Companies' wind power investment plans dashed

There was widespread disappointment among firms hoping to develop wind farms in Ireland when the results of the sixth - and probably the final - round of bidding for contracts under the Alternative Energy Requirement (AER) scheme were announced in early July 2003. The Minister for Communications, Marine and Natural Resources, Dermot Ahern gave major contracts to supply wind electricity to just three firms. Out of a total of 330MW of contracts to supply the state-owned Electricity Supply Board, the ESB, with electricity generated from the wind, 63MW went to a wholly-owned subsidiary of the ESB, Hibernian Wind Power, and 158MW to Saorgus Energy, a Kerrybased company.

"In total, the ESB and Saorgus have secured 82% of the contracts awarded. This cements the ESB's monopoly position in the Irish market as the ESB currently has 88% of the electricity generating capacity in the country" Tim Cowhig, the chairman of the Irish Wind Energy Association (IWEA) said in a press release headed 'Government kills the Irish Wind Industry: Potential investment of &8364;2bn by private sector is now seriously jeopardised.'

Of the nine contracts given for supplies from large (over 5MW) onshore windfarms, only one, the smallest, went to a company other than Saorgus and Hibernian Wind. Both the offshore contracts went to the Kish Consortium in which the ESB has a one-third stake and Saorgus Energy two-thirds.

Many companies could not understand why they had been unsuccessful. "The Minister has refused to release the prices associated with the winning bids," Mr. Cowhig said. "The IWEA is considering taking legal proceedings or appealing to the Competition Authority in terms of national legislation or European competition law. In addition, we may seek a judicial review or an appeal to Europe to seek an injunction preventing the Minister from awarding the contracts to the ESB."

Speaking in August 2003, Mike Barry, a director of Saorgus, denied rumours that the ESB had a financial stake in his company. "They don't and they never will," he said. His company had been successful because its bids had been lower. This had been possible because its projects were in parts of the country with high windspeeds. "Our project with the highest price was on a site with lower speeds and only just scraped through."

Mr. Cowhig said he wondered how many contracts would actually be fulfilled as the price being paid for the power was too low to give a proper financial return. "We know the Hibernian Wind Power projects will go ahead" he said, "but if the others do, a lot of us will have to eat humble pie."

Mr. Barry was confident that Cowhig would have to do so. "We've already ordered the turbines for the site where we are getting the lowest price. Work will start there in another few weeks and we are negotiating contracts for another site where work will start in six months," he said. "AER VI is a success because projects are happening." This was a reference to the failure of AER V. None of the firms offered contracts under that bidding round had installed any turbines by spring, 2003.

Mr Ahern obviously realised that the allocation of contracts would be badly received. His press statement read: "The Minister recognises that there will be a number of disappointed bidders due to the overwhelming interest in the competition and the quality of the bids received. He is aware of the hard work and expense which bidders put in to the seeking of planning permission for their projects and the submission of bids. He has therefore announced his intention to immediately seek state aids clearance for an additional 140 megawatts capacity to be offered in large-scale wind, small-scale wind and biomass categories."

Three months earlier, at an IWEA conference in Cork to celebrate the tenth anniversary of Ireland's first wind farm at Bellacorrick, Co. Mayo, Mr. Ahern had stated that the European Commission's directive on the promotion of new and renewable sources in the internal electricity market had set a target for Ireland which he regarded as the minimum the country must achieve. "Clearly, to achieve those targets huge private sector investment will be necessary. And clearly, if investment conditions are not right then we won't meet those targets" he said. "In developing the Terms and Conditions of AER VI, it was therefore an imperative for me to put in place an open and transparent mechanism that would be attractive to investors. I believe that the package I have put on offer for AER VI achieves that goal."

Nevertheless, he thought that "the current AER mechanism might not be the optimum support measure to bring us to the 2010 target. Other systems in place elsewhere seem to have delivered much more. The German system, the French system and the pure market approach of the Renewable Obligation Certificate system in the United Kingdom are examples. The challenge is to find a system that gives certainty to investors while at he same time taking account of cost reductions in the various technologies."

AER VI also offered contracts for power from biomass (34MW, mostly wood-fired CHP) and hydro (1.3MW). The higher prices paid by the ESB for electricity purchased under the AER system are covered by the Public Service Obligation which is added to all electricity bills. It is estimated that €74.8 million will be raised by the PSO in 2004. Of this, €58.4 million will be paid to the ESB to cover the additional costs it incurs by buying power from the peatfired Edenderry Power and from a peat-fired power station being constructed by the ESB at Lanesboro in Co.Longford. The balance - €16 million - will be used to cover the extra cost of the AER power programmes.

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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Continue to part A of Section 8: The editor's conclusions: so little time and so much to do

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