Ireland skipped a stage of economic development. The normal way of things is to start with agriculture (or maybe hunter-gatherer?). The next step is industry. And the final step is for the economy to be dominated by services. Ireland went straight from an agricultural economy to a service economy, without pausing for long at industry.
That is to say, Ireland didn’t pause for long at old-fashioned heavy industry. The type that uses a lot of energy or employs lots of workers on production lines. Ireland has a big industrial sector but it’s more modern high-tech stuff.
Heavy industry, by contrast, is the kind you probably have in your head when you picture industry. Big factories with smokestacks. Heavy industry tends to use a lot of energy. It might use energy to generate a lot of heat, or to lift heavy things.
The industrial heartland of Europe is Germany. Germany is one of the few rich countries to retain its heavy industry. Germany’s suitability for heavy industry comes from two centuries of accumulated expertise, skills and culture, as well as a ready supply of workers, infrastructure and energy.
As I wrote in my column last week, energy is becoming a problem for Germany. Industry requires a specific type of energy. It doesn’t need the plain electricity you might get from Electric Ireland. It needs a source that’s cheap, dependable, and capable of generating great heat / lifting heavy things. For these purposes, gas is ideal.
Germany, over the last number of decades, came to depend heavily on Russian gas. That strategy blew up in its face after 2022. Now, without cheap reliable energy, Germany is deindustrialising.
This takes us to my conversation with Colm O’Neill on The Currency podcast this week. O’Neill is a partner at KPMG. He leads its energy, renewables and telecoms practice. O’Neill’s view is that, if you think about the direction of travel in the energy industry, Ireland has an enormous opportunity to become a home to clean heavy industry.
The logic is as follows. Ireland’s wind resources are abundant, as abundant as anywhere in Europe when you consider the potential for offshore wind on the west coast: “We have a shelf off the west coast of Ireland on which we can deploy offshore wind resources. And, as ironic as it seems, there’s great wind comes down that sector of the globe, it’s a very reliable wind corridor. So, that combination of places to install the infrastructure and reliable wind make it an ideal place to generate renewable energy.”
We could soon be facing a situation where Ireland generates much more clean electricity than it can use. Then the question becomes, what to do with it?
One option is to send it down the wires to the European grid. O’Neill had another suggestion: “Rather than taking raw energy out of our wind turbines and shipping it either through hydrogen or through large interconnectors into Europe, why would we not build the industry here where it’s close to the energy, and get the benefit from that?”
The idea of steel-smelting and shipbuilding in Mayo or Donegal seems far-fetched. But, said O’Neill, we shouldn’t forget the importance of energy in determining where industry should base itself: “The German industrial behemoth is based on the skill sets that they’ve developed over many years. But it’s also based on having been proximate to cheap, reliable, secure energy sources from Russia.”
There are two missing elements to O’Neill’s plan. The first is a fleet of huge wind turbines, floating off the Atlantic coast. The second is a way to convert intermittent wind energy into a suitable industrial fuel.
The big hope is green hydrogen. That’s a process whereby electricity is used to manufacture hydrogen, which works well as an industrial fuel. It can be used to generate heat and to lift heavy things. The problem with hydrogen as a fuel is that it’s hard to transport.
Green hydrogen isn’t ready for the big time yet. According to Arjun Flora, director of energy finance studies at the Institute for Energy Economics and Financial Analysis, green hydrogen wastes between 54 and 82 per cent of the energy used to create it.
Particularly in Europe, carbon emissions are taken seriously. There is huge money being invested in technologies like green hydrogen. The following chart, from Nat Bullard’s (formerly of BloombergNEF) presentation, shows the industrial share of climate tech investment more than doubling in three years.
Green industry investment is a growing share of the pie, and of course the pie itself is growing very quickly too. The following chart, also from Bullard, gives a sense of how quickly:
O’Neill said abundant green industry in the west of Ireland is a realistic prospect if we get our ducks in a row: “In the same way as our food industry over the years has stopped just exporting food, and started to add more value to it here in Ireland, and then export a more valuable product.”
