Thursday, 30 November 2006
Electricity Regulation (Amendment) (Single Electricity Market) Bill 2006: Second Stage (Resumed)
It is clear from the recent Deloitte & Touche report and from previous similar reports — I note Sustainable Energy Ireland will present its annual energy statistics next week — that the Irish electricity market is small and does not have a high degree of interconnectivity. These two factors can in themselves greatly contribute to high prices and medium to long-term energy insecurity unless they are properly modulated by a responsible and farsighted Government.
As I noted, the key statistics regarding both electricity markets from Deloitte & Touche are highly illuminating. Currently in the Republic, peak demand averages approximately 4,500 MW and current generation capacity is 6,067 MW, of which the ESB accounts for 77%. The average annual demand growth for the past three years has been 4.6%. In Northern Ireland, current generation capacity is 2,396 MW, including 450 megawatts from the Moyle interconnector. Peak demand is approximately 1,660 MW. In the past six years, average demand growth has been 1.6%.
These figures simply indicate that even when taken together, the two markets are not much bigger than the electricity market of Kent in England and may be somewhat smaller than that of Manchester. The nature of electricity production and distribution means that when possible, smaller markets should be consolidated in order to establish a wider mutually beneficial energy market. The development of the all-island market should play a key role in ensuring energy security and sustainability in both parts of Ireland, as the single electricity market framework will increase the efficiency of electricity provision across both markets.
Furthermore, a properly managed single market should greatly decrease the risk of power shortages and blackouts. The beginnings of such advantages pertaining to the all-island market can be seen in the recent deal through the Commission for Energy Regulation to reserve 300 MW on the North-South interconnector. Importantly however, the development of the SEM should also address the perceived and actual dominance of the ESB in the electricity sector.
The media seem to be obsessed with the ESB in this regard. There never seem to be investigative or interesting columns emanating from our colleagues in media outlets such as The Sunday Business Post regarding Viridian or Northern Ireland Electricity and the extent to which they have been responsible, since the botched privatisation of 1991, for maintaining extremely high energy prices and for preventing domestic competition in Northern Ireland. As for the South, just before Question Time I asked what is in this for us. I refer to consumers, householders and business.
In February 2005, Members were interested and excited by the opening of the market. People believed they would have a choice of generators and suppliers. However, aside from the ESB, operators such as Viridian have never shown an interest in the domestic market. This is a real problem with deregulation.
It is clear the Republic and Northern Ireland should accrue the greatest benefits from the single market. Key organisations such as the ESRI have repeatedly stressed that additional interconnectivity is crucial and Members welcome the proposal for the new east-west interconnector that was discussed during Question Time some time ago.
Members learned today that the ESB is divesting itself of 30% of its generating capacity. The CER has approved the possibility of the ESB doing so, subject to agreement with the company and its workforce. This would also constitute a significant step forward in the removal of the ESB's monolithic role, which will be accelerated by the all-island market. The end result, as we know, is that when the all-island market comes into operation we should have a much higher residual supply index, RSI. A measure of the potential market power developed by the California Independent System Operator would seem to indicate that at present ESB's RSI is approximately 0.39 and the company accounts for approximately 73% of generation capacity in the entire market. Modelling carried out by the ESRI indicates that in the most likely scenario for the Irish electricity sector in 2010, if the all-island wholesale market is implemented successfully and develops, the ESB's RSI should be brought close to the threshold of 1.2, which is a key figure in this model so as to ensure that the ESB would no longer control the price at the crucial peak periods, in other words, it could not set the marginal price through the mid-merit plants.
This ESRI modelling also indicates that in 2010 only 34% to 43% of generation capacity in the market would be the ESB's and this, of course, would be certainly within that range if the CER's announcement today comes to fruition and the company divests itself of 30%. Colleagues might say that the approval given to the Aghada plant is going in the opposite direction, but if one was here last week for Question Time and heard the repeated assurances on energy supply this winter of the Minister, Deputy Noel Dempsey, he seemed to be whistling past the graveyard, as he often does with various elements of his portfolio. He stated that others have assured him that there will be enough electricity in our market for the 2007 season. Of course, there would be hell to pay if he was Minister in a situation, as Deputy Durkan outlined, where we come in some evening and the lights cannot be put on, the heating systems cannot work and the streets are dark.
The 2004 all-island energy market framework agreed by the Department of Communications, Marine and Natural Resources and Northern Ireland's Department of Trade, Enterprise and Employment sets out clearly the benefits that might accrue if the single market comes through, making the island a more stable and attractive investment location, increasing competitiveness, extending diversity, particularly in renewables, having a better energy infrastructure, increasing all-island efficiency and longer-term savings through rationalisation of functions and regulations, and improving the organisation of energy research. These all are attractive aims, if they can be achieved. From that point view, it is to be welcomed that the legislation is finally before the House today.
I stated also that the key point is that the astonishing results so far of deregulation in Northern Ireland and in the Republic, of privatisation in Northern Ireland and a threatened and attempted privatisation in the South is that we have had ever-increasing electricity and gas prices.
We have had the opposite of what we might have expected. Despite the trumpeted market opening in 2005, of which I spoke, there is no choice for our household consumers. The Government is not one that delivers choice, certainly as far as electricity is concerned. It has not been able to do that so far.
The botched 1992 privatisation in Northern Ireland also left consumers there with high electricity prices. It is no wonder that in a debate in the European Parliament last week, my colleague, Proinsias De Rossa, MEP, and many other MEPs asked what is privatisation for if it cannot develop security and choice for consumers and if the consumers in many markets are left with a private monopoly and extremely high prices because the private monopolist is not investing enough. This is what we experienced in the case of Eircom, where the company is privatised and investment just does not take place.
Not alone is the level of Irish energy policy at an astonishingly high and unacceptable level — Deloitte & Touche reported that in its estimation 17%, almost one in five, of Irish people are fuel poor — but also businesses right across the country are complaining bitterly about the devastating effect of sky-rocketing energy prices on them and on the international competitiveness of the country, and hence there is an apparent rowing back.
Like a few other Members of the House, I had the distinction of sitting in the economics class of the great Dr. Garret FitzGerald. Dr. FitzGerald was famous for a formulation of inflation when he was Taoiseach, but last March Ms Regina Finn, the former CER commissioner, used a Dr. FitzGerald style formula. She told me that level of electricity prices in the all-island market would continue rising — we have that to look forward to — but would be lower than they would have been without the all-Island market. Is that not a wonderful formula?
Garret used say that the level of rise in inflation is falling. Of course, every one scratched their heads. Subsequently, they all went out and voted against the Government, which included my party, and we had one desperate election count in 1987 as a result.
It is astonishing, once again, that this critical energy legislation has no mechanism to facilitate the needs of consumers, both householders and business. The question which must be asked again, therefore, is for whom is the SEM being constructed if not to give a secure, reliable and cheap as possible energy supply for households and businesses throughout this island.
I intend to bring forward an amendment to section 4, which deals with the establishment of the single electricity market committee to ensure that consumers and businesses, the people for whom the SEM was constructed to benefit, are finally given a proper voice within this new extremely powerful committee that will be the key mechanism for regulating the new SEM between the two regulators and to make sure that consumers and businesses are finally properly represented within the institutional structure of CER.
Like other Deputies, I went back to the 1999 Electricity Regulation Act, which of course set up CER. While it is quite interesting that, under the functions of CER, it refers to the role of the consumers, over seven years all that was done for them is that they have been gouged repeatedly, particularly by this Government since 2002.
The organisation of the single electricity market committee is detailed in Schedule IA but there are a number of aspects of that to which I intend to return with amendments.
The energy market is increasingly regulator-led and, therefore, the provisions for regulating the SEM committee are of the greatest importance.
As I stated, section 4 deals with the establishment of the new single electricity market committee, which will be extremely powerful. Little detail has been provided, either in the Minister of State's speech or in the Bill, on the composition and role of the new SEM. Will the Minister of State explain how exactly he intends to appoint people to the committee?
There also remain serious questions over the interaction of the Republic's and the North's regulators on key matters. For instance, who will decide if a decision will adversely affect citizens in the North or vice versa? Section 9BC(2)(e) of the new Bill specifies "the need to avoid unfair discrimination" between Northern Irish and Republic of Ireland consumers, but exactly how will that be done and how will we ensure that this will progress and that the best lowest price, for both, will be available?
Of particular importance in the new single electricity market will be the relationship of CER to the Northern Ireland regulator, NIR, and of both of them with the two grid operators, EirGrid and SONI, because it seems likely that the establishment of a single market will also lead inevitably to a single regulator. Does the Minister of State agree that the 2004 report states in effect that one of the aims will be to have a single regulator? If there is one market, how can there be two regulators? This SEM committee, as the official's briefing document seems to indicate, will at some stage become the regulator for the all-island market.
I have been extremely critical in this House, as the Minister of State might recall, on the performance of the Minister, Deputy Noel Dempsey, and his predecessor, Deputy Dermot Ahern, in the use of policy directives. Section 10, amendment 10A of the Act of 1999, is ambiguous and unclear in this regard. Although the role of the independent regulator, CER, within the context of the liberalised gas and electricity market is generally accepted, most observers with a keen interest in energy matters and a great concern for securing a well maintained energy system in the long term understand the critical need for the Minister to set clear targets on investment in the network, energy security, energy sustainability, energy and fuel poverty and retail and wholesale pricing, and then delegate these targets to CER for implementation. The House will recall that the Minister helpfully accepted my amendment to that effect in the Energy (Miscellaneous Provisions) Bill.
One of the key driving forces of the European Union has been the creation of the liberalised Internal Market, but it seems that there is a danger. Earlier this year, I read an article by the renowned Oxford University economist and energy expert, Mr. Dieter Helm. Both the Acting Chairperson, Deputy Ardagh, and the Minister of State, Deputy Browne, will remember Mr. Helm because he addressed the optimistically named Fianna Fáil think-in on energy matters earlier this year in Westport.
Mr. Helm has continually warned of the danger of governments using the regulator as a mudguard. Regulators have provided a mudguard for this Government over the last ten years in order to evade their primary responsibility of keeping the country's lights on. I will quote briefly from what Mr. Helm forcefully said in a similar article about Britain, which appeared recently in the New Statesman. He said:
For many years it has been fashionable to believe that if only politicians and regulators kept their hands off, the market would solve the problems. Supply always equals demand, it is just that the price has to go high enough. But this excessive market optimism is not only undermined by the evidence, it undermines the market itself. Competitive markets work best in the context of proper policy frameworks. Governments will always intervene in energy markets. The cost of market failures for the environment, security of supply, monopoly and the rest of the economy are just too great. It is not government or markets, it is governments setting an appropriate energy policy framework within which companies operate.
Is that not the basis of what has been wrong with this Government's energy policies for the last ten years and particularly for the past five years? I recall the headline of an article in the Financial Times this time last year, which read "Energy is too important to be left to the magic of the market". Many people do not seem to realise this.
I have already tabled an amendment to the Energy (Miscellaneous Provisions) Bill. I intend to table a similar amendment to section 10 of the Bill currently before us, which would require the Minister to lay before the House any policy directives, including the aforementioned relevant targets, and to review them regularly. Our basic objective is that regulators should be properly answerable to the Irish people.
Section 10 makes it clear that a similar public policy instrument does not exist in Northern Ireland. That is because Northern Ireland's legislation is coming from the Thatcherite canon. The section specifically states that the Minister shall not interfere. There is a certain hostility to policy directives as configured in the Irish system. As in many other matters, the British government left Northern Ireland's energy development mainly to its own devices over the past 20 years since the onset of Thatcherism.
I want to refer briefly to energy security. I am sure other Deputies have received the helpful e-mail briefing, which we receive almost daily, from the energy commissioner. I commend the commissioner, Mr. Tom Reeves, and his staff from the CER. According to the last few such e-mails, levels of capacity and peak demand are getting dangerously close. On one evening recently, the gap was less than 100 MW.
In the context of the recent report, the reservation of 300 MW is valuable. The Minister, Deputy Noel Dempsey, seems to be happy enough but last week he was getting ready to blame other people. He said that others had assured him at the highest level, which I presume is EirGrid, the ESB and the CER. The Minister has them in his sights if the lights go out.
Many other issues arise concerning security of supply. Recently, for example, we heard a rumour that the ESB was to take over Viridian. What will happen if somebody else takes over Viridian and becomes the owner of the Northern Ireland network as well? What implications would that have for the single electricity market and for the Republic's market?
Until today, most people would have feared that the ESB was in a dangerous limbo regarding electricity generation. Last week, I asked the Minister whether he was concerned that worries are being expressed that our future electricity generation capacity will be inadequate, particularly from 2008 to 2009. For that reason, I welcome the fact that the ESB has been sanctioned to build a new 400 MW power station at Aghada, County Cork, in return for divesting generating capacity by 1,300 MW. The ESB is divesting over 200 MW immediately, a further 300 MW by June 2007 and 700 MW by 2010. Hopefully, this decision, if agreed by the ESB and its workforce, will ensure that extra capacity will be put in place. Nonetheless, we will still be fearful of facing into a dangerous 18 months or two years. The Government must take the blame for that emerging energy security gap——
——as well as the slowness in bringing forward this legislation.
I warmly welcome the Bill which amounts to a form of practical patriotism. I hope we will be able to return on Committee Stage to some of the issues I have raised.
I welcome the opportunity to speak on the Bill. I note that SONI is the acronym for the transmission operation in Northern Ireland, while CER is the equivalent here. We could call it the "Sonny and Cher Bill", which would be an easy way to remember it, as we have so much legislation covering this sector. I commend all those who have been involved in the negotiations to get agreement on the Bill. It is of major significance not just for the country's future energy policy but also as a general move towards reaching agreement on issues from which both parts of the island can benefit. It must have been, and may still be, a difficult negotiating position to begin with two transmission operators, two energy regulators and two Departments. They say that something should never be designed by a committee but those involved seem to have done their work well in this case. Hopefully, we will be able to legislate in time to have a single electricity market operating by November 2007. That is a testament to their efforts.
I imagine that matters have not necessarily been fully completed yet because the "i's" must still be dotted and the "t's" crossed. That is only part of what we are engaged in now. The broader energy and electricity issues to which Deputy Broughan and others referred will still come into the equation before we finally reach agreement to establish the whole process. I am speaking about the issues of perceived dominance and competition in the market. I respect and understand Deputy Broughan's analysis that the attempted introduction of competition in the electricity market would seem to have been combined with what can only be described as a remarkable increase in prices. There is an argument for going back to a single State-controlled operation, such as we had in the 1990s and before, when we seemed to have cheaper electricity. I am not too sure that is possible, however, on a number of counts. For one thing, it is not possible under the EU arrangements to which we are committed. Market opening is something we are mandated to follow as EU members. To a certain extent, the new energy future we are looking at — in terms of the need rapidly to develop new energy resources, including new electricity supplies — may work better in a climate where we are encouraging innovation by new people in the market.
I am afraid that in my discussions with senior ESB management, both at the Committee on Communications, Marine and Natural Resources and elsewhere, I have seen no commitment to the new renewable energy future we require. There has been no expenditure on research and development in that area and no development of any real consequence in new energy supplies, such as wave or tidal, although the ESB has been engaged to a certain extent in the wind energy business. The ESB was awarded one of the contracts for offshore wind development on the Kish bank, but it subsequently backed out of the project. The project is now languishing when we should be leading the world in that sort of new energy technology.
It may well be in our interests to have a more competitive market. Given the political circumstances in which we live we are mandated to open it and having a half open market simply will not work and will bring the worst of both worlds. Either we revert to a centralised, State controlled system with one company as predominant supplier or we open it entirely. Going halfway could leave us in a position where we cannot attract new entrants or where the cost of attracting new entrants pushes the price up. The dominance of the ESB in this regard can be managed in different ways and I am not averse to the Government's solution of divesting the ESB of some of its key infrastructure, sites where new power stations can be built, which can be held in State ownership.
I agree with Deputy Broughan that nobody is arguing that vital transmission assets should not be in State ownership. Even the sites on which power stations can be built are, in a sense, an extension of the transmission network and the solution could be leasing from the State of such sites on a long-term basis for operation by individual companies. I do not agree with Deputy Broughan that today's announcement from the Commission for Energy Regulation, CER, has resolved this issue.
My cursory glance at the press release tells me CER has given permission for Aghada but I do not believe permission has yet been given by the Government. Having heard the Minister for Communications, Marine and Natural Resources, Deputy Noel Dempsey, speak on the issue during Question Time last week, I do not believe the Government will be satisfied with the trade off between the closure of Tarbert, other peat plants and small emergency generation plants and the building of a plant at Aghada. I understand negotiations will centre on further reductions in the stations at North Wall and Great Island. I cannot be certain on particular stations but the general principle did not relate only to the closure of emergency generation stations, or to Tarbert, which was already shut down. There are tough decisions facing the Government in the next six months.
The answer the Minister, Deputy Noel Dempsey, gave to my question last week indicated he expects this issue to come to a head by January as there will be a submission from the ESB or its unions to the Government regarding the Green Paper on electricity and a specific proposal on the leasing of sites will be a high priority. My understanding of the Minister's answers to our questions was, unless an agreement was reached on this, the Government would not give permission for the State company to invest the necessary money in Aghada. I would be surprised if today's announcement by CER sees the issue resolved.
I am concentrating on this because it is an issue that may concern our neighbours in the North as they enter the single electricity market. This matter no longer solely concerns consumers here in terms of a price competitive market but it is of interest to consumers in Northern Ireland as they will be entering such a market. While the dominance of the ESB will be reduced in a single electricity market it will still be in a strong position if business continues as usual.
Another solution I propose, for a variety of reasons, is that ownership of the transmission and distribution grids be maintained by the State, but in separate State ownership. This would give clear differentiation and create fair market conditions where one operator, by dint of owning the transmission network, will not have an advantage in an electricity market where they are competing together. The logic of this position is clear and may help in the reduction of electricity prices.
Another concern I have, in terms of competition, is that we concentrate too much on the ESB, and Deputy Broughan is correct in this regard. There is now a second major player and I have concerns relating to Veridian, the transmission operator in the North, and the development of a duopoly in this single market, just as Vodafone and O2 have stitched up the Irish mobile phone market. It would be easy for two companies to manage the market in such a way that they gain super normal profits while the consumer experiences higher prices. This is something we must ensure does not occur in the electricity market.
I welcome this development not only due to the North-South aspect but because it seems we are moving towards a comprehensible market mechanism, at least for the average lay person like myself, though I am sure it is incredibly complex. In comparison to the local node pricing mechanism that was considered previously, an impossibly complex market model which seemed to me an exercise to entertain the highest astrophysicists, this, at least, has the benefit of being a system in which there is confidence that does not require a massive amount of modelling to see how it will work or the despatch arrangements that will apply in the end.
As we move towards a single electricity market we should also look towards a single energy policy between North and South. If there are competitors in the market and we are operating different support mechanisms questions will be raised in the long run. I look forward to the day the British Labour Party or the British Government advises us on energy policy rather than Fianna Fáil because they appear to be doing a better job. They have initiated many innovative mechanisms including smart metering which seems to have been ruled out by the regulator in this country, though it applies north of the Border. The British Government is moving towards a distributed electricity transmission system which is, again, something the Government and regulator do not appear to want. They have moved towards a strong and consistent support mechanism for things like offshore wind which has a rock system. We have no support system for offshore wind and despite being the much vaunted island nation with so much wind our Government does not see fit to support such proposals. Perhaps an all-Ireland energy market will bring benefits to this country such as wisdom from north of the Border being imported down into Fianna Fáil, if there is no electoral change in the mean time.
I am conscious of how much time I have used as I wish to leave enough for Deputy Finian McGrath.
The Minister of State's speech was interesting and towards the end he said the initial findings of the short-term impact analysis indicate that at current fuel price projections the SEM is not likely to have a significant impact on electricity prices over the first few years of its operation. I read this with interest because, when this was discussed in committee about a year ago, the regulator's clear position was that the SEM would lead to a reduction in prices in the short term of a number of percentage points. The explanatory memorandum for this Bill, which is very good compared to other recent Bills, gives economic and other analyses and the cost benefit analysis shows that in the short term the SEM will lead to a rise in prices in 2008 of up to 3%. That will go down like a tonne of bricks with Irish companies because electricity prices are already putting us out of the international market.
The Minister of State may talk about further expected reductions and net present value gains in the future but a mechanism that causes a 3% price rise in 2008, on top of a rise of over 20% in each of the last two years, will not be flavour of the month with IBEC or any organisation interested in economic policy development in the country. These rises reflect the extent to which our prices are above the European average. Will the Minister of State clarify the reason for the price rise? I presume it is related to the fact that electricity generators will be required to cover the significant costs of installing machinery and computer and other trading equipment to bid and settle arrangements on the single electricity market. I am not calling for the provision of grant aid or direct financial support but for an examination of what can be done to avert a short-term price increase. Are options available in the market mechanism to ease the cost benefit analysis? A 3% increase in price could undermine public support for such a move, which is, nevertheless, a step in the right direction that may force other welcome changes in our electricity and energy policies. As I stated, we could learn from our Northern brethren in that case. I look forward to such a development.
I am grateful for the opportunity to contribute to the debate on the Bill. Energy and electricity are key issues, particularly given our vibrant economy. All Members should inform themselves on this issue and engage in the debate on the legislation. Before addressing the details of the Bill, I propose to put down some markers. Customers and taxpayers must be given priority in the electricity and energy areas. I urge the Minister to put people at the heart of the legislation.
The Minister of State, Deputy Browne, may have two quotas in County Wexford but he should listen to taxpayers' concerns about high energy costs, particularly electricity. Recent significant increases in energy prices are not acceptable to citizens, especially elderly people, and industry. Consumers, who have supported the ESB for generations, are up in arms about the price increases.
The issue of electricity must be handled in a sensitive fashion. It should not be treated in the manner Dublin City Council and the management of the Dublin Port tunnel are treating the water issue on the north side of Dublin. It is bad enough that residents in Fairview, Marino and Santry must put up with damaged homes but tomorrow night at 8 p.m. their water supply will be switched off until 6 p.m. on Sunday, 3 December. This measure is being taken to facilitate works in Fairview Park as part of the Dublin Port tunnel works. It is unacceptable that the residents of Fairview, Clontarf, Raheny and Killester should be without water for two or three days. The decision is a further example of management failure, not as the latest term would have us believe, "systems failure". I call on the Dublin city manager and the Dublin Port tunnel management team to look after the residents in question and treat them with respect.
The main provisions in the Bill are to establish a single electricity market, SEM, committee to enable efficient decision-making on single electricity market matters; establish a framework for the performance of the functions of the Commission for Energy Regulation relating to the single electricity market; provide for information sharing between the various parties to the SEM to facilitate the effective operation of the market; make provision for the objectives of the Minister and the CER with regard to matters which affect or are likely to affect the SEM; provide a licensing framework for the establishment of an SEM market operator to carry out the trading and settlement functions of the market; establish a licence modification process to ensure existing and new licensees can trade in the new market; and establish the terms and conditions of appointment of the SEM committee and provide for the way it transacts its business. These are the core issues addressed in the legislation.
Section 5 inserts a new section 8B, which provides for the drawing up and publication of procedures and working arrangements in respect of the SEM. Section 7 amends the Act of 1999 by the insertion of a new section 9B. This section will provide for the functions of the CER relating to the SEM. These functions will include the establishment of the SEM, together with the procedures to be adopted with regard to giving effect to the market and the making of regulations for the purpose of trading in electricity on an all-island basis, including a trading and settlement code. Section 7 also requires all licensees to make available all the electricity they generate or that is generated by them for supply for trading in the SEM.
Provision is made in this section with regard to the appropriate threshold to be applied in relation to different classes of licensees. Section 11 provides for the establishment of a market operator to carry out on a day-to-day basis the trading and settlement of the new market. The market operator function will initially be jointly carried out by the transmission system operators, North and South. These sections are the core features of the Bill.
The regulatory proposal is the regulatory impact assessment, RIA, for the primary legislation that will facilitate the introduction of the single wholesale electricity market between the South and North. It sets out the strategic focus and intended effect of the establishment of the SEM on the island of Ireland. The SEM entails the development and enforcement of new all-island arrangements for trading of wholesale electricity. This will be of vital importance to the development of electricity supply on the island.
Politicians, North and South, must give a lead on this issue. It saddens me to hear Unionist spokespersons such as Nigel Dodds or Jim Wells argue against the economic benefits of an all-Ireland economy. A cross-Border electricity body makes common sense because it will benefit users. The leaders of unionism must wake up and recognise the sensible aspects of the British-Irish Agreement, of which this Bill is one element. They have nothing to be afraid of and the DUP should show leadership on this issue. Rather than stabbing him in the back, party members should support their leader.
I urge Unionists to come into the real world and work with everyone on this island. We want to accommodate and respect diversity and understand each other. Yesterday's findings by the sub-committee on the Barron report demonstrated that we never want to return to the violence we experienced on this island for 30 years. I ask the leaders of unionism to consider the sensible options available to share power and resources, including energy. Years ago, anyone who argued in favour of cross-Border economic co-operation was dismissed. It is now an important argument to make.
The objective of the legislation is to establish a single wholesale electricity market for the North and South, which will facilitate improved competition and investment opportunities by expanding the market. Why would anyone oppose such a development? This market 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. The all-Ireland dimension makes economic sense. Many of our friends in the North must face economic reality. The North cannot depend permanently on Britain. Let us work together on this island to develop our resources in the national interest.
A large number of small industries are being hammered by high energy costs and the problem must be addressed. In my constituency, for example, the Cadbury factory provides excellent employment for people on the north side of Dublin, particularly in the Coolock area. It and many other companies, notably small businesses, have raised questions about high energy costs. We must support them when it comes to electricity costs. If electricity costs are low, they will be more competitive and employ more people.
According to the explanatory memoranda, the benefits to be gained from the effective functioning SEM include more efficient generation dispatch, leading to lower cost of generation; a larger single wholesale market, facilitating greater economies of scale and scope; energy prices set competitively, although we must guard against any 3% increase; a predictable and stable trading system; increased attractiveness for generation investment and supplier entry; increased security of supply; integrated system planning leading to more robust infrastructure on the island; and shared costs of maintaining fuel diversity.
It is important that we consider the economic analysis. The memorandum states:
The overall findings of a draft Cost-Benefit Analysis to assess the long-term economic impact of the Single Electricity Market (SEM) are positive. The analysis set SEM start-up and running costs (€199m NPV) against quantification of efficiency/system benefits (€346m NPV) resulting in an estimated net social benefit of €147m NPV over ten years. Over twenty years, the net social benefit is estimated at €428m NPV.
With regard to the distribution of benefits, the benefit share is split roughly even — 54% Ireland/46% Northern Ireland and mostly accrues to customers North and South — roughly 80/20 split customers/generators.
In addition to the quantitative benefits, the study suggests that a range of other benefits will accrue from the SEM, that are not amenable to objective quantification, including improved competition, reduced market power, environmental savings and enhanced effectiveness of regulatory institutions from pooling of experience.
In addition to the Cost Benefit Analysis, which takes a long-term view of SEM impact, a study on the short-term price impact was also undertaken. The findings of the analysis suggest that, at current fuel price projections, electricity prices could rise by between 0.3% and 3.0% in Ireland in the first year, 2008. The impact on prices in 2009 could be somewhere between a reduction of 1.9% and a slight increase of 0.7%.
Economic analysis is important when dealing with this legislation but the important thing is to ensure the customer lies at its heart. We must consider the effect this will have on the economy and on workers. The country is mostly working now, although there are still areas of high unemployment which we must deal with. There are still blackspots and areas of disadvantage and we must ensure that now we have the extra resources, priority is given to those people and investment directed into these areas. We all have them in our constituencies.
This morning I was in Coolock to see the fantastic new plan for Cromcastle, which will demolish the maisonettes and regenerate the area around the Northside Shopping Centre, taking in Coolock and Cromcastle, with new housing and factory units and a better shopping centre. We must ensure that electricity costs are kept at a minimum so people can develop to their full potential. I wish the people well and commend those involved in this project, particularly those providing proper housing. For many years, parts of this area were devastated by drugs and anti-social behaviour. When I see people coming up with creative solutions to problems I welcome them and support them. Even if people on the opposite side argue against them, I will challenge them in this House and outside because we must prioritise and put our money into disadvantaged areas. Part of that strategy is economic.
There must also be an educational strategy. There is no point turning up in these areas when the kids are ten or 12; we must get in there when they are at an early age and invest in pre-school education. Breaking the cycle of social and economic disadvantage can be achieved through education, quality housing and decent jobs. We can already see the benefits for those who have gained in recent years, who had been long-term unemployed but who now have a real job and a sense of self-esteem. Many of these people are making a massive contribution, often setting up their own small businesses. I commend those who are taking risks to achieve this. The private and public sectors are both involved. We must oppose those elements in the Government who think the whole world's problems will be solved by the private sector.
I welcome this debate. This is an important Bill and we must put the customer, the taxpayer and the citizen at its heart.
Tréaslaím leis an Aire agus an Aire Stáit leis an obair a rinne siad ar an Bhille seo. I welcome the opportunity to contribute to the debate on this important regulatory legislation, which will affect the provision of electricity for years to come. The Bill provides for the establishment of a single competitive wholesale electricity market on the island of Ireland.
Regulation will be carried out by a single electricity market committee, which will enable efficient decision-making on single electricity market matters. The working arrangements to be adopted by the committee, setting out how statutory functions will be exercised, will be published by the regulatory authorities in both areas, the Commission for Energy Regulation in this jurisdiction.
The single electricity market will enable efficient decision making on single electricity market matters and will set out the functions of the commission relating to the single electricity market. The establishment of a single wholesale electricity market on the island of Ireland will facilitate improved competition and investment opportunities by expanding the market. It will allow for the exploitation of efficiencies and economies of scale in areas such as generation reserves, procurement of plant and machinery and fuel usage and will introduce more transparent and equitable trading arrangements.
The development of the SEM will involve joint regulatory duties, powers and functions for the single market as well as the establishment and licensing of a single market operator. Work in preparation for this regulatory change has been under way since 1999 to enhance co-operation in the area of energy supply between North and South. This legislation amends many of the terms of the Electricity Regulation Act 1999 and this co-operation will, it is expected, take Irish energy policy forward onto a new level of service and efficiency.
In preparing this legislation the Minister and his Department, working closely with his counterpart in Northern Ireland, considered a number of options, including a no change option and the possibility of merely developing new trading arrangements. Having considered these options it was decided to adopt the single electricity market model as being the most practical option and the one most beneficial to both economies. The point has been made that the ultimate objective is to serve the customers and it appears as we move forward with this project, there may some short-term pain but we have become accustomed to doing that to gain in the long term.
It was agreed to underpin the operation of the SEM with legislation, thereby securing the necessary legal and commercial confidence for the market. The establishment of the SEM has been predicated on the delivery of maximum benefit to customers with the lowest establishment cost, with a balance between the need for secure and stable power supply and the development of a competitive market.
An all-island electricity market will have approximately 2.5 million electricity customers comprising of 1.8 million in the Republic and 700,000 in Northern Ireland. As noted by Deputy Broughan, while this is quite small in an EU context it is still a considerably larger market than the two markets operating independently and will provide an improved base for the entry of new market operators, both in generation and supply. The critical mass of this market should also serve to increase the competitive pressure on prices while providing some economies of scale for electricity users. A single market will also lead to a reduced duplication of functions, which ought to lead to significant cost savings across all sectors.
The benefits for the country, both North and South, in terms of increased market size, shared reserve costs, shared fuel diversity costs, the increased competitive dynamic, and the expected boost to investor confidence are indeed significant factors in the process. The single market will establish a mechanism that will permit the most efficient dispersal of generation facilities on the island. Transmission system operators, TSOs, dispatch independently but may take advantage of opportunities to reduce overall island system costs through trading, where available. The existing interconnector between North and South is available for third party trading and the combined effect of market and transmission system operators captures some element of efficient dispatch. It is anticipated that additional savings will be gained by a single economic dispatch.
The benefits, which can be gained from an effectively functioning single electricity market, will include energy prices set competitively, an initiative ultimately intended to benefit the end user, be that the domestic or commercial customer; increased security of supply — there has been concern in many areas across the developed world about securing ongoing supply and this is part of our initiative to address that issue; a predictable and stable trading system; shared costs of maintaining fuel diversity; more efficient generation dispatch leading to lower cost of electricity generation; a larger single wholesale market facilitating greater economies of scale and scope; and integrated system-planning leading to more robust infrastructure on the island. While there will be broad economic benefits to this adjustment it will not require any Government funding, which is to be welcomed. Few of these initiatives carry that benefit.
I note with interest that the cost benefit analysis undertaken to date would indicate that both jurisdictions would benefit almost equally, with 54% of the benefit to this side of the Border and 46% to the North, while the benefit to domestic and business users would be weighted 80-20 in their favour against those of the generators. In overall terms this should lead to some fall in end-user prices. This saving for the user will hopefully encourage greater conservation, thereby maximising the benefit of this progressive legislative move.
The consultation process has led to broad support for the change across the various sectors, including the key industrial stakeholders, IBEC here and CBI Northern Ireland. There is strong political commitment on both sides of the Border to the delivery of the single market by the target date of November 2007 and both Governments are fully committed to ensuring that the necessary legislation is enacted by April 2007 in order to allow the market proceed.
The cross-Border co-operation is very welcome and hopefully we will see similar co-operation and co-ordination of policies across the whole range of services and facilities in the future. This was alluded to by Deputy Finian McGrath in his contribution. This should mirror work already under way in the shape of Fáilte Ireland, Waterways Ireland and the increased co-operation between the health services, as recently announced by the respective Ministers. These innovations have proved to be extremely successful and have brought great benefit to both our communities. I see no reason this initiative should not do likewise.
This all forms part of the peace dividend from the ongoing work on the peace process. It is heartening that we are discussing cross-Border co-operation on the supply of electricity when not so long ago the very same supply was under the constant threat of attack and disruption. We all look forward to Dr. Paisley becoming First Minister but it will be ironic to see him operating the all-Ireland electricity generation system when in the past he and his supporters targeted power stations for some of their protests. Thankfully we have now entered into a new era of co-operation which will benefit all the people throughout the island and enable businesses to be more competitive, thereby enhancing the opportunities of attracting further inward investment, both North and South.
In the highly competitive economic climate that now exists, our small island cannot afford to do anything other than maximise any advantage we may possess and this Bill allows us to do just that. The single market offers a real opportunity to maximise market size on the island and to create economies of scale to the benefit of consumers and business on both sides of the Border. The single market will, over time, remove market distortions and minimise the wholesale cost of electricity.
This is especially fitting when considered in the context of the regional approach to the development of energy markets being pursued as part of the European Union's drive to create an EU-wide internal market in electricity and natural gas. The creation of an all-island energy market involves collaboration on issues ranging from improved interconnection, competitive markets and harmonised trading arrangements, through to generation adequacy, security of supply, sustainable energy and energy efficiency measures.
There is no doubt that there is extensive and wholehearted support for the all-island energy market as proposed. The issues involved are intricate and sometimes competing and not all the benefits will be immediately achievable. However, the long-term reward will be a market that is much better placed to meet the future energy needs of the whole island. We must also act so that policies are developed to exploit opportunities for enhancing the value of the energy industries on the island, through external links with Britain and continental Europe. The appointment of the single electricity market committee will see enhanced co-operation between the regulators on both sides of the Border.
I am pleased to have the opportunity to raise the issue which has been raised by constituents of all Members concerning the energy regulator's implementation of price increases within the sector as a whole and to which Deputy Durkan and others have alluded. Significant increases in natural gas and electricity prices were announced earlier this year on the basis of the increased price of oil on the international market, as well as other factors. Despite the fact that oil prices have subsequently fallen, no change in the price increase has been countenanced. This inflexible approach in such a critical area does not inspire public confidence in the regulator and his office and I ask the Minister to review the operation of the regulator's powers in this area.
We must continue to protect elderly people and families who in particular are exposed to these largely unnecessary price increases, which understandably leads to considerable discomfort to all those affected. I acknowledge the speedy response by the Minister for Social and Family Affairs, Deputy Brennan ——
——who moved quickly to increase the free fuel allowance by €5 from €9 to €14. This increase benefits over 270,000 people. He also increased by over €200 the natural gas allowance under the household benefits package to the 26,000 welfare and other recipients who benefit from the scheme, as well as more than doubling the kilowatt hours freely available to pensioners from 1674 kilowatt hours to approximately 3600 kilowatt hours for each of the 300,000 households catered for under the scheme. Those of us on this side of the House would profess ourselves to be very proud of the positive action taken by Government to insulate the more vulnerable sections of society from these price increases.
Notwithstanding those very significant increases in benefits and allowances, I still believe that these huge increases need not have been imposed and a review must take place, taking into account the current situation. It would be reassuring to think that the regulator and the providers would act equally as quickly when the prices fall as they do when they rise. I hope that greater co-operation between the regulators will see a pooling of resources and information to bring greater benefit to the consumer.
The 21st century presents huge challenges to all in society in providing clean, safe energy which will allow for economic expansion, while at the same time protecting our environment. Alternative sources of electrical generation are feeding a small amount of electricity into the national grid. The single market will create a more attractive location for new electricity generation investment and will help to improve the security and reliability of electricity supplies across the entire country. I compliment the initiative of the two Governments on embarking upon a joint approach to tackle the electricity and broad energy needs of the island of Ireland in the medium and long term.
A joint North-South public consultation on an all-Ireland vision for renewable energy has been undertaken and this forms part of the long-term strategy for alternative sources of energy. It is intended that a joint policy paper on long-term sustainability of energy supplies will be developed in the coming months with a particular focus on renewable electricity generation.
We will clearly need to provide a much greater proportion of renewable electricity generation for our needs and the provisions of this Bill will facilitate the entry into the marketplace of those entrepreneurs and companies willing to produce additional electricity from renewable sources into the overall electricity pool. We owe it to the next generation to be more determined and far-sighted in our energy management strategy. The development of the all-Ireland energy market is a good example of this and I compliment the Minister and the Minister of State on the work they do in this area.
I hope that with this improved efficiency we will see greater emphasis on improving the service given to consumers by the ESB and other providers. I mention the ESB in particular because, like other public representatives, I am aware of issues involving the delivery of an electricity service that is increasingly removed from the end user. For many years we could have pointed to the ESB as being one of the most efficient and cost-effective utility providers in the State. While it has struggled to meet the challenge of the growing economy, I am sure Deputy Durkan will agree that we in County Kildare have noted many problems. I could instance literally dozens of examples, such as the number of new housing estates in my constituency without public lights for months or even years, leaving householders increasingly frustrated without, it seems, any recourse.
Of course, the first recourse of householders is to public representatives. When lights fail to be turned on, it is the public representative, not the ESB, that is blamed. The repairs, or lack thereof, are a running sore across my constituency. I am aware of failed public lights being left for over a year without a visit from a repair crew. A town in my constituency waited for more than 18 months before a set of traffic signals installed by the local authority were eventually connected. These lights service a local health centre and it is absolutely unbelievable that this seemingly straightforward task would take such a period of time to be completed.
Yet another example from my constituency is the case of a primary school where the flashing lights at a pedestrian crossing still have not been connected more than two years after the completion of the civil works by the local authority. I doubt if the Minister of State or anyone else could tell me why that should happen. It is not acceptable and is not the type of service we would have got from the ESB in the past.
The delivery of this important Bill cannot come soon enough and I am confident that we will have a streamlined and efficient generation policy when this process is complete. I think it was Deputy Eamon Ryan who suggested that those on this side of the Border could benefit from the expertise and experience we will collaborate with in the North and I endorse that. However, I equally suspect that the cross-fertilisation of ideas will be of benefit to all. I am encouraged that work in this area has already commenced with yesterday's announcement of an agreement between the energy regulator and the ESB which will allow for the sale of a number of power generating plants to the private sector. In return, the ESB will build a new 400 megawatt power station in the south of the country. According to the regulator, the ESB will account for only 40% of the all-Ireland generation capacity by 2010. This will be a remarkable change in such a limited time and will obviously require the goodwill of all partners in the sector, not least the trade union movement.
In a very short timeframe we have moved to a position where we are now looking at taking the first step towards creating a seamless energy market on this island with the establishment of the single electricity market next year. A great slogan once said "a lot done, more to do"——
——and while much has been done, more remains to be done. We must be encouraged by the widespread and enthusiastic support for the all-Ireland project. I am confident that the challenges ahead will be met. The Minister must be encouraged by the positive remarks from Members on all sides of the House and their enthusiastic support for this legislation. I commend this Bill to the House.
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.
I thank Deputies on both sides for their contributions. I am grateful for the opportunity to conclude the Second Stage debate on the Electricity Regulation (Amendment) (Single Electricity Market) Bill. This priority Bill is a key element among a suite of measures which will allow the Government to continue to drive forward a very progressive energy agenda. The enactment of the Bill will underpin the establishment of the single wholesale electricity market on the island of Ireland which will benefit consumers and enterprise, North and South.
I will briefly address some of the point raised in the debate. Deputy Durkan mentioned the development of renewables and the possible impact of interconnectors on this. I take this opportunity to remind the Deputy of the commitment already given by the Minister to enhance targets for developing renewable-based electricity generation as set out in the Green Paper on energy policy. I also point to the enhanced co-operation that now exists involving authorities on both sides of the Border which further enhance the prospects for the development of renewables on this island.
Deputies Durkan, Broughan, Finian McGrath, Eamon Ryan and Ó Fearghaíl raised the issue, and the importance, of consumers. The Bill ensures the interests of consumers will be foremost in the minds of the regulators. Section 9 of the Bill provides that the principal objective of the Minister, the regulator and the single electricity market committee is the protection of the interests of consumers, North and South. Deputy Durkan also raised the issue of grid development, microgeneration and ensuring appropriate plant mix into the future. As the Deputy is probably aware, a ground breaking study is being undertaken on an all-island basis on the future development of the grid. This study, which is due to be completed next year, is to determine the most likely generating technologies, particularly renewable technologies which will be available over the coming 15 to 20 years. It will also look at the most appropriate grid design to accommodate the technologies and will be used to determine policy in that context.
I should also mention that issues such as harmonisation of grid codes, generating adequacy statements, grid planning etc., will be dealt with on an all-island basis with the establishment of the single electricity market. Deputy Broughan was concerned that this was not provided for in the Bill but I point out that these issues do not need primary legislation and will occur through regulatory action and co-operation between the transmission systems.
Deputy Broughan also raised the issue of the extension of the go live date for the market. Following a review by CER and its Northern Ireland counterpart, NIAER, on the progress of the project to deliver the SEM, the Minister, Deputy Noel Dempsey, and the Secretary of State, Peter Hain, MP, endorsed a recommendation of the regulatory authorities to extend the go live date for the SEM from 1 July 2007 to 1 November 2007. The regulatory authorities, which set the go live date for 1 July 2007, advised that following extensive consultation with transmission system operators and the industry that the target date should be extended by four months. As some Deputies pointed out, the brief extension is to enable the extensive market testing necessary and to ensure all necessary systems are in place to allow for the effective operation of the market through project assurance, impact analysis and market trials. The Minister confirmed that both Governments are committed to delivering the necessary legislation by April 2007 to underpin implementation of the new market in the run up to day one.
I note what Deputies Broughan and Eamon Ryan said in regard to the agreement reached between the CER and the ESB on the reduction of the ESB's generating capacity and the development of new generating unit at Aghada. I confirm that any capital expenditure by the company on the proposed project would be subject to the prior approval of the Minister and the Minister for Finance. Deputy Eamon Ryan raised the possibility of a monopoly developing in the SEM. While policy measures are being developed within the context of the White Paper on Energy to deal with the ESB's dominance in generating, I also point to the market power mitigation measures the regulators have developed as part of the market rules governing the SEM. These measures include the power for regulators to direct generators to sell part of our electricity at pre-determined prices to designated suppliers.
Deputy Eamon Ryan referred to the short-term price impact analysis being undertaken by the regulators. The analysis, which is still being completed, indicates a likely small increase in the first year. This reflects the up-front market set-up costs and is projected to be reversed almost totally by the end of the second year. The important point to note however is the focus on the long-term gain. The SEM will deliver major cost savings to the public, North and South, and the analysis shows it is likely to lead to savings of approximately €150 million within the first ten years and over €400 million over 20 years of operation.
I thank Members for their support and their welcome for the provisions of this Bill. The Bill is expected to conclude in both jurisdictions by April 2007. We are anxious to have it through this House by Christmas and I appreciate the support of Deputies Broughan, Durkan and Eamon Ryan. We look forward to further discussion on Committee Stage and to dealing with any amendments. I ask members of the select committee to table amendments as quickly as possible so they may be given full and fair consideration.