Irish Energy Economics

It would be unfair and unwise to perform a detailed critical assessment of a short op-ed piece of this nature on such a huge and complex topic; and sub-editors can be totally ignorant butchers. But it is legitimate to assess it briefly in the context of the key known themes of government energy policy. These comprise:
1. The energy semi-states must be protected and fostered at all costs and their performance justified and defended;
2. Every effort must be made to dismiss the benefits of nuclear generated electricity either now or in the future;
3. Every argument must be deployed – whether relevant or not – to advance and promote renewable energy (even if wind generation is generally recognised as the most expensive CO2 reduction technology)
4. The general public must be softened up to encourage them to continue paying excessive and increasing electricity and gas prices; and
5. Any case made that questions these four themes and suggests viable alternatives and combinations, irrespective of how solidly based it may be in theory and practice, must be dismissed, rejected or ignored. (And, for goodness sake, whatever you do, never engage or debate directly with those who question the previous four articles of faith.)

This op-ed scores very highly on these five criteria. But this should not be a source of surprise:

“The Electricity Research Centre (ERC) is an industry-university research collaboration with research driven by the energy industry worldwide and a particular emphasis on the Irish electricity sector. The ERC is based in Electrical Engineering at University College Dublin (UCD) with an Energy Economics branch at Trinity College Dublin (TCD) .

The ERC is governed by a board chaired by Mr. Michael Tutty, Chair of the Commission for Energy Regulation, and made up of the industry members and representatives from the Department of Communications Energy and Natural Resources, the Economic and Social Research Institute (ESRI) and Sustainable Energy Authority of Ireland (SEAI).”

QED

@PH: “2. Every effort must be made to dismiss the benefits of nuclear generated electricity either now or in the future;”

Hi, Paul!. Benefits of nuclear? I know that small, compact reactors are lowish hazard and easy to operate and maintain. The problems with their radioactive waste is thereby diminished – but not abolished. If this is the nuclear you are referring to, then I concur. But, large-scale reactors are a definite no-no.

The only path to ‘sustainability’ (a very much abused and misunderstood term) is to pro-actively reduce our electricity use. That’s it. Higher prices for electrons? Yep, absolutely. But, sure on our steadily decreasing incomes we will be fine! 8)

I attended a short symposium on energy in TCD a few months back. Ostrich, head-in-sand stuff. Generals in armchairs in their club plotting their Big Push – for the last war! Not encouraging.

Brian Snr.

@BWS,

I have no hard or fast views on nuclear; I simply don’t know enough about it or how the future will unfold. All I’m arguing for is that any decisions are based on facts, evidence, analysis and, then, a reasoned judgement – and not on prejudice, fear, ignorance and superstition. In any event, it’s a long way down the road if it were to make the remotest sense in an Irish context. We have more than enough policy and regulatory dysfunction to address in the meantime.

My focus is on the formulation, scrutiny, amendment, enactment, implementation and review of energy policy. I’m much more concerned with the process than with the outcomes. In fact I would have no specific interest in the nature or mix of outcomes if the process were sound and took account of economic efficiency and the full economic costs (both internal and external) of any options considered. The problem now is that the outcomes are pre-determined (and damaging to the interests of consumers and the economy) and the process is retro-fitted to present the optical illusion that these outcomes have been generated by it in a completely independent and objective manner. And it baffles me – and to an extent angers me – that so many apparently sane, level-headed, intelligent people are fully signed up to this nonsense.

But what do you think the chances are that we’ll see some engagement here or elsewhere on these issues? Yeah. You guessed it. They will be conspicuous by their absence.

@Veronica,

Lest anyone be under the impression that this is unique to Ireland or to the Irish energy sector, it occurs in all policy areas here, in the UK and thoughout the EU. This is an excerpt from George Yarrow’s Beesley Lecture in London this time last year “Where next for utility regulation?”:

“A few years ago, a colleague questioned a regulatory official about a claim that a particular decision would lead to several hundreds of millions of pounds worth of consumer benefits. The question was directed at how the number had been arrived at, since, prima facie, it looked a rather big effect from what might reasonably have been viewed as a relatively modest decision. The answer was not an account of the estimation methods adopted, but rather a statement that, of course, no-one in the agency believed that number – it was simply there for the Daily Mail et al.

That, I think, signifies a significant shift in the regulatory culture; which is consistent with a second episode when, sat in a meeting in SW1 dealing with regulatory issues, a young civil servant whispered “This is what it must have been like in the Soviet Union: everyone is going through the motions, but no-one believes.”

There is some comfort here in the fact that the officials concerned were aware of the distinction between (a) what was true and (b) what was going to be said in terms of the ‘line to take’; but I fear that, since those conversations, things have gotten worse in some parts of the system. Increasingly I come across regulatory officials who act as if there is no difference between truthful statements and the things being claimed in public statements about the benefits of regulation (which, being sometimes an order of magnitude or more higher than the relevant regulatory costs involved, can imply rates of return on public outlays several hundreds of percent higher than anything ever claimed by Bernie Madoff).

This doesn’t appear to be straight dishonesty: there is no indication of an overt intention to deceive. Rather, it appears to be the result of circumstances that have been most clearly analysed by Professor Harry Frankfurt of Princeton University, in his near perfect little essay On Bullshit. In Frankfurt’s view, bullshit is discourse or documentary material produced under conditions of indifference to truth.

This is a long way from hard headed intellectualism, and it is a particularly dangerous in regulatory affairs. Bullshit is, of course, a normal feature of democratic politics, and, in its proper place, can serve positive social functions. Some decisions are simply too hard to bear over-close contact with the truth5 – questions concerning allocation of scarce resources to some medical treatments provide examples – and a softening of the edges of potential conflicts can keep social systems on track. Regulators, however, are supposed to take hard, technical decisions that affect basic economic services, and indifference to the truth is a disturbing culture to find colonising some of the relevant policy structures.”

If we place a nuclear plant on the Aughinish alumina site we can simultaneously reduce our electricity demand and also increase our diversity & security of supply as I guess Canada will not have a revolution anytime soon.
Also when all Moneypoints boilers are working it produces maybe 2 thirds of the electricity that a smallish nuclear plant could produce………..is this beyond our capabilities ? and is a base load of 20 -25% incompatible with a mainly wind gas setup ?
Are they really arguing for a 90% gas / wind structure with Peat & Hydro putting a pound of flesh on those bones.
Also if a dispersed existence is really unsustainable then the logic is you tax it out of existence – where is that debate I wonder ?
I don’t see the nuclear thing getting going to be honest – Europe’s strategic agenda is to deindustrialize the periphery and its coming along nicely.
We will stick to gas as it is superficially cheaper given its low start up capital costs ( effectivally scattering jet engines across the country ) but its running costs will become problematic in the long run.
Taxing cars off the road and promoting rail / bus commuter traffic is our low hanging fruit.
When or if this happens it will make the reopening of potential rail commutes such as New Ross to Waterford viable again.
It seems lost on our policey makers that a unbearably high Euro exchange value also dramatically distorts our transport economics making fuel and imported cars extremely cheap – why dramatic fiscal means has not been used to curb this malinvestment is beyond me.
A very interesting but sad PDF document on the closure of the Rosslare rail link , Goggle – [PDF] Waterford – Rosslare Europort route … – National Transport Authority.
Its study of rail economics – population / wealth / distribution in the region is worth a look.

The absolute price of fossil fuels is not relevant. What matters is the relative price. Alternative energy sources are more capital intensive. The price of capital has increased rapidly too.

The price of gas is kept in check by shale.

Capital is internationally traded. Owners and lenders tend to be more intrusive than traders.

There is no love of variety for energy sources. What matters is the correlation structure of the inputs into the delivery of energy services. There is a strong correlation between the price of oil on the one hand and the prices of capital, steel and concrete (the three main inputs into a wind turbine) on the other.

There is no evidence that domestic energy sources are more more reliable than imported energy sources. In fact, Russian gas companies are considerably more reliable and predictable than Irish planners.

Imported energy costs less than domestic energy.

‘Imported energy costs less than domestic energy’

Do you have any papers on this Richard? Does the stetment account for the fact that a Irish engineers/farmers/companies are operating/maintaining/profiting/paying tax on Irish energy?
or of a ‘security of supply’ premium, as surely the potential to avoid price shocks or sustain ‘security of supply’ is worth something to a country.

@Richard
When you import energy you export money – gas might be superficially cheaper as seen on a single companies accounts then lets say a peat power stations inputs but that bog standard money is far more sticky to a local economy.
http://www.youtube.com/watch?v=q1CA-1x811Y
Although admittedly it is no longer very trendy

@MarcusOC
Importing raw energy is different from importing lets say consumer goods – there’s a equality to that trade relationship somehow.
However middle east oil imports is a totally different dynamic.
The power relationship lies completly outside our hands – in OPEC / Bank cartel meetings in Switzerland for example.
Such inequality in trade relationships drives destructive trade dynamics.

Also we need to export primary and manufactured goods to these areas and service the interest on bank cartels which are closely tied to this spigot.
The 100 year oil / dollar bubble is coming to a end – this will not be pretty , but avoiding the implications of this malinvestment disaster will only make the situation worse then it can be.
The best we can hope for is 1986 Eat the Peech depression with limited means but adequate life support but we need to prepare for a 1956 like situation.

@ Pat Swords BE CEng FIChemE CEnv MIEMA

This must be a first!

I guess that we could all manage a jumble of letters after our names but a pertinent question: do you represent some vested interest?

@BWS,

I haven’t come across your source on organisational issues, but there is more than enough evidence and analysis available along those lines. Lots of established behavioural, cultural and social norms impact, but, on balance, it’s a ‘follow the money’ issue. Once within the ‘complex’, pay, promotion, consulting opportunities, research grants, etc. enforce compliance with the line being set at the top. I don’t really blame anyone who is enmeshed for failing to stand up and saying ‘this is bullshit’. It’s just that I would expect a bit more from the academics; but the increased reliance on external funding seems to be hog-tieing them even more than those on the payroll in industry and the government machine.

It all comes back to the public policy decision-making process. It’s completely back-to-front. Policy is decided on the basis of what can be sold politically or what is politically advantageous. The ‘party-line’ is established and spun and the hunt is on for evidence to support the policy decision. We might smile at the focus on ‘policy-based evidence’ as opposed to ‘evidence-based policy’, but this is the reality – and not only here, but throughout the EU. And there is no shortage of consulting firms aching to be well-rewarded to track down this evidence for the government machine.

All the FODAR have to do is to apply their efforts and resources behind the scenes when the policy decision is being made and, eventually, the desired legislation will emerge from the sausage-machine.

Nothing will change until parliamentary backbenchers realise that citizens have delegated their ultimate authority to them, that they should decide and that they have the numbers and responsibility to hold government to account. This would create the space and resources to expose government machinations to the scrutiny they require – and to retain those with knowledge and expertise to help apply this scrutiny.

But do you see any backbenchers with the guts and gumption to kick this off? No. I don’t either.

@PH: “It’s just that I would expect a bit more from the academics; …”

My experience of academics is that they are, by-and-large, Monorail thinkers. Know a lot about a little, but somewhat shallow about the wider contexts.

My intense irritation with so many self-appointed commentators and so-called experts is that I, as a complete financial and economic neophyte, could educate myself to a point that I now know enough to recognise these charlatans. I even went to the trouble and expense to obtain an undergrad degree in economics in an attempt to understand how exactly we got ourselves into this dreadful mess. I learned nothing about it! Had to do the spadework myself.

Brian Snr.

@Vinny,

Thank you. The disciplined silence of the FODAR foot soldiers and mercenaries has been deafening. And there’s a lack of expertise apparently in this parish to comment on these issues. Still, there’s no need to get on to the pitch when the final score has been decided already.

@Paul
No matter how complex the Byzantine nature of Irish monopolist politics – we will all hit the physics entropy excrement wall if basic but apparently complex to some solutions are not found / or pitfalls avoided.

Never could understand the Pirate mentality – how can you spend your loot in a dark age – unless these guys crave the open sea and the salty air.

Seems like a sensible proposal for a DART extension to the airport .. although to be honest I never quite could understand how Dublin fits together – its such a mess…………………

@Richard
100% self sufficiency is silly , redundancy not so much.
Call me when you realise the 100 year dollar / oil bubble is over.
The energy / transport practises that we consider normal now will die.
De Velaras Ireland could not compete with the western powers whose banking systems were plugging themselves directly into the oil spigot – even if it was a productive system which it was not – although it was probally very energy efficient (input output ratio)

Think of how railways seemed uneconomic post great war as the global oil super heavyweight gained ascendancy and the monetory system changed – the motorways of Ireland will become the modern day version of the Edwardian railways – slowly but surely they will die a slow death.
The monetory system we live under is not fit for purpose – it does not compute the externalties of our energy consumption accuretly.
If we were under the capital static coal based / gold standard monetory system pre great war our expenditures would seem crazy.
As the mobile low capital intensity nature of oil energy begins to wane we will experience another Epiphany but not without much great pain.

The Lucifer principle Vs The Fuller Model…..perhaps I am guilty of looking back to the 50s Peat days and am lacking imagination but it seems more effective then wind power somehow although strictly speaking a depletion game also.
http://www.youtube.com/watch?v=Sg1A0GdIIxw
Toll I think you are locked into a depletion economics syndrome – by this I mean you want to reduce capital expenditure so that you can sustain consumption just a little bit longer , I differ slightly but fundamentally – sure we must reduce input consumption but whats the point if no real capital is grown from that tempory surplus ?
Malthus vs the Fuller model……….

http://www.youtube.com/watch?v=D4_qwv7j3XY

@ Richard Tol

‘Imported energy costs less than domestic energy’

great! keep calm and carry on..nothing to worry about! we’ll just keep importing

http://www.abc.net.au/catalyst/stories/3203451.htm

@richard tol

‘There is nothing special about energy’

This is the craziest statement I have ever read..

Here is a simple scientific definition of Energy (if you believe in science!)

‘Energy is the ability to do work’

According to his biography in Wikipedia Tol appears to hold controversial views about climate change and energy provisioning – fine. Like most academics he is not accountable for the consequences of Gov policymaking related to any influence his views have. Other opinion-leaders on Irish energy provisioning policy include Tol’s colleagues at ESRI, ESB, BGE etc.

Based on a couple of hours research it appears as if ESB has strategically miscalculated the effect of Green party policies concerning the slice assigned to wind power on its Irish generation business. All of its generation assets seem to be base or intermediate load. A large slice of (intermittent) wind capacity plays havoc with payback on these assets – they cannot be dispatched quickly enough to ‘tango’ with periods of low wind output and in a flat or contracting power demand scenario this implies reduced asset utilisation. For reasons I have not yet understood ESB does not yet operate sufficient peaking capacity to counterbalance the projected wind slice.

It should be understood that wind power causes enormous headaches for power utilities primarily due to the engineering and economic consequences of compensating for its intermittency while maintaining service levels and protecting investment in non-wind plant. Ireland is pioneering in this area and it is right to credit the power utilities for their work in managing the risk involved.

BGE on the other hand, as a more recent generator, has added peaking capacity through its stake in Green Ideas Ltd., which is deploying gas turbines with rapid dispatch capability around the grid. It may be however that these units are too large, slow, costly and fuel inefficient to maximise BGE’s return on capital. Much will depend on how large the slice of wind proves to be. With the departure of the Green Party from Gov I would not be surprised to see political pressure to unwind the commitment made to provide a huge wind power slice in the Irish power mix by 2020 – one comparable only to the state of California.

As an Irish resident I’d prefer to see a balanced discussion around energy economics and energy provisioning and some recognition that addressing the former while substantially ignoring the latter is of academic interest. The situation ESB appears to be in needs to be considered too. If my very superficial research is correct and they are indeed out of step with other power generators both in Ireland and across the world by being slow to provision for a large slice of wind, I would hope that lessons have been learned and changes made. But considering Seneca’s Cliff and the effects of pollution on growth I believe our interests are best served by accepting a huge slice of wind, learning how to integrate this as best we can, and reselling this engineering and political experience around the world

@Daithi

the exponential function for Dummies [Economists]

@Tony Owens,

Thank you for your response. I should have checked your web-site link. I can only wish you well in your endeavours.

Being an economist isn’t all bad – it’s just that so many here and elsewhere are condemned to produce, justify and legitimise the bullshit required to keep the FODAR in the style to which they have become accustomed. (In one sense I don’t blame them. The FODAR provide secure, well-rewarded, pensionable employment. And there is a certain lifestyle to maintain, mortgage to service, kids to raise and educate. If one’s bullshit tolerance threshold isn’t very low (and if you work on it, it can be built up over time), it can be quite a comfortable existence and one can secure the approval of one’s peers and superiors and pretend that one’s professional integrity remains untainted. Why scupper all that for the sake of a bit of honesty. And what good will it do? You’ll be sidelined, isolated or, if you really come clean, you’ll be ejected from the system. And the system will just carry on as if you never existed.)

But it shouldn’t be their responsibility to change this. The onus is on those who demand and consume this bullshit and technically (at least in the sense that TDs have minds of their own) make decisions on the basis of this bullshit.

I mentioned the buried bodies as a jocular reference to Santyana’s “Those who do not learn from history are condemned to repeat it”. Where we are now in the energy sector is the outcome of a long catalogue of absymal policy failings and dire policy and regulatory decisions. Such a layer of bullshit has been generated over that time to conceal, justify and legitimise these failings and bad decisions – and so many people are implicated – that there are only a few of us prepared to put in the effort to dig our way through it.

I know it’s futile, but the damage that’s being done to the interests of consumers and the economy angers me and my genetic inheritance has blessed/(cursed?) me with a bullshit intolerance. So I’ll keep going.

@OneoffIreland
Just looking at the 2006 house census figures you cited in your latest blog post.
625,988 detached households were recorded back then.
398,360 semi detached & 257,522 terraced houses = 655,882.
A almost equal number when not adding apartments and such !!!!!!

Kerry has 31,825 detached households relative to 7,766 semi and 4,742 terraced houses – nearly 3 times as many !!!
How many working farmsteads are in Kerry now ?
And Irish economists are willfully blind to this huge drag on our end use consumption.
This cannot be a accident – is powerful rural clans farming the productive cities so that they can remain in their South Fork like McMansions ?

The most obvious drag on our economic well being and very little of our fiscal policey is directed towards eliminating this pox.
Unbelievable.

@Dork

You can actually track one-off numbers here [classified as individual dwelling with private waste-water treatment facility]

http://www.cso.ie/px/pxeirestat/Statire/SelectVarVal/Define.asp?maintable=BHQ01

did I mention anything about investing in wind power in Ireland? In fact if world trade collapses surely we wont have the capital resources to invest in any infrastructure.

@One off
Fantastic window into the absurd – I will cherish this information resourse until perhaps the lights go out……….

@R Tol

What type of scenario would warrant import substitution and is such a scenario even remotely possible?

@R Tol

This isn’t really what I asked.

From my understanding, import substitution is economically inefficient but may be warranted as a hedge against extreme circumstances.

Firstly, is this correct? and secondly if so, in your opinion, for energy, what set of circumstances would make import substitution a valid policy? and thirdly are such a set of circumstances remotely possible?

From my experience in electronics a lot of manufacturers are being hurt by their dependence on Chinese rare earth metals which are now the subject of reducing export quotas in order to meet domestic demand. These materials aren’t particularly scarce but China was willing to produce at the lowest price so all other global production shut down as it is very polluting. The US is now rapidly trying to re-open old mines while Japan and Europe are desperately trying to develop recycling technologies. This has been the subject of a complaint to the WTO but it doesn’t seem to be getting anywhere.

If major energy exporters were to adopt a similar strategy would import substitution be warranted?

@ R Tol

Thanks.

@RT:

Note you brief reply. Was absent from desk for a bit.

My deep concern about energy is that there is a direct correlation between energy expenditures and aggregate economic activity (and finance as OneOff has outlined). Energy, production, money: a three-legged stool. And each leg is being slowly consumed from within.

You have to go back to 1800 (Malthus). What he missed observing was the steam-powered Technology Bus parked around the corner. This took off shortly afterwards and trundled along merrily until 1870 when it ran out of paved roadway. It struggled on until 1914 when a new bus, with a liquid-fueled ICE started up. This roared away until 1970 or so (perhaps 1980). Now the going was all uphill, and the driver noticed that the distance between filling stations had increased from 2m, to 4m, to 8m, to 16m … … and the incline was becoming ever steeper. Eventually the Bus halted briefly. Some of the passengers alighted and took up residence in some shiney new buildings with some shiney new PCs. Here they commenced to sell electron stuff to each other, and great fun it was until recently. Meanwhile that bus. Steam pouring out of a leaking radiator!

This storey would not have been possible without ‘easy oil’ and some fantastic technology. Electricity – no matter if you could wave a wand and conjure it up can replace ‘easy oil’ In fact there is no chemical on this planet that can substitute for the low molecular weight hydrocarbons in ‘easy oil’. They are real, unique, and most regrettably, finite.

Models on the other hand are virtual constructs! Grand for a journal paper, but useless if you need to cook your dinner.

Brian Snr.

Its the exponentials Richard.