Wednesday, 24 February 2016

Does Ireland have Low Cost Renewables ?

A recent report by the Council of European Energy Regulators (CEER) has been rolled out lately by the Department of Energy as evidence that their policy of more and more wind energy is a low cost one. According to the report, Ireland has a renewable support of € 2.03 compared to the EU average of € 13.68. Sounds pretty good, right ?

Well, once again, the data refers to the year 2012, just like the SEAI report that is also rolled out by wind energy proponents. Somewhere around 600-700MW of wind has been added since then. The report also looks at 2013 but curiously there is no data for Ireland for this year. 

So why is 2012 chosen and not any of the subsequent years ? Well, the wholesale price of electricity was high in this year. Why is this relevant ? The higher the wholesale price, the lower the renewable subsidy required and vice versa. The level of support was calculated by subtracting the REFIT (or subsidized) price from the wholesale price for 2012 :

In the case of FITs [Feed-in-Tariffs], the level of support was estimated by subtracting the average wholesale electricity price from the overall tariff and therefore is not the same as the full FIT granted to producers.

CEER used a wholesale price of € 63.20 for 2012 (click on graph to show wholesale price) :

But if we look at a recent day, the wholesale price is now between € 20 and € 40 : 

The Energy Regulator (CER) calculates the annual cost of renewable supports each year, taking into account the wholesale prices and the installed capacity of renewable generators. This is then used to calculate the PSO Levy to be applied to energy bills.  Back in 2012, the PSO Levy was still in it's infancy with a total cost relating to renewable energy (mainly wind) of  just € 37 million. 

But by 2016, the CER had calculated total renewable supports (again mainly wind) of € 181 million, almost five times the cost for 2012.  The CER cite lower wholesale prices, lower capacity payments and more renewables, mostly wind, as the drivers in the increase. 

Demand is now around 26,500 GWh so if we work out renewables support per unit of electricity consumed we now get € 6.83 for 2016, over three times the cost for 2012 that CEER have calculated.

Evidently, this is only the direct cost of renewables like wind. There are other, mostly hidden, system costs that are subsidized by consumers. The CEER report acknowledged this point in relation to the grid costs in Ireland :

In addition, in Ireland, the generator pays 100% of the construction of the Least Cost Connection physical connection to the transmission system i.e. the shallow connection works. Any deep reinforcements required to facilitate the connections are not charged to the generator. 

We can throw in another € 4 billion plus for that. 

When Ireland goes offshore, the experience in other EU countries tells us that it will require a higher subsidy that onshore wind, so the cost of renewables will rise further again. In 2012, many other EU countries had offshore wind whereas Ireland did not.

It is also interesting to note that certain EU countries like Poland, Belgium and Sweden never introduced tariffs or subsidies for renewables, instead opting for Green Certificates. Are we really comparing like with like here ?

Lastly, have a look at pages 57-67 of the CEER report. Spain, Portugal, Greece and Ireland all opted for exclusively feed in tariffs supports. Italy used a mix of supports including FITs. Then if we add the total cost we get Spain € 6 billion, Portugal € 700 million, Greece € 1.1 billion and Italy € 9.5 billion. The PIIGS countries spent over € 17 billion on renewables supports in 2012, at a time when their banks and economies were going down the drain. Most of these countries are still in financial distress. 

Were the likes of Sweden, Romania, Poland and Belgium craftier when they opted for Green Certificates rather than fixed subsidies like Ireland and Greece  ? I can't really say for sure, but I have a hunch that they were.

References :

CEER Status Review of Renewable and Energy Efficiency Support Schemes in Europe in 2012 and 2013 (January 2015)

PSO Levy Paper for year ending 30th September 2012 - see page 19, cost of REFIT and AER schemes.

PSO Levy Paper for year ending 30th September 2016 - see page 4.


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  2. It is reported in the Irish papers that Gaelectric (a well established wind farm company) is to sell off part of its Irish wind farm portfolio for an expected 750 million euros. So what exactly are they selling? 1) A lease on a plot of land for wind farming only. 2) An expectation that subsidies will continue in the face of public opposition, rising prices and the entry into the market of semi state bodies Coillte (forestry board) and Bord No Mona, (Irish peat extraction body, whose peat is running out). The market is getting crowded.

    3) They are selling a collection of wind turbines of varying designs and ages and many of these designs have been superseded by more recent ones which try to overcome the fact that earlier ones are failing mechanically. 4) The expected load factor was above 30%, it is actually below 24% and falling as machines age. Bridging the gap between actual and expected load factor can only be done by suing the Eirgrid who advised on factors above 34% which is clearly incorrect.

    There is a gamble, that the proportion of wind which can be allowed into the system can be made to rise above 50%, but this has not been achieve anywhere else. There is also the risk that the guaranteed price will be cut, as it was in Britain and many other countries when existing contracts expire. Income could be taxed. The status of curtailment payments and capacity payments for wind is in doubt. Without these there would be no wind farms and I believe they are not protected by contract in the same way as the guaranteed price is. There is the risk that the next president of the US will be Donald Trump and he hates wind energy. There is the risk that a British EU exit and the migrant crises will destabilise the EU, the main driver for wind energy.

    Heavy commercial rates are now been levied on wind farms and there is a possibility that wind farms are being paid grants and subsidies, double payments, which is barred under the rules. Then there is cheap oil, coal and gas and increasing doubt about the global warming theory.

    It was political leaders who built this industry in ignorance. Where are they now? Chris Huhne, Ed Davey, Eamon Ryan, Rabbitte all gone. Watch for to day's Irish general election, will Energy Minister Alex White be re-elected? Will Green party leader Eamon Ryan be elected and will Fine Gael TD Bernard Durkin be re-elected, the latter might, but google “Bernard Durkin storms out of Kildare conference” and see how desperate he is.

    Unlike farming, the wind industry has few votes to preserve subsidies. Many senior politicians have objected to wind farms in their own constituencies. The word “climate change” or “renewable energy” were never mentioned in this election campaign and several candidates are running on an anti wind ticket. Government has just announced it will do an SEA for energy after 2020. Where does that leave existing wind farm built without one. It just takes on successful claim for noise nuisance and the whole thing is in danger of collapse.

    Are there investors willing to pay good money for a pile of junk metal? I had to pay last week to get rid of a load of old car parts and iron.