Simon Coveney (Cork South Central, Fine Gael)

I welcome the opportunity to speak on Second Stage to outline some of my ideas and concerns in respect of the energy market, of which some the Minister of State may already be aware. I hope he and his advisory team will take note of my contribution.

My first criticism has been outlined by other Opposition spokespersons, that is, the lack of a Government energy policy document setting out targets and requirements for the energy market in the short, medium and long terms. Instead, we have piecemeal policy development. In 1999 in the alternative energy sector alone, there was a Green Paper on sustainable energy and, in 2000, there was a consultation document entitled Options for Future Renewable Energy Policy, Targets and Programmes. In 2004, we set up a renewable energy development group to essentially start all over again. We have had consecutive alternative energy requirement or AER programmes, of which any realist would recognise that the first four were absolute failures. They did not result in the type of wind energy development anticipated. I accept the recent AER programmes have been successful. Most recently, there has been a welcome development in subsidies for domestic grant schemes for greener homes, but it is a piecemeal approach.

More broadly within the energy sector, consultations have taken place with a range of different bodies and interest groups. However, nine years after the Government entered office, there is still no overarching policy document. Ireland must be the only country in Europe that does not have one and is certainly the only country in Europe that has a nine year old Government without a coherent overarching energy policy. It remains to the CER to deal with all of the complexities and significant challenges of the marketplace. I accept there are no easy answers.

The energy climate is constantly changing and, while some issues remain consistent, the factors influencing any overarching policy document for Ireland are also changing. Two years ago, I was Opposition spokesperson in this sector and, even in those two years, the goalposts have shifted somewhat. Energy is a policy area of discussion in the European Parliament and has rapidly moved up the priority list. A number of factors affect all states within the European Union. In the past three years, we have moved from $35 per barrel of oil to almost $70 per barrel and the price is fluctuating between $60 and $70. In the long term, it will really only move in one direction. Security of supply is perhaps the most significant political issue relating to energy in the European Parliament at present.

Countries such as Poland, Estonia, Latvia and Lithuania are exerting tremendous pressure to try to reduce the European Union's existing reliance on Russian gas. At present, the European Union imports 55% of its energy fuels and by 2025, it is estimated that this figure will be closer to 75%. This is movement in the wrong direction. EU policy encourages member states to become more self-sufficient in energy and to move away from the importation of carbon fuels, particularly oil and gas. Moreover, all member states have commitments under the Kyoto Protocol and I intend to discuss Ireland's lack of response in that regard shortly. In addition, environmental commitments have led the European Union to discuss and support alternative fuel sources and to find ways in which it can provide direct financial support to them.

Factors specifically affecting the Irish market are somewhat more complex. First, there is a lack of competition. Deputy Kelly spoke as though we have successfully opened and liberalised the Irish marketplace to the extent whereby every energy supplier in Europe wishes to compete here. That is an extremely naive position to take. While we have gone through the motions and have made an effort to open up the Irish market to competition, it has not come. Although consumers and particularly businesses have some choice, it is still limited. In effect, the ESB still enjoys a monopoly of supply of electricity and power in Ireland. Moreover, the restrictions imposed on the ESB in an effort to try to promote competition mean that potentially, we have the worst of both worlds. As we do not permit the ESB to expand and increase its generational capacity in an effort to introduce competition, we are in danger of having insufficient capacity. Potentially, we may not provide sufficient power to the growing Irish economy as a consequence of failing to attract competition to fill the space which would be filled by the ESB, if it was allowed to so do. High demand has led to high prices and that factor, combined with the increased cost of gas and oil has meant that costs are rising dramatically for Irish consumers and business operators. This makes Ireland less competitive than it ought to be, relative to other parts of Europe.

As an island, Ireland is an isolated marketplace and I welcome this Bill's attempts to create an all-Ireland market. It is an obvious step and has not happened before time. However, even with the creation of an all-Ireland market for energy, Ireland will still be a small player isolated by the sea. The interconnection capacity between Northern Ireland and Scotland is small and insufficient. If we seriously intend to significantly expand wind energy projects in Ireland, our grid can only handle significantly more power from wind generation if we have significant interconnection capacity. This is because by its nature, wind is an inconsistent source of supply and although better wind speeds and consistency can be achieved in Ireland than in most other European countries, one still needs a substitute source of energy when the wind is not blowing.

Until such a substitute source of energy can be obtained through interconnection and until that interconnection is used to export green energy produced in Ireland — it has a natural competitive advantage to so do with its wind speeds — we will never maximise our potential as far as wind energy is concerned.

Ireland is incredibly vulnerable to imported fuel inconsistency and at present, it imports approximately 87% of its fuel requirements. It is the end of the line in the European Union, with respect to gas pipelines and, potentially, the supply of oil. Ireland is on the western coast and most energy comes from eastern Europe. Hence, if the supply runs out, Ireland will probably be the first country to suffer. Although we should be aware of this, little is being done to address this issue.

From a positive perspective, as I stated earlier Ireland has a significant natural competitive advantage as regards renewable sources of supply in that its wind speeds are better than anywhere else in Europe. From an efficiency perspective, approximately 40% can be achieved from wind turbines here. In other words, 40% of the time, one can take acceptable amounts of power from wind turbines in Ireland. In most other European countries, that figure is closer to 35% and falls to 30% in some regions. Ireland also has an advantage in that at present, the EU, of which it is part, actively tries to support renewable energy and has encouraged the Irish Government to take initiatives in this regard. Unfortunately however, Ireland has not acted on this encouragement.

Moreover, one can point to a change in the Irish mindset. People are more aware of our responsibilities regarding the environment and are more aware that alternative and renewable energy sources are no longer pie in the sky. This is no longer exclusively concerned with the environment as it is also about economics. Hence, groups such as IBEC, as well as business leaders have become engaged in pushing alternative energy sources. It is no longer simply a Green Party issue. While I intend no disrespect to the Green Party, from a policy perspective, this is the area on which it focuses.

What is the way forward for Ireland? I wish to discuss interconnection in more detail because it is critical in a wide range of areas. Despite Deputy Crowe's comments, we are moving towards a common European energy market, and rightly so because we live in an internal market in which jobs, people and goods move freely between countries and borders. This is encouraged to promote more competition, opportunities, business activity and so on. Hence, energy should also move between European countries. If Ireland is to participate in this regard and is to have the security which this would provide, it requires proper interconnection.

Hence, from the perspective of security of supply, this is absolutely essential. The Government would claim that several years ago, it announced that it was open to the development of an interconnector between, for example, Wicklow and Wales and that it invited private sector interests to build it. This should be built and paid for by the State. It is fundamental infrastructure like roads, airports and railway stations. Moreover, the present electricity grid in Ireland is also fundamental, and should be kept in public ownership if the ESB is ever privatised. We cannot afford to wait for an entrepreneur to finance this project. The State must do so immediately and regardless of whether it costs €200 million, €300 million or €400 million, it would be money well spent because of the significant costs to the economy if this is not done. Hence, we should invest in this project without delay.

We require a balanced energy mix in Ireland. I do not advocate the proposition that Ireland should be entirely energised by renewable sources. However, although gas and oil have roles to play, renewable energy should be part of the energy mix. Although some people may not agree, coal also has a role. It contributes to the security mix as the broader one's mix of sources, the more secure one's overall power generation will be. Nevertheless, we grossly under estimate the potential of renewable resources, particularly in the new, high cost environment for carbon fuels and for gas and oil in particular.

I will focus on wind power in some detail. Ireland's capacity to generate power for ourselves and for other parts of Europe is highly significant. Any economist would agree that it makes sense to concentrate on the areas in which one is competent. By any calculations, in the purest sense, Ireland should be very good at producing energy from wind. It has higher wind speeds, and more importantly, more consistent wind speeds on the west coast, than anywhere else in Europe. However, we do not appear to see this as the kind of opportunity that we should. Until the interconnector issue is sorted out, this discussion is futile as we can only reach a certain capacity within the Irish grid for an inconsistent source of supply.

We should be planning for other aspects such as the cost of grid connection. The Minister of State will be aware that the cost of grid connection for a farmer, or a consortium of farmers who are putting together an ambitious wind energy project is nothing short of scandalous. It could cost hundreds of thousands of euro after a landowner has put a similar amount of money into a planning application to get connection to the grid, which is sometimes not far away. People have asked the legitimate question whether ESB subsidiaries pay the same costs for advice and grid connection when setting up wind farms in parts of the country for which they have been given contracts.

Energy crops in Ireland are an exciting new opportunity for farmers. They can be a competitive fuel source. They are secure and predictable. They can be grown on a contract basis, as was the case with sugar beet, and they should be promoted. European Commissioner Fischer Boel wants to promote this area. She is willing to increase energy crop subsidies and change the rules so that they can be grown on set-aside land. However, there should be a response from the Irish Government on excise duty, as is the case in other European countries. We are being encouraged to do this by the European Union which is giving a definite competitive advantage to this industry. The Minister of State will get a very positive response from the farming sector if he provides it with a new crop which is financially viable.

The EU will require Ireland and all other countries to have a 5% ethanol content in all petrol from 2010. How is Ireland planning for this? Ethanol is not being produced in Ireland at present or, if it is, it is in pilot projects on a small scale. Are we going to start importing ethanol in 2010 even though it can probably be produced more efficiently here than anywhere else in Europe? There are existing ethanol industries in Spain and Italy that are growing and expanding, especially as a result of the demise of the sugar industry in Ireland. The Government has an opportunity to try to redeem itself by finding alternatives for arable farmers, whether they grow wheat or sugar beet to produce ethanol, after an appalling and misleading performance in the last months of the sugar industry. We should use our influence as a shareholder in Greencore, albeit a small one, to ensure that everything possible is done to try to facilitate the transition from a sugar factory in Mallow to an ethanol or energy crop processing plant.

The same opportunities apply to biodiesel through growing oil seed rape as apply to ethanol through growing sugar beet and wheat. We can make this happen by way of a combination of price supports from the European Union and tax incentives from the Irish Government. If we do not do so, it will be a huge opportunity missed for Irish agriculture and the Irish energy sector.

Wood biomass is another important area. I regret that the Minister of State has left the House because he knows a bit about this area as a result of his work in the forestry sector. Whether it is fast growing wood coppice plantations, forestry thinnings or wood and paper waste, these are viable fuel sources that are being used to significant effect in other European countries. However, they are not being used in Ireland to the extent they could be. New peat power stations were built here in recent years which are ideal to allow a gradual substitution from peat to wood biomass over a period. We should use this source for environmental as well as cost-effective reasons from an energy fuel point of view.

Tidal power, wave power and solar energy are all under-estimated by the Government. There is no reason a percentage of public housing projects cannot be powered through solar panels on the roofs. We should examine template projects in other European countries. It is not true to say that because we do not have very high sunshine rates, solar panels will not work.

It will take political courage to deal with the ESB, which I do not see happening before the next general election. It is not the ESB's fault that it is as dominant in the energy market. It is because it is good at its job that it retains this dominant position, and it is because of this dominant position that other players throughout Europe do not consider Ireland an attractive option to produce and supply power. This must change. Options should be considered to weaken the ESB's dominance in the marketplace. We must consider whether this would mean separating the generation, supply and grid management in a real way or breaking up the ESB. My preference would be not to break up ESB generation.

While there are some good provisions in the Bill, we are hopelessly unambitious in regard to the energy sector. We should work to our strengths. We should not be afraid to be proactive by providing tax incentives to kick-start industries, especially in the biofuel, energy crop and biomass sectors. As the farming sector is well educated and ambitious, it should be given an opportunity to produce energy crops so that Ireland can provide energy for its economy in the future rather than having to rely on inconsistent and politically controversial sources for gas and oil.

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