Following a series of significant increases in energy prices and within the context of Northern Ireland having the highest levels of fuel poverty in the UK (double that in Great Britain), the Consumer Council is urging the Executive and the Regulator to re-examine the McIldoon Report and ensure that energy policy and regulatory frameworks provide consumers with the best possible deal.

Antoinette McKeown, Consumer Council chief executive explains: “In light of recent energy price rises, the Consumer Council has reviewed Douglas McIldoon’s 2008 report and we agree with his continuing conclusion that energy policy in Northern Ireland remains confused and contradictory today. Our concern is that consumers could be paying less for their electricity but the Consumer Council cannot act alone to achieve that. At the very least we believe there should be debate around how electricity prices could be lowered; this report is our contribution to that debate.”

Northern Ireland currently has the highest energy bills in the United Kingdom and recent statistics from Westminster show that the highest average annual energy bill in Great Britain is around £1,000 cheaper than the average annual combined oil and electricity bill in Northern Ireland. Furthermore, in Northern Ireland 44 per cent of households are in fuel poverty compared to 13 per cent in Great Britain.

In conjunction with launching its report ‘Consumer Council Analysis of the McIldoon Report – Orphans in the Energy Storm’, the Consumer Council is putting a number of questions to the NI Executive and the NI Utility Regulator including:

* Why does the price of electricity produced by wind generators rise when the price of gas rises?

* Why does the most expensive electricity generator set the price that is paid to all generators on the Island of Ireland?

* Why are some generators making profit margins of between 20 and 50 per cent when NI’s top 100 companies are seeing margins between 1 and 6 per cent?

* Why are wind generators paid for being on standby when the wind is not blowing?

A decrease in both gas and electricity prices drove the Bord Gais Energy Index 1% lower for the month of December but it was 5% higher for 2011 as a whole. The ongoing European sovereign debt crisis, fears about global economic growth in 2012 and a mild start to the winter across Ireland, the UK and Europe, all contributed to put downward pressure on gas and electricity prices. However, Ireland did not benefit fully from falls in fuel commodity prices as the euro weakened over the month.

The average price of Brent crude oil posted a record high in 2011 as daily oil demand hit a new high of 89 million barrels per day, as growing demand from the emerging market countries continued. Prices were also supported by concerns about supply from the Middle East and North Africa. As a result, the Bord Gais Energy Index now stands at 143, which is 5% higher than in December 2010.

John Heffernan, power trader at Bord Gais Energy, comments: “The Index recorded a 1% drop for December; however the impact of the decrease in fuel commodity prices was offset as the euro weakened over the month. This meant that in euro terms, oil and coal prices increased over the month. There are a number of strong influences that are putting downward pressure on fuel commodities including: the European debt crisis, fears of a slowing global economy in 2012 and mild weather across Europe. Should the euro continue to weaken versus the US dollar, euro zone buyers will not benefit fully from any price falls and would have to pay even more should prices increase.”

The following are the key trends recorded for the month of December:

Oil: The oil element of the Index was up 1% to 152. Due to the ongoing European sovereign debt concerns, the possibility of a European recession in 2012 and fears of further ratings downgrades. In US dollar terms, oil prices weakened in December. However, euro zone buyers of oil, such as Ireland, did not benefit fully from this fall as the euro weakened significantly versus the US dollar. Because of this, in euro terms, the cost of oil increased by 1%.

Natural Gas: The natural gas element of the Index was down 1% to 189. A mild start to the winter across Ireland, the U.K. and mainland Europe, depressed demand in December and has resulted in relatively high stock levels for this time of the year. This put downward pressure on prices over the month. Temperatures above seasonal norms in December reduced demand for gas-fired central heating and the holiday season also lead to the seasonal slowdown of many businesses and industry. The ongoing European sovereign debt crisis is also weighing on prices as it is now likely that Europe will burn less gas in 2012 as activity and production slows.

Coal: The coal element of the Index was up 2% to 145. In US dollar terms, coal prices fell in December as the world experienced an oversupply of coal. Economic uncertainties and a comparatively mild winter is restricting European demand. However, euro zone buyers of coal, such as Ireland, did not benefit fully from the fall in international coal prices as the euro weakened significantly versus the US dollar. Because of this, in euro terms, the cost of coal increased by 2% over the month.

Electricity: The electricity element of the Index was down 4% to 118. The average wholesale Irish electricity price for December closed 4% lower than its November equivalent as unseasonably mild weather and reduced demand for electricity pushed prices downwards. In addition, as the cost of gas and carbon reduced in the month, the cost of producing electricity fell. The availability of hydro and wind power put additional downward pressure on prices.

Statoil has confirmed that the recent Aldous and Avaldsnes oil discoveries in the North Sea are connected and may represent an oil structure of between 500 million and 1.2 billion barrels of recoverable oil equivalent.

If the upper part of the interval strikes pay dirt, the discovery will be one of the ten largest oil finds ever on the Norwegian continental shelf (NCS). Statoil has a 40% stake both in licence PL 265, where Aldous was discovered, and in PL 501, where the Avaldsnes discovery was made.

“Aldous/Avaldsnes is a giant oil discovery, and according to our estimates the combined discovery may make the top 10 list of NCS oil discoveries. Norway has not seen a similar oil discovery since the mid-eighties,” says Tim Dodson, Statoil’s executive vice president for Exploration.

This is the third ‘high-impact discovery’ (a total of more than 250 million barrels of oil equivalent, or 100 million net barrels of oil equivalent) for Statoil as an operator in 2011. In April of this year the 250 million barrel Skrugard oil discovery was made in the Barents Sea, and the 150-300 million barrel Peregrino South oil field was discovered offshore Brazil.

“The discoveries are a result of Statoil’s exploration strategy of prioritising high-impact opportunities, while focusing on our established core areas,” adds Tim Dodson.

Research by a University of Leicester student has identified an environmentally friendly alternative to a major industrial use of oil. Abdelghaffar Abdelmalik, who is studying for a PhD in the University’s Department of Engineering, has discovered a way to treat palm kernel oil so that it can be used to insulate electrical transformers.

Transformers use petroleum-derived oil as insulation between electrical components but this makes them reliant on fossil fuels and also causes environmental problems if there is a leak. Abdelghaffar Abdelmalik is exploring the possibility of using a derivative of palm kernel oil which is environmentally friendly, non-toxic and has suitable properties such as low viscosity and low conductivity. This would extend the life of electrical transformers and greatly reduce the effects of leakage.

His research has already been acknowledged as significant by the Dielectrics and Electrical Insulation Society, part of the Institute of Electrical and Electronics Engineers, which last year awarded him a $5,000 research grant to support his innovative work.

“The results of the work done so far are encouraging,” says Abdelghaffar Abdelmalik. “There are indications that this research may produce a sustainable and all-purpose electrical insulating fluid that would serve as an effective alternative to mineral-based insulating oil.”

In 2009, oil remained the main source of energy in the EU27, with a share of 37% in the total gross inland energy consumption. However, there have been changes in the mix of sources contributing to gross inland energy consumption over the last decade.

The share of renewable energy has almost doubled, from 5% of total gross inland energy consumption in 1999 to 9% in 2009, while gas rose from 22% to 24%, according to Eurostat, the statistical office of the European Union. Nuclear energy remained almost stable at 14% during this period, while oil fell from 39% to 37% and solid fuels from 18% to 16%.

Oil represented more than half of energy supply in Malta (100% of total gross inland energy consumption), Cyprus (96%), Luxembourg (63%), Greece (55%), Ireland (52%) and Portugal (50%). The highest shares of gas were observed in the Netherlands (43%), Italy and the UK (both 38%) and Hungary (36%). The largest proportions for solid fuels were registered in Estonia (58%), Poland (54%), the Czech Republic (41%) and Bulgaria (36%), for nuclear energy in France (40%), Lithuania (34%) and Sweden (29%), and for renewable energy in Latvia (36%), Sweden (34%), Austria (27%) and Finland (23%).

All Member States showed increases in the share of renewable energy in their energy supply between 1999 and 2009, with the largest increases in Denmark (from 8% of total gross inland energy consumption in 1999 to 17% in 2009), Sweden (from 27% to 34%), Germany (from 2% to 8%), Portugal (from 13% to 19%), Slovakia (from 3% to 7%), Austria (from 23% to 27%), Latvia (from 32% to 36%), Spain (from 5% to 9%), Slovenia (from 9% to 13%) and Hungary (from 3% to 7%).

GE Energy is acquiring 90% of Converteam, a leading provider of electrification and automation equipment and systems, for approximately $3.2 billion from a controlling shareholder group that includes management, Barclays Private Equity, and LBO France. The transaction, which is expected to close during third quarter 2011, will significantly expand GE’s offering in rapid growth sectors that demand high energy efficiency, such as oil and gas, thermal power generation, and renewables.

Converteam’s senior management will retain a 10% stake in the company. However, GE has agreed to purchase the remaining shares in the company over the next two to five years. GE expects that the price should be no greater than about $480 million.

Converteam’s solutions enable customers in a variety of industries to replace or improve mechanical processes with high-efficiency electric alternatives that deliver better reliability, less maintenance, and lower emissions. Converteam’s portfolio includes drives and other power electronics, advanced rotating machines, generators, and controls.

The multi-sector energy efficiency, electrification, and automation industry, in which Converteam participates, was valued at over $30 billion in 2010 and is growing at rates above global GDP growth. Approximately 25% of the world’s electricity is used to power rotating machines in a wide range of industries and applications.

Converteam’s high-efficiency solutions are designed to reduce the electricity consumption of rotating machines by nearly one-third, offering significant savings in terms of cost, energy intensity, and greenhouse gas emissions. GE’s global reach and local expertise will improve Converteam’s ability to serve customers in high growth regions such as Brazil, Russia, China, India, and the Middle East.

The UK Energy Research Centre (UKERC) has released a major new report addressing two of the British Government’s toughest energy policy goals – delivering reliable energy to consumers while meeting its legal commitment to reduce C02 emissions by 80% by 2050.

The report concludes that:

* The UK electricity sector must be decarbonised by 2050, by which time oil use will be virtually eliminated;

* Tougher energy efficiency measures could reduce exposure to volatile energy markets, buying time before full decarbonisation of the electricity system takes place;

New and improved low-carbon technologies need a reliable carbon price; a market signal of around £200/tonne C02 by 2050, 15 times the current EU carbon price, is needed to hit the long-term target. This rises to £300-350/tonne C02 if action is delayed or more stringent targets are set.

The report finds that decarbonising the electricity system with nuclear, renewables and coal plant fitted with carbon capture and storage (CCS) would unlock new potential, allowing electricity to be increasingly used in transport and buildings. A low-carbon energy system could be a high-electricity system.

But it also shows that the more aggressive pursuit of energy efficiency would make the UK system more secure while still leaving it on track to hit the 2050 target. Under this scenario, energy efficiency provides insurance against delays in the development of low carbon technologies, allowing decarbonisation to take place a decade later.

Report findings include:

* Energy efficiency is the most cost-effective way of reducing energy demand and carbon emissions, while protecting vulnerable consumers from higher energy prices;

* None of the UKERC scenarios foresee renewable energy going in sufficiently quickly to meet the target in the EU Climate and Energy Package;

* Lifestyle changes could dramatically reduce the cost of meeting CO2 targets. This could involve phasing out petrol/diesel vehicles in town and city centres by 2050, though the use of vans could increase as a result of restrictions on HGVs and an increase in internet shopping. Halving energy use in homes is possible with a combination of major efficiency improvements and modest lifestyle change;

* Reducing CO2 emissions leads, for the most part, to reductions in other environmental emissions; the release of some pollutants, notably sulphur dioxide, will fall substantially. However, pressures on water and land use will need to be managed, as will some atmospheric emissions and radioactive releases;

* Major gas shocks could have cost impacts measured in £billions, mainly through lost supplies to industrial consumers. More investment in gas storage or import facilities could mitigate these impacts;

* Investing in research and technological innovation would significantly reduce the cost of reaching CO2 targets; substantial increases in R&D expenditure appear justified;

* Early action on carbon reduction implies taking a longer-term view of investment in a low-carbon energy system: investing more in infrastructure and solutions such as low carbon buildings, hydrogen fuel cells and electric vehicles;

* Microgeneration offers a radically different approach to meeting energy needs, but capital cost and performance are currently barriers for many technologies. However, it could be important in meeting future residential heating needs, and could help catalyse change towards low carbon lifestyles.

Commenting on the findings, Professor Jim Skea, research director at UKERC says: “UK energy policy goals are extraordinarily ambitious. Meeting them will require efforts well beyond the bounds of historical experience. By looking at the energy system in the round, our researchers have shown not only that the goals can be met but that it is possible to reconcile them with wider technological, social and environmental changes.”

A new biogas power station in the UK showcases how in future cities and towns will be powered by locally produced energy. The facility, built near the English town of Cirencester, is powered by agricultural biomass, including chicken litter and pig manure, allowing residents to benefit from this low cost alternative to oil, coal and foreign gas.

Cirencester is one of the first towns in the world to benefit from energy derived from chicken litter and leads the way to a greener future. This sustainable technology allows production of local power, reducing reliance on fossil fuels and fuel imports, while the capture of methane from waste reduces the smells normally generated by farms.

Fed by local farms that deliver animal waste, as well as corn, wheat and grass, the power plant is located just south of Cirencester. This feedstock is turned into biogas in an anaerobic digester. The plant will produce 1 megawatt hours of energy, enough to supply 350 houses with electricity.

Operation of a biogas plant in conjunction with a farm makes a great deal of socio-economic sense. The farmer makes money off his waste, reduces cost and limits income volatility. Adopted widely, more jobs will be created in the economy and the cost of food production becomes lower and more stable.

The farmers who erected the biogas plant will have the benefit of free heat for animals, grain drying and housing which was previously a significant expense. But there are other benefits from the biogas process that reduce costs for the farmer. The biogas plant extracts the smell out of waste and burns it in a combined heat and power (CHP) plant after which the leftovers can be used for farming.

This ‘digestate’ is a powerful fertiliser that decreases the average fertiliser costs by up to 100% which is a major cost to farmers and the environment. Normal fertiliser production uses large amounts of fossil fuel, emits significant quantities of CO2 and the finished product is transported over great distances to farmers.

Alfagy was chosen as the main supplier to the project. “As the UK is thirty years behind continental Europe in energy efficiency, we wanted a project in Britain. We have many installations in Europe but this is our first biogas installation in the UK,” says Peter Kindt, managing director of Alfagy.“We believe this is a model for the future of local power generation”

The Fault Analysis Group, a leading research group within the UCD School of Geological Sciences, has been presented with the NovaUCD 2010 Innovation Award. The award was presented to the group in recognition of its successes in the establishment of strategic and collaborative research links with global industry partners and in acknowledgement of its successful commercialisation activities.

The group, which includes 13 researchers, is one of the leading international teams studying the geological and engineering properties of faults and in applying its research outputs to solve practical problems encountered in hydrocarbon and mineral exploration and production activities.

TransGen is routinely used by many of the world’s major oil companies to predict the impact of faults and to analyse the flow of hydrocarbons in geological reservoirs.

Since 2000, when the group relocated from the University of Liverpool to University College Dublin, it has been awarded Eur6 million in research funding. This funding has been secured predominantly from industry partners, including British Gas, Shell, Statoil and Tullow Oil. The Fault Analysis Group has also received funding from Enterprise Ireland, IRCSET, Science Foundation Ireland and the European Union.

The group’s research output is embodied into software systems which have been licensed to Badley Geoscience, a leading UK software vendor, resulting in the joint development of commercial software products such as TransGen and TrapTester. The TransGen software system has become an industry-standard package. TransGen is routinely used by many of the world’s major oil companies to predict the impact of faults and to analyse the flow of hydrocarbons in geological reservoirs. The software licences have provided a significant royalty income to both UCD and the University of Liverpool. The most recent software package has generated royalties of Eur350,000 over the last number of years.

The Bord Gais Energy Index (BGEI), an Irish-specific index designed to measure the prices in the wholesale energy market, decreased by 1% in July. The recovery of the Euro versus Sterling and the US Dollar helped mitigate increases in some of the individual Energy Index components. Had the Euro been unchanged versus the US Dollar and Sterling in July then the Index would have risen to 115, a 4% increase on June’s index.

The index is designed to track movement in the wholesale energy market and comprises the four key energy commodities of oil, gas, coal and electricity. The index tracks the monthly price movements of these commodities, factoring in any currency shifts, and producing an overview and insight into the energy sector. Launched in May of this year, the new Energy Index is the first initiative of its kind in the Irish market.

The price of oil rose in July from $71.50 to $78 per barrel. The price of natural gas rose by 8% in Euro terms, due to a range of issues including erratic flows from the Norwegian Langeled pipeline. However, prices fell in the third week of the month due to a return of Qatari LNG (liquefied natural gas) cargoes which had been affected by infrastructural maintenance in the previous weeks.

Prices in the coal market have remained stable due to a mild summer and healthy vessel arrivals and inventories being filled in Europe for the summer. Coal prices fell by 8% in July when adjusted for currency movements. Electricity prices, meanwhile, remained at a similar level to June.

The recovery of the Euro in July was driven by positive market reaction to the bank stress test results and encouraging Eurozone economic data. Combined movements in the prices of the four commodities of natural gas, coal, oil and electricity resulted in a decrease in the Energy Index of 1% on June’s figures. The Energy Index now stands at 111.

“Oil, natural gas and electricity prices all rose in July. However, the re-strengthening of the Euro versus the US Dollar and Sterling offset the rise in oil and gas prices.  Over the past couple of months we have seen the Euro hit multi-year lows versus the US Dollar only to recover most of its losses as economic concerns switched from Europe’s sovereign debt worries to concerns over the sustainability of the economic recovery in the US,” comments Michael Kelleher, energy trading analyst at Bord Gais Energy.

“A stronger Dollar renders oil imports more expensive for European and Asian consumers including Asia-Pacific’s top five – Indonesia, South Korea, India, Japan and China – which combined use about the same amount of oil as the United States. Therefore the relative strength of the US Dollar versus the Euro and other major world currencies could have a major bearing on oil prices in the coming months.”

A team from the University of Dundee have been awarded two grants totaling almost £300,000 to improve the safety and reliability of ultra-deep water oil and gas extraction. The team, led by Dr Huirong Le from Mechanical Engineering in the University’s School of Engineering, Physics and Mathematics have received the funding from the Knowledge Transfer Partnership (KTP) to optimise the performance and reliability of tubular connections. One of the grants is worth £175,000, while the other is for £120,000.

Working in collaboration with Hunting Energy Services (UK), a leading supplier of tubular products for well construction and well completion, they will test existing design and coating products and develop future technologies.

As reserves diminish, oil companies are being forced to drill deeper, meaning the need for more robust and universal piping is essential. The KTP grants will see the team examine the friction/anti-galling performance of the pipe connections which plays an important role in the pipeline integrity in deep-water wells.

They will also design a dry compound to permit non-lubricated make-ups to replace the grease conventionally used to enable operations in extreme conditions. The coating must prevent decomposition in harsh corrosive environments such as the North Sea and while in storage for long periods of time.

Dr Le said that new technology to improve the reliability and safety of deep sea drilling would increase in coming years, and that this would lead to significant economic opportunities.

“We are involved in a number of research activities that help to support the development of deeper water well construction, and this KTP is an excellent example of how industry and academia working together,” says Dr Le. “The first KTP grant will see us developing a lab testing system to make sure the pipe connections hold when under extreme pressure in challenging conditions. The second will involve us developing a new surface coating technology for the products. An automated application process is currently in the design stage. This would allow multiple pipes to be processed within an hour, reducing the manufacturing costs and achieving a high quality application process at the flick of a switch.”

The School of Engineering, Physics and Mathematics are involved in a number of other research collaborations.  One such project, undertaken with colleagues at the Universities of Aberdeen and Newcastle will be looking into the use of new materials and surface coatings for pipelines in ultra deep water brokered by the National Subsea Research Institute (NRSI) – an academic/industrial network in the Region.

Ireland’s GDP could fall by as much as 7.5% if the world was to experience a sudden oil or gas price rise, according to a report launched by Siemens. The report, which examines the economic impacts for Ireland of different high oil and gas price scenarios, highlights the particular vulnerability of the Irish economy to such price shocks.

The findings of the report entitled ‘The Economic Impacts for Ireland of High Oil & Gas Prices; Pathways to risk mitigation and a low carbon future’, indicate that the impacts of an oil and gas price rise would be more severe on Ireland than other economies such as the UK, Europe and USA. “Ireland is particularly sensitive to this type of shock particularly the knock-on effects in global markets and trade. Results from the study show Ireland suffering more pronounced economic impacts and a slower recovery as compared with other countries,” according to Dr Werner Kruckow, chief executive of Siemens.

Significant Impact

As a small open economy heavily dependent on world demand for Irish exports, any major shock to the global economy would significantly impact on Ireland. Additionally, Ireland’s high dependency on imported fossil fuels would also further exacerbate the effects of any shock – with ramifications for business and society through higher electricity, transport and heating costs, increased levels of ‘fuel poverty’ and a loss of competitiveness.

The high oil and gas price scenarios presented in the report were constructed within plausible boundaries of future prices from 2010 to 2025. They illustrate alternative futures that may be triggered through one or a combination of events. The price scenarios were then evaluated in co-operation with the ESRI against a baseline scenario to offer a detailed analysis of the impact of each on GDP, inflation, interest rates and wage rates internationally and for Ireland, resulting in GDP drops of between 3.5%-7.5%.

One of the authors of the report Dr Andrew Kelly, AP EnvEcon, says: “These are scenarios not predictions, but you only need look back to the summer of 2008 to see how quickly the price of oil can rise and fall. Nobody can say with certainty what the future market price of oil and gas will be, however, in building these scenarios we set the boundaries within the broader international market outlooks on price. What could make these happen? In the years ahead there are a number of factors which may increasingly contribute to both higher and more volatile prices, including rising demand in emerging economies, natural disasters, political tension and conflict in regions of supply, and of course a diminishing supply pool from which to extract these resources at lower cost. It is another risk we face that should be factored into political decision making.”

Good News

The good news, according to the report, is that Ireland has options to reduce our risk exposure to some of the identified risks. “Ireland’s 80% dependency on imported oil and gas puts the economy at considerable risk. And yet Ireland is surrounded by an abundance of renewable resources that could reduce our risk of exposure, create employment opportunities and reduce emissions. Irish waters have the biggest wave heights, greatest tidal flows and strongest winds in Europe, giving us the potential advantage over other European countries to generate and export energy across the Continent,” comments Dr Werner Kruckow.

The report recommends a number of policy actions that Ireland could undertake on a national level. Ireland needs to develop a plan for a sustainable integrated energy system based on four strategic pillars and do so without delay. They are:

* Maximising Electricity Generation from Renewable Sources,

* Grid Upgrade and Integration into the European Grid,

* Promoting Energy Efficiency & Conservation,

* Maximising Electricity Usage in Transportation.

Siemens will make the following recommendations of policies and measures to Government in the coming weeks to build a sustainable energy system in Ireland;

* Develop a high level 2050 strategy plan with a measurable roadmap for the energy system in Ireland – covering the four pillars outlined above.

* Develop a ‘Carrot & Stick’ approach for business and public sector on energy savings and green house gas emissions. Support investment with tax incentives and favourable financing models.

* Electrifying the Transport Sector – Deliver rail related projects in Transport 21, run hybrid buses in Dublin, speed up implementation of electric cars and related infrastructure. Electrify the national rail network.

* Position Ireland as an attractive test-bed for sustainable pilot projects and encourage industry to participate and lead.

* Modify the Public Procurement Process to take into account life cycle costs and support quick roll-out of projects in the sustainability area.