An uncertain energy future

ESB Chief Executive Pat O’Doherty talks to Owen McQuade about the policy drivers that will steer Irish energy going forward and the need to keep Ireland’s options open.

Energy is in flux and faces further uncertainty in the years ahead and Pat O’Doherty sees a technology mix as the best long-term response instead of relying on a single source for Ireland’s electricity generation needs.

Climate change is “the biggest challenge that society faces” and targets to limit the global mean surface temperature rise to 2°C will not be met without “significant government intervention worldwide.” O’Doherty sees this as the main policy driver from which everything else flows.

“What’s going to happen over the next decade or decade and a half is going to be really transformational in terms of the energy industry, and it’s going to happen right across the value chain.” O’Doherty reflects. “I’ve been in this industry for 30 years and I think the question we have to ask ourselves is: ‘What legacy do we, as policy-makers, as an industry, want to leave?’ As a long-term capital-intensive industry, what you do today lasts for 30, 40 or 50 years. In terms of a secure, clean, affordable energy system out to 2050 and beyond, we are in the planning stage for that.”

The policy answer to that question must be framed by the well-known trilemma of security of supply, climate change and affordability. Regulation and markets will, in turn, respond to government policy with the whole shift underpinned by technological developments.

Ireland’s onshore and offshore wind – and indeed ocean – resources are unique but Ireland cannot afford to see itself as an island in an energy sense. “Those resources can only truly be exploited in a more interconnected energy system,” O’Doherty points out, referring to the single European energy market.

Challenges

“The potential vision for Europe is that we will use the most sustainable, secure and affordable resources that exist across the continent in an fully interconnected trans-European energy system. Ireland is uniquely positioned to play a role in that,” he says.

O’Doherty’s strong belief regarding the future of energy is that the supply will come from a mix of technologies. There is no “silver bullet”. It’s not accurate to describe the future as all-wind or all-solar: “It’ll be a mix of traditional centralised, albeit increasingly lower carbon emitting generation technologies and newer clean distributed generating and energy storage technologies.”

In that mix, gas and nuclear plant will still form a significant part of the global generation landscape with gas particularly acting as a transition fuel. On a renewable front, wind (onshore and offshore), ocean and solar stand out for Ireland.

Renewable energy in Ireland has, to date, mainly come from onshore wind and investment in offshore wind is not needed in order to reach the 2020 targets. The Irish energy sector, though, is “starting to sit up and take note” of solar power and ESB has invested in two solar companies through its cleantech fund: Novusmodus LP. Electric Ireland is also looking at solar as an integral part of its energy services offering.

“The one word that can characterise all of this is uncertainty,” O’Doherty comments. “The whole environment that we operate in is uncertain from a geopolitical point of view, in energy technology terms, and also in terms of policy.” For example, there may be a change in policy direction with a new European Climate Action and Energy Commissioner – Miguel Cañete from Spain – being appointed.

One of the key challenges for policy and for the sector is how to pick “through this forest of uncertainty” and select technologies that will be the bedrock of the future system. It is important to keep Ireland’s options open. The approach taken should be flexible to allow for the adoption of new developments and avoid inappropriate “lock-in”.

ESB sees renewables as “a grid play”, more than an investment solely in renewable technologies. “From a utility perspective, we see the grid and the network as the enabler,” he states.

“A significant amount – more than 50 per cent – of wind is connected to the distribution system. We’ve invested significantly in networks, both transmission and distribution.”

ESB’s investment has totalled €7 billion over the last 10 years, much of which was to cater for renewables. The networks are therefore a key factor to be considered in the renewables debate. Power traditionally went from large scale centralised generation plant through the transmission grid and distribution network to customers, but flows are now changing to reflect the new patterns of electricity generation.

“That adds particular challenges to developing and managing the grid and the distribution system,” he notes. Smart grids and technologies – enabled by telecoms and ICT – help to ensure greater utilisation of existing network assets by creating networks that can adapt in real-time to “very different patterns of generation” – patterns which are now quite hard to predict.

ESB has always maintained that it is important to see the whole of the system “from the sources of generation – which are becoming increasingly renewable – all the way through to the customers and everything that goes on in between.”

Over the last 10 years, the need for policy, markets and regulation to “join up everything along the value chain” has become much clearer.

Smart grids are, in his view, a necessity. The Irish grid currently has a low rate of interconnection – as a proportion of maximum demand – and today the system practically has to stand alone when accommodating renewables. This opens up a clear role for smart grids. The North Atlantic Green Zone, for example, is a cross-border collaboration between ESB Networks and its northern counterpart NIE and EirGrid – and he sees an increasing need for similar projects.

Priorities

Looking forward, O’Doherty sees a “terrific opportunity” in the green paper to widen the energy debate to include all stakeholders.

“The electricity industry is a key enabler of our society and our economy so it’s not an end in itself,” he affirms. “I think we have an opportunity now with the green paper to broaden the whole debate to include a much wider range of societal and economic stakeholders, customers, communities and businesses.”

Increasing the share of renewable energy has been by far the most significant component of energy policy since 2008. “What we need to get is a more balanced approach,” O’Doherty contends. The country had an electricity security of supply problem before 2005 and, once that was resolved, the focus moved to sustainability. It is now turning to affordability.

“The policy challenge,” he suggests, “is to develop an energy blueprint for the island that takes the three components of energy policy forward in an holistic and integrated way. We cannot avoid the fact that we’re connected to Great Britain and what happens in policy terms in Britain – a market 10 times the size of Ireland – is very significant for the island of Ireland.”

In terms of future technology, wave energy is a huge opportunity for Ireland and ESB has secured funding under the EU’s new entrants reserve scheme – the only Irish company to achieve that – for a 5MW wave project off the west coast. This is due to be completed in 2017 or 2018.

“This is looking to the next wave – no pun intended – of renewable development. There are enormous wave resources off the west coast of Ireland which can be exploited,” O’Doherty comments. “We see this as the start of something, the incubation of the next renewable technology that can be deployed at scale. It is truly planning for the long term.”

At present, the development of wave energy is further back than the position held by wind 10-15 years ago but it “has to be an integral part of the future.” Solar, as explained, is also being explored.

ESB recognises that biomass deployment can only happen at scale with the help of imports.

“Biomass does work at a local, small scale level, particularly with combined heat and power,” he comments. “Sustainable waste to energy is another piece of the future and something which Ireland must look at, but all of these are – today – expensive technologies by comparison with onshore wind and combined cycle gas plant.”

The long timespan of energy infrastructure has to be borne in mind. For example, Turlough Hill was built as a traditional pump storage system 40 years ago and now plays a critical role in accommodating renewables. Battery storage is not yet commercially viable but could be important in delivering the roll-out of electric vehicles.

“If you decarbonise the electricity system and you electrify heat and transport, you go a long way towards decarbonising the economy,” O’Doherty relates. “With the significant investment already made in infrastructure – to support existing levels of renewables and demand growth – you will get better utilisation of that infrastructure if you move more kilowatt hours through the system. This will bring down the unit cost of electricity for everybody.”

Long before its current thinking on the technology mix, ESB developed Ardnacrusha in its earliest days and also pioneered the combined cycle gas plant. In recent years, the company has rolled out the national charging infrastructure for electric vehicles and it now has 400MW of installed wind capacity with another 500MW at various stages of development.

The home of the future will be increasingly smart, with energy efficient appliances, electric vehicles, solar panels, and electric heating connected via the internet thus increasing the interaction between consumers, their supplier and the electricity system. This raises a societal question of affordability: “How can the whole of society participate in a smart energy system in a future where people have to make significant investments in their homes in order to realise economic benefit?”

Europe’s direction

Under current European policy, decarbonisation is driven by multiple policy instruments. The EU emissions trading system (ETS) covers all member states plus the European Economic Area. National targets for energy efficiency and renewable energy supply allow different countries to have different support mechanisms.

“In an integrated EU market, that’s not going to work,” O’Doherty continues.

“I would advocate that post-2020 the instrument to drive low carbon technologies should be the ETS and the renewable-type supports that exist on a country-by-country basis should be withdrawn.”

Pre-planned investments should reach their conclusion but the real challenge for the renewables industry is to move to a market-based approach. “Is it right that the industry would remain a subsidised industry for all time?” he asks.

Onshore wind is competitive and subsidies, in his view, need to focus on new technologies and come directly from government rather than through feed-in tariffs. The EU ETS would become the main single policy instrument to drive investment across the continent.

National subsidies can have unintended consequences as shown by the impact of Germany’s solar subsidies on neighbouring countries. In summary, the markets and regulatory policy also have to join up in order to deliver a more sustainable, affordable and secure energy system.