green paper on energy policy in ireland

Green Paper on Energy Policy in IrelandMay 2014

http://www.dcenr.gov.ie/

Contents

Foreword A Message from Minister Pat Rabbitte, T.D. 4

I. Setting the Context 5

Overview of Green Paper process 5

Introduction Energy policy developments since 2007 6I. (i) Key Irish Energy Policy Achievements 6

I. (ii) Key Energy Policy Developments 7

I. (iii) Collective Delivery 9

I. (iv) International Developments 11

I. (v) Developments in the EU 12

I. (vi) Developments since 2007: economic context and energy prices 15

II. Green Paper Energy Policy Priorities 20

Six Energy Policy Priorities to frame the Discussion 20

Priority 1: Empowering Energy Citizens 211.1 Contextual Background 21

1.2 Protecting Vulnerable Energy Citizens 22

1.3 Saving Energy at Home 22

1.4 Decarbonising Energy in the Home 23

1.5 Innovative Relationships between Energy Suppliers and Consumers 23

1.6 RealisingtheBenefitsofCompetition 24

1.7 TheEducatedandInformedCitizen 25

Priority 1 Empowering Energy Citizens: Questions and Policy Options 26

Priority 2: Markets, Regulation and Prices 272.1 Contextual Background 27

2.2 EnergyPrices:Secure,Sustainable,Affordable 28

2.3 Market Integration and Regional Initiatives 30

2.4 TheRoleoftheRegulator:Certainty,Stability,Flexibility 31

2.5 MarketTransformationandIndustryStructure 34

Priority 2 Markets, Regulations and Prices: Questions and Policy Options 36

Green Paper on Energy Policy in Ireland

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Priority 3: Planning and Implementing Essential Energy Infrastructure 373.1 Contextual Background 37

3.2 ElectricalInfrastructure 37

3.3 OilInfrastructure 39

3.4 GasInfrastructure 40

3.5 Planning and Public Engagement 40

Priority3PlanningandImplementingEssentialEnergyInfrastructure: Questions and Policy Options 43

Priority 4: Ensuring a Balanced and Secure Energy Mix 444.1 Contextual Background 44

4.2 FuelDiversityandIndigenousResources 45

4.3 Electricity 46

4.4 Coal 48

4.5 PeatandBiomass 48

4.6 NaturalGas 48

4.7 Nuclear Energy 49

4.8 Heating 50

4.9 Energy in Transport 51

4.10 Storage and Emergency Planning 53

Priority 4 Ensuring a Balanced and Secure Energy Mix: Questions and Policy Options 54

Priority 5: Putting the Energy System on a Sustainable Pathway 555.1 Contextual Background 55

5.2 MakingourUseofEnergyMoreEfficient 56

5.3 RenewableEnergy 58

5.4 Grid Development and Sustainability 60

5.5 Job Creation and Economic Growth 60

5.6 Climate Change 61

5.7 RoleoftheSustainableEnergyAuthorityofIreland(SEAI) 62

Priority 5 Putting the Energy System on a Sustainable Basis: Questions and Policy Options 64


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Priority 6: Realising Economic Opportunity 656.1 Contextual Background 65

6.2 Contribution by Commercial State Energy Companies, and Government Support Programmes to the Overall Economy: Investments, Employment and Training 65

6.3 SkillsandTraining:TomorrowsEnergyWorkforce 66

6.4 Procurement: Spending Strategically 67

6.5 Research,TechnologicalDevelopmentandInnovation 68

6.6 Modelling 69

6.7 EnergyDataasanEnablerofInnovation 70

6.8 PeopleandProcess:Cross-GovernmentCollaboration 70

Priority 6 Driving Economic Opportunity: Questions and Policy Options 72

Appendix 1: Glossary 73

Appendix 2: Key Department Publications since 2007 75

Appendix 3: Other Relevant Publications 76

ListofFigures

Figure1:PrimaryenergyuseinIrelandbyfuel,1990-2012 16

Figure2:Realenergypricechangetohouseholdssince2005inEU-15(index) 17

Figure3:Realenergypricechangetoindustrysince2005inEU-15(index) 18

Figure4:Irelandstotalprimaryenergyrequirementandtotalfinalconsumption,2012 19

Figure5:DomesticElectricityPrice,RelativeShareofComponent,2011(BandDC) 29

Figure6:Forecastprimaryenergyrequirement19902020(NEEAP/NREAP) 45

Figure7:Electricitygenerationfuelmix2011-2012(grosselectricityconsumption). 47


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Foreword AMessagefromMinisterPat Rabbitte, T.D.

Energy is the lifeblood of Irelands economy and society.Electricity andgasdemand for business and for householdsmustbemet safely and securely ona continuousbasis 365days a year. Irelands ability to attract and retain ForeignDirect Investment and sustain Irish enterprise depends on

guaranteeing energy supply at competitive cost at all times. Accordingly, the three key pillars of Irelandsenergypolicyaresecurity,sustainabilityandcompetitivenesswhich recognise theimportant role energy policy plays in driving economic activity. A smart energy policy has a pivotalroletoplayincreatingtheconditionsforrebuildingtheeconomy,creatingjobs,deliveringregional development, protecting our environment and contributing to our wellbeing as a people.

Irelandfacessignificantinter-relatedchallengesinrelationtoclimatechange,energysecurityandcompetitiveness.ThesecanbeaddressedbytransformingIrelandseconomyfromonebasedon a predominantly imported fossil fuel to amore indigenous low carbon economy centredaroundenergyefficiency,renewableenergyandsmartnetworks.ThistransformationliesattheheartofthisGovernmentsenergypolicy.

TheGovernment isdetermined toensure that theneedsof thecitizensof Irelandarealsoatthecoreofthisnecessarytransition.Energyinfrastructuremustbenefitsocietyasawholeandeverybodyshouldbeabletoaffordtoadequatelyheatandlighttheirhome.Givingconsumersmore control over their energy choices by providing them with options through efficiencyprogrammes and promoting real and active competition, will empower consumers to make decisionsthatcanbenefitthem.

Since thepublicationof the2007EnergyPolicyFramework, DeliveringaSustainableEnergyFutureforIreland,theglobal,EUandIrishenergylandscapehasundergoneprofoundchangeasnewtechnologiesunlockcleanerfuels,theworldeconomyregainspositivemomentum,andaddressingthethreatofclimatechangebecomesevermorecritical.ThesignificantchangesinIrelands economic position mean that key assumptions supporting policy, as outlined in that White Paper, are no longer valid.

AstheEUlookstowards2030and2050,itistimelytoreflectonwhathasbeenachievedandtoreorientIrishenergypolicyprioritiestowardsthe2030horizon.Wemustnowrethinksomeofthekeycomponentsofourenergypolicy.

I hope that this Green Paperwill stimulate a broad and informed debate on this issue. ThefeedbackfromthatdebatewillcontributetothepreparationofanewWhitePaperthatwillsetoutabalancedandworkableenergypolicyframeworkfortheyearsahead.

Pat Rabbitte T.D. Minister for Communications, Energy and Natural Resources


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I. Setting the Context

OverviewofGreenPaperprocessThepurposeoftheconsultationprocessontheGreenPaperistoinvitewrittenviews,observationsandsuggestionsfrominterestedpartiesontheshapeofIrelandsfutureenergypolicy.Oncompletionofthepublicconsultationprocess,theMinisterwillhavedue regard to all submissions received. It is envisaged that the public consultation process, along with the relevant stakeholder engagement, will contribute strongly to thedevelopmentofanEnergyWhitePaper for Ireland thatsetsoutabalancedandworkableenergypolicyframeworkforthemediumandlongterms.

Takingintoaccountthethreeenergypolicypillarsandthefourthfocusonjobcreationandeconomicgrowth,theGreenPapersetsoutsixpolicypriorityareasinrespectofwhich views are sought:

Priority 1: Empowering Energy Citizens

Priority 2: Markets, Regulation and Prices

Priority 3: Planning and Implementing Essential Energy Infrastructure

Priority 4: Ensuring a Balanced and Secure Energy Mix

Priority 5: Putting the Energy System on a Sustainable Pathway

Priority 6: Driving Economic Opportunity

A number of questions are posed in relation to each of these policy areas in theGreen Paper and interested parties are invited to structure their submissions around these questions.Submissions are not restricted to the questions posed. They may include any issues, suggestions or concerns that a person may have, including identifyinggaps,opportunitiesandweaknessesinrelationtoexistingenergypolicy.

The Green Paper also sets out the main developments in the Irish, European and global energylandscapesincetheEnergyWhitePaper2007,andidentifiesthemajorenergypolicy documents, strategies, plans and reports published since 2007.

The Green Paper is available on the Departments website: www.dcenr.gov.ie/greenpaper

Copies are available in hard copy, on application to the Department.

Submissionsmaybemadebyemailatthefollowingdedicatedmailbox:

[email protected]

Alternatively submissions may be made in writing to:

Energy Policy and Planning Unit, DepartmentofCommunications,EnergyandNaturalResources, 29-31AdelaideRoad,Dublin2.

Ifyouhaveanyqueriespleasecontact35316782934. The public consultation will conclude at 17.30 on Thursday 31st July 2014.

Please note that all submissions and comments submitted to the Department of Communications, Energy and Natural Resources for this purpose may be subject to release under the Freedom of Information Acts 19972003 and the Access to Information on the Environment Regulations (2007); and may be placed on the Departments website.


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Introduction Energy policy developments since 2007Thesevenyearssincethepublicationof the2007EnergyPolicyPaper, DeliveringaSustainableEnergyFutureforIreland,havebeentransformationalfortheIrishandall-island energy market. The EU and international energy landscape have also undergone profoundchangeasnew technologiesunlocknewsourcesof fossil fuels aswell aslow-carbonalternatives,andtheglobaleconomyregainspositivemomentum.

The2007policypaperwas the first comprehensive Irish energypolicydocument inseveral decades. It provided policy certainty and a cohesive vision for Irish energymarketsupto2020.Itunderpinnedsomeverysignificantachievementsoverthepastseven years and also provided direction for a wide range of detailed action plans,schemes,measures and investment programmes. The continuing implementationofthese actions will ensure achievement of Irelands ambitious energy objectives andtargets by 2020.

AstheEUlookstowards2030and2050,itistimelytoreflectonwhathasbeenachievedand to reorient Irishenergypolicypriorities towards the2030horizon.The followingsection highlights key developments in the Irish, EU and international energy markets and sets out the changing economic backdrop. This contextualises the approach to the followingchapters,whichfocusonenergypolicyasitinteractswithcitizensandasaninputanddrivertoeconomicrecovery.SixkeyprioritiesareidentifiedfordiscussiontohelpformulatethenextIrishEnergyWhitePaper.

Thissectionaddressesthefollowingareas.

(i) Key Irish energy policy achievement

(ii) Key energy policy developments

(iii) Collective delivery

(iv) International developments

(v) Developments in the EU

(vi) Developments since 2007: economic context and energy prices

I. (i) Key Irish Energy Policy Achievements

In2007,Irelandfacedanumberofsignificantenergypolicychallengeswithconcernsover generation capacity and network constraints, the slow pace of developingcompetition in wholesale and retail markets, a lack of clarity as to how renewableandenergyefficiencyambitionswouldbeachievedandgrowingconcernsonenergyprices and their impact on households as well as on national competitiveness. Against thisbackdrop,thefollowingkeyachievementsdemonstratestrongdeliveryonenergypolicy objectives and underpin the approach to 2030 priorities. A list of key policypapers and reports is in Appendix 2.

Key achievements include keeping the lights on and gas flowing during two ofthecoldestwinterperiodsin50years.Whilesecureenergysuppliesmaybetakenforgranted,thiswasonlypossiblefollowingmulti-bninvestmentprogrammesinelectricity


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andgasnetworks,thedeliveryofcriticalnewgenerationcapacity,andverysignificantnew renewable capacity by both State and private sector energy market participants.

Thesuccessfulestablishmentin2007andsubsequentoperationoftheall-island Single Electricity Market (SEM)hasbeenhailedasanexemplarofregionalco-operationbytheEUandhasprovidedcostreflectivewholesaleelectricity,competition,transparency,greater consumer choice, diversity of generation, security of supply and increasedrenewable penetration. It has exerted downward pressure on electricity prices and has also attracted new market entrants.

Theacceleratingpaceofretail market competition initially pushed Ireland towards thetopofEUleaguetablesforcustomerswitchingandprovidedIrishenergyconsumerswith new services, including prepay and price comparison and switching websites, as well as choice and value from an increasing number of suppliers. This has alsoled to retail tariff deregulation in all but the domestic gasmarket, so that suppliersare competing actively, including on price and discounting, in the electricity, gas and dual-fuelmarkets.TheEast West Electricity Interconnector is a strategically vital energyproject for the islandof Ireland, linking itwith theUKandbroaderEuropeanenergymarkets.Itwasdeliveredon-timeandwithinbudgetbyEirGridandfinanciallysupportedbyanEUgrantof110m.

Increasing renewable energy supplies have helped decarbonise the Irish economy andprovidednewopportunitiesforjobsandgrowth.Attheendof2012,Irelandhadachieved 19.6% of electricity generation from renewable energy sources, 5.2% inrenewableheat,and2.3%inrenewabletransport.Anewbiofuelsobligationof6%setfor2013hasseenfurtherincreasesinrenewablefuelsintransportin2013.Underpinnedby a robust and transparentmarket, regulatory andpolicy framework, including keysupportschemessuchasREFITsupportandthebiofuelsobligationschemes,Irelandis now on a path towards meeting our legally binding 2020 renewables targets.

Energy efficiency enhancementsunderpinnedbyawiderangeofprogrammesandmeasuresundertheNationalEnergyEfficiencyActionPlan,havedeliveredcarbonandenergycostsavingsforIrishenergyconsumersandtheeconomy.Substantialbenefitsin cost and emission reductions have been achieved by households, business and thepublicsector.Thereismuchfurtherpotential,particularlyaroundtheforthcomingnational roll-out of smart meters,tocontributetomeetingenergyefficiencytargetswhile providing business opportunities for emerging energy service providers andinnovators.

I. (ii) Key Energy Policy Developments

Followingthepublicationofthe2007WhitePaper,Irishenergypolicyhascontinuedtoevolvethroughabroadrangeofkeypolicydecisions,actionplans,measures,schemesandprogrammes,someofwhicharehighlightedbelow.

In line with EU network unbundlingrequirementsintheThirdEnergyPackage,in2013,theEUCommissioncertifiedthe Irisharrangements forelectricity transmissionsystemownershipandoperation inaccordancewith the relevantoptionapplied forunder theThird Package electricity directive (known as Article 9 9.). Also in 2013, BGEs application fortheIndependentTransmissionOperator(ITO)modelwascertifiedbytheCERtaking


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utmost account of the EU Commissions opinion on the application, in line with therelevantprovisionsintheThirdPackagegasdirective.ThecompletionoftheBGsaletransactionwillrequireanewapplicationtobemadebyBGforcertificationofthegastransmissionsystemundertheFullOwnershipUnbundlingmodel(FOU)inthePackage.

The Government Policy Statement on the Strategic Importance of Transmission and Other Energy Infrastructure, published in 2012, emphasises that it is in national and regional interests that investment programmes, including EirGrids Grid25, are delivered inthemostcostefficientandtimelywaypossible,onthebasisof thebestavailableknowledgeandinformedengagementontheimpactsandthecostsofdifferentengineering solutions.

The National Smart Metering Programme isacentralcomponentof thestrategyto radically enhance management of energy demand, deliver smart networks andenable greater energy efficiency through the use of cutting-edge technology andconsumerempowerment.Amajorprogrammeof technologyanduser trialsshowedthat a national rollout ofSmartMeters could lead to significant reductions in overallelectricityandgasconsumption,aswellasan8.8%reductioninpeak-timeelectricityconsumption.Anationalroll-outofSmartMeterswillthereforeleadtolowercustomerbills,greatercustomerinformationandchoice,lowerCO2 and other polluting emissions withconsequentialenvironmentalbenefitsforIreland.

In 2013, the Government published a report on the Strategic Case for Oil Refining Requirements on the Island of Ireland, which highlighted the additional security benefits that an operational refinery may offer and underlined that existing oil importfacilitiesontheislandofIrelandofferarobustinfrastructurethatwouldprovidecomfortablealternativesintheeventofaseriousdisruptionatanyofthesixprincipaloilports.

TheGovernmentlaunchedanumberofinitiativesinrelationtoenergyefficiencyincludingBetter Energy: the National Upgrade Programme(May2011)inthecontextoftheGovernments Jobs Initiative.1

Warmer Homes A Strategy for Affordable Energy in Ireland, presents a cohesive framework for achieving more affordable energy, ensuring that existing and futuremeasures are targeted at householdswhere the risk and adverse effects of energypoverty are greatest.

In 2013, Ireland submitted its second National Energy Efficiency Action Plan (NEEAP)to2020totheCommission.ThesecondActionPlanidentifiesactionsacrosssixareas:PublicSector,Residential,Business,Transport,EnergySupply,andCross-Sectoral.Irelandhasinvested35masacornerstoneinvestorinanenergyefficiencyfundforthenon-residentialsectorin2014.

Irelands Strategy for Renewable Energysetsoutfivestrategicgoalsincreasingonshoreandoffshorewind;buildingasustainablebioenergysector;fosteringR&Dinrenewables such aswave and tidal; growing sustainable transport and building outrobustandefficientnetworks.

1 The Better Energy Homes Programme is designed to support the energy efficiency upgrades of onemillion homes,businessesandpublicbuildings.TheProgrammehasoverseentheupgradeofover136,000homessinceitbeganinMay2009.


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To support this strategy, Ireland adopted two Renewable Energy Feed In Tariff (REFIT) schemes, extending supports to include new onshore wind and biomass capacity. These schemes have played a central role in enabling Ireland to become a worldleaderingridintegrationofvariableenergy.

Ireland also published a comprehensive National Renewable Energy Action Plan (NREAP) to demonstrate how EU renewable targets for electricity, transport andheating will be met.

In 2012, Ireland adopted an Integrated Marine Plan (IMP) entitled Harnessing Our Ocean Wealth which put in place an integrated system of policy and programmeplanningforIrelandsmarineaffairsincludingrenewableenergy.InFebruary2014,theOffshoreRenewable EnergyDevelopment Planwas published. This plan provides aframework for thesustainabledevelopmentof Irelandsabundantoffshorerenewableenergy resource

InaccordancewiththeEUobjectiveofreducinggreenhousegasemissionsby80-95%by 2050, Ireland is developing a National Low-Carbon Roadmap, which will set out the strategy to be employed to meet these targets. The Roadmapping process will be coordinatedbytheDepartmentoftheEnvironment,CommunityandLocalGovernmentwithsubstantialinputfromrelevantDepartments.

The Action Plan for Jobs 2013containsanumberofdisruptivereforms2, including transformingIrelandintooneofthemostenergyefficienteconomiesinEuropeby2020.ThePlanidentifiesthevitalrolethatenergyefficiencycanplayinreducingthecostofenergyforbusinessesanddomesticconsumers.

1.(iii) Collective Delivery

Collective delivery acrossGovernment, agencies and industry aswell as the furtherstrengtheningofthecriticalall-islandandEastWestrelationshipshasbeenahallmarkof the key energy achievements over the past seven years and provides a strongfoundationforfurtherengagementtoco-deliveron2030priorities.

Agrowingnumberofprivate sector energy companies are playing an increasingly important role, including through investing in power generation, competing actively for the benefit of energy consumers, implementing the biofuels obligation scheme,delivering on energy efficiency obligation schemes, developing innovative energyservices and technologies and contributing broadly to energy policy, regulatory and market developments.

2 Anewcategoryofhighimpact,crosscuttingmeasuresthattheGovernmentisdeterminedtodeliverthatwillhavearealandimmediateimpactonenterpriseandjobs.


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The commercial State energy companies(BordnaMna,EirGrid,BordGisireannand ESB) have played a critical role in delivering secure, sustainable and competitive energy supplies through:

n delivering critical electricity and gas network investment programmes,

n addingsignificantfossilfuelandrenewablegenerationcapacity,

n developingco-firingofpeatwithbiomass,

n complyingwithEUunbundlingrequirements,

n reducingdominance(inthecaseofESB)bydivestinggenerationcapacity,

n enhancingcompetitionbynewmarketentry,andofferingnewservices,choiceand value to consumers, and

n investinginR&Dandinnovation.

The State energy agencies have also contributed strongly to collective delivery ofenergypolicyprioritiesasfollows:

n CER providing a consistent, predictable and stable market and regulatory framework to underpin competition,market entry, and investments in supportofenergycompetitiveness,securityandsustainability,whilealsoembracingnewfunctions includingensuringconsumersafety,protectingconsumers (includingvulnerable consumers) in competitive markets, and supporting innovations such astherolloutofsmartmetering.

n SEAI playing a leading role in transforming Ireland into a society based onsustainable energy structures, technologies and practices through statistical and analytical expertise, and implementation of support services, educationalprogrammes and grant schemes.

n NORAenhancingoilsecuritythroughasuccessfulrebalancingofstrategicoilstockssothatby2013,over70%ofstocksareheldasphysicalstocksontheislandof Irelandwith the remainingwholly-ownedstocksheld inneighbouringmarkets,aswellasimplementingthebiofuelsobligationscheme.

Whole of Government delivery remains crucial to developing and delivering energy policyobjectives,particularlyintheareasoftransport,marineandbuiltenvironmentsandsocialprotection.ThesuccessfulimplementationofenergyactionsandobjectivesisalsoanincreasinglyimportantunderpinningforotherkeynationalstrategiessuchastheClimateChangeRoadmapandtheActionPlanforJobs.

Collaboration with Northern Ireland on energy matters is now deeply embedded in Irish energy policy. Such co-operation contributes to competitiveness, security ofsupplyandsustainabilitythroughanumberofprojectsincludingmarketdevelopment,joint capacity and adequacy planning and co-operation on energy security andemergency planning. Industry collaboration and bodies such as the Single Electricity Market (SEM)Committeeand theAll-IslandMarket JointSteeringGroupprovideanimportantplatformforfurtherco-operationon2030priorities.


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UnderpinnedbygreaterphysicalinterconnectionandfurtherintegrationofregionalandEuropean markets, the Ireland/UK relationship is also deepening across increasingly wide-rangingprojects, including theUK/IrelandGasEmergencyPlanningGroup, theintegrationofregionalenergymarkets,collaborativeapproachestooff-shorerenewabledevelopmentsandotherareasofcommoninterest.

I. (iv) International Developments

Climate-change international commitments

Ireland, with the EU, is a party to the Kyoto Protocol which set binding targets to reduce greenhouse-gas emissions for the first commitment period 2008-2012. In Doha, anamendmenttotheKyotoProtocolwasadoptedthatsettargetsforasecondcommitmentperiodwhichcommitsEUMemberStates to jointlyachievea20%reduction in theircombinedgreenhouse-gasemissionsoverthesecondperiodcomparedtothelevelin1990 or their other chosen base years. This reduction commitment is consistent with the 2009climateandenergypackageoflegislationandmirrorsthepackagesreductionmeasuresatEUandMemberStatelevel.TheFifthAssessmentReportbytheUnitedNations Intergovernmental Panel on Climate Change (IPCC) underscores the critical importanceofthesituationandhasanimportantroletoplayininformingdiscussionsatnational,EUandInternationallevels.TheReportconcludedthattheeffectsofclimatechange are already occurring on all continents and across the oceans but the world is ill-preparedforrisksfromachangingclimate.Moreover,nobodyonthisplanet isgoing tobeuntouchedby the impactsofclimatechange. Ireland remainsengagedand committed, both domestically and internationally, to appropriately advance this work,includingthroughparticipationattheUnitedNationsFrameworkConventiononClimateChange(UNFCCC)wherenegotiationstowardsanewglobaldealonclimateare underway and due to conclude in Paris in December 2015. Any such deal will need toreflectequitableeffortsharingamongallparticipants.Itisexpectedtotaketheformofaprotocol,anotherlegalinstrument,oranagreedoutcomewithlegalforce,andwillbe applicable to all parties.

Exploitation of Unconventional Energy Sources

The 2012 International Energy Agencys (IEA) World Energy Outlook highlighted a significant change in the global energy landscape due to increased deployment ofhydraulic fracturing (fracking) and horizontal drilling. US unconventional oil and gasproduction is having a profound impact on international energymarkets and pricesand is likely to have significant implications for EU competitiveness, and geopoliticsgenerally. In the EU, the possible exploitation of shale gas is controversial due toconcerns about pollution and climate change. In Ireland, a research programme on the EnvironmentalImpactsofUnconventionalGasExplorationandExtractionisunderwayundertheauspicesoftheEnvironmentalProtectionAgency.

Notwithstanding these new oil and gas resources, oil prices have remained at a high level for thepast twoyears,affecting theglobaleconomic recovery.Thedisparity innaturalgaspricesbetweenregionshasalsoaffectedrelativeeconomiccompetitivenessasUSgaspricesremainsignificantlybelowthoseintheEUandinJapan.


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Nuclear Energy Post Fukushima-Daiichi Nuclear Power Plant Disaster

Following the accident in Fukushima in March 2011, stress tests were carried outon existing EU nuclear power plants to ensure they could withstand severe natural disasters.Somestatesarecontinuingtheirnuclearprogrammes(forexample,theUKsHinkley Point C plans), while others are phasing out theirs. Ireland has maintained its stance that nuclear installations should meet the highest international standards with respecttosafetyandenvironmentalprotection,whilerespectingtherightsofstatestochoosetheirowngenerationfuelmix.

International Energy Agency (IEA) Developments

The IEA continues to play an important role in Irish energy policy by contributing to a betterunderstandingofglobalenergydevelopments,internationaloilmarketdynamicsandoptionstomeetclimatechangetargets.TwoIEAin-depthreviewsofIrelandsenergypolicywerepublishedin2007and2011.Thefollowingarethekeyrecommendationsfromthemostrecentreview:

n continuetoencouragegreaterdiversificationandflexibilityofgassupply,

n maintainfundingsupporttodevelopanddeploynewlow-carbontechnologies,

n further enhance the consultation, planning and consenting process for criticalenergyinfrastructureprojects,

n ensure that participation in regional energy markets brings benefits to Irishconsumersandcertaintyforinvestors,and

n ensurethatthepowersoftheenergyregulatorareenhancedasnecessary.

Inaddition,theIEAcarriedoutanEmergencyResponseReviewin2009,makingfurtherrecommendationsinrelationtooilandgassecurity,back-upandemergencymeasureswhich are currently being implemented.

I.(v) Developments in the EU

The European Unions Third Energy Package,agreedin2009,isaseriesoflegislativemeasuresaimedatthefurtheropeningupofthegasandelectricitymarketstocompletetheestablishmentof theEUs InternalEnergyMarket (IEM).The IEMsobjectivesaretheachievementofbetteroutcomesforEUcitizensthroughcontributingtoeconomicgrowth,jobs,secureenergyataffordableprices,andsustainabilityinenergyuse.TheThirdPackagealsoprovidesfortheunbundlingoftransmissionanddistributionassets.

The EU Commissions developing agenda on public interventions in the internal energy market

TheEuropeanCommissionhasbeenactiveinthelastyearorsoprovidingaframeworkforMember States as they develop and design policy interventions in their energy markets andhighlightinghowtheimplementationoftheinternalenergymarketinparticularshouldshape such initiatives. The Commission published its Communication on delivering the internal electricity market and making the most of public intervention in November 2013.Theguidingprinciple for theargumentsarticulated in theCommunicationand


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accompanyingStaffWorkingPapers (SWP) is thataproperlydesignedmarket,withsomelimitedpublicintervention,willprovidesufficientpricesignalstoencourageandremunerate investment in electricity markets throughout the European Union. It states that, while public interventions may be necessary in some cases, to support renewable electricity generation and provide sufficient generation adequacy, such interventionsmustbewell-designedandcoordinatedandthattheyshouldnotinhibitthecompletionoftheinternalenergymarketbyintroducingcounterproductivedistortionstoit.

While the Communication is not legally binding, the Commission has made it clear that itwillenforcetheguidelinesthroughrigorousimplementationofThirdEnergyPackagelegislation and through the revised guidelines on environmental and energy state aid for2014-2020.These revisedguidelineswillbedeveloped in2014.Potentially thereare significant implications for national energy policy as the European Commissionseekstoinfluenceandalignappropriatenationalpublicinterventionsinenergymarketswitha view toenhancing the integrationofMemberStateenergymarkets.SuchanapproachmayrestrictIrelandsoptionsinthedesignofpolicyinitiativesandregulatoryinterventions in the energy area.

TheEUEnergyRoadmap2020makesprovisionforanon-bindingEUenergyefficiencygoal of 20% energy savings by 2020. A review of each Member States progresstowards the European 20% objective will take place in 2014. The new Energy Efficiency Directive(2012/27/EU)translateselementsoftheEuropeanEfficiencyPlaninto binding measures on Member States.

In 2011, the EU Commission published an Energy 2050 Roadmap which sets out a number of different scenarios for developing a decarbonised energy sector overthecomingdecades.Underallofthesescenarios,therewillbeasignificantincreaserequiredinrenewableenergydeploymentinEurope.

In 2007, the European Union agreed a Renewable Energy Directive with new climate and energy targets: 20% reduction in greenhouse gas emissions, 20% improvement in energyefficiency,and20%oftheEUsenergydemandtobefromrenewablesourcesby2020.TheDirectiveestablishedacommonframeworkforthepromotionofenergyfrom renewable sources. It set mandatory national targets for the overall share ofenergyfromrenewablesourcesingrossfinalconsumptionofenergyandfortheshareofenergyfromrenewablesourcesintransport(aminimumof10%).

The Commissions Renewable Energy Communication(2012)identifiesareaswhereeffortsshouldbesteppeduptoachieve2020renewableenergygoalsinacost-efficientmanner. These are the:

n completionof the InternalEnergyMarketandadoptionofconsistentschemesacross the EU that encourage cost reductions and avoid over compensation,

n increaseduseoftheco-operationmechanisms,and

n improvedco-operationintheMediterranean.


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In January 2014, the European Commission published a Communication on the policy framework for climate and energy in the period from 2020 to 2030, which will guide discussion on energy and climate policy at EU levale during 2014.

TheEURegulationonGuidelinesforTrans-EuropeanEnergy Infrastructure came into forceinMay2013,andaimstoensurethatmajorEUenergyinfrastructureofstrategicimportancetoEurope,includingnetworksandstoragefacilities,areinplaceby2020.ProjectsofCommonInterest(PCIs)designatedundertheRegulationcanavailofmorestreamlinedplanningarrangementsandotherbenefitsandanumberofprojectswithcrossborder impactsbetween Ireland and theUKweredesignatedon the firstPCIlist,whichapplies for thenext twoyears in theareasofelectricity transmission,gastransmission,LNGandgasstorageandelectricitysmartgrids.Theseprojectsareofascalecapableofmakingasignificantcontributionto improving Irelandssecurityofenergy supply, to facilitating the development of the renewable energy sector, andto enabling greater consumer participation in the energy market through smart grid technology. An Bord Pleanla has been designated Irelands competent authority under theRegulationandwillnowhaveasignificantroleintheplanningandpermittingprocessforIrelandsPCIs.OtherstrandsoftheRegulationarebeingimplementedvariouslybythe EU Commission and ACER and in Irelands case by the CER as Irelands energy regulator.PCIsmaybe eligible for EU fundingunder theConnectingEuropeFacility2014-2020 (CEF)whichwasestablishedunderaseparateRegulation,also in2013.It aims to support the completion ofmajor EUpriority energy, transport anddigital/communications infrastructure projects with some 5bn earmarked for energy. TheCommissionwilllaterthisyearlaunchthefirstcallforfundingproposalsforqualifyingPCIsundertheCEF.

In2010,theEUadoptedmeasurestosafeguardsecurity of gas supply (Regulation No994/2010) to improvesafeguards in relation tosecurityofgassupplyacross theEUandtoensurethatMemberStatesarebetterpreparedtorespondtoamajorgasdisruption.TheRegulationwasimplementedinIrelandbyEU(SecurityofNaturalGasSupply)Regulations2013(SINo.336of2013).

In relation to Energy Research, Technological Development and Innovation the European Strategic Energy Technology Plan (SET-Plan) gives a strategic orientationfortechnologydevelopmentandresearchintheenergyfielduntil2020.Itorganisesastructureddialoguebetweentherelevantplayers,definespriorityareasfortechnologydevelopment and focuses on industrial applications through large scale projects ofEuropean value. The recent Commission Communication on Energy Technologies and Innovation, launched at the SET-Plan Conference during the Irish Presidencyin 2013, sets out how the high-level policy should be implemented and articulatesvariouspotentialmodalitiesforensuringgreaterconvergencebetweennationalandEUresearchsupportprogrammes.IthasalsoshapedtherecentcallforproposalsundertheHorizon2020researchprogramme,thesuccessortotheFrameworkProgrammesforResearch.


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I. (vi) Developments since 2007: economic context and energy prices

In recent years, Ireland has experienced dramatic economic change, representing an important backdrop for developments in energypolicy.With the onset of the globalfinancial crisis in 2008, the countrywas plunged into recession, ending a period ofunprecedented economic growth. Government, working with international partners, has since enacted measures to put the Irish economy back on a sustainable growth path. The Economic and Social Research Institute (ESRI) predicts a strong recovery, with 3% growth in GDP expected in 2014, and 4% average annual growth expected in thefollowingyears,upto2020.

Energy, as both a sector within the economy and a cross-cutting input into everyaspectofthewidereconomy,isinextricablylinkedtothebroadereconomiclandscape,and has an integral role to play in enabling future growth. Government recognisesthat reliable, sustainable, affordable energy is vital to Irelands economic successboth at home and abroad, and has continued to make critical investments in energy research and infrastructure, despite challenging economic conditions. The EirGridGrid25initiative,announcedin2008,hasearmarked3.2billionupto2025toupgradeIrelands electricity transmission network, and substantial investments are being made to improve the Irish gas network. These critical efforts are helping to bring moreenergytomorepartsofthecountrythaneverbefore.Investmentinrenewableenergyinfrastructure has facilitated remarkable levels of clean-energy generation in Ireland,allowing the country to make impressive progress toward its sustainability targets and explorethepotentialforadditionaleconomicbenefit.

Recentstudieshaveshownthepositiveimpactofenergyefficiencyonjobcreationandeconomicactivity.Energyefficiencyprogrammes,deliveredbySEAI,areestimatedtohavesupported3000jobsin2013andprovideanimportantstimulusfortheconstructionsector.Internationally,thereisevidencetoshowthatevery1millioninvestedinenergyefficiencycreates19jobs.3Publicfinanceofenergyefficiencyprogrammesisfoundtoleveragesignificantamountsofprivateinvestmentanddeliverpositivesocietalreturns.Every1spentontheBetterEnergyprogrammebySEAIdeliversanetbenefitof5tosociety through energy, CO2 and other pollutant savings.

Despitereducedenergyconsumption,Irelandstillspends6.5billiononenergyimports,takinglargeamountsofmoneyfromthedomesticeconomy.Developingourindigenousrenewable energy sources allows more energy and economic independence, reducing our exposure to international energy prices and cutting our energy import bill.

3 JanssenandStaniaszek(2012),Howmanyjobs?Asurveyoftheemploymenteffectsofinvestmentinenergyefficiencyofbuildings. A report for the Energy Efficiency Industrial Forum. http://www.euroace.org/PublicDocumentDownload.aspx?Command=Core_Download&EntryId=433.

CopenhagenEconomics(2012)MultipleBenefitsof investinginenergyefficientrenovationofbuildings:ImpactonPublicFinances.AreportforEuroace.http://www.renovate-europe.eu/Multiple-Benefits-Study.


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http://www.euroace.org/PublicDocumentDownload.aspx?Command=Core_Download&EntryId=433http://www.euroace.org/PublicDocumentDownload.aspx?Command=Core_Download&EntryId=433

Anotherareawithconsiderableeconomicpotentialisthatofhydrocarbonexploration.To encourage investment in this regard, the State is:

n offering attractive and innovative licensing opportunities, such as the 2011Atlantic Margin licensing round,

n providingafit-for-purpose,transparentandrobustregulatoryregime,

n deepeningknowledgeofouroffshorepetroleumpotential, inparticularthroughdataacquisitionandsupportingkeyresearchprojects,and

n promotingactivelytheopportunitytoinvestinexplorationintheIrishoffshore,inparticular to companies not currently active here.

I. (vi) (a) Energy use

Since2007,overallprimaryenergyusehasdecreasedby19%(seeFigure1),drivenlargelyby thedownturn in economic activity andbygains in energy efficiency.Withtheexceptionofcoalandrenewables,allenergysourceshavedecreased,consistentwiththeoverallscenario.Useofrenewableenergyhas increasedconsiderably inthesame period, in 2012 it grew by 11% from 2011 to represent 7.1% of final energyuse.4 Resulting from both decreased demand and successful energy policy, Irelandhasmovedfromapositionofrequiringadditionalgenerationtobeadded, inthe lastdecade,toenjoyingacomfortablelevelofcapacityavailableincomingyears.

Figure 1: Primary energy use in Ireland by fuel, 1990-2012

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2

4

6

8

10

12

14

16

Mtoe

Coal Peat Oil NaturalGas Renewables NR(W) NetElectricityImport/Export

Source: SEAI, Energy in Ireland 1990 2012, 2013 report

4 SustainableEnergyAuthorityIreland,EnergyinIrelandKeyStatistics2013,December2013.


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I. (vi) (b) Prices

The factors influencing Irishelectricityandgaspricesare identified in thetextbox inPriority2butamong themain factors is that Ireland isaprice-takeron internationalfossilfuelmarkets.Energypricescontinuetobeshapedbyglobaltrends,includingtheboominUSnatural-gasproduction,adeclineinnuclearenergyfollowingthemeltdownatJapansFukushimaDaiichiplant,andincreasingdemandinfast-growingcountrieslikeChina,IndiaandBrazil.InIreland,beingsubjecttoglobalmarketpriceshasmeantthat, in timesof economicgrowth, high Irishdemanddoesnot necessarily increaseprices, and similarly a drop in economic activity does not yield lower energy prices. However, Government policy emphasis on energy efficiency and renewable energydevelopmenthasmeant that Irishconsumersareat their leastdependenton foreignfossil-fuelimportssince2000.

Irelands status as an island nation, a geographically dispersed population and high dependenceonimportedfossilfuelsgenerallyresultinIrishenergypricesbeinghigherthanthoseformanyofitsEuropeanneighbours.Intheperiodsince2007,theaverageprice paid by residential and business consumers for energy throughout theOECDandtheEU,includingIreland,hasbeenonanupwardtrend,asillustratedinFigures2and 3.

Figure 2: Real energy price change to households since 2005 in EU-15 (index)

80

100

120

140

Index1stQtr2013(yea

r2005=100)

160

180

200

220

UnitedK

ingdom

Sweden

Spain

Portugal

Netherlands

Luxemb

ourgIta

ly

Ireland

Greece

Germany

France

Finland

Denmark

Belgium

Austria

OECDEurope

HouseholdGasPriceIndex(real)HouseholdOilPriceIndex(real)HouseholdElectricityPriceIndex(real)

Source: SEAI, Energy in Ireland 1990 2012, 2013 report

Overall,realenergypriceshaveincreasedforIrishhouseholdsby27%between2007andthefirstquarterof2013,reflectingourhighdependencyonimportsofoilandgas.


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Global oil and gas prices rose in 2012, resulting in Irish household energy prices rising by 9.1% between 2011 and 2012. Within the Euro Area, Irish household electricity priceshaveremainedbelowtheaveragesincethesecondhalfof2009.IrishhouseholdgaspriceswereconsistentlybelowtheEuroAreaaveragefromthefirsthalfof2008untilthesecondhalfof2011.Sincethen,IrishhouseholdgaspriceshaveincreasedatafasterratethantheEuroAreaaverage.

Figure 3: Real energy price change to industry since 2005 in EU-15 (index)

60

90

120

100

150

180

210

240

Index1stQtr2013(yea

r2005=100)

UnitedK

ingdom

Sweden

Spain

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ourgIta

ly

Ireland

Greece

Germany

France

Finland

Denmark

Belgium

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OECDEurope

IndustryGasPriceIndex(real)IndustryOilPriceIndex(real)IndustryElectricityPriceIndex(real)

Source:SEAI(2013),EnergyinIreland,Figure41(basedonIEAenergypricesandtaxes)

RealenergypricesforIrishbusinesseshaverisenby31%since2007,againreflectingIrishdependenceonoilandgas,whichwerethemaindriversofglobalenergypricesover the period. Industry electricity prices showed the biggest increase at 80%,comparedwith gas and oil prices.Competitiveness in terms of electricity prices forIrishbusinessesimprovedfromthesecondhalfof2008untilthesecondhalfof2011,however, electricity prices increased in Ireland at a higher rate than the EU and Euro Areasincethesecondhalfof2011.Since2007,Irishgaspricesforbusinesseswerebelow the EU and Euro Area average formost of the period,with the exception ofthefirsthalfof2009whentheywereabovetheEUaverage.Therehasbeenupwardpressureongaspricesto industrysincethesecondhalfof2011comparedwithEUandEuroArea.IrelandhasoneofthehighestdependenciesoffuelmixforelectricitygenerationonfossilfuelsinEurope,at72%.

Aswithresidentialusers,consumersof lessenergypayarelativelyhigherpricethantheir European counterparts. In keeping with residential prices, as demonstrated in Figure3,theEUaveragepriceforbusinessconsumersisonanupwardtrend.Thesepricesareweightedtotakeaccountofdifferentpricebandsreflectinglevelsofuse.


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I. (vi) (c) Energy mix 2012

Energy is used in the economy in electricity, heating and transport, and in approximately equal proportions in each of the three sectors.5 Figure 4 illustrates Irelands totalprimary energy requirement and total final consumption in 2012. It shows that theeconomyremainslargelyreliantonimportedoilandgasforitsenergy,withpeat,coaland renewables contributing to a lesser extent.

Figure 4: Irelands total primary energy requirement and total final consumption, 2012

Hydro 69 ktoeWind 345 ktoe Biomass, Other Renewables

& Wastes 468 ktoeElectricity Imports(net) 36 ktoe

Briquetting 14 ktoe

Natural Gas own use /loss 61 ktoe

Oil Refining104 ktoe Electricity Transformation

& Transmission Losses2,514 ktoe

Transport 4,195 ktoe

Residential 2,715 ktoe

Industry 2,252 ktoe

Services 1,326 ktoeAgriculture & Fisheries273 ktoe

Peat 802 ktoeCoal 1,482 ktoe

Natural Gas 4,023 ktoe

Oil 6,005 ktoe

Note: Some statistical differences exist between inputs and outputs

Tota

l Prim

ary

Ene

rgy

Requ

irem

ent

13,2

29 k

toe

Total Final Consumption 10,761 ktoe

Source:SEAI(2013),EnergyinIreland1990-2012,Figure5.

I. (vi) (d) Summary of current economic context

Asnotedabove,Irelandhasundergonesignificanteconomictransformationsincethe2007WhitePaper.Followinganunsustainableboom,theeconomysufferedanalmostunprecedentedcollapse.Since then, signsof recoveryhaveemergedbutmuch stilldependsontheperformanceofourtradingpartners.Asaprice-takeroninternationalmarkets,Irelandisvulnerabletomovementsoffossil-fuelprices.Whileenergymarketshave been liberalised to bring competitive pressures on prices, they have historically been high,relativetoourEUtradingpartners,duetoanabsenceofindigenousalternatives,geographic isolationand lowpopulationdensities. Improvements inenergyefficiencyandanincreaseintherenewableenergyshareoftheenergysupplyarehelpingIrelandtobecomerelativelylessdependentoninternationalfossil-fuelprices.

5 Source: SEAI Energy in Ireland 1990-2012, 2013 report.


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II. Green Paper Energy Policy Priorities

SixEnergyPolicyPrioritiesforDiscussionAsdiscussed inprevioussections,energy is integrated intoall sectorsandareasofmodernlife,therefore,manydifferentthemesandissuesarerelevantinaconversationaboutIrelandsfutureenergypath.Tohelpstructurethediscussion,theDepartmentofCommunications,EnergyandNaturalResourceshasidentifiedsixpolicypriorityareasforconsiderationintheGreenPaper:

Priority 1: Empowering Energy Citizens

Priority 2: Markets and Regulation

Priority 3: Planning and Implementing Essential Energy Infrastructure

Priority 4: Ensuring a Balanced and Secure Energy Mix

Priority 5: Putting the Energy System on a Sustainable Pathway

Priority 6: Driving Economic Opportunity

TheDepartmentrecognisesthatcertainsubjectsarecommontoseveralpolicypriorities.It selected these six policy priority areas simply as a way to organise the discussion. In particular,Priority5and6,onsustainabilityandeconomicopportunity,areexamplesofcross-cuttingthemesthatareintegraltoallenergypolicypriorityareas.Attheendofeachpolicyprioritysection,aseriesofopen-endedquestionsissetoutforthepurposeofstimulatingdiscussiononkeyissuestobetakenintoaccountinthedevelopmentoffutureenergypolicy.Readersareencouragedtogive feedbacktotheDepartment inresponsetothesequestionsortosuggestadditionalinputs.


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Priority 1: Empowering Energy CitizensThescaleoftheenergytransformationthatwillhappeninthecomingdecadeswillbeunprecedented.TheinvolvementofIrishcitizensinchoosingtheappropriatepathwayfor energy policy is essential in enabling Ireland to realise its potential to be a low-carbon, inclusive, competitive and secure energy society. To ensure that the citizen remainsatthecentreofenergypolicy,energyusersmustbe informedandproactivecontributorstotheongoingevolutionoftheIrishenergymarket.Challengesanddifficultchoices lie ahead, so it is important to engage citizens in seeking and implementing solutions. Priority 1 aims to start a discussion on the role that Irish citizens can play, as we collectively transform the Irish energy system, and on what is needed fromGovernmenttoenableandencouragepeopletojoininthisprocess.

1.1 Contextual Background

AstheEuropeanUnionaimstodecarbonisetheenergysystemby2050,fundamentaland profound decisions about how we generate, transport and use energy willhave to be addressed by energy consumers and policymakers alike. There are two complementary paths to decarbonising the existing energy system: optimising energy usethroughefficiencyandconservation,anddeployinglower-carbonenergysources.Energycitizenscanembraceboth,totheirbenefit.Savingenergyathomeoratworkissimpleandcanbeachievedoftenatarelativelyminorcost.Likewise,mechanismsareinplacetostimulatetheinstallationofrenewableenergytechnologiestohelpoffsetfossil-fueluse.

Theenergyenvironmenthaschangeddramatically forconsumersover thepast twodecades. Liberalised energy markets have provided Irish consumers with more choice than ever before, better information is now available to consumers in a variety offormats, and innovative technologieshave tremendouspotential to further empowerIrish energy users. Although the future direction of energy priceswill always remainuncertain, greater variety allows consumers to switch between retailers, ensuring that they enjoy themost competitive tariff, and transitioning energy users from a role ofpassive consumer to active, engaged energy citizens. At the same time, the evolution ofenergymarketshasmade the roleof theenergycitizenmorecomplex,making itdifficult toaccessalloftheways inwhichconsumerscanmanageenergycostsandshape energy policy.

Afunctioningenergymarketrequiresasafeandreliablegridinfrastructure.Sincethe1990s, thenationalgridhasbeengreatlyexpandedand reinforced inorder tomeetIrelands growing population and increased economic activity. As new technologies and power sources continue to emerge, the ongoing renewal of Irelands energyinfrastructurewillneedtocontinue.Theplanningregimeprovidesarigorousandrobustplatform for developing essential energy infrastructure. It is imperative that publicauthorities work in partnership with industry and community stakeholders to ensure thattheplanningsystemcantakeobjectivedecisionsonenergyinfrastructureforthebenefitofsocietyasawhole. In2012,theGovernment issuedapolicystatementon


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the strategic importance of transmission and energy infrastructure.6 The statement reaffirmedtheimperativeneedfordevelopmentandrenewalofourenergynetworksinorder to meet economic and social goals.

1.2 Protecting Vulnerable Energy Citizens

Inabilitytoaffordadequatehomeheatingorlightingisdetrimentaltohealthandwellbeing.TheGovernment has recognised the challenge faced by those experiencing energypoverty through the Affordable Energy Strategy,7 which aims to make energy more affordableforlow-incomehouseholdsinIreland.Theunderlyingfactorsthatinfluenceenergyaffordability areenergyprices, thermal efficiencyand incomes.While incomesupports,suchastheNationalFuelSchemeandHouseholdBenefits,playanimportantrole inreducingthefinancialburdenofenergybills, theyrepresentanexpensivewayofmitigating energy poverty. In contrast, improving the thermal efficiency of homesremainsthemostcost-effectivemeansofincreasingenergyaffordabilityandreducingenergy poverty. By the end of 2013, more than 105,000 low-income householdsacrossthecountryhadreceivedfreeenergyefficiencyupgradesthroughprogrammesadministeredbytheSustainableEnergyAuthorityof Ireland (SEAI),savingmoney forvulnerablefamiliesandimprovingthelivesofhundredsofthousandsofenergycitizens.

1.3 Saving Energy at Home

Withresidentialenergyrepresentingmorethanaquarteroffinalenergyuse,citizenscollectivelyarebigusersofenergy.Whilenewbuildingsarebecomingmoreefficientthankstotighterspecificationsonenergyperformanceinrecentbuildingcodes,8 these represent onlyarelativelysmallpercentageofbuildingsinIreland.Furthermajorimprovementoftheenergyperformanceoftheexistingbuildingstockwillbeneededinthefuture.

Citizens can have a strong impact on the energy market by taking steps to reduce their energy demand and costs in their homes.Commonly available energy-efficientproductsand technologiesallowhouseholds tocutenergywastewithout sacrificingconvenience.Indeed,energyefficiencyhaslongbeenrecognisedasthemosteffectiveway to control costs, and it is internationally recognised as themost cost-effectiveapproachtoreducinggreenhouse-gasandotherairemissionsfromtheenergysector.When implemented at a national level, simple steps such as installing attic insulation or high-efficiency lighting canhaveprofound implications for overall energyuseandcarbon pollution. For example, if every household in Ireland installed high-efficiencylight bulbs, residential electricity consumption would drop by 7%, saving 600 GWh, orover41millionperyear.IrelandsreachingoftheEUtargetofa20%reductioninenergyuseby2020willdelivercollectivesocietalsavingsvaluedat2.36billion.9

6 DepartmentofCommunications,EnergyandNaturalResources (2012), GovernmentPolicyStatementon theStrategicImportanceofTransmissionandOtherInfrastructure.

7 WarmerHomes:AStrategyforAffordableEnergyinIreland.http://bit.ly/R6ZY9w

8 BuildingRegulations 2011, Part L:Conservation of Fuel andEnergy dwellings: http://www.environ.ie/en/Publications/DevelopmentandHousing/BuildingStandards/FileDownLoad,27316,en.pdf.

9 TheNationalEnergyEfficiencyActionPlan.


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http://www.environ.ie/en/Publications/DevelopmentandHousing/BuildingStandards/FileDownLoad%2C27316%2Cen.pdfhttp://www.environ.ie/en/Publications/DevelopmentandHousing/BuildingStandards/FileDownLoad%2C27316%2Cen.pdf

Giventheupfrontcapitalnecessarytostimulatesuchsavings,Governmenthasmadegrants available for the installation of home energy efficiencymeasures through theBetter Energy programme to help ease the initial cost to consumers. The Better Energy Homes scheme, administered by the SEAI, has grant-aided the upgrade ofmorethan150,000homes,ontopofthe105,000vulnerablehomesmentionedabove.Total investmentstimulatedby theseprogrammescomes tomore than600million,generatinglifetimeenergycostsavingsofmorethan1.2billion.Astheenergyupgrademarketgrows,homeownerswillneedaccesstoaffordableprivatefinancinginordertorealisefurthersavings.Severalschemesareunderconsiderationtoencouragegreaterlendingbyprivatefinancialinstitutionsforenergyefficiencyprojects.

Through the Better Energy Communities scheme, citizens can collectively apply forfundingfortheircommunitytoupgradebuildingsintheirneighbourhood.In2013,SEAIawarded15millionthroughtheBetterEnergyCommunitiesschemeto84communityenergy projects countrywide, which involved the upgrade of 3,540 homes and 291community,publicandprivatefacilities.

1.4 Decarbonising Energy in the Home

Renewable energy also plays an important role in empowering citizens. The building regulationsrequireallnewhomesto integraterenewableenergy technologies.Whencombined with high thermal performance, these measures reduce energy demand,whichinturnwouldreducetheamountofnewgenerationthatwouldneedtobebuilt,resulting in lower costs to consumers.

Micro-generation incentives, such as feed-in tariffs or grants that enable individuallyhosted solar arrays, wind turbines, and other technologies are policy instruments that couldallowhomeownerstobecomeincreasinglyenergyself-sufficient.Thiscouldalsofacilitateagradual transition toadecentralisedgrid; thecost implications relating tohowsuch incentiveswouldbepaid forandbywhomrequiredetailedconsideration.Greater electrification of home heating could also lower heating-related emissionsparticularlyfromsolidfueluse.WhilethesemeasureswouldultimatelyreduceIrelandsdemand for importedoil andgas, their large-scaleadoptioncould requireadditionalinvestment in the electrical grid. Such incentives would also need to be supported by accessiblefinancingoptionstomitigateup-frontcapitalcosts.

1.5 Innovative Relationships between Energy Suppliers and Consumers

As society and markets experience a broad shift towards technological innovation,citizens will see a corresponding trend across the energy sector. The impending arrival of internet-enabled and -connectedenergyproducts and serviceswill result in bothopportunitiesandchallengesforpolicymakers,regulatorsandconsumers.

Obligations on energy suppliers to meet specified energy savings targets will driveinnovation in the services offered by suppliers and their role in supporting energyefficiency. Energy suppliers will be actively looking for citizen partners to engage inreducing energy demand. Under the National Smart Metering Programme, smart


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meterswill be installed inhomesnationwide,beginning in2015/16, allowingenergyuserstomonitortheirconsumption inreal time.Thesmartmetersshouldhaveuser-friendly interfaces thatallowcitizens toeasily interpret theirenergyuseand facilitatechange inbehaviour to reduceenergyconsumption. It isanticipated that thesmart-meter rolloutwillbeaccompaniedby time-of-use (TOU) tariffs,whichwilloffer lowerelectricity pricing during off-peak hours in order to incentivise consumers to switchusagefromhigh-demandperiods.GiventhatTOUwouldcertainlyaffectpeakprices,a possible concern is that this pricing structure could present challenges for thosewhomaynotbeinapositiontoadjusttheirenergyconsumptionwithoutassistance,possiblythosewithmedicalneeds,vulnerablecustomers,orthosewhofinditdifficulttomanageelectronicallytheirenergyconsumption,forwhateverreason.Government,regulators and industry will need to implement smart energy-saving measures in amannerthatachievesthedesiredsavingswhilemaintainingafavourableenvironmentfor consumers, including specifically addressing the capabilities of all categories ofconsumers to adjust their behaviour to take account of TOU pricing. Indeed,whencombined with better access to energy data, digitisation also creates economic opportunitiesforintermediariestocollect,analyseandpresentenergy-useinformationin easily understood ways that allow the consumer to take greater control over their consumption and costs.

Beyonditsimmediatebenefittoenergyusers,smartmeteringwillfacilitatethetypesofinnovativedigitaltechnologiesthataresettounderpinthefutureoftheenergysector.Smart metering also supports efficient use of wind generation, increased demandparticipationandefficientuseofnetworks.Theremaybescopetoencouragesimilarinnovations in the adoption of renewable energy and energy efficiencymeasures inhouseholds.As cleaner sourcesof energy andmore efficientproducts and servicesbecome available, the regulatory environment should remain flexible and responsivein order to accommodate new technologies. Creating the right regulatory conditions for the widespread adoption of emerging energy technologies could reduce furtherIrelandsimportoffossilfuels,andoptimisegridperformance.

1.6 Realising the Benefits of Competition

GiventhatmanyofthedriversunderlyingIrishfuelpricesarenotcontrollable,creatingacompetitiveframeworkintheelectricityandgasmarketsisakeyfocusofGovernmentand regulatory action on costs. Competition ensures that consumers have choices aboutproducts,pricesandsuppliers,andcaneasilyswitchtothebestoptionfortheircircumstances. Since the 2007 Energy Policy Framework, competition in Irish retailelectricity and gas markets has grown. In 2013, there were seven active suppliers in the electricity retail market, in both the business and domestic segments. Recently, new entrants and innovations in themarket have included firms offering the supplyofelectricityviapre-paymentmetersand the launchofacampaign tosecuregroupdiscounted electricity and gas prices. There are eight active suppliers in the retail gas market,fiveofwhichoperateinthedomesticgasmarket.

Inorder to fully realise thebenefitsof competitiveenergymarkets, consumersmustalsobeable toeasilyaccesscomprehensiveenergyusageandprice informationsothat they can switch suppliers according to their needs and options. To aid customers in


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confidentlycomparingproductsandservices,theCERhasestablishedanaccreditationframeworkforpricecomparisonwebsiteservices,underwhichtwopricecomparisonwebsites have been accredited.

Supplierswitchingoffersanimportantmetricofcompetitionandconsumerengagementin the retail markets, and Irelands switching rates rank highly in a global context. Since 2010 there have been more than 1.3 million electricity switches, representing nearly 60%oftheIrishmarket,andover343,000gasswitches.Switchingcontinuestotakeplace in both the electricity and gas markets. While both markets saw a reduction in switching between 2011 and 2012, switching levels in 2013 increased over 2012 levels:theswitchinglevelforgas(17.8%)surpassedthepeakof2010,whilethelevelforelectricitywasabove11%in2013.Withincreasedsuppliercompetitionandinitiallyhighlevelsofswitching,switchingmaybeworthyoffurtherresearchandanalysis.10

1.7 The Educated and Informed Citizen

Irishpeoplearemoreawareofenergythaneverbefore,intermsofthecoststothemandtheirfamilies,thewiderdebatesofwhereourenergycomesfrom,itsenvironmentalimpacts,andtheinfrastructurerequiredtodeliverit.Overthepastdecade,SEAIhasdevelopedinformationservicesonenergyefficiencyandcleanenergyoptions,makingit a focal point for citizens seeking information on energy matters, with more thanamillionhitsayearonthewebsite.Italsoinformsdebatesthroughitsstatisticalandmodellingoutputs,andthroughconferencesandeventssuchastheEnergyShow.

Empowering all energy consumers tomake informeddecisions about how theyuseenergy is an importantpartof nationalpolicy.Thisextends fromeverydaydecisionsaboutenergyusetomajordecisionssuchasbuyingacarorahomethatwillhaveastrongimpactinenergyuseovermanyyears.BuildingEnergyRating(BER)certificatesarenowrequiredforallhomesofferedforsaleorrent;theseallowpotentialpurchasersor renters to factor futureenergycostsandcomfort into their choices.Over45,000IrishhomesalreadyhaveBERs,meaningthatourknowledgeofenergyuseinhomesisgrowingrapidly.Evidencehasalreadyemergedofapremiuminpriceofsaleorrentforhomes with better energy ratings.

Educationinschoolsisavitalpartofbuildingnationalawarenessofenergyissuesandinformingthenextgenerationofdecision-makers,societalleadersandenergyconsumers.SEAIs energy education programmes have directly engaged more than 250,000 school pupilsinthepasttenyears.Educationandinformationwillremainacentralpartofbuildingournewenergysystemsofthefuture.Publicconsultationisalsogrowinginitscentralityinthedevelopmentofenergypolicyandspecificprogrammesandinitiatives.

Givenitsimportanceforclimateandcleanairpolicies,energyisalsooneofthecorethemesoftheGreenSchoolsProgrammewhichrunsinover90%ofschoolsinIreland.TheGreenSchoolsProgrammeisrunbyAnTaisceandisfundedbyvariousGovernmentDepartments, local authorities and private companies. The programme aims to instil a strongsenseofenvironmentalawarenessandresponsibilityinstudents.

10 Hyland, M., R. Lyons, and S. Lyons (2014), The value of domestic building energy efficiency evidence from Ireland, ESRI Research Bulletin, Dublin: https://www.esri.ie/UserFiles/publications/RB20140103/RB20140103.pdf.


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Priority 1 Empowering Energy Citizens: Questions and Policy Options

1. Howcanweencouragecitizenstobepartofourtransitiontofutureenergypathsand the policymaking process that goes with it? Given the scale of changesneeded,whataretherightmechanismstoengagecitizens(e.g.wouldenergycitizenimpactassessmentsforenergypolicydecisionsortransitionfromwrittenconsultations to interactive workshops with interested stakeholders be more effective)?

2. What formal and informal mechanisms could be used to enhance citizenengagement with regulatory and policy decisions and how should they be structured?(e.g.shouldtherebegreateruseofconsumerpanels?)

3. Howcanweincreasetherateofhomeretrofitradically?WhatcanGovernmentdotoencouragecitizenstoundertakeambitioushomeupgradesinlargenumbers?Arethereparticularbarriersthatneedtobeovercome,suchaslackoffinance,information,andskilledprofessionals?

4. Howcanweraiseawarenessofthescaleoftheenergychallengesfacingusandtheways thatcitizenscanbepartofcollectivesolutions?Whatcanwedo toimprovecitizensaccesstoenergyinformation?

5. How have other countries effectively engaged citizens in infrastructuraldevelopment,andwhichinnovativeorinterestingapproachescouldbehelpfulinIreland?

6. IstherefurtherscopeforswitchingintheIrishretailelectricityandgasmarketstoenablecustomers toavailofalternativepriceandproductopportunities,ordo thenumbers indicate that Irishswitchinghasplateaued? If there is indeedfurtherscopeforswitchingforconsumerbenefit,aretherebarriersthatneedtobeovercome,suchasavailabilityofinformationorconsumerdifficultieswiththeswitchingprocess?

7. Is micro-generation the most cost-efficient solution to decarbonising homeenergy, andwho should bear the costs of any associated support scheme consumers,taxpayersorindustry?

8. What is needed to ensure that smart meters enable greater consumerempowermentintheIrishenergymarket?Aretherestepsthatshouldbetakento allow smart meters to play the fullest role in enabling greater consumerempowerment in the Irish energy market, in particular in relation to behavioural change, aside from CERs ongoing preparations for the national smart meterrolloutprogramme,anditsassociatedregulatorydecisions?


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Priority 2: Markets, Regulation and PricesAstableregulatoryframeworkwillhelptodelivercompetitive,secureandsustainableenergyoutcomesforIrishelectricityandgasconsumers,enablingIrelandtorealisethefullbenefitsfromachievingtheEUsenergypolicyobjectivesofgreaterenergymarketintegrationandbetterregulationandtofacilitateinvestmentintheIrishenergysector.

2.1 Contextual Background

Theregulatory framework iscritical toachievingcompetitive,secureandsustainableenergyoutcomes.Theestablishmentofregulators,withvaryingdegreesofindependence,is now a common feature of energy policy in the EU and across OECD countries.Ireland has had an independent energy regulator in place since 1999. Market opening has allowed new actors to enter energy markets, ensuring greater competition and morechoiceforconsumers.LargelydrivenbyEUpolicy,thelegislativeandregulatoryenvironment has expanded in recent years to include additional energy policy areas, suchasenhancingsecurityofsupply, facilitating the integrationof renewableenergyandencouragingenergyefficiency.

LikemostEUMemberStates, Irelandsregulatory framework forenergycontributes intwomainwaystoenergypolicy:regulationfacilitatestheachievementofnationalenergypolicy goals, and it provides stable, transparent, evidence-based regulation, therebyincreasingchoice,enhancingquality,ensuringcontinuedinvestmentandensuringnetworkcosts that are as low as possible, commensurate with Irelands energy circumstances and investment needs. Over the last decade, the EU has become increasingly involved in shaping both the scope and nature of the regulatory framework in energy, and inparticular,determiningappropriateroles,powersandfunctionsforregulators.

Commissioner for Energy Regulation Independent Energy Price Regulation in Ireland

The Commission for Energy Regulation (CER), which regulates Irelands gas andelectricity markets, is an independent statutory body established under the Electricity RegulationAct,1999,asamendedwhichprovidesthatitisindependentinitsdecision-making. Member States are obliged under EU law to guarantee the independence oftheirenergyregulators.CERis fundedbymeansofa levyontheenergy industryandisaccountabletoanOireachtasCommitteefortheperformanceofitsfunctions.The Minister appoints the Chair and Commissioners to the CER and may issue policy directions toensure theproperandeffective regulationof theelectricitymarkets. Incarryingoutitsfunctions,theCERisrequiredtoprotecttheinterestsoffinalcustomersofelectricityorgas.


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Prices regulation

CERhadresponsibilityforregulatingtheretailpriceschargedbytheESBandBGonly.TheregulationofESBsretailelectricityprices forhouseholdsandsmall tomedium-sizebusinessendedin2011;pricesforlargeusershadpreviouslybeenderegulated.During electricity price regulation, CER did not always allow the increases sought and on occasion reduced prices (e.g. in January and May 2009). As regards gas, CERcontinuestoregulateBGsretailpricesforhouseholds;(itsregulationofthesepricesmayendthisyear);BGs tariffs forallbusinessconsumershavebeeneitherderegulated or were never regulated.

CERcontinuestoregulatethenetworkcomponentthatfeedsintotheelectricityandgas retail prices. Every five years it undertakes a review in order to put in place arevenue controls setting the transmission and distribution revenue that can be collectedfromconsumers.Thisrevenueissetatalevelthatwouldallowanefficientbusinesstofinance itsactivities; it isdeterminedbyacombinationofbenchmarkingagainstorganisationsinothercountriesandexaminingthespecificunderlyingcostsofthe Transmission System Operator (TSO) and Transmission Asset Owner (TAO). CER rigorouslyscrutinisespastperformanceandfuturecostingsinthisexercise.

Inthemostrecentelectricitynetworkcostreview,fortheperiod2010to2015,CERrequireda146.4millionor11.9%reductioninoperationalspendfortheforthcomingfiveyearsrelativetothatrequestedbyESBNetworks.Ontopofreductionssoughtinbothcurrentandcapitalspend,CERalsorequiredESBNetworkstodeliveradditionalefficiency savings in operating and capital expenditure. Its regulation of networkexpenditure has not automatically allowed all costs sought by the electricity and gas networkoperatorstobefundedthroughtheirfullimpositionontheconsumer.

The policy framework for energy regulation in Ireland, as expressed in the relevantstatutory provisions, clearly provides for CERs independence of the Minister andGovernment in its regulatory decisions and for its accountability otherwise, to theOireachtas. CERs practical implementation of regulatory decision-making anddeterminations on regulatory issues within its remit clearly demonstrates both its independenceandprotectionofconsumerinterest.

2.2 Energy Prices: Secure, Sustainable, Affordable

Energy Prices in Ireland

EnergypricesinIrelandareinfluencedbyseveralfactors,including:

n Highdependenceonimportedgas,forheatingandelectricity,

n absenceofconventionalenergysources,

n widely dispersed population resulting in higher network charges [1],

n internationalcostofcapital,

n requirement to pay for investment in existing energy infrastructure and forsignificantadditionalinvestment,and

n geographicalisolationofIrelandsislandmarket.


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Asfossilfuelpricesaresubjecttoglobalmarketforces,andarenotunderIrishcontrol,Irelandiseffectivelyapricetakerforinternationallysourcedimportedfossilfuelsandalsovulnerabletoexchangeratemovements.Becauseoftheextentofourdependenceongas in power generation, the international gas price trends outside our control inevitably impactonIrishelectricityprices.Energypolicychoicestomovetowardsrenewablesforsustainabilityandsecurity reasonsalso influencecostsandpricesand increasinguseofwindforpowergenerationwouldbeexpectedtohaveadepressing impactonthesystem marginal price in the wholesale electricity market. Energy market integration has thepotentialtoreducetheimpactofourisolation.Priceregulationinenergymarketshasbeenvirtuallyended,inlinewiththerequirementsofthevariousEUenergypackages,so that competitive forceswill place downward pressure on prices, in line.However,effective competition also necessitates proactive consumer behaviour in comparingpricesandavailingofcheaperdealsonofferfromsuppliersinelectricityandgasmarkets.

Theconstituentpartsofelectricitypricesarelistedbelow[2]:

Figure 5: Domestic Electricity Price, Relative Share of Component, 2011 (Band DC)

WholesalePrice[3]46%Balancingcosts3%

PSO4%

Distribution29%

RetailMargin13%

Transmission5%

[1] Ireland has 82metres of distribution per customer on average (Commission for EnergyRegulation2010).ForGreatBritainthenetworkwiththelongestpercapitadistributionisNorthernScotlandat63metrespercustomer.ElaborationofdatainOfgem(2012)showsthattheBritishaveragewas27metrespercustomerESRIIrishandBritishelectricityprices:whatrecenthistoryimpliesforfutureprices,2014.

[2] Source:Data for 2011 taken from Irish andBritish electricity prices:what recent history implies forfutureprices,ESRI2014.

[3] Wholesalepricecompriseapproximately80%fuelcostand20%capacitypayment(Capacitypaymentsarepaymentstogeneratorswhichcontributetowardstheirfixedcosts,iftheyareavailabletogenerate).

Thecostofenergy isan important factor forbusinessesandhouseholdsalike,withsignificantimplicationsforbudgetsandbalancesheetsbutIrishenergypricesinIrelandareinfluencedbyseveralfactorssetoutintheboxaboveonenergypricesinIreland.Asnotedearlier,Irelandiseffectivelyaprice-takerforinternationallysourcedimportedfossilfuelsandenergypolicychoicestomovetowardsrenewablesandimproveenergyefficiencyforsustainabilityandsecurityreasonsalsoinfluencecostsandprices.

Governmentpolicyhasbeentocreatetheconditionsforcompetitioninbothelectricityand gas, wholesale and retail, by means of market opening and regulatory action,so that consumers can avail of its benefits. Competition has been a success;moreplayers have entered the market, offering competing products, services and prices.Retail price deregulation has been implemented in Irelands electricity market and largely


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implementedforthegasmarket,inlinewithEUrequirements.Competitioningenerationandsupplyhasbenefitedbusinessanddomesticconsumers,whocannoweasilyavailofcompetingproducts,servicesandpriceoffers,iftheywishto.Regulatoryscrutinyofthenetworkcostcomponent in the reviewsoffive-year investmentperiodshasbeenrigorous. Governmental and regulatory action has been directed at areas within the limited scopeforaction,but,giventheenergyrealitiesoutlinedaboveandtheimplementationofderegulation,theGovernmenthaslimitedremainingscopetoinfluenceenergyprices.

Despite the constraints concerning energy prices, the Government is committed to exploring all appropriate options available to keep costs competitive, moderate any price growth to the greatest extent possible, and underpin a regulatory frameworkthat robustly scrutinises network costs and promotes competition. The Government seekstoaddressthequestionofcostsspecificallybyencouragingtheuseofenergyefficiencymeasures,whichhelpkeepcostsdown.

2.3 Market Integration and Regional Initiatives

One of the key objectives of EU energy policy is the establishment of the InternalEnergyMarket (IEM). The objectives of the EU IEM are the achievement of betteroutcomes for EU citizens through contributing to economic growth, jobs, secureenergyataffordableprices,andsustainabilityinenergyuse.TheIEMoffersbenefitsto Member States through potentially lower wholesale prices than would otherwise be thecase,andenhancedsecurityofsupply.ImplementedinthemostsuitablewayforIrishconditionsand,incertaincircumstances,theIEMhasthepotentialtodosoforIreland.TheESRIhighlightedina2011reportthebenefitsofintensifyingcompetitionin Ireland,assuppliers fromGreatBritainandbeyondcouldenter the Irishmarket,spurring efficiency and increasing consumer choice. The ESRI also stated thatsecurityofsupplywouldincreasethroughaccesstoagreaterdiversityoffuelsandthat therewouldbe lessneed formaintainingexpensive reservecapacity to insureagainstsupplyinterruption.TheEUinternalenergymarketobjectiveisembracedbyIreland as a key European goal, with a view towards implementing it in a manner that ensuresoptimalbenefitsrelativetocostsforIreland,includingthoserelatingtoonceoffimplementation.

In order to secure the free flow of electricity and gas across borders in line withtheIEM,MemberStatesmustharmonisecertainarrangementsgoverningthecross-borderoperationoftheirelectricityandgassystems.Thisrequirestheadoptionandimplementationofcommoncodesorbusinessrulesenablingcross-bordertradeinbothelectricityandgas,greateruseofexistingcross-borderinterconnectors,constructionofmanyadditionalcross-borderinterconnectors,andgreaterco-operationbetweenMemberStatesinarangeofdifferentregionalconfigurations.RealisingintegrationatleastcostandmaximumbenefittotheIrishconsumerposescomplexchallengesintheIrishelectricityandgassystems.TheCERisinvolvedinvariousindividualprojectsto further Irelands compliance with the IEM, both on an all-island and individualMember State basis.

The design and implementation of the new Europe-wide electricity and gas codesand Irelandsparticipation in various regional initiatives is acurrent areaof focus forGovernment, regulators, network operators and the energy industry. The negotiation


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andimplementationofthesenewcodesinparticularisahugepracticalchallengeforall concerned.

The implicationsofgasandelectricitymarket integration requirements, including theimpactofthenewcodes,intheIrishcontextarenecessarilydifferentfromoneanother,partly because the rate of progress in all-island co-operation has been different ineach,andbecauseofthevarying influenceofEUcodes.Sincethe lastWhitePaper,wholesale electricity market arrangements in Ireland and Northern Ireland have been transformedwiththeestablishmentoftheSEM,whichoperatesandisregulatedonall-islandbasis.TheSEMprojectisnowundergoingaredesign,scheduledforcompletionaround end 2016, to ensure compliance with the new European electricity codes, as they are being developed to enable the practical realisation of the EU IEM, and tofacilitatedeepermarket integrationof theSEMwiththe IEM.NewlegislationmayberequiredtoimplementtheredesignedmarketarrangementsfortheSEM.

European gas codes have been developed, also for the purpose of enabling thepracticalrealisationoftheEUIEM,andarebeingimplementedmorequicklythanthecorrespondingelectricitycodes.Themanneroftheirimplementationhasthepotentialto deepen regional gas integrationon the island andbetween the islandsof IrelandandGreatBritain. In2008,theIrishandNorthernIrishgovernmentsbeganeffortstocreateCommonArrangementsforGas(CAG),allowinggastobetraded,transportedanddevelopedinanall-islandmarket,buttheCAGprojectisstronglyinterlinkedwithongoing EU gas code negotiations and their implementation on these islands.

Aside fromthecurrent initiativeson this front relating toEUgasandelectricitycodeimplementation in Ireland, includingtheSEMproject, therearebroader,post-internalmarket implementation issues for Ireland:howmarket integrationwilldevelop furtherafter2016,howsuchastructurecanbestbeshapedintheinterestsofIrishelectricityand gas consumers, and what the appropriate governance arrangements should be.

Inboththeelectricityandgassectors,investmentininfrastructureconnectingMemberStates systems will be a critical complement to the new EU trading rules and codes. Thenewcodesarenotenough in themselvesto facilitate tradingandtohelprealisetheEU IEM if thenecessary infrastructure isnotavailable to transportelectricityandgas.TheIrishenergysystemmustbeequippedwiththeinterconnectionandphysicalcapacity necessary for energy trading in both directions, as well as the regulatoryframeworktoregulatethisinfrastructuretobesteffectfortheIrishconsumer,inorderfor Ireland toachieve thebenefitsof theEUs internalenergymarket.Thesebenefitsinclude greater security of supply and lower prices than they would otherwise be.Interconnectionofitselfisdesirableonmanyfrontsand,ifofsufficientscale,will,intheright circumstances, allow Ireland to export surplus renewable energy to Great Britain andtherestofEurope.

2.4 The Role of the Regulator: Certainty, Stability, Flexibility

Theregulatoryframework,aswellasdeliveringenergypolicy,mustbestable,certainand predictable. New investors and existing participants alike require regulatorystability. Perceptions of regulatory uncertainty, or of irrational or ad hoc behaviour,


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willdeter investorsandnewplayers fromenteringamarket,depriving thesystemofpotentialcostandefficiencygains.Astable, relativelycertain regulatoryenvironmentwill help to create a climate for investment and ensure that the cost of capital fornewandexistinginvestorsiskeptaslowaspossible,includingfornetworkinvestors.Todemonstratethepotential impactofanyperceptionsofregulatoryuncertainty,theCERhasprovidedapproximateestimatesof the impactof changes in theweightedaveragecostofcapital(orWACC)fortheelectricityandgasnetworks,assumingthatsuchuncertaintyincreasesthenetworkcostofcapital.Each1%fall intheWACCfortheelectricitynetwork isestimated to lead toa fallofabout1.9% inelectricity retailprices,andslightlyless(about1.4%)forlargeenergyusers(LEUs).Forgas,a1%fallinWACCisestimatedtoleadtoafallinretailpricesofabout2.9%.Thisisalargerfallthanwithelectricityduetothenetworksbeingalargercomponentofgasretailprices,someofwhichisduetothegasinterconnectors.TheseCERestimatesareonlybroadlyaccurateifeverythingelseintheelectricityandgaspriceequationstaysthesame;e.g.if international fuelpricesorothercosts suddenlydoubled, thena1% fall inWACCwouldonlyresultinelectricitypricesfallingbyabout1.5%.

An energy regulatormust also be strong, independent and sufficiently resourced todeliveron itsmandateandprovideevidence-based,transparentregulatorydecisionsand comprehensive consultation processes. The EUs 2009 Third Energy Package obligesMemberStatestoensurethattheirenergyregulatorsarefullyindependentandresourced.Thesestrongrequirementsonregulators,intheseareasofindependence,resourcesanddecision-making,areconsistentwiththecurrentIrishsystem.TheCERwas established as an independent regulator in 1999 and continues to deliver a stable regulatoryregime,inalignmentwithEUandnationalpolicyrequirements.

Complexity of CER mandate

TheCERsindependentstatutoryfunctionsanddutiescontinuetoevolveinachangingandchallengingenvironment.Since the2007WhitePaper, theCERs functionsandpowers have been enhanced on many occasions in accordance with EU energy legislation. In addition, Irish legislation has assignednew regulatory functions to theCERthatextendbeyondastrictremitofenergymarketregulation,suchasmonitoring,andregulating,forsecurityofsupply,upstreamgasandoilpetroleumsafetyandwatersupply. CER also has responsibility for, the certification of highly efficient CHP, theadministration of thePublicServiceObligation (PSO) and the implementation of thesmart-metersproject.Inaddition,CERischargedwithregulatingsafetyforonshoreoilandgasoperations,thegasnetwork,liquefiedpetroleumgas(LPG),andelectricityandgascontractors in thehome.Theresulting legislative frameworkcontainsacomplexset of objectives,which theCERmust execute in a balanced, evidence-based andjustifiablemanner.

There have also been areas where the regulator has exited regulation and related activities,suchasdeterminingtheelectricitypricesoftheESB(fromwhichitwithdrewin April 2011) and setting the gas prices charged by BG to business consumers(which ended in October 2012). This has released resources, but to a certain extent redundantfunctionshavebeenreplacedbynewEUobligations,suchasmonitoringtheoperationofthederegulatedmarkets.CERhashadtobeflexibletoaccommodatethe


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growingdemandslistedabove,adapttonewrequirementsand,totheextentpossible,reallocateresourcesfromareasitisnolongerregulating.

Review of regulatory framework for energy

The2007WhitePapercalledforacomprehensivereviewoftheIrishenergyregulatoryframework to be undertaken after the completion of the Single Electricity Market(SEM), in order to ensure the optimum regulatory environment to meet the energy challengesupto2020 inrelationtosecurityofsupply,sustainabilityandcompetitivemarkets. As noted above, the SEMwas successfully established in 2007 and hasbeenoperational forsixyears.Neither the Irishenergy regulatory frameworknor theCERhas undergone a comprehensive review since the frameworkwasput in placeand CERwas established in 1999, although the breadth and depth of its role andfunctions have expanded considerably. These developments have increased thecomplexity of the regulatory system and its underpinning legislative framework.However, the 2012 International Energy Agency review of Irelands energy policyincluded recommendations on the extent and efficacy of CERs sanctions and onthe relative rigidity of SEM regulation. More generally, the Government 2013 PolicyStatement on Sectoral Economic Regulation has addressed the overall question ofsectoral economic regulation in the economy as a whole, and particularly whether it couldcontributemoretorecoveryandcompetitiveness.ItsetoutcertainrequirementsofregulatorsandtheirassociatedDepartmentsunderthefollowingheadings:principlesunderpinning regulation; prioritisation of objectives; the need for mandate reviews;greater efficiencies; cost reductions; effectiveness; performance; accountability andappealsmechanisms;complianceandenforcement;aregulatoryforum;andmonitoringand review. The previous 2009 Government Statement made similar recommendations. Thenewstatementhighlightstheimportanceofreviewsoftherolesandmandatesofregulators every seven years. Prior to the 2013 statement, stakeholders had already referredtothefactthatthe2009requirementforsucharevieweveryfiveyearshadnotbeenimplementedinthecaseofCER.

TheActionPlan for Jobscommits to the inclusionof a regulatorymandate reviewaspartoftheGreenPaperprocess.11 The Government 2013 Policy Statement on Sectoral EconomicRegulationalsospecifiedthattheenergypolicyWhitePaperbeingdevelopedduring2014shouldincludearegulatorymandatereviewofCER.However,givenlimitedregulatoryanddepartmentalresourcesandEUmandatorycompliancerequirements, itis arguable that such a review may distract the regulator, and Government and market participants,fromthehugechallengesinvolvedinnegotiatingandimplementingtheIEMincludingtheSEMprojectanditsassociatedcodes.AnydelayinachievingfullcompliancecouldexposeIrelandtotheriskofinfringementproceedingsfrom2014onwards.

The optimal approach to a CER mandate review needs to be considered in the overall context outlinedabove. TheGreenPaper affords an ideal opportunity to consult onthe review and on issues such as content, approach and scope. One approach might betoconductamorelimitedreview,perhapsfocusingonconsumerengagementandempowerment and/or theextentof regulatoryobjectives,whilemarket integration is

11 Action 107: http://www.djei.ie/publications/2014APJ_Table_of_Actions.pdf.


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being implemented up to 2016. A more detailed review would at that stage be more efficient and effective, given that it would address themore integratedmarket, anditsdifferentchallenges, includingregulatorygovernance,atthattime.Atpresent, theDepartmenthasbegunascopingexercise for thepurposeofconductingan internaldesk-basedmandate reviewofCER, even if limited as above. Itmight assist betterpublicunderstandingofthenatureofenergyregulationifthisreviewweretodescribethe EU requirements on energy regulators as regards energy regulatory objectivesand functions; for example, independence fromGovernment and industry, the needfor consumer engagement and protection, and the requirement to end retail priceregulation. It could also consider existing cross-country comparisons of how thoseregulatoryobjectivesaresetoutinthevariouslegislativemandatesforregulators.TheviewsofindustryandotherstakeholdersonthenatureandtimingofaCERmandatereviewareaccordinglybeingsoughtaspartofthisGreenPaperconsultation.

CERs financial and human resources

Againstthebackdropofincreasingdemandsandexpansionof itsremit,CERmustbesufficientlyresourcedtodeliveronitsexistingandgrowingmandate.TheCERisfundedbyalevyonindustry,amountingin2013to8.6mi

green paper on energy policy in ireland

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