Paddy Hayes took his position as chief executive of ESB last August and immediately sat down with his management team to begin work on a new strategy for the state-owned group operating across electricity generation, networks and supply to customers.

While there is a temptation for every new CEO to put their mark on a shiny brochure setting a new direction for their business, it says a lot about the pace of change in the energy industry over the past five years that a redesign of ESB’s existing 2017 strategy statement was in fact regarded internally as overdue – The Currency understands the exercise was delayed until Hayes took office. 

Parts of the resulting objectives unveiled by ESB on Monday are nothing we didn’t already know: The need to shift entire portions of the economy from fossil fuels to electricity, including cars and home heating; the conversion of that electricity generation to renewable sources; and the challenge in stabilising the national grid with upgrades allowing local flexibility and large-scale energy storage.

What was new in Hayes’s presentation was that he translated all this into numbers. The state-owned company plans to increase its own renewable generation capacity five-fold by 2030, in line with the government’s Climate Action Plan targeting 80 per cent of power from green sources by then, and achieve net-zero emissions from its fleet by 2040.

The EU and national objectives are to get to this climate-neutral status for the country as a whole by 2050, but Hayes said “the electricity sector has to be early with this”.

To deliver such increases in green power to customers, he committed to doubling the number of electric car charging points to 3,000 in this decade and to complete the smart meter roll-out in the same period – with 2.4 million customers covered by 2026. This is part of a commitment to make 20 to 30 per cent of system demand flexible: When consumers get promotional offers to charge their cars or run their dishwashers off-peak through their smart meter, or businesses get paid to run power-hungry processes when the wind is blowing, feeding the grid with intermittent renewable power becomes easier.

In the middle, ESB’s chief executive acknowledged that the grid needed upgrades to manage the ups and downs of much larger, intermittent power supply and demand. This includes short-term storage equipment such as the industrial-scale batteries and flywheel-powered stabilisers already in use, but also longer-term technologies such as the conversion of excess renewable electricity into hydrogen gas stocks. Hayes said the ESB would launch three green hydrogen pilot projects by next year.

The central question behind all of these plans is: How?

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Referring to the ESB’s past history in powering the country from renewables, Minister for Climate Action Eamon Ryan described the challenge of additional electrification and decarbonisation as “Ardnacrusha to the power of 10”. Financially, the multi-faceted plan implies a step-change in the scale of investment at the state-owned company, with last year’s €1.3 billion addition to ESB’s balance sheet and its share of joint ventures’ showing only part of the ground to be covered.

“Our run rate on capital investment for the last 10 years or so has been more or less €1 billion,” Hayes told The Currency. “We expect it to be about €1.8 billion per annum for the next decade through to 2030. We’re obviously going to fund that from our our own financial performance, and also from borrowings and bond issues.” He highlighted ESB’s second successful €500 million green bond raise last month, after a similar initial issue in 2019.

By committing to invest the funds verifiably in green projects including new renewable capacity and smart metering, the ESB was able to borrow at a 1 per cent fixed rate over 12 years from investors seeking to measure their money’s climate impact. The group reported this year’s green bond issuance was oversubscribed four times over.

Yet Hayes is not prepared to borrow recklessly. “We remain really conscious of the importance of solid financial reports, maintaining our financial strength and a strong investment-grade credit rating, so that we can maintain our capacity to invest in the net-zero future.” Asked by The Currency whether this meant growing business volumes in proportion to investment to maintain existing gearing rations, he replied: “Absolutely, yes.”

When it comes to allocating ESB’s own cash flow, the group reported an €81 million dividend payment to the Exchequer last year, bringing the total over the past ten years to €1.2 billion. The Currency asked Ryan whether, as the company’s shareholder, he would rather see this continue to be paid as dividend or invested in the massive effort outlined for the coming years.

“Of course, I’d rather see it invested but I work with the government where the minister for finance, the minister for public expenditure also have a say. And it hasn’t held the ESB back from investing,” he replied. “That’s not the immediate focus here. If if it became an issue where the company couldn’t invest or couldn’t raise the capital, of course, you’d look at all the options, but but at the moment, that isn’t a problem.”

Tackling the grid connection bottleneck

ESB is in a unique position in the energy industry. At both ends – generation and supply to customers – it operates as a commercial operator competing with private businesses. But in the middle, its subsidiary ESB Networks owns the national grid, north and south of the border. It directly runs the so-called distribution network, comprising the local lines connecting homes, businesses and smaller generators such as solar farms.

ESB Networks also owns and maintains the high-voltage lines connecting power stations to the rest of the country, neighbouring countries and large users such as data centres, even though those assets called the transmission networks are operated by a separate state-owned company running the all-Ireland electricity market, EirGrid.

ESB Networks has a Northern Ireland subsidiary called NIE Networks, and EirGrid owns Soni in the North. In effect, this means ESB Networks (including the grid capacity it makes available to EirGrid) holds the keys to the grid for all private electricity generators intending to do business on this island. 

Outside its own commitment to increase renewable generation, ESB is well aware that Ireland also relies on the private sector to deliver the formidable increase in wind and solar power required to phase out fossil fuels. The group’s new strategy intends to increase the renewable capacity connected to the grid from 6,200MW today to 15,000MW in 2030. “ESB networks and NIE Networks, working with EirGrid and Soni and all the renewables developers, are working to ensure more than the doubling of the renewable generation connected to majors electricity transmission and distribution networks in Ireland and Northern Ireland,” said Hayes.

Yet when it comes to getting a wind or solar farm off the ground, developers point to ESB Networks as a major bottleneck at the crucial point when the project needs to secure a grid connection – sometimes in scathing terms. “The grid is the biggest issue for solar,” Daniel Moloney of commercial solar developer BNRG recently told The Currency. “You get planning eventually. Then you work with ESB and EirGrid, which again is a very frustrating process. It is kind of unique to Ireland: You have to just wait in line for ESB and EirGrid to look at your project.” Moloney added that his experience of the process was that it took three to six months in the UK, compared with up to seven years in Ireland.

Another Irish company, Urban Volt, sells roof-mounted solar panels. The business model is different, with just excess electricity not used under the roof expected to be sold into the grid. Yet its chief executive Kevin Maughan reported similar issues: “I think Ireland rates pretty poorly in terms of being able to connect into the grid and spill energy in. It’s incredibly expensive to do anything with the grid and time-consuming.”

There was a sense among industry representatives in the room on Monday that ESB was now willing to address these widespread concerns.

Hayes told The Currency that ESB expected to connect 800MW of renewable capacity and 200MW of battery storage to the grid this year across its work through ESB Networks and Eirgrid north and south of the border. “They have been ramping those up significantly,” he said. The figure does compare favourably with previous years, with new wind connections (accounting for nearly all new renewable capacity to date) totalling between 450 and 500MW for each of 2018 and 2019 and falling to 180MW in 2020, according to EirGrid figures. Meanwhile, just 100MW of new battery storage came online in 2020.

After initial delays, the government is now committed to running annual auctions for price support under the Renewable Electricity Support Scheme. “The way the regulators and EirGrid are running their auctions is providing a sort of steady-state expectation of projects coming through the system. That makes it a very manageable challenge to scale up and to continue to deliver against, which is quite different if there are lots of peaks and troughs,” said Hayes.

Some 300 new technicians and engineers to be hired under ESB’s new strategy will partly cover this growing number of applications for connections. While some will work on ESB’s own renewable generation pipeline and grid stabilisation projects, “the other is in that area of delivering the grid connections,” Hayes said.

“I’m very confident that we’ll have a replacement partner for Equinor this year.”

Paddy Hayes

Within the group’s own plan to grow renewable generation from 1,000MW to 5,000MW, he added that 900MW would come from offshore wind. ESB has seven offshore wind farms in its pipeline. After Norwegian energy group Equinor pulled out of a proposed joint venture to develop some of them in November, Hayes said he was disappointed but told The Currency this would not hamper its plans. 

“We’ve had a number of expressions of interest from other potential partners and we’ve just appointed an advisor to support us in terms of choosing and selecting an appropriate partner,” he said. “So I’m very confident that we’ll have a replacement partner for Equinor this year, and that in the meantime, our teams are continuing to progress those projects. We retained the rights to each of those projects that were arranged with Equinor and I’m very confident they will continue at pace.”