John Browne (Wexford, Fianna Fail)

I move: "That the Bill be now read a Second Time."

I am grateful for this opportunity to present the Electricity Regulation (Amendment) (Single Electricity Market) Bill 2006 for the consideration of the House. When enacted, the Bill will underpin the creation of a single wholesale electricity market on the island of Ireland. It forms a key part of the Government's priority legislative programme. It proposes to amend the Electricity Regulation Act 1999 to provide for the establishment and operation of a single competitive wholesale electricity market on the island of Ireland, hereinafter referred to as the single electricity market or SEM. For the convenience of the House, a detailed explanatory memorandum has been published, which provides a synopsis of the Bill's provisions.

The main provisions include: an extension of the functions of the Commission for Energy Regulation, CER, as required for the establishment and operation of the SEM, including the trading and settlement code for the market; establishment of an SEM committee, which will make decisions on SEM matters — the SEM committee will simultaneously be a sub-committee of both the CER and its Northern Ireland counterpart, the Northern Ireland Authority for Energy Regulation; provisions to allow modifications to licences to ensure that both existing and new licensees can participate in the SEM; and provisions for the establishment of a market operator, MO, to carry out the day-to-day trading and settlement functions for the market.

To put the Bill in context, I would like to speak briefly on the background to and rationale for the establishment of the all-island single wholesale electricity market. Creation of the new market is set in the context of long-standing co-operation between the two jurisdictions, North and South, on common energy issues. Both administrations have a shared interest in more competitive energy markets, reduced energy costs and improved reliability of supply. The mutual benefits to be gained by working together on this agenda are already evident and what has been achieved to date offers a model of best practice in developing co-operation between North and South. This co-ordinated approach is also set in the context of the European Union's single market for electricity and gas and the growing regionalisation of energy markets.

In November 2004, the Minister for Communications, Marine and Natural Resources, Deputy Noel Dempsey, and his then Northern Ireland counterpart, Mr. Barry Gardiner MP, published the all-island energy market development framework. The framework set out a blueprint for co-operation to create a sustainable all-island energy market and outlined the short to medium-term objectives in a number of key areas including electricity, gas and sustainable energy. Creation of an all-island energy market will bring benefits to the island as a whole, including a larger single market with competitive energy prices, greater security and diversity of supply, a more attractive investment location and a robust, integrated infrastructure.

The key short-term priority within the framework agreement is the introduction of the single wholesale electricity market on the island of Ireland. There is strong political commitment, North and South, to delivery of the market by 1 November 2007. A key task for both Governments is to ensure that an appropriate legal framework is in place to underpin the SEM. Implementing the market will require similar legislation to be enacted simultaneously in both jurisdictions. A memorandum of understanding, MoU, between both Governments, setting out the broad parameters of the SEM, is also a requirement on the Northern side. It is expected that the MoU will be signed by the Minister, Deputy Noel Dempsey, and his Northern counterpart, Ms Maria Eagle MP, following Government approval of the document next week.

The parallel legislation, which is being introduced in the North by an order in council through Westminster, needs to be enacted in both jurisdictions by April 2007 to allow sufficient time for market trials and to ensure that the new market will be operational by the committed date of 1 November 2007. This is a tight deadline and it is important that it be met. Any delay in introducing the market would result in loss of investor confidence and contribute to regulatory uncertainty. There would also be negative financial implications for market participants.

I will briefly outline the main provisions of the Bill. Section 4 amends the Electricity Regulation Act 1999, hereafter described as the Act of 1999, by providing for the establishment of a single electricity market or SEM committee to carry out SEM regulatory functions on behalf of the CER. A corresponding provision is being made in the Northern Ireland legislation so that the same statutory framework is in place for effective decision-making for the market North and South. Up to seven members may be appointed to the SEM committee under ministerial warrants from among the members and staff of both regulatory authorities, the CER in Ireland and the NIAER in the North. A member independent of both regulators will complete the committee.

The CER and the NIAER will work together through the SEM committee to exercise their respective regulatory functions. In compliance with section 5, the two regulatory authorities will jointly publish a statement setting out the procedures and working arrangements of the SEM committee. Appropriate provision is made both in section 8 and in the Northern Ireland order in council, to facilitate the sharing of all relevant information to accommodate the carrying on of all-island market business.

The functions necessary to establish and operate the market are conferred on the CER by section 7. These functions will include, inter alia, the making of regulations for the purpose of trading in electricity on an all-island basis, including the trading and settlement code, requiring all licensees to trade all electricity generated by them through the SEM, and the establishment of an appropriate threshold to be applied to different classes of licensees in fulfilment of this requirement. These functions will be mirrored by the NIAER in the North.

The day to day trading and settlement of the SEM will be carried out by a market operator, or MO, established by licence under section 11. The MO licence will include appropriate terms and conditions relating to participation in, and the operation of, the SEM. The market operator function will be carried out jointly by the two transmission system operators, EirGrid in the South and SONI in the North. Other licensing provisions in sections 12 and 13 allow for modifications to licences to ensure that both existing and new licensees can participate in the SEM, together with the publication process for such modifications and breaches of licence terms and conditions.

Section 9 sets out the principal objectives of the Minister, the CER and the SEM committee in carrying out their respective functions concerning the SEM. These include a primary objective of protection of the interests of consumers of electricity on an all-island basis, wherever appropriate, by promoting effective competition between market players participating in the SEM. Other stated objectives include the need to ensure that all reasonable demands for electricity are met, the need to ensure co-ordinated regulation of the market, the need to have transparent pricing in the SEM, and the need to avoid unfair discrimination between consumers in Ireland and Northern Ireland.

The establishment of the SEM will bring a range of benefits. It will facilitate improved competition and investment opportunities by expanding the market. It will facilitate the exploitation of efficiencies and economies of scale in areas such as generation reserves, plant mix and fuel usage, and will introduce more transparent and equitable trading arrangements.

An all-island electricity market will have around 2.5 million electricity customers — i.e. 1.8 million in Ireland and 0.7 million in Northern Ireland. While this is relatively small in the EU context, it is still a considerably larger market than the two single markets operating independently, and will provide an improved base for the entry of new market participants, both generators and suppliers. This market dynamic should also serve to increase the competitive pressure on prices while providing some economies of scale for market participants. A single market will also lead to a reduced duplication of functions thereby realising cost savings. The strategic benefits for the island will include increased market size, shared reserve costs, shared fuel diversity costs, a boost to investor confidence and a more competitive environment for the island as a whole.

The costs and benefits that are expected from the establishment of the SEM have been subjected to an independent analysis by consultants. In addition, the regulatory authorities have carried out an analysis of the likely short-term price impact of the new market. Estimating the costs and benefits of this unique project a year before it is due to go live, and while arrangements are still under development, is of necessity complex. However, the Minister believes the assessment that has been done is both conservative and as realistic as possible.

The overall findings of a draft cost-benefit analysis to assess the long-term economic impact of the SEM are positive and indicate an estimated net social benefit of €147 million net present value over a ten-year period. Over 20 years, the net social benefit is estimated at €428 million net present value. The benefit share is split roughly evenly between North and South and mostly accrues to customers with, approximately, an 80:20 split between customers and generators.

In addition to these benefits, the study suggests that a range of other benefits will accrue from the single electricity market, SEM. These include improved competition, reduced market power, environmental savings and enhanced effectiveness of the regulators from pooling of experience. The initial findings of the short-term price impact analysis indicate that, at current fuel price projections, the SEM is not likely to have a significant impact on electricity prices over the opening years of operation. Continued softening of oil and gas prices should bring about a beneficial impact on prices.

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