The North South Interconnector - what is the payback of the project ?
The North South Interconnector is hailed as the panacea to Northern Ireland's electricity woes.
If we consider Eirgrid’s figures for the interconnector for 2020, they claim a central estimate of €20 million for 2020 and a sensitivity estimate of €13 million. The latter one is actually the justifiable figure. So how much does the North South Interconnector cost? In the presentation to the Oireachtas Committee of 16th June 2015, it was clarified by Jenny Pyper, who is the Chief Executive of the Utility Regulator in Northern Ireland:
- I should apologise for the absence of a crucial bullet point which provides the total project cost of the North-South interconnector, including overhead line, land acquisition, substation and other costs. The total project cost is €286 million
- It is important to understand that, while the security of supply concerns do not directly apply to us - we probably have more comfort in the Republic in terms of the capacity available for generation - there is an argument that we have an excess that cannot flow to Northern Ireland because the second interconnector is not available at the moment, which is imposing costs on consumers. This extra cost, which we think at minimum is about €10 million per annum, is the primary concern from the Republic's point of view.
Note: None of this includes the cost of the 600 MW of wind energy in Northern Ireland to be facilitated by the North South Interconnector, which as previous is in the order of €2 million per MW installed capacity.
From an engineering perspective what is provided above is simply astounding, a project cost of €286 million and a realist return of €13 million results in a simple payback of some 22 years. In the private sector a project would need a simple payback of some 5 years before it would be considered as viable. As regards the actual payback, then one has to include other costs, such as maintenance, operational costs, depreciation, interest rates on borrowings, etc. So this would push the 22 years out by many more. It is generally recognised that the economic lifespan of high voltage transmission systems is 45 to 50 years, so the payback on this proposed North South Interconnector project would be in the order of half its expected lifespan. In engineering terms this is simply absurd.
For instance, if we consider the UK’s Department of Energy & Climate Change report on “Research to Assess the Barriers and Drivers to Energy Efficiency in Small and Medium Sized Enterprises”, then this clarified with respect to payback period:
- The majority of Interviewed Businesses reported that energy efficiency improvements with a payback period of less than two years made business sense and would be likely to go ahead if finance was available; some extended this to five years.
Why is this so, because it reaches a point where there are simply far better opportunities available to achieve an actual return on the investment, i.e. there is a better bang for the buck elsewhere. After all nobody begrudges that public money is spent on essential infrastructure for health and education, but what is proposed is a project, which wouldn’t see the light of day in the private sector, due to its chronic lack of viable payback. Have Eirgrid looked at alternatives properly ?
As was highlighted in Part 1, Northern Ireland requires new dispatchable generation capacity to replace that which no longer meets EU emissions standards. Could such capacity be installed for the reported €286 million, which is to be spent on the North South Interconnector plus the €2 million per MW to be spent on the associated 600 MW of wind energy? Given that the installed cost of Combined Cycle Gas Turbine technology is less than €0.9 million per MW, then the overwhelming answer is yes it could. So why was this option not investigated in the consideration of alternatives by Eirgrid?