Written Answers. - Electricity Generation.

Paul Nicholas Gogarty

Question:

93 Mr. Gogarty asked the Minister for Communications, Marine and Natural Resources his views on reported concerns of business leaders that the opening up of the electricity market has not had a satisfactory outcome and that, with the attempted introduction of competition in this area, costs have moved towards the top of the European price ranges which is furthering the loss of competitiveness for Irish-based business. [8172/03]

The reference in the Deputy's question to reported concerns of business leaders is somewhat vague. It is important to note, however, that the electricity market in Ireland is in a transitional phase at present. The market is moving from ade facto monopoly with a single player towards a competitive market in an industry with relatively long lead times for investment. Such change needs to be conceived and effected in an orderly and measured manner, in order to ensure that the benefits are lasting and long-term.

Confusion may exist about the relationship between the liberalisation of the electricity market and the rebalancing of tariffs. Tariffs rose by a total of only 3.5% in nominal terms between 1986 and 2001, well below inflation, leading to a situation where eventually generation costs were being under-recovered and grid investment was postponed. As the process of rebalancing has been conducted in parallel with the first steps of liberalisation, it could be perceived that there has been a cause and effect, normally that, the market has been opened and, in response to this, prices for consumers have risen. This is not the case.

I do not now have a function in relation to electricity pricing. As appropriate to the new electricity regulator, the CER was given the responsibility for regulating ESB's tariffs to its franchise customers under the European Communities (Internal Market in Electricity) Regulations 2000. Prior to this, ESB would by custom and practice have sought Government approval before increasing its tariffs.
The recent increases approved by the CER have brought tariffs more into line with costs thereby helping to prevent under-recovery and improving the investment climate; neither private investors nor the ESB could justify investment in new plant in the absence of cost reflective pricing.
It is likely that measures would have been needed in any event to make the tariffs more cost reflective in light of the need to undertake a major infrastructural investment programme on the electricity transmission and distribution systems and to install additional generation capacity to meet increasing demands. The infrastructure investment represents a trebling of the investment in the transmission system and a doubling in the distribution system, in the period 2001-2005 compared with previous years.
Currently, 40% of the electricity market, representing some 1,600 customers, is open to competition. All large businesses and many medium-sized businesses are eligible customers and, as such, are free to source their electricity from licensed electricity suppliers other than ESB. In addition, all customers are free to purchase electricity from any "green" or CHP licensed supplier. Consequently, the scope exists to seek out keener prices in the competitive market.
It must be remembered that this is an emerging electricity market which will not be fully open until February 2005. The Commission for Energy Regulation is currently developing, in consultation with all interested parties, a clear vision for the overall market design to apply in a fully liberalised market, with a firm implementation timetable to provide market certainty and encourage investment in new generation capacity. Deciding on the market design to be implemented in time for full market opening will provide existing and potential market participants with an increased level of certainty, which is required when considering whether or not to invest in the market.
The outlook for the future is for an electricity market that will be fully liberalised with choice for all consumers from 19 February 2005 onwards and which will be underpinned by an effective electricity trading system. Until such time as this transparent market model with a clear and coherent set of long-term market rules for trading is fully operational, it is premature to seek to draw any definitive conclusions about the impact of the liberalisation process.