I am very grateful to Engineers Ireland for the invitation to speak here this morning in a city with such a strong engineering tradition. It is a tribute to the Institute’s President, P.J. Rudden, that the theme of the Conference is that of looking to the future on the basis of entrepreneurship and innovation. I strongly approve of this orientation for I firmly believe that engineers should play a pioneering role in building a new economy built on sustainability.
It was belief in a sustainable future that led to the creation of Mainstream Renewable Power four years ago. We understood that the world was on a once-off transition to a low carbon economy and that this offered vast business potential for those with the courage and vision to develop new technologies, such as wind and solar power.
I am happy to say that this new engineering company has prospered while the global economy went into meltdown and that Mainstream has recorded sustained growth in developing onshore and offshore wind, as well as solar power.
Today, Mainstream is the largest independent developer of renewable energy in the world.
We have been particularly successful in pioneering offshore wind where we won the Hornsea concession under Round Three of the UK’s offshore wind development programme in partnership with Siemens. Our joint venture, known as Smartwind, will develop some 6,000 MW in the North Sea off the Humber. I am delighted to say that we have already agreed with Dong that they will take the first 2,000 MW.
Further north, in Scottish waters, we are even further advanced in developing a 450 MW wind farm that is aptly called “Neart na Gaoithe” i.e. Power of the Wind or, simply, “Windpower”.
Our third holding is in the North Sea off the German coast where we are developing 1,500 MW of wind power in our Horizont project.
Onshore we have just completed a deal for a 110 MW wind farm in Illinois in cooperation with Goldwind, the second largest turbine manufacturer in China.
Together with our Chinese partners we are developing wind farms elsewhere in the States, Canada and Chile and the engagement with Chinese companies has developed to the point where we now work with six separate companies, including the world’s largest bank, the Industrial and Credit Bank of China, and the South China Grid Company, which is the second largest grid company in China.
We have recently been successful in winning contracts in South Africa to build not only onshore wind farms but also 200 MW of solar power and we have every expectation of winning further contracts in this exciting market for renewables.
Due to favourable developments in Ireland we have entered the onshore market and are developing two farms in Kerry and Sligo.
As of the moment, Mainstream is developing eight projects in four different jurisdictions and we have raised a quarter of a billion euro in capital at a time when the investors are highly risk adverse, to say the least. Our staff members have grown to 150 and we currently have 25 open positions for a range of skills and expertise in engineering, finance, project management and so on.
I have recorded this progress to convey the simple message that a clean, green and sustainable future offers great business opportunities for those with the courage to grasp them. The way we see the future is very much aligned with the way the EU sees the future, and that is, total sustainability in making electricity and the complete decarbonisation of generation by 2050.
That means the total elimination of hydrocarbons as a source of energy and their replacement by wind and solar, as well as other forms of renewable energy.
That is the future as I see it and I have repeatedly said at conferences like this that by 2050 I foresee wind supplying about half of the electricity generated in Europe with solar accounting for about 30%. This is an appropriate point to remove some of the misconceptions that apply to the cost of wind power, and, indeed, solar power as well.
First of all, it should never be forgotten that both wind and solar are free sources of energy. They are free fuels, which means that the fuel cost of electricity generated from these renewables never varies.
The result is that when wind and solar are included in the generation portfolio they have a powerful effect on the economics of electricity, which means a reduction in price and also a reduction in systemic risk.
In fact, it can be said that wind has an economic value arising from at least six different mechanisms:
1. There is the merit order effect whereby when introduced into the generation mix wind displaces the most expensive fuel being used and so lowers the weighted cost of power.
2. By replacing fossil fuels, wind reduces the carbon fines to be paid by generators.
3. Increases in the development of renewables, like wind, lowers the demand for fossil fuels and puts downward pressure on their spot price.
4. Being an indigenous source of power, and being cost free as well, wind reduces systemic risk, as I previously mentioned.
5. By reducing fossil fuel imports, wind has a measurable stimulus effect on the economy and, in productivity-constrained world, the multiplier effect can be as high as four.
6. Finally, there is a natural resource benefit in that wind and solar do not involve the use of water. Although this is not a consideration in temperate climates, it is of great importance in places like Chile and South Africa, and even in France as we saw in the heat wave some years back.
Various authorities have evaluated the value arising from the combination of these factors, such as TSOs, governments and energy economists.
For example, a study by Eirgrid estimated that wind saved the Irish consumer around €70m per annum. A recent study by the Illinois Power Operator demonstrated that wind lowered the electricity price from $36bn to $35 even though the price paid for wind power was $70.
My late friend, Shimon Awerbuch, discovered similar price effects for markets as disparate as Scotland and Mexico. The merit order effect has been studied by the German authorities who arrived at the same conclusion that wind on the system lowered the cost of electricity.
I suppose the key point is that when we make the transition from fossil fuels to renewables the cost structure of electricity changes dramatically. We replace relatively low fixed capex with high variable cost for renewables with higher capex but lower variable costs and, of course, no fuel cost at all.
These points need to be aired more frequently because misconceptions about the cost of wind can inhibit its development as a replacement for fossil fuels and delay the transition to a low carbon economy Instead of raising false objections to wind we should grasp the business opportunities arising from the transition to sustainability in making electricity.
One of the biggest opportunities is on our very doorstep.
The UK is going to close 15,000 MW of coal-fired power stations, as well as its nuclear fleet. The process will begin three years from now and it is simply not possible for the UK to replace all of this lost generation by renewable energy. The time frame is too short for technical reasons, such as the grid, and, besides, there is widespread opposition to onshore wind in England and many of you will be aware of the long planning delays in Scotland for onshore wind.
Currently there is about 6,000 MW of wind installed in the UK but they need to get to 35,000 MW by 2020, and that is just not possible under the current rate of development.
Now this poses a huge problem for the British authorities but it also presents a great opportunity for Ireland because we have abundant wind resources and an effective planning process.
In short, Britain has a demand for wind power and we here in Ireland have the resources to meet it. It is estimated, for example, that Ireland has 345 Twhr of wind potential, which is about 19 times our annual electricity consumption, and it is the intention of Mainstream to tap into this potential and to supply the British electricity market by creating an energy bridge from Ireland to Britain.
This would be in keeping with our core values of entrepreneurship and innovation. These are the values, which cause us to do what we do, and we see the emerging demand in Britain a massive opportunity to put those values to work.
We intend to build wind farms in Ireland not just to supply the British market but also to build the first leg of the Supergrid, which is the key infrastructural ingredient in creating a single electricity market for the whole of Europe.
With this in mind, we have already reserved capacity on the UK grid for 5,000 MW. The power will be generated in the midlands, with Offaly at the core and the power will be transmitted underground to a SuperNode on the east coast for onward transmission via HVDC cable laid beneath the seabed to the British coast. We envisage that the power will then be transmitted in DC to the English midlands.
The concept of Midlands to Midlands is very arresting. We are building an energy bridge between the islands of Ireland and Britain.
In our scheme, Ireland would become an energy exporter by 2017.
Industrially, this would see Ireland repositioned as a source of green energy in Europe. The demand on the continent will be a multiple of that in the UK and the export potential is greater than anything we have encountered in the past.
For example, the electricity exports from 5,000 MW of wind will generate around €2.5 bn per annum.
Employment will be heavily impacted and we could expect some 40.000 jobs arising from a number of activities, including the manufacturing of turbines, towers, blades and other parts, cable manufacturing, control systems using the latest IT, logistics, Operation and Maintenance, and the provision of services, such as finance, insurance and so on.
Here in Belfast with its great engineering past I can foresee a great engineering future for Ireland.
We in Mainstream have already begun. We are building an energy bridge to Britain and we see it as the pathway to a sustainable future for the peoples of these islands, and, indeed, for Europe as a whole.
I hope I have given you a picture of what we are doing by way of entrepreneurship and innovation. The Energy Bridge concept is an example of entrepreneurship, of anticipating the future and of being the first mover in a new technology era.
In terms of innovation I have indicated our use of HVDC, the development of the Supergrid and the Supernode, the decision to put cables underground and under the sea, and, finally, the concept of linking wind generation in the midlands of Ireland with electricity consumption in the midlands of England.
Mainstream is an example of what engineers can do to change the world. I hope you approve.