“When the facts change, I change my mind. What do you do, sir?”
John Maynard Keynes’ quote provides a good cue for the review of Irish energy policy promised in the Government’s Energy White Paper of 2007.
The Energy Institute commissioned the ESRI to review policy in its renewable energy and security of supply aspects to underpin its submission to government. Our intent was not to be prescriptive; rather to draw attention to the evidence and commend a programme of work to inform the policy options.
The world has narrowly averted a global crisis when growth rates in most developed economies plummeted. Yet oil prices remained well above the assumptions of many, including those in models used by the International Energy Agency.
Volatile and high energy prices, low and uncertain carbon prices, and access to capital are delaying the transition to a sustainable energy system. The zeitgeist favours effective resource utilisation and is well-expressed in the mantra of doing more with less. We in Ireland have no choice but to do so.
The Government’s Energy White Paper envisaged an update of Ireland’s energy policy framework every two years. Given the positive prospects for natural and shale gas, what has happened to the economy, and developments elsewhere since the white paper was first published, a review is now overdue.
Continuing growth in the economies of China, India, and other countries means there is little prospect of a return to low oil prices; further upward pressure on prices can be expected in the face of a prolonged world recovery.
John FitzGerald of the ESRI found for the institute that the risk premium attached to investment in Ireland has risen with the economic downturn. This raises the cost of capital for a sector that is very capital- intensive and projects which previously looked attractive may no longer be viable.
The institute’s submission to government highlighted:
Security of supply
Because natural gas provides for most of Ireland’s electricity, the security of gas supplies cannot be taken for granted. All the options to mitigate the high impact, low probability risk of supply loss need to be evaluated.
The most cost-effective response is to create an environment to encourage gas exploration and assure a welcome market by drawing on the lessons of Corrib to ensure smooth development in the future.
SEAI and others have shown that wind deployment policy in Ireland is robust except where gas prices are very low.
Thus, the aspiration for high levels of wind is likely to provide an effective hedge against volatile and high gas prices.
The REFIT provides an unnecessary uplift to wind generators when wholesale electricity prices are high to the detriment of consumers. Impacts on the system and other generators should be transparent.
The rules governing the operation of electricity interconnectors and connected markets will be framed elsewhere in the EU and in Great Britain, and these rules could work against Irish consumers’ interests.
It will be important to ensure that the rewards from interconnector use do not accrue to others at the expense of the Irish consumer who has funded it.
Thus, further market research and policy analysis work is essential to frame the rules for beneficial interconnector trading and to preserve the gains of the Single Electricity Market on the island for Irish consumers.
We are acutely aware that, even with the current set of EU-driven targets, the economy of Ireland in 2020 will be 60 per cent dependent on oil and we, like many other developed countries, will have increased our absolute dependence on oil since the first oil crisis of 1973.
While the world’s reliance on fossil fuels is a global issue and one which is beyond our power to control, we will not be shielded from its consequences.
The Government must move to implement a wide-ranging consultation on a review of energy policy as soon as possible.
David Taylor is Chairman of the Energy Institute in Ireland.