John Browne (Wexford, Fianna Fail)

I am pleased to have the opportunity to present the Electricity Regulation (Amendment) (Single Electricity Market) Bill 2006 for the consideration of this House. The Bill, when enacted, will underpin the creation of a single wholesale electricity market on the island of Ireland.

The Bill forms a key part of the Government's priority legislative programme. Initiated in the Dáil in November last year, the Bill is an important component in the Government's progressive energy agenda. In conjunction with this Bill, the Government's proactive approach to energy matters is demonstrated by the publication in October 2006 of the Green Paper on energy policy, Towards a Sustainable Energy Future for Ireland — the White Paper will be published in March — and the enactment in December 2006 of the Energy (Miscellaneous Provisions) Bill, and the National Oil Reserves Agency Bill 2006, soon to be considered by this House.

The Bill proposes to amend the Electricity Regulation Act 1999 to provide for the establishment and operation of a single competitive wholesale electricity market, or SEM, on the island of Ireland. The main provisions of the Bill include the extension of the existing functions of the Commission for Energy Regulation, CER, for the establishment and operation of the SEM, including the trading and settlement code for the market.

An SEM committee will be established which will make regulatory decisions in regard to 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 are included to allow for modifications to licences to ensure both existing licensees and new entrants can participate in the SEM. Provisions are also included 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 will speak briefly on the background to, and rationale for, the establishment of the all-island single wholesale electricity market, SEM. The 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.

I take this opportunity to recognise formally Senator O'Rourke's significant contribution in the initiation of the North-South energy project some years ago. Her ground-breaking work in this area established a solid foundation for cross-Border energy co-operation and set us on course to bring forward the Bill today.

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 I believe that 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.

Policy on the all-island energy market is set out in the all-island energy market development framework published jointly in November 2004 by the Minister, Deputy Noel Dempsey, and his Northern Ireland ministerial counterpart. The framework, produced in consultation with the two regulatory authorities and with energy stakeholders, sets out the commitment of both Governments to achieving a single energy market that will contribute to a more secure and cost efficient service for all consumers.

It outlines a blueprint for co-operation in a number of key areas, including electricity, gas and sustainable energy. The creation of an all-island energy market will bring benefits to the island as a whole. These benefits include 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 and there is strong political commitment, North and South, to deliver the market by the target date of 1 November 2007. A key task for both Governments is to ensure an appropriate legal framework is in place to underpin the SEM. Implementing the market requires similar legislation to be enacted simultaneously in both jurisdictions.

A memorandum of understanding, MOU, between the two Governments, setting out the broad parameters of the SEM, was also a requirement as part of the statutory process in Northern Ireland. On foot of a Government decision, an MOU was signed in December 2006 by the Minister for Foreign Affairs on behalf of the Irish Government and copies were lodged in the Oireachtas Library.

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

I wish to outline the main provisions of the Bill. Section 4 amends the Electricity Regulation Act 1999 by providing for the establishment of a SEM committee to carry out single market 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 can 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 who is 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 in both section 8 of the Bill, 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 and to ensure that appropriate protections apply to such information.

The functions necessary to establish and operate the market are conferred on the CER by section 7. These functions will include the making of regulations for the purpose of trading in electricity on an all-island basis, including the trading and settlement code. All licensees will be required to trade all electricity generated by them through the SEM and an appropriate threshold will be established to be applied to different classes of licensees in fulfilment of this requirement. These provisions 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 established by licence under section 12. The market operator licence will include appropriate terms and conditions relating to participation in, and operation of, the SEM. The market operator function will be jointly carried out by the two transmission system operators, EirGrid in the South and SONI in the North. Provisions allowing the market operator to recoup costs from market participants in facilitating participation in the trading arrangements under the SEM are set out in section 14. Licensing provisions in sections 12 and 13 allow for modifications to licenses to ensure that both existing licensees and new entrants can participate in the SEM. The associated publication process for such modifications and breaches of licence terms and conditions is set out in section 16.

Section 9 sets out the principal objectives of the Minister, the CER and the SEM committee in carrying out their respective functions regarding the SEM. These include a primary objective of protection of the interests of consumers of electricity on an all-island basis 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.

In keeping with the principles of better regulation, section 10 provides that the Minister, the CER and the SEM committee should ensure, as far as practical, that the performance of SEM functions is transparent, accountable, proportionate, consistent and targeted only at cases where action is needed. Section 11 provides that general policy directions given by the Minister to the commission should not apply to matters impacting on the new all-island market. It also includes the SEM committee as one of the prescribed consultees to whom draft policy directions must be sent under the Energy Regulation Act. Section 15 expands the existing provisions of the Electricity Regulation Act, as amended, to allow the CER to work together with its northern counterpart, the NIAER, to produce joint estimates of capacity, forecast flows and loading statements on an all-island basis for SEM purposes.

The establishment of the SEM will bring a range of benefits. It will facilitate improved competition and investment opportunities by expanding the market, and the exploitation of efficiencies and economies of scale in areas such as generation of reserves, plant mix and fuel usage. It will also introduce more transparent and equitable trading arrangements. An all-island electricity market will have approximately 2.5 million electricity customers, 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 in generation and supply.

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 independent analysis by consultants. The findings of a cost benefit analysis to assess the long-term economic impact of the SEM are positive and indicate an estimated net social benefit of €155 million present value over a ten year period. The benefit share is split roughly evenly between North and South and mostly accrues to customers, 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 SEM. These benefits include improved competition, reduced market power, environmental savings and enhanced effectiveness of the regulators from pooling of experience. In addition to the long term cost benefit analysis, the regulatory authorities have carried out an analysis of the likely short-term price impact of the new market. The initial findings indicate that, at current fuel price projections, a small increase is possible in the first year of operation, 2008, due to start-up costs. This is countered by a small decrease in price projected in the second year of operation.

This Bill is an important measure in the delivery of the Government's energy policy. The all-island approach to energy policy will be one of the main binding elements of the policy proposals set out in the energy white paper. Our long-term energy future lies not as two distinct energy markets isolated from the rest of Europe but as part of a regional energy market in conjunction with Britain and possibly with other close European neighbours. Maximising our potential market size and ensuring competitive and efficient markets in both electricity and gas are at the core of our approach. This places the all-island dimension at the heart of energy policy development for the future.

The development of the SEM is a key part of that policy in the interests of consumers and business on both sides of the Border. I look forward to listening carefully to the views of the Members of the House on this important and groundbreaking Bill and their assistance in progressing it into law.