Investing in Electricity Infrastructure and Renewables in Ireland

With three colleagues Seán Diffney, Seán Lyons and Laura Malaguzzi Valeri, we have recently published a series of papers on the economics of the electricity industry in Ireland. The conclusions are summarised in a Research Bulletin published today. There is also an article in today’s Irish Times.

The original papers are:

DIFFNEY, S., J. FITZ GERALD, S. LYONS and L. MALAGUZZI VALERI, 2009. “Investment in Electricity Infrastructure in a Small Isolated Market: the Case of Ireland,” Oxford Review of Economic Policy, Vol. 25, No. 3, pp. 469-487. Available here. We will release a working paper with additional results on this topic in the next few days.

MALAGUZZI VALERI, L., 2009. “Welfare and Competition Effects of Electricity Interconnection Between Great Britain and Ireland”, Energy Policy, Vol. 37, pp. 4679-4688. available here. An earlier version is available as a working paper.

30 replies on “Investing in Electricity Infrastructure and Renewables in Ireland”

This research is very welcome. It’s probably me, but it does not seem possible to establish how much, for example, the infrastructure paper costs to download without committing to open an account and becoming ensnared in OUP’s payment system.

Despite this, and relying on what is in the public domain (including the seminar in October which trailed these papers) it appears that a plausible case has been made for a significant increase in wind generation. Obviously there are major risks and uncertainties arising from the impact of increased integration of the electricity markets, the ability of British policy-makers and regulators to address the yawning generation deficit and the future path of energy and carbon prices.

What concerns me is the scale of the network investment required. I note the observation on labour costs on electricity networks relative to those in other countries, but the impact of this differential pales into insignificance when compared with the impact on consumers of gloriously inefficient financing of network investment to date. Since regulation of the electricity networks was formally established in 2000, electricity consumers have directly and indirectly financed more than 75% of investment with the remaining 25% coming from borrowings. Most regulated network businesses rely on borrowing to a much greater extent; a debt percentage of 60 to 70% is quite common. This has resulted in final prices being up to 10% higher than they should be.

Despite being the majority shareholder – and confronted with a huge demand for network investment – successive governments failed to inject equity investment. And the failure to financially ring-fence the network business allowsd the ESB to use excessive network revenues awarded by the CER to finance expansion of its businesses in other areas.

This approach to financing investment is no longer sutainable – particularly when confronted with the scale of network investment required to support a major expansion of wind generation and a much weakened economy.

For me, securing efficient financing of this investment – without burdening consumers even more than they are already – is a major challenge. And it doesn’t seem to have been addressed.

I think there second bullet point on why Ireland is different is not quite accurate – electricity is generated from a wind turbine alot more than 30% of the time … however as it doesn’t always generate at full capacity, its average output is only 30% of its installed capacity (and sometimes, yes it doesn’t generate at all!)

While interconnection is a good thing and could result in a potential export market for energy, I’m curious why some other methods of addressing the variable generation capacity of windfarms is not discussed?

We only have one pump storage facility in Ireland ( http://en.wikipedia.org/wiki/Turlough_Hill ) while the UK has at least four. China is on a binge constructing them. It would seem like an obvious thing to do in a country with flooding issues. In addition there are a number of abandoned mines that might be used.

Surely some engineering firm could review these things and suggest some sites and projects that could create new pumped storage systems and possibly address some of our flooding issues?

There is also Sarah Carey’s piece in the same IT today, which concerns semi-states and mentions the ESB alot.

http://www.irishtimes.com/newspaper/opinion/2009/1216/1224260759300.html

Her money quote: “To protect competitors such as Airtricity from [predatory pricing on the part of the ESB], the energy regulator prevents the ESB from cutting its rates. So in order to have competition, which is good because it brings lower prices, the regulator artificially keeps them high because that’s the only way we’ll have competition and that’s good because . . . oh dear. It’s all gone wrong, hasn’t it?”

@Kevin Lyda,

Pumped storage systems are rare because there are only a small number of suitable sites which can be modified to fit a pumped storage power plant. Effectively you have to have a lake at the top of a mountain, and a lake at the bottom. Not every mountain in Ireland is suitable for this.

Ireland has suffered heavy glacial erosion and as a result our mountains are small compared to other countries etc. Hence the potential energy to be harnessed is lower etc.

@Graham,

Sarah Carey’s piece is well-written, knock-about stuff and she scores a few hits – but some of her swipes miss the target.

It is true that the “liberalisation” of the electricity (and gas) market is being driven by EU Directives (electricity in ’96, gas in ’98 followed by a further pair in 2003 leading to the enactment of the Third Legislative Package in July of this year). However, in terms of competition, Ireland (both North and South) has gone further than these directives mandate by establishing the Single Electricity Market (SEM). This has been accompanied by a compelled reduction to 40% of the ESB’s share of the generation market.

My view is that the small scale of the market imposes additional, unjustified costs. Even the CER concedes (http://www.cer.ie/en/electricity-retail-market-current-consultations.aspx?article=df783f6c-1e9f-436e-a2e0-d89edf4daa9b&mode=author – on p48) that the small scale of the market may deter new entrants (who are required for sustainable – and consumer-benefitting – competition). However, the ESRI, based on its analysis, seems to think that prices (presumably in the wholesale market) are at the Goldilocks level.

The trades unions advance the case that there should be no constraint on the ESB’s share of the generation market, that prices should be set by the market and that all the CER should do is ensure the ESB (or any other player) does not abuse its market power. Their real objective is to restore the ESB to its previous vertically integrated monopoly – as no prospective competitor would enter the market under these arrangements (and those already in would seek to exit).

All players are keen to distract attention from how network tariffs and revenues derived – or how the networks are financed. Even the ESRI is reluctant to broach this topic – even though it cannot be unaware of the ineffcient nature of financing and the impact this has on final prices.

The excessive network revenues awarded by the CER to the ESB allows it to expand other business activities and this partly compensates for the enforced reduction in its share of the generation market and other markets. (Although operating on a smaller scale, Bord Gais has taken advantage agressively of this largesse.)

Focusing on pay levels is a distraction as any efficiencies that might be achieved are relatively small and would be extremely hard-won. There are far greater efficiencies that may be achieved much more easily and would have a significant impact on final prices.

It suits the ESB board and management very well that the unions will growl anytime a consumer-benfitting reform is mentioned -and this is sufficient to deter the Government.

Those who prevent government from adopting a course of action – or prevent contemplation of a course of action – are the government.

Before liberalisation of our Energy markets we had the lowest energy prices in Europe.

To encourage competition and discourage state aid from the energy markets, it was deemed necessary to set our energy prices artificially high so as to encourage competition.

Competition is believed to encourage lower prices.

Only an institution as hamstrung by politically correct jobsworths could encourage high prices to attract competition to a market that so obviously did not need it.

The sooner the better we have a Government that just ignores the silly policies of this beurocratic cesspit the better.

All the other members do it regularly.

John,

I think everyone agrees that 6000MW is a lot of onshore wind power generation (WPG) capacity. It is a six-fold increase on currently installed capacity and would take about 1.5% of the land area of the country. For comparison, the existing built environment (all roads, buildings) is 1.9%.

(1) Ireland contains some of the great landscapes of europe. Are there any quantitative studies on likely impact of large scale WPG
(turbines and transmission systems) on the tourist industry? Surely impact on this multi-billion industry needs to form part of an economic assessment?

(2) Short-term variability of WPG is well-known and your reports conclude that this is handled cost-effectively by interconnectors to the UK. However, wind speeds are variable on timescales longer than days or weeks.

For example, a year with 10% lower-than-average wind speeds yields a 30% drop in WPG. Scotland would likely experience a similar effect, driving UK prices higher at a time when we are net buyers. Conversely, a year with higher-than-average wind speed produces lower prices at a time when we are sellers. Has this cost been quantified?

(3) It is an unfortunate fact of geography that there is a high correlation between the onshore wind resource and presence of peat bogs. Many of these are supposedly protected under EU law. Drainage of peatland (e.g. for wind farm construction) is associated with surprisingly high co2 emissions. (IPCC guide 35tCO2/ha/year from drained peatland). As far as I know we do not account for these emissions at present but it appears likely that this will have to change in future. This is another cost of onshore WPG that needs to be quantified.

@ BG,

Some interesting points raised indeed. However it would be preferable to site the wind generators offshore where wind speeds are less variable than over land.

On another point if you were to replace all generation capacity with wind generators then you would need more than 6GW capacity as not all the generators would be producing all the time. A requirement of 18GW might be required etc. However I don’t believe you were making this point.

On another point technology would have to be introduced to stabilise the grid from harmonics / spikes causing electrical pollution of the grid. Generators connecting and disconnecting in large amounts upset the active power to reactive power ratio. So the quality of your electricity will be degraded. As households and industry are using more and more electronic equipment, electrical quality is more important than 30 years ago when there was no computers in Ireland etc.

Again it should be remembered that WPG is a more recent development. Technologly is changing every 10 to 15 years. There are promising signs that the use of HTS (High Temperature Superconducting) generators will be more efficient than the normal generator which is in use today.

So it might be better to wait another 10 years for the 2nd generation technology to become tried and proven before we jump in and commit massive sums of money to the first generation technology today etc.

Prehaps some of the other contributors have more up to date information on this technology and recent developments in the industry.

@ Graham Stull,

I am glad you linked to Sarah Carey’s article in the Irish Times. I was going to post the link up myself. I was trying to work along the same lines myself in this comment last night:

http://www.irisheconomy.ie/index.php/2009/12/15/domestic-demand-doomed-ireland/#comment-28390

But I don’t have nearly enough research done on semi-states to know my way around it. I chose instead to stick to the bits I do know about from various experiences – the office of public works and sustainable energy Ireland.

But the same concept applies. We shouldn’t have to move ‘bodies’ physically from one building to another to somehow get a re-shuffle-ing or a better organisation of human resources within the public sector. In my own experience dealing with academics, the problem usually that occurs the most is that academics have no incentive to move beyond their own immediate area. In fact, to do so often means you are penalised, you miss out of accreditations, chair positions in universities and so forth. You are considered to have ‘wander-ed off the range’.

The ‘make-up’ of the public service nowadays I would imagine is more and more consisting of young people who have got third level education like myself. The most efficiencies to be taken advantage of, when you have this skilled, educated public service is from cross-collaboration and boundary break-down. Pushing people outside their comfort zones.

Trying to make people ‘more productive’ or more efficient in their specific field ends up having limited success relative to the investment required.

I always admired Digital Equipment Corporation. I read a book by Edgar Schein who was a human resources external consultant to DEC and he noted that in the company one could pursue an engineering career ladder or a management career ladder, and change from one to the other at various points in your career, without having the fear of ‘sliding back down’ either ladder. They ran in parallel and both were equally respected.

Schein’s book is called ‘DEC is Dead. Long Live DEC’.

I have a real problem with the ham-fisted way public sector unions attempt to use productivity like it was some sort of bargaining chip. When I know that much of the public sector would enjoy their work a lot more if they could aspire to being more productive. But whenever the unions trot out ‘productivity increases’, it sounds like some sort of a sacrifice.

It would be nice to get mobility within the public service as a way to move talent around and offer people new challenges. I believe that many people would prefer that, to a bigger pay cheque. It is about trade-offs. Seeing that we cannot offer better pay cheques for a long while, it should not prevent us from being innovative in other ways.

For that matter, I am not so sure that throwing money at public servants during the boom times, did manifest itself in greater satisfaction and pleasure, public servants got in their jobs either. More like the contrary, it reinforced the sense of lock-in and lock-down to one static post without any options. I know that many people who trade away some salary opportunities if they were offered a better chance to move around the public service and involve themselves in new challenges.

It is just another one of those value mis-judgements or value balances that we didn’t get right during the Celtic Tiger era. I am sure our national spirit and pride, our elan, suffered greatly.

What about Gas and Nuclear? Can’t we let these alternatives compete fairly with WPG? There are lots of claims that WPG is competitive once the right network is in place but at what cost. Also as mentioned earlier 1.5% plus of exposed land will be needed. What about the amenity value of the land, which is going up all the time.

Time will tell just how good an investment this is, just like the Arklow offshore beauties.

While I do remember it, one of Henrik Lund’s points in last night’s lecture in Dublin was to do with the ‘Hobson’s choice’ offered to society usually when it comes to energy resource planning.

In his book, Renewable Energy Systems, The Choice and Modeling of 100% Renewable Solutions, Lund enters into some of the same territory that Noam Chomsky often does. Power theory, as in political power systems.

As far as energy companies go, their capital only allows them to invest in large central facilities such as power stations. Their capital is of no use when it comes to de-centralised management of insulation in buildings and community based power schemes and so on.

Inevitably the capitalist driven energy company will contest for a solution, which makes efficient use of their capital. Other alternatives to society will be discouraged, for fear the energy company will lose its position of power (in the political sense).

There have been a number of ideas for deploying pumped storage. Using mines and using bladders are two that come to mind. The later is a Danish invention and uses two lakes at the same height – with a sand covered bladder to provide a pressure difference.

In the Netherlands they are using warehouses as places to store excess electricity. Too much and they chill the warehouse to the lower part of a range. Too little and they let the warehouses warm to the high point of the range.

In addition to using wind turbines there are now discussions of using wind belts to generate electricity. They could replace fences or be added to the roofs of taller buildings.

Once built all of these things can lead to a stable energy cost which as the decades roll on will be a beneficial thing to have. It would attract data centres, manufacturing and related industries.

I worry that the capital costs are high and that the engineering is still unproven in the long term. Short term solutions are only acceptable if they are cheap. The infrasound problem and amenity destruction is also a factor but the real problem is loading. Tidal power say across the Shannon, and others, as part of a drainage and storage solution would be interesting. Biomass suits Ireland also but the peat fired stations are more political interference in this political minefield. Domestic wind power units appear viable only if off the grid and as part of a wider system involving other methods such as mini turbines for small streams down a hill side.

Land use is still a core issue with this and expect many delays by nimbys. What is theoretically satisfactory founders when it meats the messy reality of rural planning. Using heat pumps and circulating water through subsoil seems to be viable for local purposes but we also waste heat by not pumping it to housing, instead heating rivers and erecting stem cooling towers. Not all solutions suit the OPM crowd selling the newest untried thing to unsophisticated investors. Thus better solutions are neglected due to marketing pressure.

OK, so I think we agree. The engineering solutions are there – or at least potentially there. The issue is to get the political will to get them in place in a sensible way.

Wind, geothermal, solar, hydro, biomass (including incinerators) and even some nuclear (something that could run off waste from older generation reactors) could all lead to an energy future where Ireland is a bastion of stability.

It’s the political will and foresight that we seem to lack.

Alternatives to fossil-fuel energy sources are not available in respect of the ‘cheap and cheerful’ energy density, abundance and ease of use of FFs. Trying to work out any new alternative energy scenario using your current economic/financial models is a complete waste of time.

1. Energy systems must be considered in terms of nett Free Energy – I am assuming electricity here, not transport energy.

2. You must determine the actual energy cost of the build-out of the new/additional infrastructure – that is, the actual number of energy units (in whatever units you care to use). Forget the money cost. You can print all the Fiat Currency you need. Energy units are just a tad more tricky to conjure up.

3. You next must calculate the nett Free Energy of the new system. It has to be considerably in excess of the total energy inputs; initial and continual.

4. Items: construction and installation: maintenance and repairs: transmission losses, etc. etc. And, you have to have a minimum energy unit input of approx 15% FFs to keep the show on the road. Good luck with your calculations.

I cannot do these calcs myself, I neither have the data nor am I technically competent to do so – you need to have a background in power engineering. I am sure there are some people who could do this. Just be aware that you might not like the answers they provide.

B Peter

@ Brian O’ Hanlon,

I must check out that book you mentioned (DEC), seems like a good read.

@ Kevin Lyda,

Some interesting points raised, which should be futher investigated if this country is at all serious about moving towards a more sustainable method of energy production.

For example we have a medium sized city, Dublin which has several power stations around it, Huntstown, Dublin Bay station, the new Poolbeg site all of which are operating in the range of 54% thermal efficiency. So how do we capture the remaining 46% of energy wasted. Korea and Denmark have implemented district heating projects where the waste heat is captured and used to heat water which is distributed to various users in the city etc.

Obvioulsy you don’t get something for nothing, modifications had to be undertaken to the power stations, when operating in district heating mode maximum power output was reduced on the steam turbines, so instead of generating 400MW you had to derate to 350MW or so.

But I fear our policy makers are not interested in improving the efficiecny of a 400MW generator which is burning approximately 70 tons of diesel oil per hour (D.O. equivalent to Gas).

Instead it is acceptable to persecute the motorist driving a car with a fuel efficiency of 25 MPG, which on average mileage of 10K miles consumes 1.8 m3 of petrol per year, (rough ball park figure, but you get the picture).

As long as we continue to vote in the “village idiots” who are not qualified for the office they hold, this country will continue to operate below par.

I will leave my last line to Kevin Lyda..

“It’s the political will and foresight that we seem to lack”

@ All,

Apologies I forgot to mention that if District heating was to be implemented on a power station then one might be able to get the thermal efficiency up to 70%+ maybe even mid 80’s.

As BP Wood states, the total energy calculations would have to be checked over, and unfortunately it is not possible to develop a machine which is 100% efficient, but we can get closer to 100% than where we are presently.

It has been drawn to my attention that the Diffney et al paper:

(1) excludes consideration of the costs of retailing electricity and of distribution and of the impact of excise taxes and VAT;
(2) recommends transfer of ownership of transmission assets to separate government-owned companies in both jurisdictions to ensure a future minimisation of the cost of capital and to avoid any possibility that the transmission assets would be used to leverage investment in riskier assets.

This approach successfully avoids any consideration of current and future differences between final prices in Ireland and Britain – and why they arise. By focusing on the future cost of capital it avoids consideration of the current inefficient financing of network investment and the legacy of unjustifiably high network revenues that will persist. And by couching the prohibition on cross-asset leverage in forward-looking terms it is possible to ignore the blatant cross-subsidiation that is now taking place at consumers’ expense. If the transfer of ownership of transmission assets ever takes place this will achieve only a limited reduction in the excess costs, since transmission revenues comprise about a fifth of total network revenues.

It is also interesting that public ownership of networks is recommended – which, of course, excludes consideration of privatisation. I am not sure whether this is advanced because it is believed public ownership will secure a very low cost of capital or that the required risk-related return of investing in what is effectively a monopoly activity with sufficient regulatory commitment is very low.

I would be surprised if it is the former as the taxpayer, ultimately, bears the risk that isn’t fully priced in.

Although the scope of the work may have been defined to exclude them, it is disappointing that the deployment of such quality intellectual resources has failed to address issues of pressing concern to all Irish electricity consumers.

@ Paul. Please try to distance yourself from cost (money) when considering our future energy needs. I know the temptation to go down the money-cost route is almost overwhelming, but it is a complete red-herring cul-de-sac. Our current financial system has gone down the Swanee, and it is not coming back – at least not in any form we might recognize.

Energy is a different matter – its currency is universal. One unit of energy is the same everywhere, since – well a long time ago. So this is what you have to concentrate your analysis on. To wit; what is our energy A List? This must be satisfied – else we retrace to the 1930s.

There are several parallel tracks with respect to energy use: conservation, reduction and alternatives to fossil fuel energy generation. You must track all three simultaneously using your energy A List as the focus. Simple busywork on one issue alone (cost) will not give you the answers you need.

Energy generation is a complicated matter – and unfortunately it involves some immutable laws of physics and chemistry. If you do not know what these laws are and their implications for energy generation, transmission and use, then please get someone to explain them to you. They are not all that difficult to understand, but you cannot gainsay them with money. Best regards.

B Peter

@B P Woods,

I think I partly understand the thrust of your post, but I would continue to contend that economics has something to say, however imperfectly, about the use and allocation of scarce, exhaustible resources, renewable (and potentially infinitely available) resources and nuclear technology (both fission and, potentially, fusion).

Thanks for all the comments.
I am sorry that you have to pay the jounrals for the orginal articles. In economics peer reviewed journals are generally funded from subscriptions. In some of the physical sciences peer reviewed publications are free. In terms of incentives it is probably better to fund through subscriptions than through charging submission fees. However, it does hamper dissemination.
The important issues on the cost of capital raised by Paul Hunt are dealt with in a lot more detail in the paper in the Oxford Review of Economic Policy. A fuller discussion of some of these issues is conatined in the article by Dieter Helm available in the same issue. In an earleir publication (available free) we also discuss the issue of the cost of capital http://www.esri.ie/UserFiles/publications/20071001082224/QEC2007Aut_SA_Lyons.pdf
The issue of competition in retailing of electricity was raised. While the competitive market in generation has worked it is not clear that the creation of the competitive market at retail level will be worth it for consumers. It cost around €100 million for the software to allow it to happen (ultimately paid for by consumers) and it will need a lot of savings to repay this investment. However, it was necessary tomply with EU regulations and time will tell as to its value. Recent work on the GB retail market reaches rather similar conclusions http://www2.warwick.ac.uk/fac/soc/economics/research/papers_2009/twerp_913.pdf

@John,

Many thanks for the response. I agree that the cost of capital is important – particularly for networks, but also for generation when capacity payments are derived – but of equal, if not more, importance is the valuation of the Regulatory Asset Bases for the networks to which this cost of capital is applied. My contention is that the CER has overvalued the RAB for both electricity and gas networks. In addition to an analytic demonstration of how this was achieved, it is possible to see the outcome in the ability of the ESB to finance a huge increase in network investment in this decade 75% from customer capital contributions and cash generated from operations and 25% from borrowings (without any requirement for additional shareholder equity finance). The CER has awreded, and continues to award, excessively high network revenues to facilitate this – and this has resulted in final prices being up to 10% higher than they should be. (There is a similar impact on gas prices.)

Naturally, the CER denies this, declares that how the ESB finances its investment is none of its business and seeks to absolve itself from any responsibility for this gloriously inefficient – and consumer-penalising – financing of investment. This ultimately derives from the policy of successive governments to maintain, to the greatest extent possible, the ESB and BGE as financially vertically integrated, expanding companies while minimising the impact on them of EU Directives driving comprehensive industry restructuring.

I remain surprised, however, that those who analyse the energy sector so intently have not highlighted the detrimental impacts of these arrangements.

@ Sporthog,

Do, check it out. From my recollection now I think that Schein developed a theory that companies develop a kind of ‘DNA’ based on the methods and procedures that lead them to initial success. That more or less forms the parameters for the culture within the organisation and in a sense, many of its choices and directions thereafter.

Schein noticed how Digital Equipment Corporation was missing some crucial things in its DNA which might have meant the difference in later stages, having rose to extraordinary success. I have found this a very useful framework through which to view organisations – my own closest experience being recently with Zoe developments. Similar accelerated rise to prominence followed by rapid disintegration and sheer inability to do anything on the way down.

Another fairly robust theory used to explain the sudden disappearance of previously ‘strong’ companies in business was developed by Clayton Christensen. Surprise, surprise, Christensen applied his ideas to Digital Equipment Corporation and they work very well in that case.

Although Christensen was later wrong about the iPod. He predicted it would not last very long and be quickly overtaken by competitors according to ‘his model’. A mis-prediction which gave no small level of satisfaction to another technological/business thinker Nicholas G. Carr.

I must confess quite a deep interest myself into the kind of companies who are into ‘making things’. I like to see them do well and work to best modern organisation practices. I said to WaveBob at a recent lecture they delivered in Dublin – I do like the way they figure out the problems prior to going into production. As opposed to building something and then either (A) trying to cover up the mistake or (B) believing there is always some botch solution that will work.

I referenced WaveBob’s approach as like that of the company ‘Smart Homes’ which asked the question in 200x why aren’t homes set up to serve the basic living requirements of occupants? Of course, Smart Homes was a company started by an accountant who knew very little about home construction. I suppose his DNA was quite a bit different from that commonly found where homes are being built.

Thanks for the update John.

I think you are on the right trail in thinking that investment into more traditional type of plants in a new de-regulated environment is going to be difficult. My understanding is that some of our traditional fossil fuel plants were kept running as a failsafe mechanism in case something went do-lally with the wind farms.

Wrapped up with that is Sarah Carey’s point in relation to ‘expensive power to encourage competition’ in his recent Wednesday column.

http://www.irishtimes.com/newspaper/opinion/2009/1216/1224260759300.html

Furthermore, to expand a little more on Carey’s observations, we now see articles in the Sunday Business Post like this one:

http://www.sbpost.ie/news/ireland/coillte-planning-to-enter-nursing-home-market-46365.html

Or a search of mine, also revealed this article from summer this year, along the same vein.

http://archives.tcm.ie/businesspost/2009/06/21/story42604.asp

You will also note, that earlier in the week the newspapers featured an article about Liam Carroll and the Cherrywood science and technology park, where DunLaoghaire Rathdown Coco obtained 60 acres of development land and some building shells to play around with. In effect to become landlords and speculators.

This was always going to be a danger as our semi-state, state and local authorities have managed to become better ‘resourced’, housed and altogether better off than anything in the private sector. I am not saying we are headed towards full blown communism yet. But definitely towards a period in Ireland more dominated by state enterprise than private.

How we decide to face up to that and manage it properly is up to ourselves. It can be viewed as an opportunity as much as anything else. I also noted in yesterdays paper, how ESB/Irish Nationwide see nationalisation as a temporary ‘bump in the road’ for them. It is a transitional period after which the market will take more interest in the future in the stocks the government will own.

I suppose, that is the point we will have to watch. Where the state acquisitions float back into the private sector. We would wish to avoid a repeat of Eircom I guess.

But I mean, this talk about a de-regulated power generation environment in Ireland seems to run contrary to the trend in many other parts of the Irish economy. Where the private sector is effectively crippled and the state becomes the ‘player’ of last resort. I am reading Shane Ross’s excellent book ‘The Bankers’. Isn’t it quite shocking that after all of McCreevy’s tax breaks to build nursing homes etc, that we are back to a stage again where a forestry semi-state is moving into nursing homes? Where was all of that market virility and motivation to supply demand? Where did it go?

The plan at Zoe was always to turn Loreto Abbey at Rathfarnham into nursing home use, but planning proved problematic for that development. Like everything else did prove problematic for developers in the twilight of the Celtic Tiger. I know that many developers tried to ‘work with’ McCreevy’s and FF’s incentive-isation policies where the owner could write off lots of tax and construction costs etc.

Sure McCreevy’s policy had the impact of shifting 25% of the GNP activity into the construction industry. But while there might have been lots of ‘heads’ running around the place ‘doing stuff’, we still don’t have the nursing homes. Rathfarnham convent, a listed structure has a leaky room and most likely will be destroyed.

We shifted the emphasis of economic activity radically, we played monopoly board games so to speak. We created all sorts of policy to drive development and investment. But the causes and effects of that have not been fully assessed by anyone. Lets learn from the past mistakes before messing up our opportunities with regard to investment in energy also.

My instinct would be, the construction and development sector is like a coiled spring at the moment and will ‘fly off’ un-control-ably the minute ‘a solution’ is proposed, because the work and contracts will be available to contractors for a short time. It will not matter if it is the right solution or not. The construction and development will simply happen in the blink of an eye. So lets be careful before will release the spring this time.

Thanks for the update John.

I think you are on the right trail in thinking that investment into more traditional type of plants in a new de-regulated environment is going to be difficult. My understanding is that some of our traditional fossil fuel plants were kept running as a failsafe mechanism in case something went do-lally with the wind farms.

Wrapped up with that is Sarah Carey’s point in relation to ‘expensive power to encourage competition’ in his recent Wednesday column.

http://www.irishtimes.com/newspaper/opinion/2009/1216/1224260759300.html

See the Sunday Business Post yesterday for a story on Coillte and the building of nursing homes. The same newspaper also featured a story in the summer time about Coillte breaking in the field of property development.

You will also note, that earlier in the week the newspapers featured an article about Liam Carroll and the Cherrywood science and technology park, where DunLaoghaire Rathdown Coco obtained 60 acres of development land and some building shells to play around with. In effect to become landlords and speculators.

This was always going to be a danger as our semi-state, state and local authorities have managed to become better ‘resourced’, housed and altogether better off than anything in the private sector. I am not saying we are headed towards full blown communism yet. But definitely towards a period in Ireland more dominated by state enterprise than private.

How we decide to face up to that and manage it properly is up to ourselves. It can be viewed as an opportunity as much as anything else. I also noted in yesterdays paper, how ESB/Irish Nationwide see nationalisation as a temporary ‘bump in the road’ for them. It is a transitional period after which the market will take more interest in the future in the stocks the government will own.

I suppose, that is the point we will have to watch. Where the state acquisitions float back into the private sector. We would wish to avoid a repeat of Eircom I guess.

But I mean, this talk about a de-regulated power generation environment in Ireland seems to run contrary to the trend in many other parts of the Irish economy. Where the private sector is effectively crippled and the state becomes the ‘player’ of last resort. I am reading Shane Ross’s excellent book ‘The Bankers’. Isn’t it quite shocking that after all of McCreevy’s tax breaks to build nursing homes etc, that we are back to a stage again where a forestry semi-state is moving into nursing homes? Where was all of that market virility and motivation to supply demand? Where did it go?

The plan at Zoe was always to turn Loreto Abbey at Rathfarnham into nursing home use, but planning proved problematic for that development. Like everything else did prove problematic for developers in the twilight of the Celtic Tiger. I know that many developers tried to ‘work with’ McCreevy’s and FF’s incentive-isation policies where the owner could write off lots of tax and construction costs etc.

Sure McCreevy’s policy had the impact of shifting 25% of the GNP activity into the construction industry. But while there might have been lots of ‘heads’ running around the place ‘doing stuff’, we still don’t have the nursing homes. Rathfarnham convent, a listed structure has a leaky room and most likely will be destroyed.

We shifted the emphasis of economic activity radically, we played monopoly board games so to speak. We created all sorts of policy to drive development and investment. But the causes and effects of that have not been fully assessed by anyone. Lets learn from the past mistakes before messing up our opportunities with regard to investment in energy also.

My instinct would be, the construction and development sector is like a coiled spring at the moment and will ‘fly off’ un-control-ably the minute ‘a solution’ is proposed, because the work and contracts will be available to contractors for a short time. It will not matter if it is the right solution or not. The construction and development will simply happen in the blink of an eye. So lets be careful before will release the spring this time.

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