Seanad debates

Thursday, 24 March 2022

Nithe i dtosach suíonna - Commencement Matters

Energy Prices

10:30 am

Photo of Lynn BoylanLynn Boylan (Sinn Fein)
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I do not need to tell the Minister of State that the cost of energy is spiralling out of control. We know that renewables are cheaper than oil. The economic argument for transitioning to renewables has never been stronger and made more sense. However, the more we can produce electricity from renewables, the more we can protect households from the high prices of imported fossil fuels. My question for the Minister of State today is why, when we hear so much about our excellent wind energy resources, are our prices so high?

In 2020, we had our first auction where wind energy cleared at €74 per megawatt hour. This was the highest in Europe in 2020 and in 2021. No one else was in the 70s. We see prices in the 50s. Even in Spain it was in the 20s. At this week's Committee on Environment and Climate Action, we heard from witnesses that the costs and risks associated with navigating the system are excessive and that grid connection costs are in the upper echelons. This is having a particularly negative impact on community-led onshore wind projects that would naturally have less money in the bank. According to the industry itself, it is saying that it can produce the electricity from Irish wind at half the current price.All that is in the way, it seems, is Government policy. The choices the Government is making have given us the highest price and the choices it makes going forward will determine whether Irish households are paying the lowest or highest possible prices for renewable electricity.

Looking forward to the second auction on 2 May for onshore only, how confident is the Minister of State that the price will fall? Will prices in renewable electricity support scheme, RESS, 2 be lower than in RESS 1? That would seem very unlikely, given what is happening in the commodities market alone. The price of steel, which makes up 80% of a wind turbine, has quadrupled. I know the price of steel is not within the remit of the Minister of State, but it comes on top of already very expensive wind energy. The focus should be on reducing the cost where we can do so. Commercial rates for wind farms have risen between 200% and 300% in the past couple of years, unlike those for fossil fuels. The planning system, as we know, is under-resourced and this is leading to planning delays. Those delays are factored into the bids in the auctions. In addition, the failure to strengthen the grid since 2000 means substantial amounts of renewable power are being lost because the transmission system cannot cope with the volumes of renewable electricity available. As more wind and solar farms are being built, larger amounts of power will be lost, whereas a stronger electricity grid could actually cut costs by 18%. All of this is being factored into the bids when we have these auctions.

What is the Government's joined-up approach to reduce costs, especially in areas where it has the power to do so? The industry has called for a high level cross-government group to sit around a table with a brief to identify where the costs are. For example, it would discuss resourcing the planning system and grid connection costs. The group would then feed back every six months to Cabinet with proposals, having identified where the problems are and how to fix them. Has the Minister of State considered that proposal? Will he accept it? Will he look at the other areas where he has the power to bring down the cost of renewable energy?

Photo of Ossian SmythOssian Smyth (Dún Laoghaire, Green Party)
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There is a fundamental difference in the way the pricing of fossil fuel energy and renewable energy is arrived at. As the Senator knows, oil, gas and coal are traded on international markets and we are subject to the vagaries of those markets. Often they are sourced from highly unstable regions in the world, as we are reminded, whether it is the Middle East or Russia. This has led to great variability and frequent energy crises and shocks. Although people criticise renewable energy for being linked with the variability of the weather, in fact there is huge variability in fossil fuels. The fundamentals of renewable energy are that once the capital cost has been paid, there is a very low cost of generation with no fuel to costs to add to it. Therefore, it is a very different situation.

Given the unprecedented rise in electricity and gas prices, reducing the burden of energy costs on consumers is a matter of serious concern to the Government. The Government is very aware that recent electricity and gas price increases caused by international conditions, including the ongoing conflict in Ukraine, are putting increasing pressure on consumers and businesses, particularly those in a more vulnerable economic condition. It is important to recognise that these price increases are not caused by Government or regulatory decisions, as price regulation in this sector ended many years ago. Suppliers compete with each other on price and set their own prices accordingly, as one would expect in a competitive, commercial, liberalised market. It is important to point out that all European markets are experiencing these price increases. While Ireland has its own specific circumstances, the rise in energy costs is not unique to us.

The most immediate factor affecting electricity prices in Ireland is the upward trend in international gas prices, which has brought them to an unprecedented high. In Europe, wholesale natural gas prices have been on an upward curve since the second half of 2020, for a variety of international reasons. Current indications are that these higher prices will continue at a significantly higher level for the foreseeable future, particularly given the unprovoked Russian invasion of Ukraine. Higher gas prices feed directly through to retail electricity prices, as the wholesale price of electricity correlates strongly with the price of gas, as this is the primary fossil fuel used for electricity generation.

As well as the package of measures that the Government recently announced to combat the increases in the cost of living, it is a fact that the increased roll-out of renewable energy will, in the longer term, reduce Ireland's susceptibility to spikes in international fuel prices. The Government is committed to ensuring that by 2030 up to 80% of our electricity will come from renewable sources. This renewable energy will help protect us from fluctuations in gas prices caused by global supply and trade issues, thereby increasing our energy security.

The key actions to reduce the cost of renewable energy are highlighted in the Climate Action Plan 2021, but I will highlight a few of them now. The RESS, which supports the roll-out of renewable electricity, held its first auction for onshore winds and solar projects in 20201, with 63 projects currently progressing towards generation. The RESS 2 auction qualification process has begun, with the auction scheduled to take place in May 2022, which will deliver a major increase in renewable electricity generation by the end of 2024. A RESS 3 onshore auction is also under development, with an auction due to take place next year. The Department is also finalising the terms and conditions on the first of three planned offshore auctions this decade for the RESS to deliver 5 GW of offshore wind by 2030. All of these RESS auctions are competitive, ensuring that generators are competing on price. When the wholesale price is higher than the bid price submitted by the generators, they will give the difference back to consumers through the public service obligation, PSO, levy. This, in effect, helps insulate electricity customers from price shocks and will help give greater certainty to bill payers in coming years.

The operation of the clean export guarantee, CEG, tariff represents the first phase of a comprehensive enabling framework for micro and small-scale generators in Ireland that allows them to receive payment from their electricity supplier for all excess renewable electricity they export to the grid, which reflects the market value of the electricity. On 15 February this year, the Minister for the Environment, Climate and Communications signed the regulations that transpose Articles 21 and 22 of the recast renewable energy directive, which brought these articles into force. These regulations mean the clean export guarantee tariff is now available for new and existing micro and small-scale generators.

The micro-generation support scheme, MSS, approved by the Government on 21 December 2021, provides capital grants for new domestic, and will provide grants for new small non-domestic, solar photovoltaic, PV, installations. Larger businesses, including farms, that install new larger installations can avail of a clean export premium tariff which will provide a fixed tariff for 15 years for electricity exported to the grid in conjunction with the clean export guarantee. The scheme design will be published very shortly. However, the phased introduction of supports commenced in February, with the transition of the existing Sustainable Energy Authority of Ireland, SEAI, domestic solar PV grant scheme into the MSS. Furthermore, a tax disregard of €200 was introduced in budget 2021 in respect of personal income received by households which sell residual renewable electricity they generate back to the grid.

The Climate Action Plan 2021 also commits to the development of a support scheme for small-scale generators, that is, above 50 kW but smaller than those supported by the RESS, which will be progressed in 2022 and is expected to become available in 2023. This scheme will enable larger businesses, farms and community projects to maximise their participation in the energy transition.

Photo of Lynn BoylanLynn Boylan (Sinn Fein)
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I thank the Minister of State for his response. However, I do not see many answers in it. He outlined how the programme works in terms of how we get the RESS auctions. He is right that renewable energy will protect households from price fluctuations, but it will not guarantee lower prices. We have the highest renewable energy prices in the EU. While some say we are the Saudi Arabia of wind energy in terms of potential, we are the most expensive for delivering renewable energy. Not only does that mean that households are paying more for their electricity, it also means that it undermines and jeopardises our green energy potential as well because cheap renewable energy is needed to produce cheap green hydrogen.

The auctions and bids are banking in the costs, including the costs of planning delays, excessive grid connection costs and inflation because the Government will not index-link the price, unlike other EU countries and Britain. Will the Minister of State give a commitment to consider the proposal to establish a body that will identify where all the costs are and how we reduce the cost of energy for households that are struggling at the moment?

Photo of Ossian SmythOssian Smyth (Dún Laoghaire, Green Party)
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I am happy to look at any proposal the Senator has. My office is always open for her to come to me and discuss a proposal and my mind is always open.

The Senator asked a number of questions. One was about commercial rates on fossil fuel generation, as opposed to renewable generation. That is a matter on which I am happy to engage with the Minister for Housing, Local Government and Heritage, Deputy Darragh O’Brien, because it comes under his Department. Commercial rates, valuation and so on should always be looked to ensure they are in line with the strategy of the Government.

The Senator asked about the RESS 2 auction and whether the prices will come in lower than in RESS 1. As it is an auction, it is hard to know what the bids will be. The Senator pointed out that at present steel prices are high internationally as a result of commodities. I take her point on that but, fundamentally, we are moving to a system where we will generate electricity from something that has no fuel cost - the sun and the wind. The wind has been blowing over Ireland and we have never harvested it before. What will change in future is that instead of being dependent on Vladimir Putin or Gaddafi, we will have our own free source of electricity. Yes, the capital costs will have to be paid, but over 30 years we will have a significant volume of domestically sourced electricity and power, which will keep us warm, provide our transport, provide us with greater self-sufficiency and make us a stronger, more independent nation that does not have to rely on unstable foreign autocratic regimes to provide basic needs to our public. That is a very good thing to happen. I am very optimistic for the future but I am happy to talk to the Senator and listen to any of her proposals for how things should be done better.

Photo of Róisín GarveyRóisín Garvey (Green Party)
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I welcome students from Naas Community College. Ich begrüsse die deutschen Studenten. Ich habe viel über die Umweltbilanz erfarhen als ich in Deutschland wohnte. Die Studenten sind herzlich wilkommen.