Bogtec (continued)

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.

Bogtec

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.

The MoU does not specify any project, but there is an expectation (see here and here) of large wind farms in the Irish midlands, transmitted to England and Wales via a dedicated grid.

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.

Doha

As predicted, the 18th Conference of the Parties to the United Nations Framework Convention on Climate Change did not bring much, despite the arduous effort of most of the 17,000 delegates in Doha. The Doha Gateway Package promises that a new treaty will be negotiated by 2015. The 2007 Bali Roadmap promised the same, only to fail two years later in Cancun. I predict that the Paris negotiations will not deliver either.

Doha did extend the Kyoto Protocol from 2015 (as agreed in Durban) to 2020. The Kyoto Protocol is now a European affair, with Australia as an honorary member. The emissions targets agreed in Doha are the same as the targets adopted a long time ago in Brussels.

Doha did agree to end the twin-track negotiations, with one track for Europe to do what it wants and another for the rest of world to be in deadlock. Europe will join the deadlock so.

At the moment, donor countries divert development assistance to climate aid, meant to reduce overseas emissions and help poor countries adapt to climate change. (By the way, development assistance also pays for the international travel of Ireland’s climate negotiators.) In Doha, there was much talk of changing these voluntary contributions to mandatory ones, based on some form of accountability.

Needless to say, the USA are dead against any admission of liability. China’s position will rapidly change once they realize that they are the greatest contributor to climate change since 1992, when climate change was internationally recognized as a problem.

Today’s editorial in the Irish Times paints a different picture. However, the EU did not take on further commitments to reduce emissions. Sandy and Bopha cannot be attributed, either physically or statistically, to climate change.

The Irish Times also calls for a Climate Bill. Draft Bills would have created new bureaucracies, but would not have contributed to emission reduction (as argued here and here).

Climate policy does not need bureaucrats. A carbon tax would work just fine. I was therefore pleased that as of Budget2(0)13 solid fuels will no longer be exempted from the carbon tax. Let’s hope that the fiscal problems elsewhere will force other countries to follow Ireland’s example and introduce a carbon tax too. It would be even better if austerity would cull the excessive numbers of climocrats.

The Swords is mightier

The saga of Pat Swords v The World continues to unfold. Not content with having the UN-ECE Compliance Committee of the Aarhus Convention declare that EU renewables policy violates procedural obligations with regard to sound policy making, Pat has now sought, and found, a legal review of the Irish implementation of that policy, specifically, the National Renewable Energy Action Plan and the REFIT scheme. The case will be before the High Court on January 15.

To be continued.

Exporting electricity

UPDATE2 Over on Twitter, Antoin argues that the plan as interpreted by me would violate EirGrid’s statutory monopoly.

Minister Rabbite yesterday announced plans to export wind power to Great Britain. This is a result of the energy summit organized shortly after the last elections. It now appears ready for public discourse.

The plan is simple. Build a load of wind turbines in the Midlands, where the relative lack of wind is made good by the relative lack of tourists and nature reserves, on land owned by Bord na Mona and Coillte. Build dedicated transmission lines to Great Britain. (The Spirits of Ireland hope that there will be pumped storage as well.)

The plan makes half sense from an English perspective. It is hard to get planning permission for onshore wind turbines in Great Britain. Onshore in Ireland plus transmission is cheaper than offshore in British waters. On the other hand, the plan is driven by the EU renewables target, which is pretty tough on the UK. With Germany abandoning its green energy plans (following earlier such decisions by Portugal and Spain) and with Theresa May wishing to ban Greeks from the UK, it is not immediately clear why the UK obeys the EU with regard to renewables.

It is not clear what is in it for Ireland: English-owned turbines generating power for England, transported over English-owned transmission lines. Dedicated transmission means that there are no benefits for Ireland in terms of supply security or price arbitrage. If the new transmission would be integrated into the Irish grid, Irish regulations would apply — and subsidies too, so that you Irish would sponsor my electricity bill. Ireland does not have royalties on wind power or transmission (and if it would, the same royalties should be levied on Irish turbines and power lines). That leaves some jobs in construction, fewer in maintenance, and 12.5% of whatever profits are left in Ireland for taxation.

It may well be that this plan is a quid pro quo for the UK contribution to the bailout of Ireland.

I am not convinced that the plan will go ahead. The English power market is in turmoil, and the companies may not be interested in an Irish adventure. Recall that the UK government also confidently announced that private companies would build new nuclear power. Well, they did not. The comparative advantage of Ireland in this case is the relatively lax planning regulations. Pat Swords may have put an end to that. But even the current planning regime can be used to block to an English adventure with no Irish spoils.

It is early days for this project still. It is worrying that the minister seems to think that more state intervention is required, and that the state still has money to waste. UPDATE: Paul Hunt points out that it is indeed the Government’s plan to intervene and subsidize: See the new energy strategy.

More academic thoughts on interconnection are here.