ESB has the energy to remain a power player

Paul Mulvaney is busy in his first floor office at ESB's headquarters, putting the finishing touches to a presentation on how the one-time State-backed big fish is now sharing its pool with a multitude of minnows.

On the day we meet Panda, the refuse firm, announced it was the latest newcomer to the energy market. Panda’s €40 million investment isn’t going towards the deposit on a new power station, a wind turbine or even a solar panel. It has invested in building a new billing, payments and customer services management system. That seems to be all you need these days to get some skin in the energy game. The insurmountable barriers to entry of the previously State-dominated energy market have collapsed. Electricity’s cash cow is being butchered.

"In terms of assets, you've gone from needing to own assets to simply having access to them. In the old industry everything was big, so you were building a 400MW or 1,000MW station for a €1 billion," says Mulvaney, executive director of innovation in the ESB. He speaks from experience, as he is an engineer with previous roles as station manager of Great Island and later Moneypoint power stations.

“Capital investment has gone from millions to thousands. For example for €10,000 with a Tesla-style battery and a wind turbine in your garden, you might not be off-grid but you can be reasonably self-sufficient.

“There are changes to the grid as well: you’ve gone from one central supplier and distributor. Now you have wind farms, solar farms and even localised generation in people’s homes. In fairness the drop in barriers to entry, the rise in small firms able to challenge the dominance of the big traditional giants reflects not only changes in the energy sector but in global business. Customers have gone from being passive billpayers to being active players, concerned about where their energy comes from and looking for ever more information and control on how and when it’s used.”

As if this upheaval was not enough, electricity demand is declining, even as the economy recovers.

“Electricity sales absolutely tracked GDP up until the recent recession. Then they decoupled in the recession and haven’t recoupled because people are more energy-conscious, they are using low-energy lightbulbs, and looking to meet more stringent building regulations. So there’s a drive to reduce the energy intensity and carbon intensity. So that decoupling has happened.”

In truth, while Mulvaney’s draft presentation is a prescient reflection on the world the ESB finds itself in, the same slides could be used by virtually every established business in most industries. Semi-states don’t have a monopoly on industry turmoil.

The first step in the resolution of a problem, as every self-help author will tell you, is recognising its existence and creating a response. The ESB may not be delighted with the new world order, but it’s not tilting at windmills either.

Pilot scheme

From building wind farms and operating an EU tidal energy programme off the coast of Co Clare through to working with clean-tech start-ups via its €200 million venture capital fund, the energy firm is eager to play its part in the future.

Projects in the pipeline include a pilot scheme in conjunction with Mitsubishi and Eirgrid, due to be rolled out on an Irish wind farm. This will use battery packs to store excess energy generated but unneeded on the grid. In the same way that five-figure investments in local energy-generation projects now offer alternatives to billion euro capital-intensive power stations so the advent of viable battery storage systems could vie with high-cost infrastructure investments such as the Turlough Hill hydro station in Co Wicklow.

The advent of alternative energy lowered the barriers for rivals but as with many industries the future path is still not fully mapped out. There seems to be no silver bullet. Ireland's energy needs are still mostly met by burning fossil fuels. Wind offers a great potential energy supply for Ireland but it's not a silver bullet.

“I suppose the drive will always be towards greener energy and wind is a proven green technology. Solar photovoltaic systems are dropping in price very quickly so they are likely to be a big player in the future and that all lines up neatly with the carbon debate and allows you to meet the national emissions targets. But there will always be some centralised controllable power station and they are necessary for grid stability.”

Questions have arisen on whether Ireland is now over-investing in wind infrastructure, highlighted earlier this year by economist Colm McCarthy. Mulvaney accepts “there is physically some over-capacity on the generation side in Ireland” but he says the ESB is still building wind farms as “overall there is enough capacity but in the future there will be a shift between old and new to the newer greener supply”.

Electric cars

As tech giant

Tesla

has identified, the future energy issue will be as much about storage as generation. That’s why work is currently under way on Tesla’s €1 billion ‘Gigafactory’ battery plant in Nevada. It has already announced plans for both domestic and industrial storage batteries.

Mulvaney and the ESB don't pretend to be in the realm of Elon Musk or Tesla, but they are eager to see how the latest tech developments may operate on the Irish landscape. Take, for instance, Tesla's other area of interest: electric cars.

Mulvaney’s earlier venture within the ESB was as head of its ecar project. Ireland attempted to take the lead in the advent of the electric car. On paper the case could be made for an island nation where the official range of electric cars at the time made it possible to travel from east to west on a single charge. With a Green Party minister in the relevant government department, Ireland was going to make its eco-friendly mark on the planet. A wildly ambitious target was set: 20 per cent of the vehicle fleet would be electric by 2020.

Mulvaney hails the project as a success, albeit one with a few teething problems. On the back of an investment of about €25 million, the ESB rolled out a network of public and private charging points across the island, including the North.

“We had some advantages that others didn’t. We have a single distribution operation system in Ireland. In contrast, if you take the UK, there are 20 different distribution networks. In other jurisdictions it was town council and boroughs who took the lead on it. We had the advantage to decide on the technology and roll it out across the island.

"Our view was to use Ireland as test case for the electric car and IBM came on board to develop the charge-point management system and use this as a demonstration.

“The rate of sales of [electric] cars has been increasing this year and we’re continuing to work with the various interested parties.”

Mulvaney rightly regards the infrastructure roll-out a success. The same cannot be said for electric car sales. In the first five months of this year, 310 new electric cars have been registered. That’s out of a total of 80,900 new cars carrying the 151 plate, which is less than 0.5 per cent of this year’s sales – and a long way off plan if we ever hoped to meet the 20 per cent fleet target.

The ESB’s charging point roll-out may have been a hit, but so far the sale of electric cars has been a flop. In contrast, other European countries, which sat back as the ecar market evolved are now recording much stronger sales. In Norway, for example, electric cars are among the best-selling models.

Mulvaney points to more attractive incentives in place in other markets as part of the reason why their sales are better.

“We are behind in terms of electric car uptake but well ahead in terms of infrastructure. Our charge points are smart and controllable. Norway has multiple charging points but many of them are simple wall-socket style. Here there is communication between the car and the charge point. In future when you have critical mass you will be able to control when cars charge.” You could even potentially use the battery as part of grid storage.

Smart meters

Public charging of electric cars is currently free, but that is about to change.

“At present we are working to put a plan in place, likely to be some sort of subscription service for public charging point usage. Of course, for private household charging or work charging that’s already charged to the bill.”

If the electric car does become more evident on our roads overnight energy usage will become more important. And it’s likely to impact on rates. That’s where another feature of the energy future comes into play: smart meters.

“Currently there’s a night rate but when smart meters are rolled out there will be a range of tariffs. Part of the industry in the future will be introducing price signals for consumers to use electricity at times when it makes most sense. Through Electric Ireland we are trialling smart meters and they are proving very successful with customers who can now get a lot more control and detail on their bills and usage.”

Trials, pilots and involvement in early stage start-ups underpin Mulvaney’s activity. In recent years the ESB’s €200 million NovusModus VC fund has given the firm “an early sight at the new technologies under development in the energy sector. We learn from that and we can also transfer some knowledge from ourselves to the start-ups and vice versa.”

The type of start-ups involved range from Cylon, which develops energy management solutions, to Geothermal International, which designs and installs ground source heat pumps, and Tenksolar, which is involved in solar PV manufacturing.

In return for its investment the ESB takes a 30-40 per cent stake in the start-up. Examples of investments would be in the order of €10 million to €15 million. The fund is nearly at the end of the investment stage and Mulvaney says the ESB will then consider opening another VC fund.

"Greencoat Capital in the UK administers the fund for us and those guys are constantly scanning the market for us. They might investigate 250 firms a year and pick up two or three for us to invest in."

And in its own way the ESB is also following in the footsteps of the likes of Panda Waste, breaking into new industries. A recent join venture with Vodafone created a new broadband company called Siro. With a total investment of €450 million, Siro aims to bring high-speed fibre-optic broadband cables to 500,000 premises in towns around the country.

The network will be built on the ESB’s existing overground and underground infrastructure and involves bringing a fibre-optic cable, capable of handling the high speed broadband connectivity, right into the user’s home or premises. The system will be open, meaning it will be made available to all other telecom operators to offer retail services over.

Mulvaney's presentation on energy's future, which is due to be delivered at the firm's Powering Potential Expo in Merrion Square on Wednesday, is likely to map out the ESB's plan to remain the big player in Ireland's energy pool.

Backing start-ups and investing in research and alternative energy sources not yet commercially viable are risky businesses. Yet with so much volatility in the sector the ESB seems convinced of its need to innovate.