Good morning, I’m very honoured to be here at this twelfth Energy Ireland Conference
I would like to set out some of the institutional and political developments, by looking back over the last year, reviewing some of the political changes. I think this should help your deliberations here today.
I will look at global developments, then to European Union and institutional changes, then to a local level – what we’re doing here on this island. Looking over the last year will provide context for this.
We’re now one year in Government - a year that has seen remarkable changes in energy across the world. One year ago, oil was priced at around $70 a barrel – at that time it was seen as expensive. The price of oil, now at around $139 a barrel, last Friday, is centre stage in a lot of policy makers minds. It was a key theme in the G8 meeting last weekend, and has political consequences in this context, across the world.
I come from a “peak oil” type background – I was a member of ASPO. About 5 years ago we held some events here in double and Colin Campell and Chris Skrebowski were here. I overheard one of their quiet conversations where Chris said to Colin, “I think it’s about to happen. I think we’re going to see a real tight squeeze in supply, hitting prices around about 2007 – 2008.” These were just quiet spoken words among two colleagues who have no financial interest in this area – it struck me, these guys know what they’re talking about and have no vested interest.
It’s interesting to see that that forecast was so convincing because Chris’s analysis is always of the flows, not of the reserves – not how much oil sits in the ground. The question is what is the actual flow of supply? How quickly can it be extracted? And his analysis, which he continues to update, is on a five year basis – seeing what big projects are coming on board, what are the big discoveries that we know about. As editor of a major petroleum Review magazine, he was able to go to the major oil companies and say, “Am I missing something?”
His flow analysis is very convincing because it shows the increasing difficulty of new production to meet depletion in areas like the North Sea, Mexico, where we can know with absolute certainty supply is decreasing and reducing each year.
Five or six years ago, the International Energy Agency would have been sceptical of such analysis, which people like Colin and Chris were putting forward. But remarkably, in the last three years, and indeed in the last year, the analysis of the IEA has changed completely.
Fatih Birol, the Chief Economist of the IEA, who is adapting a similar approach to Chris Skrebowski on the “flow”, came out with the analysis that in the next five to seven years, we will need an additional 35 million barrels oil oil a day of new production to meet the increasing demand and to meet the depletion of existing fuels.
And he said that no matter where he looked, he could only see in that timeframe of the next five years, and additional 25m barrels of oil a day of new supplies. That supply-demand imbalance is, in my mind, the fundamental reason as to why we have seen oil prices double.
It is going to continue to be there and if you attest to Chris Skrebowski’s analysis – in fact after 2011 we are going to hit a reducing flow of global oil production. The exact year is not important because in energy policy, you have to think long-term
The crucial thing this year is that the IEA is doing a field-by-field analysis which this November will be presented in their World Energy Outlook. The language is increasingly startling. We have to change our ways, have to start decreasing our demand for oil as the only policy response to global changes in oil supplies.
I don’t know what oil prices nobody does, it depends on what the Dollar does and what demand changes occur around the world but the fundamental supply flow line is one that’s increasingly present difficulties for us as a country which relies on oil for 60 % of our energy needs, for us as a country which uses some 160k barrels of oil every day.
The gas issue over the last year has been equally if not more stark the Euro quote gas price was roughly 20 pence per therm at the time, on the back of a new inflow of Norwegian gas through new Norwegian gas pipelines into the UK market and therefore also into the Irish Market.
I understand that the Gas price at the moment is something closer to 60 pence per therm obviously varying up and down but that’s a tripling of price in one year and obviously that has huge consequences.
I read with real interest in the Financial Times yesterday an article summarizing some basic, simple facts that the UK, and we’re notionally interconnected to the UK market given the fact that 95% of our Gas now comes from there. The UK in 2003 was a net exporter of Gas and this year, it’s relying on imported Gas for 40% of its needs. These are quite stark figures In other words the UK gas market price is determined by it’s ability to buy that Norwegian, or Continental Gas through those interconnecting Gas pipelines, now I just put that out there as one or two of the changes in the last year that have made it a remarkable year of change.
Also in the last year we have seen huge developments in the whole climate change agenda. I think Oisin Coghlan of Friends of the Earth was asked to sum up what’s happening in government circles and elsewhere and he has a sense of a penny dropping and people starting to understand that this is real that this is going to have a real effect on policy and a whole range of different areas.
Key within that was the publication of the latest IPCC scientist’s expert report, coming to absolute clarity around the policy requirement that we need to stabilise green house gas emissions in the next 10 to 15 years. If we are to maintain temperature increases below the 2 to 2 and a half degree temperature rise above which we start to run into the possibility of chaotic, irreversible climate change, if we were to cap it at that 2 degree rise, we need a 50% reduction of emissions in the next 40 odd years.
Increasingly I think the doubt around the science of that is being removed, it is no longer a key part of the agenda. The attention is now moving to the two other aspects of it, the solutions to climate change and the politics, the broad politics I mean; how we win our people over, how we as a people react to it.
In the politics of it, there were also key developments it’s important maybe to just mark out where we are. In the Bali process the negotiations to further develop the Kyoto protocol after 2012 got a major boost. The Bali process which was set out from there which is included in negotiations that are going on as we speak in Bonn and which will continue up to negotiations this autumn in Poznan and leading crucially next year, where we are looking to get international agreement in Copenhagen in the Autumn of 2009.
It’s interesting to look at the political landscape changing in relation to that huge unprecedented challenge and, you would have to say that the prospects of agreement have improved with the changing political climate in the United states where both presidential candidates have given clear commitments in their policy agenda to agree to that scientific policy goal of halving emissions in the next 10 to 15 years by real 50 % reduction by 2050.
In a sense the political climate changes from a simple sense of energy politics of ‘give me that’ or ‘make sure that I get that’ to one that is base on ‘yes we can’ mentality and international co-operation being at the centre of it.
The process will not however be easy, the scale of the change was set out again last Friday in advance of the G8 meeting by the International Energy Agency in it’s key paper “Energy Technology Perspectives” taking that target of 50% reductions in emissions from 2000 levels and trying to asses forward what are the technologies that can deliver that.
It’s an interesting paper. Roughly, and I’m only taking a couple of figures out or it, you can access it on the International Energy Agency Website, it’s looking at what are the solutions that will take us down from a business neutral baseline scenario which is 60 gigatons emissions, down to 14 gigatons to make that target which is the scale of the change we have to make.
There are some key cold technologies both in the energy power production side and the energy industrial use side and they forecast, and these are long term forecasts so you can’t be beholden to them, but roughly 19%, 10% in power generation carbon storage 9% in industrial processing. Nuclear, they see something like 6% contribution. Renewables they see something like 21% contribution actually they see solar PV being equivalent if not larger than nuclear response. Obviously onshore and offshore wind as being a scale above that in terms of response.
They’re seeing Renewables as a key, more than 3 times reduction as compared to Nuclear. Also crucial in their long term analysis is that energy efficiency developments and fuel switching developments account for over 54% of the path as they see it towards that sustainable future.
And this is reinforcing what I’ve heard more and more in the last year; the dawning and realisation as well as the penny dropping of us having to do something on climate change, a global recognition of energy people, people that have knowledge in the energy area that it is Renewables and energy efficiency which are going to be the key drivers internationally to deliver the solution.
They are the big deal, they are the main response. They may have been seen in the past as interesting sideline projects, not the big finance area, not the serious man’s energy politics or energy policy responses That’s old tac thinking, that’s gone. They are the very centre of what we need to do today.
In fact some of the analysis that has been done by the United Nations, they are saying something like 200bn a year these technologies are going to need each year to try and meet our goals. The capital markets are only starting to go in that direction. Similarly, I was at a presentation of the Irish Banking Federation on Monday morning, a presentation for new energy finance showing some of the latest figures; 2007 €140bn directed by the capital markets into this new clean energy finance area so a 60% increase on the previous year.
It has not been hit as badly by the liquidity crisis in the financial area as in other lending areas. That €140bn is only the very start of the ramping up that is going to be needed in helping investment in these new technologies, an area where we have real potential, where we have huge natural resources that we can develop if we tap into that capital market. The IEA paper estimates, and it’s a hard figure to get your head around, that we will need something like 45 trillion dollars expenditure between now and 2020 if we are to meet that overall target of 50% cut in emissions.
The European Union, to go from the global down to the more local, has a key and central role in my mind in helping develop our policy response. It’s interesting, I was at an Energy Council meeting last Friday and my colleague John Gormley was at the Environment Council Meeting last Thursday and both councils work now in tandem to see how we meet the climate change targets.
Also on Friday our main point of discussion was around the internal market mechanisms in Energy. This is of central importance to us as I said earlier for a country that depends for it’s gas on the UK gas market, while we see that that market is in turn dependent on what sort of free and open interconnectivity with the mainland and continental market
We have a key national interest in ensuring that there are open, and accessible common grids in gas and electricity, we need a common market in energy, 50 years on from the phantom of the common market in Coal and Steel, In energy union, we still do not have common market in key energy services.
I was confident in the meeting, we did not meet final agreement but it’s pretty much there I’d be confident that there will be sign off on the internal market mechanisms. Then the union moves to concentrate over the next six months on what is possibly the larger task which is the 20-20-20 targets that the Union has set itself to fit in with this United Nations process.
I believe that there will be agreement within the European Union by the end of this year under that French presidency on the European Union climate targets; 20% reduction in emissions, 20% increase in efficiency, 20% Renewables energy supply by 2020 and indeed that if we get those agreements we take it to the parliament in spring and then bring it subject to agreement there, to the Copenhagen negotiations in Autumn 2009 and if we get agreement there, we’re looking for 30% rather than 20% reduction.
At the Energy forum we organised in the Shelbourne this spring, former Taoiseach Bertie Ahern said his assessment, given his experience in the area was that the package was by and large going to go through. Each country has specific difficulties, specific flexibilities that they’ll be looking for, Ireland like every other one. No country at those energy council meetings was shouting stop, no one is saying fundamentally that there is a miscalculation that there is a mistake in approach in the setting of standards that the countries are being asked to meet. We have to assume, and I would say to the business communities, you should be making your investment projections, you should be planning your strategy on the basis that those 20-20-20 targets are going to go through and they are going to be centre stage in the future of energy policy.
On Friday at our Energy Council meeting we started the process of looking at some of the detail, we didn’t have much time with the internal energy market negotiations taking so long but one of the developments for this country that’s of interest, I think it’s progressive that in the Renewables trading mechanisms we are looking to introduce, that there was a presentation from the German, Polish and UK governments allowing countries to opt in to renewable obligation using a certification process which will help countries to meet there own national standards but also allow them to trade internationally to go into a more open common Europe and market including Renewables trading. The details of that have to be agreed in the next six months and that will be important.
It is because of that work that I see the European Union doing in providing energy security for it’s people in allowing Europe lead the climate change negotiations worldwide is why I am out urging people to vote yes to Lisbon tomorrow.
I saw with interest on Questions & Answers on Monday night that climate change is only mentioned 6 words in the treaty, they are crucial 6 words but that’s not the big picture, the big picture is to realise that in the workings of the European Union at the moment energy security and climate change are centre stage and we cannot achieve anything in these areas if we stand alone. By supporting the Lisbon Treaty, I see us supporting the process that delivered us those key policy goals for our people.
Coming to Ireland, I have to be conscious of the time here. So what have we done? What have we done over the last year to progress our energy policy within this international context?
Firstly I’d have to say one of the positive key developments is that we are trying to define an approach on an all-island basis. I’ve had a very positive working relationship with Nigel Dodds as my counterpart in the North and I look forward to having a good working relationship with Arlene Foster as she takes on that role. And it’s one of mutual economic interest that we can pursue to get much better together. Possibly one of the best developments in the last year is the creation and establishment of a single electricity market. There were difficulties but there were always going to be difficulties, there are international examples that this is complex, not easy and I think actually from talking to various players that we have done a hugely positive job and I’d like to commend all those involved, the regulators on both sides of the border, the transmission operators and my department and the department in the North who I think showed really good best practice in working as a team to actually deliver on time to budget, an incredible complex and important project.
Eirgrid our transmission company have an equally crucial role in the development of interconnection. In this world where we are reliant on all sides of the border on each other and increasingly and crucially east/west we are reliant for our transmission connections, Eirgrid have a key task in developing improvements in our transmission system and the development of our connection system, North-South and East-West. And I want to commend Bernie Crumb and everyone in the team at Eirgrid for progressing those two key projects.
They were also engaged among a number of other different players in the publication of our all Ireland grid study which came out in January which I think also was a key landmark step, a recognition that that old that you can’t take Renewables because it’s variable and our system won’t take it is now out of date that we can now take, according to the study, 42% Renewables on our electricity system and it makes economic as well as environmental sense by 2020 that we look at the broad categories, this future thinking may not turn out exactly as we planned but roughly 4000 megawatts of onshore wind, 2000 of offshore wind is the first step that we are taking towards a low carbon future.
And that study I believe provides a huge useful foundation stone for the developments that now need to take place as we reduce our dependency on imported fossil fuels.
Another Milestone, be careful we don’t use that term too much? In the last year is I believe the progressive step the ESB has taken in setting itself in its corporate strategy in setting itself the hugely ambitious target of being a zero emissions company by 2035.
That fits in with the sort of thinking that the International Energy Agency have set out using an array of different low carbon technologies, be it clean cold storage, be it development of Renewables, crucially the development of smart grids and smart meters so we get real efficiency in our system.
It’s interesting the international energy agency Energy Technology Perspectives Report calls it a “blue map”, when I was sitting down with the ESB we had a similar expression “blue skies” thinking about where we can go, what we can do
I have a sense that the ESB has been re-energised has a real sense of mission and purpose, and I look forward to their work along with every one else in this room to make sure we have the right distribution system, the right network system the right supply systems to actually for each of us to be part and to lead in this new environment. It is within a competitive market that they will progress, we are committed to a 40 % cap in terms of their level in the generation sector. We need other players to come in to be innovative to deliver the new techs which often new players can do in a much more flexible and timely manner.
We are also in the context of this in terms of Eirgrid and the ESB continuing in mapping out government policy in regard to our transmission system. we set out a statement earlier this spring in terms how we progress that system of government policy set out in the programme for government the Energy white paper which we are carrying through in a co-ordinated, informed and collaborative manner.
The other state companies obviously have a key role, Bord Gais, Bord na Mona, similar strategic reviews for steering them in the direction where Renewables technologies and smart supply management and energy efficiency reductions are going to be centre stage.
In terms of development of Renewables, development of our refit scheme is crucial and the progression of the projects that are in it, are absolutely crucial. We have some 75 projects currently signed up with 500 megawatts of potential renewable power coming from that. We need to get to our 15% target by 2010, we need to exceed that, those targets are there not there as limits but as the base of our ambition.
We have made changes to it in terms of contestability to allow developers to improve to make easier access to the grid; we’ve been working on the reference rate to reflect the changes that were brought about by the single electricity market. There is a meeting next week of the People’s Energy Development Group which allows the industry to come in and talk to various government sectors to see if there’s any blocks or obstacles in terms of development of our Renewables energy industry.
It is crucial for the economic development of this country that we develop and tap into these resources immediately. We cannot wait for another year delay for another year, given the changes we have seen in the last year alone.
It gives us a stable more competitive cleaner energy supply.
Recognising that we’ve introduced a number of price supports in the last year. New price supports in the Bio-mass area to encourage production.
We’ve introduced new offshore wind prices, recognising that if Ireland wants to be in that market we have to be up there with other countries offering matching incentives so as we can bring investment here. It is a different environment in which to build, it is more difficult and more expensive and more awkward in terms of getting the shipping and all the different resources and recognising that, we’ve provided a support price which we see matches what’s available elsewhere internationally to make sure we do not miss out.
We have changed the rules last November. The regulator has, to allow the sale of micro generated power back to the grid. We now need to urgently progress that so that every new building every new development stitches micro generation in.
While each on its own may only be a small power supply, cumulatively and over a number of years where we are building it into our systems, it has the potential I believe to become one of the mainstreams in our buildings, in our offices and in our homes.
In the research area, our Energy Research Council has delivered its report on where our strategy should go. One of the best case examples is in the ocean energy area where we have mapped out a ten year plan in four stages in terms of how we develop ocean energy resources here. We have committed this year to move it to the second stage with development of wave energy test facilities, with the grant support aid for prototype devices, with the introduction of a feed in supports price that matches what’s available in other jurisdictions, with the construction of a grid connection site in Belmullet to match the one we have in Galway.
The development of the unit there by SEI, which is now opened, is a real good example of long term planning leading out to delivery of projects that may have huge commercial viability and potential for this country.
Crucially as well I would say another milestone in the last year is the decision of the government and of the science foundation of Ireland to change it’s spending to now incorporate a third leg of energy research spending.
Whereas information technology and bio pharmacy were their exclusive remits, the designation of energy as a third leg in that key central stool of the government’s knowledge economy development is hugely significant and I believe will bear real long term results.
In industry we have developed CHP and Reheat schemes which are crucially important. In the development of the IS393, energy research standard, I think we are actually the country that is leading the way in how, through good management and redesigned systems we can actually deliver energy efficiency.
It’s crucial in this changing energy environment that we in the energy sector keep our prices competitive. I paid a very recent visit down to Vistakon down in Limerick last week, one of the larger energy consumers in Munster. Energy prices are crucial. They are dealing in an incredibly competitive international market they are watching every single half cent and cent. They have an annual target of a 10% reduction in costs each year through innovation, through process change.
Now in an increasingly expensive energy environment we cannot just go to these countries and say “sorry lads, plus whatever percent as a result of fuel cost rise.” We have to look to tighten our belts, to do our bit to ensure we maintain a competitive national economy so that we have customers for the next five, ten, twenty years. We are going to have to be innovative and recognise that given a particular set of circumstances in a given year we are going to be very careful about pricing, recognising that we are ahead through our policies, through the delivery of interconnection, through development of our Renewables we are going to see support and policy changes that will bring down the prices in this country.
We have tripled the dividend which we can get from our Renewables and energy efficiency strategy. We develop jobs in this country, it’s the most cost competitive way of protecting our competitive pricing, it will hedge against any rise in gas prices, it is not struck by any fuel shortages or insecurities in supply issues. So we have a triple dividend coming in pursuing the policies that we have but in the short run, we have to be careful we don not price our economy out of the international market.
In buildings there have been huge changes in the last year. Building regulations that are coming in next month are a quantum leap up from what existed previously. And it’s following the good practice that the UK has been setting on the course towards passive building by the middle of the next decade. It’s ambitious but it’s the right level of ambition, it’s feasible, it’s possible, all it needs is a change of thinking.
Our greener homes scheme has been hugely successful. It was originally designed to have 10k applications, it already has 24k apps, we will continue to manage, not in a way that it will be there forever and a day, but in a way that provides a support mechanism that will build up a quantity of supply which then becomes economic and stands on its own two feet.
A crucial development last year has been the home energy savings scheme. An innovative scheme where we go in and measure the energy efficiency of a house, advisors then give recommendations for an upgrade, collaborate as a number of houses come together so you get a really cheap and easy price to improve energy efficiency in the home. You go back after to do a further energy and compare before and after.
I’ll finish chairman on you’re direction looking forward at what’s to come. Crucial policy for us to deliver this summer is our energy efficiency action plan that’s the key policy area where we have to deliver new programmes that help us deliver energy efficiency. We also have to deliver a bio-fuels strategy and obligation scheme and that has to take into account EU targets and EU proposals for carbon reduction and sustainability criteria that doesn’t effect world food prices or deliver false energy returns.
Crucially within that our EU 10% renewable fuels by 2010, is the development of renewable electric vehicle fleets that is an area where we can see potential gains where we can use our renewable wind supplies and store them in transport fleets over night and use them to our benefit.
I’ll finish to quote, It could be fearful times present, high energy prices, the climate change targets you could be left fearful of it. To quote a former president, President FD Roosevelt we have nothing to fear but fear itself, we are at a time of change, a time of transition, and that’s difficult but it also presents huge opportunities for business for our society to create a more cohesive more secure and more effective economy. That’s our task, that’s the task of everyone in this room.