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“OFFSHORE WIND – IRELAND’S STRANDED ASSET”

In January 2012, the Government made the decision that Ireland would meet its renewable energy targets from its onshore assets alone, namely, onshore wind, biomass, and hydro. This effectively meant that Ireland’s offshore wind resource, which had initially been included in the mix to help Ireland meet its renewable energy targets, was allocated for export only. This impacted on 2,680MW of offshore wind, which was either consented or in the final stages of consenting. Thus, a targeted investment of over €8bn was effectively side-lined by a simple Government decision.

RENEWABLE ENERGY TARGETS

It is becoming increasingly apparent that despite Ireland’s near-unrivalled potential, we will not meet our targets for deployment of Renewable Energy by 2020. Ireland’s overall target was to derive 16% of overall energy use from renewable sources. The Government decided that the best way of achieving this was to determine that renewables would be 40% of power generation, 10% of transport energy, and 12% of heating.

Having engaged in an extensive programme of onshore wind development, Ireland is likely to come close to, and may even reach, its initial target for power generation. However, the relative failure in other sectors of possible renewables sources, heat and transport, means that we are likely to miss the overall target. It is believed that an additional 1500MW of renewable power generation, in reality extra wind capacity, will be required to make up the shortfall in the transport and heating sectors.

Further, Ireland’s economic improvement is putting pressure on the need for higher renewables production. The 3.6GW estimate for power generation was based on a 1.7% growth rate for Ireland. Irish growth rates are now the highest in the EU, at 4.8%, with IBEC and others projecting higher growth rates for Ireland over the next five years. Large energy users such as data centres, a specific target of the IDA, will place additional demands on the system–as much as an additional 1000MW of renewables at current estimates.

All of this is coming at a time when Ireland will have exceeded its greenhouse gas targets as per the EPA, whose forecast indicates that trajectory and target will diverge post-2016. With the EU getting tough on member states who don’t meet renewable energy targets, EU fines being estimated by SEAI to be €140m per percentage undershoot per year, Ireland will pay a very high price for failure. Given the resources at our disposal, especially offshore wind, Ireland should be leading the way.

OFFSHORE WIND POTENTIAL

Ireland’s climate makes it an ideal location for generating energy from wind. Ireland’s wind resource is among the best in the world. This is particularly true of offshore, where winds are stronger or more constant and so can generate more energy. This wind resource will not run out; it will always be there for the people of Ireland, but is not being used for our benefit. The people and the State are receiving no benefit from what could be a very valuable asset.

Irish companies, with consenting for offshore wind farms, have been seeking to export wind energy to the UK and to mainland Europe. Other European countries have indicated an eagerness to buy Irish renewable energy, with Irish offshore wind in particular being favoured by potential buyers because Irish offshore projects, with their strong fundamentals, are more cost effective than offshore projects in other countries. As Europe gets tough on member states who don’t meet their 2020 targets, the opportunity is continuing to grow for Ireland to exploit its offshore wind potential. EU Commission President Juncker, including Energy Union as one of the Commission’s five priorities, will further develop action on this opportunity.

Building these windfarms will require substantial investment. This investment requires no financial commitment or subsidy from the State. The windfarms and supporting transmission infrastructure will be built by private capital. All of the risk will be borne by investors. The power is being exported so there will be no price support from Irish energy users. The price support is paid by the importing country. Therefore there is no cost to the Irish Exchequer.

Private investors would make a substantial investment in machinery, construction, operation, and maintenance. The capital for this would be raised overseas and would be a foreign direct investment into Ireland, similar to Intel, Google or Facebook. Even though the higher cost of offshore wind is well recognised, recent technology developments are narrowing the cost difference and this is no longer perceived as a barrier to investment. This is particularly beneficial to Ireland. With excellent wind speeds, consistency of wind, suitable seabed conditions, and lack of tidal impact, the Irish Sea is among the best in the world for developing offshore projects, giving Ireland a significant competitive advantage over other countries in respect of offshore wind development.

In planning terms, offshore projects are easier to build and have less impact on residents. The nearest turbines will be several kilometres offshore. The recent Offshore Renewable Energy Development Plan, published by the Department of Energy, Communications and Natural Resources, including a Strategic Environmental Assessment, concluded that there was the opportunity for substantial offshore wind development off the Irish coast.

HOW IRELAND BENEFITS

The State will benefit in a number of ways. Each project will require substantial labour in the construction phase. Much of the employment can be provided from the Irish construction sector, bringing a substantial group back into employment, many of whom would be long-term unemployed. The State will also receive a lease fee for the rent of the foreshore (the marine area on which the turbines are located). The State will charge a rent to the developers, guaranteeing them a substantial revenue for up to fifty-five years from each windfarm. Finally, the State will generate substantial revenues from corporation tax, employment taxes, and other taxation instruments. This is new economic activity, based on exports, so the revenue is a payment into the State, helping our Balance of Payments.

In addition to the direct benefit, there is also the potential for many indirect jobs, supplying the materials that will build offshore windfarms in both the UK and Ireland. While Ireland is unlikely to have factories building turbines, there are many other opportunities. Ireland could become a centre of excellence for foundation technology, for supporting IT and programming development, for cabling, and for environmental consultancy. All of these offer the opportunity for thousands of jobs. Many Irish companies are already benefiting from projects in the UK but, by developing an Irish industry, more jobs can be created and they can be created more quickly.

IRELAND AND THE UK – INTERGOVERNMENTAL AGREEMENT

Following the signing of a Memorandum of Understanding relating to renewable energy trading in January 2013, negotiations commenced on a proposed Intergovernmental Agreement This was parked in April 2014. The Irish offshore wind industry, which would be first mover in the export of renewable energy between Ireland and the UK, and onward into Europe, are hopeful that following the forthcoming General Elections in the UK and Ireland, together with clarification of the UK’s position in Europe, talks will recommence. An examination of the reasons why the proposed IGA between Ireland and the UK was parked reveals that the gaps between both countries are small.

In relation to the issues, there is a solution for each one. International Contracts for Difference’s from the UK and Statistical Transfer from Europe will be the mechanism for payment, with Irish offshore being able to compete with similar offshore projects in the UK and Europe. Transmission issues will be dealt with through the Northern Seas Countries Offshore Grid Initiative, a cornerstone of EU President Juncker’s priority policies, which will be assisted by the ISLES II initiative in the Irish Sea, in tandem with the proposed Cork-France Interconnector. The Commission’s objective of a single energy market and Energy Union will help to overcome the regulatory issues which exist, while a two-step approach will enable shovel-ready offshore projects to proceed prior to onshore projects, which still require planning permission, an SEA, and price clarifications, all of which will kick-start the inevitable energy export.

MAKING IT HAPPEN – THE NEXT STEPS

Ireland has an opportunity to develop a major and sustainable offshore wind export industry at no cost or risk to the Exchequer. All the Government needs to do is take a number of steps, namely:

  1. Confirm that it is seeking to develop this resource.
  2. Conclude an agreement with the UK on Route to Market.
  3. Work with the British Government, the European Commission and windfarm developers co-operating on an All Islands and EU Energy Policy.

The Government can remain silent no longer on its “stranded asset” of offshore wind.  The EU is now strongly encouraging member states who have renewable energy surpluses to engage so that they can be traded and help Europe deal with its ever growing security of supply issue and assist it to achieve a single energy market. Europe needs Ireland’s surplus renewable energy–Ireland needs the economic benefit that this could bring.

Brian Britton is Managing Director of Oriel Windfarm Limited. He has been at the forefront of developing the offshore wind energy sector in Ireland. Completion of the Oriel Windfarm will see 330MW of renewable energy available for export. Brian has managed this €990 million project from inception, including raising investment capital and steering it through the regulatory approval process. He is a founder and Secretary General of the National Offshore Wind Association of Ireland (NOW Ireland) and also a Board Member of the British Irish Chamber of Commerce.