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The ESRI’s devastating report on home insulation

Here’s the always-excellent Muireann Lynch, of the ESRI, summarising that body’s findings when it looked at the costs of the Government’s plans to retrofit tens of thousands of Irish homes with heat pumps:

The total cost associated with the policy increases power system costs by 30% when 20% of heating is electrified, and by 46% when 30% of heating is electrified. However, the costs of generation investment, such as wind, solar and fossil fuel power plants, increase by 2.5% and 5% respectively, while the cost of transmission actually decreases, by 1.5% and 1% respectively.

A summary of the ESRI’s findings can be found here, for those interested in them. For those without the time, I’ll attempt a brief translation.

From the paper itself, this is the key passage, in understanding why the Government’s policy will drive up costs:

The impacts for the electricity system of significant electrification of the heating sector have not been examined in detail. Increased electrification will require new generation, new transmission lines and increased storage.

In other words, moving from oil and gas heating to heat pumps isn’t a simple matter of ripping out old systems, and putting in new electric ones. The more electric heating you have in the country, the greater the demand for electricity. And the greater the demand for electricity, the less capable the existing network is in dealing with the loads required. So the Government does not only need to spend hundreds of millions on grants for heat pumps – it also needs, effectively, to re-make the electricity network to cope with the excess demand.

And when that happens – if it happens – who will bear the costs? The consumer, is the answer. If ESB networks invests in a new network, it will do so – as all companies do – by borrowing against future revenues and putting that investment down as a capital cost. It will then, inevitably, raise prices for electricity, recognizing not just the need to recoup its borrowings, but also the greater demand for electricity created by a country heated by heat pumps.

All of this, by the way, to achieve hardly anything.

Total emissions from the residential sector in Ireland amount to 11.4% of all emissions in Ireland, according to the environmental protection agency. If – which is vanishingly unlikely – the Government meets the targets set out in the Climate Action Plan, which includes all of the costs above, then those emissions are slated to fall by less than half. This extraordinary spending plan, then, will eliminate about 5% of total Irish emissions, at the cost of making the cost of home heating rise by 46%. Does that sound like an efficient, or sensible, trade off? It does to the Greens, apparently.

But of course, the costs do not just stop there.

Consider, for example, the labour cost of retrofitting 600,000 homes, and re-making the electricity network. Consider that all of this is being done at a time of a housing crisis, when the country desperately needs builders and tradespeople working on building new homes, not retrofitting old ones. Consider that it is being done in parallel with the MICA redress scheme in Donegal, where, again, builders will be busy re-building old homes rather than building new ones. All of this, you might say, is necessary. But good luck getting a builder for private work, over the next few years.

One of the least understood drivers of inflation, in fact, is Government spending. Most people do not understand, for example, that when the Government responds to house price inflation by spending millions and millions to build new houses, it is actually often making the problem worse: Home prices rise in part due to demand, but in part due to a shortage of builders and materials. When the Government deploys unlimited spending power into the marketplace, it competes with you and me for the services of builders, and the supply of blocks and slates and timber. It actually makes the problem worse.

This is a good example of that in action. We are going to spend untold millions to achieve an extraordinarily modest reduction in emissions, at the cost of driving up house price inflation, putting strain on the electricity network, and increasing the cost of home heating by 46%.

Why is there nobody in politics with the basic sense to point this out, and shout “stop”?

It’s like being governed by a cult.

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