Oireachtas Joint and Select Committees
Tuesday, 16 June 2015
Joint Oireachtas Committee on Transport and Communications
North-South Interconnector: Discussion
I remind members to turn off their mobile phones. Apologies have been received from Deputies Noel Harrington, Seán Kenny and Michael Fitzmaurice and Senator Eamonn Coghlan. This meeting is being carried live on UPC channel 207, eVision channel 504 and Sky channel 574. The item for discussion is the single electricity market, SEM, committee regarding the North-South interconnector and the purpose of the meeting is to engage with the committee, the decision-making body which governs the wholesale electricity market for the island of Ireland, in respect of the North-South interconnector. On behalf of the committee, I welcome Ms Jenny Pyper, chair of SEM and chief executive officer of the utility regulator; Mr. Garrett Blaney, member of SEM and chairman of the Commission for Energy Regulation, CER; and Mr. Robert O'Rourke, CER. Initially, we requested the presence of Mr. Odd Håkon Hoelsæter but I understand he was not available. Perhaps Mr. Blaney will clarify that for us.
I draw the witnesses' attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the Chair to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. I also remind witnesses that any submission or opening statements they have made to the committee will be published on the committee website following the meeting. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.
I invite Mr. Blaney to make his opening statement.
Mr. Garrett Blaney:
I thank the Chairman and the committee. It is a great opportunity for us to explain the functioning of the single electricity market and the importance of the North-South interconnector for us. I will explain our roles and my own role specifically. I am the chairman of the CER, which is responsible for the regulation of the energy markets in the Republic and which is accountable to the committee under legislation. Ms Pyper is a guest. She is the utility regulator chief executive officer and chairman of the SEM committee but she does not have a statutory basis in this State. We are thankful that she is able to join us and explain some of the SEM functioning and the importance of some of the elements of this discussion for Northern Ireland.
I will use the slides just to run through the position regarding how the single electricity market functions and to discuss the role of the SEM committee and the importance of the second North-South interconnector in the context of the proper functioning of the market and of minimising costs to consumers in general across the island.
The single electricity market is quite a unique project at a European level. The slide on the screen shows a picture of Ireland at night and is designed to try to show the committee how important this project is at European level. The only other market in Europe that has approached anything like the level of integration we have achieved is the Iberian model involving Spain and Portugal. Nowhere outside this island has there been the same level of co-operation and co-ordination or has a similar legislative basis been put in place in order to bring two markets together to operate as one. The single electricity market is unique because it involves two member states - one a part of the United Kingdom and the Republic - and two currencies, namely, sterling in the North and the euro in the South. The market is based on one common set of rules. These are not joint rules, rather a single set of rules governs the market right across the island. There is a single committee - the Single Electricity Market, SEM, committee - which makes decisions on those rules and any changes to them. The success of the market since it was established in 2007 is measured by the fact that there has been significant investment on the island and significant efficiencies have also been achieved for consumers. It has, therefore, attracted further investment, secured supplies for consumers and assisted in keeping costs down.
I will now explain some of the mechanics of the single electricity market. It is based on legislation that was enacted in 2007. At that time, the Northern Ireland Assembly was suspended so the governing legislation was passed by the Dáil and the Parliament at Westminster. This is linked to an intergovernmental agreement - a memorandum of understanding, MOU - between both Governments. That agreement is the firm basis for the operation of the market. The SEM committee was established under the legislation to which I refer in order to ensure strong regulatory oversight. Many commentators have referred to the transparency of the market and how useful it has been for the players involved and in terms of ensuring efficiencies that benefit consumers. We have 3,500 MW of invested plant. I will refer, in a moment, to the types of plant that have been invested in the market. To give members a sense of what is involved, typically in the region of €3 billion trades through the market on an annual basis. This is, therefore, a significant part of the all-island economy. Electricity provision is not just important for industry, it is also an industry in its own right. The single electricity market is a cornerstone of the latter.
I will not discuss the individual plants but the slide on screen shows the amounts invested in each. A general trend has been investment across the island in new, efficient and low-emissions plant. Between renewables and gas, we have invested a great deal in efficient plant and we have also managed to close some inefficient plant. The single electricity market has had a good impact from the point of view of the environment, as well in terms of the economy and security of supply.
As is always the case, we cannot rest on our laurels in the context of the market. There has been a significant push at European level to bring together markets across the Union and to encourage further integration of energy markets. As a result of new EU legislation, we are required to change the current market. This is an obligation which has been placed upon us but we are keen to try to use it to ensure more efficiencies and lower costs for consumers where possible. Obviously, we need to reflect Government targets. Those targets, North and South, are aligned at present at 40%. However, this is subject to review. I will discuss that in greater detail in a moment. We are also keen - as regulators across the island, North and South - to ensure that there is downward pressure regarding the prices charged to consumers. The latter are currently under ongoing pressure as regard costs and we would like to see what we can do to reduce this.
The grid roll-out - this brings me to the second North-South interconnector - is critical to the efficient functioning of the market. There have been significant investment programmes in respect of the grid.
Perhaps I will go back into the history of the networks' development. If one goes back in the annals of time, the Republic of Ireland and Northern Ireland had completely separate systems with one limited interconnection, that is, the current North-South interconnector and in planning terms, it always was planned historically as two separate systems. The importance of the second North-South connection is it will begin to integrate the two network systems and will ensure there is a proper backbone right across the island for the efficient trade of power. We regulate that as a natural monopoly in both jurisdictions and do what we can to try to ensure these costs to consumers are minimised. We certainly only allow those costs that are incurred efficiently to flow through to consumers and to end up in consumers' bills. As members are aware, the current process regarding the second North-South interconnector is a typical example of where planning and land access are becoming major issues in the development of this infrastructure.
While I will not labour on the subject of key drivers, they obviously are security and quality of supply and renewable development. However, a key element in this regard is the efficiency of the market. The North-South interconnector is key to ensuring the cost to consumers' bills is kept down and I will try to explain where that additional cost arises from the North-South interconnector. As I mentioned, we have quite an aggressive target for renewables by 2020. The targets North and South are aligned at present but are subject to review in both jurisdictions as we move beyond 2020. At present, there is a 40% renewables target in electricity across the island and the North-South interconnector is helpful in its delivery, as well as in respect of security of supply and cost provisions for consumers.
To explain why the North-South interconnector is quite important with regard to the efficient operation of the market, the first point is the market schedules generators in order that the cheapest generators are scheduled to run to meet the demands of customers and through sophisticated software, it automatically ensures the cheapest generators are programmed to run. The problem, when we have constraints and congestion on the network and, clearly, the North-South link is the major point of congestion on the network, is that more expensive generators must run than otherwise would run. This adds an additional cost to consumers across the island. On a conservative basis, we think this cost is at least €10 million per annum at present and believe it will rise to approximately €20 million. A number of figures are available in this regard and the ESRI has carried out an independent study in which it suggests the figure could be as much as €30 million per annum. However, we have done this on a conservative basis and are comfortable that the cost it imposes on consumers is at least €10 million. Moreover, this is a current cost that is rising and once we go beyond 2020 to 2030, this cost could rise to as much as €40 million to €60 million, again depending on market conditions at the time. However, this cost is set to rise significantly and as regulators, we obviously are concerned that this second North-South interconnector should be developed as early as possible to minimise the cost from a consumer review. I will now hand over to Ms Jenny Pyper, who will go through the rest of the presentation.
Ms Jenny Pyper:
I thank all present for the opportunity to speak to the joint committee. I wish to reinforce Mr. Blaney's comments about the unique nature of the single electricity market and the close co-operation between his team in the Commission for Energy Regulation and mine in the Northern Ireland Utility Regulator. Clearly, the North-South interconnector is a crucial item of infrastructure for both jurisdictions and therefore is a crucial issue for both regulatory authorities. Mr. Blaney has touched on the benefits from an all-island perspective and a key issue obviously concerns improving security of supply. This is a particular issue for Northern Ireland and I will say a little more about that, if I may, when dealing with a subsequent slide. Security of supply is one thing that everyone takes for granted but keeping the lights on and electricity flowing has been cited by the Confederation of British Industry, CBI, the Irish Business and Employers Confederation, IBEC, the Northern Ireland Chamber of Commerce and Industry and the Institute of Directors as the number one issue for businesses and economic development both North and South. Consequently, while it is crucial for the entire island, there is an essential nature to it regarding Northern Ireland, to which I will come on. As for the second key issue regarding renewable power generation, we have seen considerable growth in renewables.
This has been facilitated by the single electricity market. However, the second North-South interconnector is crucial for future development and growth in renewables and the contribution they can make as an efficient generation source.
Mr. Blaney spoke about the efficiency of the market and noted that the costs in terms of constraints were currently of the order of €10 million. To put this in a slightly different context, the overall economic benefits that could flow from a second North-South interconnector could be of the order of €40 million by 2030 or thereabouts. There is a particular locational benefit in Ireland in terms of network reinforcement in the north east.
I do not know whether members can see the slide but it should be clearer in the documents provided in the packs. I will take a moment to quickly explain what it shows. To put it in the simplest way possible, when the red line extending across the graph is crossed, it means essentially that the lights will go out in Northern Ireland. This applies to all points below the red line, whereas all points above the red line indicate we have ample generation to meet our needs. The purple line represents excess generation in the Republic of Ireland. The blue line, which is much closer to the critical red line, represents the position in Northern Ireland. The green-yellow line at the top of the graph represents the overall position on the island. As members will note, this line shows that as we move into the 2020s, there is plenty of generation on the island as a whole. I ask them to focus on the blue line showing the position in Northern Ireland. It indicates that the position is set to become critical in 2021 when a number of generating units are required to close to meet European emission requirements. The graph shows generation in Northern Ireland dipping below the red line in 2021, indicating that security of supply will become critical from that point onwards, despite the fact that we will have plenty of generation on the island in 2021.
A particular problem also arises in the short term for Northern Ireland. As members will note, the blue line dips close to the "lights out" red line from 2016 onwards. At that point, Northern Ireland only has a surplus of approximately 200 MW. If only one of the three large generating units in Northern Ireland experiences a problem which knocks out approximately 50% of its output, generation in Northern Ireland will dip below the red line. The arrow extending from 2016 to 2018 represents additional capacity that Northern Ireland has procured already to ensure we keep the lights on. Consumers in Northern Ireland are, therefore, already committed to paying approximately €10 million per annum from 2016 to 2018, inclusive, to keep the lights on and ensure we have sufficient security of supply during the period when the Moyle interconnector is being repaired. The position moving forward to 2021 becomes much more critical. If the second North-South interconnector is not in place at that point, we will have a very significant problem in the North.
In speaking about this slide, I should apologise for the absence of a crucial bullet point which provides the total project cost of the North-South interconnector, including overhead line, land acquisition, substation and other costs. The total project cost is €286 million, an important number and the one on which we would like members to focus. This figure is subject to regulatory review. Mr. Blaney's office and my office will separately review the Capex expenditure of both EirGrid and the system operator in Northern Ireland to ensure only efficiently incurred expenditure will be allowed.
As we move forward into the new market, there is an assumption that the second North-South interconnector will be in place and its costs will be recovered from consumers.
The final PowerPoint slide represents what is traditionally called the regulators’ trilemma, namely, the three significant issues they always have to balance. These comprise the cost benefits of ensuring security of supply, keeping downward pressure on prices and ensuring long-term sustainability. From a regulatory perspective, the arguments in favour of the North-South interconnector address all three areas. It contributes significantly to improving security of supply, particularly in Northern Ireland, as well as in the long term for the island as a whole. It provides the opportunity to maximise sustainability and renewables on an all-island basis. The second North-South interconnector is also crucial for the market in terms of creating the best possible conditions to drive down prices.
From the perspective of the Commission for Energy Regulation, the Northern Ireland Authority for Utility Regulation and the all-island single electricity market committee, providing the North-South interconnector at the lowest possible cost to consumers is absolutely essential.
I thank Ms Pyper and Mr. Blaney for their presentations. I note from the PowerPoint slide on security of supply that it points out how close we will be to the lights staying on or going off if the second interconnector does not go ahead. The interconnector will not be up and running by 2016. What is the plan to keep security of supply in 2016?
We have discussed the issues around the interconnector and the areas in which the pylons will go through. If it does not go ahead, is there a plan B in which extra generation could be built in the Northern Ireland or through connections with other countries?
Ms Jenny Pyper:
The Chairman will note from the graph on security of supply a red arrow that stretches across the period 2016 to 2018. That represents the period where we have procured additional capacity of 250 MW from one of our generators, AES, just to make sure we do not risk the lights going out. One can see from the graph that in 2016 the blue line dips down to 200 MW. Northern Ireland is dependent on three large thermal units. If a problem arises with one of those that could knock out a significant proportion of its generational capability, then we are in difficulty. As a security of supply measure, working with the system operators and the Northern Ireland Department of Enterprise, Trade and Investment, we have procured additional capacity to see us through that period while the Moyle interconnector is being repaired. That is being paid for by Northern Ireland consumers separately. It has no implications for Irish consumers and is adding €5 or €6 to every Northern Ireland domestic bill. That is to keep it in a healthy position for the short term.
Regarding a plan B, regulators are always looking for the most efficient and least cost way of ensuring they get that trilemma balance right. Even if we were to build additional generating capacity in Northern Ireland, it would still have an impact on the all-island market. Those constraints on electricity flowing, being traded and providing security of supply, as well as efficiency benefits to the all-island market, would still be there because there is limited ability for the power to flow between North and South. Both Northern Ireland and Irish consumers would pay by not having the benefits of those constraints being released.
It will be an option for Northern Ireland politicians to consider whether to pay for additional generating capacity in Northern Ireland after 2020, if the second North-South interconnector is not in place.
As this is an all-island issue, there is a direct impact for consumers in the Republic. It is important to understand that, while the security of supply concerns do not directly apply to us - we probably have more comfort in the Republic in terms of the capacity available for generation - there is an argument that we have an excess that cannot flow to Northern Ireland because the second interconnector is not available at the moment, which is imposing costs on consumers. This extra cost, which we think at minimum is about €10 million per annum, is the primary concern from the Republic's point of view.
Ms Jenny Pyper:
Yes. Essentially, AES has agreed to refurbish a number of old units and bring them back into service as a temporary measure, but it is an expensive way of ensuring security of supply.
From the all-island perspective, it is not just the security of supply issues that are of concern post-2020 or 2021. As Mr. Blaney has said, we are working to create a new integrated single electricity market to meet European requirements. The North-South interconnector is an essential element in allowing the efficiencies of an integrated market to flow. In respect of a plan B, if we do not have the second North-South interconnector in place, it will have implications in terms of the design of the integrated single electricity market and could risk introducing further inefficiencies into the market design, which would add to costs for consumers North and South.
Mr. Garrett Blaney:
This has been noted at a European level as a critical piece of infrastructure. There is a European process identifying key areas of infrastructure that need to be built, known as "projects of common interest", and this project is one of a small number across Europe that have been identified as such. These projects are regarded as key to making sure that markets operate efficiently.
I welcome the witnesses and thank them for their presentation, which gave us a guided tour of the situation. A total cost of €286 million was mentioned. The message the witnesses are sending is that it is a key project, which has been mentioned at the highest level in Europe and is seen as a massive piece of infrastructure for the integration of markets. The biggest issue with this project is how it is being constructed. EirGrid appeared before the committee a number of weeks ago and said it was technically possible to underground it. From what the witnesses have said, this is a vital piece of infrastructure for the whole of the island, which we must welcome because for a long time, we have been looking for a whole-of-Ireland approach to many issues.
This is a major piece of infrastructure but the biggest issue in this State, in particular for the people of Counties Monaghan and Meath, is the way in which it is being constructed. Surely, if it is of such vital importance for the island of Ireland and at a European level, it is high time EirGrid accepted the evidence it gave this committee a few weeks ago, namely, that it is technically possible to underground it. Given its importance, it should be built in the best possible way to ensure minimal objections.
In respect of the amount of energy that is in the system at the moment, both witnesses are saying the Republic of Ireland has excess supply.
Will wind energy, which is being developed right across the country, add further to the over-supply? I come from a farming background and in any sector of farming which is over-supplied, the first thing that happens is there is a massive reduction in the price to the consumer or the price given to the primary producer. If there is an over-supply in this regard, why do not we not see a direct reduction in prices to consumers, be they businesses or households, within the Irish State? If the witnesses would deal with those points, we can take it from there.
Mr. Garrett Blaney:
I will try to answer both questions. On the question of whether it should be built underground or overhead, this has been looked at on a number of occasions by a number of different bodies. The first report was done in 2008 by Ecofys, having been commissioned by the Government. EirGrid had its own analysis done by PB Power and this was published in 2009. An expert independent commission was set up by the then Minister, Deputy Rabbitte, and it published a report in 2012.
To clarify, the independent expert commission's view was that it was not technically possible to build this as an AC line and that it would have to be built as a DC line. To explain this difference between AC and DC, AC would work in anyone's house whereas DC is the voltage used in a phone or a standard device and is at much higher levels. Therefore, AC needs to be converted to DC in a very large conversion station, such as we already have for the east-west interconnector, which committee members can visit if they want to see what one looks like. There is a special cable for DC which is made in only a small number of factories in the world. This underground DC cable power is then transported to another convertor, which has to reconvert from DC back to AC in Northern Ireland.
There are physical characteristics that sort of sterilise the corridor between these two convertor stations. It does not allow any connections at that point, so it would sterilise that area for new investment. We are seeing - this will flow into the demand question - a lot of new data centres and very interesting new loads coming into the Irish system that are helping increase demand at the moment and that are also good for the economy in general, although our interest is primarily the impact on consumers. The HVDC solution is more expensive, and it was the view of the independent commission that it is typically three times the cost. Its view and international precedents show it will give less function than an AC cable, so one would pay more but get less.
Our concern is from a cost point of view, and this is obviously a significant increase in cost. We were in front of this committee previously on this issue and we have written to the committee setting out our view on the differences in cost between overhead and underground. If the three projects in Ireland were converted from overhead to underground, it could add something like 3% to the consumer's bill over the next 50 years. These are significant extra costs from a consumer point of view.
We also need to look at our statutory function. We are looking at this purely in terms of what we are set up to look at under statute, which is the cost to the consumer and the impact on security of supply. Obviously, land use, visual amenity and all of those planning issues are a matter for An Bord Pleanála. This has gone to An Bord Pleanála; my understanding is that it was submitted on 9 June and a consultation is starting today, run by An Bord Pleanála. It is helpful this committee is raising the profile and allowing all the affected parties to engage in the planning. However, we are limited very much to our statutory function and we obviously do not want to take a view on planning functions, given there is another statutory State agency there to deal with the planning function. We need to let it get on and do its job.
The last report that came out said it would not be three times the cost but 1.7 times the cost and it stated that the two lines, Grid West and Grid Link, could be underground. When EirGrid was with us, we talked about the feasibility of construction from a technical point of view.
Certainly, what I got from that meeting was that it was technically possible to put the North-South interconnector underground. The point I am making is that I think people accept the need for the North-South interconnector. The biggest issue they have with it relates to how it is going to be constructed within the environment - the hills and valleys - that will be affected. If it is of such importance, maybe it is time we looked realistically at putting it underground.
Mr. Garrett Blaney:
I am sorry if I have caused any confusion. The issue raised by the expert commission related to distance. It is possible to put short stretches of AC underground. There are numerous examples of that in the electricity system. The problem arises when undergrounding is done over a long distance. Technical problems arise with the cable and it is not possible to operate it. All I am doing is sharing with the Deputy the view of the expert commission as published in its report. The view of the commission was that it would be three times the cost. PB Power had a higher figure than that. I suppose we are limited in our technical expertise. I am relaying figures that are out there in the public domain from technical experts. Clearly, it is possible to put short elements of cable underground. The cost of that is much less than the cost of the HVDC solution. It is a matter for the planning authorities. It is under planning at the moment. I would really relay it to that.
I wish to come back to the Deputy's important question about the excess capacity in the system at present. The various investments that have been made are set out in the table. The market has been good for investment. The unprecedented downturn in the economy here in the Republic had a direct impact on demand. There is a close correlation between the level of economic activity in a country and the level of demand for electricity. We had seen a reduction of approximately 10% since the peak in 2007 or 2008, but we are now seeing a turnaround. The increase in economic activity is having a positive impact on future demand growth. As I mentioned earlier, some large new demand sources, such as data centres, are coming in. Obviously, we want to make sure the country is ready to bring in new foreign direct investment and we have the infrastructure to underpin that.
An interesting debate about decarbonisation is taking place internationally. The extent to which we should move away from fossil fuels and move towards the use of electricity for electric vehicles and heating in the home, etc., is difficult to assess. There is more uncertainty about future demand today than there was historically. We need to make sure we do not find ourselves back in the difficult situation we were in ten years ago, when we were fighting year-on-year to make sure we had enough capacity to keep the lights on here in the Republic. I think we should have some comfort that there is extra capacity there. We will constantly be looking for opportunities to see how that extra capacity can result in lower costs to consumers. Today, a lower cost is associated with having that extra capacity than with not having it. This was part of the design criteria for the integrated single electricity market. In that context, we will look to see whether we can seek further efficiencies in the market. As the Deputy has rightly said, many consumers are still facing very difficult times as they try to pay their bills. As regulators, we are conscious that we need to ensure the costs that are imposed on every electricity consumer in the country are kept as low as possible.
I would like to make a brief point about the renewables that are coming on the system. Is it fact or fiction that the more renewables such as wind come on the system, the more the system has to be upgraded to take it?
Mr. Garrett Blaney:
I sit on the board of regulators across Europe. One of the questions we have asked as regulators at European level relates to the cost of renewable delivery across Europe. Ireland has had a fairly good track record to date. We have ended up with a lower cost because onshore wind in Ireland to date has had a much lower cost than many of the other technologies that have been applied across Europe. We have ended up paying less in percentage terms for our renewables than most places. I think Norway and Finland are better than us, but virtually every other country in Europe is paying more for its renewables. We need to be careful not to presume that more and more wind on the system is the way to go forward.
We have a role in terms of advising the Minister and have advised him to consider a least-cost approach to renewable development. That means looking at all of the possible renewable technologies and going for those that are cheapest. It may or may not result in more wind in the system.
Other technologies, such as solar power, are becoming a lot cheaper and more competitive, based on equipment prices. Our view is that we should try to do whatever entails the least cost, including the network costs. There are extra elements in the network that had to be strengthened as a result of wind in the system, notwithstanding that the support for wind in Ireland has been a lot cheaper than support for renewables elsewhere. The Deputy is correct that we have to ensure we are constantly vigilant and do not lose sight of the cost element of renewables and the infrastructure to support them, something of which we are very mindful. Obviously, renewables are a matter for the Minister and the respective Departments in Northern Ireland and the Republic. All we can do is advise Ministers of the policy. Our current advice is to try to minimise cost from a renewables point of view.
I welcome the representatives. Having listened to the presentation and following on from Deputy Moynihan's questions, I cannot help but draw the conclusion that what is essentially being proposed to be constructed on a North-South basis is an energy one-way street that will predominantly benefit the economy of Northern Ireland in the short to medium term. This one-way energy street is being developed, as Deputy Moynihan said, with much pain south of the Border, with cables starting somewhere in County Meath and lattice structures going across the landscape into drumlin country in County Monaghan and across the Border into County Tyrone to a receiving station which, presumably, will then go underground.
The bulk of the lattices, structures and infrastructure will be in place south of the Border. The bulk of the undergrounding and benefit will be North of the Border. I do not want to be partitionist in any sense because this issue is probably being discussed in the Northern Ireland Assembly and I am sure the anti-partitionist party there is fully supportive of the interconnector due to the benefits it will bring to the economy of Northern Ireland. What benefits will it bring to the people of Counties Meath and Monaghan who will have to look at these things?
I come from a part of the country, the mid-west, which already has such things. It is festooned with lattice structures, which will not be taken down. Somebody raised a very legitimate point with me recently. If all of the interconnectors will be underground in the north, south, east, west or wherever, what about those already in existence from Loop Head in County Clare, into Tipperary, across Limerick, Laois and Offaly and into Dublin? From my point of view, the real risk area from an energy security point of view is Northern Ireland. I accept the fact that we are now consuming less than 20% of what we did at the height of the boom in the South. However, in the interim we have also developed a number of power stations, most recently Great Island in Wexford. One in Mayo has also come on stream. In my county, Limerick, wind farms have been constructed.
We south of the Border are getting our act together. What are those North of the Border doing, apart from asking the people in Counties Meath and Monaghan to put up with lattice structures? I know we are all part of the European Single Market and are supposed to be on board the European train, with which I have no difficulty. However, I am not happy with the concept of an energy one-way street being constructed.
It was mentioned that Northern Ireland is dependent on three thermal energy producing facilities and if one of them goes, it is at risk. If one had gone at any stage in the recent past it would have been at major risk. What has Northern Ireland been doing up to now, within the United Kingdom, for example, to meet its energy needs? Why is EirGrid ploughing ahead in some of the most picturesque and historic landscapes in the county? It stated it was not concerned about the facility in the west, which might go underground, as might that in the south.
Let us call a spade a spade - they will not benefit from it. It is the people and the economy of the Six Counties which will benefit. What is in it for the consumers of Meath and Monaghan?
Mr. Garrett Blaney:
I apologise as I must have misconstrued something. It is clear from the Deputy's questions that I have not got the right message across. It is not solely a benefit to Northern Ireland - the benefit is all-island. The benefit to the consumer in the Republic of Ireland is significant and will grow over time. I was at the launch last week of the investment in Great Island and this and other investments would not have happened if we had had a smaller, more constrained market only in the Republic of Ireland. From an investment and efficiency point of view it is essential to have a bigger market in which to invest. The cost benefits, amounting to reductions of €10 million, are equally shared across the island and the cost of the interconnector is shared 50-50.
The benefits are significant for the Republic and are growing with the potential for new investment to come once the infrastructure is in place, even in the Meath and Monaghan areas when the new lines come in. There have been power plants looking at those locations but in the past there were infrastructural constraints.
We will become a net exporter of electricity to Northern Ireland and our surplus will be exported as more and more power plants come on stream. It is clear from Mr. Blaney's answer to Deputy Moynihan's question that, as sure as there is a sun in the sky, consumers will not benefit from all this additional capacity in Ireland. Even with the lower cost of coal and oil, consumers have not benefited because electricity producers say they buy 18 months in advance of a kettle in Limerick or elsewhere being plugged in. They say they bought oil at a peak 18 months ago and that consumers will have to wait 18 months to get a reduction in their electricity prices. Mr. Blaney's office should press them on this but pigs will fly before it happens.
Ireland could produce enough electricity for the entire European Union but the bill coming in the door will never go down and that is what the consumer is interested in. Let us be realistic. It will not go down because there will be some excuse about buying coal in an expensive commodities market, shipping costs going up or a new health and safety measure. The only thing I am interested in is how much the electricity bill for consumers will be, whether it comes from the ESB, Airtricity or anybody else. We are exporting electricity to the United Kingdom and we may well export it to France when it builds a cable under St. George's Channel. We can put a cable between France and Wexford but cannot put one between Meath and Tyrone.
I know the difference between AC and DC but most householders do not give a hoot about them - they think they refer to a band from the 1980s. They are also interested in whether they will have to look upon structures that are a blight on the landscape, whether it will benefit the local economy and whether the bill coming in the door will be any less. Mr. Blaney knows as well as I do that that is not going to happen. No matter how much extra capacity is produced and exported to the United Kingdom, ultimately the consumer in Ireland will not be better off in any way. The only thing they will have is a monstrosity crossing 50 or 60 miles from Meath to the Border where it will go underground. It is absolutely bizarre that the benefit will be felt where the cable goes underground.
Mr. Garrett Blaney:
I fully agree that it is really important to try to put downward pressure on prices. The metric for us to follow is the one which measures improvements in our competitiveness as an economy. Costs are increasing in numerous different areas right across the European Union and we want to ensure Ireland is low cost, relative to our peers, by keeping our costs as low as we can and the core reason for building the North-South interconnector at the lowest cost is to minimise the extra pressure on the bills to the consumer. It is clear that undergrounding adds a significant, measurable increase to the consumer's bill.
The Deputy is right that consumers are struggling already trying to pay their bills. We want to do what we can to try to protect-----
What percentage reduction in electricity can domestic users expect to see within five years through the construction of this interconnector? Surely that has been worked out. If it is of such benefit to the Irish jurisdiction, what benefit can consumers expect to see within five years?
That is a very basic question from Mr. Blaney's point of view, as he is in a regulatory role, there to protect the consumer. The issue of the interconnector is going on since Job was a boy. Surely Mr. Blaney has a figure in a head as to how much the consumers in this State would be better off as a result of this thing being built.
How can having the interconnector today, 16 June 2015, be a saving when there is an excess in supply; when oil and coal prices, on which we are predominantly dependent, are much more stable than they were; and we have a huge surplus of wind? How can the construction of an interconnector today be of any benefit to us given that we have a surplus of electricity today?
Mr. Garrett Blaney:
We have a surplus of electricity, we have a market that schedules the cheapest possible generation across the island. It takes the cheapest generators in Northern Ireland and the Republic and they are scheduled to run in the market. On top of that, there is a constraint in the grid, particularly the North-South constraint. Those cheapest generators cannot run because they cannot physically get the power from the generation directly to the consumer, because the network will not allow it, so other, more expensive plant must be run. Regardless of the level of surplus, that must still be done. More expensive plant, which burn more oil or coal, or whatever fuel they use, add extra cost, which goes directly to the consumer's bill. All those costs are delivered directly to the consumer. It is not something the consumer absorbs, it hits their bill directly.
From the point of view of the Commission for Energy Regulation, if this interconnector is built, Irish domestic and commercial consumers can expect to see a reduction in the cost of their electricity. That is its commitment.
This is important because people are being asked to accept this carbuncle on the landscape across their area, which I understand will go underground at the receiving point in Northern Ireland. It will then feed out through Northern Ireland. They will be asked to take this. It is a one-way energy street. It is starting in County Meath, just north of Maynooth, and will move north. It is of no benefit to those people.
I will finish on this. I imagine it should be imposed on the suppliers of electricity if this infrastructure is being provided on an all-island basis. The producers and the providers are the main beneficiaries because they will ultimately sell it to their consumers. These are the people who are lobbying intensively for this. They want it because they want to export electricity and are putting huge pressure on EirGrid and everybody else to get this built. I think there is a need for reverse pressure. If this infrastructure is built, what is in it for the State and the Irish consumer? To be honest, I am woolly about what is in it. There may be a benefit but all things being equal, there may not. If the price of Polish coal increases and Moneypoint has to increase its tariff, the response will be "sorry, lads, we could not do anything for you". That is not acceptable.
Mr. Garrett Blaney:
Perhaps I can come in on that point. We will ensure that the benefits arising from the North-South interconnector being built flow through to the consumers. Regardless of what happens on gas or coal prices, or whatever else, the price may go up or down depending on the world prices of those commodities, there will still be a benefit from the North-South interconnector. We will ensure that consumers in the North and in the South will see that benefit.
I welcome the representatives and thank them for appearing before the committee. The presentation was not what one would have assumed. The topic for discussion was the basis for putting the North-South interconnector underground but that was not the presentation which was a restatement of the need for a single energy market on the island. There are very few people who do not understand the need for a single energy market on the island; I certainly do. We would be damn poor neighbours if we did not. If there are energy problems in any part of the island and there is capacity in another part to help address that issue, we should help, provided we are not being disadvantaged in so doing. I see the sense behind the proposal. I would go so far as to say that if we have additional capacity and there is an EU market, we should be looking at that, again provided the consumer in Ireland is not being screwed in that regard.
Perhaps the representatives are not the people who should be answering the following question. If the technical advice is that two converter stations are needed and the representatives say the space between those two converters must be a sterile area and if a major data centre was coming on stream that it would not be possible to have a connection to it, why can the two converter stations not be located in the same place on the Border so that there is no sterile area? Would that not permit undergrounding in both jurisdictions and minimise the sterile area? Perhaps the representatives are not the people to whom I should address this question but I think it is a question that needs to be asked. The representatives also say that the overall cost of the interconnector is €286 million. Is that in sterling or euro?
The cost of the overhead line is €140 million. Of what is the balance made up?
The witnesses' estimate was that there would be a 5% additional cost to consumers if the interconnector were undergrounded, and that there are technical limitations. Could those technical limitations and additional cost factors be addressed by a one-site two-converter station based some place on the Border? Is that technically possible, or are they the right people to answer those questions?
Chairman, if the meeting is not over by 1.45 p.m., I will have to go, because I have questions with the Minister at 2 p.m.
Mr. Garrett Blaney:
I will try my best. We gave the background in the presentation so that the committee could understand the context of the need for the second interconnector. In terms of the technical issue, I will attempt a layman's description of it, but Deputy Colreavy would probably need to go back to EirGrid if he wants to get a detailed technical analysis of his proposal. My understanding is that the problem is length. With AC, one can only do a certain length underground before one hits technical problems, and at lengths beyond that one must use DC. Clearly, if one were to put the two converter stations beside each other at the Border, one would still have long lines underground and the same technical problems. I would refer the Deputy to EirGrid if he wants to get into more of the technical detail, but it is not possible or practical to have the two converter stations beside each other. It would preclude the need for them in the first place. One would end up with everything underground, and it would not work.
With regard to the sterile area, this is because one cannot connect DC lines to the electricity system; only AC lines can be connected. If standard pylons go through an area, it is relatively easy to take the cables from the pylon down into a substation and back up onto the pylons. When the connector is underground as a DC cable, a converter station is needed, and once we go beyond a converter station at each end, the complexity becomes much more significant. DC systems are much more difficult to run and there are some fundamentals, such as whether one can switch the current on and off, that one can do easily with AC but that become a major problem with DC. I apologise, as I am not the technical expert here. I am trying to give a layman's view of the process. If Deputy Colreavy has any further questions, I suggest that EirGrid would be able to explain it more efficiently for him.
Finally, does this have an impact on people who operate as microgenerators, who want to connect to the grid? It is not something that we encourage financially. However, we should be doing so, particularly in terms of renewable energy. Does this conversation have an impact on those of us who would like to see more emphasis on microgeneration?
Mr. Garrett Blaney:
It is an interesting question. We are interested in cost, which is a big issue for us in everything, including the sort of renewable technologies that are being used. What is interesting about microgeneration is that cost differences have significantly decreased and microgeneration is probably a lot cheaper today than it was even five or ten years ago. It may be that its time is coming. Maybe microgeneration is the new lowest-cost renewable technology for the future. That is very much a question for the Minister and for renewable policy. The North-South interconnector is neutral on it. It allows for better flows of electricity across the island. I cannot see how it would have any adverse effect on microgeneration. I am not sure that it has any particular positive benefits, other than allowing it to be a little more efficient if there is a surplus of microgeneration. The difference, one way or another, for microgeneration is not particularly measurable.
I thank both witnesses for their presentations. Previous speakers asked what are the benefits to southern Ireland if we have, as they state, energy that is surplus to requirements.
We have an interconnector, which I know, because I live close to the Border, was out of commission for quite some time. What alternative supply did Northern Ireland have? I am sure Northern Ireland benefited at peak times from the interconnector with Scotland or Great Britain. What is the total megawatt demand in Northern Ireland?
I can envisage what will happen in years to come is that we will be part of the European grid. I know the benefits of helping one another at times of peak demand. I did not realise we have a surplus but can also access supplies from elsewhere.
We have interviewed representatives from EirGrid as well as those who have objected to its proposals. Without a shadow of doubt, the people of counties Monaghan, Kildare and Meath want the cables to be put underground rather than having an overhead supply going through some of their picturesque townlands.
There is an interconnector between Scotland and Northern Ireland and between Dublin and north Wales. Is there a DC, direct current, cable connection between both countries, because obviously there are convertor requirement stations in both Dublin and Holyhead and between Dublin and Scotland?
I can confirm what Deputy Moynihan said. I am not saying that we were assured but we were led to believe that it was physically possible to ensure that the North-South interconnector would be located underground. The cost comes in at €1.7 billion, but we got different estimates of what it would cost to put it underground. At one stage it was suggested that it would be ten or eleven times more expensive to construct an underground facility. It should go underground to satisfy the people of counties Kildare, Meath and Monaghan, whether that is up along one side of the M1 to Dundalk and then over into County Tyrone. That is the only proposal that people will accept.
There is a question of sustainability and the importance of being able to access additional supply at peak periods, but the people of counties Kildare, Meath and Monaghan must be listened to, irrespective of the costs which should be spread out over 20 to 30 years. That is not a big ask. I worked with the ESB and I never recall the cost of electricity coming down in spite of fluctuations in the price of gas and oil.
I am not aware of the figure for peak demand in Northern Ireland and how that figure compares with the figures for the South. Why is the second interconnector between the two countries much larger than the interconnector between Scotland and Northern Ireland; between Dublin and Wales and many other interconnectors on the European grid?
Ms Jenny Pyper:
I will respond to some of the strategic points the Senator has raised. As he will know, the existing North-South interconnector has had a slightly chequered history. The predominant direction of flow of the existing North-South interconnector is North to South. In the past when there have been shortages of capacity, particularly in Dublin, the flow from North to South has helped to keep the lights on in Ireland.
Ms Jenny Pyper:
That is the historic position. As new plant has come on and, as Mr. Blaney mentioned, new investment has come through, the situation has changed in terms of the supply. Partly that is due to the fact that we have a single market. Before 2007 we had two small separate markets, neither of which was particularly efficient. We now have a single market that maximises opportunities to drive down costs on an all-island basis. I have not heard any commentators state it would have been better if we had not created the single electricity market. No matter what a person's political persuasion is, everyone can see the obvious efficiencies and benefits one gets from moving two small inefficient markets to a single, larger and efficient market. It is the creation of that larger market, from 2007 on, that has sent market signals about where investment is needed.
Deputy O'Donovan asked about what Northern Ireland was doing and why it was not investing separately. A single market sends signals about the need for investment on the island and the success of that is shown on the graph which illustrates a significant capacity availability on the island. The difficulty for us is that we cannot share that electricity without a second North-South interconnector.
The Senator asked about the Moyle interconnector. I remember only too well, having worked previously on government policy as a civil servant in Northern Ireland, the Moyle interconnector was built, primarily, to help drive down prices in the very small Northern Ireland market before SEM was created. At the time the cost of electricity in Northern Ireland was high but the cost of electricity in Scotland was lower. As a result, the suppliers in Scotland simply priced up in response to what was happening in Northern Ireland. Therefore, the initiative did not drive down prices but it provided an opportunity for security of supply.
What we have done now, in creating this unique market and which Northern Ireland entered into as an equal partner with Ireland, was to create and send signals on having an all-island supply. The difficulty that has arisen is that the two transmission networks were never planned on an all-island basis. Northern Ireland had its own small transmission network and Ireland had its transmission network. The single electricity market now gives us an opportunity to plan and look at investment on an all-island basis and achieve efficiencies. Those efficiencies are the numbers that Mr. Blaney talked about. The inefficiencies, or the constraint costs, that we are bearing at the moment are of the order of about €10 million - that is a conservative estimate - rising to €30 million or €40 million over the next 20 years. Customers could get those savings but we are not getting them. We assumed that we would get some of them in SEM because we assumed that the second North-South interconnector would be built sooner. The opportunity still exists to access those costs. The challenge going forward is to see how we can get those costs at that same time we make investments in and plans for the new more efficient integrated single electricity market.
The Senator also asked what is the total demand in Northern Ireland. It is of the order of about 1,800 MW and the Irish demand is 6,000 MW.
Mr. Garrett Blaney:
It is in the order of 6,000 MW. That means there are between 1,500 MW to 1,800 MW in the North and 6,000 MW in the South.
The Senator mentioned the HVDC interconnectors. There are two HVDC interconnectors, one is in Scotland and one is in the Republic. They both have nominally 500 MW capacity. Obviously, they connect to the market in Great Britain, which is ten times bigger. It is 60,000 MW or 70,000 MW maximum demand, compared with the much smaller capacity on this island.
Why the need for the bigger one into Northern Ireland? Currently, we have 6,000 MW and they have 1,800 MW. Am I right in saying that the second interconnector will have twice the carrying capacity of the interconnectors between Wales and Scotland?
Mr. Garrett Blaney:
My understanding is that the carrying capacity is about 600 MW for the second North-South interconnector. It may be slightly greater in AC than DC, but it is not that much greater. A Deputy spoke earlier about one-way flow. The important point is that this is not a one-way flow. This is a two-way flow, and the flows work depending on what is most efficient for consumers across the island. Sometimes it will flow north; sometimes it will flow south. It depends on the generators that are available, but it is always there to schedule the lowest cost for the consumer. It is very much a two-way flow, and the two-way flow means that consumers on all parts of the island can benefit from the interconnector.
This has been sized after detailed planning studies. They have looked at the various flows across the island. They have done extensive scenarios, and this was the most efficient size identified as part of that planning process. I am confident that it is not too small or too large but that it is the efficient size that comes out of the standard planning calculation.
My last question is about satisfying the requirements of the people of Monaghan and Meath and also people who are interested in the environment, as I am, throughout the country. Am I right in saying there will be no pylons required for this second interconnector in Northern Ireland, or have there been any objections to this in Northern Ireland as we have had down here?
Ms Jenny Pyper:
Deputy O'Donovan may have given an impression that the pylons will run up to the Border and then suddenly go underground. That is not my understanding. My understanding is that this entire interconnector is overhead on both sides of the Border. There are concerns from Northern Ireland representatives, and the planning process there is at a slightly different stage. The planning application is now with An Bord Pleanála. The process in Northern Ireland will go to the Planning Appeals Commission within the coming weeks. There will then be a parallel planning process in Northern Ireland in which concerns similar to those that have been expressed here today will undoubtedly-----
I welcome our visitors. One of the numbers we heard about in earlier hearings on this was that overhead transmission involves losses of between 15% and 20%. The longer the length of transmission, the greater the loss. Do we have the figure on that this afternoon?
Mr. Garrett Blaney:
I do not have direct figures for losses. I refer the Senator to EirGrid as the technical expert on that. Obviously, from a regulatory point of view we are keen that it does what it can to try to minimise losses. Losses are a cost to the consumer. There is always a loss in every transmission cable. The degree of loss depends on the selection of the transformers and the type of conductor they use, but I refer the Senator to the technical experts in EirGrid if he is looking for an exact figure on losses.
If the plan before us is that a large amount of electricity is to be generated in the South and transmitted to the North with those losses, that is an important number for our calculations here. It would be quite sizable and makes the case for the relative attractiveness of undergrounding when one takes into account the social cost of pylons, which members have spoken about, plus the transmission losses.
The other issue raised is why Northern Ireland has only three stations for 1.8 million people. If we are not measuring the social cost of transmitting electricity over very long distances - and, in fact, there is a substantial loss of energy when we are doing that - it may be that wind turbines should be placed close to Coolkeeragh or Kilroot or wherever. It may be that it would be more efficient for coal to go to Derry to generate electricity rather than going to Moneypoint to generate electricity that is then sent by wire to Northern Ireland with losses. This project is so unpopular in Meath, Monaghan and north County Dublin that it is damaging the image of the energy industry. As Deputy Patrick O'Donovan said, people do not expect to see any reduction in costs. If it will cost consumers 3% extra on their bills to do without the pylons while having more electricity generated in Northern Ireland close to where it is consumed, we should look at those options. It must be the same to bring in the coal, and the wind is the same. One simply takes into account the full costs of transmission and locates the power stations near the centres of demand. Given that we have about 40 generating plants for 4.8 million people here, three in Northern Ireland seems very few. Is that the source of the problem? We know the South has huge excess generating capacity. Colm McCarthy described it very well in the Sunday Independentyesterday and he is a former director of the ESB and Bord Gáis. Some of that generating capacity should have been built in Northern Ireland.
Mr. Garrett Blaney:
I will take the first part and let Ms Pyper talk about the second part. With regard to losses, there is no indication of this from anything we have seen. The AC line proposed by EirGrid which is the subject of the planning application is a fairly standard one. It is the same as the AC lines we have across the country. It is a 400 kV line, similar to the ones running from Moneypoint across to Dublin. There is no indication that the losses are any different from those we have around the rest of the country. It is fairly clear from what we have seen that if we moved to an underground DC configuration, losses would be increased. There would be an increased cost to consumers in losses.
I will hand over to Ms Pyper with regard to the general discussion on Northern Ireland. The broad principle of the single electricity market is that generators are free to go wherever they want on the island that is most efficient for them. If one wants to build a large coal-fired plant and the largest deep-sea port is on the Shannon, one goes to the Shannon. If Mayo is the best place for wind resources, one goes there. If one wants to look at solar energy and solar energy is best in the south east, one goes there. Where generators sit on the system generally is unconstrained. I will hand over to Ms Pyper to talk about the specifics of Northern Ireland.
Ms Jenny Pyper:
Northern Ireland's dependence on three stations is a historic position. There are two in the east of the province, where the population demand is, and there is the ESB station at Coolkeeragh in Derry. Since the single electricity market was put in place, we have seen a trebling of investment in renewables in Northern Ireland. There are approximately 775 MW of renewable generating power installed, which is bigger than any of those individual power stations. As such, wind contributes approximately 20% of Northern Ireland's capacity, which is not insignificant. It is playing an increasing role, not only in terms of meeting Northern Ireland's needs but also in terms of contributing to the single electricity market. If we had not entered into the single electricity market in 2007 and if Northern Ireland had remained a separate small market, we would undoubtedly have seen different patterns of investment for Northern Ireland simply to meet its needs on its own.
The simple act of committing to and entering into the single market on the island has sent a strong signal to investors, namely, here is a single market system in which they can make investments. The signal is not that specific investment is needed in Northern Ireland. If we do not have a second North-South interconnector and the Northern Irish Government must call for investment in generation solely in Northern Ireland, we risk decoupling all of the benefits of the single market. That is where a regulator should be, with the market sending signals about where investment is needed. The market has sent the signal that the island as a whole needs investment. That investment has been made and there is capacity. It is just not able to go to where it is required. This is the underlying economic premise for the North-South interconnector.
I thank Ms Pyper for her reply. As an addendum, the Erne was a joint project from before many of the people in the room were born. Does it provide any distribution capacity in the west of the province? The ESB and the old Northern Ireland Electricity Service, NIES, co-operated on it for many decades. I imagine that there is a transmission network based in Ballyshannon.
Mr. Garrett Blaney:
I might give my understanding of the Erne project briefly. Some distribution cables go across the Border in the west, but they are not sufficient to tie the two systems together. We cannot rely on them, although they allow for some power flows at a distribution level across the Border, typically in the west. The Erne is a relatively small project compared with the size of modern generators, for example, the new Great Island plant that opened last week and produces 430 MW. I cannot remember the exact capacity of the Erne project, but it is relatively small. The system and the economy have grown. If we want a modern economy, we must have an infrastructure that supports it.
I want to thank the visitors and will not delay them further. We will need to revert to our evidence on whether it is 15%, 17% or 20% of electricity that is lost in transmission. The longer the transmission line, the greater the loss. How does this compare with the 3% increase in bills that would result if some of the network went underground? We will do our sums on that the next day.
Mr. Garrett Blaney:
I would be happy to. The SEM committee's composition is set up in legislation. There are three voting members. The three commissioners of the Commission for Energy Regulation, CER, of whom I am one, sit on that committee and we have one vote in its decision making. Ms Pyper, as the CEO of the Utility Regulator, UR, is the chair on a rotating basis. The committee has other members from the UR, who have the second vote en bloc.
The legislation was insightful. Notwithstanding the good relationship between the two bodies, it envisaged that disagreement on an issue could arise. It requires an independent member and a deputy independent member to ensure continuous decision making. That has been helpful.
The committee has had a number of independent and deputy independent members. The current independent member is Mr. Odd Håkon Hoelsæter, who joined us in recent years. His vast experience from Norway has been helpful in our decision making. The deputy independent member is Professor David Newbery of Cambridge University. They help our decision making, but when the joint committee asked us to attend as the SEM committee, we chose to do so as the key entities, namely, the chairs of the UR and CER, so as to provide a proper reflection of the SEM committee.
Mr. Odd Håkon Hoelsæter had a previous role. I mentioned the independent commission that was set up by the Government some time back. He had a role as one of its members.
In this context, he had a view on the North-South interconnector. If the committee is minded to seek guidance from this independent commission, I suggest it asks the Minister and Department as it is outside our remit. Our remit is regulation as set out in statute.
I wanted to clarify it on the record so we followed through on a request which was made.
I thank the witnesses for coming before the committee, engaging with us and answering members' questions in a forthright way. It is important that we highlight these concerns and discuss them as it is our role to do so and we will do it to the best of our ability.