Mr. Peter O'Shea:

I thank the Chairman and the committee for the opportunity to speak here.

ESB is supportive of the proposed clean energy package which the EU published in November but, like some of the previous speakers, we urge some degree of caution, particularly over the one-size-fits-all perspective of it. We see the package as an important part of how the EU and Ireland will meet the obligations which we have all signed up to in the COP21 accord, and it will seek to give effect to the EU's 2030 targets.

Rightly, the EU sees electricity as a crucial component of the overall energy system, particularly in addressing climate change. In Ireland, we have built a modern, reliable electricity system with ample generation capacity supplying power to customers over modern networks and with a high degree of smart technologies. All this has been achieved while keeping electricity prices at around the eurozone average.

However, one of the fundamental changes over the past decade and a half has been the growth of renewable energy, renewable electricity in particular in Ireland. Last year, we had the second-highest penetration of wind generation in the European Union, behind Denmark, and renewable connections are still ramping up to push us towards our target of delivering 40% of electricity from renewable sources by 2020. In my mind, this is an extraordinary achievement for a small island and is recognised as such by the European Commission. More important, as we face into the clean energy package, it provides Ireland with a strong platform to address decarbonisation into the future.

While electricity is a crucial part of the energy system and is progressively moving towards low carbon, it is important to know that electricity is responsible for only 20% of the total energy used in Ireland and only 20% of total greenhouse gas emissions in Ireland. It is greenhouse gas emissions which cause climate change and it is the reduction of these gases which is the objective of the climate and energy framework.

In Ireland, in 2015, we emitted 60 million tonnes of greenhouse gas in total, and of this, approximately 12 million tonnes was from electricity generation. Three other sectors make up the rest: agriculture at approximately a third; heat, which is similar to electricity generation, accounting for approximately a fifth of total emissions; and transport, which is responsible for just under a quarter of total emissions.

Electricity generation emissions are falling. In absolute terms, they have fallen from 15 million tonnes to 12 million tonnes between 2005 and 2015, while the carbon intensity of electricity has almost halved since 1990. By contrast, the trend in transport has been upwards, and the take-up of renewable energy in heat has been low, leaving it vulnerable to emissions increases as the population grows.

It is the total of these emissions across electricity, heat and transport which Ireland needs to reduce. Our national policy position is to try to reduce them by 80% between now and 2050. To put this into numbers, this means moving from 38 million tonnes from the energy system at present down to less than 6 million tonnes by 2050. This is a huge challenge for Ireland. In ESB, we have considered a number of studies to ask what sort of roadmap would give us the prospect of meeting this challenge and we have come up with a number of different aspects to it. First and foremost is the continued decarbonisation of electricity as renewable energy grows towards and beyond 50% by the middle of the next decade and further new low-carbon generation completing the journey towards 2030 and then onto 2050. Secondly, we need to decarbonise transport with electrification of the light vehicle fleet and the use of compressed natural gas and bio-methane in the HGV fleet. We also need to decarbonise the heating and cooling of our buildings, initially containing the growth of emissions in new houses through new standards for building regulations, but also reducing the existing stock of high-emission houses through a national renovation programme. Finally, we need to decarbonise our industry process heat with a progressive move to renewable heat or carbon dioxide type capture solutions.

This roadmap allows us to ask the questions about the clean energy package. These are the specific questions we ask ourselves: Does the package encourage and enable decarbonisation of Ireland's electricity system between now and 2050? Does the package facilitate the decarbonisation of transport through electrification or other means? Does it facilitate the decarbonisation of heat, again through electrification or other means? Do the individual measures in the package provide sufficient support to Ireland's unique circumstances? In particular, across the EU we have among the largest share of emissions in the non-traded sector which, when coupled with the large scale of our agriculture emissions, creates an imperative for early decarbonisation of heat and transport. At an overview level, I suggest that the package is strong in terms of measures to decarbonise electricity and less strong in terms of measures to decarbonise heat and transport. In this respect, it continues the present trend. To be clear, this is not to say that electricity does not need to be decarbonised; it most certainly does. However, we need to have a much greater focus on the heat and transport sectors if we are to crack the climate challenge.

I will now consider and comment on some of the details of the clean energy package, starting with the electricity sector. Does the package help the electricity sector to decarbonise? In broad terms, it does when viewed alongside the effort sharing regulation and reform proposals to the European Union's ETS scheme. Taken together, these measures provide a strong legislative and political framework for Europe. There are a number of areas which we will need to consider further. For example, some of the proposals on biomass and capacity remuneration may inadvertently limit member-state-specific solutions. I mention again the one-size-fits-all perspective in this respect. In broad terms, it is important that member state flexibility is maintained, and this is why we in ESB support both RES and energy efficiency targets being at an EU level rather than a member state level.

Moving on to consider the heat and transport sectors, again, does the package get the balance right? I suggest on a preliminary basis that it does not quite get it right. The package is still very electricity-centric: the vast majority of the measures proposed in the package are centred around the electricity system, when it is clear that action is required in other sectors. That is not to say there are not positives in this. The energy performance of buildings directive contains measures to encourage renewable heat in buildings and measures that are positive for low-carbon transport. However, one concern with the energy performance directive is that district heating is excluded as a means of meeting the renewable requirement. District heating involves piping heat from a central source to the point of use. The central source is subject to the emissions trading scheme and is therefore on a clear decarbonisation trajectory. District heating should not be disadvantaged through this directive, and we suggest that this be changed.

The energy efficiency directive retains the concept of primary energy factor in energy efficiency gain calculations. This is a technical point but an important one as it works against using low-carbon electricity to decarbonise heat. These are just some of the issues we will bring to the attention of the Department in the consultation process.

Within the ESB we have adopted a watching brief on Brexit. We are members of Energy UK and of the Electricity Association of Ireland and through that we have influence at EURELECTRIC. The broad perspective we are getting from our peers is to try to keep the existing arrangements as they are. A common point between us, the Europeans and the UK is that we are all net importers of energy. We hope that some pragmatic decisions are taken in that respect. The biggest problem we face is that over time, we will see greater divergence on policy between what is happening in Europe and in the UK. It is difficult to anticipate what will be the implications of that. One interesting example is that a couple of years ago, the UK Government proposed a carbon price floor for electricity generation across the UK. Had that been implemented, it would have had an impact on the single electricity market in Ireland. Following discussions with different parties the UK Government decided not to implement that legislation in Northern Ireland. Similar pragmatic thinking will be required to maintain the common direction of the single electricity market and our energy business overall. I thank the committee for its time and I am happy to answer questions.