When the Minister for Energy, Pat Rabbitte, and his UK counterpart, Ed Davey, recently signed a Memorandum of Understanding it led to excited talk of tens of thousands of new jobs and billions in tax revenue and export earnings.
The memorandum promises no such thing.
Mr Rabbitte and Mr Davey agreed to negotiate an agreement under the Renewables Directive, which sets targets for renewables for all Member States of the European Union. Some countries will find it easier to meet these targets than others. Therefore, the same directive allows member states to either pool their targets or to sell surplus renewables to the highest bidder.
Ireland is one of the few countries that conceivably might have more renewable energy than it should. According to this memorandum, Ireland will enter into an exclusive arrangement with the UK – rather than let the British bid against the French and the Poles.
This obviously is a good deal for the UK. It is not immediately clear why Ireland would agree to this.
However, the plan was initiated by the highest levels of both governments, shortly after the UK decided to join in Ireland’s bailout.
The plan is to build many more wind turbines in Ireland – perhaps as much as 5,000 MW, compared to a current installed capacity of 1,700 MW – and transmit the power via dedicated cables to England and Wales.
The midlands is the prime candidate location. The plan has duly been dubbed Bogtec (after Desertec, a similar plan involving the Sahara). The UK needs Bogtec to meet its renewables target. It cannot afford another fight in the coalition or with Brussels. The British population has been very effective in using planning regulations to thwart plans to build more wind turbines. That explains why the UK is prepared to pay the extra cost of putting new wind across the Irish Sea.
Long distance power transmission does not come cheap. The recently completed East-West Interconnector cost €600m for 500 MW. Experts agree that this was overpaid by a factor two to three, but even so, the bill for Bogtec’s undersea cables alone would amount to €2-3bn.
As Bogtec is still in its infancy, it is difficult to assess the potential benefits for Ireland. The more optimistic estimates seem designed to dazzle voters and politicians. Wind power does not generate a lot of employment. Estimates by lobby groups typically ignore the jobs lost in other parts of the energy sector, let alone the jobs destroyed by more expensive electricity and higher taxes.
The highest estimate for Bogtec – 40,000 new jobs – assumes that Ireland will suddenly become an attractive location for mechanical engineering. It is more likely that the turbines would be build in Denmark, where factories have overcapacity, than that new factories would be build in Dublin Port.
The projected export earnings depend on the price. At the moment, the Renewable Energy Feed-in Tariff (REFIT) in England and Wales is 25 cent per kilowatt-hour for small suppliers. Large, foreign suppliers will not cut such a sweet deal. The wholesale price of electricity is only 6 c/KWh, the retail price 18c/KWh. The projected billions of euros of export revenue per year will be at the mercy of the generosity the British subsidies.
With few extra jobs in Ireland and low profits, the Government will not see much tax revenue either. No royalties are paid on wind. Coillte and Bord na Mona would make some money leasing their land for wind turbines. Bogtec therefore does not seem to be such a great deal for Ireland. It is unclear how the benefits compare to the costs of turning large stretches of the Midlands into wind farms.
Ireland’s renewable energy policy is in a bit of a pickle since the UN ruled that regulations did not follow proper procedures. The High Court has agreed that there is prima facie evidence that the National Renewable Energy Action Plan is invalid. The Government’s first line of defence when the case resumes in March will be that complaints were made too late (reinforcing the UN ruling that not enough time was given to protest).
With regard to Bogtec, officials are tight-lipped, but do not contradict the fantastical claims by private beneficiaries. It is a good deal for Britain. . . is it a good deal for Ireland too?
Before we proceed, some questions need answering. Why is an exclusive deal with the UK better than selling renewables on the open market? Is Bogtec a condition of the bailout? Will the Irish State or state-owned companies invest money in Bogtec? If so, what is the expected rate of return? How sensitive is the rate of return to UK subsidies? Why would Ireland accept onshore wind power rejected by the Brits?
The state of the public finances and the Irish economy is too precarious to sleepwalk into another bad deal.
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