John Browne (Wexford, Fianna Fail)

Thank you, a Chathaoirligh. I welcome this opportunity to speak to Members of this House on the two important issues of security of energy supply and the development of renewable energy sources. Recent events in the Ukraine have brought these issues to the forefront of many people's minds.

In common with other member states of the European Union, Ireland is consuming more and more energy products. Across the community, production is insufficient for the Union's energy requirements. As a result, external dependence for energy is constantly increasing. This, of course, reinforces the need to research and develop renewable energy sources as a matter of priority.

As a statutory independent body, the Commission for Energy Regulation, CER, plays a key role in ensuring security of supply. Its functions include regulation of both the gas and electricity markets, assuming the key monitoring and oversight role, and taking any measures it deems necessary to protect the security of supply. It also has responsibility for the preparation of the annual gas capacity statement and approval of the form of the ESB national grid's generation adequacy report.

In accordance with the requirements of the Electricity Regulation Act 1999, ESB National Grid, EirGrid, published its most recent generation adequacy report in November 2005. This report informs and augments policy developments going forward. It sets out estimates of the demand for electricity for the period 2006-12, the likely production capacity that will be in place to meet this demand, and assesses the consequences in terms of the overall supply and demand balance.

The generation adequacy report 2006-12 states that sourcing new generation capacity from 2009 is prudent. The generation adequacy position should be manageable from 2006 to 2009 provided that new generation stations come on stream as expected. This is contingent on electricity generation plant availability significantly above the average level of performance achieved over the period 2003 to 2005. It is also dependent on there being no unexpected plant closures from the current generation portfolio.

Under the Gas (lnterim) Regulation Act 2002, the CER has responsibility for monitoring the security of natural gas supply. The commission is also required to publish an annual gas capacity statement. This statement also provides a seven-year rolling forecast of capacity, flows and customer demand in order to assess the adequacy of the Irish gas transmission system.

The gas capacity statement considers whether projected supplies of gas from indigenous sources, imports and storage are sufficient to meet forecast demand. A key finding of the 2005 gas capacity statement is that, even under unusually extreme weather conditions, the transmission system will cope with forecast demand.

In its role as the natural gas transmission system operator, Bord Gáis Éireann has developed contingency plans in the event of any curtailment in gas supplies. These plans include switching gas-fired power generation plants to alternative fuels, seeking voluntary reductions in consumption from large industrial gas consumers and utilising BGE's reserves from the south-west Kinsale reservoir.

I am advised by the CER that the availability performance of some of the existing older ESB generation plant is giving cause for concern and has been for some years. Performance improved towards the end of 2004 and during the first half of 2005. It did, however, disimprove in the second half of 2006. This disimprovement, caused by the breakdown of several large generation units, means that at times during the winter the margin between demand and available generation has been lower than the design level.

ESB National Grid works with generators to schedule necessary maintenance outages at times when margins are highest. It is also able to call on electricity imported from Northern Ireland and from Britain, via Northern Ireland, to supplement electricity production in Ireland. In any emergency situation the electricity transmission system operator has in place a number of specific emergency plans to deal with an incident quickly and effectively. These include power system restoration and capacity shortfall plans, which involve prioritising supply to critical users such as key telecommunications, security, communications, transportation and medical facilities.

In 2002, the CER conducted a public consultation process on investment in new electricity generation capacity. The CER decided to conduct a competition to bring additional capacity onto the system. Aughinish Alumina and Tynagh Energy were the successful bidders in the competition. As a result, significant committed new thermal generation capacity of up to 536 MW is scheduled to be brought on stream next month to augment the current installed capacity of 5,500 MW. Tynagh, County Galway, at 384 MW and Aughinish, County Limerick, at 152 MW, are currently undergoing full commissioning. In addition, in October 2004, Viridian, Huntstown Power Limited, announced its intention to proceed with a second new 400 MW generating station at Huntstown in north County Dublin.

The issue of security of gas supply has re-emerged on the political agenda. Fortunately, the Russia-Ukraine situation did not have a direct impact on gas supplies to Ireland. Gas flows for all shippers and suppliers through the transportation system continued to operate normally and in line with nominated quantities.

Currently, Ireland imports over 80% of its gas supply from the United Kingdom. Last year, the UK became a net importer of natural gas, relying on imports via interconnectors to mainland Europe and on liquefied natural gas, LNG, imports to boost its own indigenous supplies. My Department, the CER and Bord Gáis Éireann, BGE, are all in regular contact with their counterparts in the UK. I have been assured that in the event of an emergency any reduction to our supplies will be proportional, fair and balanced.

As our gas imports from the UK account for only 4% of the total UK market, a supply interruption is unlikely. Were it to occur, however, BGE has estimated that such a reduction in supply could be effectively managed by switching gas-fired power generators to alternative fuels. The CER's task force on emergency procedures is currently reviewing the need to strengthen procedures in place in the event of a supply interruption. It is essential that the impacts upon electricity and gas customers from any such supply curtailment scenario be minimised.

In common with other EU countries, Ireland has commercial reserves of natural gas that are held by licensed natural gas shippers and suppliers. At current levels, BGE's Kinsale reserves would supply a significant amount of gas for a limited period. This is in addition to stocks held by BGE in the UK.

The CER is currently in discussion with Marathon Oil Ireland Limited about the development of a commercial natural gas storage facility at south-west Kinsale. The CER has recently completed a public consultation on the proposed regulatory regime for the storage facility. It is planned that the storage facility will be operational by mid-2006. Scope for a common approach with our Northern Ireland counterparts on storage and liquefied natural gas has also been identified.

Electricity and gas interconnection remains a fundamental part of the Government's energy strategy. It will provide increased security of supply, competition and integration of the Irish energy market into the wider European energy market. The Government remains fully committed to progressing the development of east-west electricity interconnection with Great Britain as a matter of priority. At the Minister's request, the CER has explored the options for such development. The CER appointed consultants to advise on the financial, technical, commercial and procurement aspects of the development. A consultation process was undertaken with parties who expressed an interest. The report of the consultants, which is now complete, includes a comprehensive technical and legal review and an analysis of regulatory and procurement aspects. A decision on how best to take the east-west electricity interconnection project forward, be it on a regulated or a hybrid regulated-merchant basis, is the next step in the process.

With regard to North-South electricity interconnection, a joint intergovernmental endorsement was given in 2004 for plans put forward by the CER and the Northern Ireland Authority for Energy Regulation for the construction of a second North-South electricity interconnector. The transmission system operators are currently working on phase 1 of the project, including technical issues and route selection. This phase is likely to be completed by early 2007. Phase 2, the construction phase, will then commence and it is estimated that the interconnector will be operational by 2012. The proposed interconnector will provide increased system security and reliability and enhanced competition. North-South interconnector development will also facilitate the development of a fully functioning single electricity market.

An all-island energy market, closely interconnected with Europe, requires the development of a holistic market in several areas of operation. Harmonising a common approach requires a convergence of systems and practices for both gas and electricity. To achieve this aim, in August 2004 the CER signed a memorandum of understanding with its counterpart, the Northern Ireland Authority for Energy Regulation, NIAER, for an all-island electricity market. The memorandum describes the set of principles agreed by the regulators that will underpin the development of an all-island market. The potential benefits of a mature single electricity market or SEM include, inter alia, greater security of supply, a larger single market with competitive prices and open and transparent competition at all levels of the marketplace.

With regard to gas, the Government approved in September 2001 the making of an Exchequer contribution of not more than £10 million, or €12.7 million, on completion of the gas network in Northern Ireland, which would include extending the natural gas pipeline from Belfast to Derry and the construction of a South-North pipeline. This proposed contribution by the State recognises that a cross-Border gas infrastructure is an essential part of the agreed North-South aspiration for an integrated all-island energy market. In the intervening period, work was completed in 2004 on the Belfast to Derry natural gas pipeline extension. Work is well advanced on the construction of the South- North pipeline and the project is due for completion this summer. Payment of €12.7 million will be made to the Department of Enterprise, Trade and Industry of Northern Ireland on completion of the works.

Ireland has a rich vein of renewable energy resources, the development of which is an essential part of the Government's overall energy policy. The available large hydroelectric sites have already been harnessed as the most efficient form of electricity production from renewable energy sources. Future growth requires us to direct investment to other renewable energy technologies.

The proven alternative technologies at this time are wind power, small scale hydro and biomass technologies, including landfill gas. The most competitively priced of the alternative technologies in the last decade has been wind-power. Ireland, in line with the global trend, has concentrated on that technology as the initial growth sector. However, unlike hydro plant and other conventional technologies, wind-powered plant cannot be precisely regulated to match consumer demand. It can only produce electricity when an adequate wind resource is available. It is imperative, therefore, to see technological progress in other technologies if substantial movement towards other renewable energy technologies is to continue.

The recent increases in the prices of oil and gas have acted as a catalyst for global investment in new solutions and have focused the public's mind on the high costs of energy. In Ireland, our competitiveness is particularly exposed due to our reliance on fossil fuel imports. Increasing the amount of renewable energy in the domestic energy mix is therefore even more persuasive as part of an ongoing programme to redress this significant imbalance.

The current programme commenced with the alternative energy requirement programme, AER, in the mid-1990s. The programme supported the construction of new renewable energy powered electricity generating plant. The national programme was succeeded in 2001 by a key EU directive, commonly known as the renewables directive. The directive sets indicative targets for the increased consumption of renewable energy by each member state. In the case of Ireland the indicative target is to increase green electricity to 13% of total consumption by 2010.

In 2004, the last full year for which figures are available, renewable energy increased its contribution to gross electricity consumption in Ireland to 5.2%, from 4.3% a year earlier. The most significant factor is that wind-power overtook hydro power for the first time in terms of renewable energy resources harnessed in 2004. The Government's target is to meet or preferably surpass the 13% target by 2010. This is a challenging target and when delivered will represent significant progress.

In the areas of renewable heat and transport, my Department is introducing a range of new initiatives to promote the use of alternative, environmentally sustainable fuels and heating systems. The EC biofuels directive sets non-mandatory indicative targets of 2% market penetration for biofuels by the end of 2005 and 5.75% by the end of 2010.

Ireland, like most member states, is still at a very early stage in developing biofuels policy. In 2005, my Department introduced a pilot mineral oil tax relief scheme for biofuels projects which has helped to kick-start market development of biofuels. Eight innovative biofuels projects were approved under the pilot scheme and the production and sale of a range of biofuels on the Irish market has already commenced as a result of this initiative. Of the eight projects, four are pure plant oil, three are biodiesel or other biofuel and one is a bioethanol proposal. It is estimated that the pilot scheme will result in 16 million litres of biofuels being placed on the Irish transport market by next year.

Following on the success of this scheme, a second more ambitious scheme was announced in the 2006 budget. The new scheme will run over a five year period, commencing this year. This will place Ireland firmly on the map in terms of European biofuel production.

In the area of renewable heat, in the 2006 budget my Department announced a major new multi-annual grants package of €65 million for renewable energy projects. The package will include grants for domestic renewable heat technologies such as wood pellet boilers, solar panels and geothermal heat pumps; medium and large scale biomass boilers for the services, business and industrial sectors; a programme of investment in combined heat and power; and grants for the development of biofuels facilities in Ireland. These initiatives complement the existing programmes being rolled out by Sustainable Energy Ireland and are designed to make renewable energy more accessible to all sectors of the economy.

In renewable heat and transport, the Government has made major strides in the past year. We intend to shortly launch the various schemes announced in the budget and these will impact directly on motorists, householders, and businesses. Ultimately, the Government's aim in this regard is to reduce emissions, increase the availability of indigenously produced heat and transport fuels and provide a low-cost alternative to traditional fossil fuel heating systems. Ireland's bio-energy sector is growing rapidly and a market for bio-energy products is swiftly emerging.

Security of supply policy does not seek to maximise energy self-sufficiency or to minimise dependence but to reduce the risks linked to such dependence. The overall challenge is to gain a balance between economic and environmental needs while diversifying the various sources of energy in order to minimise dependence on a single source of supply. Ireland and the European Union must now face new challenges characteristic of this period of profound transition for the European economy.

Matching supply to demand is crucial to ensuring security of supply policy. Ireland's modest domestic energy resources and its geographic distance from other countries make security of supply an especially important issue. Assuring security of energy supply while simultaneously protecting the environment requires a multifaceted approach with an optimal supply mix.