Oireachtas Joint and Select Committees
Tuesday, 4 October 2022
Joint Oireachtas Committee on Climate Action
Energy Prices: Discussion
Brian Leddin (Limerick City, Green Party)
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I have received apologies from Senator Alice-Mary Higgins. I believe Senator Lynn Ruane is substituting for her. On behalf of the committee, I welcome representatives from Electric Ireland: Mr. Pat Fenlon, executive director; Ms Suzanne Ward, financial controller; and Mr. David Vickers, pricing and trading manager.
As usual, before we begin, I will read out the note on privilege. I remind witnesses of the long-standing parliamentary practice whereby they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. If their statements are potentially defamatory in regard to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative they comply with any such direction.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I remind members they may participate in this meeting only if they are physically located in the Leinster House complex. In this regard, I ask any member joining us online, prior to making his or her contribution, to confirm that he or she is on the grounds of the Leinster House campus.
I invite Mr. Fenlon to make his opening statement.
Mr. Pat Fenlon:
I thank the committee for the opportunity to discuss Electric Ireland’s role in the electricity market and, more importantly, the impact of the ongoing energy crisis on our customers. I am executive director of Electric Ireland, which is the retail division of the ESB. I am joined by two colleagues. Suzanne Ward is on my right and David Vickers is on my left.
I will focus on three areas. First, Electric Ireland’s role as a supplier in the Irish electricity market; second, I will summarise why electricity prices have increased over the past 18 months, and third, I will detail how Electric Ireland is supporting our customers during these challenging times. In addition, as requested by the committee, I will briefly cover ESB Group's profitability as set out in our recently published interim results for the half-year to 30 June 2022.
There are approximately 2.2 million residential electricity customers in the Republic of Ireland. Electric Ireland, as Ireland’s largest electricity supplier, has in the region of 1.1 million residential electricity customers and 170,000 residential gas customers. Electric Ireland also serves the SME and large energy user segments of the market, with an overall market share across the residential and business segments of approximately 40%.
The ESB’s generation and supply businesses are required to operate separately so that increased profits from the ESB’s generation business cannot be used to offset costs incurred by Electric Ireland. This means that Electric Ireland must operate in the residential market as an entirely stand-alone supplier, buying electricity and gas from the wholesale market to meet customer demand.
Turning to price increases, the electricity price for customers is made up of wholesale electricity costs, network or infrastructure costs, government policy regarding public service obligation, PSO, charges, VAT and the costs associated with operating as a supplier in the market. Over the past year, the significant increases in customers’ bills have been driven by extraordinary and sustained increases in the wholesale price of electricity. Such increases in Ireland have been driven primarily by unprecedented increases in wholesale gas prices in Britain and across the EU, driven by concerns over European gas supply, made much more acute as a result of the conflict in Ukraine and reduced Russian gas supply. Wholesale gas forward prices have increased by more than 1,000% over the past 18 months. This is an unprecedented level of increase. Two years ago, Electric Ireland’s annual wholesale energy costs were in the region of €300 million. At current market levels, we expect that cost to increase to around €2 billion.
Electric Ireland hedges its wholesale costs to remove uncertainty and to stabilise retail prices for our customers. We typically begin hedging about 18 to 24 months before delivery, and progressively increase our hedge position over time. This approach protects our customers from short-term volatility by smoothing out cost movements over time. In more normal wholesale conditions, this approach would be expected to result in small price adjustments, either increases or decreases, depending on the market movements each year. In conditions where the wholesale market sustains at extraordinary levels, however, retail prices will eventually trend upwards as hedges expire and suppliers have to buy or hedge future purchases of electricity at prevailing elevated prices.
Hedging is the reason residential customer prices have increased gradually over a number of iterations rather than in sudden changes that reflect the real-time volatile nature of the wholesale energy market.
I will now talk about Electric Ireland's pricing and customer protection activities in this difficult period. Electric Ireland is very aware that these price increases are difficult for customers to absorb. We are committed to helping our customers during these challenging times. We have maintained a lower standard variable tariff, SVT, for electricity than almost all competitors across the past 18 months. We continue to offer enduring discounts for all existing customers. Electric Ireland engages with any residential customers who have difficulty paying their bills and, where required, works with them to put in place manageable payment plans. Disconnections are, and always will be, a last resort. There is a regulatory moratorium on disconnections for the winter period for vulnerable customers.
We are also active in providing more specific targeted supports for our most vulnerable customers. Electric Ireland recently launched another hardship fund of €3 million, similar to the one in place during Covid, which will provide support to Electric Ireland customers who have difficulty paying their bills. Access and administration of the fund and issuance of energy credits will be managed by the Society of St. Vincent de Paul and the Money Advice & Budgeting Service, MABS. A range of products is also available through home electric+ for those with smart meters installed. Detailed appliance insights, user data, and accurate monthly billing can all help customers to manage their energy consumption. Electric Ireland is running extensive advertising campaigns profiling the benefits of smart metering to customers.
Electric Ireland is the designated supplier of last resort for electricity customers and has been instructed by the Commission for Regulation of Utilities, CRU, to take on the customers of Bright Energy, Iberdrola and, more recently, Panda Power, all of which have exited the market. This has significant implications for Electric Ireland, not least having to buy additional energy for these customers at current market prices. However, we will endeavour to make this transition as easy as possible for customers.
Electric Ireland has always sought to deliver affordable electricity to all customers in Ireland. The price increases we have had to announce over the past 18 months have been as a direct consequence of the unprecedented increases in international wholesale gas prices. As we operate as a stand-alone energy supplier in the market, we have no choice but to increase our prices given the quantum of increase in our costs.
The ESB's generation and supply businesses are required to operate separately, so increased profits from the ESB's generation business cannot be used to offset costs incurred by Electric Ireland. However, group profits are invested in critical networks, renewable generation and other important energy infrastructure, as well as used to pay tax and dividends to the Government. Electric Ireland will continue to work with customers who are most challenged by these increases.
I will move on to the additional question on ESB Group profits. I can talk about the published ESB Group financial results, however I am not in a position to discuss specific generation or network issues, other than as published or in the public domain. The most accurate representation of the ESB's underlying financial performance during the first half of 2022 is the operating profit before exceptional items. In the first half of 2022 this was €357 million, which compares with an operating profit of €363 million in the first half of 2021.
The ESB has recorded exceptional gains in the first half of 2022. These gains relate mainly to the technical accounting treatment of financial instruments, for example, mark to market on commodity hedges, and are not cash-related items. These non-cash gains are not related to the price paid for electricity by customers.
The ESB has more than €17 billion in assets and €5.8 billion of debt. The company must earn an appropriate level of profit, so that it can service debt, reinvest in critical networks, renewable generation and other important energy infrastructure, as well as pay tax and dividends to the Government. Over the past ten years, the ESB has invested more than €10 billion in energy infrastructure and paid more than €1.2 billion in dividends.
Brian Leddin (Limerick City, Green Party)
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I thank Mr. Fenlon for his statement. The public session we have today is broken into two one-and-a-half-hour sessions. I propose that each member takes five minutes to have a back-and-forth engagement with the witnesses. We will limit it to five minutes to ensure that all members have an opportunity. Is that agreed? Agreed.
Christopher O'Sullivan (Cork South West, Fianna Fail)
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I thank Mr. Fenlon for his opening statement. My party colleague, Deputy Cowen, wrote to the committee asking that the CEO of ESB Group attend these sessions. Why is the CEO not present?
Christopher O'Sullivan (Cork South West, Fianna Fail)
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I ask that it be noted that we will ask the CEO to attend a future session because of the importance of issues such as price increases and weakened capacity.
Brian Leddin (Limerick City, Green Party)
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We can do that, but, to be clear, we did not ask specifically for the CEO for this session.
Christopher O'Sullivan (Cork South West, Fianna Fail)
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I ask that Deputy Cowen's request to invite the CEO to appear be noted.
Mr. Fenlon mentioned profits of €357 million for the first six months of 2022. For context, that equates to €2 million per day, or €14 million this week alone, in profits. During the course of this session, lasting a couple of hours, we are probably talking about profits running into the hundreds of thousands of euro. Nevertheless, customers' bills are soaring. Domestic customers have utility bills this month that are skyrocketing; they are doubling and sometimes trebling. Business consumers and customers with Electric Ireland have bills that are increasing threefold or sometimes fourfold. These are unprecedented increases in utility prices. Does Mr. Fenlon accept how difficult it is for these customers to understand or accept that the blow of these prices cannot be cushioned because of technical accounting or because ESB Group is looking at financing future infrastructure?
Mr. Pat Fenlon:
We understand that this is a very difficult time for many of our customers who have significant difficulty paying the increased bills. We are engaging daily with customers who are in difficulty and working with them to help them deal with those increases by putting in place payment plans. We understand, therefore, that when people hear those profit numbers, they can be difficult to reconcile. The ESB, as a State-owned company, pays half of its profits back to the State, between a dividend policy of 40% and tax, while the other half funds investment in energy infrastructure, which is critical to delivering not just reliable electricity supply but also the net-zero transition into the future for Ireland.
On the scale of the company, we have €17 billion in assets. The profit at an operating level is similar to that in the half-year period for last year. From a competitive point of view, our prices - we have continued to try to offer prices that are as competitive as we can - and our standard variable tariffs have tended to be at the lower end of available prices for the past 18 months.
We understand the difficulty for customers . We continue to work with those customers who are in difficulty.
Christopher O'Sullivan (Cork South West, Fianna Fail)
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Customers will have great difficulty accepting that answer, whereby a €357 million profit cannot translate into reduced bills for the customer. Mr. Fenlon referred to a hardship fund of €3 million, approximately 0.8% of the €357 million profit. Clearly, there is a mechanism for the ESB to do something for consumers, particularly those who are finding it most difficult to pay. Surely the €3 million figure can be looked at and increased significantly to ease the burden on those who are impacted most by these increasing bills.
Mr. Pat Fenlon:
That €3 million fund has been put in place only recently and was in addition to €3 million that was in place throughout the Covid period.
We work very closely with the Society of Saint Vincent de Paul and the Money Advice and Budgeting Service, MABS, in administering that fund. We will actively review how that fund is being used with those agencies and how we can help customers over the winter period.
Christopher O'Sullivan (Cork South West, Fianna Fail)
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My final question concerns the bonus structure for staff and senior directors in Electric Ireland. Are bonuses linked to the profits of the ESB group?
Mr. Pat Fenlon:
The ESB has put in place a market-based rewards package. We are in the process of recruiting 1,000 people in what is a very competitive marketplace. Overall, it is important that we have market-based pay for our staff and to attract new talent to the company. Regarding the specific question, the bonus is impacted by profit but up to a cap so increases in profits do not have any impact. It is a percentage as opposed to being linked specifically to the profit level.
Réada Cronin (Kildare North, Sinn Fein)
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The witnesses are very welcome to the meeting. In north Kildare, constituents of mine tell me that they are cutting down drastically on their electricity use. Some of them are taking the alarming advice to use dishwashers, washing machines and dryers at night time, about which I am sure every fireman and firewoman in the State would be very anxious. I also want to ask the witnesses about Electric Ireland's customer outreach and whether as an essential service provider, not just a market provider, they think it is effective. How does Electric Ireland measure customer reaction to its outreach activities? Has it had any issues identifying vulnerable customers? Does its outreach involve collaboration with the HSE regarding how to identify vulnerable customers because there are so many of them who are not registered with their provider? Has Electric Ireland looked at the possibility of issuing monthly bills? People on low incomes are telling me that they would find it so much easier if they had monthly bills. Regarding Electric Ireland's customer outreach on smart meters, I believe that only around 4% of smart meters are being used. How does Electric Ireland hope to educate people about how smart meters are meant to be used to customers' advantage?
Réada Cronin (Kildare North, Sinn Fein)
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Yes, I mean how Electric Ireland engages with them.
Mr. Pat Fenlon:
I will ask Ms Suzanne Ward to talk about our customer engagement in a second. Regarding smart metering and the figure of 4%, more tha 900,000 smart meters have been installed. Some 400,000 plus Electric Ireland customers have smart meters and more than 70,000 Electric Ireland customers have now moved to a smart tariff of some form or other. We are promoting this very actively. We have been reasonably successful in continuing to do that because that is the means by which people can have further control and possibly make further savings on their bills. If they have a smart meter, we would encourage customers to-----
Réada Cronin (Kildare North, Sinn Fein)
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What percentage of Electric Ireland customers have actively engaged with it around using their smart meters correctly?
Mr. Pat Fenlon:
Of the 400,000 plus Electric Ireland customers who have a smart meter, more than 70,000 are on the smart tariff so about one in six of our customers are on a smart tariff, which is much higher than the average quoted by the Deputy. We are working hard to increase that number and hope to get it up to 100,000 by year end and grow it beyond that. I might ask Ms Ward to comment on the question about outreach.
Ms Suzanne Ward:
Customers can elect to inform suppliers that they are vulnerable customers. They would normally be vulnerable for health reasons reasons. We can prioritise them coming back on stream if the electricity is off. I think the Deputy is referring to customers who are more on the financially vulnerable side where people are looking at reducing their electricity consumption.
Réada Cronin (Kildare North, Sinn Fein)
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I am sorry if I miscommunicated that. I mean elderly people; people with chronic obstructive pulmonary disease, COPD, who need a regular temperature; and people who rely on stairlifts and overnight dialysis.
Réada Cronin (Kildare North, Sinn Fein)
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How does Electric Ireland engage with them? Has it written to all customers asking if they are vulnerable?
Réada Cronin (Kildare North, Sinn Fein)
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Should Electric Ireland write to customers explaining what vulnerable means?
Réada Cronin (Kildare North, Sinn Fein)
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What about monthly bills?
Mr. Pat Fenlon:
With the introduction of smart metering, there will be greater flexibility around billing options. Meter reads are currently every two months, and the billing follows that. Smart metering will change this. If a customer wishes to make a payment at any stage, he or she does not have to wait for the two-monthly bill. There is a payment service online, and we can make payment plans with customers as needed to help them spread the payment out.
Jennifer Whitmore (Wicklow, Social Democrats)
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It was stated earlier that energy costs were in the region of €300 million but are forecast to rise to €2 billion. When will that happen?
Jennifer Whitmore (Wicklow, Social Democrats)
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So Electric Ireland has hedged against that. When will that hedging expire? At what stage will that €2 billion be represented in people's bills?
Mr. David Vickers:
We have mostly hedged against that but not all the way. A large portion of the movement seen in the market in the past 18 months has been passed through to customers. The reason the whole amount has not been is because of hedging. As Mr. Fenlon mentioned, when the market moves the way it has-----
Jennifer Whitmore (Wicklow, Social Democrats)
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When will Electric Ireland customers see the impact of that hedging expiring in their bills and what will it mean for the average bill?
Jennifer Whitmore (Wicklow, Social Democrats)
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What percentage have they seen? Have they seen 75%? When will 100% be realised in bills?
Jennifer Whitmore (Wicklow, Social Democrats)
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So there is still a 30% rise that could be realised.
Jennifer Whitmore (Wicklow, Social Democrats)
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When will that happen?
Jennifer Whitmore (Wicklow, Social Democrats)
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The news from the UK is that there are potential gas shortages there. What impact would that have on energy bills? Has Electric Ireland done a risk analysis of that, or any modelling of what that could mean for bills here?
Mr. David Vickers:
In the main, concerns about shortage of gas are priced into the market. That has already manifested. In terms of physical disruption to supply, Ireland gets most of its gas from Britain. Approximately 30% comes from Corrib and 70% from Britain. Britain gets most of its gas from the North Sea and Norway. We are indirectly exposed to physical gas shortage, not directly.
Jennifer Whitmore (Wicklow, Social Democrats)
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On pay-as-you-go customers, the witnesses talk about protecting the vulnerable. When they talk about disconnection for vulnerable customers, they need to be clear it is not financially vulnerable customers or people at risk of energy poverty. It is only for those who are medically vulnerable.
Is that correct? How can Electric Ireland protect pay-as-you-go customers from these rises and from disconnections because, ultimately, they will self-disconnect?
Mr. Pat Fenlon:
The Deputy is correct that the definition of "vulnerable" used relates to those who are medically vulnerable. That is used by the CRU for the purposes of identifying people to register with ESB Networks or through their supplier. We also refer to people who are vulnerable from a financial perspective.
There are a number of things to say about pay-as-you-go meters. In many instances, those meters are installed in conjunction with recommendations from the Society of St. Vincent de Paul or the Money Advice & Budgeting Service, MABS, because it is to help customers to manage the payment of their bills through a pay-as-you-go device. We have also made some-----
Jennifer Whitmore (Wicklow, Social Democrats)
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I will ask specifically about those people because they will self-disconnect. Has Electric Ireland any direct communication with its pay-as-you-go customers or does it rely on the likes of the St. Vincent de Paul and MABS to be that intermediary? Is it reaching out to these customers? How can they be protected from self-disconnection by Mr. Fenlon's organisation?
Jennifer Whitmore (Wicklow, Social Democrats)
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Does Electric Ireland have any direct contact with its pay-as-you-go customers?
Jennifer Whitmore (Wicklow, Social Democrats)
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Has Electric Ireland ever written to its pay-as-you-go customers to say it understands this is a very difficult period for them, here are the supports that are available and, if they are having difficulty, it recommends they do A, B and C? Has it ever written directly to those customers?
Jennifer Whitmore (Wicklow, Social Democrats)
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That assumes people in that situation will know they have to go to the St. Vincent de Paul or to the Electric Ireland website to check it out. Will Electric Ireland consider writing directly to those people to tell them that options are available?
Mr. Pat Fenlon:
We continually review how we can engage with our customers more effectively. In fact, we would love to be able to issue communications by email to all our customers. We are trying to grow that, or other means, because it is the fastest way we can get out information. We continually review how we can be more effective.
Jennifer Whitmore (Wicklow, Social Democrats)
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Will Electric Ireland write to them?
Brian Leddin (Limerick City, Green Party)
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That is five minutes. We will move to Deputy Farrell.
Alan Farrell (Dublin Fingal, Fine Gael)
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I thank our guests for coming before us. My colleague, Deputy O'Sullivan, quite correctly pointed out the disparity between Electric Ireland's profits and its hardship fund. As a State-owned company that is giving back all the profits to the State in the first place, for reinvestment by the State, it is necessary to highlight that €3 million is a drop in the ocean and consideration should be given to increasing that fund. That should be done promptly.
I want to know the answers to some technical questions on the overall price of the product Electric Ireland is offering, both gas and electricity. Has it worked out the impact of the proposal to decouple the gas market from the electricity market and what impact that might have on its customers?
My second question relates to the variable, that is, the standing charge that goes from company to company across gas and electricity. As we found out recently, these are not determined by the CRU. They are in fact determined by individual companies. In that sense, again, as a State-owned company, consideration should be given to standardising that charge, lowering it or eradicating it. That would show to Irish consumers that, as a State entity, Electric Ireland is only interested in supplying a product, whether it is electricity or gas, with the State in mind. Of course, profits will be made. I am not suggesting that the standing charge is the basis for the company's profit; it is not. On that basis, consideration should be given to it.
Another question relates to the CRU proposal for peak-time rates, that is, charges would be increased from 5 p.m. to 7 p.m. and lowered for the rest of the day as a result. Has Electric Ireland factored in any consideration of that in respect of the consumer price Irish people will have to pay should such a measure be brought in?
Alan Farrell (Dublin Fingal, Fine Gael)
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I would prefer if Mr. Fenlon started at the beginning.
Alan Farrell (Dublin Fingal, Fine Gael)
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The hardship fund.
Alan Farrell (Dublin Fingal, Fine Gael)
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I was not aware that it was an additional sum. Can Mr. Fenlon give me the total?
Alan Farrell (Dublin Fingal, Fine Gael)
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So it is €6 million.
Alan Farrell (Dublin Fingal, Fine Gael)
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Okay.
Mr. Pat Fenlon:
We will keep that under review. That is managed directly with the Society of St. Vincent de Paul and MABS. We will work directly with them to monitor how that fund is being drawn and we will review that as this winter progresses in particular.
As for the standing charge, to put it into context our standing charge is €277 per annum so it is about 15% of the total typical estimated annual bill in terms of the current price from 1 October. In supplying electricity there is a mixture of fixed costs, including some of the infrastructure costs, as well as costs in running the supply business. There are also variable costs which is purely the amount consumed. So there is a mix and there is always a balance between the best way to recover fixed costs versus variable costs. Our total cost that we recover through customers does not change. If one goes up, the other will go up by less. On a combined basis it does not change the amount in terms of the estimated annual bill. It does vary so if we reduce the standing charge, some customers will benefit for example people with holiday homes which is low usage. On the other hand other people, who have high volume consumption, particularly families, would pay more if we ended up putting up the unit rate and reducing the standing charge. There are balancing factors to consider what is the right mix and relative to the market, we have tended to be mid-range as regards of the standing charges that are currently out there in the marketplace.
I will turn to Mr. Vickers to answer the other two questions.
Mr. David Vickers:
I thank the Deputy. As he has mentioned, the design of the Irish electricity market is a marginal-based market where all generation assets make their capacity available at price. The market ranks them cheapest to most expensive and the plant that is needed to meet demand sets the price for everyone. All suppliers pay it and all generators receive it. It is common to the design of electricity markets in Europe. The Deputy asked if I had done an impact assessment on decoupling the market. I have not. I have seen these proposals being made. I-----
Brian Leddin (Limerick City, Green Party)
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Sorry, I do not want to interrupt but that is five minutes and as I have to be fair to all members, I ask Mr. Vickers to be as brief as he can be.
Alan Farrell (Dublin Fingal, Fine Gael)
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Similarly I had a question related to the other proposal from the CRU on peak rate versus a reduction across the board. Has Mr. Vickers done an analysis on that?
Brian Leddin (Limerick City, Green Party)
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Sorry Deputy Farrell, I am going to move on. If there is time for second round I will let you back in.
Bríd Smith (Dublin South Central, People Before Profit Alliance)
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I wish to challenge some of the comments that are being made here about the profiteering of the company and how that is somehow immoral in the context of an energy crisis. Would the witnesses agree that the ESB as originally structured was an absolutely perfect model for a society because it did not have a for-profit mandate and it generated, ran and distributed the energy on what some would have perceived as a monopoly basis but it also worked efficiently for this country and returned a huge sum of money to the Exchequer because of its international operations and delivered the cheapest and most reliable energy, probably in the world?
Would the witnesses be in favour of returning to that sort of system, to removing the not-for-profit mandate of the company and returning us back to a nationalised energy system?
Mr. Pat Fenlon:
I thank the Deputy. It is not for me to say what is the market structure or legal or regulatory construct in which ESB operates.
Our job is to operate in the marketplace with the rules and regulations put in place by the Government and the regulator. On the not-for-profit mandate, that was in the past, I would think. In the current environment we are investing over €1 billion per annum in critical electricity infrastructure, which is important for maintaining security of supply and connections for renewables. It is also critically important in delivery of net zero for this country. The ESB Group needs to borrow on the international bond markets and without generating appropriate cash or a suitable profit being returned, we would not be able to fund that investment. Of the profit the ESB Group makes, over 50% of that goes back to the State in the form of dividends and taxes; the rest effectively funds investment in infrastructure for the country, which is critical to deliver net zero. Also, we are in a competitive market and in Electric Ireland, our prices are, have been and will continue to be competitive in that marketplace relative to other suppliers in terms of offering value to our customers.
Bríd Smith (Dublin South Central, People Before Profit Alliance)
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I thank Mr. Fenlon. I suppose it was a bit unfair of me to ask him what his political opinion was, but I guess I am using it as an opportunity to talk about something I am very passionate about, which is nationalising the energy sector to deal with both the climate and the cost-of-living crises; I think it would have that double whammy for us all if we did that. In the limited constraints of what Electric Ireland actually does deal with, I want to drill down into how we are going to protect the most vulnerable. The last time we had the Commission for Regulation of Utilities, CRU, in, we had a discussion about the definition of vulnerability and we went through that carefully, discussing how there are two sorts of definitions. Of course, there is the financial vulnerability of a huge cohort of people. We can see from the figures how many people are already in arrears, never mind coming into the winter and the higher prices. Will Mr. Fenlon outline for us what can be done, beyond this €3 million fund, which is really a pittance compared to the challenge that people are facing. What can be done to protect all of those in vulnerable circumstances? What can Electric Ireland do to alert its customers to the fact that they can register their vulnerability and, therefore, will be guaranteed that they will not be cut off. My understanding of what CRU told us was that the instructions to Electric Ireland or any other company is that if their customers register their vulnerability, they cannot be cut off, never mind during this limited Christmas period.
Brian Leddin (Limerick City, Green Party)
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There is less than a minute left for the witness to answer.
Mr. Pat Fenlon:
I thank Deputy Smith. I will ask my colleague Ms Ward to come in on the range of things we do. We have a range of measures in place. The €3 million fund is just one of a number of things we do. We take on board the comments about reaching out to customers and we are continuously seeking to communicate more effectively with our customers on supports available. I will ask my colleague Ms Ward to come in on the range of things we do for customers in difficulty.
Ms Suzanne Ward:
I thank the Deputy. We actively engage with the financially vulnerable customers. We work very closely with the Money Advice and Budgeting Service, MABS, and the Society of St. Vincent de Paul, as Mr. Fenlon outlined earlier. We also have payment plans in place for about 9,000 customers currently. With those payment plans, in some cases we put in industrial meters to help the customers manage their consumption and pay their bill. On the hardship fund, we work very closely with the Society of St. Vincent de Paul and MABS to make sure that fund is directed to those financially vulnerable customers. As Mr. Fenlon said, we are going to continually monitor that fund. We looked at the fund during the Covid-19 period and we had 4,000 customers that needed to benefit and benefited from that fund at the time. We will continually monitor it, but we will be putting in payment plans in that to make sure the financially vulnerable customers are actually looked after. As Mr. Fenlon said, there is also a moratorium on disconnections for vulnerable customers going forward for the winter period. That is coming into effect shortly.
Bríd Smith (Dublin South Central, People Before Profit Alliance)
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I thank Ms Ward but it is really a drop in the ocean-----
Brian Leddin (Limerick City, Green Party)
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Thank you Deputy Smith-----
Bríd Smith (Dublin South Central, People Before Profit Alliance)
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The Society of St. Vincent de Paul would give out more money than what Electric Ireland has given out to people who are vulnerable in energy.
Brian Leddin (Limerick City, Green Party)
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Before I call Deputy O'Rourke, Senator O'Reilly and Senator Ruane, who is substituting for Senator Higgins, have joined us. I will give you the opportunity to come in with a question after Deputy O'Rourke. We are going by five minutes for back-and-forth engagement with the witnesses today. I call Deputy O'Rourke.
Darren O'Rourke (Meath East, Sinn Fein)
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Mr. Fenlon says he has been monitoring the hardship fund. Has demand increased over time? Does he think people are aware of the fund in the first instance and what is the pattern of demand? Electric Ireland stated €3 million has gone to 4,000 customers. That is roughly €750 per customer. Has demand increased as the price of energy has increased? The fund has been in place for a couple of years including during the Covid pandemic. Can I get a sense of the scale of demand and the timing of it?
Darren O'Rourke (Meath East, Sinn Fein)
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How many vulnerable customers, by the CRU's definition, does Electric Ireland have?
Darren O'Rourke (Meath East, Sinn Fein)
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By the CRU's definition.
Mr. Pat Fenlon:
That is the medically vulnerable. I will let my colleague comment on that. I am not sure if we have the specific number here. I will give the overall context.
Pre-Covid about 150,000 of our 1.1 million customers were in debt. By "in debt" I mean they had not paid their bills on time. During Covid that went down to well below 100,000, aided by the €200 Government credit but over the past month or two, we have seen that go back up to 125,000. We are starting to see a trend of an increase in customer contacts.
Darren O'Rourke (Meath East, Sinn Fein)
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I will interrupt Mr. Fenlon because I am managing my time. The €3 million needs to be increased and more people need to be made aware of the fund. Does Mr. Fenlon know what percentage of Electric Ireland's electricity supply is gas and non-gas generation?
Darren O'Rourke (Meath East, Sinn Fein)
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The witnesses do not know.
An issue that has come up repeatedly is dual pricing. Dual pricing in the insurance market has been criticised but essentially, Electric Ireland does that. New customers get a better tariff than existing customers. Has Electric Ireland considered, as has been widely called for by a range of agencies, putting every consumer on the lowest possible tariff? I presume it is making a profit on all tariffs or does it have a loss leader?
Mr. Pat Fenlon:
We give enduring discounts that are available to all of our existing customers. We give a 5% discount to people on pay-as-you-go tariffs that is equivalent to someone paying by direct debit. As we all know, we operate in a competitive market where a range of discounts and offers are available to new customers. They vary continuously and almost on a daily or weekly basis. We have to operate in that competitive market and try to maintain an appropriate level of business for Electric Ireland but we are committed to offering value to all our customers and working with customers who are in genuine difficultly.
Darren O'Rourke (Meath East, Sinn Fein)
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If the CRU insisted that Electric Ireland offer the lowest tariff I presume it would have to act on that.
Darren O'Rourke (Meath East, Sinn Fein)
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How many pay-as-you-customers does Electric Ireland have?
Darren O'Rourke (Meath East, Sinn Fein)
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A disconnection moratorium applies to some customers, including vulnerable customers at the moment and customers more generally at the start of December. Can Electric Ireland give a commitment that it will not disconnect people over this winter? There has been a lot of focus on extreme hardship and on those pay-as-you-go customers. Can it give that commitment and what will it look like? How will it be done?
Darren O'Rourke (Meath East, Sinn Fein)
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Disconnections have increased this year.
Darren O'Rourke (Meath East, Sinn Fein)
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712 for half a year.
Darren O'Rourke (Meath East, Sinn Fein)
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More than half then were Electric Ireland customers.
Darren O'Rourke (Meath East, Sinn Fein)
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And more than half of the disconnections.
Lynn Ruane (Independent)
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I thank the witnesses for their statements. I missed the first couple of speakers and apologise if I cover similar ground. I return to the hardship fund, which my colleagues have had questions on. Mr. Fenlon points to the mitigation measures which are in place for vulnerable customers such as the €3 million hardship fund but separately, he mentions that within the broader regulatory framework, the generation and supply aspects of the ESB must be kept separate. Does that same regulatory separation apply in terms of profits? To be clear, in the first half of this year ESB had a profit of €679 million. I join my colleagues in questioning whether there is a regulatory obstacle to it but after today's contributions and the scepticism around the €3 million figure compared to the broader profits, will Electric Ireland now consider increasing that figure of €3 million?
In July, it was announced that the standing charge would increase by 11.35%. My colleague Senator Higgins had exchanges with the Commission for Regulation of Utilities last week and was told that the basis for the standing charge was a socialisation cost and that the regulator stated that where homes are connected to the network, there are costs associated with providing those network services to those customers that must be recovered. Some of those costs exist even when the customers use very little electricity such as in a holiday home or because they have upgraded their home to A-rated status or whatever else. Perhaps some use solar or photovoltaic, PV, power for their electricity during the day but still require electricity at peak times. There is a basis for having a standing charge. It is a socialisation cost, which ensures that everybody pays their way and that customers who can afford to invest in upgrading their homes are not being subsidised by customers who cannot afford to do so. The increase to the standing charge on your customers' bills does not differentiate nor socialise costs. Disadvantaged households are facing the same increase. What is the basis for the increase in the standing charge, in particular with regard to how the regulator describes what such charges should be used for?
Mr. Pat Fenlon:
I will ask my colleague Mr. Vickers to come in on the standing charge but on the regulatory separation of profits, it is the case that Electric Ireland has to be operated on a stand-alone basis; separate from the generation and networks parts of the ESB. The profit level in Electric Ireland is very modest and for the first six months of this year was practically in line with the same period in 2021. As for the €3 million fund, a number of people have commented on it and we will keep that under review. It is effectively the second €3 million to be put in place. It is early days yet but we will review how that is being drawn down and as we progress through this winter. Mr. Vickers will comment on the standing charges.
Mr. David Vickers:
I thank the Senator. Within Electric Ireland's cost structure we have fixed costs and variable costs and our fixed costs are mainly those associated with running the business and accessing the distribution network. Our variable costs are mainly energy costs these days but there are also variable costs associated with accessing the transmission distribution network and the market. As mentioned, our bills structure has a fixed component as a standing charge and a variable component which is a unit rate. When we set our tariffs, we have to look at the overall costs we are trying to recover and then we look at how our competitors are priced because we have to act in a competitive manner.
As Mr. Fenlon mentioned earlier, our standing charge is about mid-table compared with other suppliers at the moment. When we increased our price most recently, we did not increase our standing charge. Perhaps the Senator is referring to our prior price increase, where we increased both the standing charge and the unit rate. We did that when we assessed the quantum of costs that we were trying to recover. We decided that it was a better allocation of those costs to put some of it on the standing charge and less of it on the unit rate. It does not go to generate any extra net revenue for us as a business. We just felt that it was a more appropriate management of those costs to put some on the standing charge in order that we could lessen the impact we would have to place on the unit rate.
Lynn Ruane (Independent)
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Is it true to say then that the increase in the standing charge means those who can afford to upgrade their homes are being subsidised by those who cannot?
Mr. David Vickers:
When you socialise a cost across a standing charge, you put it across all of your customers. It would benefit households that have more use. Therefore a household of four or five people might feel the benefit of that compared with a holiday home or a household with fewer people in it.
Timmy Dooley (Fianna Fail)
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To follow on from that, Mr. Vickers is saying that the corporate decision that Electric Ireland has taken does not benefit those who make an effort to reduce energy consumption.
Timmy Dooley (Fianna Fail)
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An allocation of cost to whom?
Timmy Dooley (Fianna Fail)
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Consequently, although the regulator and the Government are telling everyone to reduce consumption, insulate their homes, make an effort to reduce the amount of electricity they are consuming to have an impact on our carbon emissions, the net effect of Electric Ireland's decision is to work against that.
Timmy Dooley (Fianna Fail)
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No it is not. With respect, that is a kind of corporate speak. It is spreading costs but it is actually penalising people who have made an effort to insulate their homes and reduce the cost of electricity because it is putting a higher standing charge on them. Mr. Vickers is saying the only reason is because it is easier for Electric Ireland to tell people that it is charging a lower rate of electricity.
Timmy Dooley (Fianna Fail)
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But have they gone up significantly in recent times?
Timmy Dooley (Fianna Fail)
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The cost of the operation of Electric Ireland is part of that. What are the remuneration packages of the senior management of Electric Ireland? What are the scales?
Timmy Dooley (Fianna Fail)
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If Mr. Fenlon does not propose to go into that now, can he provide it to the committee at a later stage?
Timmy Dooley (Fianna Fail)
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Electric Ireland is a semi-State company. I would expect that Mr. Fenlon would be able to provide us with that.
Timmy Dooley (Fianna Fail)
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Will Electric Ireland provide the committee either now or at a later stage with the remuneration scales, including all bonuses, of its senior management team?
Timmy Dooley (Fianna Fail)
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So the answer is "No".
Timmy Dooley (Fianna Fail)
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Okay. We will move on. The answer is either "Yes" or "No", Mr. Fenlon is either going to do it or he is not.
Timmy Dooley (Fianna Fail)
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I am sorry, I do not mean to rush Mr. Fenlon but I have to rush to try to get what I can into the time. We are told that smart meters are supposed to work to assist us to manage the usage of our electricity to consume a lesser amount of electricity at peak times. Electric Ireland has already indicated by the increase in the standing charges that it does not see that as hugely important.
Electric Ireland has a sales team, I assume, which will be engaging with people who want to purchase its product. Does the company incentivise them in a way that would help consumers to reduce their consumption of electricity? If one of the stated objectives of investing in a smart meter is to help people to reduce their consumption of electricity, should it then follow that Electric Ireland would incentivise its sales team for the amount of electricity that people ultimately save or do not use?
Mr. Pat Fenlon:
The distribution of the use of electricity and a reduction at peak time is important to us. That is evidenced by the effort we have put in to the promotion of smart metering tariffs and the smart metering tariffs that we have available, which do provide incentives for customers if they can move their load away from the peak time. We understand not every customer can do that, but we do have alternative offerings available. For example, one of the tariffs allows a free weekend day on a Saturday or Sunday. We do have incentives available in the smart metering tariffs for customers to shift the load where they can. We are happy to work with customers to see what will suit.
Timmy Dooley (Fianna Fail)
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What is the big issue between 5 p.m. and 7 p.m.?
Timmy Dooley (Fianna Fail)
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So it is a lack of capacity or a constraint on capacity.
Timmy Dooley (Fianna Fail)
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We have seen the issue then in recent weeks where EirGrid has indicated the potential for blackouts in that peak period. I will conclude on this point. Mr. Fenlon was CFO of the ESB until recently. He will be aware that the ESB in an auction in 2019 bid a phenomenally low rate to provide capacity. I think it was about €46 per MW. After two years, in 2021, the ESB, having won the contract on a very low rate - or a significant amount of what was tendered - put its hands up and said it would not able to deliver.
Brian Leddin (Limerick City, Green Party)
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Senator Dooley is well over time. I call on Mr. Fenlon to respond.
Timmy Dooley (Fianna Fail)
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I know, but I just want him to comment on the ESB saying it would not be able to deliver. While he was CFO, the ESB had to pay the State a penalty of €4 million for that. To his mind, was that a failure of management within the ESB at the time? Does he accept that the failure or whatever decisions were taken then have impacted and added to the potential for blackouts this year on the one hand, and a significant increase in the cost of electricity into the future? As a result of Mr. Fenlon's failure, as the ESB-----
Lynn Ruane (Independent)
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Some of us are waiting to speak and Senator Dooley is taking our time.
Brian Leddin (Limerick City, Green Party)
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The time is up.
Timmy Dooley (Fianna Fail)
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I am sorry. I let Sinn Féin in ahead of me.
Pauline O'Reilly (Green Party)
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If he wanted to ask that question, he should have asked it first.
Brian Leddin (Limerick City, Green Party)
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I am going to cut across Senator Dooley.
Timmy Dooley (Fianna Fail)
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In conclusion, the cost to the State of having to purchase emergency electricity will significantly add to the cost of electricity in the future.
Mr. Pat Fenlon:
I will try to be brief in my response. The ESB has responded comprehensively to those queries that were raised in the past and they are on our website. They were published in January 2022. The generation business operates in accordance with the rules that are in place. To cut it short, our website has published documents responding to all of those questions.
Brian Leddin (Limerick City, Green Party)
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I thank Mr. Fenlon.
Pauline O'Reilly (Green Party)
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I thank the witnesses for coming before us. Several of my questions related to the standing charge. I would like to continue with the point Senator Dooley mentioned at the start of his contribution. It seems to me that the more the Government uses taxpayers' money to put money into reducing the overall use of electricity, the more the ESB is increasing its standing charge and therefore it is not having the desired impact that it needs to have across households. The poorest in society are the ones who are using the least energy. Does Mr. Fenlon agree with that? In general, the smaller households and those with less income probably use less electricity. They are the ones who are footing the bill when it comes to the standing charge.
Pauline O'Reilly (Green Party)
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Over time, we are going to see a reduction in overall use. That is where all the Government funding is going. It looks a little bit like the ESB is protecting its base and protecting the profits in the long term by putting more into the standard charge than into the unit rate. With respect, that is the first point I would make.
Our guests mentioned the ESB’s competitors a few times and responding to what they are charging for standing costs versus unit costs. The issue I have is that the competitors are dropping out of the market and, as a result, fewer companies are making decisions as to what the standing charge is. Representatives of the CRU who appeared before the committee last week stated that they have no control over what companies do with the standing charge. Is it appropriate that the regulator does not have any control over that, while fewer competitors will be operating in that market and making these decisions for our citizens?
Mr. David Vickers:
We have been set up in the market to compete with our competitors, the other supply companies in the market. Unfortunately, as the Senator mentioned, three supply companies have exited the market, but we hope there will not be any further exits. It is in the customer's interests that the supply market flourish, so we hope that will not happen.
Pauline O'Reilly (Green Party)
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Is it appropriate that the companies would all have that ability to set standing charges when they have such a deep impact throughout society? Is there a better way to regulate the market?
Pauline O'Reilly (Green Party)
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Another point that has been raised by several colleagues during this meeting relates to the fact the companies are handing over much of the responsibility for people who are in financial difficulty at a vulnerable stage to advocate for themselves and to find out that information. We are seeing more and more that it is the most vulnerable who find it most difficult to access information on what is available for them. Will our guests commit that from today they will contact people and make a greater effort to ensure that everybody who is financially or medically vulnerable will have much more contact with the ESB as to what their rights are, whether they can draw down money from a fund and so on?
Mr. Pat Fenlon:
We absolutely want customers who are in difficulty to engage with us. We reach out through every channel we have at the moment, and we continue to review that. We will definitely try to increase that, not least during this difficult period. We are keen to reach out and ensure customers understand what is available, and we will engage with anybody who has an issue.
Richard Bruton (Dublin Bay North, Fine Gael)
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I apologise that I had to step out of the meeting, so if I repeat questions, I ask our guests to ignore them. How is the network charge element of the ESB's price set? There has been some controversy about the extent to which network charges should be stable but there seem to have been increases in standing charges and that has caused people considerable concern.
To what extent is the additional €2 billion wholesale energy cost built into the price the ESB is charging customers and how much of it has yet to be seen on bills?
It is disappointing that even the ESB, as the best company, has activated only one in six of the smart meters. Does the reason for this relate to general data protection regulation, GDPR, restrictions, and have our guests spoken to the Data Protection Commissioner to see whether there are ways in which, during a crisis of this nature, we can get round some of those GDPR restrictions that might be in place? It is in all of our interests that people have the opportunity not only to reduce their bills but also to switch their electricity use to the time when renewables are on the system.
The ESB is significantly increasing its daytime rate for those who use smart meter charges and the very low rate applies at between 2 a.m. and 4 a.m. It is difficult for consumers to regulate their consumption to have peaks between those hours. Can it be made a little more user-friendly, perhaps even by changing the times in order that when there is plenty of renewable energy, the company will not charge consumers an excessive rate? These meters can accommodate dynamic pricing, and it seems that the charges the ESB is publishing might not be very attractive to people.
Mr. Pat Fenlon:
There are four questions there. I will ask Mr. Vickers to answer the question about the increase in wholesale costs to €2 billion and I might ask Ms Ward to comment on the GDPR question. Network charges are regulated by the CRU. As one supplier in the market, we basically accept a regulated network charge as approved annually by the CRU and receive it on the same basis as every other supplier in the market.
Regarding the time period from 2 a.m. to 4 a.m., that is one. We have three different offerings available. There is one with a peak rate, a shoulder rate and a lower rate off peak, there is one that has that 2 a.m. to 4 a.m. rate and there is one that has free electricity at the weekend on either Saturday or Sunday. It depends on someone's profile. The one with the low night rate might suit an e-car use or he or she could charge it at the weekend so it very much depends on individual circumstances. It is early days when it comes to the roll-out of smart metering. About 900,000 out of 2 million meters have been installed. Out of 400,000 of our customers, 70,000 are already on smart tariffs. This number is increasing on a daily basis. We will continue to evolve our offerings depending on what we learn from our customers and what does and does not appeal to them but there is a range available there that will suit some customers over others.
Richard Bruton (Dublin Bay North, Fine Gael)
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Those on smart meters will pay less for their electricity than those who do not have them because obviously they are using cheaper electricity to generate. Electric Ireland is not trying to break even on this. It is planning to give a price concession through the use of smart meters.
Richard Bruton (Dublin Bay North, Fine Gael)
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The point I am trying to get at is that if they use cheaper renewable energy, will they get the benefit? Will they get the lion's share of the benefit or will it just be that they are active consumers and doing it in the national interest?
Mr. Pat Fenlon:
Ultimately, if we as a country - all suppliers and customers - are able to reduce that peak load, distribute and possibly use more electricity at night when there is excess wind, we will reduce the cost of providing electricity in the country as whole, which means the wholesale price of electricity will come down, which will benefit all customers - our customers and those of other suppliers.
Richard Bruton (Dublin Bay North, Fine Gael)
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But some smart meter people are worried that they will running hard to try to spread the thing but will not actually get cheaper electricity at the end of that effort. People are expressing that worry to me.
Mr. Pat Fenlon:
It is going to evolve. Our overall objective is to help people manage and control their electricity consumption. This will benefit everybody the more people get on and can smooth out that load. I might ask Mr. Vickers to comment on the question about the increase in the wholesale cost of €2 billion.
Mr. David Vickers:
The Deputy mentioned that the wholesale markets are up substantially. In summary, the gas market is up by 500% while the electricity is up accordingly - about 300%. Given that as a rule of thumb, electricity makes up about half of a consumer residential bill, that would imply that an adjustment of about 150% was needed in bills to reflect the current electricity market. If I go back year on year, Electric Ireland has increased its bill by about 100% to 120% if I go back just over a year. In answer to the question, I believe most of what has happened in the wholesale market has been adjusted for in the last set of price changes by suppliers. If there are more to come, and it is unclear, it is a direct function of what happens in the wholesale market over the next number of months.
Lynn Boylan (Sinn Fein)
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In his opening statement, Mr. Fenlon mentioned that a number of providers have left the market. Examples include Bright Energy, Iberdola Ireland and Panda Power. Given that Electric Ireland is the supplier of last resort, what impact has those companies leaving the market had on the bills of Electric Ireland customers? What percentage of the cost is it? Unfortunately, we do not have a nationalised electricity supplier and Electric Ireland is in a competitive market. Is there not a cost to Electric Ireland consumers caused by those companies leaving the market?
Mr. David Vickers:
You cannot plan for a supply company exiting the market.
When one does, as Panda Power has recently announced, its customer demand needs to be acquired and procured in the prevailing wholesale market. We are doing that for Panda Power and we did it for previous customers. There is a cost associated with that and we are working with the CRU to understand a framework for compensating Electric Ireland for taking on that cost as its supplier of last resort.
Lynn Boylan (Sinn Fein)
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Would Electric Ireland support a type of bond? It is wrong that Electric Ireland will pick up the tab for companies going out of business but it will then pass the cost on to consumers, or else it will be passed on across all electricity customers. The example I used when CRU was before the committee was that of Iberdrola, a profitable company which is still active, albeit not in the Irish market. Would the witnesses be in favour of a bond system whereby these companies cannot just walk away and leave Electric Ireland to pick up the flak?
Lynn Boylan (Sinn Fein)
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Currently that cost is being passed on to consumers.
Lynn Boylan (Sinn Fein)
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On pay-as-you-go meters, which of the packages Electric Ireland has for households is the most profitable? Which is most successful in bringing in revenue?
Mr. Pat Fenlon:
It is not that any one package is more successful. Like any retailer in a competitive market, we have a range of offerings. The bulk of our customers are on the standard 24-hour rate, with enduring discounts. We have a range of products in place which changes all the time, depending on what is going on. We operate in a competitive market and have to respond to that market in the way we think beneficial to providing value to our customers.
Lynn Boylan (Sinn Fein)
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Does Electric Ireland have a policy that promotes pay-as-you-go meters? In the call centre, when dealing with customers over the phone, is the policy to promote pay as you go? Is pay as you go a profitable package or is the company making a loss on it?
Mr. Pat Fenlon:
Pay as you go can be divided into two: people who choose to go on it for lifestyle reasons and people who go on it because it is in their best interests in terms of managing paying their bills. In many cases, that decision is made in consultation with the Society of St. Vincent de Paul or MABS. They advise the customer and we work with them to install it, if that is deemed the best option for that customer. There are additional costs associated with that but we offer the pay-as-you-go customer the same standard, with the 5% discount, that a direct debit customer gets. We try to look after those customers as best we can.
Lynn Boylan (Sinn Fein)
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Electric Ireland does not make a loss on them, especially the ones being offered to vulnerable customers.
Lynn Boylan (Sinn Fein)
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For pay-as-you-go meters, does Electric Ireland collect data on people who self-disconnect? Does it pass such data on to the Society of St. Vincent de Paul? Who collates the data on people self-disconnecting on pay-as-you-go meters? If somebody is not topping up their meter, does Electric Ireland collect those data and feed them into the CRU or the Society of St. Vincent de Paul?
Mr. Pat Fenlon:
We have to be mindful of GDPR and customer confidentiality. We work closely with the Society of St. Vincent de Paul and MABS. Generally, customers in difficulty who we are having discussion with will be in that consideration. We have to be mindful of our obligations. We cannot communicate out individual customer issues.
Lynn Boylan (Sinn Fein)
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Not individuals, but in general does Electric Ireland know how many or what percentage of pay-as-you-go customers self-disconnect? Does it collect those data and feed them into the Society of St. Vincent de Paul, MABS or the CRU?
Mr. Pat Fenlon:
At an overall level, we have regular discussions with the Society of St. Vincent de Paul and MABS about the trends we see. It is a relatively small number because we do everything we can to make sure that does not happen.
We have overall discussions with the Society of St. Vincent de Paul and MABS about what they see on the ground and what we see because we see different things. We share that at a suitable level.
Lynn Boylan (Sinn Fein)
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Is that trend going up?
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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I very much thank Mr. Fenlon and his colleagues for attending. The issue of the standing charge has come up quite a bit. I ask for a note to be sent to the committee on the calculation of that charge. I have received feedback, as have colleagues on the committee, regarding people who are extremely apprehensive about having no wriggle room in respect of that charge. It has increased over the past while, so a briefing note on it would be most welcome.
I will turn to an issue also raised by my colleague, Senator Dooley, namely, that of customers being told to use appliances at off-peak times - we have seen those rates increase over the past while - and what was said about 2 a.m. to 4 a.m. being the hours for the cheapest rates for some of the tariffs Electric Ireland is offering. That has, for example, implications for multi-unit developments, such as apartment complexes, where everyone is running machines. We then get complaints regarding noise. We obviously have to consider more social hours. However, people who are trying their best to consume less energy, and at the most beneficial times as regards charges, feel snookered right now because they are being told to use energy off peak but off-peak rates are going up at a rate of knots. I ask for an answer to that.
I note that €3 million has been set aside for the hardship fund. How many customers does Electric Ireland expect to avail of that? The company has earmarked that amount. It would be interesting to hear what its expectation is in that regard. Equally, on smart meters, I know that Electric Ireland works with many of the charities in the context of pay-as-you-go meters, but sometimes the problem with them is the delay in getting them installed. How many requests for pay-as-you-go meters are outstanding with Electric Ireland right now? If I have time, I will come back in later.
Mr. Pat Fenlon:
I am happy to provide a briefing note on standing charges. To put it into context, I remind the Deputy that the standing charge is approximately 15% of the typical end-user bill. I will ask my colleague to come in on the complementary €3 million fund and the number of users.
I will have to come back to the Deputy on outstanding requests for pay-as-you-go meters, unless one of my colleagues has the number to hand. I do not think it is that high but I have not got the exact number to hand.
On off-peak rates, overall rates have gone up but where people have smart meters installed, and more than 900,000 have been installed throughout the country - 400,000 of the customers involved are with us - depending on customers' circumstances, there are a few different options, which we hope will allow many customers to take more control and maybe move to a lower rate where they can. We understand that is not feasible or practical for people in certain circumstances but we are trying to make different options available for customers so they can avail of that. We understand circumstances are different in individual cases.
On the number of users of the fund, it is too early to say for this winter coming because it has just started.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Is there an approximate figure? Electric Ireland has set aside a certain amount, so it must know, or even have a guesstimate, of how many customers it is looking at.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Okay.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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I have just a minute left. The difficulty during Covid was that people were still in receipt of money and, in the vast majority of cases, were still working. This is a cost-of-living crisis. People may be working but they do not have enough set aside to cover the cost of energy. That number may exceed what Electric Ireland earmarked for Covid.
Mr. Fenlon made a point about individuals being reluctant or maybe unable to move over to a smart meter. What is Electric Ireland doing for its existing customer base? This is a problem for all utilities. A customer who is locked into a traditional tariff does not get a call to say that there is a cheaper rate. What is Electric Ireland doing to incentivise, encourage and inform its existing customer base, notwithstanding those customers it will inherit from Panda and others that have exited the market? What is it doing to ensure that those who are already with Electric Ireland know that better tariffs are available to them?
Mr. Pat Fenlon:
We have been one of the most active suppliers in the market when it comes to promoting smart metering. We have an advertising campaign under way. More than 70,000 of our customers, of 400,000, have smart meters and are availing of a smart tariff. That is increasing. We aim to get that to more than 100,000 by the end of the year. We are actively promoting that through advertising campaigns.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Electric Ireland is promoting that externally. It is promoting that to all customers. What is it doing for its existing customer base? Is it doing any direct mailing or targeting to inform the existing customer base?
Brian Leddin (Limerick City, Green Party)
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I thank Mr. Fenlon, Ms Ward and Mr. Vickers for coming in this morning. It was an engaging session. We appreciate their time and that engagement. We will suspend to allow the next witnesses to come in.
Brian Leddin (Limerick City, Green Party)
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I welcome before the committee representatives from ESB Networks, Mr. Nicholas Tarrant, managing director, and Mr. Joe Duignan, regulation and commercial manager. Is Mr. Tarrant going to read the opening statement?
Brian Leddin (Limerick City, Green Party)
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I apologise for interrupting but I must read out the note on privilege. We read it earlier but our guests were not present at that stage. I will read it again. Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. If the witnesses' statements are potentially defamatory, in respect of an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with all such directions. I ask Mr. Tarrant to continue.
Mr. Nicholas Tarrant:
I again thank the committee for the invitation to the meeting. I am joined by Mr. Joe Duignan, the regulation and commercial manager for ESB Networks. We welcome the opportunity to speak to the committee about our central role in facilitating the transition to a net-zero society and achieving the targets set out in the Government's climate action plan.
This is a time of significant concern for both industrial and domestic customers, with large increases in the cost of electricity and the impact of the Russian invasion of Ukraine, together with concerns about security of supply. It is more important than ever that Ireland accelerates its climate action response and achieves improved energy security based on a low-carbon energy system.
I am briefly going to explain ESB Networks’ role in the electricity sector and then I will cover a few key points on renewable connections. In our submission we also included a few summary points on the national smart metering programme and our national networks local connections programme. Both of these programmes are building blocks for the energy transition and the electrification of heat and transport but in the interest of time I do not plan to cover them in this introduction, although I am happy to take any questions on them from members.
I mention the role of ESB Networks. ESB Networks plans, builds, maintains and operates the electricity distribution network. We also build and maintain the electricity transmission network, the planning and operation of which is the responsibility of EirGrid. Since 1999, these licensed activities have been overseen by the Commission for Regulation of Utilities, CRU. ESB Networks is a ring-fenced part of ESB Group and there is strict regulatory separation between ESB Networks and the areas of ESB Group responsible for generating and selling electricity. ESB Networks has served all electricity customers for 95 years and we have a proud history of delivery and innovation. We work every day to deliver electricity safely and reliably to all customers, irrespective of who they buy their electricity from. We provide a 24-7 emergency response. During outages in severe weather, our crews work to restore electricity to affected areas as soon as is it is safe to do so.
We have approximately 2.4 million customers and to give a scale of the network we have: 158,000 km of overhead lines; 27,000 km of underground cables; and 670 high-voltage substations. Approximately 30,000 new customers connect to the network every year. The CRU approves the electricity network investment and operation expenditure through five-year contracts called price reviews. ESB Networks invested €5.3 billion over the past decade and during the period of the price review from 2021 to 2025, which is Price Review 5, we plan to invest €4.4 billion in electricity infrastructure. Each year our investment programme is delivered through our 3,400 employees and specialist contractors, and is supported by a global supply chain.
I will move to ESB Networks and climate action. The electricity distribution system is evolving to become a low-carbon electricity network where 80% of the electricity generated in Ireland will come from renewable sources by 2030. The electrification of heat, transport and our economy will see citizens and businesses adopting low carbon technologies, including heat pumps, electric vehicles, and microgeneration such as roof top solar. ESB Networks is at the centre of the transition to a low carbon energy society, and we are proud of our leading role in this transformation. In fully supporting the Government’s climate action plan, ESB Networks has delivered all our lead actions to date and we are supporting the progress and delivery of many other actions.
I will make some final comments on connecting renewables to the electricity network. Ireland and ESB Networks have a strong track record in connecting renewables. Today there are over 5 GW of renewable generation connected to the electricity system. We expect to have connected 25 new grid-scale renewable wind and solar projects during 2022, increasing the total to 5.4 GW. A further four battery energy storage projects are also expected to be connected, totalling 80 MW. The combination of the Government’s renewable electricity support scheme, RESS, auctions and the regulated connection process is delivering a strong pipeline of projects each year. These are essential to ensure a steady drumbeat of projects connecting to the system each year between now and 2030 in order to reach the climate action plan targets. ESB Networks will continue to work in partnership with generators and all key stakeholders to ensure delivery of these targets.
Since 2011, electricity network generators have the option to build their grid connections, except for specific works that ESB Networks must carry out, such as work in live electricity substations. This gives generators control and choice over who builds their grid connection. When customers choose ESB Networks to connect a generator to the system, we design the minimum technically acceptable connection method. Our charges are benchmarked and are approved by the CRU. Costs vary depending on the upgrade works required. Regulated charging policy requires that the cost of upgrade works to the network is borne by the generator.
I will finish with some of the recent key achievements in this area. The year 2022 is likely to be a record year for renewable generation growth, with approximately 700 MW of new renewable generation expected to be connected, bringing the total to 5.4 GW. We are processing in the region of 90 grid-scale connection projects every year. These include commercial solar and wind projects, community projects and auto-producers.
We have also put systems in place to allow for electricity suppliers to settle energy payments for microgeneration electricity exported to the grid. Over 40,000 microgeneration customers are now registered with ESB Networks and we expect many more to do so over the coming years. In December 2021, in line with the climate action plan of 2021, CAP 21, we launched the mini-generation pilot for connections of less than 50 kW. We have since extended this to 650 applications. Last week, we were very pleased to launch a small-scale generation pilot for connections between 50 kW and 200 kW.
In summary, there has been very significant progress in the growth and deployment of renewables and the initial stages of the electrification of heating and transport. The collective challenge now is to build on the very positive progress to date and to achieve the targets in the Government’s climate action plan, and beyond that to net zero. We are happy to take any questions from the committee.
Brian Leddin (Limerick City, Green Party)
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I thank Mr. Tarrant. As we have just over an hour left, I will be strict with the time. I propose, as in the previous session, that five minutes be given to members for back-and-forth engagement with our witnesses. Hopefully that will ensure everybody gets sufficient time. Is that agreed? Agreed. I call Deputy O'Rourke.
Darren O'Rourke (Meath East, Sinn Fein)
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I thank the witnesses. I will focus on the cost of connections and the speed and flexibility of the organisation in facilitating connection requests. We have heard from a number of representative groups and community groups that the cost is very expensive by international comparison and prohibitively expensive in some cases for community groups that might be considering projects around renewables. I note what is in the opening statement but what would the witnesses say in response to that charge?
Mr. Nicholas Tarrant:
Since 2011, customers have had the option of building the connection themselves for their generation connection. This means that over the last decade or so, customers have had a choice as to where they go. For renewables connections overall, taking RESS-1 connections as an example, approximately 70% of the connections are being built by the developers themselves. In that case, they have control over the costs around the main part of their connection. Then there is a component that we have in our live substations. The connection charging policy is something the CRU consulted on. It has gone through a benchmarking exercise and there have been opportunities for developers to comment on this. Ultimately, the CRU has approved our overall charges. The Deputy asked specifically about community energy projects. I will ask Mr. Duignan to talk about that as he is heavily involved in that area.
Mr. Joe Duignan:
I will expand on a few points. There are a number of elements to a grid connection. There is the grid connection or the electrical connection, which is our portion, but there is also landowner consents, land access and so on. Sometimes people put it all in one pot. For the electrical grid connection, as Mr. Tarrant said, the contestability is there. Customers have been able to elect to do it for the past ten years or more. The way we do our element is by having what is called "least-cost technically acceptable". We do a technically acceptable method, which is carried out by our planners and specialists, and there are planning standards that are approved by the regulator for that. We look for the minimum technically acceptable level. We are not looking for the Rolls-Royce model here. We are looking for something that works and is safe for people on the network and other users. Once we have designed that, there is a charge associated with it. The regulator's policy is that the generator who drives the work pays for it. Otherwise, it would have to be socialised across other customers and that is not a decision for networks. That cost is there. Our generator standard charges were benchmarked internationally with consultants and the regulator. They are benchmarked with the UK distribution network operators, DNOs, and they come out favourably. There is consultation by the regulator on this where the industry can put in its charges and compare. It is quite a thorough process.
Darren O'Rourke (Meath East, Sinn Fein)
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I will interrupt there because I am conscious of time. The other issue we hear from industry is around work practices within the organisation that restrict the time of day or year when connections can happen. Is it to do with when the clocks go forward and back? Is it during that period? Can the witnesses speak to that charge? It seems very strange to me.
For example, one cannot get work done before 9 o'clock in the morning or in the winter months. Are these long-standing practices appropriate at this time?
Mr. Nicholas Tarrant:
The issue has a couple of dimensions but the most important one is access to the network. There are restrictions as to when outages can be taken on the transmission network and that depends on the time of year. At times of high demand on the system one wants to keep as much of the electricity network available to meet the needs of customers at that time. With a high demand period over the winter one tends to minimise outages, which can have an impact as to when one can connect or do work on the transmission system or even the distribution system. We view the transmission outage programme as a window over the spring, through the summer and into the autumn. A huge amount of work is still done during the winter period. For example, we expect a lot of commissioning activity to take place as we approach the renewable electricity support scheme or RESS 1 auction deadline at the end of next year.
In terms of hours of work and that kind of issue, we operate 24-7 and we have an on-call rota that gets customers back on supply. We also have network technicians, supervisors, engineering officers and engineers who work every day to connect people to the network. They do lots of other work around maintenance, new projects and in many other areas.
Brian Leddin (Limerick City, Green Party)
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As five minutes have elapsed I call Deputy Bruton.
Richard Bruton (Dublin Bay North, Fine Gael)
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I thank the delegation for their presentation.
I wish to probe the issue of the approved network charges. Earlier we heard that CRU approved these regulated charges so Electric Ireland plays no role in them. The network charges have increased so has that been the driver of increased standing charges? Can the ESB show the network charge on the bills provided to consumers so that they feel there is some element of the increase, which they may have to pay, in terms of the charge for running the network?
Does the ESB think that energy companies can do more to make it easier for consumers to opt for solar energy, smart technology, insulation, sharing platforms or electric vehicles? Can more be done? We seem to have reached a moment when customers are under a lot of pressure and companies like the ESB need consumer goodwill to roll out infrastructure worth €4.4 billion. The ESB has a perfect opportunity to step up to the plate and say, "we are going to help a national energy resilience campaign and help our customers". If that were done it would result in a win-win situation because people would see the benefits of having more renewables on the system and allowing networks to be built. We have heard elsewhere that planning objections have been a big drag on the ESB's system. This is a moment when the ESB could do a very positive thing that would sell the idea of more renewables on the grid.
Mr. Nicholas Tarrant:
The Deputy has asked a number of questions. I shall start by responding to the first question about ensuring network charges and tarriffs appear on bills.
The CRU approves network charges because the ESB is a regulator monopoly notwithstanding the point made about contestable connections for renewable generators. That goes through a process where our revenue is set every year. As we collect revenue from the suppliers we do not control what goes on the bills that suppliers issue to customers. We have a certain charge and I ask Mr. Duginan to comment on the exact quantity, say, for the distribution network that is charged and passed on to customers.
The Deputy made an important point about building infrastructure and the long-term nature of these investments. Ultimately a company like ours, and the regulatory model for a company like ours, involves investing over decades and then recovering that money through customers' bills. For example, the distribution network is over 45 years but the transmission network is over 50 years. The way to minimise the impact on customer bills in the here and now is to recover that money slowly over time in order to recover those investments.
In the previous session, reference was made to the scale of the network charges. I ask Mr. Duignan to comment on that and on the wider role we have in the network or the system to do with encouraging decarbonisation. Perhaps we will come back to that. Mr. Duignan will comment on the distribution charges.
Mr. Joe Duignan:
There are a few elements to the distribution charges. As Mr. Tarrant has said, all the charges are approved by the regulator and then we charge them on to suppliers. How the supplier passes that on is up to them so they can have different bundles and packages and so on. That is different for them. With our charges, if we go back one and half years ago before the current situation with the price of electricity, typically the distribution element of the tariff for a customer would be in and around 22% or 23%, or in that ballpark. It has not moved since in terms of the euro amount. What has moved is the wholesale price of electricity. The overall bill has gone up but the distribution element has not. I would say that this 22% or 23% element has dropped significantly.
The Deputy asked about the fixed and variable elements. Again, from a distribution to perspective, our tariff is about one third fixed and two thirds variable. In other words, one third is a standing charge, on average, across customers, and the other two thirds are variable. Our actual costs for providing the infrastructure are more fixed than variable. They are quite low. In comparison with other European jurisdictions, the trend is to have higher fixed costs for the network element of the bill. That trend is going up even higher, but ours have been stable now, at about at about 30% or thereabouts, for a while.
Mr. Nicholas Tarrant:
There is an absolutely massive change going on in the industry overall, and that is leaving aside the whole volatility that is having a huge impact on customers at the moment with prices. The whole journey around electrification and achieving the 80% target out to 2030 is a massive challenge for the entire industry. If one takes the smart metering programme as an example, in respect of which there has been a great deal of discussion and many questions, ultimately, these are building blocks of infrastructure that will enable customers over time to really get value from their energy providers and will be really crucial. As well as things like the smart metering programme we also have a climate action plan around creating more flexibility for customers in how they manage their demand. Ultimately, the long-term role of smart metering will support the electrification of transport with people charging the cars at night time, for example, and will support the Government's target of almost 1 million electric vehicles by the end of the decade.
The challenge now is to keep working as part of a wider society and to drive on with the change of achieving the 80% target and then on to net zero. We are planning to play a key role in that. We are launching a customer portal, for example, to give access to customers of their data in the smart meters later this year and into the new year. We continue to promote micro generation, mini generation, and the continued electrification of transport.
Pauline O'Reilly (Green Party)
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I thank the witnesses for coming before the committee. It is safe to say that this area is quite complex. For customers, it is quite complex. We had several sessions and we have an understanding of who has responsibility for which area. Even if one is to look at the climate action framework, several agencies are involved in a lot of those particular areas. One of those is smart metering. I believe it is between the ESB and the CRU. As already indicated, almost 1,000 have smart meters at this stage. When I asked for details about how many are actually using the tariff, it is actually very low. Three seems to be an awful long way to go - I believe that 40,000 people are on the best tariff based in the context of their smart meters. What is being communicated to me is that people are opting to go without the smart meter, and to go another route because they have identified that it is cheaper and particularly for electric vehicle owners, which would be one aspect. What more can the witnesses do to play their part? It is pointless having everybody signed up to a smart meter if they are not deriving the benefit from it.
The second point relates to renewables. The ESB has a key responsibility there. Do the witnesses feel that they are ready for the scale of the challenge, particularly when it comes to offshore wind? The target is now 7 GW by 2030. There is a massive amount of work the ESB needs to do in order to be able to facilitate companies investing here. Where is the ESB at in that regard, and is it ready for the challenge?
Mr. Nicholas Tarrant:
Smart meters are a fundamental foundation for the climate change that is coming. We are hoping to hit the target of installing 1 million smart meters this month. By the end of 2024, the vast majority of customers will be on smart meters. We are at the early stages of people adopting smart tariffs. Ultimately, by providing data we expect to see more competitive offerings coming in from suppliers, providing different options to suit people's lifestyles. We expect it to develop and grow. This is part of a European and even a global change relating to having data available to customers who can use that to best effect. I know it is easy to say that at the moment because customers are really suffering out there. However, over the years ahead it will fundamentally change how customers use electricity and engage with their suppliers and the whole climate transition. It will be a very important programme.
Regarding our promotion of it, we are doing a lot to highlight the benefits of smart meters for customers. At the end of the day, we are effectively a neutral party in the system in installing this infrastructure and maintaining it. There is the benefit of not having estimated bills for customers which has been a major issue for people. Over time, we will see development in the market regarding charging EVs at night-time, weekends or whenever it might be. We are committed to playing our part and promoting the increased use of smart meters over the long term, which is fundamental for the electrification of heat and transport.
It is worth summarising briefly the different roles relating to offshore energy generation. The Government made a decision that the transmission asset owner of the offshore assets is EirGrid. ESB Networks' role is as the onshore transmission asset owner. The fundamental issue for us when it comes to offshore energy generation is the scale of the reinforcement work that is needed on the transmission system to enable the achievement of the climate action plan targets. There is an enormous amount of work to be done on the transmission network in the east coast area where the majority of the first phase of projects will be coming in in the coming years, particularly in the Dublin area. That is in addition to us developing and investing in the distribution network at the same time. There is an enormous scale of work.
We are working closely with EirGrid on the early stages of the development of the projects for which it is responsible. ESB Networks has responsibility for the detailed design and procurement, managing the contractors and managing the projects through the delivery phase. There are many different strands relating to building up key resources, and going out and procuring contracts in the marketplace. With so much to be delivered across climate action in general, access to resources will be key in growing the amount of delivery that is possible. That will be the challenge and ESB Networks is up for that challenge. We know what is ahead of us and we are committed to doing everything we can to play our role in the growth of offshore wind energy.
Lynn Ruane (Independent)
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I thank the witnesses for their opening statements. I have two questions. The opening statement referred to demand flexibility. What actions or measures will ESB Networks take to reduce demand for large energy users such as data centres? We know that the consumption of energy by data centres increased by 265% between January 2015 and December 2021. We need to be clear that that burden cannot be carried by households. I would like to discuss the measures being taken to reduce the consumption by high energy users.
While I welcome the emphasis on climate transition, this year the Irish Independentreported that the ESB had resumed purchasing coal from the Cerrejon coal mine in Colombia to be burned at Moneypoint. Christian Aid, which works with human rights defenders in La Guajira, the region where the giant mine is based, has consistently raised how communities displaced by the mine have chronicled a litany of abuses, including-----
Brian Leddin (Limerick City, Green Party)
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I do not think that is a question for ESB Networks.
Is that fair? I say that so Senator Ruane can save time. That would not be a question for ESB Networks. It is a question for the ESB certainly but ESB Networks is here to discuss its role, which is grid development, network charges and so on.
Lynn Ruane (Independent)
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Perhaps I will finish the question and the witnesses can take it back to the ESB.
Brian Leddin (Limerick City, Green Party)
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Senator Ruane should just be mindful of her time.
Lynn Ruane (Independent)
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Yes. That is grand. I outlined the abuses and the pollution on the land and in the air. I know that the ESB is a member of the Bettercoal initiative, but aside from that, has the ESB implemented any form of due diligence on the supply chain? I take the advice on who the question may be directed at, but perhaps it is something the witnesses could take back or the committee can write to the company on behalf of the committee to ask the question if it is not relevant to the witnesses today.
Mr. Nicholas Tarrant:
To clarify that point, it is a question for the generation part of the ESB that looks after Moneypoint, but we are happy to feed back the question or if the committee chooses, it can write to the ESB to get a response on it. Unfortunately, it is not something we can comment on today.
There are probably a couple of dimensions to answering the question on data centres and demand. I might ask Mr. Duignan to comment on the decision made by the CRU on the policy on connecting data centres and where that is at. I might come back to the second part of the question, which is what happens in the event of system alerts or emergencies in situations relating to large users and domestic customers. Mr. Duignan might first take the question on the announcement by the CRU on policy on data centres.
Mr. Nicholas Tarrant:
The second place where it comes up is if during the course of the winter there was a system alert or a system emergency or where there were challenges around supply meeting demand. This is something that is managed through EirGrid, with which we work very closely, on a dynamic basis. If there was a situation where there was a tight system and a need on a planned basis to reduce demand, various steps are gone through including mandating extra-large users to reduce their demand at that time. There has been ongoing engagement with the extra-large users by both ESB Networks, as the distribution system operator because we have data centres connected to our network, and the same with EirGrid, to reduce demand in those situations.
Lynn Ruane (Independent)
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I thank the witnesses.
Lynn Boylan (Sinn Fein)
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I will just pick up on that last point about large users coming off the transmission network. Does ESB Networks have to pay companies for coming off the system? I am not sure whether it is ESB Networks or EirGrid, but I believe there is a facility in that regard for a payment to be made to the companies to use their own power generation.
Mr. Nicholas Tarrant:
Yes, a number of mechanisms are in place through the market to do with this, including demand-side aggregators looking to manage demand and to bid that into the market. That is perhaps a bit outside of our remit in ESB Networks, but what I was more referring to in my previous answer was a situation where the electricity demand is very tight on a particular day and there could be situations where steps would have to be taken to manage demand in that situation, including requesting or mandating extra-large users to reduce their demand at those times so that we EirGrid could balance supply and demand on that particular occasion, but there are other mechanisms to do with this in the DS3 market and the wholesale market, which I do not know-----
Lynn Boylan (Sinn Fein)
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Okay, so the DS3 is the one they are compensated for.
Lynn Boylan (Sinn Fein)
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ESB Networks is off the hook so. I think my next question does fall into ESB Network's remit. It relates to us scaling up to the challenge to meet the renewable targets. It does create a significant opportunity for employment but, equally, we know we have skills shortages across the board and the CRU and EirGrid seem to have problems recruiting people.
Is it a similar situation for ESB Networks? Has the company forecast how many people it will need and what skills we need to train people in? Have the witnesses had the conversations with the relevant Ministers about what they are doing to make sure that we do have those people as they are needed?
Mr. Nicholas Tarrant:
There is no doubt but that there are significant challenges with recruitment, the retention of skills and growing the skills base that will be needed for the climate transition. I mentioned in my opening statement that we have approximately 3,400 employees. We have approximately 1,400 network technicians who are out working on the network every day. We are planning to bring in approximately 90 in total this year into that group alone. We could be recruiting somewhere in the region of 300 to 400 because we will have a retirement profile as well in the next couple of years. We have a very active apprenticeship programme, which is crucial for us. This year we have the highest number of first-year apprentices we have had, which is evident if we look back over the past four to five years. We have 96 first-year apprentices. I often call them the lifeblood of the company coming in at that level, but there are many other areas as well where we actively looking to recruit at the moment, including specialist engineers for network planning, for example, project managers and many others. This is a very important time to grow the staff, but also our contractor base is another key area. We had a contractor conference in June, where we met our contractors to talk to them about scaling up the delivery for the years ahead. It is in order that when we are preparing projects at distribution level and jointly with EirGrid for transmission, we have the contractor base externally to both organisations but also our own internal resources. It is a critical area. It is a massive opportunity for the country in terms of employment and the skills base.
Lynn Boylan (Sinn Fein)
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But does Mr. Tarrant think the Ministers are aware of what we need to do either to encourage the recruitment of people to come into the country to take up those highly skilled roles, or to put in place third level courses? Are the dots joined up in terms of forecasting what we are going to need and investing in those skills and recruitment?
Mr. Nicholas Tarrant:
I think there is a significant amount of debate about this and a lot of knowledge. There is a high level of awareness. That is fundamental, but ultimately we must convert it into action and get the people we need. We have spoken to contractors who are looking to expand and bring in people from outside the EU, for example, because of the shortage of skills. The point about the climate transition is that it is not just Ireland, every country is going through the same thing. I would say there is a high level of awareness but there is always more that can be done to keep the momentum going so as to have the skills in this country to deliver what is needed.
Lynn Boylan (Sinn Fein)
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So if Mr. Tarrant was the Minister, what would he do? What are the key things that need to happen given that he says more could be done?
Mr. Nicholas Tarrant:
At Government level it is about continuing the existing support for all the initiatives that are under way. We must continue to have the policy frameworks that do exist in terms of looking at investment for the future. That is what gives confidence to people to be able to build the resources and to have the investment profile. There is a very good environment at a policy level for that to happen already.
Lynn Boylan (Sinn Fein)
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I thank Mr. Tarrant. I think I am out of time.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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I welcome the witnesses and thank them very much for their engagement this afternoon. I compliment the engagement that ESB Networks has with us in the Oireachtas through the company's Oireachtas team, which is very proactive and responsive to queries. That is appreciated.
In the opening statement it was mentioned that ESB Networks plans, builds, maintains and operates the electricity distribution network. It was further stated that the system is evolving and it is to become a low-carbon electricity network where 80% of the electricity generated in Ireland will come from renewable sources by 2030. We have a national target to meet and ESB Networks has a target to meet by 2030 and onward to 2050. What progress has been made to date, in particular on solar panels? What are the plans in the short term as well as the long-term strategy? I have a few others questions but I ask Mr. Tarrant to respond to that question first please.
Mr. Nicholas Tarrant:
There has been a significant amount of development in the solar area recently.
To give a sense of this, at the renewable energy support scheme, RESS, 1 auction, there was about 1,031 MW. A total of 51 projects are in distribution and ten of them are with the transmission system operator, TSO, but about 500 MW of that is solar. The completion of those projects is scheduled for the end of 2023. The total solar connected at the moment amounts to 153 MW approximately. As for RESS 2, between wind and solar, there is about 2,000 MW, about 1,500 of which is solar. These are projects that have come through the connection process, whether ESB Networks or EirGrid, and then through the RESS auction. By the end of 2025, those projects that have come through that will be connected to the grid.
Turning to the smaller scale projects, a variety of microgeneration is on rooftops and there is also mini-generation and small-scale. I might pass to Mr. Duignan to comment on those areas, which are also very important.
Mr. Joe Duignan:
There are a few elements. I might start with microgeneration, which relates to domestic houses and solar power. There has been significant development in that space in recent years. Getting a grid connection is a free process and requires a simple application form. A total of 40,000 customers are now registered with microgeneration. In the year to date, there has been a 50% increase compared with the total of 2021, so we are seeing a great deal of microgeneration. If we were to add that to mini-generation, which is up to 50 kW and for which we launched the pilot in December of last year, at the end of the year 50 MW may have been connected over the year in terms of microgeneration and mini-generation, a big increase. That is as a direct result of national policy, support schemes, Government policy and so on.
In mini-generation, which is the next stage up, we launched a pilot on that around December last year. The pilot was heavily oversubscribed and, within three or four months, we reopened and extended it and increased the number of applications from 150 to 650, and we are processing them at the moment. There is great interest in that and there has been considerable take-up. As recently as last Friday, we launched a new pilot for small-scale generation, the next stage up again. That will open to the bigger players in terms of capacity. We can see the momentum-----
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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I apologise for interrupting, but is the last scheme to which Mr. Duignan referred a community-based scheme or does it relate to businesses and so on?
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Mr. Duignan might send on a note on those different schemes for the benefit of the committee. This is probably not in the ESB's remit and our guests might or might not be able to go into detail, but in light of recent events such as sabotage or attacks on energy systems and given the ESB is developing networks and protecting its own ones, has it reviewed its security? I am not asking our guests to go into detail but they might comment on the process in the background. What kind of security methods are there and have they been improved or reviewed in recent times given what is happening in the world?
Mr. Nicholas Tarrant:
On security overall, there is the physical security but there are also issues such as cybersecurity. We invest heavily in that area and have been active in it for many years. In recent years, there have been growing threats at a global level in that regard and we have continued our investment. With the continued growth in investment in IT systems and in smart networks, that is an area that is going to be of key strategic importance for us.
As for our physical infrastructure, our infrastructure is nationwide and we have tight security in respect of places such as our control centres, our main offices and so on. Looking at our infrastructure in general, it is not possible, given the length of network I outlined earlier, to have security around all of it. Nevertheless, we are investing in our physical security and keeping it under review.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Turning to substations, our guests mentioned earlier that 5 GW of renewable generation is connected to the electricity system and that during this year, between wind and solar, they expect that to increase to 5.4 GW. It may be EirGrid space but, in regard to the substations, is that the ESB's call for a development or proposals to go to EirGrid if it proposes that a new substation be built, or is that EirGrid coming to the ESB or another provider to say it needs a substation in a given location? Whose responsibility is it and how does that work?
Mr. Nicholas Tarrant:
The transmission system development is a responsibility of EirGrid. EirGrid makes the case for a new substation, perhaps to do with low growth, for the transmission network. It takes it through to a certain stage of development and then it comes across to us for detailed design, procurement and construction, and we own the asset over its lifetime. Once we come down to distribution level, where there are also substations, that responsibility end to end is with us.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Our guests mentioned solar and wind energy. I am wondering whether for offshore there needs to be a connection with a new offshore scheme. I am not sure whether it is a matter of distribution or transmission, because it could be either. Whose call is that?
Mr. Nicholas Tarrant:
To come from the sea into shore, there is, with these offshore developments, the need for an offshore substation, which is usually out to sea. Because EirGrid is going to be the offshore transmission asset owner, that is going to be in the ownership of EirGrid. There is also going to be a need for new onshore substations as part of the transmission system reinforcement I mentioned earlier. Those assets will ultimately be owned by ESB Networks as part of that.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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On the smart metering programme, it seems the ESB has made a lot of progress, with 1 million meters supplied to the market. By the end of 2024, it hopes to have the vast majority of its customers on smart meters, quite an ambitious target given the volume of customers it has. Current events will lend themselves to people requesting them, as we saw in our previous session. What is the ESB doing to ensure that it will happen by 2024? Will it be at the start of 2024 or by the end of 2024?
Mr. Nicholas Tarrant:
It is likely to be at the end of 2024 when the majority of customers will have smart meters. We are installing somewhere between 10,000 and 11,000 meters a week at the moment. Approximately 400 people are employed through contracts for fitting those meters and there is good momentum. There were some global supply chain impacts early in the summer but they have been resolved. We hope that, subject to the continuing progress we are making, we will have those smart meters installed by the end of 2024.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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My final question relates to a very local issue but one that is local to all of us. It concerns lampposts throughout the country. Some of them are owned by the ESB, I understand, while others are owned by local authorities. Do not ask me how or why that happened but that is the case, according to a reply I received to a parliamentary question. How do we go about getting one of them replaced? The council will automatically direct queries to the ESB, but I have got responses from the ESB stating that some of the lampposts are owned not by it but by the councils. How can this conundrum be resolved and can we resolve it at a meeting of this committee?
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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It was a curveball. I could outline a stream of these lamppost numbers, but that will be for another day.
Brian Leddin (Limerick City, Green Party)
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I might ask some questions about the mini-generation scheme. It was good to hear about the uptake and the fact it is popular. The cap is 50 kW but it seems there are many businesses, in particular, that would certainly have roof space for solar and a demand for more power. The scheme, therefore, might not be ideal for them. Why is the cap 50 kW?
If you want to install more than 50 kW, the bureaucracy is different and there are different safety requirements, all of which add costs which may be prohibitive for people thinking about putting reasonably large systems on their premises. Is thought being given to increasing the cap beyond 50 kW?
I believe it was said that there had been an increase from 150 to 650 applications. I suspect that, given the current climate of high energy costs, this will increase exponentially. Are there plans to connect many more than that because it is still a very small percentage of prospective premises? We are talking about a cap of probably 20 MW or 30 MW but we could possibly get new capacity to the order of a few hundred megawatts through a scheme of this size.
There is also the related question of the resources ESB Networks put into processing these applications. It is one thing to say that so many new connections will be made but, if ESB Networks does not have the resources, it will take a long time. Given the current surge in interest - I find myself using electrical language such as "surge" and "current" all of the time - are more resources needed to process applications to the mini-generation scheme to get more people onto the network with their new solar installations? I have other questions on offshore generation but I will come back on those.
Mr. Nicholas Tarrant:
I will make a few preliminary comments on the different types of schemes before passing to Mr. Duignan. As we mentioned, the microgeneration scheme is for rooftop solar installations in the home. The mini-generation scheme is the next step up. In recent days, we launched the small-scale generation scheme, which is the next step up again. We are looking to process applications and to have people with various sizes of generator connected to enable homes and business to develop and generate their own energy. Mr. Duignan might provide a little bit more detail.
Brian Leddin (Limerick City, Green Party)
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The small-scale scheme is for installations of 50 kW upwards.
Mr. Joe Duignan:
That is correct. I can address all three questions. On installations of greater than 50 kW, we launched the pilot scheme, which was for less than 50 kW. Lessons have been learned from that and there has been engagement and so on and so forth. We built on that in the small-scale generation scheme, which we launched last Friday and which allows for generation of up to 200 kW. It is the next level up. People can still apply for greater capacities under what is called the enduring connection policy. There is still that route but we looked at how to streamline the process to make it as simple and fast as possible. It still has to be technically acceptable but we sought to minimise impact and allow it to be done as quickly as possible. The mini-generation scheme I was talking about was a great success. It was oversubscribed and full within three or four months. We doubled it and added more capacity. We are seeing that. We still have headroom. It is still being called a pilot scheme but we are working with the regulator to treat it as business as usual and to increase the scheme. We do not intend to stop it but to keep going forward with it although it was launched as a pilot. The small-scale generation scheme for generation of up to 200 kW was just launched on Friday and we have already had feedback from stakeholders we did not engage with. As an example, Teagasc has come back to tell us that it is a good scheme for poultry or pig farmers as they can make use of their rooftop space. That will open it up to the next group, the group the Chairman was talking about. I hope that addresses his question.
Brian Leddin (Limerick City, Green Party)
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While there is now a scheme for bigger projects, I was specifically asking about the cap of 50 kW. Does it make sense to get more people into the mini-generation scheme by increasing the cap to 60 kW, 70 kW or, perhaps, 100 kW?
Mr. Joe Duignan:
The 50 kW threshold is closely aligned with Government policy and what gets Government supports. That is one aspect of it. There is already a mechanism there with regard to supports. That is why the pilot scheme was launched in advance. We have launched the pilot scheme for small-scale generation in advance of the outcome of a consultation process the Department is carrying out with regard to support mechanisms for such generation. We have launched a pilot ahead of that so lessons will have been learned and can be taken from it.
From an electrical network perspective, you are talking about trying to connect different capacities onto the system. They have different impacts on the capacity on the network and require different upgrades. Splitting into small groups means that the small guys do not have to go through the same issues, challenges and builds as the bigger ones. That is the idea of subcategorising whereas heretofore a small person would have to apply through the enduring connection policy. Again, the reason for this is to make the process as simple and streamlined as possible.
Mr. Nicholas Tarrant:
On the point about resources, there is no doubt that, as an organisation, we learn how to do things better and more effectively from pilots of all types. The expansion of the mini-generation scheme was based on us looking at how to resource the scheme internally to make sure that we could process the applications and have the confidence to expand it further and make it part of business as usual, in consultation with the Commission for Regulation of Utilities and other stakeholders.
Brian Leddin (Limerick City, Green Party)
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Are sufficient resources being allocated to process applications as quickly as possible? To come at it another way, if a business looks at the scheme, thinks it sounds great and goes for it, how long will it wait for a connection?
Mr. Nicholas Tarrant:
Mr. Duignan may be able to comment on the exact numbers but, before the summer, in the region of 170 applications to the original scheme were being processed. We have now opened it up and, to the best of my knowledge, it has not been fully subscribed as of yet. We have allocated dedicated resources to process applications. Perhaps Mr. Duignan can comment on exactly how long people are waiting.
Mr. Joe Duignan:
I can come in on that. The first thing is to look again at the different categories. The microgeneration scheme, which is that used for rooftop solar, is a free process. It is called "inform and fit". The customer just lets us know and can then proceed. There is no work on our side. With regard to the mini-generation pilot scheme we launched, there was a lot of upfront engagement with the industry as to the standard of the application form and going back and forth in getting to know it. There were a lot of lessons learned from that pilot. We would not see the turnaround times to date as representing business as usual. We have also changed our model as to how we carry out the studies. Rather than doing it centrally, we have spread it around the country and look at them locally. We have changed our structures and streamlined our process as well. We are looking at a very fast process with regard to carrying out the study and letting the customer know. We have also built in mechanisms for the customers' benefit. For example, they can choose to tick a box and do a maximum export capacity, MEC, reduction. This means that, if their project is going to drive an upgrade, they can tick a box and get fewer megawatts on and not drive that reinforcement. That brings them on more quickly. Of course, they can still get the bigger connection if they wish to. We are now working on a report and engaging with the regulator on the lessons learned thus far.
Brian Leddin (Limerick City, Green Party)
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I am breaking my own rules here and going way beyond the five minutes but is ESB Networks thinking about a rapid increase in demand for these kinds of installations because energy prices are increasing so quickly? ESB Networks is thinking about 650 applications now but it may be the case that every second small or medium-sized enterprise in the country will want to do this in the very near future.
Mr. Joe Duignan:
We are also cognisant that the Department is running a consultation with regard to support schemes. What we have seen in respect of microgeneration is that, once national Government policy changed, the increase came. That is why we are doing the pilot scheme of mini-generation in advance of the support scheme being put in place. The level of Exchequer funding for support and how that support scheme is run will also impact takeup. There are several factors but we are gearing up for a very large increase in this space.
Brian Leddin (Limerick City, Green Party)
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I thank the witnesses. I will come back to them some other time about the offshore stuff.
Richard Bruton (Dublin Bay North, Fine Gael)
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I have two questions. I would like to know how a specific issue with microgeneration was resolved. One of the issues was the question of whether someone who is not buying electricity and who is selling onto the grid pays the standing charges related to running the network and how standing charges are shared between those who have the option to sell onto the grid and to buy from it and those who are captive and have to pay for everything. How was that resolved in a fair way?
People will be pleased to know that with the present pressure on supply that ESB Networks is not connecting the new data centres and that data centres will take the slack if there is pressure. I have questions on the longer-term issue of data centres. Am I right in thinking that if we tap into our offshore resource that Ireland is a good place to have data centres? In the short term we may be in difficulties but am I right to say that in the long term it would represent a good use of our offshore resource rather than having to export it or turn it into hydrogen or whatever? Am I right to say that because data centres are in the emissions trading system they are not counted on our inventory as carbon when it comes to effort sharing obligations under EU rules? There is great negativity around data centres but I think there needs to be proportion in this debate. I am interested in hearing how data centres impact on the work done by ESB Networks.
Mr. Joe Duignan:
I shall respond to the question about microgeneration. In terms of the standard charge, approximately one-third of customers' tariffs are paid through the fixed element, which is called the distribution use of system charges, DUoS, and the other two-thirds are fixed. Consumption will change if someone has microgeneration or with the electrification of heat and transport. Right now, we are about one-third fixed versus two-thirds variable, which is low by international standards as there is more of a move to fixed in other jurisdiction because the network tariff element of the infrastructure that we provide is a fixed cost predominantly but it is one-third. Right now, the regulator is running a consultation in the form of a tariff structure review. The regulator ran a consultation towards the end of last year and is considering that. There will be more phases to that consultation and then that will decide the optimum solution in terms of the tariff structure so fixed versus variable, etc. The regulator sets the standing charge. The regulator as part of its consultation is engaging with lots of stakeholders and we will feed into that.
Richard Bruton (Dublin Bay North, Fine Gael)
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Will that be reflected in the balance between standing charges and individuals' bills so standing charges versus user chargers?
Mr. Nicholas Tarrant:
On the future of tariffs overall and the dynamics in the market in general, if one looks at the future of electrification and the electrification of heat and transport then we can expect to have to spend more on networks infrastructure to enable that transition. At a time when one has a drive for customers to use more electricity from the point of view of the electrification of heat and transport and maybe a competing one around more energy efficiency and reducing use the whole shape of tariffs might need to be different. One can expect that there is a potential for changes in the future. As Mr. Duginan mentioned, there is a tariff review process but with the direction of the industry there could be further changes along the way but that is a matter for CRU.
On data centres, for ESB Networks, and it is a similar role for EirGrid but I will just talk about ESB Networks, once we get connection applications we are obliged to connect people to the network whether that is a factory, data centre or an individual house but subject to policy. We did get a direction from the CRU on the connection of data centres that led to the current situation. If one looks at the future of supply and demand, and the amount of electricity needed for data centres over the next decade, on which there has been a lot of commentary, there is also huge potential for offshore renewable electricity through offshore wind. Ireland is in a unique position in Europe because of our island nature and offshore assets but it is a matter for the Government to decide the policy regarding the growth of data centres.
Brian Leddin (Limerick City, Green Party)
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I wish to comment on the last point about offshore renewables as I am not sure if I heard Mr. Tarrant correctly and I know that he is not here to talk about the transmission system. Did he say that if we site large energy users like data centres close to where energy is generated then that will take pressure off our distribution and transmission systems?
Brian Leddin (Limerick City, Green Party)
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Does Electric Ireland plan them?
Mr. Nicholas Tarrant:
We do not plan them. EirGrid has a strategy document called Shaping our Electricity Future that outlines different options for developing the transmission system and one option is to site large demands near parts of the network where it is stronger. The fundamental issue with bringing onshore offshore wind is that there would need to be huge investment onshore to reinforce the existing onshore transmission network as well as bring the projects onshore. It is a matter for the Government to decide no matter whether it is an industrial policy or a business-related policy for data centres. Our role in networks, if the Government policy is to connect these projects, is to get them connected and then make sure that we have the infrastructure to meet the demands placed on the network.
Brian Leddin (Limerick City, Green Party)
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I have just returned from Aberdeen where some of my colleagues from this committee and I looked at that Moray East offshore wind farm that is comprised of 100 turbines and located about 50 km off the coast. Moray East Offshore Wind Farm is incredibly impressive.
It seems to me that the system in this country has been very east coast-leaning throughout its history thus leading to a faster growth of the east coast. We have pushed infrastructure and responded to demand. Notwithstanding the current plans, and most of the phase 1 offshore projects are on the east coast, there is a greater opportunity in the long run for renewables on the west coast. Therefore, we must start planning to reinforce our infrastructure on the west coast side of the country and not view that as a prospect in the distant future. I believe that development will come on pretty quickly and developers will look to the west, particularly with the advent of floating offshore wind technology. What role can be played by ESB Networks? I ask because it was mentioned earlier that the Dublin grid needed to be reinforced. That is true but we need to plan for west coast infrastructure as well.
Mr. Nicholas Tarrant:
EirGrid plans the transmission system across all of the country. We are talking to EirGrid over the last period about in the region of 380 projects with a priority of around 80 projects. It will depend on which options are chosen around the development of the transmission system. We are talking about offshore projects but let us consider what happened with onshore projects. Significant infrastructure was put into onshore wind projects to develop the assets that were growing in the west. From the south west right up to the west coast there was a huge amount of investment to enable the bringing of that wind on to the system and communities have reaped huge benefits. The future development of the offshore industry could be on all parts of our offshore area and definitely with the growth of floating as a technology for the future. Ultimately, the first phase will depend on a continuation of the RESS auctions and then beyond that as the offshore wind industry takes off in this country. I think that the industry has a fantastic future.
Brian Leddin (Limerick City, Green Party)
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This committee could discuss this issue in another session and maybe with the transmission system operator as well.
Lynn Boylan (Sinn Fein)
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I will bring this discussion back to a household level. The ESB Networks gave information to the Central Statistics Office saying that 10% of residential homes use less than 1,000 KW per hour, which is below the median of 3,658 KW per hour. The CSO has said that that is a good metric for looking at the number of vacant and holiday dwellings. Does Mr. Tarrant share the view of the CSO and think that this is a good way of identifying which households are most likely to be vacant or derelict if they fall below the 1,000 KW per hour usage?
Mr. Nicholas Tarrant:
It is difficult to draw a direct conclusion from data at any threshold as to what happens. There can be a variety of reasons for low usage by any customer. It is probably not our role to make a decision or recommendation around what a threshold is for an unoccupied dwelling. There can be all sorts of reasons, for example, somebody in a household is working remotely and their usage is low because of that or sometimes older people living alone have very low usage, for whatever reasons. Those are two examples but there could be many reasons for low usage. Coming back to our role around providing data, it is not our role to make a decision on a cut-off to decide if a property is vacant or not.
Lynn Boylan (Sinn Fein)
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The CSO is an expert body and its view is that that metric would be good. For low users of electricity, there is a low usage charge, but 1,000 KW would be the line below which they would be classed as vacant or holiday homes. I will go back to the CSO if the witnesses will not take-----
Brian Leddin (Limerick City, Green Party)
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Deputy McNamara is welcome to the committee. We intend to wrap up at 2 p.m. so there are a few minutes.
Michael McNamara (Clare, Independent)
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That gives me four minutes unless you need some of it, Chair.
Brian Leddin (Limerick City, Green Party)
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Our guests will need time to answer, so bear that in mind.
Michael McNamara (Clare, Independent)
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I always try to give people time to answer. Mr. Tarrant and Mr. Duignan are welcome. I always get confused with the ESB and the various emanations of it now as to who the appropriate person is to ask. Around Shannon fisheries and ESB's work protecting the fishery which it owns, are there plans for ESB to divest itself of that? There was a proposal that there would be a single body running the Shannon-----
Brian Leddin (Limerick City, Green Party)
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This is ESB Networks, which I do not think has any role in that.
Michael McNamara (Clare, Independent)
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To whom in ESB should I address questions regarding the fishery and all of that, if not the witnesses?
Michael McNamara (Clare, Independent)
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Thanks very much. The Equinor deal is not networks either, is it?
Michael McNamara (Clare, Independent)
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Okay. I thank the Chair for the opportunity. He still has two minutes.
Brian Leddin (Limerick City, Green Party)
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The Deputy is welcome to join us every Tuesday at 11 a.m. We are right up to 2 p.m. so I thank Mr. Tarrant and Mr. Duignan for their time and for engaging with us. It was an interesting and thorough session.