This post was written by Richard Tol
Yesterday, Pat Rabbitte and Ed Davey signed a Memorandum of Understanding. The MoU is crafted in terms of the Renewables Directive, which allows EU Member States to pool their targets. Essentially, the MoU gives the UK an exclusive claim on any excess (wrt target) renewables that Ireland may have. A monopsony is good for the buyer, but less attractive to the seller. Either the Irish government has little faith in the emergence of a market for renewable obligations, or perhaps Ireland felt it needed to do the UK a favour, for instance in return for the bailout.
This is intriguing. Midland winds are not particularly favourable, and definitely cannot compete with the winds of England and Wales once the costs of long distance transmission, including an undersea cable, are accounted for. This project only makes sense when you consider the difficulties in building wind turbines in the England and Wales. Ireland’s comparative advantage is the weakness of its planning regulations.
There have been some exaggerated claims about the benefits for Ireland. Few jobs would be created here. There is no reason to assume that wind turbine manufacturers would set up shop in Ireland. Even the more lucrative parts of construction may well be done by specialist teams flown in from abroad.
Export earnings depend on the price. In England and Wales, feed-in tariffs are about 25 c/KWh for small, domestic suppliers. It is unlikely that large, foreign suppliers will be offered similarly generous conditions.
Profits are likely to be taxed in Ireland, but need not benefit Irish shareholders. There are no royalties on wind (and EU competition law prevents the introduction of royalties on wind-for-export only).
The wind power companies would need to lease land, but as the name of Bord na Mona is often dropped, this may be at a concessionary rate.
From an English perspective, this agreement makes sense in a narrow way. The choice is between yet another conflict with Brussels (if the renewables target would be ditched — the sensible thing to do), a reform of planning regulations, or a deal with the Irish.
From an Irish perspective, it is hard to find anything to commend this plan.