Fiona O'Malley (Dún Laoghaire, Progressive Democrats)

It is a great thing to be discussing progress on an all-island basis and I particularly welcome this Bill for that reason. I pay tribute to the hard work officials and Ministers have put into this. The extremely valuable recent review of the Irish electricity market by Deloitte & Touche highlighted two problems which dog our electricity market, namely, the size of the market and the dominance of the ESB which unduly influences the ability to set prices. The Deloitte & Touche report concluded that without changing the current structure we will continue to face difficulties in attracting new entrants to develop competition and choice for consumers.

This Bill is an attempt to deal with these shortcomings. While it will provide the regulatory framework for the facilitation of the all-Ireland energy market, I do not underestimate the difficulties and complexities of this task. There will continue to be differences on both sides of the market, such as public service obligations, CO2 emission terms and various contracts which will have to be honoured.

In his speech, the Minister stated that the creation of the all-Ireland 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. That is expecting a lot from such a humble Bill and I am not convinced that the establishment of the all-Ireland market on its own is the panacea the Minister is looking for. However, as the Irish phrase goes, tús maith leath na hoibre.

The establishment of the single electricity market will, despite the differences I alluded to, result in a more effective market. One of the more important benefits which will result from the single market is the introduction of a reasonable degree of transparency into the pricing mechanism. There will be a single clearing pool into which generators bid. All generators will get the highest price. While this system might tolerate and indeed encourage a certain amount of gaming, otherwise known as holding off generation to push up prices, it is infinitely preferable to the current arrangements that prevail in this State, which are neither transparent nor encourage the lowest price production. Of equal importance to the security of energy supply to the country to the establishment of the single market is the decision the CER announced today with regard to the ESB divesting generating plant in return for being allowed to build a new power station in Aghada in County Cork.

In electricity generation the type of generating plant is critically important. Unless the mix of generating plant is what is required by the system, we will not be served. This is something the regulator fails to recognise time and again. Today for the first time ever, wind generation exceeded 600 MW reaching an afternoon peak of 618 MW. Its lowest point today was 410 MW. What this level of wind penetration needs, and bear in mind that Government has indicated it is looking to increase wind penetration, is flexible plant — large open cycle gas turbine generators. These can respond quickly to fluctuations in wind penetration and come on stream within 15 minutes. They are obviously what is required if we are to be faced with increased wind generation on the grid.

EirGrid, the systems operator, has been calling for such flexible plant but the CER has once again ignored this request and given the green light to Aghada which is a combined cycle base load, the least flexible type. It is the type that is over-represented in our generation mix. Given that base load plant type is the type which sets prices, the effect of this decision today is, in the short term, to hand to the ESB more control over pricing and not less. Unless the ESB is instructed to sell intermediate load plant, such as Poolbeg One, the influence and dominance issue will continue to dog our market and the consumer will continue to lose out. A directive should have been sent by the CER to sell marginal plant and not the peaking plant in Rhode, County Offaly and the plant in County Mayo. Peaking plant is not price setting plant.

The last thing our system needs is more base load plant which has been approved by the regulator today. EirGrid has constantly spoken of the need for flexible plant in our generation mix and it is irresponsible in the extreme for the regulator to ignore such a request from the systems operator. It makes me question the extent of corporate expertise available within the CER in the area of generating systems and plant operation.

The question the CER should really address is why nobody is offering to build flexible plant. That is the type of visionary thinking in which the CER would need to engage. The CER is responsible for ensuring our security of supply is maintained. The fact that nobody is offering to build flexible plant should trigger a response from the regulator. That is the critical question I would like the CER to address. There is no doubt the capital costs for constructing and operating flexible plant are enormous but we need it. That is the bottom line. It is obvious that we should put in place mechanisms which facilitate the realisation of the plant type we need.

The market system alone will never reward sufficiently the enormous capital costs of peaking plant so we need to establish a mechanism that will. A system, which would offer a capacity payment and the market rate, should stimulate enough interest in developing generating capacity in the area of peaking plant. We must give it a try because if we are to allow the regulator to continue to offer base load generating capacity, it will not serve us well. I wish the regulator would apply his not inconsiderable talents to solving this issue.

The relevance of the single market to generation, security of supply and, ultimately, to prices will not amount to much if we do not get the flexible generation plant we need. In the new market arrangement, we no longer only have ourselves to think about. We need to think about security of supply for the new communities on the other side of the Border to whom we have a responsibility. We need to ensure we demonstrate that we have that sense of responsibility, that we know what is needed and that we put in place mechanisms and require that the regulator establishes a system which will deliver the type of flexible plant we need.

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