SEIs Energy Security of Supply Conference

Together with economic competitiveness and environmental sustainability, security of supply forms the foundation of energy policy. Given the developed world’s increasing reliance on imported fossil fuels, it is now very much a priority issue on the energy agenda.

Given Ireland’s lack of indigenous fuel sources, our heavy reliance on imported fuel and our location on the western edge of Europe, security of supply is of critical importance to us. When one adds the move to a fully liberalised market and anticipated continued strong economic growth, the importance of security of supply becomes even more apparent.

There are two main risks – one is that of price shocks, particularly if they are sustained and the other is physical interruption to supply. In the case of the former we have to be realistic about our ability to control such events. Oil and gas are internationally traded commodities and Ireland is very much a price taker.

Having a diverse mix of fuel for power generation purposes seems to me to be the best way of spreading the pricing risk.

Physical interruption due to capacity constraints or political instability also represents a very real threat to security of supply. Much of the EU/OECD area is already heavily reliant on oil and gas imports and this dependence is expected to increase into the future. The unstable political environment that exists in many of the major exporting countries can also create significant risks to security of supply, including risks to physical infrastructure.

This is not to say that we cannot take actions to lessen such risks. In Ireland, the construction of the second gas interconnector to the UK has greatly decreased our vulnerability to physical disruption. This project, which still has its critics, represents a sound strategic investment in long term infrastructure.

In terms of security of supply of oil to the Irish markets, many of you will be aware that Ireland, as part of its obligations both as a member of the European Union and of the International Energy Agency, maintains levels of national stocks that may be drawn upon in the event of a major disruption.

We are also witnessing major investment in our electricity networks with ESB spending some €3bn on a major networks overhaul. This will bring the transmission and distribution system up to the required international standards and meet projected capacity demand.

Transmission bottlenecks must also be tackled. I welcome the collaborative approach now being taken by the TSOs on both parts of the Island in relation to developing further North/South electricity interconnectors and look forward to the day when network planning will be done on an all-Island basis.

The construction of new North/South interconnectors, for both gas and electricity, will have a positive role in terms of security of supply. In addition, the proposed East/West electricity interconnector will provide a strong physical link with mainland UK and beyond.

The Government has also made clear that in terms of ensuring the necessary long-term investments are made in our energy networks that it is best if they remain in State ownership.

This does not mean that the Government does not support competition. The electricity market will be fully open to competition later this month, well in advance of the EU deadline. The gas market will follow in October.

Security of supply is absolutely dependent on adequate generation and on capacity to meet demand. While we have had some success in attracting in new players to the generation market, many argue that until we tackle ESB dominance we will struggle to provide a meaningful competitive market.

It is imperative from the Government’s point of view that in order to make the proper key decisions about how our energy markets should develop in the future we need to have the fullest possible information available to us – hence my strong desire to have a fundamental and objective analysis undertaken of the entire electricity sector with particular emphasis on the dominance issue.

Decisions on the future structure of our electricity sector have major implications for all consumers and for our ability to sustain our economic competitiveness. It is right and proper, therefore, that such decisions are taken on the basis of professional analysis and advice.

In a liberalised market, Government needs to be clear as to what its role is vis a vis issues like security of supply. I see our primary function as being to ensure that policies and regulation provide a proper framework for attracting investment and addressing capacity deficits in a timely manner.

Responsibility for security of supply in the electricity sector has been a grey area up to now, with the CER assuming a key monitoring and oversight role, aided by the TSO and my Department. I have decided that a more formalised approach is needed and that the CER’s responsibility needs to be strengthened. I have therefore, signed Regulations this week giving the CER formal statutory responsibility for security of supply of electricity, with much greater powers to act in order to secure and enhance supply. My Department will be publishing full details in the next few days.

I would now like to turn to the issue of fuel diversity and how such a policy can be used to protect security of supply. In addition to gas and oil, coal, and to a lesser extent peat, are also used in power generation here. Between them coal and peat account for some 37% of the fuel mix for power generation. We also have a growing level of renewables – hydro, wind and some landfill and bio gas.

In addition to 3 modern peat burning stations, the Government took a policy decision last year to retain Moneypoint as a coal burning station. This decision was taken mainly on fuel diversity and security grounds. To have switched to gas would have put us at 80% gas dependency, a level of dependence and economic risk we just could not accept.

I am also very interested in exploring further the potential offered by Liquefied Natural Gas, particularly following some of the recent investment decisions taken in the UK around the construction of new terminals. LNG offers a real alternative to piped gas and the question is open as to whether we should consider developing our own facilities here or whether we should seek to import from the UK .

Irrespective of which way we go, I am convinced that we should have LNG in our fuel mix. I note this subject will be discussed later today and I will be interested to hear the outcomes of those deliberations.

Obviously in a carbon constrained economy, the potential of renewable energy to augment security of supply has to be top of our agenda. I am expecting to receive the report of the Renewable Energy Development Group shortly and I will give serious consideration to its recommendations. This is a key area that I am determined to develop with the objective of maximising the economic potential this form of energy has to offer.

My Department is already working to deliver a better focussed and structured approach to research and development in the energy area. It is clear from some of the submissions received following our public consultation on our new Departmental Statement of Strategy, that a lot of interest exists in Ireland in R&D in the area of renewable energy. We need to exploit this fully.

Finally, I would like to comment on how the better management of demand and consumption can also help. We have already seen in this country how a change of mindset and culture can be achieved if people really want to do so – I am thinking here of the smoking ban and the plastic bag levy.

If those campaigns can succeed, there is no reason why we cannot succeed in changing behaviour around energy efficiency and conservation. Lowering demand not only helps security of supply but also protects the environment and reduces costs. It is an area in which Ireland has done well recently, particularly in the large industry sector, but I firmly believe we can achieve much more.

Thank you for your attention this morning. I hope that I have succeeded in showing that we are conscious of the importance of security of supply and that this is borne out by actions taken in the areas of infrastructural investment, diversification of our fuel mix, including a more vigorous approach to maximising the potential of renewable energy, and by taking informed decisions about how to properly develop and structure our electricity market into the future. I hope you all have an enjoyable and interesting day here in Dublin Castle. Thank you.

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