New Scenarios for Ireland 2025

Scenario Based Planning

Scenario planning is a technique for exploring the future by creating several plausible but challenging alternative futures rather than making a single prediction. It has been used by commercial companies since the 1970s when Shell was the only oil company prepared for the oil shocks of that decade as a result of its use.

Why use Scenario Planning?

A prediction is (almost) never right. The unexpected always happens and the assumptions, conscious and unconscious, that apply today may not apply tomorrow. For example, at the end of the last century, London could see no solution to the ever increasing amounts of horse manure on the roads, then along came the motor car. This highlights the difficulty with using forecasts: they carry forward current trends, problems and constraints and do not allow for the unexpected.

Scenarios are versatile. Scenarios can be used not only to prepare plans for the future, but to check existing plans for robustness. Will a plan work in more than one scenario or will fail if any of the underlying assumptions change? If we can develop flexible plans that will work with multiple scenarios, then, when the unexpected does happen, there is a better chance that the plan can be adapted to the new circumstances.

It is difficult to get consensus for a prediction. You can either agree or disagree with other people's predictions - and the tendency is to disagree. Scenario planning is about building plausible futures, a much less contentious task because we only need to agree that a scenario is possible to be able to use it. We don't even have to agree that it is likely.

Good scenarios challenge one's thinking and stimulate discussion. The human species has spent most of its history telling stories rather than looking at graphs and spreadsheets. As a result, the implications of a rich story about the future can be more easily understood and used. It is surprising how much information a scenario can convey in a few words. For example, the following classified advertisement can tell us a lot about what the future might be like under a particular scenario:

For Sale: 4x4 with axle suitable for conversion to wind turbine.

This can be interpreted as: Increases in the price of transport fuel have meant that vehicles with high fuel consumption are no longer in demand and it is becoming difficult to sell these vehicles. However, with increasing prices of home electricity, there is a boom in DIY windmills. A component of these windmills is the back axle of a car.


The original Energy Scenarios Ireland, originally described in 2006/7 have been updated, though in a many ways they have not fundamentally changed.

Business As Usual has become Celtic Kitten - our focus is to get back to 'normal' but without a property boom to support the economy and a mountain of debt to support, it's a bit of a disappointment.

Enlightened Transition has become Celtic Phoenix - rather than emulate the ambitions of others, Ireland plays to the talents we have. A well educated work force, adaptable and creative, a small country with plentiful renewables - just what is needed to build and trial new products and services. Ireland markets itself as a big hothouse for new and growing young businesses.

Enforced Localisation has become Celtic Hedgehog - Back to the land and a life of frugal comfort. It takes decades for Ireland to re-emerge.

Fair Shares becomes Celtic Fox - In honor of Colin Campbell who used the Celtic Fox in his presentations. Ireland applies it's abilities to make the best of difficult times to adapt to a high cost economy. Times are tough but we are now well placed to build a stronger economy.


Further installments to follow, with particular focus on Celtic Phoenix.

Thoughts on NAMA

When the main reason we are being given for NAMA is that it is the only game in town you know this is not a good idea. I did a bit of googling and chatting to various people who know more than me about these things, and reached these conclusions:

The reason for considering NAMA is to:
- Maintain Liquidity
- Restore Confidence
- Create an environment for recovery

Any solution must consider:

1. When given a choice we must choose to reduce risk rather than increase potential return - the government/taxpayers are not speculators
2. No plan can be justified on the basis of previous economic cycles - we are in uncharted waters with this global economic downturn and the impact of peak oil and spending on climate change not yet being felt.
3. The current banking model is not the only solution to maintain liquidity - banks can be bought out, new banks setup by entrepreneurs, new methods of lending and saving peer to peer etc.
4. No solution should have the objective of punishing or protecting individuals or companies.
5. Speculators have money but little time (they want a quick buck now), the government of a country has time but no money - any solution should play to our strengths.
6. Ireland has a finite amount of money it can borrow and spend over the next years - the opportunity cost of any solution must be compared against investing in projects which will support our economy in the future - energy, broadband, transport, food etc.

Risks
- What happens if, post NAMA, the banks are still unable to provide liquidity? Is there a Plan B? "There is still unexploded ordinance on the financial landscape..." FT


Questions
- Banks have already received an injection of cash but are still not lending. Is this a cashflow problem or a reserves problem? If it is a reserves problem, then they can do without cash!
- What would the impact on the economy be if our banks were bought by foreign banks or investors?
- Why do WE have to do the valuation? Take the bad assets on the basis that we will pay the banks the market price when they are liquidated - at some time in the future - and leave the banks to do the valuation for the purposes of their balance sheets?
- Why would nationalising the banks be worse than NAMA? We already own 25% of AIB and BOI at a cost of €7bn, why not buy the rest?


But I think the right questions to ask is, image we have €30-60bn to invest in the future. What are the best investments to relieving short term hardship and creating an environment for long term prosperity?

Liquidity - Buy a foreign bank or start one or support entrepreneurs who want to. Support local trading currencies. Support peer2peer lending.
Energy - building windmills is not enough to protect us from future oil shocks, we need the infrastructure to balance supply and demand of energy.
Transport - our infrastructure is predicated on the use of roads and the assumption that transport of people and goods is cheap.
Food - Ireland should be well placed to feed it's citizens in the event of disruption in trade or climate change disrupting harvests and supply surplus into the UK.
Broadband - without ubiquitous, affordable high speed broadband many options for change are restricted and new ideas are slower to develop.

I am not generally in favour of asking the country to vote, but in this case it's our money (or money we are borrowing and will have to pay back) so I think we should be asked. We will be voting anyway, whether the government is forced to call an election or whether we use the Lisbon vote, we will have our say.

Avoid the peak to reduce carbon emissions

Jerry Sweeney's website, Synergy Module, shows the current pricing for electricity on the Irish Grid. The graph above shows the graph for the 3rd Feb 2009. Remarkably consistant apart from the huge spike around 6pm. This is when peaking plant is turned on to provide the extra capacity required, and this peaking plant is not as efficient as generators for base load and so is both more expensive and emits more carbon per kilowatt. So if you want to reduce your carbon emissions, try to avoid using electricity at peak times. Run that washing machine at 4 in the morning, eat later! Once we get smart meters, we will have the option for smart machines to decide when it is cheapest for them to run. Until then we have to make the decisions for them.

The Case for Wind as a safe Investment

I am not alone in believing the current safest investment would be in wind energy. The wind will keep blowing and people will keep needing electricity, although the amount will depend on the overall state of the economy amongst other things.

And, in Ireland, wind energy will always have a market because of the way the Irish market works. Since all generators must sell their electricity into a pool from which suppliers buy the electricity to sell to their customers. Wind energy will always be a price taker because it is always better to sell, regardless of how low the price. For a gas powered station, the cost of the gas gives a bottom to the price at which it is worth selling. (The calculation is actually more complex because of the cost of shutting down and restarting plant.) So your wind power will be sold ahead of other non-renewables.

Ireland desperately needs wind energy. We import nearly 90% of our energy and will be vulnerable to chaotic price changes in oil, which sets the price for gas, until we change that. There are many new renewable technologies coming on stream that may be appropriate for Ireland, but none that have over 20 years of experience of use. So wind it is in the short term, and we have plenty of wind. Ireland has set the target of 40% of electricity production from wind by 2020. If this target is to be reached that would mean building one 1MW wind turbine every day! See article in Greenmonk for the numbers.

So how might you wrap this product to make a good investment? I suggest a government backed bond with tax free returns for the first 10 years. In return no returns would be paid until the end of year 2 to allow time for construction and connection to the grid (see comment later as this is currently 5+ years). The product would be managed by a bank or financial services company who would operate the scheme on a 1% commission basis. This should not be problematical as there would be low management costs unlike other financial products.

Returns will depend on electricity prices, which in turn are a function of demand and oil price, both of which are currently uncertain. SEI projected returns before tax of 5.5% here.

So what are the risks? The main risk is that the grid will not be updated quickly enough to take an increase in wind, that demand response will not be implemented quickly ensuring that wind farms are not curtailed (turned off) when supply exceeds demand, and that longer term, high bandwidth interconnectors to europe are not built to ensure best price of electricity generated. This is why government support for this investment product to ensure that infrastructure was implemented in a timely fashion.


More about wind energy and the need for demand response here: http://pbjots.blogspot.com/2008/08/no-demand-repsonse-no-progress.html

The Celtic Phoenix

With all the understandable focus on the credit crunch and contracting economy, the interlinked problems of peak oil and climate change have been lost, and they are a big part of the solution. If we are to maintain our current economic model, the government is going to have to pump money into the economy and what better way than with gifts that keep on giving. A new windmill keeps generating revenue year on year, a house whose energy efficiency has been upgraded with double glazing and insulation, not only releases income for alternative spending this year, but next year and the year after. By moving spend from imports, and nearly 90% of our energy is imported, to locally produced energy, this will put money back into the economy. And moving to a sustainable energy infrastructure, which includes generation, distribution, storage and use of energy, will create a wide spectrum of new jobs. from installation of windmills, redesign of products for lower cradle to cradle energy and oil use, software innovation for improving logistics and installing plug in points for electric cars. There is huge potential for new businesses to manufacture wind and wave equipment, manufacture electric cars and increasing cost of transport makes local production more competitive, especially in food production.

Rather than be sidetracked by the possibility of losing advantages over which we have little control, such as incentives for encouraging foreign investment, lets focus on the advantages nobody can take away. Our excellent wind and wave potential, our good agricultural environment, and above all, our ability to adapt very quickly to changing times.

First there was the Celtic Tiger, now there is the Celtic Mouse, but lets awaken the Celtic Phoenix.

No Demand Response, no progress

Interesting day yesterday attending a meeting of the DR (Demand Response) group in Dublin. Jerry Sweeny has talked in detail on his blog about the importance of getting Demand Response in Ireland in order to be significantly increase the amount of wind on the grid.

What became clear to me at this meeting, was that without DR it is going to be hard to make progress on a number of fronts in reducing our dependance on imported energy.

Wind is great if it blows at times of high demand but is a problem if it blows when demand is low. On the grid supply must equal demand and while supply can be increased or decreased by bringing power stations on line, demand is more difficult. When supply is predictable, the high tarriffs for periods of high demand and low tarriffs for periods of low demand help to reduce the peaks and fill in the toughs. But when supply is unpredictable, such as wind or wave, there is currently no way of increase or decreasing demand in real time. This will lead to the situation where wind farms have to be turned off if there is not enough demand.

But if we could make electricity behave more like the financial markets by decreasing the price when supply was plentiful (summer nights) and increasing the price when supply was tight (cold windless evenings) then we could start choosing when to buy electricity depending on price. We all have electricity loads that we can't move. Shops need the lights on when the shop is open, the dinner needs to be cooked before dinner time. But there are also loads we can moved, chilling of food in the supermarket and the time we run the dishwasher.

But having real time pricing is just the first step, the next part of the puzzle is to respond to price changes and this has to be automated in order to move substantial loads.

Real time pricing requires the electricity suppliers to supply a price, for that price to be delivered to the customer and for meter readings to be supplied at short intervals so that the customer is charged the correct amount, we need smart meters. Smart meters come in many flavours but all are currently costly - estimated prices for european installation are over €200. For a householder to want to install a smart meter, it must deliver them a saving, so without real-time pricing and DR, the smart meter delivers no benefit for the customer.

Once we have real time pricing, smart meters and DR, the next step is net metering. This creates the opportunity for arbitrage of electricity - you buy the electricity when it's cheap, store it and sell it when the price goes up again. Now the grid could take substantial amounts of wind with market traders ready to suck up any bargains.

Another long term solution to making use of plentiful wind is to build high capacity interconnectors to UK, making it possible to sell electricity to the highest bidders in Europe. But this also depends on having DR across Europe in order for there to be customers able to take maximum advantage of our wind.

It seems to me that DR is a prerequisite for increasing intermittant renewables and for making most efficient use of electricity thereby decreasing carbon emissions. As these items are high on the governments agenda, why is there so little awareness of, let alone committment to, DR?

Energy Scenarios Ireland 2.0

A few years ago, a team from Feasta, including myself, worked on a project for the EPA looking at the impact on Ireland of changing energy prices. We did this in the form of scenario planning and the original website is still here.

But the time has come to review them and reflect the rapid changes of the last years. We will be doing this review in the form of a blog and them publishing the full report at the end of the year. We have kicked of the process at energyscenariosireland.blogspot.com and look forward to being challenged and corrected in our assumptions!

Finally bringing together my sporting interests and business interests, I have posted on what I think the main risks and opportunities are for horse sports in Ireland in an favourable scenario.

(Hmm, need a logo for Energy Scenarios Ireland, fork in the road? clock? ....... Nothing comes to mind, but love this image from Global Business Network as an example of Scenario Planning concept).