibility that the investment programme for ESB might be in anticipation of privatization. Mr. McManus replied: “Absolutely not. What the ESB is doing has nothing to do with how the ownership structure will develop. As I said, the future structure of the ESB is an issue for the Government. The comment was made that from 1986 to the beginning of 2002 there was virtually no increase in the price of electricity, apart from increases of 1% and 2% in 1996 and 1997. The only way the ESB could sustain this was by not investing in the system but during the mid-1990s the demand for electricity began to grow at a Dramatic rate. To an extent we were behind the 8-ball in rebuilding the network to match the demand for electricity. It has often been said competition and deregulation have not helped the price of electricity but that really had nothing to do with it. There was no way the price could go down from the level it was at in the 1990s to the start of 2001. It had to go up for a number of reasons. Investment was needed in the network and also in view of Ireland’s position as an island with no interconnection, unlike all other European countries. We obviously want to correct this. With no interconnection, a lot of rural networks at the end of the line in regard to fuel deliveries and high fuel import charges, there was no logic to the ESB being on the bottom rung in regard to the price of electricity in Europe. It was always going to rise. I do not think it mattered what was done in terms of regulation, competition or whatever; that was always going to happen.” Deputy Ryan queried whether sale and leaseback of the ESB generating stations was being considered. Mr. Kieran O’Brien, managing director of ESB National Grid replied: “Sale and lease back is one way of removing the immediate operational control of the plant from the incumbent operator. There are other models. I chaired the system operator function in Alberta, Canada, for a number of years in a competitive market and there were similar difficulties there. An attempt was made to reduce market power through the use of long-term power purchase agreements which were interposed between the plant owners and the market so that people would bid with a portfolio of plants. There are different ways to do it. We are trying to remove the immediate operational and market control of the plant from owners. It can be done through sale or an arrangement which removes control and gives a financial return to the owner in some way. There are many financial engineering approaches which could achieve the same thing. Sale and lease back is just one.” At his second visit to the hearings Mr. McManus, CEO of ESB gave an account of the investment programme in progress in the ESB: “I return to what is a significant issue, namely, the acceleration of the development of the network in Ireland. The only way the ESB could have retained prices at 1990s levels would have been by not investing. The level of investment made since 2001 in producing a network on which the Irish economy can rely is significant and we will continue to do that. We have spent approximately €3 billion in redeveloping and extending the ESB network. Since the 1980s, that included a doubling of demand for electricity and 370,000 new customers being connected in the past five years. I will not go into the detail but I will give the joint committee a summary of the highlights, which include: some 65,000 km of MV network renewal; 370,000 new connections; 250 km of new transmission circuits; 62 new transmission stations; more than 60 sub-stations refurbished - members can see, on the map provided, how these are spread across the country; and a total capital spend of €3 billion. We intend to continue to complete that programme but it cannot be completed in five years. The next five years will see continuing investment to ensure that Ireland has a network capable of sustaining its economy.” 8.5 Distributed GenerationThe Joint Committee recommends, in order to give better access to distributed generation that greater emphasis be put on the electricity grid reinforcement in a manner that promotes a distributed grid system. It recommends also that greater emphasis is put on generation plant-mix. The Joint Committee recommends that the Government, in the context of the next National Development Plan (NDP), support incentives for the development of CHP and district heating. The Joint Committee notes that this would enable the use of some of the 60% of energy that is currently wasted from power generation plants and will help to raise the efficiency of the electricity supply from 40% to closer to the 60% level which is being achieved in Denmark. Distributed Generation/Grid Deputy Coveney raised the issue of distributed generation. “One matter that I am surprised has not been mentioned is distributed energy and micro-combined heat and power, micro CHP. The UK is placing huge emphasis on that. We should prepare the marketplace to facilitate distributed energy, particularly in parts of the country to which it is expensive to supply energy at the moment. I would be interested to hear the Minister’s view on that, particularly on micro CHP and the possibility of small-scale renewable energy, for example, small wind turbines on farms providing the power for dairy units. Can we facilitate that and are we directing the Commission for Energy Regulation to ensure that we are preparing the marketplace for such development?” Deputy Ryan outlined his vision of distributed generation: “I will set out a context that I believe is important. In forming policy we must take a very long view. My view of the energy market is one of a Dramatic and radical revolutionary shift away from our current large fossil fuel-burning electricity generating stations to a future which is 100% renewable involving thousands of generation stations, with thousands of farmers running biomass, windmills providing clean wind energy and small CHP units in houses. This will provide this new revolutionary energy generating system where we have a level demand and thousands of small stations supplying”. In relation to wind generated electricity Senator O’Meara asked whether that electricity went to meet local demand. Mr. Andrew Cooke answered: “It depends on where the wind turbines are situated. Many of them are situated in comparatively isolated parts of the country where there would be little local demand. All wind generated electricity goes on to the transmission and distribution system which is interconnected throughout the country. One cannot quite measure which generation is serving which demand. It all goes into a pot, so to speak, and is delivered.” Dr. Eddie O’Connor of Airtricity set out his view on how the grid should be adapted to accept distributed generation. “The grid would be organised and built to accept plenty of renewables and I would designate a lot of upland areas in the west which are not scenic as areas where there would be a presumption in favour of wind energy. A scheme for farmers and a ROCs scheme would be introduced …….. A key element would be the establishment of a grid infrastructure which would accept a penetration of renewables up to 50%, allow us to export one of our greatest national resources to a power hungry Europe and have support mechanisms to get us over the initial high cost of wind energy.” Mr. Aidan Sweeney outlined how he saw planning of the grid in relation to take up of wind generated electricity: “There is a wind atlas in Ireland which has been around for some time. Combined with the county plans it will show where the wind farms will be located. It applies equally to a big wind developer or Meitheal na Gaoithe and the farmers. They are the prime areas in which to place a connection point to the grid. It is quite simple for the ESB national grid to plan in the long term and establish an infrastructure to support the grid. It is then quite cheap and the ESB can do it over a regulated period, get its costs back over 30 years instead of the short term. There is also a quick solution, namely, it could change its attitude to how it operates the grid. It has a very restrictive operating practice and if it copies what has been done in Denmark, Spain and the United Kingdom it can put 30% more capacity on to the grid as it exists. By changing its operating regime and coming in with a planned nodal system that has clusters of sub-stations to allow good areas with energy potential to be connected to the grid, it can do this very quickly.” Mr. Cooke gave his opinion on how investment in the electricity grid should be approached. “It is like building anything in one’s house or anywhere else. It sounds expensive the first day that one does it, but afterwards one sees it as a job well done. It is an investment in one’s future. That is exactly what one is doing. It sounds expensive, but looking at it over a period, it is the cheapest way forward. The grid investment going on now means nothing at all to the renewable energy industry. It is totally separate, and I could give an example of that myself. My own local grid was renewed. We are replacing an old, Third World grid with a brand new, shiny Third World grid. We are not looking at dispersed generation. We need to turn the grid around and put generation lines in dispersed areas. We are renewing an old system that is no longer applicable to this country.” Deputy Eamon Ryan made a case for developing the grid in a manner suitable for accepting renewable energy sources “If one takes the long-term vision that the development of renewal energy rather than clean coal will be the mainstay for our future, we need to develop our grid on the basis of sourcing renewable power supply rather than chasing after the customers, as is happening at present. Those involved in the renewable industry strongly argue that what the company is doing in terms of investing in the grid is blocking the long-term development of renewables. It has invested €3 million in the grid and it is proposed to invest the same amount going forward for the next five years, which can only suit large centralised fossil fuel burning power stations. That is the reason the ownership of the grid is a matter of concern and a major problem. The same attitude the company has towards the renewables is setting the agenda for the grid, which will be there in 50 years’ time when we will not have fossil fuels to burn.” Mr. Shine replied: “As one of the ring-fenced networks, I assure the committee that ESB Networks has no involvement in the development, planning and operation of the transmission system. Obviously, we build the assets and, as our chief executive has already mentioned, we own those assets. The actual planning, development and operation of the system is ring-fenced and in all of our contacts with the regulator there has not been a single complaint about those areas. Many of the wind and renewable energy systems will be connected to both the transmission system and the distribution system. In terms of the influence, operation and so on, of renewables, the grid must have transparency. We must be able to see the amount of wind that is on the system, in terms of faults and system management, or situations where the temperature is very low but there is no wind. The grid must have an insight into such matters. It is not all doom and gloom, however. Recently we have agreed to try to encourage clustered wind developments, which we will build in an advanced way. This will involve four 110,000 volt stations in four different locations, which will facilitate wind developers coming into the system in an orderly way without massive incremental costs being incurred when they first enter. There are a number of initiatives of that type which recognise that the distribution and transmission systems have to be developed in ways that are different from the past. It is not all negative news.” The Chairman asked whether it would be desirable to have the wind farms clustered, to which Mr. Shine replied: “Absolutely, that is one of the initiatives being undertaken. Originally we had a situation where somebody would decide to build a wind farm, then we would have to build a line at a certain voltage level. Then somebody else would decide to build a wind farm and that would cause a change to the system and we would have to make an even bigger investment. We are now trying to do some advanced planning around that issue and I believe it will be quite successful.” Deputy Eamon Ryan enquired: “Would Mr. Shine agree that a key change would be a move towards what is called a distributed grid system, where there is a myriad of small suppliers connected to the system, rather than the centralised large grid system that we have at the moment? The current system involves large power plants, such as Moneypoint, supplying power to Dublin. We should move towards a more dispersed, distributed grid system, as countries that are serious about renewable energy sources are doing now, for example, Britain. Why have we not moved towards a distributed grid system if we believe that renewable energy is the way forward?” Mr. Shine replied: “To a large degree we have a distributed grid system. We have made major advances in terms of building the 110,000 and 220, 0000 volt systems around the country. Obviously, it must take account of the location of generation and so on, but we have a very extensive grid system in place. Of the €3 billion investment, €500 million was spent on transmission. There will probably be another €500 million called for by Airgrid and the regulator in the next five years. There is a large amount of distributed network development taking place and there is no reason why it will not be able to accommodate renewables if, and when, they arrive. On the distribution side, we have one of the most extensive distribution systems in Europe. We have 170,000 km of overhead network, which creates specific challenges both in terms of weather and cost. We have four times more overhead network than any other country in Europe.” Professor Shimon Awerbuch of the University of Sussex, UK addressed the Joint Committee on the subject of design of the grid for distributed generation. “……….future networks will need to be market-Driven, decentralised and informated. This presents a very different model from that which pertains today, which model views the network as a transportation system for moving electrons. When there is distributed generation everywhere, the transportation role of the network becomes very outmoded. It has pretty much come to the end of its days. The network needs to be viewed as a market enabler. Therefore, in a deregulated, liberalised electricity market the network operates like the stock market in that it enables buyers and sellers to come together. A properly conceived network and incentivised network operator will help to promote network diversity, create open markets, afford buyers, be they householders or industries, with access to competitive electricity markets, and reduce costs. There is much evidence which shows that electricity markets throughout Europe suffer from a concentration of power. The market keeps prices artificially high. This is certainly true in many of the Benelux countries, including the Netherlands, and perhaps in Ireland. Future networks must enable reconceptualised just-in-time, mass-customised electricity generation. This demonstrates a different way of conceiving the electricity production business. We are working with Carbon Trust to develop a live demonstration in which a large hotel chain in the United Kingdom will take raw, unfirmed wind power. When the wind is blowing, it will take the power and manage its variability. This totally bypasses the need for system backup reserve requirements and renders insignificant all the arguments and discussions in this regard. There are different protocols and ways of dealing with wind power that need to be explored because we cannot make wind technology look like a gas turbine. It is not, yet everyone compares the two.” Generation Plant-mix Mr. Cooke of ESB National Grid described the situation where generation plant needs to be available on stand-by to support wind generation. “If one considers a situation where 2,000 megawatts of wind is installed on a 4,000 megawatt system, if the wind is to be allowed to run at 2,000 megawatts, it must be possible to ramp up the remaining generation rapidly in the event that the wind dies and its output reduces substantively. It is technically possible to do this but it comes down to a question of economics as to the benefits of running the 2,000 megawatt non-wind generation at non-optimum economic positions, a case of running a comparatively expensive plant in the system because it offers a very quick response.” Deputy Eamon Ryan enquired what the attitude of the Regulator was towards purchase of generation plant: “If the Government opts for the gas plant option for 2009, will the CER go with an open-cycle rather than a combined-cycle gas plant? The former allows a better support structure for wind, which is variable and for which one needs a fast switch on-switch off site plant to back it up?” Mr. Reeves responded: “To clarify, the decision on which plant to build is not for the CER to make, unless no plant comes forward. If we know in some six to nine months’ time that no plant is coming forward, we must take action. We did so in 2003 when the country might have run out of capacity. An open-cycle plant serves useful functions in the markets because it offers a quick response. Other methods can be used to back up the intermittency of wind. Mr. Tutty has spoken about interconnection which would help in this regard. There is also pump storage and other types of storage of compressed air and so on, which are being evaluated as a means of balancing the intermittency. All of these methods have a part to play.” Deputy Eamon Ryan further asked: “Has the CER the ability to direct the market in terms of saying, for example, that we do not want a combined-cycle plant because it takes two or three hours to heat up and that this does not suit us in terms of providing back-up to wind?” To which Mr. Reeves replied: “There is an open and competitive market for generation and there is no central planning.” 8.6 Nuclear GenerationThe Joint Committee considers it imperative that there should be informed debate on nuclear generated electricity. The Joint Committee recommends that vehicle for this debate must be the Oireachtas and accordingly recommends that the Government by the way of Motion in the Dáil, requires the Joint Committee to consider and report on this matter. Dr Eddie O’Connor of Airtricity expressed his view on the Finnish approach to the Nuclear debate. “I am impressed with the way the Finnish came to their decision regarding the construction of a nuclear reactor after ten or 15 years of debate. A document was published which incorporated every element of the plan, even peat. That is the type of document I would like to see presented to the Irish people and to energy economists around the world for review”. In his presentation to the Joint Committee Mr. Padraig McManus CEO of the ESB referred to Ireland’s exposure to fossil fuel price increases and how some other European countries shielded themselves from such exposure. “90% of generation in France comes from hydro and nuclear power. Therefore, 90% of the generation in France is totally independent of any increases in the cost of oil or gas. Scandinavia, where there is a huge amount of hydro power and a considerable amount of nuclear power and renewables, is almost independent of the price of oil and gas. In Spain and Portugal, a considerable amount of energy generated through nuclear power, hydro power and coal. Coal has increased in price but not to same extent as oil and gas. Germany still has a considerable amount of energy generated by nuclear power and coal. The UK is interesting. I will show another slide just to make the point more clearly. The UK has not developed nuclear power in recent times but it has a considerable amount of coal and gas. Ireland’s amounts of hydro power and renewables, at 5%, are quite small when compared to an average of 13% across Europe. The coal, oil and gas, on which Ireland is dependent, are all imported. The baseload price in the UK, compared with France or Germany, has increased by approximately 100% since the beginning of 2005. In terms of the end-user price, British Gas, the largest electricity supplier in the UK, has increased its electricity prices by more than 30% in 18 months. The impact of that increase is that Britain is now looking again at developing the nuclear industry. America is already preparing its strategy document for the future and is committed to developing its electricity on the basis of coal and nuclear. Nuclear power is not something in which we are involved or to which we are committed or have plans to develop. However, one can see the impact it makes. I refer, in particular, to France, where 90% of generation costs are totally independent of what is happening in the oil and gas markets.” Professor Awerbuch expressed the view: “The debate in the UK on nuclear energy is on a bed of air, since no one really knows its cost. Given all the technologies that will be ready in 15 or more years, no one has any idea. I want to add to the nuclear debate the thought that people are not contemplating - particularly in an island situation - of the huge back-up requirements when one is discussing a 1.6 GW nuclear plant. People have talked about back-up for wind energy but nuclear power induces far greater back-up requirements.” In his address to the Joint Committee the EU Commissioner for energy, Mr. Piebalgs stated: “Nuclear power is part of our energy mix. No country is forced to build nuclear power stations and the paper makes this clear. We should not try to pretend that nothing is happening in this area. A new power station has been built in Finland and developments are taking place in other Baltic states, which is their democratic choice. We must be clear in pointing out the positives and the deficiencies. Each member state will make its own decision as to whether to use nuclear power. As regards nuclear energy, in the past I could agree but nowadays all the costs are included in a nuclear power station. That is why I could never agree with the statement that nuclear power provides cheap energy. That is not true. It could be competitive in particular circumstances such as, for example, in Finland. The Finns are large consumers of energy and need less price fluctuation. They use all the resources they possess and have opted for nuclear power as the source of their generation needs. It is definitely not cheap, but each nuclear power station built in my lifetime at least absorbs all of the costs involved in so far as these can be predicted. These include the cost of commissioning and of storing nuclear waste, even in cases where decisions on final waste storage have yet to be taken. Perhaps what I am saying is somewhat absurd, but at least the foreseen costs are being accommodated. That is why I believe nuclear power will be a long-term contributor but it is not a magical solution. From an economic viewpoint, it is one of the options, provided the political conditions are right, about which investors can think. To be honest, however, in many instances this will never happen. State aid is no longer possible, whereas in previous eras the position was different.” Chapter 9 – RegulationThe Joint Committee considers that it is essential that the Government sets clear policy guidelines under which the energy producers and regulator will work. This will remove some of the current perceived uncertainty and risk of investing by potential additional market participants. The Joint Committee started its investigations in early 2004 when there was a confident air in Government about the future for fossil fuels as depicted by the then Minister Ahern when he advised the Joint Committee: “Since the early 1970s, there have been doom and gloom scenarios about running out of oil, but that has not happened. There are new technologies. For example, the fuel cell technology is being actively worked at in the United States and there is significant interest at European Union level by the current Commissioner. Ultimately, the new technologies will help. We are a member of the IEA, which deals with the whole issue of the long term availability of oil” By December 2005 the mood of Government had changed, the Minister for Communications Marine and Natural Resources, Noel Dempsey, T.D. advised the Joint Committee: “I acknowledge the work the committee has been doing on energy policy for the past 15 to 18 months. This is an extremely important matter and the committee can claim to have had foresight at the time it began its work in that energy policy was probably not as critical then as it is now. I commend the committee in this regard….I am happy to inform the committee that we are currently preparing a Draft policy paper to be completed in the first half of 2006. The committee’s deliberations in this regard will be helpful and will be included in our consideration of that policy document.” In a presentation by Mr. John Fitzgerald of ESRI he advised the Joint Committee: “The job of the energy policy maker is to minimise the cost of providing energy… …subject to specified objectives on security of supply and the environment… …ideally there should be one policy instrument for one policy objective” Mr. Reeves of CER advised the Joint Committee on his worries and conflict in policy: “Our issues of concern are more long-term. The dependence on gas and imports is very high. Indeed, the dependence on imports in Europe as a whole is as high as ours and is of grave concern to the European Union because much of its gas comes from Russia. At least ours comes from the North Sea with local contracts here. We try to have physical remedies to these matters, such as enough power stations, and a diversity of fuels. Should we build another coal station? Should we try to get clean coal? What should we do? …..It depends on the policy objective. There are three policy objectives in energy, which are incompatible. Finding the balance is difficult. The environmental objective is a key matter for Deputy Eamon Ryan. IBEC wants competitiveness and cheap products and the third objective is security of supply.” Dr. O’Connor, Airtricity, advised the Joint Committee on the importance of a policy for investment confidence: “We want a clear energy policy based on objectives set by Government. There is confusion among regulatory bodies as to what priorities to follow and lack of investment in a diverse portfolio…. Without a definite energy policy Ireland’s over-exposure to fossil fuel price levels and volatility will be cemented for the next 20 years. Renewables can offer a real alternative and act as an insurance. Mr. Ennis spent some time talking about the natural hedge they represent. It is required that other bodies, such as the ESB national grid and the CER, be mandated to follow a newly articulated and formulated energy policy. . Implementing a policy of 10,000 MW of wind energy would create an enormous number of jobs. A cohesion and renewables policy is sorely lacking, however. New policy targets must be set by those who can implement them…. private capital investors need a stable and predictable climate in which to make the necessary investments. This is lacking in Ireland and immediate action needs to be taken to ensure that confidence is restored.” The IWEA advised the joint Committee of the need for a coherent government policy that would be implemented: “Renewable Energy must be considered as part of an overall energy portfolio. The policy and targets should be set not to just achieve the minimum EU requirements but rather to maximise our national interest through exploiting our indigenous natural resources in a thoroughly sustainable manner. 660 MW of wind capacity by the end of 2005 is eminently achievable, with 2,775 MW by 2010 and 6,500 MW by 2020 achievable if the proper measures are put in train now. Cohesion in Renewables policy is sorely lacking, however. The:
New policy targets must be set by those who can implement them. Private capital investors need a stable and predictable climate to make the necessary investments. This is lacking in Ireland and immediate action needs to be taken for confidence to be restored. Strict enforcement of EU directives in favour of Renewables is required. The faster we can deploy our wind energy the faster the costs will Drop. Co-operation between government and industry can streamline the development and commercialisation processes by channelling investment resources, prioritising research and defining common goals. Such co-operation will provide the framework for more comprehensive and ambitious changes at a lower cost to society.” In 2006 at a presentation by CER, Senator Finucane advised the Joint Committee: “The report of the OECD assessment of the economic survey of Ireland 2006 published on 2 March 2006 states that Ireland has a legacy of policies that favour the interests of producers over consumers. It stated also that despite six years trying to liberalise the electricity industry, competition has not increased by much. It identified the main problem as the dominance of the State owned Electricity Supply Board.” Mr. Reeves of CER replied: “The CER is not in a position to impose or require structural changes on the ESB. However, we published detailed proposals on mitigating the ESB’s market power in the all-island market. They are regulatory measures, which are second-best because structural measures are usually perceived as being the most efficient and best way to address dominance issues… …The Government sets public service obligations. The Government decided that peat and renewals would be encompassed by public service obligations and we implement that order. I have told the Minister that it restricts competition.” The Joint Committee recommends that the Government publish the Deloitte and Touché report on the electricity market in Ireland and that it set out the means by which it wishes to ensure that we have a competitive energy market. In 2005, the Minister for Communications Marine and Natural Resources, Noel Dempsey, T.D advised the Joint Committee: “consultants Deloitte and Touche to carry out an in depth and strategic review of the institutional arrangements and market structures for Ireland’s electricity sector… I hope to have the final report before Christmas ……Deloitte’s examination will help inform policy choices for appropriate market structures.” Senator Finucane question the CER in regard to the Deloitte and Touche report “Mr. Tutty referred to the Deloitte & Touche report on the energy market. At a previous committee meeting I asked the Minister whether the Deloitte & Touche report would be published but I could not get a direct answer from him at the time. Have the representatives of the Commission for Energy Regulation seen this report and its recommendations? I understand it contains certain criticism of the ESB and raises the break up of its dominance in the market. It may be unpalatable to produce the findings at this stage with the imminent opening up of the market in 2007. Will it be less of a necessity for the ESB to build new generating plants with the opening up of the all-island market in July 2007? Will the opening up of the all-island market end the dominance of the ESB in the marketplace?” Mr. Tutty replied: “We have seen a copy of the Deloitte & Touche report but our lips are sealed as we have taken a vow of silence. We cannot do what the Minister would not do.” Later, Ms Finn of the CER in answer to a further question stated: “Regarding the Deloitte & Touche report, we mentioned earlier that the CER is not in a position to impose or require structural changes on the ESB. However, we published detailed proposals on mitigating the ESB’s market power in the all-island market. They are regulatory measures, which are second-best because structural measures are usually perceived as being the most efficient and best way to address dominance issues. Given that we do not have power over structural changes, we will put in place measures to deal with the dominance by the ESB in so far as regulatory measures can do so. It is an issue on which we are currently consulting.” The Joint Committee recommends that the all island Single Electricity Market should proceed on schedule. The Joint Committee notes that this will enlarge the market reduce dominance and will provide the conditions for more competition therefore potentially leading to reductions in the price to the consumer. The Joint Committee considers that the establishment of the interconnection with Britain, in line with EU policy, will increase competition with Ireland becoming part of a much larger regional market. The Joint Committee considers that it is therefore essential that the Government should proceed with the proposed 500MW interconnector and should further consider the commissioning of a second interconnector possibly directly to the continent. Single Electricity Market is expected to bring substantial benefits by enlarging the market and has generally been welcomed by all that made submissions to the Joint Committee. Ms Finn of CER delivered an explanation of the new system to the Joint Committee: “There will be one trading and settlement code and one market. Wind energy will be traded in the market on the same basis North and South. The ROCS systems and the AERs and the various support mechanisms are outside the market and will affect who buys what and money flows, but they will not inhibit or stop the way wind energy will be tradeable on the whole island. They are outside the trading and settlement code. On the question of the overall benefits of the all-island market, the market with economies of scale and more efficient dispatch will certainly deliver efficiencies across the board in terms of costs in the medium to long term. We cannot control fuel prices but we can control other costs in the all-island market and those costs will be lower than they would be in two separate markets. Establishing an all-island market will be a first step towards considering regional markets. We may go down that road but it will be some time in the future. We are already committed to a joint regulatory decision-making process for the new market. That is essential for the single electricity market to work. We will put those mechanisms in place. The matter of who would lead regulation if we were to have a British Isles regulatory system would be up for discussion and negotiation. We would not consider that any one jurisdiction should be a lead regulator. It is easy to call for a single energy regulator but the Attorneys General from both jurisdictions must work out what authority the regulator should have. In due course, there should be a single regulator, which would be a momentous achievement. The objective is to maximise both economic and energy supply benefits. the larger the market the greater the efficiencies of scale and we can gain benefits in term of how we dispatch electricity plant…one of the objectives of going for a larger market is that it will provide a greater incentive for new investment because the scale of the market is larger. There are approximately 1.9 million customers in the Republic of Ireland and another 700,000 in Northern Ireland. On the question of the overall benefits of the all-island market, the market with economies of scale and more efficient dispatch will certainly deliver efficiencies across the board in terms of costs in the medium to long term. The second issue is that the new market is designed differently from the existing markets, North and South. It is designed as a gross pool market. The current market is bilateral, which means that a new generating company who might invest has to find a supplier with which to contract and sell the power that generator is producing. The new market provides for a gross pool into which all electricity will be traded and, therefore, generators have a ready-made market for their electricity, which makes entry easier. We have reached the conclusion that the ESB in the South, and its counterpart in the North perhaps, will have market power and measures will be required to ensure the market operates fairly. We are considering what those regulatory mechanisms should be. While it is coming down it is not at the point where it no longer has market power. Our objective is to ensure that there is more competition. Part of the difficulty in securing this aim is the existing structure. When there is one dominant body in any market - such as the ESB in the electricity market and Bord Gáis in the gas market - it is difficult for new players to establish a foothold.” McManus of ESB advised the Joint Committee: “We believe the all-island marketplace alone, which provides greater backstop regarding supply; will reduce the price of electricity by approximately 4%. If we continue to interconnect directly to the UK we will create a much bigger marketplace. Those are the kinds of things that will bring downward pressure on the price of electricity in a country like Ireland.” Mr. McCracken of Viridian Power and Energy advised the Joint Committee: “There is an overwhelming case for whatever migration path is needed to bring these two markets closer together and have them under one administration. There are many benefits. The whole industry accepts that we are heading towards one regulator, one TSO, one set of rules, one market structure arrangement. That is the only sensible way forward.” Dominance of incumbent was identified as a stumbling block in bringing effective competition to the market. Mr. Piebalgs EU Energy Commissioner advised the Joint Committee: “If one company dominates 80% or 90% of the market, it is difficult to speak of competition because it has not really been tried. We now have a good opportunity to liberalise the market further. We should not blame liberalisation; rather we should point to member states that are not tough enough in providing citizens with a real market”. Mr. Reeves of CER advised the joint committee: “Our objective is to ensure that there is more competition. Part of the difficulty in securing this aim is the existing structure. When there is one dominant body in any market - such as the ESB in the electricity market and Bord Gáis in the gas market - it is difficult for new players to establish a foothold.” Further, Ms Finn of CER advised the Joint Committee: “We have reached the conclusion that the ESB in the South, and its counterpart in the North perhaps, will have market power and measures will be required to ensure the market operates fairly. We are considering what those regulatory mechanisms should be. While it is coming down it is not at the point where it no longer has market power.” McManus of ESB advised the Joint Committee of the problem of trying to bring diversity to the Irish market: “On the issue of investments, we have always taken the position that we have to lose market share in Ireland and we are looking at making investments overseas. The civil services on both sides of the Border are totally committed to having the all-island market in place by 2007. When it is in place, the ESB’s market share will be reduced to between 40% and 45%. During the seven-year period between 2000 and 2007, 2000 MW of new plant - 70% of which will be owned by independent producers - will have been installed. However, we can create a bigger marketplace. We believe the all-island marketplace alone, which provides greater backstop regarding supply; will reduce the price of electricity by approximately 4%. If we continue to interconnect directly to the UK we will create a much bigger marketplace. Those are the kinds of things that will bring downward pressure on the price of electricity in a country like Ireland.” However Mr. McManus did advised the Joint Committee of his concerns: “It is not a question of whether we are happy or unhappy about regulation but of transparency. The regulatory process is transparent and everything that happens is included in the website for all to see. That is not the case in Northern Ireland. That is the problem. In Northern Ireland, for example, if we want to get a customer to move to ESB we must pay for the charge of the metering. It is necessary to pay approximately £300 to have a meter changed which we believe is anti-competitive. The major issue in Northern Ireland is the lack of transparency in the regulatory process. Our concern is that lack of transparency could continue not just for the next few years but also when the all-island marketplace is developed. We want the same level of transparency North and South. We want the same level of open competition North and South.” Professor Awerbuch of Sussex University advised the Joint Committee in regard to eliminating dominance: “One must have five or six players of more or less equal size and even that is probably not quite enough. That is why I believe decentralised energy supplies from wind and other sources and new players can help mitigate market power. That is an important role. Wind energy developers and operators of other renewable energy forms contribute to the system by mitigating that power.” Mr. Taylor of SEI indicated his approval to an all-island energy market: “The thrust towards an all-island energy market recognises that a larger market in terms of spinning reserve backup support for wind energy will offer better potential than a smaller market and thus benefit consumers.” Electricity InterconnectorMr. Tutty of CER advised the Joint Committee: “We have one interconnector linking us to the North, where there is a 500 MW interconnector to Scotland. The transmission system operators North and South have agreed to provide a second interconnector to the North. We have authorised them to do this on the basis that it can be expanded when required. It is being built not only to meet immediate needs but also to accommodate projected future needs. When fully developed, this second interconnector, in combination with the existing one, will provide at least three times the level of supply currently available. ……We were asked by the Minister to develop an interconnector across the sea to Wales or elsewhere in the United Kingdom on a merchant basis or on a partly regulated and partly merchant basis. We informed members of progress in this regard when we last came before the committee. A consultant report identified that there is private sector interest into which we could tap. We gave this report to the Minister and await the go-ahead to make progress on that basis. The Minister spoke in the past about the possibility of building two 500 MW interconnectors. Our contention is that we should build one such interconnector now and consider the timing of the second at a later date. Interconnectors are costly. A single interconnector with 1,000 MW capacity should not come into the system here or in the UK because should it fail, we would lose the total capacity at any one time. As interconnectors must be in two different places, there are no economies in doing the two interconnectors at the one time. Nobody on the UK side wants an interconnector or is willing to put up money to buy power from us. The United Kingdom regards this as something being built to meet Irish needs and if we export something from it that may be a bonus. We must carry the cost of this interconnector Security of supply is the primary purpose of the interconnector but it would also increase competition in the market and open up the possibility of exporting electricity. The east-west interconnector, mentioned by Mr. Tutty, will be in place by 2011, according to plans. Ironically, the north-south interconnector will take a bit longer and will not be in place until 2012.” Mr. McManus of ESB advised the Joint Committee, “Creating that level of interconnection and thereby a bigger marketplace would provide the opportunity to include more wind energy into a much bigger system. It would allow far greater opportunities for wind energy developers to proceed with their developments.” Mr. Cowhig of IWEA was enthusiastic concerning the installation of the inter connector: “The IWEA fully supports the Minister’s proposal to seek tenders for the building of the east-west interconnector, which can:
Decisions on interconnection developments are urgently required if Ireland Inc. is not to lose the opportunity of becoming a market leader in the wind industry” The Joint Committee notes that the current regulatory system is perceived, by consumers, to be unfair, that it has led to the high cost of electricity and gas, and that it is in need of restructuring. The Joint Committee recommends that the views of business and domestic consumers in any new structure needs be heard. This is so that the regulator is cognisant, at all times, of the impact of its planning and decisions. The Minister for Communications Marine and Natural Resources, Noel Dempsey, T.D. advised the Joint Committee: “The minister recognises that Regulation and competition must deliver efficiencies in relation to all costs that are within our control… The CER is statutorily independent in regulating these costs in the gas and electricity sectors and needs to be seen to be so if investor confidence is to be maintained.” Mr. Reeves CER in his address to the Joint Committee confirmed: “It (liberalisation) has not made any difference yet to the average household consumer…. The experience in other countries has been that the residential market is the sector most difficult to open up to competition. To some extent, the lack of competition is a reflection that prices are not so high as to attract independent operators. One issue in this regard is the difficulty of building up a residential portfolio. The margin we allow ESB PES to charge residential customers is very small. For independents hoping to compete, there is not much of a margin to undercut ESB.” Mr. Jewell CAI in his address to the Joint Committee stated: “It would probably be argued by almost all consumers that the regulatory system seems to work only to the benefit of the providers, not to the benefit of those seeking to have the supply from those providers… If one takes the comparison with ComReg, there is no interaction from the CER with consumer organisations or representatives that the CER initiates.” Mr. Jewell in answer to a questioned by the sub committee: “Did the Consumers Association of Ireland have no input whatsoever into the level of increases that occurred in the 2003-05 period, the annual ritual of increasing energy prices?” he stated “The Consumers Association of Ireland had no input whatsoever”. He was asked if and how consumers would benefit from an element of competition and replied “I like to think they would”. Mr. Butler, IBEC, in his address to the Joint Committee questioned whether stricter scrutiny of the regulator was required: “We need to ask whether the regulator is applying the right level of increases and whether we need stricter scrutiny of the role of the regulator, given the increases being announced. The business community is dissatisfied at the level of increase being awarded by the regulator. In many cases, the increases are excessive. There have been a number of analyses. I will show the committee later a figure which demonstrates that the figure the regulator brings forward for business fails to reflect actual costs.” Mr. McCracken, Viridian Power and Energy stated to the Joint Committee: “Our experience with the present plant has been mixed. We have had to fight very hard to find a position in the market for that plant. Many of the problems we have experienced are ones with which we have had to interact very closely with Commission for Energy Regulation, CER, and other organisations responsible in terms of the decisions made around generating plant and how they will operate in the system. We have been looking at investment in a second power station in the Republic of Ireland for some time. Due to the fact that we have found some difficulties with our existing power station, we have had to look very hard at whether there is an economic case for further investment, the problems we have faced in Huntstown One and Huntstown Two lie in seeing some degree of certainty in the long-term shape of the market in Ireland. With the new market arrangement being introduced, a good deal of uncertainty still exists around what exactly the design of that market should be. The key area of design lies in the question of how to manage the dominant position of the incumbent because by our calculations, for over 90% of the time the current portfolio of the ESB plant will be setting the price in the market., The original design of the market in Ireland was extremely complex and provided much more uncertainty to potential investors than was needed” Mr. McManus gave his opinion to the Joint Committee: “It is not for me to comment on whether the regulatory system is good or bad. We must operate within it. When the Irish market was liberalised and the regulatory system put in place, the cost of electricity was at the bottom of the European ladder. That was sustained only because the ESB had not invested any money for 15 years but that could not continue. When it had to rebuild the network, fuel prices went through the roof. The environmental problem of carbon dioxide was added to the burden. Several factors have worked against the electricity market in Ireland in the past four years. Regardless of what system was in place, those issues had to be addressed.” Gas grid extensionMr. Taylor of the SEI advised the Joint Committee of his concern that extensions to the gas grid would lead to competition to indigenous sources when he addressed the committee: “My point is that in order to extend the grid at the same price, one has to subvent it and the only people who can pay for that are the existing consumers. Therefore, the overall cost of delivering the service increases. We must realise that the more one extends the grid, the more costly it becomes to deliver the service. The other consequence of a policy that is concerned with gas-only extension is that we begin to preclude the possibility of other energy forms, such as biomass, that might be more applicable in rural regions, where the raw materials are more plentiful. It is important to strike an appropriate balance between grid services that can be delivered efficiently and economically and off-grid services that can be supplied, more economically and in a more environmentally friendly manner, by indigenous energy resources.” Mr. Jackson of Ballina Chamber of Commerce advised the Joint Committee: “In 2003 the Commission for Energy Regulation published its gas distribution connection policy for new towns. The policy involves investment appraisal methodology for new towns connecting to the natural gas network. The appraisal method comprises a net present value test, the NPV test, of estimated costs and revenues. The NPV must be positive if a town is to be eligible for connection. Unless the policy stance changes, none of the western towns is eligible for connection to the Bord Gáis Éireann Mayo to Galway transmission pipeline. Despite the asset having a 40 year lifespan, the CER’s methodology only allows for seven years revenue from commercial and industrial clients in the calculations. When further considering that the CER defines industrial and commercial clients to include schools, hospitals, churches, Government buildings, hotels and offices - not exactly high risk sectors - the seven year rules seems bizarre. This guillotine approach is clearly inappropriate and central to the reason new connections in County Mayo are not deemed feasible under current rules. The seven year rule effectively suggests the commercial life of any subject town would completely stop in seven years and as of midnight in year seven there would be a commercial armageddon and no further revenue would accrue from the gas line from this sector, which is completely irrational.” Minister Ahern in addressing the Committee advised that he was unaware of the restrictions imposed by CER: “Assuming that Corrib goes ahead, this will have the additional benefit of making gas available for supply to towns along the corridor between Galway and North Mayo.” Mr. Walsh of BGE advised the Joint Committee: “The criteria for evaluation of network extensions are set by the regulator in order to achieve a balance between growing the grid on the one hand and competitiveness of gas prices on the other…. The regulator is independently appointed to look after the interests of the customers. He ensures that what we charge for pipes is fair relative to the assets in place and that it is equally applied to all customers. Where we can bring value in the future is in terms of the pipes… It (CER) does its own economic evaluations of such projects… Less than 15 kilometers. That is the normal catchment area of a transmission pipeline but connection to a town is driven by the cost of getting there and the load there. If we undertake projects that do not fit the economics, everybody else on the system pays for them.” Mr. MacCann of The Northern Ireland Authority for Energy Regulation gave its opinion on how extensions are evaluated to the Joint Committee: “We leave it to BGE, Phoenix Gas or whatever provider wants to supply the gas to decide whether it will get its money back. It will do the net present value calculation and decide whether it is a worthwhile investment. (to supply gas to other towns)” Mr. Tutty of CER in later sessions advised the Joint Committee: “In terms of the Corrib pipeline to Galway, we are looking at the basis on which Bord Gáis determines what is an economic proposition with regard to which towns along the way should be supplied. The existing criteria are probably too tight, too narrow. We are looking at whether they should be widened. The seven year period for industrials in the NPV calculation is undoubtedly one of the elements we are looking at in the review of the policy. Without revealing what is to emerge, I should be surprised if that seven years stipulation remains under the new criteria.” Mr. Walsh of BGE defended the price structuring for gas when he advised the Joint Committee: “In a recent publication the EU Commission has been complimentary on the development of competition in Ireland, ranking us next to the UK and the Netherlands… The gas price in the main comprises the cost of the commodity and the transportation tariff. The remainder of the price is accounted for by the operational cost and the margin. In the UK wholesale market, where we buy our gas, Bord Gáis is a price taker because of its size. The transportation tariff, which pays for the pipelines, is based on a regulated formula in line with industry practice.” Mr. Fitzgerald of Northern Ireland Authority for Energy Regulation gave his opinion of the new structure of the energy authority in Northern Ireland where the Regulator reports to a Board containing various interests when he advised the Joint Committee: “I have found the range of expertise available (on the board of the Authority) to be interesting. I have found the nature of the board to be useful and stimulating. We have a consumer representative on the board Peter Lehmann, who formerly had a role in British Gas and as a non-executive of the board of Gas de France. Mr. John Gilliland has a large amount of experience in the renewable sector and Joan Whiteside has similar experience to that of Mr. Gilliland.” The Joint Committee notes that within Scotland there is only one land-pipeline to the interconnector supplying Ireland. The Joint Committee recommends that the provision of a second land-pipeline to the interconnector is required so as to avoid a critical supply choke issue. Mr. Piebalgs EU Commissioner advised the Joint Committee: “The Commission will examine the level of interconnection that will be necessary and consider how it can address the lack of interconnection and lines. The lack of interconnection is sometimes caused by a failure to put in place power plants or pipelines to provide for a real European energy market and to bring about the best possible energy prices in cities. There has been a substantial level of under-investment in energy. The Union as a whole needs to spend €1 trillion in the next 20 years to ensure that there is security of supply for its citizens. This is an immense challenge because investment is needed not only in generation facilities but also in transport facilities, interconnectors and new pipelines.” Mr. Reeves of CER gave specific details to the Committee of the gas interconnector: “There seems to be no need for further gas interconnectors, although it may be necessary to upgrade the facilities at the Scottish end before too long….. There may be a need to upgrade facilities in Scotland to get more flow from that side, but the cost of building an interconnector to the UK, which is not needed from a capacity point of view, would put quite a strain on costs in this economy. There is one pipeline at the Scottish end and we may need to upgrade facilities there. As I understand it, one pipeline leaves Scotland which then divides into two.” Mr. Tutty of CER confirmed to the Joint Committee the new trading arrangements for gas: “The proposed reforms caused some concern among Irish buyers. We have spoken to OFGEM about this matter a number of times, most recently two weeks ago. OFGEM decided last Thursday to delay those reforms for two years, until September 2007, in order to leave more time for discussion. We endeavored to make sure the arrangements in place at Moffat, which is our exit system from the British system, would not be damaged by these proposals.” The Joint Committee recommends, in order to encourage a more rapid penetration of renewable energy into the market and foster confidence, a fixed feed-in tariff system for renewable energy is required. In the longer term, more market based schemes can be considered. (ST) Professor Awerbuch of Sussex University advised the Joint Committee that a fixed price for renewable energy lowered risk on an economics basis, however: “Most national and international agencies use traditional engineering models to develop kilowatt hour generating costs. These estimates have no economic significance or interpretation … Gas has a price but it also has a risk. Renewables have a different price and they carry a lot less risk. Their costs are generally fixed… …There is a need to ensure that both parts of the island co-ordinate their approaches to promoting renewables.” Mr. Cooke, Meitheal na Gaoithe, advised the Joint Committee: “We are also asking for a fixed price for our energy. This is not State aid but a State economic risk management system…. ask industries to come to Ireland by guaranteeing them a fixed price for electricity over the next 15 years, including all environmental issues. Does the committee think that will be attractive to them? You bet it will. They cannot find that anywhere else in the world but it can be done here. Europe would be more than happy to take power from Ireland at that (AER5) type of rate. The difficulty is in getting it to the market. The history of wind-generated electricity has been stop-and-go. We have to get away from that and decide a short-term policy with targets and fixed feed-in tariffs while we establish what energy portfolio we want. It would be a rebalancing of advantages. The wind resources tend to be in the higher and more exposed areas that are disadvantaged from an agricultural perspective. We do not like the AER system. Competitive tendering is very inefficient. However, we at least expect delivery on what we were promised. We will have invested more than €400 million from our members in small-scale projects. About €1 million of that has already been lost in planning. Derrybrien has had an impact. Now we are having to conduct geological and viability studies in areas that have no such issues. However, it could be turned around in the blink of an eye with a proper policy framework, and that is what we are saying today….. We would look for a fixed price in the order of 5.5 cent or 6 cent per kilowatt hour but it depends on the time scale for that fixed price, for example, is it ten or 15 years?” Mr. Cowhig of IWEA advised the Joint Committee of concern in relation to support schemes: “As stated previously, wind is highly sensitive to support schemes. Much debate has revolved about this issue in the wind industry. The IWEA held a number of fora to establish what should replace the existing systems and what form it should take. The view was that while in the long term a Renewable Obligation type scheme would serve the industry well, the consensus was that in the short to medium term a Fixed Feed In type tariff would be most appropriate for the Irish market given its modest size and that it is not fully deregulated. With this mandate from major market players, we made our submission on the new market support mechanism based on a Spanish-Type System. This is based on a fixed feed in tariff and / or a tariff of the average price of electricity plus a premium, which could form a tradable renewable energy certificate. This allows for the introduction of ROCs (Renewables Obligation Certificates) when market conditions allowed.” The Minister for Communications Marine and Natural Resources, Noel Dempsey, T.D. advised the Joint Committee and stated: “I recently announced a move to a fixed, feed-in tariff system to support renewable energy technologies. The finalised terms and conditions of this new scheme, known as REFIT, are currently with the Attorney General for legal clearance and will be published as soon as this is completed.” Chapter 10 Research and Development10.1 Ocean energyThe Joint Committee wants Ireland to be a world leader in wave and ocean energy sources. This would make Ireland more energy independent. The Joint Committee recommends that the Government and Minister underpin this by accelerated investment in research and development In a submission to the Joint Committee, Dr. Brian Ó’Gallachóir of University College Cork indicated: “… …that the work on wave energy is carried out in the hydraulics and maritime research centre within UCC. Based on some recent work, it suggests a target for Ireland of up to 80 MW to be installed by 2012 and after 2012, installation of 20 MW per year. The focus in wave energy is twofold; meeting our own targets in renewable energy and also our commitments on climate change under the Kyoto Protocol. It can also be viewed as a starting point for an industry in technical development that can be exported. The world market is estimated to be worth in excess of €50 billion according to the DTI in the United Kingdom. Therefore, it is a potentially significant market that Ireland can have a role in supplying.” When asked to clarify the estimate of 48 TWh, in his presentation, for the whole coastline and the timescale for potential development, Dr. Ó’Gallachóir replied: “… …that is, essentially, looking at how much wave energy would be available - it would not be feasible, particularly when one considers surfers, shipping lanes and various other matters, to connect the entire coastline. The purpose of the estimate was to give a sense of scale and an idea of the quantity, which is, roughly speaking, approximately twice what we currently use in electricity. The medium-term potential development is looking at a timeframe of 2020. The difference between the unconstrained and constrained is essentially the grid infrastructure at the coast. We end up with a technical medium-term potential of 2.5 terawatts which is, broadly speaking, approximately 10% of our current electricity requirements.” On the question of whether it would it be possible to connect wave power sources with an offshore wind farm grid, Dr Ó’Gallachóir replied: “Wave energy sources could certainly connect with infrastructure put in place to deliver wind energy supplies. There is very good complementarity between offshore wind energy and wave energy sources.” When asked if the technology used would have an environmental impact on our beaches, Dr Ó’Gallachóir replied: “… …currently the devices being developed are suitable for onshore or near-shore use. This is due to the challenge of moving into the far offshore environment, which is a similar challenge to the one faced by wind energy. They are classified as first, second and third generation devices. They typically move further offshore as the research and technology improves. In terms of environmental impact, if the wave energy device does its job, it will take as much of the energy out of the waves as possible. However, as a stretch far offshore would typically be involved, the effect it would have on the inshore coastline would be minimal. If anything, it could, in a simplistic way, be beneficial in that it would reduce coastal erosion. However, the impact would not be significant.” Regarding potential returns offered by wave energy, Dr Ó’Gallachóir advised: “… …because commercial devices are not yet available, there is a range of other opportunities associated with the market as it grows.” Asked if there was a danger that Scotland will be ahead of Ireland in this technology, he replied: “In essence, the UK Government has provided a number of incentives, some of which are coming to fruition, in terms of demonstration projects around the Scottish coast. Companies here are actively pursuing the take-up of capital grants or support mechanisms. They are eagerly awaiting some form of support to deliver projects. I do not think that would be an issue. I imagine the way in which it would evolve would be as a competition. In that way, competitors from Ireland would compete with their international counterparts in terms of delivery.” When questioned about the wave energy and ocean current resource and the support for research in this field, Mr. David Taylor Chief Executive Officer of Sustainable Energy Ireland said: “Yes, we have estimated the tidal stream resources. With regard to their exploitation, we have a joint strategy with the Marine Institute. There are three or four active developers in this area and we have supported their initial analysis of prototypes and, more recently, the building and testing of these.” 10.2 HydrogenWith a view, under the Biofuels Directive, of meeting the 2% hydrogen substitution 2015 target the Joint Committee recommends that proposals for the creation of a centre of excellence for the advancement of hydrogen fuel use in Ireland be brought forward as a matter of urgency. The Minister for Communications Marine and Natural Resources, Deputy Dermot Ahern, when asked to comment on a long-term strategy to move towards a hydrogen economy advised the Joint Committee: “A fuel cell hydrogen system is very much part of the future. However, it will take longer than the Deputy suggests. The United States believes it is a silver bullet. We are looking to it and the huge investment it is making in this respect. It is hoped it will lead to a reduction in the requirement for fossil fuel. However, if hydrogen is made from fossil fuel, it may not necessarily be as environmentally friendly as we would wish.” The Chief Executive of the ESB, Mr. Padraig McManus, when asked about a future long-term 2050 future scenario for electricity referred to the American 300 year view that it will get its electricity from nuclear, clean coal and renewables. He added: “The other potential for the development of electricity is hydrogen but it must be developed. There are no hydrogen mines or stores of hydrogen, we must make it and currently that is very expensive. Time will tell if there is further development in that technology. We must just wait and see.” The Managing Director of Bord na Móna, Mr. John Hourican, when asked about opportunities for the northwest advised the Joint Committee: “The big question is how to store electricity. As far as I am aware, the nearest thing to a battery for electricity is hydrogen. We are interested in experimenting with that proposition. A possibility is the manufacture of hydrogen from wind which, when not needed on the grid, can be used in a hydrogen burning station for other fuels. That would ensure a balanced approach to addressing the problem. We see opportunities in the northwest region in terms of its contributing significantly to the power proposition and developing alternatives there. When questioned if he was aware of research on hydrogen and hydrogen storage that has been undertaken by UCC, Mr. Hourican advised the Joint Committee: “We are aware of it. We propose to set up a centre of excellence for the advancement of hydrogen in Ireland and will be to the fore in investing in it. Such a proposition, which is approximately ten to 15 years away from commercial reality, will be costly even though hydrogen is currently being used for transport systems. These things can only happen if there is committed, sustained investment and promotion of emerging technologies. Bord na Móna believes in the potential future for hydrogen. It is a long-term burn but we look at projects in a 25 to 30 year context and are quite comfortable this proposal can be achieved. When asked for his view on energy policies we should be adopting to reduce our dependency on fossil fuels, Mr. Hourican advised the Joint Committee: “I do not wish to be critical of the ESB but we must bear in mind the bigger picture in terms of our role in the immediate to long-term future. It is Bord na Móna’s wish that in 20 years time all the new technologies such as hydrogen, fuel cell technology, bio-fuels, co-fuelling of peat with other less CO2 emitting fuels an so on, will play a role in ensuring we are not too heavily or dangerously dependent, as is currently the case, on imported energy.” In a submission to the Joint Committee, Dr. Brian Ó’Gallachóir of University College Cork advised the Joint Committee: “The work on which we are focusing is energy storage. We have been involved in an EU project looking at wind hydrogen systems in which one uses wind energy to produce hydrogen. Essentially, one stores the energy in the wind in order that it can be used later either to produce electricity or as a transport fuel.” When questioned about the grid’s dependence on wind generated electricity and the possibilities for research into storage, Dr. Ó’Gallachóir replied: “We have done a desk review, looking at all the storage technologies available and narrowing them down to the ones which might be the most applicable to wind energy and to dealing with the specific issue of addressing intermittency in wind energy, and then looking further within the context of what would be suitable in Ireland. We are developing proposals to look at two possible storage technologies. A number of options are available, some of which are at different stages of development. I mentioned hydrogen technology which we have looked at in terms of a desk modelling exercise. Within this area there is a lot of research being done on fuel cells and electrolysis for producing hydrogen.” 10.3 Clean coal technologyThe Joint Committee recommends that, owing to Ireland’s dependence on imported natural gas, new technology and diversified fuel sources must be introduced. In this regard clean coal technology is identified as being of particular importance. The Commissioner for Electricity Regulation, Mr. Tom Reeves, when asked about the capture and removal of CO2 from generation and the cost of doing this, advised the Joint Committee: “The EU has drawn up a directive on the carbon issue, although I am not aware of research into capturing carbon because it may not be possible. Research is going on in the United States and Europe, however, into clean coal technology. Every fossil fuel produces carbon. To produce 1 megawatt of electricity in a coal fired power station, 1 tonne of carbon dioxide is produced, while a gas fired power station produces 0.4 megawatts of carbon dioxide. Gas produces less carbon but the world has so much coal that it will be used. Research is ongoing into clean coal technology, where carbon dioxide, carbon monoxide and impurities such as sulphur dioxide are removed from the coal, leaving hydrogen to burn. It is not cheap but the technology has existed for a long time in the chemical industry. It has potential for the future because there is so much coal in the world that someone will develop something to make it clean. How will we get rid of this carbon? We are looking at sequestering it in spent gas and oil fields deep in the sea, although that is still some time away.” The Chief Executive of the ESB, Mr. Padraig McManus, when asked about a future long-term 2050 future scenario for electricity advised the Joint Committee: “I suppose 2050 is a long way away. We must try and forecast from the different technologies being examined. Whether we like it, much of our equipment comes from America. America has looked at the situation and decided that for the next 300 years it will get its electricity from nuclear, clean coal technology and renewables. It has supplies of coal for 300 years and has decided it will burn it and intends to develop clean coal technology to do this. The American view is that if it takes 15 years to develop clean coal technology through which it can capture the CO2, that is what it should do. I suspect small countries such as ours will buy that technology.” When asked if it was the policy of the ESB to go for clean coal, Mr. McManus replied: “I did not say that, I was trying to give an overview of what is happening in the world. There is no such thing as clean coal yet, so we have not even given it consideration.” Chapter 11 – Europe11.1 KyotoThe Joint Committee regards it as crucial that an even greater effort be made to ensure that Ireland meets its initial Kyoto target for 2012 and, in the longer term, that Ireland sets a target of 60% reduction over our 1990 levels by 2050. Mr. Tom O’Mahony, Assistant Secretary, Department of the Environment, Heritage and Local Government in his presentation to the Joint Committee gave the background to the Kyoto Protocol: “In 1992 the countries which met at the Earth Summit in Rio de Janeiro adopted the framework convention on climate change. Its ultimate objective is to stabilise greenhouse gas concentrations in the atmosphere to try to prevent dangerous man-made interference with the climate system. While industrialised countries were expected to take the lead, the convention did not contain any legally binding emissions reduction targets. As a consequence, the Kyoto Protocol to the convention was agreed in 1997. It provides for individual legally binding targets for industrialised countries, with an overall reduction of 5% on 1990 emissions levels of a number of greenhouse gases over the period 2008-12. Within this 5%, each party has a different target which depends largely on the economic conditions which pertained in 1990. ……Each country has individual reduction targets while some, including Ireland, have been allowed an increase in emissions on the 1990 base year figures. For Ireland, the aim is to achieve an emissions target of 13% above the 1990 base year figures during what is called the Kyoto commitment period, that is, 2008-12. This figure was negotiated and agreed at EU level as part of a burden sharing agreement between EU member states which took into account a number of factors, including the economic conditions which pertained in 1990. The trend in Ireland throughout the 1990s showed a significant increase, peaking in 2001, at which stage emissions were 31% above 1990 levels. Thereafter, it started to decline. The latest figures available are those for 2003 which show emissions at about 25% above 1990 levels. There are a number of reasons for this reverse in the trend, including the closure of the IFI plant in Arklow, reductions in the size of the national herd and the switch to less carbon intensive energy sources such as gas and renewables. Put in simple terms, if we index our 1990 emission levels at 100, we had a figure of 131 in 2001. We got this down to 125 in 2003 but need to get down to 113 in the period 2008-12. This means we need to cut our emission levels by a further 10%.” Mr. Tom O’Mahony outlined then how Ireland will meet its Kyoto target: “In terms of how we will meet our Kyoto target, in 2000 the Government agreed a national climate change strategy as a broad framework for achieving greenhouse gas emissions reductions. It includes measures for the various sectors but I will focus on two, namely, the energy and transport sectors. The main measures in the energy sector are fuel switching, partially through added penetration of natural gas, more efficient use of fuel through combined heat and power production and generating more of our energy requirement from renewables, mainly wind. The main measures in the transport sector are: using VRT and motor tax to favour more fuel efficient cars - for example, apart from the fact tax rates rise substantially with engine size, there is also favourable VRT treatment for hybrid cars; and investment in public transport to bring about a shift away from commuting by car.” Mr. Tom O’Mahony set out how the sources of necessary emissions reductions are currently expected to break down: “In that context, the current estimate of our distance from target - in other words, the extent to which we will exceed our emissions target if no steps are taken - is 9.2 million metric tonnes. At this stage, measures are in place, or are being put in place, to account for approximately 8 million tonnes. These include 4.3 million tonnes to be achieved by the trading sector - by a combination of emissions reduction and the purchase of allowances and also allowances in respect of a approximately 3.7 million to be purchased by the Government for the non-trading sector. The main imperative for the review of the strategy is to identify additional measures to help meet the shortfall which we estimate at 1.2 million tonnes.” In regard to the emissions trading scheme Mr. Tom O’Mahony advised the Joint Committee: “I will briefly refer to the EU emissions trading scheme but I will not go into detail because the Environmental Protection Agency will look in more detail at how it operates. However, I wish to make some general observations about it, particularly in terms of how it relates to the energy sector. The idea of the scheme is that a limited number of allowances are allocated to participating firms. There is a market similar to a stock market and if a firm does not need to use its allowances and if it can make savings on its emissions, it has this asset which it can sell. Equally, if it has excess emissions, it can purchase allowances. However, because the overall amount of allowances is capped, it means the emissions impact is quantified in advance. The Irish installations, based on the allocations by the EPA for the pilot phase of the scheme, account for approximately 33% of total emissions figures. This was introduced on a pilot basis from 1 January of this year and the European Commission is currently surveying stakeholders on their experience of the scheme to date. It is envisaged that the results of this will be presented to the Council and the European Parliament early next year. Although the pilot phase only commenced in January, member states must submit the national allocations plans for the Kyoto commitment period, that is, 2008-12, to the EU Commission by the end of next June. The Department has already commenced the process of updating its emissions projections for 2008-12 so that the overall allocation to the trading sector will be as robust as possible. The allocation will be decided by Government at the end of this year, following which the EPA will begin the process of making installation level allocations for 2008-12.” In regard to the impact of emissions in the energy sector in Ireland Mr. Tom O’Mahony advised the Joint Committee: “I wish to look specifically at the energy sector. For the purposes of calculating emissions, this sector comprises electricity generation, oil refining and gas production, transmission and distribution. We get emissions from three distinct sources. There is carbon dioxide and small amounts of nitrous oxide from fuel combustion in electricity generation. There is carbon dioxide and negligible nitrous oxide from oil refining and then there is methane from leakages in the natural gas pipeline and carbon dioxide from flaring and transmission of natural gas. Of these sources, carbon dioxide contributes 97% of the sector’s total emissions and electricity generation accounts for a similar percentage of the total sectoral emissions. In the 1990-2002 period, emissions of carbon dioxide per unit of GDP in Ireland fell by almost 40%, which shows that we have been making considerable reductions in the carbon intensity of the economy. However, since the economy has been growing so fast, this has been greatly overtaken and overall we have had an increase in emissions, although we have got some benefit from the commencement of the two new combined cycle gas fired turbine plants in 2002. Emissions from the sector are still projected to increase by another 15% to 2012. Across Europe, it is projected that approximately 700 GW - which is the same as the currently installed capacity - of electricity generating capacity needs to be installed by 2030. Given the lead time for planning decisions for such infrastructure, it is likely that the investment decisions taken over the next few years will determine the carbon emissions for several decades. A central feature of any future energy strategy for the EU will be cost effective energy efficiency improvements and energy savings. The Energy Commissioner has made energy efficiency one of his priorities and recently published a Green Paper on it that lists a number of options which could save 20% of energy consumption by 2020. That would result in savings estimated at €60 million. If nothing is done, however, current EU-wide trends point towards a 10% increase in energy use in the next 15 years. Half of the proposed savings could be reached by full implementation of already adopted legislation on energy efficiency in buildings, domestic appliances and energy services. In concluded his presentation Mr. Tom O’Mahony advised the Joint Committee: “I emphasise the importance of the link between our energy policy and our climate policy. Indeed, one of the core objects of Ireland’s energy policy is environmental sustainability. One will find the interfaces very clearly in the national climate change strategy, in the Green Paper on sustainable energy and in the co-benefits of specific measures, such as emissions trading, renewable energy supports, energy efficient and demand reduction measures. How the energy sector develops over the next few years will affect Ireland’s progress towards meeting its Kyoto targets but we also must have our sights on the time beyond the first Kyoto period after 2012, when more ambiguous emissions reductions are likely to be required. As I mentioned earlier in the EU context, the decisions we take in regard to energy policy over the next few years are, therefore, likely to have long-term implications for Ireland’s ability to address future climate change commitments.” Dr. Ken Macken, of the Environmental Protection Agency, advised the Joint Committee on the introduction of emissions trading to Ireland: “Emissions trading under the Kyoto Protocol does not come into play until 1 January 2008. The EU has decided to act ahead of this date and introduce a three-year pilot scheme, from 1 January 2005, before moving into the Kyoto scheme. The pilot scheme is to allow European countries to develop an understanding of how the scheme works and to iron out some of the problems that may become apparent before dealing with the more serious reductions envisaged in the real scheme. This is a “cap and trade” scheme that applies to CO2 only. Within each member state, each national authority must apply a ceiling level of gases assigned to emissions trading. This is the cap and it is distributed to each of the companies covered by emissions trading. These companies are listed on a schedule of industry types in the EU directive, as implemented by Irish legislation. Once a company has been awarded its allocation, it is free to emit greenhouse gases provided it records those gases. At the end of each year, the company must surrender allowances to cover its emissions. If it has emitted more than it was issued free, it must buy on the open market to make up the difference. If it managed to reduce its emissions, and have some left over, it can sell. This gives rise to trade. If one company can make energy reductions more cost effectively than another, it will do so and will sell its allowances, while companies facing high costs to make reductions will buy. A market mechanism will ensure that reductions are made in the most cost effective way. The allowances distributed are determined from a cap reached by way of a governmental decision. The Environmental Protection Agency is responsible for distributing this to all of the installations within the scheme, of which there are more than 100. This involves Drawing up the national allocation plan. The scheme also encompasses significant penalties over and above the payment of current market prices. If, at the end of the year, a company does not have allowances to cover its emissions it faces a €40 per tonne penalty during the pilot phase. It also has that number of tonnes reduced from its allocation for the following year. That penalty increases to €100 per tonne in the main scheme.” In regard to the allocation methodology Dr. Macken advised the Joint Committee: “We based the allocation on the 66.96 million tonnes we were given by the Government for the three-year period. We were directed by the Government that at least 97% had to be allocated free initially. We decided, in the first instance, to allocate to each sector. We divided each of the groups into sectors, based on the divisions already contained in the directive. We worked on an historical basis of what those sectors had emitted and we proportioned the amount we were given into those sectors. We then examined the companies within the sectors. Again, we decided to allocate to them on an historical basis. Certain exceptions were made for companies that had only recently started because we had to have recourse to other means. We used projections and recent emissions. We also established a set-aside or reserve for new entrants. We put aside 1 million tonnes for the three-year period. We also introduced a number of measures to increase and promote energy efficiency. We established a CHP set-aside, taken from the powergen sector, of approximately 500,000 tonnes to cover the three-year period. This is to cover the electrical proportion of combined heat and power plants and is a stimulus to encourage what is widely recognised as a poor uptake of CHP technology in Ireland. We adjusted the sector allocation to the electricity sector, to allow for meeting the targets under the RES-e directive for increased use of renewables generating electricity because generating renewable electricity means fossil fuels are not used. A proportion of the national electricity would not require those CO2 allowances. We also put aside 500,000 tonnes to cover the operation of the scheme that would be auctioned.” Dr. Ken Macken advised the Joint Committee of the second National Allocation Plan: “We must submit this by the end of June 2006. The final decisions on allocations must be made the latter half of 2006. Some legal differences exist between the first and second phase. In the first phase at least 95% had to be allocated free. In the second phase, only 90% must be allocated free… …The emissions trading scheme is to be thought of as simply a mechanism to allow reductions take place in the most cost effective way. It relies on the cap that is given to it as part of the national strategy.” When questioned about other countries, such as the United States, Dr Macken advised the Joint Committee: “The way we have tried to implement the strategy within Europe is through a combination of giving a lead and doing it in a sensible way that does not unnecessarily penalise European industry but encourages it to become very energy efficient and a leader in the field. We are trying to achieve a balance through the direction we are taking, but only time will tell how successful we are. If we are not on that line, we will continually try to tweak ourselves to keep on it.” Mr. Donal Buckley of IBEC added a cautionary note when he advised the Joint Committee: “The primary mechanism for reducing emissions is the EU emissions trading scheme. I agree with Dr. FitzGerald it is not perfect, although we may not agree on what is imperfect. However, it covers only a number of sectors and the trading sector cannot be overburdened. If there are cutbacks, given how energy efficient Ireland is, costs will be added, which will impact on competitiveness and, possibly, jobs… …Many mechanisms are available and we need to use those that are economically and environmentally efficient. Dr. Fitzgerald mentioned a tax but given the small emission reduction it would account for and the amount it would raise, it would not change behaviour and, therefore, we do not consider it to be environmentally or economically efficient. An equitable allocation must be made to the trading sector. The difficulty is if we only have one significant policy mechanism, which is emissions trading, we need to be careful we do not put all our eggs in one basket. We must be aware that sector has taken a significant amount of the pain and, therefore, other sectors must share the burden equally. This issue is critical in terms of research and development and many alternatives are available. Ultimately, a change is needed and research and development and the alternatives will provide that. A greater level of public education is needed so that people are aware of the challenge facing us. This is a critical issue, which must be addressed. The business sector has played its part and will continue to do so but other sectors must engage and share the burden equitably. Environmentally and economically efficient measures are needed. A number of key decisions will have to be taken by Ireland, some of which are coming up soon. It must be ensured these decisions are pragmatic and sensible and Ireland continues to prosper as an economy and a society.” Dr. John Fitzgerald of the Economic and Social Research Institute, when asked about 2050 projections and per capita allocation of carbon advised the Joint Committee: “The allocation of emissions per head seems to be the only just solution to dealing with the Kyoto protocol. We published an OECD paper in 1992 modelling this at world level… …In regard to the 2050 target; I agree that one should look at total primary energy. Anybody planning for the future needs to plan for a world in which carbon will be much more expensive than it is now. It is necessary to signal that to the market and that is why I favour a carbon tax… … We need to incentivise the research and development now. Wind is quite efficient now although the price may fall a little. There will be new technologies such as tidal and biomass. There is much research and development to be done in that area but one should not invest heavily until one is ready. We need continuing efficient fossil fuel generation probably for the next decade. The Commission for Energy Regulation in its best new entrant calculation assumes that plant will be written off over 15 years. Plant may last 20 not 40 years, given the rapid rise in carbon use and it might not last that long for peat.” 11.2 Renewable electricity targetsThe Joint Committee considers that Ireland must look beyond its 2010 target of providing 13.2% of gross electricity consumption from renewable energy. The Joint Committee recommends that Ireland set the goal of achieving the EU overall target of 21%, remove all administrative barriers to the achievement of this aim and, in the longer term, set a target whereby at least 50% of electricity is generated from renewable sources by 2050. The Minister for Communications Marine and Natural Resources, Deputy Dermot Aherne, in his presentation to the Joint Committee advised the Joint Committee: “We have a target to increase electricity from renewable energy sources to over 13% of total electricity consumption by 2010. I am committed to achieving that target and my Department will continue to provide appropriate support measures for renewable energy technologies. The combined targets set in AER V and AER VI added to existing renewables stock should see the contribution rise to 12%, very near our 13% target. Additional support should ensure we surpass our 2010 target.” The Commissioner for Electricity Regulation, Mr. Tom Reeves, when asked to quantify our target in MW advised the Joint Committee: “The ministerial target agreed in Brussels is approximately 1,100 MW with regard to wind energy. With connection offers and so on, with which Mr. Tutty was about to deal in detail, we have more than this. In 2007 or 2008 we will have exceeded our 2010 target in respect renewable energy sources.” Mr. Michael Tutty from the Commission for Energy Regulation advised the Joint Committee: “The installed capacity is 382 MW. There are connection offers dating from before the moratorium was applied in respect of a further 550 MW. There is no reason these should be held up. Assuming they all go ahead - there is no reason they should not - we will be at a figure of 932 MW. Under the gate 1 proposals, as we call them, when we finish the moratorium, there will be a large build-up. We are dealing with those ready to go at the time of the moratorium. They account for a figure of 380 MW. If they go ahead, it will give us a total of 1,312 MW on the system… …If the Senator allows me to finish, I will talk about them. There are further applications waiting to be processed in respect of a further 2,000 MW approximately. If they all go ahead, we will more than have achieved the target by 2010. The Minister is examining the support available. The higher the cost of other sources of energy, the more economic wind energy becomes. However, the industry has still been seeking subsidies and pressing for another AER scheme. The Minister is in the process of deciding what the level of subsidy should be. He has decided that there will be a fixed feed-in tariff but not the level or how it will apply. It is up to him to decide how the competition should be run and the level of support to be given. Meanwhile, we have been working to see how quickly we can get things moving, how much we can get on the system with regard to wind energy and how it will operate.” In a presentation by Mr. Martin Howley, of Sustainable Energy Ireland’s Energy Policy Statistical Support Unit, to the Joint Committee he spoke about renewable energy’s contribution to gross electricity consumption: “The target figure in 2010 is 13.2%. In 2004 we reached 5.1%. The bulk of it up to now has been from hydro but one can see a small amount of landfill gas and wind has taken off in the last two years. The amount of electricity generated by wind in 2004 increased by 44% on the previous year, so there is a ramping up of wind generation.” Ms. Anne Grete Holmsgaard, Danish Member of Parliament, in her presentation to the Joint Committee gave an idea of the contribution of wind energy in Denmark: “Denmark has half the world wind energy market and the history books do not say it will be the same in ten years but the windmills provide a major source of income for the country and the industry is a major source of job creation. Some 20% of our electricity supply is generated by wind. This figure will increase in the coming years, partly through offshore plants and wind turbines on land. Ireland has a number of wind turbines and it is quite windy here.” 11.3 Overall renewables targetsThe Joint Committee recommends that Ireland should endorse the European Parliament adoption of the report calling for a mandatory overall renewable energy target of 20% of total primary energy requirement by 2020 and that, beyond this, the aim must be for at least 50% of all energy requirements (including heat and transport) by 2050. In a presentation by Mr. Martin Howley, of Sustainable Energy Ireland’s Energy Policy Statistical Support Unit, to the Joint Committee Mr. Martin Howley advised the Joint Committee about renewable energy’s contribution to primary energy: “Two figures are usually quoted for renewable energy. One relates to primary energy and the other to their contribution to electricity supply. This slide shows the contribution to primary energy, which reached 2.2% in 2004. It has been hovering around 2% since 1990. It is like hitting a moving target; as the amount of renewable energy increases so does the amount of primary energy being consumed in the country. Contrary to popular belief, the largest contributor to renewable energy is biomass. Much of the waste bark and other wood burnt in the board manufacturing industry represent the largest part of the renewable energy contribution to Ireland’s energy supply.” Mr. Joe O’Carroll, Operations Manager of COFORD (National Council for Forest Research and Development) in his presentation to the Joint Committee on wood energy advised the Joint Committee about opening up the market for woodfuel for heat: “However, our preference is to use it for heat only. Approximately 40% of our annual energy demand is in the form of heat. We would like to see the market opened up for woodfuel, both in the co-fired sector and the heat-only sector.” This message was reinforced by Mr. Tom Bruton representing the Irish Bioenergy Association: “We are looking for an instrument which recognises heat energy as well as electricity energy. The most commonly suggested form would be carbon credits. We would appreciate rapid implementation of the Kyoto Protocol via the EPA as the enforcing body in Ireland, whereby we could have a system to apply and sell carbon credits generated by bioenergy projects. Currently this market is neither established nor nationally regulated. We would also welcome the introduction of the long-mooted carbon tax which would see bioenergy products favoured over and above fossil fuel equivalents.” Mr. Bernard Rice of Teagasc, in his presentation referred to the Biofuels Directive as he advised the Joint Committee: “The transport Biofuels Directive, particularly the preamble to it, sets out where we are going with transport fuels in the next 20 years, what we will use when we must replace petrol and diesel and the role biofuels will play. A target has been set for a 23% substitution of petrol and diesel by other fuels by 2020; the three picked out were biofuels, natural gas and hydrogen.” In the IFA’s presentation, on Irish agriculture’s role in biofuels/bioenergy production, to the Joint Committee the Joint Committee was advised that: “To achieve the EU target of 5.75% by 2010, the Irish Government will need to introduce long-term economic and tax policy incentives, a standardization of biofuels, continued state support for research and development as well as an incentive to motorists to purchase vehicles that are modified to run on biofuels.” Mr. David Taylor Chief Executive Officer of Sustainable Energy Ireland, advised the Joint Committee of the support provided to renewable energy developers: “The renewable energy information office of Sustainable Energy Ireland was established to promote awareness, provide information and be a source of advice on the promotion of renewable energy. The office has worked closely with local authorities, the Department of the Environment, Heritage and Local Government, developers and resource owners with the objective of promoting Government targets in this area… …SEI has successfully promoted Irish membership of several International Energy Agency implementing agreements, covering wind, ocean and biomass. This access to international experience and expertise will provide a deeper and firmer base for future plans and projections for renewable energy. SEI has already brought considerable international expertise to bear on the resolution of several of the technical issues underlying the moratorium on wind. We actively support the recently constituted strategy groups on biomass and CHP. Our support consists of the provision of a chair and a secretariat and the commissioning of independent studies and analyses to support the work of the groups in question.” Professor Shimon Awerbuch of Sussex University outlined his portfolio approach whereby renewables help mitigate the oil GDP problem because when oil prices spike due to oil market is volatile this enables more renewables to be accommodated than traditional approaches. The portfolio approach mixes a high cost low risk technology (A) such as wind with a lower cost higher risk fossil fuel technology (B): “Therefore, although one is adding a riskier technology B to technology A, one tends to reduce risk and cost. This is the entire secret of the portfolio approach. It is basic textbook finance that when one puts technologies or stocks together, the prices or returns of which do not move together, one gets a portfolio effect or synergy. The portfolio has less risk than either of the two investments or technologies by themselves, which demonstrates the synergistic effect of portfolio theory. What does this mean in terms of generation portfolio? The graph before the committee shows expected generating cost on the Y axis and risk on the bottom line. If one begins with a fossil generating portfolio and adds renewables, and one believes renewables cost more - in other words, if one is relying on standard engineering cost models - the cost of the portfolio will rise. However, the other relevant factor is risk. If the portfolio can be rejigged and brought back to its original risk point, one will find, without exception, that the resulting risk is lower. The standard portfolio theory comes right out of the textbook. This is how the magic works and how wind may be added, even if it is believed to be more expensive, and how one ends up with a portfolio that is lower cost and lower risk.” 11.4 Energy Performance of Buildings DirectiveThe Joint Committee recommends that the Energy Performance of Buildings Directive should be fully implemented on time by January 2009 and that local authorities must be given the ability to set higher energy efficiency standards than those contained in Part L of the building regulations. Mr. David Taylor Chief Executive Officer of Sustainable Energy Ireland, in his presentation to the Joint Committee, advised the Joint Committee of the Directive: “Implementation of the EU Directive on Energy Performance of Buildings presents a formidable challenge. The directive will make energy a visible factor in the process of property purchase and rental, both new and existing stock, affecting over 100,000 transactions per annum. SEI is facilitating a co-ordinated approach by the two lead Departments - the Department of the Environment, Heritage and Local Government and the Department of Communications, Marine and Natural Resources - aimed at achieving effective and cost effective implementation across the Irish construction and property sector.” Mr. Tom O’Mahony, Assistant Secretary, Department of the Environment, Heritage and Local Government advised the Joint Committee: “Regarding speeding up the process of energy conservation, there is a degree of phasing. The building regulations for new houses were amended at the beginning of 2003 and these reduced energy use in new houses by 23%, with more reductions to take place in 2005. Under the Energy Performance of Buildings Directive energy efficiency assessment and labeling for all buildings on the market is phased in over three years from next year. It is a phased process.” In his presentation to the Joint Committee, Dr. Brian Ó’Gallachóir of University College Cork advised the Joint Committee: “Moving on to energy use in buildings, much of this relates to the EU Buildings Directive on how to actually assess the energy performance of buildings. A sample energy certificate or label is shown… …which we are used to seeing on appliances. Essentially, what the directive will bring is a labelling system for buildings… …what we are focusing on in UCC is measuring the energy performance of buildings. We are very fortunate to have some interesting case studies. The group has access to the energy, temperature and air circulation data for the Mardyke sports arena in Cork. It can use this information to test its performance simulation models to ascertain how they can be validated and improved… …The Glucksman art gallery (is) an example of a building with a different function and purpose. An important part of the group’s work is its assessment of the energy performance of a number of building types.” 11.5 Public sector performanceThe Joint Committee supports the European Parliament Industry Committee’s call for an 11.5% energy saving after 9 years. The Joint Committee recommends that the public sector should take the lead in this and set higher targets e.g. a 20% energy saving in public buildings and the application of energy efficiency as a criterion in assessing competitive tenders for public contracts. Mr. Martin Howley, in regard to a new European energy efficiency directive, advised the Joint Committee when questioned about measuring primary energy requirement and energy efficiency: “The energy intensity of the economy… …shows a continuous reduction… …and the energy consumed per unit of gross value added. That is not energy efficiency, but economic efficiency. It is brought about by the increasing value of goods, a change in the structure of the economy and a change in emphasis between the different sectors… …Energy efficiency is reducing the amount of energy required to produce a certain product.” When question if this relates to a reduction in primary energy supply or a hypothetical use of energy to produce a certain level of economic activity, Mr. Howley advised the Joint Committee: “Primary energy is affected by two factors: the amount of activity and the efficiency at which the energy is used to produce that activity. The Odyssey network tried to strip out the different effects, such as the structural and quantity effects, because if one produces things in more quantity, one will get economies of scale and reductions. One needs to strip out quantity, structural and fuel mix effects because different fuels will have different effects on how things are produced, leaving a residual, which is a pseudo efficiency. It is difficult at an economic level because one needs a lot of data to do it. We have the techniques but we have not got the level of detail in the data to give effect to those.” Ms. Anne Grete Holmsgaard, Danish Member of Parliament, advised the Joint Committee of the situation in Denmark: “The law provides that all private houses and buildings must be labelled. That has been the case for six or seven years. However, the new law provides that the labels must include financing proposals… …The public sector, including the state and local authorities, must invest in various energy conservative measures which provide for a payback period of up to five years. The investment is set directly for state-owned property but must be negotiated for local authorities. That is a Danish requirement. Tighter building regulations which will come into effect in January 2006 will ensure new buildings will be much more energy efficient than those built prior to this. Under the new regulations, buildings will be between 25% and 30% more energy efficient than those built ten years ago. The regulations will be tightened again in 2010.” 11.6 Danish consensus modelThe Joint Committee notes that sustainable policies, by definition, cannot just be short term. The Joint Committee recommends all-party consensus on energy efficiency and conservation policies along the lines of the Danish model. The Joint Committee considers this imperative to providing the stability of knowing that the plans and targets for energy efficiency and conservation policies will be consistent in the longer term. Ms. Anne Grete Holmsgaard, Danish Member of Parliament, advised the Joint Committee about the Danish energy agreements: “We reached broad agreement in June, following a month of negotiations, although a great deal of time was devoted to this before the negotiations commenced. Six out of the seven parties in parliament have approved the agreement on consumption which will cover the period 2006 to 2013. The agreement provides for an annual target in order that energy consumption will be reduced. Some 7.5 Peta Joules is equivalent to 1.75% of energy consumption and three times higher than previously. Reductions must be monitored. A review in 2008 will examine whether good methods are being used or whether they should be changed. One of the founding ideas is to create an energy conservation market by forming packages to make it attractive. The agreement is based on the voluntary involvement of local oil and heating companies and our electricity saving foundation. They are responsible for reaching the targets set. We have not introduced a law that obliges them to do this. However, as we had negotiated with the companies involved before the agreement was concluded by the political parties, their boards had said yes. They then had to persuade the different companies that they had to do this and that they would be monitored. They will do it because they were informed about the agreement and were involved beforehand. They know what they agreed to and are aware of the possibility that if they do not stick to the agreement, we, the politicians, will make a law. However, as they would prefer not to have a law, they will do it voluntarily. A board will be established with representatives of both the heating and electricity sectors who will co-ordinate energy conservation measures in practice. ……Denmark has a relatively long tradition in making broad agreements on energy policy and other areas requiring long-term investments. If one has to change the level of consumption, one needs the stability of knowing that the plans and targets for energy policy will not be changed following the next national elections. The risk element of such major investment would increase significantly without stability and a commitment from politicians to a policy of reducing the imports of fuels and increasing energy conservation. Of course, Danish politicians do not agree on everything; different parties have different platforms and opinions on how ambitious we should be on this issue. However, energy companies, industry and non-governmental organisations have all reacted positively to our policies. We were more ambitious but we accepted this compromise. Under an earlier agreement, the government was obliged to prepare a Draft energy conservation plan which was presented in December 2004. In the process leading up to this, a mid-term seminar was held, at which papers prepared by the energy agency under the auspices of the Ministry were presented to politicians, representatives of enterprise, NGOs and companies which were invited to comment on them. This formed the basis of the December Draft plan. ……It is the first time we have an agreement on energy conservation. It is a period of trial and error and we must keep in close contact with the players in the field. We have decided that, as politicians from the energy committee, we will follow the development very closely and engage in discussions. I know we have different political traditions but energy conservation is important to everybody and our societies. We cannot just close our eyes and ignore the consequences of a future where we are over-dependent on fossil fuels.” 11.7 European Union Green PaperThe Joint Committee recommends that the Government support the new European Union Green Paper and have particular regard to the development of a more open and competitive European electricity and gas network. The EU Commissioner for Energy M. Andris Piebalgs advised the Joint Committee that Ireland was the first country for him to have visited after the adoption of the Green Paper on foot of the debate at the Transport, Telecommunications and Energy Council and that he had visited Ireland in advance of the debate on energy policy at the European Council. The Commissioner first highlighted the four principal challenges faced at global level: “There has been a tremendous increase in global demand for oil, gas and energy resources in general. This is not a short-term increase but a fundamental increase in demand for energy. The second issue relates to the importation of hydrocarbons… …We import 50% of our resources. If current trends continue, we will be importing 70% of our resources… …That is a particular challenge for the European Union. Last, but not least, energy policy in the near future - and also in the long term - will be strongly influenced by developments in the environment and in particular climate change.” Commissioner Piebalgs emphasized to the Joint Committee how these challenges highlight the importance for the European Union in having a policy in this area: “The energy policy has three objectives, namely, security of supply, sustainability and competitiveness. Energy policy should not only ensure security of supply and sustainability but should also provide Europe with the possibility to compete and to provide jobs in the European Union. It is not contradictory - it is the opposite - to address the security of supply issue in a sustainable manner. It provides for competitive advantages that will bring prosperity and jobs to the European Union. At the same time, I emphasise that we should look upon the three objectives in this way… … We must also be clear that there is not a silver bullet that could be used to address the challenges. Sometimes it is simplified and people seek a magical energy source that will supply an answer to all the issues. Such a source does not exist. This means that we should pursue activities in many areas and each single measure should be seen in light of subjective subvention. At the same time, it must be understood that only a synchronous approach in all areas can bring success. The Green Paper outlines six areas for action, all of which are equally important.” Commissioner Piebalgs then outlined the six areas for action identified in the Green Paper: “Let us start with fully competitive energy markets in Europe… …it is clear that there are deficiencies in the market… …not all member states have implemented legislation and the Commission is commencing infringement proceedings against these countries… …competition issues have always been addressed in a particularly vigorous manner. The Commission is now doing that and is also encouraging national anti-trust authorities to do so. … … The second priority is security of supply… …We need to make preparations to ensure our citizens can be certain that if there is disruption of supply, adequate mechanisms will be in place and physical supplies will be available to give them appropriate energy resources. This means that our oil stocks should be directed to prove we have that flexibility in respect of oil products. We should develop the same vision in respect of gas. … …The third area is the energy mix. In a way, we are making progress on the energy mix by trying to meet the targets for renewable energies. That is the route we are taking, but the challenge is much deeper. …… the climate change goal… … This issue relates to that of energy efficiency, the area in which the Union should concentrate most of its efforts. As long as there is growth in energy consumption, the position is not sustainable… … We should lead the world. We should achieve it by showing example, determination and experience. We have already adopted legislation and an energy efficiency action plan for Europe is in the pipeline. Each member state will have an opportunity to examine it. This is a critical area and I urge members to give it the attention it deserves… … The other issue involves renewable energies. It has been claimed that there is too much support for renewables. This is wrong. All the support for renewable energy is according to the state-aided schemes approved in the Union. There is nothing anti-competitive in what is being done. ……The fifth area to be considered is technology… … It is not only the Framework Programmes, including the seventh, that are important, it is also important that research carried out in each European company or university be interlinked, thereby providing the best possible outcome. ……Last but not least is external energy policy… … We will seek new participants to supply the European market… … Global supply in the market should be strengthened.” Appendix IJoint Committee on Communications, Marine and Natural ResourcesOrders of ReferenceDáil Éireann on 16 October 2002 ordered:
Seanad Éireann on 17 October 2002 ordered:
Appendix IIList of Members of the Joint Committee
Appendix IIIGlossary of TermsAlternative Fuels - A popular term for “non-conventional” transportation fuels including biofuels, compressed natural gas (CNG) and hydrogen. BGE – Bord Gáis Éireann Biodiesel - An alternative fuel that can be made from any fat or vegetable oil. It can be used in any diesel engine with few or no modifications and it can be blended with diesel or used in its pure form. Bioenergy – The conversion of biomass to energy and the use of biofuels for transport. Bioethanol – see Ethanol Biofuels - Liquid or gaseous fuels of vegetable origin such as vegetable oils and alcohols derived from plants or biogas derived from landfill or waste water treatment. Used primarily for transportation. Biomass - Any organic (plant or animal) material which is available on a renewable basis, including agricultural crops and wastes; wood, wood wastes and forestry residues; animal wastes and municipal wastes. CAI – Consumer Association of Ireland CAP – Common Agricultural Policy Carbon Dioxide (CO2) - A colourless, odourless non-combustible gas that is present in the atmosphere. It is formed by the combustion of carbon and carbon compounds (such as fossil fuels and biomass), by respiration and by the gradual oxidation of organic matter in the soil. CEP – Common Energy Policy CER – Commission for Energy Regulation Clean Coal Technology – The energy conversion of coal in a manner which removes impurities and carbon dioxide. Climate Change - A term used to refer to all forms of climatic inconsistency, but especially to significant change from one prevailing climatic condition to another. In some cases, “climate change” has been used synonymously with the term “global warming”; scientists, however, tend to use the term in a wider sense inclusive of natural changes in climate, including climatic cooling. Co-firing - The process of burning a particular fuel in conjunction with another fuel (e.g. peat and biomass). COFORD – National Council for Forest Research & Development Combined Heat and Power (CHP) - The production of both electrical energy and useful heat (for a purpose such as space heating). DCMNR – Department of Communications, Marine and Natural Resources DEHLG – Department of Environment, Heritage and Local Government Diesel Fuel - A fuel composed of distillates obtained in petroleum refining operation or blends of such distillates with residual oil used in motor vehicles. The boiling point and specific gravity are higher for diesel fuels than for petrol. Direct Current - An electric current that flows in only one direction through a circuit, as from a battery. District Heating - Provision of space heating to a large number of dwellings from one central source of heat such as a boiler or CHP plant which may be an appreciable distance away. Electricity Generation - The process of producing electric energy commonly expressed in kilowatt-hours (kWh) or megawatt-hours (MWh). Emissions - A discharge or something that is given off. Generally used in regard to releases of gases to the atmosphere from some type of human activity (cooking, Driving a car, etc). In the context of global climate change, they consist of greenhouse gases (e.g., the release of carbon dioxide during fuel combustion). Energy - The ability to do work or the ability to move an object. Electrical energy is usually measured in kilowatthours (kWh), while heat energy is usually measured in Joules. Energy Consumption - The use of energy as a source of heat or power or as a raw material input to a manufacturing process. Energy Efficiency - Refers to activities that are aimed at reducing the energy used by substituting technically more advanced equipment, typically without affecting the services provided. Examples include high-efficiency appliances and lighting, high-efficiency heating, ventilating and air conditioning (HVAC) systems or control modifications, efficient building design, advanced electric motor Drives and heat recovery systems. EPA – Environmental Protection Agency ESB – Electricity Supply Board ESBNG – ESB National Grid ESRI – Economic and Social Research Institute Ethanol - A colourless liquid produced by the fermentation and distillation of sugar and starch-based raw materials. The vapour forms an explosive mixture with air and may be used as a fuel in internal combustion engines in which form it is generally referred to as bioethanol. Fossil Fuels - Fuels (coal, oil, natural gas, etc.) that result from the compression of ancient plant and animal life formed over millions of years and which are non-renewable. Fuel Cycle - The entire set of stages involved in the utilization of fuel, including extraction, transformation, transportation and combustion. Gas Turbine Plant - A plant in which the prime mover is a gas turbine. A gas turbine consists typically of an axial-flow air compressor and one or more combustion chambers where liquid or gaseous fuel is burned and the hot gases are passed to the turbine and where the hot gases expand Drive the generator and are then used to run the compressor. Generator - A device that turns mechanical energy into electrical energy. The mechanical energy is sometimes provided by an engine or turbine. Geothermal Energy - The heat energy that is produced by natural processes inside the earth. It can be taken from hot springs, reservoirs of hot water deep below the ground, or by breaking open the rock itself. Global Warming - An increase in the near surface temperature of the Earth. Global warming has occurred in the distant past as the result of natural influences, but the term is today most often used to refer to the warming some scientists predict will occur as a result of increased anthropogenic emissions of greenhouse gases. Greenhouse Gases (GHG) - Gases that trap the heat of the sun in the Earth’s atmosphere, producing the greenhouse effect. The six key GHGs targeted under the Kyoto Protocol are CO2, CH4, N2O, SF6, hydrofluorocarbons and perfluorocarbons. Hydroelectric Power Plant - A power plant that uses moving water to power a turbine generator to produce electricity. Hydrogen - A colourless, odourless, highly flammable gaseous element. It is the lightest of all gases and the most abundant element in the universe, occurring chiefly in combination with oxygen in water and also in acids, bases, alcohols, petroleum, and other hydrocarbons. IBEC – Irish Business and Employers’ Confederation IFA – Irish Farmers’ Association IrBEA – Irish Bioenergy Association IWEA – Irish Wind Energy Association Joule (J) - A unit for measuring work and energy. It is equal to the work done when a one ampere current is passed through a resistance of one ohm for one second. Kilowatt hour (kWh) - A measure of electricity or unit of work or energy, defined as 1 kilowatt (1,000 watts) of power expended for 1 hour. One kWh is equivalent to 3.6 million joules (MJ). Liquified Natural Gas (LNG) – natural gas that has been cooled to a very low temperature (-160oC), at which point it becomes a liquid. It is stored and transported in insulated tanks at normal atmospheric pressure. Load - The power and energy requirements of users on the electric power system in a certain area or the amount of power delivered to a certain point. LT – Long Term (2050) Megawatt (MW) - A unit of electrical power equal to 1000 kilowatts or one million watts. Methane (CH4) - A colourless, flammable, odourless hydrocarbon gas which is the major component of natural gas. Methane is a greenhouse gas with emissions coming from ruminant livestock, landfills and other sources. MT – Medium Term (2020) Municipal Solid Waste (MSW) - Residential solid waste and some nonhazardous commercial and industrial wastes. Natural Gas - An odourless, colourless, tasteless, non-toxic, clean-burning fossil fuel. It is usually found in fossil fuel deposits and used as a fuel. NDP – National Development Plan NIAER – Northern Ireland Authority for Energy Regulation Nitrous oxide (N2O) - A greenhouse gas with emissions coming from agricultural soils, nitrogenous fertiliser, fossil fuel combustion and other sources. Nuclear Energy - Energy that comes from splitting atoms of radioactive materials, such as uranium. OPEC - The Organization of Petroleum Exporting Countries organized for the purpose of negotiating with oil companies on matters of oil production, prices, and future concession rights. Current members (as of the date of writing this definition) are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Organic Waste - Waste material of animal or plant origin. Peak Load Plant- Plant such as steam units, gas turbines, diesels or pumped-storage hydroelectric normally used during the peak-load periods. Photovoltaic Conversion - The process by which radiant (light) energy is changed into electrical energy using photovoltaic (or solar) cells or panels. Pipeline, Distribution - A pipeline that conveys gas from a transmission pipeline to its ultimate consumer. Power - The rate at which energy is transferred. Electrical energy is usually measured in watts. Also used for a measurement of capacity. Power-Generating Efficiency - The percentage of the total energy content of a power plant’s fuel which is converted into electric energy. The remaining energy is lost to the environment as heat. Power Plant - A facility where power, especially electricity, is generated. Renewable Energy Sources (RES) - Energy forms which are renewed daily by the sun such as wind, wave, hydro and biomass. Tidal energy is lunar in origin. Geothermal energy is normally regarded as renewable. SEI – Sustainable Energy Ireland Solar Energy - The radiant energy of the sun, which can be converted into other forms of energy, such as heat or electricity. Space Heating - The use of energy to generate heat for warmth in housing units using space-heating equipment. The equipment could be the main space-heating equipment or secondary space-heating equipment. ST – Short Term (2010-2012) Tanker - A vessel that transports crude oil, petroleum or LNG. Teagasc – Irish Agriculture and Food Development Authority Total Final Consumption (TFC) - This is the energy used by the final consuming sectors of industry, transport, residential, agriculture and tertiary. It excludes the energy sector such as electricity generation and oil refining etc. Total Primary Energy Requirement (TPER) - This is the total requirement for all uses of energy, including energy used to transform one energy form to another (e.g. burning fossil fuel to generate electricity) and energy used by the final consumer. Transmission System (Electric) - An interconnected group of electric transmission lines and associated equipment for moving or transferring electrical energy in bulk at high voltage. It is usually over long distances between points of supply and points at which it is transformed for delivery over the distribution system lines to consumers or is delivered to other electric systems. TSO – Transmission System Operator Turbine - A device with blades, which is turned by a force e.g. that of wind, water or high pressure steam. The mechanical energy of the spinning turbine is converted into electricity by a generator. UCC – University College Cork Utility Generation - Generation by electric systems engaged in selling electrical energy to the public. Voltage - The difference in electrical potential between any two conductors or between a conductor and ground. It is a measure of the electric energy per electron that electrons can acquire and/or give up as they move between the two conductors. Water Turbine - A turbine that uses water pressure to rotate its blades. Primarily used to power an electric generator. Watt (W) - A unit of power, usually used in electric measurements, which gives the rate at which work is done or energy used. Multiples are kilowatt (kW) i.e. 1,000 watts and megawatt (MW) i.e. 1,000 kilowatts. Well - A hole Drilled in the earth for the purpose of finding or producing crude oil or natural gas or producing services related to the production of crude or natural gas. Wind Turbines - Devices powered by the wind that produce mechanical or electrical power. Wood Energy - Wood and wood products used as fuel, including, wood chips and pellets, bark, sawdust, forest residues, charcoal, pulp waste and spent pulping liquor. |
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