Mr. Garrett Blaney:

I thank the Chairman and the committee. It is a great opportunity for us to explain the functioning of the single electricity market and the importance of the North-South interconnector for us. I will explain our roles and my own role specifically. I am the chairman of the CER, which is responsible for the regulation of the energy markets in the Republic and which is accountable to the committee under legislation. Ms Pyper is a guest. She is the utility regulator chief executive officer and chairman of the SEM committee but she does not have a statutory basis in this State. We are thankful that she is able to join us and explain some of the SEM functioning and the importance of some of the elements of this discussion for Northern Ireland.

I will use the slides just to run through the position regarding how the single electricity market functions and to discuss the role of the SEM committee and the importance of the second North-South interconnector in the context of the proper functioning of the market and of minimising costs to consumers in general across the island.

The single electricity market is quite a unique project at a European level. The slide on the screen shows a picture of Ireland at night and is designed to try to show the committee how important this project is at European level. The only other market in Europe that has approached anything like the level of integration we have achieved is the Iberian model involving Spain and Portugal. Nowhere outside this island has there been the same level of co-operation and co-ordination or has a similar legislative basis been put in place in order to bring two markets together to operate as one. The single electricity market is unique because it involves two member states - one a part of the United Kingdom and the Republic - and two currencies, namely, sterling in the North and the euro in the South. The market is based on one common set of rules. These are not joint rules, rather a single set of rules governs the market right across the island. There is a single committee - the Single Electricity Market, SEM, committee - which makes decisions on those rules and any changes to them. The success of the market since it was established in 2007 is measured by the fact that there has been significant investment on the island and significant efficiencies have also been achieved for consumers. It has, therefore, attracted further investment, secured supplies for consumers and assisted in keeping costs down.

I will now explain some of the mechanics of the single electricity market. It is based on legislation that was enacted in 2007. At that time, the Northern Ireland Assembly was suspended so the governing legislation was passed by the Dáil and the Parliament at Westminster. This is linked to an intergovernmental agreement - a memorandum of understanding, MOU - between both Governments. That agreement is the firm basis for the operation of the market. The SEM committee was established under the legislation to which I refer in order to ensure strong regulatory oversight. Many commentators have referred to the transparency of the market and how useful it has been for the players involved and in terms of ensuring efficiencies that benefit consumers. We have 3,500 MW of invested plant. I will refer, in a moment, to the types of plant that have been invested in the market. To give members a sense of what is involved, typically in the region of €3 billion trades through the market on an annual basis. This is, therefore, a significant part of the all-island economy. Electricity provision is not just important for industry, it is also an industry in its own right. The single electricity market is a cornerstone of the latter.

I will not discuss the individual plants but the slide on screen shows the amounts invested in each. A general trend has been investment across the island in new, efficient and low-emissions plant. Between renewables and gas, we have invested a great deal in efficient plant and we have also managed to close some inefficient plant. The single electricity market has had a good impact from the point of view of the environment, as well in terms of the economy and security of supply.

As is always the case, we cannot rest on our laurels in the context of the market. There has been a significant push at European level to bring together markets across the Union and to encourage further integration of energy markets. As a result of new EU legislation, we are required to change the current market. This is an obligation which has been placed upon us but we are keen to try to use it to ensure more efficiencies and lower costs for consumers where possible. Obviously, we need to reflect Government targets. Those targets, North and South, are aligned at present at 40%. However, this is subject to review. I will discuss that in greater detail in a moment. We are also keen - as regulators across the island, North and South - to ensure that there is downward pressure regarding the prices charged to consumers. The latter are currently under ongoing pressure as regard costs and we would like to see what we can do to reduce this.

The grid roll-out - this brings me to the second North-South interconnector - is critical to the efficient functioning of the market. There have been significant investment programmes in respect of the grid.

Perhaps I will go back into the history of the networks' development. If one goes back in the annals of time, the Republic of Ireland and Northern Ireland had completely separate systems with one limited interconnection, that is, the current North-South interconnector and in planning terms, it always was planned historically as two separate systems. The importance of the second North-South connection is it will begin to integrate the two network systems and will ensure there is a proper backbone right across the island for the efficient trade of power. We regulate that as a natural monopoly in both jurisdictions and do what we can to try to ensure these costs to consumers are minimised. We certainly only allow those costs that are incurred efficiently to flow through to consumers and to end up in consumers' bills. As members are aware, the current process regarding the second North-South interconnector is a typical example of where planning and land access are becoming major issues in the development of this infrastructure.

While I will not labour on the subject of key drivers, they obviously are security and quality of supply and renewable development. However, a key element in this regard is the efficiency of the market. The North-South interconnector is key to ensuring the cost to consumers' bills is kept down and I will try to explain where that additional cost arises from the North-South interconnector. As I mentioned, we have quite an aggressive target for renewables by 2020. The targets North and South are aligned at present but are subject to review in both jurisdictions as we move beyond 2020. At present, there is a 40% renewables target in electricity across the island and the North-South interconnector is helpful in its delivery, as well as in respect of security of supply and cost provisions for consumers.

To explain why the North-South interconnector is quite important with regard to the efficient operation of the market, the first point is the market schedules generators in order that the cheapest generators are scheduled to run to meet the demands of customers and through sophisticated software, it automatically ensures the cheapest generators are programmed to run. The problem, when we have constraints and congestion on the network and, clearly, the North-South link is the major point of congestion on the network, is that more expensive generators must run than otherwise would run. This adds an additional cost to consumers across the island. On a conservative basis, we think this cost is at least €10 million per annum at present and believe it will rise to approximately €20 million. A number of figures are available in this regard and the ESRI has carried out an independent study in which it suggests the figure could be as much as €30 million per annum. However, we have done this on a conservative basis and are comfortable that the cost it imposes on consumers is at least €10 million. Moreover, this is a current cost that is rising and once we go beyond 2020 to 2030, this cost could rise to as much as €40 million to €60 million, again depending on market conditions at the time. However, this cost is set to rise significantly and as regulators, we obviously are concerned that this second North-South interconnector should be developed as early as possible to minimise the cost from a consumer review. I will now hand over to Ms Jenny Pyper, who will go through the rest of the presentation.