Dr. Brian Motherway:

I thank the committee for the invitation to meet with it this morning to discuss these issues which we feel are very important and topical in this country currently. It is a pleasure for us to have the opportunity to discuss them with committee members. We did submit a written paper and I will give the highlights of it rather than read through every detail. We will happily discuss any related issue members wish to raise.

I will start with the policy position on renewable energy from the Government strategy for renewable energy 2012 to 2020 which was released earlier this year. A short quote from it states:

The development of renewable energy is central to overall energy policy in Ireland. Renewable energy reduces dependence on fossil fuels, improves security of supply, and reduces greenhouse gas emissions creating environmental benefits while delivering green jobs to the economy, thus contributing to national competitiveness and the jobs and growth agenda.

This country has sustainable energy targets focusing on 2020, covering reductions in greenhouse gases, improvements in energy efficiency and the development of a renewable energy sector. Our paper highlights those targets in detail, noting that in particular the renewable energy targets are split between targets for renewable electricity, renewable heat and renewable transport. We also note our progress towards targets in recent years, in particular our progress towards renewable electricity. It is important to note as well that the use of renewable energy avoided the emission of approximately 3.6 million tonnes of carbon dioxide in 2011. Equally, the use of wind energy in 2011 is estimated to have reduced fuel imports by approximately €300 million due to the use of indigenous renewable resources instead of imported fossil fuels.

Sustainable energy starts with energy efficiency in terms of reducing the amount of energy we use in all sectors, and thereby lowering people's bills, reducing imports and reducing the environmental impact of energy use. Energy efficiency action also has the benefit of directly supporting jobs, reducing fuel poverty and improving competitiveness of businesses in terms of their energy costs. Members will be aware that in recent years energy efficiency activity in this country has increased considerably with many homes and businesses taking action to improve their energy performance and hence lower their bills. That has been driven by Government-funded supports that we in SEAI administer. Last year alone Government finance into energy efficiency stimulated a total spend in the economy of more than €250 million in all sectors. It is important to that such action has reduced energy bills in homes and businesses and directly supporting employment in the construction sector and making businesses more competitive and thereby protecting jobs in all sectors.

I will turn now to renewable energy and say a few words about the three strands of energy; electricity, heat and transport. First, growth in renewable electricity has been particularly strong in this country, driven by a deployment of wind especially in recent years. Last year, approximately 18% of all our electricity usage came from renewable sources, in particular wind. On the island of Ireland we have approximately a 2,000 MW capacity of wind turbines installed. That is in a context of peak demand of approximately 5,000 MW. It is estimated that we need to install approximately 300 MW a year every year between now and 2020 to meet our renewable electricity target in that timeframe. We believe that is achievable. There are many projects in the pipeline but there are challenges in terms of planning permission, the build-out of grid and other associated issues of which the committee is aware.

Renewable heat is a more complex sector related to the use of biomass in homes and buildings to convert wood chip or wood pellet into heat. It is about the use of waste to make bio-gas and many different sources from energy crops to waste materials, to forestry and turning lots of different technologies into heat that people use in homes and businesses. The important growth sectors in terms of meeting our targets are first, energy efficiency, because the less heat we use the easier it is to meet our renewable targets as well as all the other benefits. There will be growth in the use of renewable heat in the business sector in particular, especially in some of the larger users such as the food and drink sector, hotels and others that use large amounts of heat and are therefore more interested in deploying renewables in the short term.

We have a 10% target for renewable transport by 2020 and most of that is likely to come from the blending of bio-fuels into conventional liquid fuels that are used in transport, namely petrol and diesel. Already, all of the petrol and diesel one buys for vehicles currently has a small percentage of bio-fuels mixed into it. That will continue to grow in the future.

I wish to turn to the specific question the committee asked us to address on the cost of renewable energy, in particular its effect on electricity prices. I mentioned some of the benefits of renewable electricity in terms of reduction of imports of fossil fuels and also reductions in carbon emissions. The cost of that is a source of much debate and analysis. I wish to refer to a few of the studies and research that tell us about the issue currently. First, by way of background, as members are probably aware, wind energy in this country is supported in the electricity system by a mechanism known as the Renewable Energy Feed In Tariff or REFIT for short. In effect, it is similar to mechanisms used in other countries. It sets a minimum floor price that renewable generators get. If the price falls below that they still get the price which is to help to lower the risk of the investment for wind energy in particular. The reason for that is that the financial model for a wind farm is quite different from the financial model for a gas-fired station, as I am sure members appreciate. Whereas with a wind farm it is all about the cost of building it and then the running costs are very nearly zero, but with a fossil fuel-fired plant there is a certain cost to build it but also there is a significant ongoing cost of the fuel. Therefore the financial models are the same even though over their lifetime the cost per unit of electricity generated is similar, they are remunerated in different ways in the system.

A couple of quantitative studies provide indications of the impact of this on the price for consumers. A recent European Commission study carried out by the Fraunhofer Institute compared the mechanisms in all EU countries for supporting renewable electricity and noted that the Irish refit mechanism is one of the most cost effective systems in Europe. We remunerate renewable generators at one of the lowest levels in the EU. The reason for that is largely because the wind regime is very good here. Wind energy is more economically viable in Ireland than in other countries simply because the wind blows more often.

SEAI conducted a study with Eirgrid to analyse the impact of wind on prices and costs for every half hour over the course of 2011. In any given period, wind electricity can be put into the system at low cost if the wind is blowing, with the result that we do not have to use the more expensive generating plant. Plants that are less efficient and, therefore, cost more in terms of fossil fuel input can be powered down or turned off. Wind energy lowers the wholesale price of electricity, although it adds to retail prices due to market payments to reward wind generators. The balance between lowered wholesale prices and increased retail prices will ultimately determine the effect on the cost of electricity to the consumer. In the context of a total wholesale electricity market of €2 billion our analysis indicates that wind energy lowered the wholesale price across 2011 by approximately €70 million, which turns out to be almost exactly the same amount as the increase in the retail price. The net effect was, therefore, almost precisely zero. Wind energy did not add to the cost of electricity for consumers in 2011.

A recent study by Ernst and Young compared a number of European countries in regard to the contribution to local economies of wind and gas generation. Much of the value created in gas generation leaves Ireland to pay for gas imported from other countries, whereas with wind more money stays in Ireland because it is associated with maintenance jobs and other local inputs. The contribution by wind generation to GDP and job creation is higher than that of gas.

Further analysis will be published in the new year because we are carrying out a more detailed analysis in conjunction with our parent Department, the regulator and Eirgrid, focusing in particular on the impact of wind energy on consumer electricity prices in 2020. As I am sure members can imagine, the study suggests that the answer depends the cost of alternatives, namely, gas prices. When gas prices are high wind lowers the price of electricity. The exact outcome for 2020 depends on one's view of gas prices at that time. In that context, new data published last week by the International Energy Agency predict that gas prices will continue to increase at the rate of the last several years and will be higher by approximately 30% over the next decade.

I will now speak briefly about the enterprise opportunities associated with sustainable energy in Ireland. The global movement towards renewable energy and energy efficiency, including related technologies and services, suits Ireland very well for a number of reasons. First, we have a rich renewable energy resource both onshore and, over the longer term, offshore in terms of wind and wave energy from the seas around Ireland. That resource is becoming more valuable internationally as countries move towards renewable and low carbon energy. Second, the sustainable energy transition requires developments in information technology, remote communications and software. As these sectors and skills are strongly represented in Ireland there is an opportunity for Irish entrepreneurs to develop new technologies and services in sustainable energy, dealing with everything from control of energy in the home to management of wind and the grid. I refer in our paper to two areas that offer particularly strong enterprise opportunities for Ireland. The first is the concept of the smart grid. In the electricity system, the operator is always trying to balance supply and demand. This becomes a more complex task when there is a lot of wind in the system or when some turbines are turning while others are not, and a more technologically advanced electricity supply system is needed. Ireland's success in bringing renewable electricity into the system despite our relative lack of interconnection compared to other countries comes from developing technological solutions that are more advanced than the other countries which intend to expand renewable energy generation over the coming decades. This offers Irish companies opportunities to export the technologies and experience they are currently developing.

Energy export is a subject with which members may have become familiar. Ireland's rich renewable energy resources are considerably more economically viable than those of other countries. The prospect arises not only to meet our own needs from indigenous renewable resources but also to export clean renewable energy. The Government is currently negotiating a framework with the UK with a view to setting up mechanisms to allow Irish wind generators to sell electricity into the UK between now and 2020 in order to help it meet its renewable energy targets. This presents a tremendous opportunity for Ireland to create wealth and employment in this sector. Our indigenous natural energy resources could become a major export opportunity in the coming decades.

I am grateful for the opportunity to discuss this important issue. The topic of renewable energy is discussed extensively in society. We hope to contribute our knowledge and data to help inform that debate in the context of a sector which offers significant opportunities for Ireland. Given our comparative advantage in renewable energy the sector has potential for becoming a significant employment generator.