Tag: Energy

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.

Gas interconnection

In December, I blogged about the peculiar pricing rules for the gas interconnector with Scotland. (The current rules would grant substantial market power to importers of LNG.

The CER has been aware of this for a while, and has now published a draft decision. The proposal boils down to the following elements:

  1. The interconnector will be moved, legally, from offshore to onshore. It remains to be seen that this would satisfy the European Commission, which is not happy either about the current regime.
  2. Interconnector capacity will be auctioned.
  3. There is a reserve price for the auction.
  4. The reserve price is the long-run marginal cost.
  5. If the auction do not cover the costs of the pipe-formerly-known-as-the-interconnector, the difference will be split over ALL gas suppliers.

Shannon LNG is understandably cross. They publicly fume about point 5, which will impose a cost on them that rises as they are more successful, but privately they must have hoped that the rules would not change. While I have argued that the rules should change, the current proposal can easily be spun as the regulator protecting a state-owned company from a private competitor.

Point 4 is worrying too. In the decision document, the CER goes back and forth between OPEX for the reserve price and OPEX+CAPEX. In the end, they opt for OPEX+CAPEX. Essentially, they propose to perpetually reward Bord Gais for what increasingly looks like a bad investment decision in the past.

Nothing has been set in stone yet. Let us hope that the CER will reconsider.

Ireland in the European Court again, now over gas

In December, I blogged about the gas interconnector, the Shannon LNG terminal, and the need for regulatory reform in the wholesale gas market.

Last week, the European Commission chipped in. It is taking Ireland to court over the lack of competition in the market for gas between Scotland and Northern Ireland, and between Ireland north and south. Intriguingly, the UK is sued as well, although most of this is Irish rules on UK soil.

John Fingleton gave a great presentation at last week’s conference on the Irish economy. Among other things, he argued that competition policy in Ireland exists by virtue of the European Union.

(h/t Paul Hunt)

Gormanston, Tarbert and regulation

The Examiner has a story on the proposed LNG terminal at Tarbert in the Shannon estuary. This is a privately funded project and a welcome stimulus for North Kerry. As long as the developers play within the rules, public policy analysts should have no opinion on such matters. But as the gas market is so heavily regulated, private actors affect the public good. The LNG terminal would, for instance, improve the security of supply, which is very valuable.

Minister Rabbitte argues that Shannon LNG would increase the price of gas. This is absurd at first sight. Increased competition should reduce the price. The minister is right, though. To see why, we need to consider the gas interconnector from Scotland that lands in Gormanston in Co Meath, or rather the way in which its price is regulated: The annual cost of the pipe is distributed over the gas it carries.

The interconnector is a competitor’s wet dream. If you capture a small part of the gas market, the interconnector will increase its price — because its annual cost is distributed over a smaller volume. You can then increase your price to just below that of the interconnector and gain yet more market share. And the interconnector will raise its price again.

The solution surely is to change the regulation of the interconnector rather than to block the LNG terminal. The current regulation, which may date back to the days of Minister Woods or Fahey, is a neat example of something that makes sense in the short run only.

Note the separation of powers. Minister Rabbitte is the executive branch of government and an influential part of the legislative, he appoints and controls the budget of the regulator, and he is the trustee for the shareholders (us) of the dominant company in the market.

Reform of household energy policy

Minister Rabbitte for Energy sketches several reforms of household energy policy in today’s Irish Times. These are plans for the longer term.

There are a range of fuel allowances. Some are means-tested, some are not. None are needs-tested. Houses may be insulated at the exchequer’s expense, but the occupiers are still entitled to fuel allowances. Minister Rabbitte suggests that, in the future, fuel allowances will be directed towards colder homes. That is a welcome improvement.

There are grants for home energy efficiency improvement and micro-renewables. These grants are optimized for administrative convenience rather than emission or fuel poverty reduction. These grants also imperfectly address the core issue: The lack of access to capital to invest in home improvement. Minister Rabbitte suggests that, in the future, grants will be replaced with cheap loans. That is a welcome improvement.

Lack of information is another issue with household energy use. Minister Rabbitte suggest that, in the future, Building Energy Ratings will be mandatory. They are already, but this is not enforced and many prospective buyers/renters seem to be unaware of their legal right to a BER. Reinforcement of this regulation is a welcome improvement.

I had a close look at BERs in England. An English BER is about half the price of an Irish BER, and it contains much more information on heating costs and potential improvements.

Minister Rabbitte also suggests that houses with a poor BER will be taken off the market. I’m not sure that that is wise. It is rather tough on the current owners of such houses. It will also drive up rent particularly in the lower price segments.

UPDATE: 30.9% of houses have a BER of E, F or G.

Three good ideas, so, and one bad one. There is plenty of time to reconsider and refine.