The future for renewable energy and green finance in Ireland is looking bright with a pipeline of around €10 billion for the taking

Kenneth Matthews, CEO Irish Wind and Energy Association

The future for renewable energy and green finance in Ireland is looking bright with a pipeline of around €10 billion for the taking.

The Irish Wind Energy Association (IWEA) estimates that its members will require almost €5 billion in the coming years for domestic projects.

Mainstream Renewable Power alone has a 19,000MW pipeline across the globe, worth around €3.5 billion. In Chile, when it completes the first 600MW in its joint venture, it will have another 2,400MW to develop over the next ten years.

In South Africa, it is looking to finish off its 238MW in construction next year, start the 360MW that it has just won and will have another 4,000MW of assets in various degrees of development.

However, it is being halted at home with work on the Energy Bridge project stalled as the company waits on the two govern- ments to sign an agreement to allow the project to get off the ground.

Energy Bridge is a private underground electricity network which will transport electricity from wind farms in Ireland – both on land and sea – under the Irish Seabed and into the UK. It will be entirely independent of Ireland’s existing electricity network.

“We need to get this inter-governmental agreement signed.We have been waiting for the Energy Bridge project and need to get this sorted out,” says Manus O’Donnell, Chief Executive of Mainstream Capital and Head of Corporate Finance. “We are investing significant amounts of money in that project, taking huge risks with huge regulatory uncertainty around it.There will come a point where we will have to halt progress of these projects because the governments are delaying.”

Over the next seven years, it is expected that between €400 to €500 million will be spent on average every year in the wind sector.There is currently 2,200MW of wind connected to the Irish energy system.

“We need another 2,200MW in the next seven years. It’s taken us 20 years to install 2,000MW and we have to do another 2,000MW in the next seven years so there is goingtobeasignificantuplift,”saidKenneth Matthews, IWEA Chief Executive.

“To install the 2,200MW, we need €3.8 billion – some 20 per cent of that will be associated with labour in Ireland.”

The next three years will be particularly busy in the sector as people want to get projects away before the existing support scheme closes in 2017.“At present there are a lot of project promoters looking for the right kind of finance and the right kind of structure behind the finance to deliver the project,” says Matthews.

In particular, over the next three years, the IWEA feels there is an on-shore investment pipeline of €1.9 billion. Not all of this would be retained in Ireland as some 60 per cent would go towards the cost of building the wind turbines, another 19 per cent would be in labour, eight per cent in network development, six per cent in project advisory, land would be four per cent and transportation would be another two to three per cent.

There is also the export potential to the UK and, in time, France. It is estimated that the upper quantum of export energy that the UK will seek from Ireland in advance of 2020 is 5,000MW, which is roughly the same size of the existing Irish total power system.

“It’s a phenomenal opportunity but also a phenomenal challenge. In investment terms, it is worth €15 billion and some 40 per cent of that could be retained in the Irish economy.There are also real opportunities to enterprise the sector through turbine and component manufacturing for these projects and eventually for other markets,” says Matthews.

“It will all flow from the inter-governmental agreement but we need to be able to deliver that agreement quickly – in early 2014. It’s an agreement that must bring certainty for project promoters and developers.There is a momentum behind it but there is a way to go but €15 billion is too good an oppor- tunity to pass up.”

There are also plenty of opportunities in the solar sector as the cost has been on a dramatic downward trajectory over the past few years.

David Maguire of BNRG Renewables said that in 2007, building a plant cost €5.3 million per MW.

“I can build that same plant with the same technology for €1.3 million today. Solar has suddenly become very competitive, so much so it has reached and surpassed grid parity in Holland and southern Italy and Spain,” says Maguire. “The solar panels get more efficient every year and it’s a matter of time before it comes into Ireland and people will have solar panels on their roofs.”

Mike Hayes, Chairman of the Global Green Asset Management Network (from GIFSC) and a Partner at KPMG, believes there are significant opportunities for growth and sees the potential for jobs “in the many thousands” in the green finance area alone.

“It will definitely lead to jobs and increased tax revenue and it will enhance Ireland’s reputation as a centre of excellence for sustainability in the global market place. We are ahead of the curve in terms of developing projects around the world but there is still potential to be exploited in our home market. This is because the most fascinating aspect of all of this is that Ireland has the potential to produce vast amounts of renewable energy, given our abundant resources of wind, wave and tidal.

Steven Falci, of Kleinwort Benson Investors, believes the industry will attract the investors as it is a growth area and unique.

“It’s been perceived as niche but when people look at the returns and they look at the ability to add a new source of return that may be diversifying other investments they might have, they see the strong benefits of allocating to environmental equities,” says Falci.

“Managers and trustees are always searching for new sources of Alpha. After the environment we’ve had over the past year or 18 months as the world continues to recover, people are looking to allocate new funds. People are finding these are long-term sources of Alpha that they are probably not exposed to and have a great chance to enhance their portfolios.”

 

Published in the Natural Capital Magazine, vol.1, Dec 2013/Jan 2014

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