Cost Benefit Analysis obligations for Ireland's Renewable Action Plan - Part One

Ireland finally decides to do a Cost Benefit study for the renewable energy programme

By Pat Swords BE CEng FIChemE CEnv MIEMA

The Sunday Independent of the 12^th April 2015, in an article entitled “Government yet to publish cost benefit analysis on wind energy”, clarified that “a spokeswoman from the Department of Communications, Energy and Natural Resources said the Government believes it is necessary to take a broader look and will soon publish a report.

• "It was considered timely to undertake and publish analysis which takes a broader look at the components contributing to the projected costs, in order to inform public debate and commentary on the cost and financial impact on the electricity customer," she said”.

Given that billions of private and public money have already been spent in an effort to ensure 40% of Ireland's electricity is supplied by renewable sources by 2020, there is more to this than just a complete lack of common sense. After all you “look before you leap for as you sow, ye are likely to reap”, is a well-established proverb and for good reason too. Do different rules apply, as it is our money as electricity consumers, which is to be spent on this programme? So what are the rules? What have we ended up with as a result of all this expenditure to date?

There are in fact a whole series of questions to be addressed, which can be broken down into the following themes:

1. Was there not a regulatory requirement to do this form of cost benefit analysis prior to this programme being initiated?
2. What has actually been the benefit to date from our expenditure?
3. If I am sceptical of this Green / renewable agenda and a wind farm is to be built in my vicinity, what is being used to support this decision making?
4. If I have a right to a social market economy, namely to buy goods and services on the free market at the best prices, what justification is being used to force me to purchase the renewable energy, for which I am not interested in paying a premium for?
5. As regards those who claim we have no option, it’s a mandatory EU target and there are huge fines if we don’t comply; how accurate is that?

Note the supporting information for what is addressed in the following section, plus additional analysis, can be found in the document produced by the same author entitled: “Clean energy, what is it and what are we paying for?”

Part 1 - Obligation to complete a prior cost benefit analysis

Warren Buffet is one of the world’s most successful investors and renowned for his ‘folksy sayings’ such as "risk comes from not knowing what you're doing" and “it’s only when the tide goes out that you learn who has being swimming naked”. Appropriate comments in the light of the complete mess, which was left here in 2008, and which will still affect us for generations to come. That Ireland is acutely prone to ‘Groupthink’ is now well known, the Finnish economist Peter Nyberg, who was commissioned in 2011 to write the official Irish Government report on the banking sector in Ireland, made it very clear, in that ‘Groupthink’ was the main contributing factor to the resulting financial crises, as his executive summary put it:

• Widespread lack of critical discussion within many banks and authorities indicates a tendency to “groupthink”; serious consideration of alternatives appears to be modest or absent. A tendency to favour silo organisation and submissiveness to superiors strengthened this effect, particularly among the public authorities.

As the report went on further to clarify:

• Groupthink occurs when people adapt to the beliefs and views of others without real intellectual conviction. A consensus forms without serious consideration of consequences or alternatives, often under overt or imaginary social pressure. Recent studies indicate that tendencies to groupthink may be both stronger and more common than previously thought.

Indeed, history abounds with regulatory failures, such that countries have adopted formal Regulatory Impact Assessment procedures, which include cost benefit analysis and public consultation procedures. Indeed, the Irish Government decided in June 2005 that Regulatory Impact Analysis should be introduced across all Government Departments and Offices and applied to a range of regulatory measures including:

• Proposals for EU Directives and significant EU Regulations when they are published by the European Commission.

Furthermore, the Irish Regulatory Impact Assessment guidelines from 2005, which were later updated in 2009, clarify:

• The steps of Regulatory Impact Assessment comprise:

1. Statement of policy problem and objective

2. Identification and description of options

3. Impact analysis including costs and benefits of each option

4. Consultation

5. Enforcement and compliance for each option

6. Review

7. Summary of merits / drawbacks of each option and identification of recommended option where appropriate.

• Examine at least three options. Include the ‘no policy change’ option and at least one regulatory alternative

• Cost-benefit analysis: This entails identifying and evaluating expected economic, environmental and social benefits and costs of proposed public initiatives. A measure is considered justified where net benefits can be expected from the intervention.

• Cost Benefit Analysis must be considered where costs of €50 million over ten years are likely.

• Where the costs exceed the predicted benefits, the proposal should be refined or in certain circumstances abandoned.

However, the Irish authorities simply never completed a Regulatory Impact Assessment when the proposal for the 20% renewable energy by 2020 Directive was published by the EU Commission; i.e. this procedure was bypassed with the development and introduction of Directive 2009/28/EC.

If we consider the EU itself, it has an even longer tradition of ‘Impact Assessments’, which as its own guidance clarifies:

• Impact assessment is about gathering and analysing evidence to support policy making. In this process, it verifies the existence of a problem, identifies its underlying causes, assesses whether EU action is needed, and analyses the advantages and disadvantages of available solutions.

One also has to seriously question SEC(2006) 1719, the sixty two page document, which was the official Impact Assessment for this massive roll out of the 20% renewable energy programme. First off, how on earth can one properly assess the impact of such an enormous programme on the EU as a whole, in just sixty two pages, a programme which for the island of Ireland alone is to result in the plastering of the countryside with over three thousand wind turbines and over a thousand kilometres of new high voltage lines? In reality, this can be partly explained by the fact that the 20% target was just ‘pulled out of a hat’ by the politicians, without working out first in advance, as to what was actually achievable, not to mention its costs, benefits and impacts:

• In 2004, the European Parliament called for a target of a 20% share of renewable energy in 2020. Also in 2004, the Commission agreed to "thoroughly assess the impacts of RES resources, notably with regard to their global economic effects before deciding on adopting targets beyond 2010 and before taking a position on a 20% target for the share of renewable energy in 2020"15. And in 2006, the spring European Council asked the Commission to look into a 15% target for renewable energy in 2015.

Did that assessment of the impacts of Renewable Energy Sources (RES) actually happen? The Impact Assessment report states, i.e. claims, that the following impacts were examined:

• Feasibility and achievability risks (Section 5.1.1);

• Costs (Section 5.1.2);

• Benefits (Section 5.1.3):

- Greenhouse gas (GHG) emissions

- Security of supply

- Employment, GDP and export opportunities

- Biodiversity impacts

- Regional development and rural economy.

Not only would one question the brevity of the documentation, but also the competency of those who wrote it, in particular the academic institutions and their computer models. The Impact Assessment was most certainly not completed by a recognised engineering company with a track record in major power generation projects and the assessments of the same. For instance with respect to the capital costs required for investment in renewable electricity, it claimed:

• Under PRIMES, which works in detail with the electricity sector, investment needs in this sector are calculated to be about €160bn in the business-as-usual case (renewable share across all sectors: 10.4%) and some €280bn to reach 20% by 2020 in the PRIMES high renewables and efficiency scenario. In comparison, the Green-X model projects, for the power generation sector, an investment cost of €232bn for renewable energy in the business-as-usual scenario and a range of €285–414bn in the 20% scenarios.

Indeed, it can quite easily be calculated that the capital investment in solar panels and wind turbines alone in the EU by the end of 2012 was €600 billion and that's only a fraction of the investment required to be installed by 2020. So we are not even half way there and have completely blown the budget.

Indeed, as regards the alleged environmental benefit, the EU Commission’s official position in their “Renewable Energy Road Map Renewable Energies in the 21st Century: building a more sustainable future COM (2006) 848 final¹” was summarised by:

• “The additional renewable energy deployment needed to achieve the 20% target will reduce annual CO₂ emissions in a range of 600-900 Mt in 2020. Considering a CO₂ - price of €25 per tonne, the additional total CO₂ benefit can be calculated at a range of €150 - €200 billion. Actual CO₂ prices will depend on the future international climate regime”.

So where did this benefit analysis come from? It has to made clear that this is not a benefit analysis, it is a political statement; the €25 per tonne was based on the expected trading price for carbon dioxide. The EU never had, and continues not to have, any assessment of what environmental damage carbon dioxide is doing. While extensive work has been completed in order to assign a financial damage cost to common air pollutants, such as particulates and sulphur dioxide, there is essentially zero equivalent information for carbon dioxide.

We also need to critically evaluate the other claim above, that the additional renewable energy deployment needed to achieve the 20% target would reduce annual CO₂ emissions in a range of 600-900 million tonnes (Mt) in 2020. The source of this claim was the PRIMES computer model used by the Commission, a computer model which has caused a lot of controversy, as it remains the private property of the National Technical University of Athens. While assumptions are published, independent parties cannot replicate the results.

However, the PRIMES model makes no allowance for the significantly increased power station inefficiencies, which are occurring on the grid, with resulting higher fuel consumption and emissions, as more and more intermittent renewable energy is placed on the grid. In other words the balancing costs, which the EU Commission recognised had to be financially funded under the REFIT and similar schemes. The PRIMES computer model is therefore fundamentally flawed and over predicts any emission savings which could arise.

Furthermore, if we come to the claim in the Impact Assessment document that the impacts on “regional development and rural economy” were addressed, then there is zero indication that this happened, as outside the ‘contents list’, it was never actually mentioned again. To reiterate this point, at no stage in the documentation or the associated models PRIMES and Green-X was it ever worked out what exactly was to be built, where it was to be built, what were its proper costs, what were the impacts and real benefits? For instance, there is not a scrap of information on what was to be built in Ireland, where it was to be built, etc. As the introduction to the relevant 2009/28/EC Directive explains, the overall 20% target for the EU was then shared out among the Member States based on their existing level of renewable energy and a factor based on GDP. Hence Ireland obtained a 16% target and Austria, a country with considerable hydro reserves; essentially double that at 34%.

Neither were any alternatives to renewable energies assessed. After all, it’s not unknown that there are a multitude ways of reducing carbon emissions. For instance, it is indisputable that electricity in Denmark costs twice as much as France and has some ten times the amount of carbon emissions in its generation. Furthermore, the carbon price on the EU’s emissions trading scheme has effectively collapsed to €5 per tonne, as there were so many low cost options available, such as in efficiency improvements, to reduce carbon.

None of this was looked at, as the whole Impact Assessment document was solely about a percentage target of renewables and nothing in relation to assessing what this actually ‘would do for you’ or alternatives to achieve that goal. In this regard, there are 35 billion tonnes of anthropogenic (man-made) carbon emissions each year. Given the PRIMES claim that the 20% target would reduce annual CO₂ emissions in a range of 600-900 million tonnes (Mt) in 2020 and this was a clear over-prediction, even if the EU’s renewable energy programme had been reasonably effective, we are still only looking at less than a 2% reduction in anthropogenic emissions. In other words, it simply was never capable of having any impact on the climate cycles.

Note: Both the EU and Ireland in their National Implementation Reports to UNECE with regard to the Aarhus Convention on Access to Justice, Public Participation in Decision-Making and Access to Justice in Environmental Matters claim that their system of Regulatory Impact Assessment fulfills the obligation under Article 7 of the Convention. Article 7 being the legal requirement for public participation concerning plans, programmes and policies related to the environment.

There is already a decision of non-compliance (V/9g) of International Law at UNECE against the EU in that it failed to comply with Article 7 of the Convention with respect to the adoption of National Renewable Energy Action Plans (NREAPs) by its Member States on the basis of Directive 2009/28/EC. These NREAPs were rushed through; despite the provisions of Article 7 being that the public were to be provided with the ‘necessary information’ for ‘effective participation’ in the decision-making. There is a parallel provision in the Aarhus Convention related to environmental information, environmental information which includes in its scope; ‘cost-benefit and other economic analyses and assumptions used in environmental decision-making’:

• Recognizing the importance of fully integrating environmental considerations in governmental decision-making and the consequent need for public authorities to be in possession of accurate, comprehensive and up-to-date environmental information.

Indeed, in the UNECE Communication ACCC/C/2010/54 taken by the author and which lead to the previously mentioned decision of non-compliance against the EU, not only did the EU Commission take an ‘Ad Hominem’ approach to the author, but in their opening written statement to Compliance Committee meeting in Geneva stated:  

• “The Convention leaves significant discretion to authorities by using words such as "adequate" and "sufficient". In addition, it focuses on information on threats to the environment and does not require information to be collected on comparative costs”.

So according to the EU, the Irish public are to be kept in the dark about the huge costs they are being forced to fund, despite the Convention’s specific requirement that they are to be provided with the ‘necessary information’ for ‘effective participation’ in the decision-making.

Indeed if we further consider what environmental information was actually in the NREAPs and they are an awful disjointed and rambling document to read, the core issue was to be found right at the end of the NREAP template, which was prepared by the EU Commission as part of the compliance with Directive 2009/28/EC.

5.3.   Assessment of the impacts (Optional)

Table 13

Estimated costs and benefits of the renewable energy policy support measures

Measure	Expected renewable energy use (ktoe)	Expected cost (in EUR) — indicate time frame	Expected GHG reduction by gas (t/year)	Expected job creation

An access to information on the environment request was sent in to the Irish Department of Communications. Energy and Natural Resources in July 2011 in relation to the failure to complete the above section of the NREAP template and the basis for emission savings claims made in the State Aid for Environmental Protection application in 2006 for the REFIT scheme. As the reply documented not filling in the above Section of the NREAP was justified on the basis that 19 Member States did likewise and a verbal decision had been reached by the Department and Sustainable Energy Authority of Ireland (SEAI) not to so. Indeed, what the remaining Member States provided for Section 5.3 can be best described as having ‘fudged it’.

In conclusion then the glaring lack of relevant information on not only cost and benefits, but other critical environmental information, is not just related to an abject failure to regulate in legally compliant manner, but also deprived citizens of their legal rights to participate in that decision-making process.  

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1 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52006DC0848&from=EN