Thursday, 19 October 2006
Question 6: To ask the Minister for Communications, Marine and Natural Resources the details of plans to develop an east-west interconnector; if a decision has been taken on whether it will be developed on a regulated or hybrid regulated or merchant basis; and if he will make a statement on the matter. [33425/06]
Question 34: To ask the Minister for Communications, Marine and Natural Resources the plans he has for the provision of east-west electricity interconnectors; the number, capacity and location proposed; and if he will make a statement on the matter. [33577/06]
Question 83: To ask the Minister for Communications, Marine and Natural Resources when he expects the proposed east-west electricity interconnectors to become functional; and if he will make a statement on the matter. [33575/06]
I propose to take Questions Nos. 6, 34 and 83 together.
Security of energy supply is a key imperative for Ireland and the European Union. The relatively small size of the Irish electricity market underlines the need for greater interconnection as a means of enhancing security of supply, promoting competition and integrating the Irish electricity market into the wider European market. The recently published energy policy Green Paper, Towards a Sustainable Energy Future for Ireland, underlines the Government's commitment to deliver enhanced interconnection on the island of Ireland, as well as with Britain, as a priority. This is also the way forward envisaged at European level.
The Government has endorsed plans for the construction of a 500 MW electricity interconnector between Ireland and Wales. On foot of the Government decision, the Commission for Energy Regulation, CER, has been requested to proceed with a competition to select a developer on a hybrid-merchant basis to secure the construction of this interconnector by 2012 at the latest. The CER has also been requested to arrange for EirGrid and ESB to expedite the technical work of route selection and necessary grid reinforcement works. The Government decision provides that the interconnector, when completed, will be owned by EirGrid to ensure this strategic asset remains in public ownership.
To underpin the development process, I have proposed new arrangements in respect of the construction and operation of future interconnectors in the Energy (Miscellaneous Provisions) Bill 2006. The Bill provides that the CER may, with ministerial consent, secure the construction of an interconnector by one or more means, including by competitive tender. Such consent will be contingent on Government approval. Planning for decisions on further interconnection with Britain or potentially with the European mainland will begin in 2010.
What will be the ultimate cost of the interconnector? What is its intended route? What implications, if any, will selecting the developer on a hybrid basis have for the State? What impact will the interconnector have on the electricity market when it is opened in 2012? For example, how will it affect the marginal cost, the retail sales index and the role of the incumbent, the ESB? In other words, in what way will it promote competition? What impact will it have on renewables? What role will wind power play in the all-Ireland market from 2012 onwards?
I am reluctant to give a figure for the ultimate cost of the interconnector before the groundwork has been done on specific routes and so on. I have heard a ballpark figure of €500 million on a number of occasions but I would not go to the wall on that. The cost could be higher or considerably lower than that when the necessary works at each end are taken into account. Until I have more detail on the specifics of the route, seabed surveys and so on, it is pure guess work.
The fact that it will be a hybrid scheme will not have affect the State, as it leaves the question of financing open. One of the reasons for the interconnector is to enhance security of supply. It will provide 500 MW, which will be available "at the flick of a switch". It will increase the opportunity for other operators to buy electricity from companies other than those in the small pool in Ireland and sell it on in the domestic market. That should help competition and consumers regarding price.
With regard to renewables, the interconnector will assist our efforts to reach targets. The major problem with wind energy is intermittency, and electricity supply is, therefore, only available 30% of the time. The fact we have effective back-up that can almost be turned on at a switch will greatly help the position with regard to the extra renewables in the system.
How much control of the interconnectors, if any, will the State have? How many interconnectors will ultimately be provided? Are plans by one private enterprise group to build an interconnector at an advanced stage and within a similar completion timescale to that referred to by the Minister? With regard to the Minister's recently launched Green Paper, a reference was made which would appear to confuse whether the Minister's intention is to use publicly built or funded interconnectors or privately built or funded interconnectors. Some interconnectors will begin from the United Kingdom and some will begin here. Which project will begin first?
The interconnector will be completely State-owned through EirGrid, which will have complete control of it. There is one North-South interconnector, there will be a second North-South interconnector and there will be a third interconnector which will run east-west. These projects will be completed at the latest by 2012. I envisage a need for one more interconnector at that stage. As I stated in reply to earlier questions, we will begin planning for that further interconnector by 2010. It might be another east-west interconnector or, given the need for security of supply, it might link Ireland to the European mainland.
With regard to how it might be built, the Commission for Energy Regulation is responsible for designing the competition. A private contractor may end up designing and building it, but ownership will remain with the State. There are two basic options for financing the projects. The first is Exchequer funding, which has not been used to date. However, the discussion point put forward in the Green Paper is that this is critical infrastructure which perhaps, with some other infrastructure, should be paid for by the Exchequer because it is so critical. The other option would be to finance the project the way every other piece of energy infrastructure is financed, namely, the companies would get a rate of return each year——
Yes, it is the consumers. There is an argument that taxpayers are consumers. I am open to discussion as to whether they should pay directly or through taxes.
Deputy Durkan referred to a private company. The Department received correspondence from that company but, so far as I know, it has not approached CER, which would be the first port of call. I understand the company has not contacted my counterpart in Wales as I met him four or five weeks ago and he was not aware of it. Perhaps it has made contacts more recently but, up to two or three weeks ago, it had not made contacts like that, although it claims to have finance in place.
In what year did the Department receive the proposal or begin consideration of the proposal for the new east-west interconnector? If we believe we will need a further interconnector with the UK or mainland Europe, why must we wait until 2010 before beginning planning for it? With regard to the Minister's Welsh counterpart, how do we know the system operator in the UK will allow us to have easy and full access to that system? If the UK system is under pressure at a particular time, do we know we will be given access to 500 MW from it? What reinforcements are necessary on the Welsh side to provide the proper infrastructure transmission network for this interconnector? Has the Minister obtained agreement from the British Government with regard to that investment or must we invest directly in some of the grid reinforcement that might have to occur in the UK?
When was the concept of a new east-west interconnector first raised in the Department? I am concerned this process has taken several years. Given the number of consultants and reports involved, the matter seems to have been ongoing for years despite the urgency of the situation when one considers our energy crunch in terms of electricity demand and capacity availability. This critical project should have been fast-tracked. I am concerned it has been sitting for three or four years with people gazing at it rather than doing anything about it.
Sometimes we get accused of moving too fast on a project, of not thinking matters through and not foreseeing all of the difficulties. In other cases, as the Deputy rightly states, matters go on for a long time before we get from the concept to the project. I cannot give the Deputy a date but it was probably four years ago that a decision was made that there should be an interconnector. We tried to do this on a merchant basis but when all the procedures were finished, we discovered there was not the required interest in the market. The Government then decided it would consider alternative options. It was through CER that we commissioned a report from KPMG, which made a number of recommendations in July of this year, and it is on that basis that we are moving forward.
The decision in principle to have an interconnector has been in place for three or four years. In fact, there was a decision in principle that there would be two 500 MW lines. However, the recent KPMG report stated that two 500 MW lines would not be desirable at this stage because they might have the opposite effect in the market to the effect we want. So, in one sense, the fact that we had to go back to the drawing board and make a further study at least brought out that point, and we probably saved €200 million or €300 million in that regard.
With regard to the question of how we know we will be able to make the connection and install reinforcements, the decisions on these matters will be made in consultation with our Welsh and UK colleagues. The studies carried out reveal there are two possible routes. Deputy Broughan asked me a question on this matter earlier but I did not get to reply to it. There are two possible routes, north and south Wales, to two sites on this side of the Irish Sea. Reinforcement work would be needed on both sides of the Irish Sea. Such work would be in the interests of whatever power company we will be dealing with in the UK, although the position there is not the same as it is here. The UK company will examine that and make a decision on the basis of the possibility of extra business for it.