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Creating Wealth for Irish Energy Citizens

I’ve just finished listening to a new episode of the excellent Five Degrees of Change podcast by Daniel Murray at the Business Post. For those not familiar with the format, an expert in climate, energy and environment is invited to outline three policy proposals and two personal changes they believe would make for a cleaner, greener world. 

A recent guest was Mark Foley, CEO of Eirgrid. We’re lucky to have someone of Mark’s calibre overseeing one of, if not the most important piece of infrastructure in the country. The analogy of the road system that Mark uses to illustrate Eirgrid’s remit is helpful, but possibly understates the importance of the work – the morning congestion on the M7 is not an option for any electricity grid. 

That said, I’d like to explore a point Mark raised in the podcast at approximately minute 52, in response to a question from Daniel: 

Daniel Murray: “As energy becomes more decentralised, coming from wind farms, coming from solar farms, possibly even coming from houses as people move into microgeneration, solar panels on their roof, which feed back into the grid, what does that do to your role?”

Mark Foley: “This is really important Daniel because there’s a misconception here that what I do in my home could solve the problem to 2030. The problem to 2030 is of such proportions, it can only be solved by that massive investment in onshore and offshore wind and solar, which is big play stuff, big volumes, and a lot of it connects straight into the transmission system. So the challenge … in the next 10 years is very much around big ticket renewables, making the grid fit for purpose, putting the technology that’s necessary on the grid, and getting us to 2030. I’m not saying… there will be a transition in the home, inevitably, I think it’ll take longer, people will invest ultimately in solar panels, either to heat water or to generate electricity, that won’t solve the 2030 problem, if 100,000 people did it tomorrow or could do it overnight. The problem is so big, we should concentrate on doing the stuff that’s in the Climate Action Plan, eliminating the policy roadblocks and getting on and doing it. The world of the distribution system and the role of the ordinary person I think will evolve slowly over time, it’ll be relevant, but it won’t solve the problem.”

Ironically, while providing electricity to the homeowner is a key reason Eirgrid exists, they’re probably the constituency Eirgrid is least well placed to influence. So understandably, I would expect Eirgrid to focus on the ‘big play stuff’. However, given Mark’s status and access to policy makers, I think it’s a strategic mistake to say ‘there’s a misconception’ around the role of the homeowner. It’s also not consistent with current government policy nor our stated goal of getting to a net-zero carbon electricity grid by 2040. 

The Energy White Paper published by the Irish government in 2015, Ireland’s Transition to a Low Carbon Energy Futurestates that ‘Energy citizens will play an active role in the transition… communities of citizens, in rural and urban areas, will be able to work together on energy efficiency initiatives and renewable energy projects’.  

Eirgrid published a report in 2019 called Tomorrow’s Energy Scenarios. Scenario Planning is widely used in the energy industry and helps to inform others in fields outside of energy, particularly policy makers focused on the climate crisis. Two of the three scenarios from the report are juxtaposed below. I’m ignoring the Delayed Transition scenario, because we don’t want it to be a contender: 

Centralised Energy 

  • Decarbonised electricity is mainly generated from larger generation plants 

Coordinated Action  

  • There is significant growth in generation connected to the low voltage electricity network. This micro generation is accompanied by battery storage, yielding high levels of self-consumption. 
  • Sector coupling becomes an important source of flexibility. 

Based on the information Mark presented in the podcast, I believe the Centralised Energy scenario represents how the next decade will unfold. 

Taking a closer look at what differentiates the two scenarios reveals that it is actually relatively little. They certainly are not mutually exclusive, and I’d argue that the Coordinated Action scenario is the Centralised Energy scenario with an engaged Energy Citizen, a citizen who produces and consumes their own energy.  

What jumps out immediately is the first line of the table: Toward a CO2-neutral electricity system by 2040. You will note that in the Centralised Energy column, it states ‘No’. In order to hit the 2050 climate target, we need the electricity system to be carbon neutral by 2040, and in this scenario, we don’t achieve it. 

The Centralised Energy scenario is not aligned with the policy set out in the Energy White Paper. With ‘Medium’ Decentralisation and Digitalisation, we don’t have enough ‘Energy citizens playing an active role in the transition.’ 

Now let’s explore the scenario where ‘100,000 people did it tomorrow or could do it overnight’ as Mark mentions in the podcast. For me, ‘it’ refers to installing a Solar PV system with a battery in a home. Based on the latest CSO figures, 100k homes represents about 7% of detached, semi-detached, and terraced homes in Ireland. 

While it can’t be achieved overnight, installing 100k domestic solar systems requires about 300k man days of work. If we wanted to accomplish this goal in 2020, it would require installing around 800 systems/day. Such ambition would generate high-value work for several thousand tradespeople, a helpful boost to the economy at a critical time. For reference, the UK installed over 600k domestic solar systems between 2010 and 2014. 

 Suppose we selected homes capable of generating at least 3600 kWh/year, combined with a higher than average electricity consumption, over 5000 kWh/year, and that with the installation of a battery, these Prosumers can self-consume over 90% of what they generate. The combination of the above set of assumptions means a home can generate around 70% of its annual requirement. The result would be that by winter 2020, Prosumers will have built 400MW of solar power, which will generate 360k MWh/year, granted 75% of it will be between April and September.   

While the contribution is small, Mark’s point, the strategic benefit is severalfold. One direct and immediate benefit is the impact on our balance of trade, 65% of Ireland’s electricity in 2018 was generated from imported fossil fuels. 

To compare, what could offshore wind do? Assuming a wind turbine size of 10MW operating at 45% capacity, eight offshore turbines will generate annually the same amount of electricity as the 100k domestic solar systems above. And it will be more or less evenly over the year, and probably more in the winter, when more is needed. That, quite reasonably, is Mark’s argument about the ‘big play stuff’. We can expect to install 100s of turbines off the coast of Ireland over the next ten years. Eirgrid scenarios range from 250 to nearly 500, with 350 as the target in the Climate Action Plan. If that is achieved, it would generate 40 times more electricity than the 100k homes in our mini scenario.  

So why should the homeowner even bother?  

There are many important reasons. 

The first reason is, as Mark pointed out, offshore wind alone won’t get us to a carbon-neutral electricity system by 2040. The generation capacity from 350 offshore wind turbines in 2030, nearly 16TWh, is only about 9% of TODAY’s energy demand. And with Electric Vehicles (EVs), electric heating, and more data centres expected, the national electricity demand is only going to increase. We need a profound transformation in our attitude towards energy to realise the full potential of becoming a nation of Energy Citizens, rather than simply adding more generation. 

The second reason is that, from a climate change viewpoint, a homeowner reducing their grid electricity by 70% in 2020 reduces their carbon emissions by 1.2 tons per year, or around 10%. That’s a small percentage of the 60m tons of Green House Gases Mark mentioned Ireland generates each year, but it’s the first step on the journey to zero carbon living, which every citizen needs to take. But more importantly, homeowners can make this impact starting in 2020. 

Thirdly, the ‘big play stuff’ will take much longer than the speed with which an individual homeowner can decide to go solar. If we put our back into it, Ireland can install 100k domestic solar systems in 2020, whereas the build-out of the offshore wind fleet will take the next two decades.   

The fourth reason is critically important. Taking a closer look at the ‘Coordinated Action’ scenario, it says Sector coupling becomes an important source of flexibility. So what is flexibility and why do we need it? 

Below is a chart illustrating electricity demand over the course of a week during the month of March 2020. You can see that demand oscillates between 3500MW-6500MW over the course of each day, as we get up in the morning, go to work, go home and then go to bed. Highlighted within that is how the frequency of the grid varies over a short 4-hour period, where you can see demand drops quite dramatically. What you’ll notice is that despite the 1000MW drop in demand, the frequency of the system always stays near 50Hz, within 0.2%. And it’s critically important it does so, because if it drops too low, there will be a power failure, and if it gets too high, it could blow out a transformer. In some respects Eirgrid’s primary responsibility is keeping the grid at 50Hz. In order to keep the system stable, Eirgrid purchases ‘Capacity Services’, basically the ability to increase supply or reduce demand at relatively short notice, as required to keep the grid near 50Hz. 

It turns out that technology is available today that allows homeowners to pool together domestic batteries, and eventually EVs and electric heating, into Virtual Power Plants (VPPs), and as a collective, provide balancing services to the grid operator.  VPPs provides flexibility to the grid, to help maintain it at 50Hz. More importantly, as Ireland moves to 100% renewables for electricity generation, because of the variable nature of renewable generation, the demand for balancing services will only increase. In fact, some forecasts suggest the power market will switch from being one dominated by trading electricity, to one dominated by trading balancing services. 

The addition of VPP’s to the Irish electricity system is precisely what the ‘Coordinated Action’ scenario refers to when it states, ‘Sector coupling becomes an important source of flexibility’, while also delivering on ‘significant growth in generation connected to the low voltage electricity network’.  

Furthermore, Eirgrid plans to spend €2 billion over the next ten years to upgrade the High Voltage Electricity Network for the new utility scale wind and solar, the cost of which is included in all electricity bills. In 2019 nearly 8% of wind generation was ‘Turned Down’ due to constraints and curtailment on the system. In addition, ESB Networks also needs to make a significant investment in upgrading the Low Voltage Electricity Network, which is what connects individual homes to the grid, and like Eirgrid, ESBN also needs balancing services for its network.  

Dr. Andrew Crossland, PhD. has studied home solar and battery systems extensively, and his research suggests that the installation of batteries in homes can offer a cheaper alternative to grid reinforcements. Dr. Crossland proposes there is enormous potential for homeowners to make a contribution to grid resilience and stability while also reducing the overall investment required to upgrade the Irish electricity network.

The Most Important Reason of All:

Money in every Energy Citizen’s pocket

 To be fair, installing a domestic solar system today is an investment, c€9k for the system in our scenario, after the SEAI grant. By installing solar, homeowners start generating their own electricity immediately, thereby saving on the amount normally paid to their electricity provider. We’ve already described homes = that can generate 70% of their electricity needs by going solar, which translates into savings of approximately €640 per year, an attractive tax-free return on a €9k investment.  

And there are additional savings to be made. The battery can be filled at night on a cheaper tariff, saving an additional €50 per year. Once operational, participating in the VPP will generate additional savings from two sources, sale of any electricity not used at home, and participation in the balancing market, which combined we estimate based on prices available today at as much as €180 per year. Finally, with Carbon Taxes already forecast to increase from €20/ton to €80/ton by 2030, and potentially significantly more thereafter, that cost is also avoided, which averages another €50 per year in savings over the next decade. Combining these savings generates a return of over 10%.  

If paying up front isn’t an option, the range of green finance alternatives on the market is thankfully increasing all the time. A €9k loan repaid over 7 years at 6.5% will cost the homeowner in the example above an extra €75 per month for the period of the loan, but will save over €16k over the 20-year life of their system, including the cost of replacing the battery with the latest technology after 10 years.  A green loan with a payback period of 10 years would completely offset the cost of servicing a loan, and allow every homeowner to move to solar without feeling any financial impact. 

For comparison, the pension funds investing in Ireland’s utility scale renewables are being offered roughly a 7% return on the back of the 15-year contracts about to be auctioned, which is supported by the PSO levy paid by all Irish electricity consumers. Similar support for Irish homeowners would generate similar wealth for Irish energy citizens. 

And finally, the sixth reason, public engagement. Daniel mentions Eirgrid’s travails with a community in Cork over the connection to France, and sadly there have been others, the North-South inter-connector for example. While not Eirgrid, the midlands wind farm project to send electricity to the UK became a lightning rod a few years ago for public opposition to critical national infrastructure. The main problem with the ‘Centralised Energy’ scenario is that it’s being done to people, while in contrast, the ‘Coordinated Action’ scenario has people involved in the doing, and quite rightly benefitting financially from it.

Now let’s really see what impact the Irish homeowner can make. 

There are roughly 1.7m homes in Ireland. Over the next 10 years, we could install 100k domestic systems per year, adding 4000MW of generation capacity with the accompanying battery capacity to build true flexibility and resilience into the Irish electricity system. In doing so, we can reduce the cost to upgrade the Low Voltage Electricity Network, we save hundreds of millions in fossil fuel imports, we create tens of thousands of jobs, and we create wealth for energy citizens. 

The real achievement? We’re well on our way to a carbon-neutral grid by 2040, something our grandchildren will thank us for. I’d like to think all of the above constitutes a compelling argument that Eirgrid’s ‘Coordinated Action’ scenario is the one Ireland should wholeheartedly embrace. 

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