Eamon Ryan (Dublin Bay South, Green Party) | Oireachtas source

I apologise for being late to the Chamber. I will read back on the blacks and the content of the presentations so far by the Social Democrats. In my response, I want to set out some of the actions the Government has taken to protect people in this time of unprecedented high energy prices, to answer questions on some of the issues around the windfall taxes which we will be introducing in line with European legislation, as promised by me and other Government colleagues late last year, and also briefly to refer to the Energy Charter Treaty, which was rightly a subject for discussion in the motion and on which I am happy to share our thoughts and reflections.

First, we have to recognise that we are in unprecedented times because energy is being used as a weapon of war, prices are at a multiple of their historical average and Russia is using gas, oil and coal as a lever in its war in Ukraine. We have to resist that and make sure we protect our people and support the people of Ukraine as we do so.

It is important that we describe what has been happening to the prices in the market. The most important factor affecting electricity prices in Ireland is sustained high international energy prices since the second half of 2020. Data supplied by the Commission for Regulation of Utilities, CRU, indicate that average electricity and gas household bills have increased to a combined total of over €4,000, which is an increase of some 80% compared with the figure before the Russian invasion. In the aftermath of the invasion, at its peak during August last year, wholesale UK natural gas spot prices were trading at over 600 pence a therm, which is some 13 times the pre-pandemic average level of 50 pence a therm. Due to high gas storage levels, warmer than normal winter conditions and policy efforts to reduce natural gas demand across Europe, wholesale gas prices have fallen dramatically and are currently well below the peak values of last year. However, those wholesale prices are still trading at some 150 pence a therm, which is three times their historical, pre-pandemic levels.

It is important to note that Ireland faces a particular challenge in this regard as we are a price-taker in international markets and Irish electricity and gas prices have historically been higher than other European countries due to long-standing drivers such as geographical isolation, a dispersed population base, very high fossil fuel dependency and our small market scale. The best long-term approach to insulate consumers from volatility on international wholesale energy markets is to invest in energy efficiency and renewable energy, expand interconnection with neighbouring European markets and deepen the internal market in energy. That is what we are doing at scale and at speed.

In line with higher wholesale prices generally, wholesale electricity and gas prices rose steeply in the first quarter of last year and have remained high since. The recent reduction in wholesale gas prices in Europe is very welcome, although prices remain significantly higher than pre-crisis levels. With wholesale energy costs accounting for a significant percentage of total supplier costs, a sustained period of falling wholesale gas prices can lead to retail market price reductions. However, supplier hedging that results in a significant proportion of energy purchased several months in advance may impact the ability of suppliers to reduce prices, notwithstanding the decline in the wholesale cost of gas. Due to different forward hedging strategies of energy suppliers before this winter, my Department anticipates that we will not see prices falling until early next year. That will depend on what each supply company’s hedging policy is but we cannot anticipate an immediate reduction because the gas they are using was bought forward at times of much higher prices. A more sustained period of lower wholesale prices will be needed before we see both gas and electricity prices falling significantly.

I want to highlight the extensive response of the Government, given those high prices, to protect our citizens over the last 12 months. We pledged some €2.4 million in a package of supports during 2020. There were also a significant number of other measures, although I will not have time to go through all of them. With regard to energy credits, I disagree with Deputy Cairns. I believe this action is a very successful and correct way of protecting our people at a particular time. It was joined by targeted measures, particularly in social welfare, to target the most vulnerable and, according to the ESRI and others, that combination showed us protecting the most vulnerable through this very difficult period. We will continue to do that as we wind down the measures, which we need to do to give us a budget capability to provide the social welfare measures that we need.

I will move on to the key issue in the motion, with which we do not disagree, which is the introduction of both a temporary solidarity contribution and a cap on market revenues. We are going to do that. It is a European-wide phenomenon. At an extraordinary meeting of the EU Energy Council on 9 September last in Brussels, which I attended, it was agreed that we would have to address the extraordinary situation of energy prices in Europe, to agree to advance work on possible emergency measures to mitigate the impact of high prices on consumers and to support demand reduction for gas and electricity to strengthen the EU's winter preparedness. Following the meeting, Ministers noted the contribution provided by the Commission and invited the Commission by mid-September to propose additional measures, including the capping of revenues on inframarginal electricity producers with low cost of production, a proposal incentivising co-ordinated electricity demand reduction across the EU, and the design of emergency liquidity measures that would ensure market participants have at their disposal sufficient collateral to meet marginal calls. It was expected that this would address increased volatility in futures markets.

On 22 November last, the Government announced the decision to introduce measures to address windfall gains in the energy sector through the implementation of Council Regulation (EU) 2022/1854 on an emergency intervention to address high energy prices. We decided to place a cap on all market revenues of non-gas electricity generators. We set that cap at €120 per megawatt hour for wind and solar, which goes much further than the EU regulation figure of €180 per megawatt hour, in order to fully capture windfall gains while maintaining appropriate future investment signals. We are going to ensure that excess revenues will be collected and used to support electricity consumers. The cap on market revenues will operate from December last year to June this year, as set out in the Council regulation. We have decided to implement the temporary solidarity contribution to apply to taxable profits which are more than 20% above the baseline period from 2018 to 2021. They are now subject to a rate of 75% windfall tax and losses from previous years will not be considered in the calculation of taxable profits.

The legislation to enact this Government decision is being progressed by my Department. Significant stakeholder engagement with other Departments, CRU, EirGrid and industry has been conducted to inform policy design and to make sure we have a practical implementation that works. In addition, a large body of economic and financial analysis and regulatory impact assessments have been conducted by the Departments and the Government's economic evaluation staff to provide evidence to inform the policy.

The proceeds to be collected from the implementation of Council Regulation (EU) 2022/1854 are highly dependent on the level of wholesale gas prices over the coming winter. Estimates as of February of this year are that the proceeds collected will range from some €280 million to €600 million.

It is at the lower end of the range signalled by Government in November last year, which went from €300 up to €1.9 billion, with the primary reason being the reduction in wholesale gas prices. It is important to remember that the further the wholesale price falls, the lower the proceeds will be.

I have other issues which I wanted to set out in our energy poverty action plan but given the short timeframe available to me, I will conclude on the issue of the Energy Charter Treaty. This Government has real concerns, and has expressed strong views within the EU, on the compatibility of the Energy Charter Treaty with the Paris climate agreement, and on the Energy Charter Treaty's dispute resolution mechanism, which allows investors to sue states party to the treaty for failing to protect energy investments, in particular fossil fuel energy investments in the context of decarbonising energy systems. We believe these views carry more weight in international negotiations by advocating them as part of the EU. To date, Ireland has not announced a withdrawal from the Energy Charter Treaty because a majority of EU member states, and the European Commission, are still signed up to the treaty while a modernisation reform process of the treaty is being negotiated. The Government continues to reserve the option of supporting a co-ordinated withdrawal from the treaty if it is not modernised to align with the Paris Agreement, does not address our concerns, or does not support the international effort to decarbonise electricity systems and promote more renewable energy. Ireland will continue to keep that position under review and will work with EU partners to reach a common position. If a decision is made for a co-ordinated exit of EU member states from the treaty, Ireland will support that position. As I have highlighted, we are working on a range of measures to protect our country at this time, to support international efforts to restore security and to decarbonise the energy system.

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