Colm McCarthy: can Ireland become a large-scale exporter of electricity?

Last week’s column about offshore wind concluded: ‘Before any capital exposure is undertaken, the Government should publish an assessment of the commercial viability of offshore wind for export, including market analysis and a detailed cost estimate for every step in the process.’

On cue, Minister for Environment Eamon Ryan has just released a strategy paper committing the Government, and implicitly the taxpayers, to extensive support for offshore wind, complete with ambitious targets which would see Ireland become a large-scale exporter of ‘surplus’ electricity, assumed to be available in abundance.

The accompanying report does not contain an estimate of likely costs to customers or taxpayers. Nor is there an adequate assessment of commercial prospects, the twin concerns highlighted above.

Politicians around the regions promote constituency interests, including expansion of local seaports to enable offshore wind, and the public discussion has been divorced from marketplace realities.

Just because the Atlantic ocean is large and windy, it does not follow that the enormous capital investment required for platforms and onshore facilities will be made available by private investors.

Since power generation is a cost recovery business, the customers will remunerate the private investors should they volunteer the billions needed, or the customers will bear the risk as taxpayers if the State puts public money on the line.

Funding

An example: the port of Cork cannot raise the full €130 million cost of onshore facilities and wants the Government to find the missing money.

Ireland does not currently enjoy a commercial advantage in the production of electricity. The State achieved a reduction in emissions last year, according to the Sustainable Energy Authority of Ireland, only by importing electricity from the UK because Irish supplies were tight and UK wholesale prices were cheaper.

The UK’s extra emissions are counted in the British total, even though the electricity was consumed in Ireland, which distorts electricity trade across frontiers given the poor system of emissions accounting.

If Ireland can produce and export electricity at a profit, from the Atlantic or anywhere else, private investors will be keen to provide capital. If not, there is no business opportunity either for private investors or for the Government.

Billions

Unrewarding projects do not get better because the Government is the shareholder, even if poor Government accounting conceals the weak economics.

The scale of the investment would run into tens of billions for floating platforms, offshore and onshore transmission and for plants to convert surplus electricity into hydrogen for export.

The intense lobbying for State support from offshore wind companies suggests that they would like to offload the risk, despite plentiful hyperbole about an ‘offshore wind bonanza’ and descriptions of the Atlantic waters as ‘the Saudi Arabia of renewables’.

Meanwhile the energy companies have made no commitments of hard cash. Even in the United Kingdom, where platform costs in the shallow North Sea would be lower than in Ireland, recent auctions of offshore concessions have not been attracting bidders and the companies are seeking higher guaranteed prices, as they are in Ireland.

Price guarantees to private electricity generators shift the risk firmly on to the State balance sheet, and the Irish State balance sheet does not provide for contingent liabilities, or even try to measure them.

If the Atlantic wind resources are real, and present an attractive opportunity for profitable exports of power or of hydrogen, then the contingent liability would never materialise.

But price guarantees are being sought for a reason and Governments are tempted into myopia when future liabilities can be assumed away.

So-called grey hydrogen, produced by converting natural gas, a fossil fuel, without abating the carbon emissions, dominates available supplies and costs are around €1/kg.

Hydrogen

Green hydrogen sought in a recent tender by one of the refinery companies has attracted bids around €8/kg and some experts doubt that a future hydrogen industry will ever scale sufficiently to achieve significant cost reductions.

A buoyant outlook for the electrification of transport courtesy of renewable power and battery storage means lower take-up for hydrogen. This would constrain the market outlets for offshore wind, as do the recent announcements around Europe of new investments in always-on nuclear power.

The UK government has recently published updated ‘strike’ prices which it will guarantee to new generation units. Its figure for onshore wind is less than half the minimum price for offshore floating platforms, where UK costs will be lower than in Ireland.

There is evidence that other parts of Europe will have cheaper electricity too, including Scandinavia, which enjoys good hydro resources and Spain, where the sun shines.

Across the Mediterranean, north African countries are eyeing up export opportunities for solar, as have locations in the Middle East. It would be embarrassing, and ruinous for Irish investment offshore, if the ‘Saudi Arabia of Renewables’ turned out to be the sunny kingdom itself.