1. Presentation to Oireachtas Joint Committee on Communications, Marine & Natural Resources 14 th July 2004

2. Who Are Airtricity? Founded in 1997 160 Employees 30,000+ SME Customers 2003 Turnover €92 million 228MW’s Generation capacity – 10 Windfarms by December 2004 €130 million invested to-date Ireland’s leading renewable energy company

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4. Key Issue A clear energy policy based on objectives set by Government is necessary. Otherwise result is:- Default to short-term “cheapest” option Confusion amongst regulatory bodies as to priorities Lack of investment in diverse portfolio

5. Lessons from History ESB set up in 1927 Hydro plant built at Ardnacrusha to supply electricity needs 1932 was dry, Pigeon House rushed back into production as coal burner Policy set by events – not planned.

6. Lessons from History 1939-1945 2 nd World War, country runs out of fuel, relies heavily on peat Set up Bord Na Mona in 1946. Supplies 33% of electricity needs by 1951 Policy set by events - not planned.

7. Lessons from History Through 1950 and 1960s real price of oil falls and becomes the only fuel used in all non-thermal plants; Ringsend, Poolbeg, Tarbert, Great Island 1973 oil begins to be used as a political weapon & prices multiply by 4 overnight Aghada turned from oil to gas and Poolbeg retro-fitted with dual firing capability Moneypoint planned and constructed Policy set by events - not planned.

8. History Lesson To Optimise Ireland’s Competitive Position We must be Pro-active and Plan Reacting to events costs the economy !!

9. Wind of Change Why The Drive for Renewables?

10. Climate Change “Sea ice in the Arctic is declining at a rate of nine percent per decade” “The rate of warming in the Arctic over the last 20 years is eight times the rate of warming over the last 100 years” UNFCCC (1992) and Kyoto Protocol (1997) aiming to address the issue

11. Security of Supply Peak rate of discovery of Oil and Gas occurred in the mid 60’s Rate of production overtook the rate of discovery in the early 90’s Rate of Production of Oil & Gas will plateau 2015

12. Ireland’s Electricity Fuels - 2002 Ireland has 58% reliance on oil & gas EU avg – 24% No Coal or Oil Kinsale nearly depleted Corrib limited resource

13. Sources of Natural Gas 1999 Norway Russia Neitherlands Algeria Egypt Libya Romania Deutschland Ukraine Azerbaijan Kazhakstan Turkeyenistan Uzbekistanstan Great Britain France 1.000 km 2.000 km 3.000 km

14. Sources of Natural Gas 2010 Great Britain Norway Algeria Libya Egypt Turkeyenistan Azerbaijan Uzbekistanstan Kazhakstan Ukraine Neitherlands Russia 1.000 km 2.000 km 3.000 km

15. Sources of Natural Gas 2025 Russia Turkeynistan 1.000 km 2.000 km 3.000 km Ireland – End of a 4000 km Pipeline

16. Norway By Field Source: N P D HistoryForecast

17. Spurious OPEC Reserve Revisions Could only provide minor uplift in current crisis

18. Oil & Gas Production

20. Issues for Policymakers Does it matter that Ireland is so heavily reliant on imported gas & oil ? Remember Ireland’s experience with oil prices in 1970s! Ireland has a serious electricity generation shortage “Default” position is more gas-fired generation Decisions on generation plant mix in next 5 years will increase or decrease Ireland’s fuel price exposure for next 20 years

21. Ireland’s Competitive Energy Position Exposure to oil & gas prices = 2.5 times EU average Exposure to Imports = Ireland 85% versus EU average 45%- 50% Energy from wind will reduce Ireland’s energy costs & improve competitiveness

22. Ireland – Highest Wind Speeds in Europe

23. Increasing wind penetration leads to a small increase in reserve costs Intermittency Myth

24. Long Term Costs of Electricity Generation True cost comparatives must include market risk Upfront capital costs are sunk costs with little risks (e.g. wind) Key risk areas are fuel prices and maintenance costs Fossil Fuels – High Risk - Long term increasing price trend - Short term price spikes and increasing volatility

25. Type of Risk Fossil fuel costs fluctuate over time and do so in a ‘negative systematic’ manner – When fossil fuel prices rise or become volatile economies decline US Energy Secretary, Spence Abrahams stated “The nation’s last three recessions have been tied to rising energy prices and there is strong evidence that the latest crisis is already having a negative effect,”

26. Risk – Adjusted cost electricity estimates (Europe/EA Countries) based on historic fuel price risk

27. Ireland’s Future Energy Scene – 2 options Construct more gas-fired plant 60% of costs for modern gas- fired plant is gas price 40% is fixed operating and debt servicing costs Customer takes risk of gas price Oil & gas price volatility causes economic recessions – impacts business confidence Construct renewables generation plant Fuel cost is free 90% of costs are debt servicing, balance is fixed operating costs Customer has no fuel price risk Provides “insurance” against volatile oil & gas prices and reduces Ireland’s over-exposure to imported fossil fuel prices

28. Ireland’s Renewable Targets Default Case EU targets are for 13.2% of electricity to be generated from renewable sources by 2010 Current actions threaten these targets (e.g. constraining off threatens financial viability) Competitive Case We should be setting targets to reduce our over-exposure to fossil fuels 25%+ of generation from onshore/offshore wind 25%+ of generation from other renewable sources Policies should then align with these targets

29. Current experience Ineffective multiple AER programmmes No clear statement yet from DCMNR on renewables support A much more renewables friendly appproach in NI (Regulatory approach and support mechanism) ESB NG’s call for a wind connection moratorium has damaged renewables investor confidence CER’s action in designing a market system which takes no account of renewable technology and favours fossil fuel technology Build further gas-fired generation Default Case – Repeat mistakes of the past

30. Creating a Competitive Irish Energy Market Establish a 20 year plan to include:  Government specified targets (no fuel to account for more than 40% of generation)  Specific renewables target  Mandate regulatory bodies (CER, ESB NG) to deliver plan  Support mechanism harmonized with NI & GB  Infrastructure investment must include interconnection with NI & GB  Work towards a single Anglo Irish market within an EU context

31. Summary Without a definite energy policy, Ireland’s over-exposure to fossil fuel pricing levels & volatility will be “cemented” for next 20 years This is at a time when there is real uncertainty over oil and gas supply and therefore pricing Renewables can offer a real alternative and act as “insurance” Requires other bodies (ESB NG, CER) to be manadated to follow energy policy We have ample renewable sources, but need commitment to exploit