Regulation and renewables
22nd August 2012
Meeting the challenges of cost effective energy efficiency in buildings
22nd August 2012

Bord Gáis Energy’s Dave Kirwan: Competitive renewables

Eolas-Dave-Kirwan-BGE-HR-2 Bord Gáis Energy’s Managing Director Dave Kirwan tells Owen McQuade about new strategies for the renewable era and the utility’s plans to greatly increase its renewables portfolio.

Testing old theories and strategies interests Dave Kirwan. As well as the day job, Kirwan has been working on a doctorate in business administration for three-and-a-half years about “having a different type of conversation in organisations to help promote the better use of theories, strategies.”

The thesis is based on the insight that “you can become very owned by your theories, you can become over affiliated with them,” he explains. “That creates myopia.”

Bord Gáis Energy has challenged old thinking and adopted renewable energy as part of its strategy. Seven years ago, before it had entered the residential electricity market, it recognised that the company’s supply wing “had to develop an asset base, a portfolio, so that it could provide competitive electricity to its customers.”

He recalls: “The first investment was the conventional power station, Whitegate, but very soon after that we were considering how we could develop a renewable portfolio,” he explains. Entry into renewable generation “provided competitive electricity to our customers.” In 2008 and 2009, Bord Gáis Energy made acquisitions, including SWS Natural Resources on 4 December 2009. “From there then we integrated all of the SWS projects into our own.” The company then merged all assets staff into a single unit, now based in Cork.

Currently, Bord Gáis Energy has 230MW of operational wind, with a further 240-250MW in construction or due to become commercially operational in the next 18 months.

The strategy also recognised that “the Irish power generation portfolio is going to be more and more influenced by a penetration of onshore wind,” he explains. Wind energy generation would form part of “having an overall hedged position against prices”.

This strategy has paid off, he states. “It has actually come to pass that there are times in the year when gas volumes are down or wind fleet is performing well and vice versa,” he says. “So, on an EBITDA [earnings before interest, taxes, depreciation and amortisation] line we are seeing the benefits of that diversity.”

Given the proven ability of onshore wind technologies, and Bord Gáis Energy’s strategy to invest and provide competitive and sustainable supply to its customers, “offshore is not where we’re going in the immediate term,” says Kirwan.

Bord Gáis Energy has also broadened out into tidal energy development. In 2011, the company took an equity stake in OpenHydro. On a joint venture, the partners are aiming to develop a utility scale tidal farm off the Irish coast.

Finance

With the European (and global) financial crisis, financing has become a major problem for utility companies looking to build plant. “Even utilities such as ourselves who traditionally could have done this kind of capital expenditure on balance sheet or would have had ready access to markets, it’s tightened up significantly,” says Kirwan.

“Now we ourselves have had to apply innovation and ingenuity to solve that problem,” he elaborates. Recently Bord Gáis Energy secured €155 million funding from the European Investment Bank for 50 per cent of the funding required for its next six wind projects. Kirwan and colleagues have also sought German and Danish export credit agencies’ approval “such that we can go to markets and get funding for the next tranche of wind farms on better terms than frankly you would do otherwise.”

He admits that “these are things that utility players wouldn’t have done in the past”, but have been forced to do. After “very onerous, very exacting” due diligence of its projects, Bord Gáis Energy “came out the other end with a clean bill of health which is an endorsement hopefully of ourselves, how we do our business, but equally well, I think, the Irish energy market.”

Extracting value

Kirwan, who became Managing Director one year ago, is responsible for implementing the overall business strategy and delivering commercial growth at a time of great change with the Government preparing to sell Bord Gáis Energy, the retail arm of Bord Gáis.

For the Carlow man and his colleagues, Bord Gáis Energy’s strategy now is “very much about extracting the value that we created in that growth phase” when the business’ assets and retail market sides were being developed.

This means “turning those wind development projects into operational sites, developing relationships with our gas and electricity customers that are enduring, giving them a level of service that ensures they want to stay with us in a very competitive market.” He adds: “I mean it is really competitive out there.”

On the home energy side, Bord Gáis Energy is “learning a huge amount” about delivering solutions to Irish customers “who don’t have huge access to cash at the moment, and who have to really watch their bills and household expenses”. Encouraging customers “to become empowered on how to use their energy” is also “a real challenge for us”, and energy companies more generally, “if we’re going to continue to be relevant going forward.”

Irish renewables market

“I’d think we’d have to pay credit to the policy makers up to now,” says Kirwan on Ireland’s clean energy progress so far. “Ireland’s not in a bad place and it has achieved much.” 1,651MW of installed onshore wind capacity has been developed through “a coherence and a consistency” at policy level.

Minister Pat Rabbitte and the Department of Communications, Energy and Natural Resources have demonstrated this lately, he states, through extension of the REFIT 2 scheme, and the new renewable energy strategy.

The strategy was “welcome at a time when investors’ uncertainty could be problematic,” he says. Its message that ‘we are on a track, we’re not going to deviate from that track’, is hugely important. “So that’s one key element: confidence and consistency.”

Problems remain for the renewables market, however. As well as difficulties financing projects, the planning system inhibits onshore wind development, Kirwan believes. At energy conferences over the past five years, he has heard “the same things, which have been around: we need coherence at policy level from an environmental and renewable perspective.” This is needed despite evident conviction to meet the renewables targets.

Creating coherence, he notes, is “complicated by the fact that at European level, higher standards are being set, specifically in the area of natura sites.” These sites are also prime positions for wind energy development.

Competing needs for environmental protection and improved planning procedures are not insurmountable, he believes. Yet they must be addressed to give clarity, “so that investors can with confidence continue to spend money to bring these projects to fruition.”

As with all energy infrastructure projects, renewable developments require significant front-loading of capital investment. “In order for that activity to continue, there has to be certainty that the grid will be there, that the framework through which the likes of EirGrid operates will support the delivery of their projects, in keeping with their plans.” This means knowing that grid developments are not just indicative but certainties.

“In order to overcome that, we’re going to have to tackle certain resistance that we do have in local communities, and at a policy level to bring clarity to what developers have to provide,” he says, “to bring reassurances that these projects are being built to an acceptable environmental standard.”

In the area of renewable heat (RES-H), “we’re struggling,” he says. “We’ve got to face facts: the district heating schemes that we see across Europe are there for different reasons. I don’t think we can rely on technologies that have worked elsewhere, so we’ve got to think innovatively.”

Renewable gas is another possibility for the future, says Kirwan. Support structures like a REFIT for injecting renewable gas into the gas network for transportation or heating “could be a very interesting proposition.”

Geothermal may have “some impact to play,” he states. “But again, will it be the scale that helps us make a dent in these targets? I’m not so sure. So I think Ireland needs one or two big plays in RES-H to help us get there.”

For Kirwan, “the big thing on the horizon” for Irish energy is European market integration. “This could be a game changer and from our perspective I look on this and say much has been achieved here,” he states. Ireland’s comparative success compared with neighbouring markets’ challenges in moving to low carbon electricity generation and incentivising such investments illustrates our progress.

The Single Electricity Market (SEM) “will have to modify, change and harmonise with the target model.” The danger, however, is that “we lose the best components of what we’ve had, which for me would have been the long run marginal price, the signal that says investment in these areas should be incentivised.”

Electricity generation market development, he states, is best achieved through incremental spend. “So you don’t create step changes investment requirements or you don’t get down to the impasse situation of security supply issues,” Kirwan explains. In embracing the European target model, the SEM may lose some of the signals promoting coherent, sustainable and sensible investment.

The flipside, he reflects, is the opportunities if Ireland “can exploit rich renewable resources at a cost-benefit, to neighbours such as the UK, and can use interconnection to reach those markets”.

Kirwan commends work by Minister Rabbitte and UK Energy Minister Charles Hendry aimed at signing a memorandum of understanding that would facilitate Irish energy exports to Great Britain.

“Being parochial about it, clearly I would love to see a solution that benefits Irish energy customers, also any initiative that would see utilisation of interconnector export flows to avoid curtailment of valuable wind energy has to be welcomed” he says, “and if in so doing, that solves problems that the UK are facing and avoids cost on their side, that’s brilliant. That’s win-win.”

Profile: Dave Kirwan

From Tullow, County Carlow, Dave Kirwan is an electronic engineering graduate of University College Dublin. He also has an MBA from University College Cork. Before joining Bord Gáis in 1999, he worked for ESB and ESBI in the power generation sector in Ireland and abroad.

Prior to becoming Managing Director, he was director of Bord Gáis Energy’s assets division. He has also been responsible for Firmus Energy (the company’s subsidiary in Northern Ireland).

Apart from managing his son’s Gaelic football team, Nemo Rangers under-9s, hobbies have been sidelined while working on a practitioner doctorate in economics. “I play guitar and sing. It’s been well neglected for three and a half years so I’m going to dust down the guitar again.”

He also loves reading, particularly Irish authors (Colum McCann, Sebastian Barry and John McGahern), and literature, “and actually at one stage (a long time ago) harboured thoughts of being a writer.”