Latest ESRI Policy Report Identifies Key Challenges in the Energy Sector

• Current EU proposals on electricity market reform risk delivering significantly higher prices for Irish consumers.
• Lessons learned from our onshore wind developments should be used in promoting research on wave energy and offshore wind.
• The current model of subsidisation for renewable energy is regressive. In the future increasing costs could be distributed in a more equitable way.
• The objective of “safe, reliable, affordable and sustainable energy” is dependent on delivery of key pieces of infrastructure. 

A new report published by the ESRI today (Friday, 17 October 2014) identifies key issues which policymakers may encounter in the energy sector. Irish Energy Policy: An Analysis of Current Issues, edited by John FitzGerald and Laura Malaguzzi Valeri, examines a range national and international challenges facing Ireland over the coming decade. In addition to the traditional considerations of energy policy - security of supply, minimisation of cost to consumers and mitigation against climate change - the report also emphasises the importance of the distributional impact of energy policy. Key Findings include: 1. The current EU efforts to create a common electricity market may result in significantly higher prices for Irish consumers. Speaking about the regulatory environment, Professor John FitzGerald said ”Irish energy policy does not operate in a vacuum and is restricted by the policies enacted in other European countries. One of the major European Union policies is the drive to integrate European electricity markets. As a result, Ireland has to change the all-island electricity market to facilitate greater trade with its neighbours. While the current proposals to change the market to meet EU requirements could result in greater trade, it could come at the cost of significantly higher prices in the domestic market, adding to the burden of consumers.”   He continued “Under these circumstances, the correct approach is to delay making a decision and, in conjunction with the EU, to seek to identify a more appropriate model that will be likely to benefit consumers in Ireland and elsewhere in the EU.” 2. Our current energy policy objectives are highly dependent on the construction of key pieces of infrastructure Commenting on the infrastructural requirements, Professor FitzGerald said “A major task for energy policy over the coming decade will be to deliver on the appropriate physical infrastructure to allow the objectives of policy to be met. Examples of key pieces of infrastructure that are important for Ireland’s future development and that can reduce greenhouse gas emissions are: the North- South electricity interconnector; further interconnection between the Irish electricity system and the rest of Europe; bringing the Corrib gas field into production.” 3. Lessons are to be learned from Ireland’s deployment of onshore wind technology. International experience suggests that moving new technologies from the research phase to the development phase before they are fully developed involves unnecessary expense for consumers. The extensive deployment of onshore wind in Ireland has taken place after a major fall in the cost of the technology, minimising the cost for consumers. This lesson must be taken on board when considering the deployment of other new technologies, such as offshore wind and wave power. 4. The funding of future subsidies for renewable energy should take into account their distributional impacts. The increased penetration of renewables in Irish electricity is subsidised by a fixed charge paid by all consumers. The authors recommend that policymakers examine more equitable ways to distribute these costs, with particular attention to protecting vulnerable groups. Commenting generally on the research, Professor John FitzGerald said: “A move towards more energy efficient products and processes should be encouraged, but putting the onus on energy suppliers to deliver on this objective is likely to add to costs for consumers. If subsidies are warranted, the state should provide them directly by targeting any specific failure of the market.” ”Job creation in the energy sector is not, and should not be, the objective of energy policy. Instead the objective should be to deliver a secure and environmentally friendly energy supply to Irish consumers at a minimum cost.”