Energy Ireland conference 2022

On the cusp of a revolution

After spending the Wednesday and Thursday of last week at the 2022 Energy Ireland conference I had some time to reflect on a whirlwind of challenges we face as we look to accelerate our path to a 51% reduction on greenhouse gas emissions by 2030 and net zero by 2050. I thought I would share some of my takeaways here.

Actions into delivery

Ireland has already managed to reduce its greenhouse gas emissions by 18% from 2005 to 2020, the majority in electricity, while heat and transport have also reduced. Only agriculture has increased its carbon emissions over this period. These emissions reductions have flattened out, and perhaps increased, for 2021 and 2022. So, we are left with 7.5 years to deliver approximately a 3x level of emissions reductions compared to the last 15 years. This is also in the context of economic growth, population growth and a war on Ukraine. Not an easy feat?

Collaboration

The need for collaboration was a key theme across both days. The Climate Action Plan is a cross sector plan which is about cutting emissions across our economy and society. To do this we need a collaborative effort of the sort that we have never seen before. We also need a significant investment in people and resources to deliver on the plan. As the industry mobilises our organisations must be as open as possible to progress and build out the infrastructure required for the transition. That means the silos companies, government and sectors are used to working in have to be broken down to accelerate delivery. It also means investment in education, training and on the job learning.

If we were starting from scratch, we would not start here

Our electricity market is evolving with more decentralised generation, a mainly capital cost base, electricity storage being essential and grids becoming a smart player in the overall network. This contrasts with our current network structure and pricing which was designed to bring power from our fossil fuel power stations to the population. It now needs to be orientated to areas where large-scale renewable energy projects will exist. It’s clear that if we had a blank canvas that we wouldn’t start from here but there is now momentum behind investing to upgrade our system to facilitate further renewable generation.

Funding and financing will be critical

As a corporate finance professional, I was particularly interested in the overall cost of the energy transition as well as the funding and financing of it. Few of the conference speakers broached this subject. Estimates out there to get to our 2030 targets range from €20 billion to €30 billion and double that again to get to 2040. The question is, who pays for this transition and over what period? Given the current structure of the regulatory regime, it appears that the transition is broadly financed on the balance sheets of semi state utilities and the user pays through our utilities bills either for the utility assets or in the form of a PSO for renewables support. It remains to be seen as to how efficient this structure is and whether there are more viable alternatives that offer quicker delivery and better value for money. I certainly see merit in more structures being considered.

Infrastructure projects take time

After nearly 17 years of working on infrastructure projects in both Ireland and abroad I can safely say that they take time to deliver. From early-stage strategy through to delivery, a large-scale project typically takes 7-10 years. When you factor this into our Climate Action Plan targets for 2030, we clearly do not have much time left to deliver. So, any blockages that are currently in place need to be addressed urgently. A number of these blockages are at a policy level including planning reforms, changes to the RESS auction mechanism, policy on security of supply and a hydrogen strategy. Our politicians and permanent government are in for a few busy 6-12 months to progress policy and its incumbent on industry to facilitate and assist this as much as possible.

The system is complex and interdependent which means it needs to be open

Several presenters talked to the system wide approach to energy and the need for a more open system compared to the closed structures of the past. This means significant interactions between electricity, gas, industry, land, transport, buildings, and traditional fossil fuels. It demonstrates the complexity of our system, the need to work closely and the fact that the solutions are across multiple technologies. This includes solar, onshore wind, offshore wind, biomethane, hydrogen, CCS, battery storage and interconnection. To get there we need to acknowledge the shorter term, less palatable, role of natural gas, LNG, and gas storage. Demand response is also important especially in interactions with land, transport, and buildings. And the use of digital technologies to track, monitor and optimise the use of our energy will be critical. ??

Gas is critical now and into the future

The role of gas is a fundamental one in terms of our current energy and security of supply in the short term but also in the conversion to renewable energy. Gas currently powers 30% of Ireland’s energy needs while biomethane and hydrogen are likely to be our chosen technologies as we search for a resilient form of energy when the wind doesn’t blow, and the sun doesn’t shine. GNI already have one project injecting biomethane from an anaerobic digestion plant into the gas network and have plans for more from a central grid injection facility in Mitchelstown. But policy supports are needed to develop biomethane projects further. Hydrogen, and green hydrogen in particular, is seen as an important long-term solution for security of supply. However, it is currently an inefficient form of energy so use cases need to be considered further.

In summary

The Climate Action challenge is huge but there’s a real momentum building. All parties are very much pushing to drive change and innovation is growing within the sector, especially as carbon budgets are about to be put out on a statutory footing. It remains to be seen as to whether we will meet our 2030 targets but we are finally scaling up for delivery.

I was struck by the following quote at one of the presentations:

‘The difficulty lies not so much in developing new ideas as in escaping from old ones.’

John Maynard Keynes

I would add the following:

“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. For the innovator has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries … and partly from the incredulity of mankind, who do not truly believe in anything new until they have had actual experience of it.”

Niccolò Machiavelli, The Prince