Wind energy in Ireland, the present situation

by Inge Buckley, IWEA committee member and former chairman

Wind farms have been established in Ireland far more slowly than either the government wished or the resource warranted. The Alternative Energy Requirement approach has not worked well and is likely to be reformed or abandoned shortly.

While Ireland and Scotland have the best wind resources in Europe, Ireland has by far the lowest prices in the EU for the electricity that wind can generate. As a result, only 120MW of wind energy has been installed since Ireland's first commercial windfarm was built at Bellacorrick in Co. Mayo in 1992. In 2001 only 7MW was installed and in 2002 only 14MW. Just one further one windfarm is under construction.

The Irish wind market has been led by the government's Alternative Energy Requirements (AER) programme. AER1, AER3 and AER5 dealt with wind energy.

AER1 offered Power Purchase Agreements (PPA) from the ESB for a 15 year period. Contracts for 70MW were offered and 46MW of capacity was built, a success rate of 66%. AER3 in 1997 offered contracts for 137MW, but was a huge failure as only 28% of this capacity, 38MW, was built.

Under AER5 in 2001, those tendering had to have full and final planning permission for their proposed farms for the first time. Contracts were offered for a massive 355MW of capacity in late February 2002. By November 2002, however, none of these projects had been offered a Power Purchase Agreement as the industry was still waiting for the energy minister to sign an order allowing the ESB to buy the electricity under a Public Service Obligation (PSO). In other words no project had been able to draw down project finance from a bank.

AER6 was launched in November 2002 seeking 470MW of renewable electricity from wind, 25MW from biomass and 5MW from hydro. Bids had to be in by April 2003. Few people expected that it would be any more successful than AER5 and the minister even announced on the day of its launch that his department, the Department of Communication, Marine and Natural Resources, would be consulting the industry and others about how the sector could reach the EU target of 13.2% of Ireland's electricity coming from renewable sources by 2010. This would require approximately 1800MW to be installed.

The government's 1999 Green Paper on Sustainable Energy set a target of an additional 500MW installed capacity of renewable energy by 2005 on top of the 177MW installed or about to be installed at the time. This additional 500MW is vital for the government's National Climate Change Strategy.

CONSTRAINTS ON THE DEVELOPMENT OF WIND ENERGY:

1. Availability of Power Puchase Agreements (PPAs): The competitive and restrictive way in which PPAs are offered under the AER programme has meant that at least one site has seen its planning permission expire because construction couild not go ahead without a PPA.

2. Poor Prices: At roughly 4.8 eurocent per kWh, the price offered under the AER programme is by far the cheapest in Europe, and is lower than the price at 5.2 eurocent per kWh currently paid to ESB Power Generation for its electricity from its portfolio of power stations. This figure excludes the price paid for electricity generated which is purchased under a separate Public Service Obligation (PSO).

3. Inadequate Indexation; Although AER1 and AER3 contracts were subject to full Consumer Price Indexation (CPI), the AER5 price is subject to only 25% indexation, a source of discontent within the IWEA. In contrast ESB Power Generation not only gets its higher price of 5.2 eurocents but also gets full indexation and is allowed to pass on any increases in its fuel costs.

4. Planning Problems. Overall, the IWEA feels that obtaining planning consents from county planners is not a major obstacle to the development of wind energy, even though individual members of the IWEA contend that certain local authorities are anti wind. Our major problem is with An Bord Pleanala, whose decisions often are seen as a lottery. However, with the 355MW of contracts offered under AER5 it has by and large overcome the planning issues. Since the industry started it has 700 MW inshore wind projects with full planning permission.

5. Grid connections; Connection to the ESB grid is increasingly becoming a major issue as wind projects compete for access to the network. The capability of the Distribution and Transmission network to connect wind energy onto the system is limited in most places, particularly in the more outlying regions of Ireland, where the wind resource is often the best.

6. Financial issues: With the prices paid for wind generated electricity so low, there is enough cash flow to service the bank loan element of the typical financial model with 20% equity and an 80 % bank loan, but no money to allow for any return on the equity component. The result is that the wind industry is forced to avail of whatever tax incentives are available and what clever tax experts can engineer.

WHAT HAPPENS NEXT?

Although the Programme for Government stated that tax incentives would be made available to the renewable energy industry; this may not happen in the present financial climate and the whole industry could grind to a halt unless either full indexation is restored to the AER5 and AER6 prices or these are improved marginally.

The de-regulated market will continue to grow and companies selling green electricity may offer Power Purchase Agreements to independent developers. If new players enter the market and existing players grow bigger, these private PPAs may become attractive enough to compete with the government-supported ones.

The government committed itself to the development of offshore wind in the Programme for Government and contracts for 50MW were reserved for this sector in AER6 offering considerably higher prices - 8.4 eurocents or possibly more than for onshore wind developments. A lot of activity has and is taking place offshore but the implementation of many of the projects will depend on the construction of a interconnector to Great Britain.

Green Credits/ Green Certificates/ Emission Trading are in their infancy throughout Europe and some trial trading is already taking place. However, they are not yet a bankable commodity against which we can borrow to finance our farms.

WHY DOES WIND ENERGY NEED GOVERNMENT SUPPORT?

As will be seen from the above, government support is really in the form of longterm contracts and the security that banks and investors like. Wind energy has a very high upfront cost of approximately 1 - 1.1 million euros per installed MW. Once built, the fuel cost is nil and the turbines will continue producing emission- free electricity for at least 20 years. It should be noted that wind energy is not alone in requiring secure off-take contracts; The Commission for Energy Regulation (CER) has recently published a consultation paper which may very well result in the ESB PES (Public Electricity Supply) being asked to offer guaranteed off-take contracts to new gas-fired power stations.

Finally, it is about time the "official" government bodies recognised the potential and the opportunities that the wind industry offers in terms of rural development, income generation and employment generation. It creates consultancy jobs, construction jobs, and manufacturing jobs as well as extra income for the legal and financial sectors. At present there is full planning permission for in excess of 1,000 MW of wind power, representing an investment of in excess of 1.1 billion euros, most of it from indigenous Irish companies. The potential of the sector is huge.

THE IWEA ITSELF

The IWEA was established as an association in 1993. It now has two arms. One is a company with charitable status whose objects are to promote wind energy and to undertake research. The other is a limited company to deal with the IWEA's commercial aspects and revenue-generating activities.

The IWEA offers different types of membership running from Ordinary to Associate and Corporate. It has an elected Council, which elects a chairman. Under the Council there are a number of committees, which each has a chairman, who must be a member of the Council. The current committees are: Administration, Planning, Grid, Market Regulation and Policy, Public Relations, Off- Shore and Finance.

The IWEA has a fulltime staffed office in Arigna, Co. Leitrim, serving 200 ordinary members, 11 corporate ones, 20 associates, 5 directors and 22 Council members. Key activities include organising two annual conferences, issuing newsletters, maintaining a website, preparing consultation papers and submissions and involvement in external groups.

These include close contact with government departments, the Commission for Energy Regulation, international and EU links. The IWEA has two representatives on the Council of the EWEA (European Wind Energy Association). It is represented on the IBEC Energy Policy Committee and was part of the government's Strategy Group for Wind Energy and the Grid Investment Group. The IWEA has close links to the Renewable Energy Information Office and the local energy agencies.

IWEA, Arigna, Carrick-on-Shannon, Co. Roscommon, Ireland
Tel: +353-(0)71 9646072,Mbr> Fax: +353 (0)71 9646080,
email: office@iwea.com


This is one of almost 50 chapters and articles in the 336-page large format book, Before the Wells Run Dry. Copies of the book are available for £9.95 from Green Books.

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