This post was written by Richard Tol
The recently signed Memorandum of Understanding between Ireland and the UK on wind power has led to excited talk of tens of thousands of new jobs and billions in tax revenue and expert earnings. How realistic is that?
The Memorandum itself is silent on the implications of the deal. Pat Rabbitte and Ed Davey agreed to negotiate a treaty under the Renewables Directive. There are targets for renewables for all Member States of the European Union. Some countries will easily meet these targets, but most won’t. Under the Renewables Directive, Member States with a renewables surplus can sell this to the highest bidder or to an exclusive buyer.
Ireland may have more wind power than it needs. Ministers Rabbitte and Davey intend to enter into an exclusive agreement. This is obviously attractive to the UK. It is not obvious why Ireland would want this, rather than let the Brits compete against the French and the Poles. The first contours of the plan emerged shortly after the UK offered soft loans to bail-out Ireland’s public debt.
The UK cannot meet its renewables obligations. It cannot ignore these targets because the coalition is fragile enough and relations with Brussels already tense. Great Britain has plenty of wind, but people have effectively used the planning system to stop the erection of new wind turbines. So, the plan is to build turbines across the Irish Sea and transmit the power via a dedicated grid to England and Wales.
The Midlands are the leading candidate to build these new turbines. The plan is therefore known as Bogtec, after a similar plan involved the Sahara called Desertec. New wind capacity may amount to 5,000 MW. The current installed capacity is 1,700 MW.
Long distance power transmission is expensive. The East-West Interconnector cost 600 million euro. It has a capacity of 500 MW. Similar interconnectors elsewhere cost 200-300 million euro. Assuming that the Brits will not pay for gold-plating, the bill for the undersea cables alone would be 2-3 billion euro.
The delayed new North-South Interconnector will have a capacity of 400 MW. People are already up in arms against the planned pylons. Transmission from the Midlands to the sea will need 12 times as many pylons.
The potential benefits of Bogtec for Ireland are unclear. The more optimistic estimates aim to impress voters and politicians. Wind power does not generate a lot of employment. Estimates often ignore the jobs lost in thermal power generation, and the jobs destroyed by dearer electricity and higher taxes. There certainly are jobs in “sandwiches and concrete” as Pat Rabbitte put it. The more attractive jobs, however, are in manufacturing and in designing new turbines. There is overcapacity in wind turbine manufacturing, so companies would hesitate to build a new plant in Dublin Port – even if Ireland would suddenly discover its talent for mechanical engineering.
Export earnings depend on the selling price. The REFIT tariff in England and Wales is 25 c/KWh for small suppliers. The retail price of electricity is only 18 c/KWh, the wholesale price 6 c/KWh. If Irish wind farmers are paid the wholesale price minus the cost of transmission (2 c/KWh), revenue will be around €0.5 billion per year. Higher revenues will be at the mercy of the generosity of British subsidies.
If manufacturing jobs are in Denmark and revenues low, the government will not see much tax revenue. No royalties are paid on wind. Bogtec does not appear to be a great deal for Ireland.
Wind farms have real costs. They can spoil the landscape, affect wildlife, and disturb people living nearby. Do the benefits outweigh the costs?
There is not much information on Bogtec. The government has yet to publish an impact assessment, but it protests only meekly against the fantastical claims put forward by companies hoping for subsidies. Evidence is not the strongest point in Ireland’s energy policy. Paul Hunt has shown that energy policy in Ireland is run for the benefit of the state-owned energy companies and their workers, Minister Rabbitte disagreed. Mr Hunt’s analysis is based on data. Mr Rabbitte promised data, but has yet to deliver.
People that could be affected by the new turbines fear that planning regulations will not protect them. Indeed, Bogtec exploits the difference in planning between England and Ireland. The UN has ruled that Ireland’s National Renewable Energy Action Plan violates international planning standards. The High Court has agreed to hear this case in March.
Bogtec is a good deal for Britain.* Is it a good deal for Ireland too? We need to know before we proceed. Why is an exclusive deal with the UK better than selling to the highest bidder? Is Bogtec related to the bail-out? Will the Irish government or state-owned companies invest money in Bogtec? What is the expected rate of return? What if UK subsidies are less generous? Will planning properly protect households? In the past, the Irish government repeated sleepwalked into a bad deal. It is time to kick that habit.
* Well, it is a good deal for Britain given the corner it has painted itself into. Without political constraints, the best solution would be to ditch the Large Combustion Directive and replace coal with gas over a 15 year period or so.