‘Why exactly have electricity prices increased? The reason is not wind but rather the cost of importing gas’
What role for wind in Ireland’s energy future? This is perhaps the most controversial issue the Government must address in its Energy White Paper to be published later in the year.
The share of electricity generated from wind has increased dramatically, reaching 19 per cent of the total in 2014. Electricity prices for householders and business have also risen significantly in recent years.
Several public contributions to the debate have sought to connect these trends, but correlation does not imply causation.
There is reason for concern. A recent National Competitiveness Council (NCC) report found that Irish electricity prices are among the highest in the EU. Some of the differential can be explained by Ireland’s above average standard of living, which is reflected in energy prices through higher labour and services costs. Another factor is Ireland’s lower population density. We need about 70 per cent more metres of cables per person than the average, which feeds into higher prices.
A greater worry, also identified by the NCC, is that prices have increased more rapidly compared to our EU partners. But the council’s report does not address this central issue: why exactly have electricity prices increased?
The reason is not wind but rather the cost of importing gas. Between the summers of 2009 and 2013 wholesale gas prices almost doubled across the EU. Analysis by the International Gas Union shows that between 2007 and 2013 prices increased consistently in all regions except North America.
The gas factor
In 2014 this trend was reversed. In Ireland wholesale gas prices declined by an average 27 per cent, and wholesale electricity prices dropped by 14 per cent as a result. In 2015 electricity prices will decline further, driven again by lower forward gas prices. The correlation is as clear as day.
The problem is that more than half of Ireland’s electricity is generated from gas – the fourth highest share in the EU – leaving us more exposed than other countries to gas price increases. When gas prices increase, electricity prices here increase more, and Ireland’s competitiveness declines.
The situation is exacerbated by the fact that Ireland must import its gas from the UK through interconnectors, and Irish consumers bear this additional cost.
The competitiveness council and others have called for the subsidy for wind to be eliminated, and perhaps there are good reasons for considering this as the technology matures.
But it is important to retain perspective. We pay a relatively small amount in our bills through a Public Service Obligation (PSO) for wind, amounting to €93 million in 2013. We pay more than twice that to support the burning of fossil fuels including peat. European Commission analysis shows that among the EU 28, only Polish households paid less on their bills to support renewables. This is because Ireland has an excellent wind resource, and because the system Government implemented to support wind is highly cost effective.
Nor does wind require new conventional plants as backup, as is sometimes argued. The system is already designed to respond to rapidly fluctuating demand.
More variable wind does mean that existing plants must be switched off and on more often. This reduces their operational efficiency. Sustainable Energy Authority of Ireland analysis demonstrates, however, that overall wind generation lowers wholesale prices, almost exactly offsetting the PSO and other costs.
Others have identified “hidden” network costs they argue are necessary to facilitate wind. It is true that Ireland is currently modernising an electricity network that for many years suffered from chronic underinvestment. Current investments also support traditional generation, increased demand in the regions, and indeed a more responsive, intelligent and modern grid generally.
Lower wholesale prices
But even including network costs, and looking to 2020, when wind should account for 40 per cent of electricity demand, a detailed analysis by Poyry, an international energy consultancy, found that higher system costs are almost entirely offset by lower wholesale prices. This is because wind replaces more expensive generation options, reducing their operational and fuel costs. The final net impact on consumer bills is minimal.
Total investment in wind will reach €3.5 billion by 2020. This is a frightening number, leading several commentators to make the simplistic assumption that consumers will have to foot this bill.
Since we are engaging in simplistic argument, it is not the Irish consumer but the king of Norway who will pay. We import the largest proportion of our gas from Norway, and investment in wind will reduce coal and gas imports by nearly €300 million per annum by 2020. Consumers will benefit by not having to pay for these imports.
The deployment of wind creates economic growth in Ireland and investing in Irish wind instead of Norwegian gas boosts activity in the local economy. Analysis suggests that GDP would be boosted by €500 million per annum by 2020, creating thousands of jobs in the process.
It is clear therefore that wind brings significant economic and environmental benefits, without costing consumers on their bills. The widespread deployment of wind is the best answer Ireland has to the greatest challenge of our time: decarbonising our economies and tackling the climate crisis. We must look forward to this future with an eye on benefit and opportunity, not with both fixated on erroneous calculations of cost.
Of course community groups are right to demand greater levels of consultation, more community ownership, greater community gain, and to object to inappropriate projects. Balancing these concerns with the national and global priority of decarbonisation is a major challenge.
Joseph Curtin is senior fellow for climate and energy policy at the Institute of International and European Affairs, Dublin
Source – Irish Times