Ireland's Renewable Energy

 

 

Today a Memorandum of Understanding has been singed between the Minister for Communications, Energy and Natural Resources Pat Rabbitte and his British counterpart Ed Davy. The agreement paves to way to allow Irish wind farms to export directly to Britain.

 

Speaking on RTÉ's Morning Ireland, Mr Rabbitte described the memorandum as a "win win" development.

 

This will enable Britain to buy renewable energy from Ireland helping the country to meet mandatory EU targets on renewable energy and save British consumers £7bn. As well as providing 10% of it's 2020 renewable energy target, it will mean that the British countryside will not be blighted by wind turbines.

 

So what's in it for Ireland?

 

The Irish Times states "the industry generally has been arguing that a deal will provide the trigger for billions of euro in investment with the potential to create tens, if not hundreds, of thousands of jobs". Every unemployed person costs the state in the region of €20,000 directly, through lost money in income tax and social welfare costs. So if this scheme takes 50,000 off the unemployment register, it could be worth €1bn to the state annually.

 

An EU Directive (2009) requires all EU member states to reach a 20% share of energy from renewable sources by 2020. Currently Ireland's share stands at 18%. This memorandum should comfortably bring Ireland over this target (expected to increase to 40% by 2020) and avoid paying penalties for failing to meet the target.

 

Minister Rabbitte has stated that "Ireland has the potential to generate more wind energy than its population could consume". Basic economics tells us that a surplus in supply leads to a reduction in price. Reduced energy costs of course reduce the cost of doing business.
 

While this is obviously very good news for the Irish economy, there are some areas which have not been clarified under this agreement.

 

How much of this energy will be supplied to homes and business in Ireland? The value of oil imports to Ireland is staggering. In 2010 it was estimated that Ireland imported 166,000 bbl/day, costing a whoppong US$5.3bn. In 2008 this figure was US$7.2bn. Naturally the more green energy that is supplied to Irish homes and businesses, the less reliant they are on oil. The lower the reliance on oil, the greater the savings to the Irish economy. So this begs the question, why are we exporting to Britain when the benefits of keeping green energy at home are so great?

Only the state can own electricity networks, However the private developers will effectively be establsihing their own networks by connecting their windfarms to Britain. How much will be the benefit to the state if they are to transfer ownership of the networks on commercial terms?
 

The most fundamental issue with this agreement is Ireland's share of the revenue (or lack of revenue!) generated from the wind tubines. The export of goods and services is not subject to Vat. Therefore the benefit to the exchequer from the sale of Ireland's natural resources, is dependent on tax revenues generated from profits of the energy firms.
 

However, renewable energy firms are not subject to the same taxation measures as non renewable energy companies. So instead of paying the 25% (before tax write-offs) tax rate applied to the profits a company makes from the sale of Irish oil or gas, and an additional Profit Resource Rent Tax (PRRT) of between 5% and 15%, levied on post-tax profits of licences issued after 2007, these wind energy companies are only liable to the standard corporation tax rate of 12.5%.
 

Not only should all profits made on the expolitation of Ireland's natural resources of renewable energy be taxed at the same level as natural resources of finite energy, the

government then needs to legislate to increase this 25% rate to a level that is similar to our European neighbours and remove the scope for tax write offs, loopholes and accountancy tricks which yields some of the lowest government takes in the world according to a report by Indecon Economic Consultants.

Ireland has astounding wealth in natural resources which provides a means to solve our economic problems. But this would require a fundamental change in policy.