Saturday, 28 March 2015

What is ESB's position on the current energy policy ?

ESB is Ireland's largest and oldest energy company. The company built Ireland's first hydro plant at Ardnacrusha in 1929, a great engineering feat at the time. They now operate 10 hydro plants around the country and play an important role in fish stock conservation. They at one time controlled and operated the National Grid which is now run by Eirgrid. However, ESB Networks still play a role in maintaining the grid and transmission infrastructure.

They own 10 thermal (or conventional) power stations from Moneypoint Coal Power station in Limerick to Poolbeg CCGT gas fired power station on Dublin Bay. They currently operate 10 wind farms in the Republic of Ireland (about 10% of the total wind power capacity in Ireland), 4 in Northern Ireland, 2 in England and 1 in Wales. Until this year, they had not installed a wind farm in the Republic since 2010 (in Co.Limerick), preferring Northern Ireland and the UK. They are, however, currently installing a 20MW wind farm overlooking the banks of the River Blackwater in Co.Waterford, an area rich in natural beauty and heritage :

The base of these turbines (Nordex N90s at 2.5MW each) consists of 1,000 tonnes of concrete and 40 tonnes of steel.

They are also involved with Bord Na Mona in building a large wind farm at Oweninny, Co.Mayo which is still going through the planning process.

So back to the main question. What is ESB's position on our energy policy ? Well they obviously want a return on their investments on wind here. Their wind power company made operating losses of €1.6 million in 2012 and € 33,000 in 2013. One would expect that their thermal plant operations have also taken a hit in the past few years with the increasingly intermittent running of plant behind the wind. It is because ESB have such a diverse power generation portfolio that the company often has a more independent position on energy issues than other companies who have a sole focus on renewable generation. We also get more of a macro look at energy issues, rather than the single issue rent seeking views of a wind company.

In the Green Paper submission last year, they outline some of the problems of the current renewables based energy policy :

   Technology-Specific Supports: The establishment of RES specific technology targets by the EU rather than low carbon outcomes has the unintended effect of the EU and National Governments attempting to pick technology winners when there is significant uncertainty as to how innovation will unfold. For example, the long-term cost trajectory for Wind vs Solar energy is currently far from clear. In addition, support for specific forms of generation especially those that have zero marginal cost has the inadvertent effect of undermining the investment economics for other forms of generation that remain necessary to provide back up to these intermittent renewables.

   Carbon-Leakage: The thrust of the greenhouse gas target is production-based rather than consumption-based and as a result creates the prospect of carbon intensive industries relocating to carbon friendly jurisdictions, reducing carbon production in the EU but merely shifting it to other locations.

So lack of investment in back up plant and outsourcing of heavy industry to outside the EU are two issues ESB have with current policy - both issues addressed on this blog. They are also concerned about government policy and regulation interference in the market driving down wholesale prices but driving retail prices up and where only 40% of the electricity price is subject to the competitive market (issues also addressed in this blog) meaning that the price of electricity is kept artificially high by government policy:

For the industry, the subsidisation of renewable energy generation has had serious impacts at an EU level. The increase in subsidised generation in wholesale markets has led to the undermining of wholesale market prices to non-commercial levels, reducing returns and rendering investment in the sector unsustainable. Major European utilities with household names have been brought into financial crisis. Utilities are less interested in investing in the European energy sector, instead preferring the emerging BRIC countries. This is driving the absolute need for capacity markets to complement the energy-only market that was prevalent in continental Europe. To compound matters, in spite of wholesale electricity prices decreasing, retail electricity prices in Europe have increased at exactly the moment when the large scale production of shale gas in the US has reduced energy prices there, worsening Europe’s global competitiveness. The need to incentivise the choices needed for the policy priorities not addressed by the market, has caused levies and taxes to increase to the point where only 40% of the electricity price is subject to the competitive market; the balance is set by policy measures and regulated prices (Eurelectric, 2014).

The fact that wind energy is non dispatchable due to its intermittency is also highlighted as a problem which results in boosting power generation capacity rather than replacing old capacity :

It is a reality that the technology choices that Ireland and Europe need to make to arrive at a sustainable and secure energy system at a reasonable cost are not yet clear. For example, a sustainable form of generation that can be switched on and off as needed and is not reliant on the weather or sunlight is required. 

They also have doubts about the future of EU policy :
 At the same time, total renewable subsidies have reached unprecedented levels...and in the face of Europe’s declining competitiveness, a doubt must hang over the immediate future of the sustainability policy in the EU.

Much of ESB's paper focuses on renewable subsidies and their impact. Wind energy is described as more "capital intensive"  than a CCGT plant, meaning that the ability to re-coup costs is more unpredictable and over a longer period. So policy makers will be more inclined to bring in policies that set fixed electricity prices to support wind energy with detrimental effects for the consumer :

In such a world, the cost of capital and the risk premium that funders will demand to invest in such projects will be a more critical driver of the price that customers will pay. These will be ultimately driven by the industry’s perception of the stability and coherence of energy policy and regulation. In addition, making the wrong policy decisions with such capital intensive projects would lock society into decades of high costs for its energy – costs that customers have to bear.

It is this warning about locking society into high energy costs for many decades that is the most crucial part of ESBs paper. Many in the "green" movement are unconcerned or oblivious to this and instead carry the belief that setting long term high fixed prices for electricity generation will somehow lower energy bills. ESB's position on subsidies and supports for wind energy is very clear - after 2020, they should be removed.

ESB has been a strong supporter of Renewable Energy Sources and will continue to be so into the future. We fully support Government’s target of 40% RES by 2020 and the EU regulations that underpin it as we believe that both provided a really strong kick start to the RES sector and the wind sector in particular. However we believe that further RES targets beyond 2020 and accompanying support schemes should be discontinued for mature technologies such as Wind and Solar. Instead we believe that continuing decarbonisation of the electricity sector should be driven by a strengthened EU –ETS. Our reasoning behind this is as follows - 
 By 2020 the RES industry will have operated on the back of subsidies for some 20 years and there comes a point when such subsidies should be discontinued both in the interest of producers and of consumers.

ESB have played an important role throughout Ireland's history - from installing the first power plant to rural electrification. They have helped to make Ireland a better place to live in the 20th Century. In the early 21st Century, they have followed the money and invested in wind power but are best placed to see the overall effects of energy policy and the best route for Ireland to now take. Our policy makers would do well to heed their advice -  but will they listen ?


  1. This begs the question, what does the ESB mean by the term subsidies for wind? I know of five: 1) Priority dispatch 2) guaranteed price of 8 cent wholesale per kwh (fossil is 5.7) 3) capacity payments 4) Constraint payments 5) Renewable Obligation Certificates. Capacity payments are the only fixed ones, not dependent on production.The grid cannot take away capacity payments from one type of supplier legally. It is likely that cutting subsidies simply means paying the market price for wind energy. Withdrawing priority dispatch would kill off wind energy in only one week. I believe consumers are locked in to high prices for several decades. That was the grand plan all along. To create a separate revenue stream for certain individuals from electricity bills. Then one thing they cannot control is self generation, that may become the business to be in, especially in rural areas where noise is not a constraint.

  2. The article published by the Sin Fein backed newspaper An Phoblacht gives and in sight in to the thinking of the ESB at the time.

    This shows that decisions about wind were largely political in nature with the ESB being seen as been backward looking by Sinn Fein. Politicians believe they can make wind work by sheer political will. In fact, the grid system is a mere mechanical system, the same as a car of lorry, it was designed to run of dispatchable plant and if it had only non dispachable plant, it would never e designed.

  3. In 2004, the ESB and National Grid were one and the same , they issued this report.,%20see%20above%29.pdf

    If the link fails, the name of the report is "Impact of Wind Power Generation In Ireland on the operation of Conventional Plant and the Economic Implications 2004". See page 24 paragraph 2 and graph. Capacity factor is the actual percentage of electricity produced over one year by wind, capacity credit is the contribution to adequacy that wind makes, This is what the ESB said:- (page 24);

    "The reference case for both the 5000MW and 6500MW systems has zero wind capacity and the installed plant is adjusted such that the generation adequacy criterion is satisfied in both cases. As increasing amounts of wind are added to the system then the adequacy improves. As a result, amounts of conventional thermal plant may be removed to restore the adequacy to the criterion level. This quantity of conventional plant is termed the capacity credit that is attributable to wind.
    However, it is an unfortunate fact that the contribution to adequacy of additional amounts of wind decreases progressively and tends towards zero. Consequently, the incremental capacity credit of increasing WPG tends to zero. This effect is demonstrated in Figure 16" WPG = wind power generation. They take a system with no wind and report on the effects of adding more wind incrementally. You can see the law of diminishing returns taking effect.
    So essentially, if we install 1,000 mw of wind this year, it will make no almost contribution to adequacy. This report was never withdrawn and I personally asked the two most recent Energy Ministers to explain it and they sung dumb, as did their officials. I did not expect them to comment, but it means they cannot do a Bertie Ahern on it and say nobody told them.

  4. Well said Val...the whole debacle is a great example of manipulation of an island nation.

  5. PETER SWEETMAN4 April 2015 at 10:39

    They are also involved with Bord Na Mona in building a large wind farm at Oweninny, Co.Mayo due to be completed by 2017.

    1. Thanks for the correction, Peter.

  6. Regarding the ESB's 2004 report mentioned above. The criterion level is the balance level between demand and supply. They take the typical Irish grid with 2 levels of thermal capacity and no wind. They then begin to add wind. At that point thermal = is 5000 & 6500 mw with no wind. The capacity factor of wind is 0 and the capacity credit is also zero. (0 = 0). As wind is added, the capacity factor and capacity credit begin to diverge. At a little wind they are the same, as wind increases the credit reduces. As more is added the gap widens between factor and credit. The factor remains the same because it depends of wind speed, but the credit (contribution to adequacy) tends to zero incrementally. This report is in line with several world wide and with observed experience. I accept it as broadly correct, but I cannot see wind contributing at any level if measured over one year. The other intriguing question is "does the level of wind get to a point where more (not less) other sources of generation are required? If we take an unbelievable level of wind in Ireland @ 40,000 mw. Very little of its output could be used, but turbines would require a lot of grid electricity as house power. If that house power exceeded the total capacity of wind, then more (not less) fuel would be needed to run the system. At the point where contribution turns negative, our wind farms would no longer be generators and become appliances the same as washing machines or cookers. Experience in Denmark, Germany and Spain shows no thermal plant shut down and fuel consumption remaining stable. Indeed in Germany it appears they were forced to open 17 coal plants. I accept they have phased out some nuclear, but is it that much?