Category: Environment

Cuffe in Cancun

Minister of State Ciaran Cuffe represents the government at the international climate negotiations in Cancun. His speech is here. This visit is part of the normal business of government.

Mr Cuffe announced a contribution of 23 million euro to a new UN fund. This contribution follows from earlier commitments and it is appropriately stingy. The new UN fund is a bribe for developing country negotiators to behave. I have yet to see evidence that the money will be put to good use. Although the Irish contribution is a logical result of earlier decisions, it is a tad insensitive to announce a 23 mln euro reward for bad behaviour at the same day as you are cutting the benefits to the blind. Fortunately for Mr Cuffe, bankers got a bigger reward for worse behaviour on the same day.

Mr Cuffe said more. He announced legislation for climate policy, continuing the Green charade of being in and out of government at the same time. He announced support for new research by the World Resources Institute — a project that still has to go to tender as far as I know — although funding for Irish research on environmental matters has been severely cut.

Mr Cuffe also said “Ireland supports the case for strong urgent action to reduce greenhouse gas emissions in order to stay as far below a 2 degree Celsius increase in global temperature. We know from the scientific advice that this is a necessity in order to avoid the worst effects of climate change.” In other words, Mr Cuffe argued that science necessitates action. This is not true. Science will tell you what if. If you do not like the prediction, you should do something about it. That is a value judgement, however, rather than a scientific fact. There is a long tradition of politicians hiding behind climate science. It is the root cause of politically motivated attacks on the science of climate change, and the consequent politicization of climate science. It is unfortunate that, a year after climategate and glaciergate, Mr Cuffe chose to reinforce the problem.

The Green Budget

Many things have been and will be said and written about Budget 2011. I just want to note that income taxes, and hence labour costs, have again gone up even though export-led growth seems to be our best hope of getting out of this mess.

Much has been said too about the political astuteness of the Green Party. They did make a mark on the 2011 budget, though. There are the limited increase in university registration fees, and the rumoured preference of Metro North over Dart Underground (see the CILT review for a different opinion).

A number of exemptions, reliefs and credits were removed from the income tax code. A new one was introduced: Income tax relief for energy efficient measures in houses. Up to 10,000 euro can be deducted at the standard rate, for a tax credit of up to 2,000 euro. The cost in 2011 (to be paid in 2012) is estimated to be 30 mln euro, so at least 15,000 households are expected to avail of this.

Note that the carbon tax is still there, and the subsidies for energy efficiency improvements and renewable energy were not removed. We thus moved from triple regulation to quadruple regulation.

The capital allowance for energy efficiency equipment for firms has been extended too, at an estimated cost of 6 mln euro.

I would not have introduced those measures (+36 mln). I would have cut the subsidies for green energy (+170 mln). I would have removed the exemption of coal and peat from the carbon tax (+150 mln). 350 mln euro is not a lot, but every little helps.

Ireland to rescue world from warming

or so Frank McDonald writes

the piece is about the Open Climate Network, and you can check for yourself which Irish institutions are involved

it also remains to be seen whether the Open Climate Network has any impact

Water charges

The draft Memorandum of Understanding with IMF, ECB and CEC has that the government will study the transfer of the provision of water services from the county councils to a water utility, and will start charging for water no later than 2013. This is a year earlier than in the four year plan.

The Irish Times has some more detail. Besides the water utility, there would be a water regulator. That is silly. There is a regulator already: the EPA. It would be better to extend the mandate of the EPA to price regulation than to create a new body (plus CEO and fancy offices) and a turf war.

It would be better still to do away with the separate regulators for this and that and create a unified regulator. The Commission for Energy Regulation, for instance, reports to the Department of Energy, who write the regulations and own most of the regulated companies. It may be better to have the regulators report to Department of Finance or the Central Bank. A unified regulator would have economies of scale (regulation is regulation) and be less prone to regulatory capture.

The plan is still to have a central program to install water meters in every home in the country, and to have a free water allowance. Fortunately, the IMF will review the plans and chances are they will talk some sense into DEHLG under the new minister.

The Spirit of Ireland 2.0

The Spirit of Ireland is back. A new glossy was distributed widely by email today. More than one-and-a-half year into the project, there is still no detailed plan, at least not in the public domain.

As before, SoI combines wind power with pumped hydro to create a stable supply of electricity. That would work. Unfortunately, wind power cannot compete without subsidies; and pumped hydro would further add to the costs. SoI is still silent on its cost estimates.

The latest plan is different from what we saw before. SoI aims to export most (all?) of the generated power. The idea is that Great Britain and the Continent are heading for a capacity crunch (likely in Great Britain, less likely elsewhere) and that Irish power would fill the gap. British electricity may well be very expensive around 2020, but it is unlikely that that will last very long. Gas-fired power stations can be built in a matter of years, and shale will keep down the price of gas.

I still fail to understand the business plan of SoI. I would be surprised if this is economically viable, but if others want to invest in it, that’s fine by me as long as they keep the taxpayer out of it. But if this is a commercial venture, then why send a glossy brochure to all and sundry? SoI apparently even visits schools. The glossy lists all sorts of social benefits, but no private ones. This strikes me as a plan to get subsidies.

UPDATE: Graham O’Donnell responds:

Hello Richard,

Thank you for your renewed interest in the project. In fairness to you and to others who have commented, the responsibility now rests with Spirit of Ireland to answer the questions you have raised.

Over the last two years, we have worked through every aspect of the project in great detail. While particular site-specific designs have not yet commenced, we have sufficient detailed costings across a number of locations to complete comprehensive business plans and financial projections. These show a robust technical, commercial and business model.

You were right about several things. Energy independence cannot be achieved in five years. It will take 5 to 6 years to build the first Hydro Storage Reservoir. Based on investor appetite, an additional location could commence approximately every two years thereafter. While be examined very many locations, 4 to 5 appear economically feasible. The smaller scale locations simply do not work.

Secondly, you are correct, it would not make economic sense to damage existing capital investments in thermal power stations. These make a valuable contribution to Ireland’s energy mix, security and exports. We need to optimise their use.

Our initial launch over 18 months ago, was a little flamboyant and in some respects very general, but the principles are sound.

First some basic facts about the project as it now:
1. No state subsidies are assumed to be received
2. Ireland’s energy needs are now being met. Any additional energy produced can be exported provided is done so on competitive terms.
3. Spirit of Ireland is not proposing to build wind farms. This was part of the original plan but there are sufficient number of wind farms in planning that a contracted approach is now the preferred route.
4. the cost of the Hydro Storage Reservoir is approximately 700 million Euro
5. another 700 million is required for substations and bulk power transmission
6. around 200 million is allocated to lower voltage networks
7. the business model is a mix of approximately 50% contracted wind and 50% power purchased from the Irish market at times of excess supply
8. unless required for reasons of security, relatively little power will be fed into the Irish system.
9. a separate capital and purchase envelope is being negotiated, to allow Irish wind farm developers to build additional wind resources. These would be owned by the developers.

About a year ago, following an enormous amount of detailed design, technical and financial analysis, the first draft business plan was produced. It was examined by financial groups in Dublin and London. We iterated this based on expert input, re-costed many aspects and built a succession of additional technical models. The results were very surprising indeed. The interaction between intermittent wind and large scale hydro storage is counterintuitive. Our initial technical models resembled the traditional pumped storage approach. By the time we had finished, a whole new methodology for the operation of storage with wind had evolved. This had very surprising and beneficial commercial results.

One significant mistake that some commentators made was that much energy would be wasted, because we pump all of the wind. This is not the case. In many normal circumstances, the wind simply passes the door. Energy is used only to keep the reservoir at levels sufficient to meet contracted demand.

The hydro storage reservoir produces revenue of between 600 and 800 million Euro per year for the average station. Larger ones produce proportionately more. Take away the costs of the purchased contracted wind power and a more than respectable profit is produced.

The financial assumptions do not include for receipt of the Irish Refit subsidy. Capital costs are kept low by building surface rather than tunneled hydro storage facilities. Framework agreements were negotiated with all the major wind turbine providers, such that significant discounts would apply where many turbines were purchased over a 2 to 3 year period. The keys to success are low capital costs, high wind capacity (33% assumed) and the ability to dispatch power at a time which achieves the highest commercial return.

With respect to ownership, our objective is that these assets are owned to the greatest extent possible by Irish people. The balance of investment can come from external sources. We cannot guarantee at this stage that the project will be funded. However, we can confirm that the level of interest internationally from very large sources of funds is extraordinary. Clearly they will only invest if the numbers and project risk work for them.

The greatest risk to the project is now perceived to be planning rather than technical or financial issues. There are no shortcuts to the planning or environmental processes. These have to be done by the book. It is our responsibility to ensure that we give this project the greatest possible chance of success by conducting a highly professional and consultative environmental and planning process. This has already started with able and generous direction and advice from government officials in Dublin and Brussels.

It is correct to say that wind on its own require subsidies. While wind is a free source of energy, it is not immediately dispatchable and therefore not predictably saleable to large buyers such as the UK power utilities. When combined with low cost storage in a symbiotic operation, wind can participate in any market on a predictable contractible – known price basis.

From a commercial perspective, every major UK power operator wants to buy dispatchable carbon free power. They will buy it from Ireland. They are all required by EU law that a minimum proportion of their generation output comes from renewable resources. The Italians and Germans, all face huge power shortages. The EU Energy Commissioner declared in a report of last month that Europe would need to spend up to EUR1 trillion to secure energy supplies. This Commission report is available on the web.

It is also correct to say that nobody knows the future price of gas. Some think it will follow the price of oil upwards, others that that link with oil will be broken. It is this very commercial uncertainty that means that large UK power buyers do not want to place all of their bets in gas power stations. The lights will not go out in the UK or anywhere else, but there is an extraordinary opportunity available to Ireland to export power to the almost unlimited British and EU market.

Our objectives are:
1. everyone recognise that Ireland has extraordinary wealth in terms of natural energy
2. create a coherent technical, commercial, legal and financial framework, which makes rapid large scale development of these resources possible
3. finalise business and investment plans, acceptable to international investors
4. create a structure which allows all current players to participate – private, semi state and community
5. to the greatest extent possible, ensure that the ownership and resulting profits return to the Irish people – in perpetuity

Some information on our website is out of date. It will be amended shortly.

We are in commercial negotiations with many parties and we cannot discuss all of the details of the project. However, within the constraints of time, we will try to answer any reasonable questions that people may have.

Kindest regards,

Graham O’Donnell