Joint Committee on Environment and Climate Action debate -
Tuesday, 15 Feb 2022

Commission for Regulation of Utilities Strategic Plan: Discussion

Chairman

I have received apologies from Deputy O'Sullivan. I welcome to the meeting from the Commission for the Regulation of Utilities, Ms Aoife MacEvily, the chairperson; Dr. Paul McGowan and Mr. Jim Gannon, both commissioners who are also very welcome; Ms Karen Kavanagh, the director of economic regulation and compliance; and Mr. John Melvin, director of energy markets and smart metering. They are all very welcome to today's meeting. I thank them for coming before us.

Before we begin I will read out the note on privilege. Witnesses are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses, or an official, either by name or in such a way as to make him her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity.

If the statements of witnesses are potentially defamatory in relation to an identifiable person or entity, I will direct them to discontinue their remarks and it is imperative that they comply with any such direction.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I remind members that they are only allowed to participate in this meeting if they are physically located in the Leinster House complex. In that regard, I ask all member who are joining via Microsoft Teams to confirm prior to making their contribution that they are on the grounds of the Leinster House campus.

I invite Ms MacEvilly to make her opening statement.

Ms Aoife MacEvilly

I thank the Chairman. We understood - or misunderstood - the committee was seeking brief opening remarks rather than a detailed opening statement. My apologies if we did not provide what was being sought. This very brief overview of the role of the Commission for Regulation of Utilities, CRU, highlights some of the important work our team undertakes in support of protecting the public interest in energy, water and energy safety. Our activities include the economic regulation of energy and water, protecting energy and water customers, and energy safety regulation. I will not go through the list outlined in our written submission as the committee will be familiar with it.

The committee has an interest in our new strategic plan. In line with our statutory requirements, we submitted the draft plan to the Ministers of our parent Department at the end of last year. Our draft strategy is under review by the Minister. Once its consideration is complete, he will lay it before the Houses of the Oireachtas. We will publish it and, of course, are always available to the committee to discuss it in detail at any stage.

For this meeting, I will highlight the four strategic priorities that we have set forward in our draft strategic plan for the current three-year period. These priorities range across our functions in energy, water and energy safety regulation. They include ensuring security of supply, obviously, in the electricity sector but also in respect of gas security, as well as ensuring secure supplies of water and wastewater services.

Our second strategic priority is driving a low-carbon future. This relates to how we regulate energy markets and energy networks to support the decarbonisation process. It also will encompass how we use the water network to ensure a low-carbon future and, indeed, brings in our safety teams to ensure that in the decarbonisation of the gas network, for example, we introduce new decarbonised gases in a safe as well as an efficient manner.

The third priority relates to protecting and empowering customers, an area in which the committee is keenly interested. This ranges from protecting vulnerable customers up to supporting what might be incredibly sophisticated customers in making choices to decarbonise their own energy consumption and save money in so doing. In addition, it is about ensuring new options are available to customers to participate in, and be at the heart of, the energy transition.

Our final priority is to ensure our organisation gears up to address the significant challenges ahead of us. In that regard, we will enable our people and organisational capacity. Those are the four strategic priorities from our new strategic plan.

The final slide of the presentation we submitted to the committee simply notes the range of topics in which the committee has expressed an interest. It highlights some of the materials we have submitted in support of those topics and to which we may refer in the course of questions and answers. Obviously, we are available to provide any other information or detail the committee may wish to have.

Chairman

I thank Ms MacEvilly. She acknowledged the CRU did not send in a detailed opening statement. The committee met in private session before the meeting and most members are disappointed that we did not receive such an opening statement. It is the practice of the committee for witnesses to send in statements and members to have an opportunity to interrogate the issues in advance and prepare appropriately.

When it comes to the CRU, and this was expressed by members, because of the committee's statutory role as an oversight committee for the CRU, it is particularly important that it send in detailed opening statements in advance. As we go forward, we would look for those to be submitted by the close of business on the preceding Friday. We will certainly seek to have the CRU back sooner rather than later, probably after this session, if we feel we have not discussed properly the important issues relating to the work the CRU does. I am sure members will express their own views on that as well.

Can I get agreement from members that because we have less than three hours, we will limit our contributions to two minutes? If we have time for second and third rounds, I will facilitate members. Is that agreed? Agreed.

I call Deputy Bruton.

Deputy Richard Bruton

I welcome the representatives of the CRU to the meeting. I am interested in a few issues. The first is smart metering. I understand that almost 1 million smart meters are now in place in the system. Why are customers not being offered the opportunity to avail of off-peak rates and to avail of charging when renewable energy is on the grid? That could spread peak load. Nearly 1 million meters is very significant; it must be at least half of the customer base. It seems as if we are missing a beat here by not offering those consumers a chance to get cheaper electricity. The cost of energy is a major factor at present.

On another issue that interests me, it is well known that there are very good deals being offered to new customers or customers who switch in the marketplace. However, the impression I get from talking to constituents, particularly older people or people who might be less tech savvy, is that they find it very hard to get somebody to talk to who will agree to make that switch and explain to them their rate and pattern of use. Would the CRU consider introducing a requirement like the one that is applied in the UK, whereby when a contract is coming towards its expiry date not only is the customer informed of that but he or she gets a quick response, QR, code showing his or her patterns and rates of charge and patterns of use? Then the person can easily go to some of the comparison sites and identify a package that would suit his or her needs. We have to confront this friction which effectively allows profiteering from people who are less equipped to make those changes.

I also have a question about the issue of demand management and the pressures that were much reported when the gas plants were out of action. I refer, in particular, to the high users of energy. To what extent has the CRU sought to negotiate with some of these large users the type of flexibility that many of them could bring to their reliance on the grid? Some of these users can divert flow to other parts of their system, not necessarily in Ireland. I know it may have some additional cost for them, but at a time when we are trying to facilitate the digital spread, remote working and all the advantages that come from digital technologies, some flexibility in this would appear to be a route worth travelling.

The last issue on which I am interested to hear our guests' views is offshore renewable technology. In their view, where are we on the timing when that might become competitive in the grid?

Chairman

Thank you, Deputy.

Deputy Richard Bruton

How will we help to introduce it and promote it?

Chairman

Thank you, Deputy. That was way over the two minutes, as I have been reminded by one of the members.

There are quite a few questions there for Ms MacEvilly.

Ms Aoife MacEvilly

I will start with smart meters. I thank the Deputy. The roll-out of smart meters and the introduction of smart services does offer the opportunity for customers to avail of cheaper rates at times when it is less expensive to generate electricity, which are often times when there may be more renewables available on the grid. All suppliers offer time-of-use tariffs which, under the standard framework, typically have day, night and peak rates. There are opportunities available to save money right now, particularly for people who may be charging electric vehicles or have heat pumps and who could avail of a night time rate. All suppliers are required to offer at least one standard smart tariff but most of them offer, in addition, a range of innovative product offerings. In fact, our understanding is the customers who have already taken up smart tariff options are probably predominantly going into the category of the more innovative offerings that can be tailored to the consumption habits of customers.

The point raised by the Deputy regarding information being provided to customers in respect of their consumption habits is an important one. At the moment, effectively, the data are retained on the meter side. It is only when a customer moves to a smart tariff that the supplier starts getting the data from the meter that are necessary in order to enable calculation of the smarter tariff day, night and peak rates, let us say. Subject to new legislation, we will be working to develop further opportunities for customers to be able to access their own data at any time in order to be able to make exactly the kind of choices the Deputy outlined. The concept of providing that at the same time as the three month notification that is required coming up to the end of the tariff is an interesting one that we may take away and consider.

Does Mr. Melvin wish to add to that in the context of the first two questions?

Mr. John Melvin

No.

Ms Aoife MacEvilly

I will hand over to Mr. Gannon to deal with the next two questions.

Mr. Jim Gannon

I thank the Deputy. In the context of taking on board demand and flexibility management, one of the actions we articulated in our information note was that Eirgrid would seek to engage with large industry electricity users to see what form of demand curtailment could take place in advance of entering into the load management protocol in times of system emergency. Dialogue has been successful with this cohort and Eirgrid continues to discuss with broader segments of industry to see what other sectors may be brought in, and also to deepen that engagement. Where previously the load-shedding protocol sought geographical areas which would have generally impacted upon smaller scale users in the first instance, this brings in demand curtailment for large energy users. That engagement includes not just engagement with demand users and seeking that flexibility for next winter and subsequent winters, but also dialogue with regard to any environmental licensing considerations that need to be taken there. That dialogue is progressing well. Eirgrid has not had to call upon that flexibility thus far, but it is a good flexibility to have in place.

In terms of demand-side units - this is a second stream with regard to flexibility - they have capacity contracts in the capacity market and can be activated at different times to turn down their demand and be called upon by Eirgrid. In that effect, they reduce the demand side as distinct from increasing the generation side. A workstream of the single electricity market, SEM, committee this year in order to send signals for next winter is to see how different signals could be sent to the demand-side units to improve performance and declarability and increase that demand-side flexibility. In the first instance, we have demand-side curtailment with large industry. Separately, we have a cohort that have capacity contracts in the capacity market, that is, demand-side units. Third, as Ms MacEvilly mentioned and the Deputy noted, bringing into place the economic signals that can allow people to benefit from moving from the peak between 4 p.m. and 7 p.m. is quite important.

It will provide a lot of value to the grid and value to consumers down the line.

With regard to offshore renewable technology, we have our climate action plan goals for our part as regulators. We are following national policy in that regard and engaging with the Department and with the formulation of that policy. Separately, we are progressing with our decisions, particularly in respect of the connection approaches and the connection protocol being taken by EirGrid. That work is ongoing and is moving forward to programme.

Chairman

Thank you, Mr. Gannon. I thank Deputy Bruton for those interesting questions. We might explore them as we go through the meeting. The next speaker is Deputy Bríd Smith.

Deputy Bríd Smith

Can you hear me okay, Chairman?

Chairman

Yes, we can hear you well.

Deputy Bríd Smith

I thank Ms MacEvilly for the presentation. My first question is on energy prices, which have been a big political issue. We know that they have quadrupled in recent months. Can the CRU explain why the prices are so much higher than the EU average? I have some figures. In 2019, for example, the price of gas to the household was 12% above the EU average and the price of electricity was 11% above the EU average. In 2021, the prices of both were 18% above the EU average. Is it related to the high level of profits that the providers accrued during the same period? The operating profit of €206 million for ESB Networks was up by €74 million on the same period last year. The operating profits of SSE Airtricity were up from €20.4 million by €16.4 million for the first six months. Energia grew its profits by 45% to €28.8 million from €19.2 million in the previous year. Huntstown Power Company, which operates one of the two plants at the site, trebled its profits to €15.4 million. Can Ms MacEvilly explain how that happens and if those two things are connected?

Earlier, we briefly discussed the energy review that has been promised by the State. Has CRU a role in that and, if so, what is its role? What is the position with that energy review?

The next question is on data centres. In Ms MacEvilly's presentation regarding data centres, she said that they need to take practical measures if their applications are to go ahead. What exactly are those practical measures? Is it, for example, to have a power purchasing agreement with a wind farm or the capacity to use its own gas fired generator? How many connections has EirGrid made to data centres over the recent period and how many will it make over the next year? We are still not clear about what is going to happen in terms of the proliferation of data centres. Perhaps Ms MacEvilly will answer those questions.

Ms Aoife MacEvilly

I will start with energy prices. First, I acknowledge how difficult it is for customers at present. We are keenly aware that energy prices are putting major pressure on many households and businesses across the country. This is a critical concern for CRU. The current circumstances are unprecedented, largely driven by wholesale gas prices. We will continue to work with the Government and other stakeholders to see what we can do to support energy customers in this difficult time. The Deputy looked back at the trends in energy prices over time. Yes, what we typically find over time looking at the EUROSTAT prices is that Irish prices tend to be above the EU average, but trending closer to the euro area average. There is a significant differential between prices in different parts of the EU.

In fact, a recent Agency for the Cooperation of Energy Regulators, ACER, study that looked at price trends across the EU highlighted that in member states such as Ireland, which are at the periphery of the European markets, less well interconnected than central European markets and highly dependent on gas, there tends to be higher prices. In general, one would see us as being effectively at the end of a pipeline. Not only are we paying the commodity price for gas in this case, we are also paying for the transport costs of bringing gas across interconnectors and into our own gas network.

We tend to have above EU area prices and this has been the trend. They are closer to euro area averages and not beyond what other euro area countries are experiencing, particularly those with similar features to our market such as being geographically distant and dependent on imports.

With regard to the profits of energy companies, these can change over time. It is difficult to pick up trends when looking at any particular period. We could have a high increase in profitability because there was a low profit number in a previous period. We have no evidence to suggest current or previous prices are related to excess profits in the sector. It is a competitive sector. Companies make investments and incur costs associated with generating electricity or supplying electricity. They generally expect to make some return on it.

Mr. John Melvin

The Deputy is correct. The price of the raw materials in electricity generation have increased dramatically over the past year. The price of gas was broadly six times more towards the end of last year than what it had been the previous year. On average, the increase in the typical domestic bill consumers saw over the year was close to 25%. What I would add to what Ms MacEvilly said is that, twice yearly, the Sustainable Energy Authority of Ireland, SEAI, publishes the weighted average price of electricity. The weighted average price of electricity in Ireland tends towards the euro area average. Other averages, other sectors and other figures can be quoted from EUROSTAT. It tends to focus on a particular sector in one country versus another. Those sectors can be of different sizes and different levels of importance in different countries. This is why the SEAI publishes the weighted average figure. We track the figure and it is available and visible. The price in Ireland tend towards the euro area average.

Deputy Bríd Smith

Do we still get quite a chunk of our gas supply from Corrib? This argument of having to pay for transport does not stack up when it is coming from Corrib. Will the witnesses return to this?

The witnesses' answers are very convoluted for ordinary people, including ordinary Deputies such as me, who are trying to understand. Why are they separating the idea of a rise in profits from the rise in the cost of energy to the consumer? I ask somebody to go over this again briefly. I have given them the evidence. I am not making up these figures. Their profits have risen and prices have risen. Are these two things not connected?

Ms Aoife MacEvilly

Gas is an internationally traded commodity. When Corrib gas came online, it was pricing against the delivered cost of gas via Moffat. It was not pricing at cost. It was pricing at a commodity price, which is linked to the price deliverable from the UK national balancing point to Ireland. This is why Corrib gas may offer some marginal reduction to support sales in Ireland but it is not necessarily offering significantly cheaper gas. We always promoted Corrib gas as supporting security of supply for Ireland rather than necessarily delivering major changes in energy prices. It is priced in the same way all commodity suppliers price their product.

With regard to profitability, a report is done on the single electricity market. The market monitoring unit looks at generator profitability over time and there is a report we take from time to time looking at supply margins.

We are not looking at it at any one point in time or for any one six-month period. Nothing we saw in any of those reports - again, some of these might not be up to the very current moment - indicated that profitability or an increase in profitability was impacting on the current level of pricing, which, again, is largely driven by commodity prices.

Another question concerned the energy review, which I take to mean the security of supply review being undertaken by the Department. It is very much driven by the Department and we are available as advisers to the Minister to provide input to that at any time. I think that answers that question. I will ask Mr. Gannon to answer the question on data centres.

Mr. Jim Gannon

In terms of the measures the data centres might take, our direction before Christmas provided ESB Networks and EirGrid with some assessment criteria that might incentivise or encourage data centres to take certain actions. The expectation there would be that EirGrid would look at the location of the proposed data centre connection and see whether it is in a constrained or pressurised area. Things data centres could bring to the table would be along the lines of moving the economic activity - the data processing - to other facilities they may have. This is something they do in other jurisdictions. Another measure could be to reduce activity at periods of peak demand and offer up that flexibility to the grid operator. They could also utilise on-site energy storage or generation to allow the grid to experience a reduction in demand from the site. There are a range of actions data centres could offer up alongside their grid connection application and in dialogue with EirGrid.

I do not have the number of connection offers that have been processed or completed by EirGrid to hand. They are numbers EirGrid would have to hand since the direction. EirGrid is in the early stages of updating its 2022 generation capacity statement, which projects the amount of demand and the amount of generation it expects to see over the next ten years. Some of that modelling would contain EirGrid's expectation and updated expectation of what data centre demand would look like in the coming ten years. Underpinning that would be EirGrid's understanding of the connections it would or would not be engaging in and what it expects to come online.

Chairman

I hope the Deputy stays with us so we can explore some of those questions in further detail.

Senator Lynn Boylan

Going back to the document the CRU provided regarding the breakdown of domestic electricity bills, the witnesses mentioned that much of the increase in costs is down to international prices and the fact that we are at the end of a pipeline. I note from this that 70% of the costs fall under the remit of areas the CRU regulates such as wholesale and network costs. The witnesses mentioned wholesale costs. The costs in Ireland are still significantly higher. The witnesses referred to the eurozone and the fact that we are at the end of a pipeline but tariffs in the North are still significantly cheaper even though we have a single electricity market. What is the CRU doing on regulating wholesale costs? In 2021, €372 million was the cost of supplier capacity while €330 million was an imperfection charge. The CRU has a direct role in these. Is it not true that the regulator approves network costs and that they comprise 38.1% of a domestic bill? For people who may be listening at home, the network costs involve EirGrid and gas networks. ESB Networks owns the grid. Does the CRU have the capacity to analyse what ESB Networks is sending in to see whether we are getting value in the network costs because my understanding is the CRU budget is €15.9 million of which it has spent €3.9 million on consultancy?

My questions concern the area that makes up 70% of the cost of bills and for which the CRU is responsible. What is it doing directly to intervene regarding those costs?

Ms Aoife MacEvilly

We directly regulate network cost to customers. The way we do this for electricity, gas and water, although we do it in a slightly different way in the case of water, is through what we call price controls or revenue reviews. These take place over a five-year period. We carried out what we called Price Review 5 for electricity, ESB Networks and EirGrid last year and are in the process of doing the same thing for gas. As part of that, we look at the costs submitted by the network companies that are related to operation, maintenance and development and the companies' projections for what they see as necessary to support those activities for the networks in the five-year period ahead. We go through a detailed analytical process. There are teams within the CRU with experience and expertise in this area. The Senator is right. This is an area where we do bring in external expertise because we need that level of constructive pushback on what the companies would submit to us.

The types of analysis we carry out include benchmarking with other jurisdictions, particularly the UK distribution networks, to assess for types of activities. If ESB Networks is engaged in an activity, is it delivering it at reasonable value compared to similar types of activities in the UK? We would use that as a basis for imposing efficiencies on the network companies so we would look for percentage reductions based on the opportunity to drive efficiencies in what they do.

We also look for innovation because we think using innovation to drive down costs is a real opportunity. First we would put funding towards innovation to ensure they are undertaking innovative activities and then we provide incentives around delivering on innovation. The key point is deploying that so that we can see customers are getting the benefits of it.

We do exert that kind of pressure and put that sort of analysis into it. Underlying that, however, is the need to invest in the networks in support of the public interest effectively. The kinds of areas of investment where we do approve additional spend include around supporting security of supply, better infrastructure for customers, the roll-out of smart meters and the decarbonisation agenda. Network infrastructure is vitally important to ensure first of all that we are connecting new renewable infrastructure to the grid and then removing constraints that that we can move that renewable energy around the grid more efficiently. We do assess those programmes and carry out analysis to ensure the delivery of necessary investment is efficient. The Senator is right. That is a big chunk of customers' bills. We take that very seriously and try to ensure that it is the least cost delivery. Where we can, we also impose those efficiencies to ensure we are getting the best value.

Senator Lynn Boylan

Has there been any reduction in the percentage of network costs to the consumer's bill?

Ms Aoife MacEvilly

No - since we have been involved in setting price controls, it has been a steady increase in investment and a steady increase in the level of costs. We would have seen small percentage increases over the five-year periods as we moved along. Frankly, when we first got involved in network regulation, it followed a period of underinvestment in networks and we had to regain ground. On top of that, we had the decarbonisation agenda where we needed to invest further to facilitate that. Notwithstanding the efficiencies, the reality is that we have needed to support additional build of infrastructure and additional operational costs associated with the operation of the infrastructure and new technologies we are hoping to introduce such as smart metering.

Senator Lynn Boylan

So it is expected that the percentage to consumers will just continue to rise.

Ms Aoife MacEvilly

It is paid for by consumers. They are paying for investments in the networks, which support security of supply for their homes and businesses and decarbonisation for this generation and future generations.

Senator Lynn Boylan

Was there any reduction in the wholesale cost percentage to customers?

Ms Aoife MacEvilly

With wholesale costs, we set the market rules and the generators compete. We do not set the wholesale price in the same way as we set the network charge but we set the rules by which they compete. Over time, we would see prices rise and fall. We can provide the Senator with some information from previous periods. What you would see is that the price on the wholesale market broadly tracks the underlying costs, which are largely driven by gas prices. We set out the curve of gas prices and you can see the wholesale price rising and falling, almost completely aligned with those underlying costs. In recent months, the cost of carbon has also had an impact but you can see that prices on the wholesale market are clearly higher than we have seen before due to gas prices. However, in 2020 with the onset of Covid, gas prices dropped quite significantly and you could see wholesale prices reduce in line with those.

Senator Lynn Boylan

But did they drop in line with everybody else in the EU?

Ms Aoife MacEvilly

I think the EU looks at it over a six-month period. We track it on a half hourly basis. We can provide information on this that would show the Senator that. The comparison with Northern Ireland can sometimes be difficult as they are different jurisdictions with different tax rates, different approaches to funding renewables and possibly different approaches to the investment in the network piece but the wholesale market is an all-island market so it is the same wholesale input into those prices.

Deputy Darren O'Rourke

Regarding profitability and protecting customers from charges when suppliers are making extraordinary profits, the witnesses say there is no evidence to support that and that from time to time, there is a market monitoring system. Could they give me some information about how the CRU assesses that? I know there have been public charges. Are investigations ongoing? If so, at what stage are they? How does the CRU monitor the profit margins of individual companies? What incentives outside of the price comparators does the CRU have to encourage operators to pass on cheaper costs? Does the CRU have a role in advising the Government on policies in the context of the cost of living crisis? Has the CRU considered price caps or windfall taxes either on generators or suppliers?

In terms of the CRU's remit, it seems there is a constant trade-off or tension between sustainability, security and price. Proposals from the CRU, including in the past number of months, concern what the energy system in Ireland might look like in terms of renewables compared to gas and other fuels. What models is the CRU using to assess that? Are its decisions in line with current Government policy?

Mr. Jim Gannon

I might take the first part of that.

I thank Deputy O'Rourke for the questions. The CRU, through the single electricity market, SEM, committee and the market monitoring unit, monitors the behaviour of generators in the single electricity market to ensure that there is open and transparent competition. The market monitoring unit also follows up on anything it observes or any complaints made to the two regulators or to the SEM committee. We confirm that we have received a number of complaints in relation to a market participant and that the regulatory authorities are following this up through the appropriate processes. It is important to say that we take any allegations very seriously and we follow up on them very diligently.

While the process is ongoing, to protect the integrity of the process we do not identify either the complainant or the market participant. Notably, if any breaches of market or competition rules are established, all appropriate actions will be taken with regard to the licensing terms and conditions. If any breaches are established, the penalties can include financial ones. They can include obligations to cease certain activities or it can conclude with the revocation of a licence.

We have received certain complaints and the appropriate processes are in place and are being followed at present with regard to certain companies.

Deputy Darren O'Rourke

How long will that take or when might people expect to see an outcome of those processes?

Mr. Jim Gannon

We are at the early stages where we are now analysing the complaints that have been made. We are testing them. We are also adding queries to them. When we understand the nature and the scale of those complaints and observe what they might mean in terms of breaches, we will have a better idea of the nature of what might follow in terms of formal investigations or not. We are not at a point in time where we would know yet but it is in process and it is being acted upon.

Deputy Darren O'Rourke

When might the CRU have an indication in terms of what might be in front of it?

Mr. Jim Gannon

We do not have that yet. We are not at that point in time yet.

Deputy Darren O'Rourke

Okay.

Chairman

There were other questions around the CRU's role in advising Government. There was a question around the remit and, I suppose, balancing the various remits of the CRU as well, and the models that it is using in doing so.

Ms Aoife MacEvilly

I will take some of that.

In terms of the current cost-of-living debate, we are providing data and input to the Department to support the work that is ongoing around the impact from an energy policy perspective on the cost of living. We are obviously aware that that is a much broader political issue encompassing challenges for customers around food prices, transport etc., and we are looking at it from that point of view.

We do not see a price cap as being a solution in this situation. Members may have seen, if they have been observing what is happening in the UK market, for example, that they have a price cap in place for certain customers and this has been highlighted as being somewhat detrimental during a period of high and volatile prices. The price cap has not protected customers because we have just seen a significant increase in the price cap because its function is to reflect underlying costs. It has also created an environment in which 27 suppliers over the past six or nine months have exited the market suddenly in the UK leaving customers to pick up the cost of that debt. A significant proportion of the increase we have seen in the UK market recently was to pick up the bill for the suppliers that have exited the market. We are neither inputting on that as a potential policy response at present, nor, indeed, on windfall taxes.

While windfall taxes have been talked about in Europe, you have to identify whether there is an actual windfall and most countries that have looked at it have found that there is not necessarily a windfall to tax. For instance, while electricity prices on the wholesale market have increased, you can see that generators are also having to face the price of the gas commodity. They are buying it at that higher cost to produce the electricity and there is no apparent windfall to come at.

What we have looked at is the EU toolkit to address energy prices. Clearly, we are working with the Government, for example, on the now €200 electricity credit as one of those measures.

In terms of the policy in general, the Deputy is correct that we would have this constant trade-off between ensuring security, sustainability and keeping price pressure on. You rarely find something that ticks all three boxes. If we invest in networks, as Senator Boylan said, to support security of supply or sustainability, we are also increasing costs. That is the reality of the balance we make. However, we work within an overarching policy framework. We are guided by Government policy, in particular when we are looking at, let us say, the mix of renewables and gas and the fuel mix in the future energy system. We are very much guided by policy around the climate action plan, for example. We are working towards the 80% renewables target but also trying to assess the additional generation capacity, such as gas-fired capacity, that is needed to support that 80% renewables target and for those days when the wind is not blowing. We still need to support security of supply and that is a constant balance.

I wonder if other colleagues want to come in on that or add to it.

Mr. John Melvin

I would add, in terms of the trilemma of sustainability, security and price, the renewable electricity support scheme offers long-term contracts but through a competitive auction process. The meeting of the targets will be driven largely through competitive auction processes through the renewable electricity support scheme. In those particular schemes, if the price is below a certain level, the renewable generator will get a top-up to meet that. If the price in the market is above that, they will give back the difference. Through that renewable electricity support scheme, one can attempt to meet that balance between sustainability and price.

On the security of supply piece, the capacity market auction is a competitive auction that is held every year. Generators compete with each other to win the contracts to provide sufficient capacity to give us security of supply, again through the use of competition and competitive mechanisms to seek to maintain that balance, this time between security of supply and price. It is done through the creation of the rules and the structures for competition where service providers compete with each other to provide both the sustainability targets and the security of supply targets. That is the competitive mechanism through which we try and maintain the trilemma.

Chairman

I thank Mr. Melvin. There was a question on the models that the CRU uses in the course of adhering to that trilemma, as Mr. Melvin calls it. Can Dr. McGowan shed light?

Dr. Paul McGowan

We do not have a single model that captures all the intricacies and complexities of the energy market. To take some of the topics we have talked about today, for example, in relation to a price control, we have quite sophisticated revenue models which determine what the outturn cost should be per kilowatt hour of, let us say, the distribution system or the transmission system on gas or electricity.

Through the SEM committee, we monitor closely the price trends in the market. A great deal of information is gathered there. Major inputs, such as the generation capacity statement that EirGrid produces annually, tell us the demand expectations and, therefore, the generation requirements that might be required.

There are a series of models and inputs we assimilate. Throughout the year, we would take various decisions, whether it is at one point in relation to the parameters for an auction and how much we need to buy or, later in the year, setting the tariff for transmission use of system and distribution use of system.

There is not a single model. It is far too complex to warrant a single model. There are a number of rather sophisticated inputs.

Chairman

I understand. It is a good question but I absolutely appreciate that it is a complex area. Deputy O'Rourke wants to come back on that.

Deputy Darren O'Rourke

I asked a question about the levers available to the CRU to pass on incentives but protect consumers against increasing prices. I presume it will point towards the price comparator websites.

For example, I have been notified by constituents who were on a level pay scheme with one of the providers and now have a smart meter that they no longer have the option of the level pay scheme. Is there any indication that things are happening in the market that are counterproductive for the protection of consumers, especially those on lower incomes?

Ms Aoife MacEvilly

We point to competition as the best way to drive down prices over time and to produce more innovative offerings for customers. We point to things such as the estimated annual bill calculation, price comparison websites and other supports we have introduced to help customers find the best value in their area. I do not think we have identified any area in particular, such as the one the Deputy mentioned, that warrants additional work at this time.

We have had an engagement between our customer stakeholder group and suppliers to understand the particular issues arising at present due to high prices and to try to address them. One of the areas we are concerned about is around vulnerable customers and whether there is enough awareness among such customers of their rights to be protected from disconnection. That is one area of action we have identified. Typically, we get information through our customer care team and our customer stakeholder group, and we carry out annual customer surveys. We are constantly looking for examples of issues. Is a particular supplier doing something we can follow up through compliance and enforcement to ensure it adheres to the rules? Is it an area where perhaps new rules or guidance is needed? The issue raised by the Deputy has not crossed our desks, but we will take a look at it.

Chairman

Deputy Whitmore is joining us from her office.

Deputy Jennifer Whitmore

I thank the witnesses. I have one quick question for Ms MacEvilly regarding the moratorium. The last time she was before the committee she said there was a moratorium on disconnections that would apply until around 11 March. Has the CRU considered extending that in light of the energy price crisis we face at present?

I also have a number of questions about data centres. The first relates to dispatchable on-site generation referenced in the CRU's consultation document, which states "The CRU expects that any dispatchable on-site generation that uses fossil fuel sources...[would] use natural gas". Why did the CRU not direct that to be the case? It has allowed it and left it up to the data centres to decide. Does the CRU believe that is contrary to our climate obligations and national climate policy?

My second question on data centres relates to the mitigation options. The CRU states:

Having considered the submissions received...the CRU remains of the view that it is not currently appropriate to impose a moratorium on data centres connections in light of the functions and obligations of the SOs to ensure all reasonable demands for electricity are met.

The CRU is saying that data centres need supply, and there should be a supply, so it would not put a full moratorium on them. Yet, everything else in the CRU document points to the fact that the energy requirements we have seen from data centres so far, and those being modelled into the future, are completely unreasonable when it comes to our overall energy supply and its security. The CRU specifies that the electricity system cannot currently accommodate the level of demand coming from data centres. It states:

It is clear...that data centres are having an impact on the Irish electricity system, and on...meeting...[the needs] of reasonable demands by the system, that is not comparable to any other industry...

On the one hand, the CRU is saying it believes the increase in demand from data centres is unreasonable, while, on the other, it is saying there should not be a moratorium because what data centres want is within the reasonable element of what the operators should be providing. Does the CRU see a contradiction in those two positions?

Chairman

I will push it on. I will allow the Deputy to come back in but she asked quite a few questions. Will the regulator take those questions? I will then let the Deputy back in.

Ms Aoife MacEvilly

I will take the first question regarding the moratorium on disconnections and then hand over. It is a matter we keep under constant review. We are monitoring the level of disconnections in the market at present, which is not high at all. Given there were no disconnections earlier in the year, we are still seeing quite low levels. The balance we are always striving for in looking at this is that in the absence of disconnections, and especially in the absence of engagement between suppliers and customers in the lead-up to disconnections, customers can land in a position of high debt that can be very detrimental. The point of the disconnection procedures that are in place is to avoid disconnections, which are not good for anyone. It is very important to have procedures that require the supplier to engage on a number of occasions with customers and to offer them options that can include prepay meters, payment plans or other options to pay down the debt. That was in some of the feedback we got from our customer stakeholder group, which reflected concerns around people in vulnerable situations and that those people could end up in a more vulnerable situation, if they have high debt at the end of a moratorium period. We will keep this under review but we have no plans at present to implement a moratorium. I will hand over to Mr. Gannon on data centres.

Mr. Jim Gannon

There were two main thrusts to the Deputy's question. I will be happy to come back to it again, if she requires anything further. The directions provided prior to Christmas were a security of supply measure in the main. This was to ensure electrons would continue flowing and that should data centres connect to the system they would be able to manage that and offer the system some mitigation for the demand they brought to it. It was a security of supply measure as distinct from a carbon measure, if I can put that way. The primacy of security of supply was there in line with our legal mandate. There are some considerations around that where we had a certain expectation, through dialogue with the market and our own observations, that carbon pricing would drive people towards lower carbon options, as would the planning system aligned with national policy, in addition to significant internal pressures in many organisations that drive them towards lower carbon solutions with regard to their own corporate targets. That is where our expectation would have been in place.

On the demand expectation from data centres, in the main body of the paper we discussed the estimations EirGrid put in place for data centre demand and the fact data centres are unique in how they bring their demand to the grid as a single industry. Separately, it would have been those considerations unmitigated. We put assessment criteria into the paper in order that should data centres be connected to the grid, they could bring certain mitigations and have dialogue with the distribution system operator to bring mitigations to bear on that demand. I believe there is a difference between what EirGrid could pose in terms of a risk and challenge if demand was unmitigated, but the assessment criteria we put in place gives EirGrid and ESB Networks the ability to mitigate that security of supply challenge as the demand comes online.

We have stated that we still reserve the right to bring a moratorium to bear on the data industry should that be required. As part of that decision, we have requested that EirGrid reports back to us periodically on the effectiveness of the measure to see whether it needs to be tweaked and ratcheted up or whether we are comfortable with the mitigation measures and the effect they are having.

Deputy Jennifer Whitmore

What the CRU is actually looking at is the short-term security of supply where the grid structure is not up to peak demands.

There has been no consideration of the overall energy demand across the nation, as such. This is very much focused on the gaps in the grid, as opposed to the risks associated with the exponential growth in demand for energy from data centres. Is that correct?

Mr. Jim Gannon

The directions we provided before Christmas were a response to a letter from EirGrid that informed us there was a specific risk from the energy demand of data centres. It was a short-term measure, and we will retain it until it is no longer needed. In parallel with that, EirGrid will again put together its generation capacity statement that will consider the longer term. It will feed into not only how much generation capacity we will be required to purchase for the longer term, but also into EirGrid's network planning and the wires required to resolve some of the known network constraints. In Dublin, for example, a significant level of investment in the network is required to resolve those constraints which has been known about for some years. The generation capacity statement would feed into the procurement of capacity, in the capacity auctions, for the longer term. It would also feed into the investment, and the planning for investment, in the transmission and distribution systems. This measure, then, was focused on the shorter term, but those longer-term perspectives are also embedded in there.

Deputy Jennifer Whitmore

Turning to the matter of-----

Chairman

I want to be fair to other members, Deputy, and we will have a second round of questions.

Deputy Jennifer Whitmore

Will I get a chance to get back in?

Chairman

I want to be fair because other Deputies are waiting now. I will bring in Deputy Whitmore for the second round of questions, if she wishes to indicate then.

Deputy Jennifer Whitmore

Okay.

Chairman

Deputy Costello has joined us. Does he wish to come in during the first round of questions as well?

Deputy Patrick Costello

Yes, please.

Chairman

I call Deputy Cronin next, whom I believe is also joining us from her office.

Deputy Réada Cronin

I am on the precincts. We are all aware that people are struggling because of energy prices. There has been much talk of customer offerings, but the provision of energy is an essential service for living. Do we need to place more emphasis on the service aspect compared with that of consumption? I ask that because I am especially mindful of the challenges we are facing in respect of security, transmission and emissions. Given the scale of what we are facing in the context of climate and emissions, we need a radical rethink regarding energy provision being a public service rather than a market commodity.

I note that the CRU was devised at a time when circumstances were very different to those we are facing now, with this existential threat from climate change and the commensurate need to radically reduce our emissions. What I am asking, and this is a bit like asking a turkey to vote for Christmas, given the threat human civilisation is facing, is whether we need to move to cut our emissions radically or to return to the idea of the provision of energy being an essential public service rather than just a market commodity. I ask that given what is at stake. We all need energy, and not as a luxury but just to survive. Do we need this type of radical re-envisioning and reimagining in the context of energy provision? If so, does the CRU have a role in this regard or is it past its sell-by date?

Chairman

That is an interesting question. I call Ms MacEvilly.

Ms Aoife MacEvilly

I have huge confidence that our organisation is playing and will play a role in the transformation needed to deliver on our climate aspirations. This is at the heart of our mission, our vision, our strategy and our public sector ethos, which is about protecting customers. Specifically, our vision is focused on the provision of safe, secure and sustainable supplies of energy and water for the benefit of customers now and in future. We deliberately added reference to the future because it is so important that we make the right decisions today to ensure we can deliver on the scale of change required. I have great confidence, faith and a real belief in our organisation's role in supporting and, frankly, driving some of this change.

It is something that is important for all our of team as well. They are very much motivated by the work they do in support of climate action.

We must look at how we evolve and change things, using the tools of economic regulation to support that required change. On the network side, for example, we believe we must invest in our networks and drive innovation. This is not just about doing the same things on a larger scale; we must do things differently. For that reason, we have tried to drive home, through the price control process and the incentives and innovation regimes, the need to radically change the approach to network investment and the available offerings for customers.

As an economic regulator, we also believe that competitive markets, where they are appropriate in the generation and supply of energy, bring in the kind of innovation and change that a monopoly situation simply would not. In that context, we think that well-designed markets are a tool to deliver change. They will allow this change to be delivered at the least cost to consumers and to be delivered faster. Equally, well-designed markets will bring in the required innovation to allow things to be done differently and for a different type of thinking.

We absolutely believe that energy provision is an essential service. We must keep our customer protection focus, especially for our more vulnerable customers who may not be ready, equipped, or empowered or who, frankly, may not have the money to engage in some of what we are offering. In addition, we must also provide those innovations through smart meters. Customers' ability to be part of the transition is going to be crucial. We see much of the work we are doing as being at the heart of that. Perhaps my colleagues would like to add to what I have said or give other examples of what it is we do in this context.

Dr. Paul McGowan

I have little to add. We spoke earlier about the trilemma of security, sustainability and price. In that context, we are focused on trying to ensure we can deliver secure and sustainable supplies, including sustainability from a climate perspective, and to do so at the most efficient price. To re-emphasise what Ms MacEvilly said, doing that will require a level of innovation and competition is appropriate in many circumstances to deliver that innovation.

I will give only one additional example. We are running now at perhaps 70% to 75% renewables on the system. We are capable of running the system on up to 75% renewables instantaneously. It is groundbreaking and innovative for Ireland to be able to achieve that level of integration of renewables. By 2030, we think that we need to get that level to 95%. We see a competitive system services market where generators are competing to deliver the services EirGrid needs to be able to run the system on 95% renewables as a real way to ensure that we get value for money for customers, because they are ultimately going to have to pay for the transition.

Chairman

I thank Dr. McGowan. Adding to Deputy Cronin's question regarding the challenge we have in this area, it is brilliant that we are doing so well in respect of the percentage of renewables we can push onto the grid. I think over the last two weekends that figure went up to 80% and beyond, with wind energy accounting for 70%. When we get to 2030, we want to be using at least 80% renewables year-round, and not just instantaneously. The level will go up, and, arguably, will go beyond 100%, which would allow us to become an exporter of energy.

My question concerns the market design required to achieve that ambition. A new natural gas plant is planned. It needs to be built as we increase the percentage of renewables and for technical reasons to balance the fluctuating supply which will come from renewables. My concern is that building this new gas plant could lock us in a carbon path. Perhaps we can avoid that. I am interested in this aspect.

What incentivises somebody to come along and build a gas plant that is only going to be on for a few hours in the whole year? Is there a piece on the market designed to incentivise those players to come into the market but only to the point they are used very seldom?

Mr. Jim Gannon

I am happy to start and I will pass to my colleague, Mr Melvin, after that. We had record levels of wind over the past couple of weeks, which was a highlight, given last year was one of the lowest wind years on record, or at least on recent record. As an example, the record was in excess 4,500 MW of wind at a point in time. In September, we had a day where there was less than 40 MW online, which is approximately 1% of that record. It is true that we will drive for and obtain the national target of 80% by 2030 but when the wind does not blow on a relatively small island, the wind really does not blow, which means we need that back-up capacity. The question then turns to what other facilities are required to ensure we have capacity.

It is important to recognise that we have interconnection to the UK. That interconnection will be further supported by interconnection to both the UK and France, presuming the greenlink and Celtic interconnectors go ahead. That will allow us to draw from those jurisdictions when we have a deficit of capacity in our own right. It will also allow us to export to those jurisdictions to make sure that when we have an excess of wind capacity, we can gain economic benefit from that and not require wind turbines to stop turning or exporting electricity to the grid.

In terms of how we reward the system for that gas-fired generation, the gas-fired generators would be rewarded through, in the first instance, the energy they produce at a point in time. That is the energy revenue they would get. Some gas plant and other technologies, for example, battery storage or synchronous condensers, assess the power quality and react to certain things on the system. When power quality or security of supply are challenged, we employ systems services. This suite of systems services can be provided by different types of plants, including conventional plant and gas plant. It keeps the power quality at a level where it does not trip switches or substations and, therefore, stabilises the grid, particularly when wind is coming on and going off.

There is the energy revenue. If I burn gas, I produce 1 kWh of electricity. There is the systems services revenue, which again would be provided at a point in time. Importantly, there is also capacity revenue. This is the capacity mechanism where we hold an auction for a certain volume of capacity and developers bid against one another to determine how much they will get paid to be there when we need them. This is different from actual burning from actual services they provide on an ongoing basis. This is for us to know that when we switch the light on at the wall, it will turn on. It is not the amount of electricity we actually use while the light is on. We expect that capacity payment, in particular, to rise over time because in practice, when these gas plants are in place, it is likely that as we increase renewables on the system, they will produce less electricity. As one of the their revenue streams, one of the three legs on the stool, goes down, one of the others will have to go up. That capacity contract which provides those developers with revenue to be there when we need them is most important because as we bring more renewables onto the system, the energy element is likely to tail off, over time.

Some others, out of interest, are considering the role of hydrogen in some of these gas plants but that is the developer's business for now.

Chairman

That is a very comprehensive answer to something I have been thinking about for a while. I thank Mr. Gannon for that. I apologise to Deputy Alan Farrell, who I jumped in ahead of. Go ahead, Deputy.

Deputy Alan Farrell

That was an interesting aside, which is important for the committee. I thank our guests for coming in. I have three areas of focus, two of which are follow-ups. Dr. McGowan made the comment that we hope to be enabling up to 95% capacity on the grid for renewables. I have two or three questions flowing from that.

What does the commission need to do to achieve that? What do the network suppliers need to do to achieve it? What do we, as policymakers, need to do?

My follow-on question from that relates to our overall energy generation over the coming nine years. What is the limitation of our capacity to export or is there one? Will the two new interconnectors aid us in ramping up the ability of the State to export renewable energy when we get to the point of being energy exporters?

I will go back to the first question asked by my colleague, Deputy Bruton, about smart meters. This is not a criticism but Ms MacEvilly's answer brought an awareness of something to my attention. I would have thought smart meters would be enabled to reduce energy consumption and thus reduce costs to the user as a starting point, not as an option from a supplier. Ms MacEvilly's remarks, if I picked them up correctly, were that the suppliers have a base position and then there are extras they can add for the customer. I would have thought, from the point of view of a regulator, the latter would be the first place to begin rather than it being an option. I would appreciate a comment on that.

Another question Deputy Bruton asked related to offshore wind energy and the capacity, particularly on the Atlantic coast, for us to generate the levels of renewable energy we all wish to achieve. The Deputy asked how close we are to commercial viability. There is legislation going through the Houses of the Oireachtas at the moment that will develop the maritime area regulatory authority. Has the CRU reviewed that legislation? Do our guests have a view on it? Do they believe it will work? Do our guests have any other comments to make about it?

My final point is a fresh one. The ESB yesterday announced an ambitious plan in its own sphere, which I have not fully read yet. Have our guests from the CRU any comments on that particular announcement?

Ms Aoife MacEvilly

The Deputy's questions touched on a number of areas. I will reply on the question about smart metering and will then hand over to my colleagues. The Deputy is exactly right. The data the smart meters produce are there to enable customers to have better insight into how they are using their energy so they can use less and save money. Those data also enable customers to use energy at cheaper times, for example, at night-time rather than at peak time to save them money. That is fundamental to the collective bargaining agreement that drove the programme.

At the same time, customer choice has to be at the heart of that. When we started with the programme, we wanted all customers to have instantaneous access to the data from the meters, but as general data protection regulation, GDPR, legislation developed, evolved and was implemented, it was clear the customer would have to make the choice whether to release the data to their suppliers so that a supplier could provide that customer's energy in a useful and meaningful fashion rather than something that would happen automatically. That is the basis of the programme now. It is the customer's choice as to whether those data become available.

It would ultimately be an ambition of the CRU to move most customers towards time-of-use products because, frankly, that is the best way to incentivise behaviour that can be beneficial to customers and support the grid by reducing peak usage and enabling greater use of renewables when we have high levels of renewables on the system. That is also driven by customer choice because some customers may feel they simply do not have the ability to make those changes. It is based on customer choice. In the coming period, we will be providing more information to customers to support their choices on this. We will be advertising and promoting why smart metering, data and time-of-use tariffs might be of benefit to customers so they feel more confident in making some of those choices.

I will turn to my colleagues on the Deputy's other questions.

Dr. Paul McGowan

I will address the question on enabling 95% of grid capacity for renewables. Given that we have a target to get up to 80% of renewables by 2030, we know what it is we need to do. From a policy perspective, I do not believe we have identified any policy deficit. It is a matter of industry needing to get on and do this. A programme is already under way to develop the system services into a new market for competitive system services and the new products that will be necessary to deliver on 95%. It is now a matter of getting on with it and doing it, rather than there being any policy gap. I just wanted to address that point.

Chairman

Deputy Farrell asked about the establishment of the maritime area regulatory authority, MARA. Does the commission see that as critical to the 2030 objective or beyond that? Does Dr. McGowan have a comment to make on how the Government should prioritise the establishment of MARA?

Dr. Paul McGowan

I will let Mr Gannon take that question. I will say, however, that anything that clarifies and proceduralises the offshore consenting process will assist in the development of the offshore renewable sector.

Mr. Jim Gannon

I will briefly take up one or two of Deputy Farrell's questions. I believe I will be able to close them out in a relatively short time.

In addition to the climate action plan, which articulates national policy, Ms MacEvilly mentioned earlier the price review process. This is where we determine, with the transmission system operator, EirGrid, and also with ESB Networks, the investment they need in order to meet again the national policy goals. In the recent price review, there was a huge focus not just on decarbonisation at the consumer scale and making sure consumers can participate in that through smart metering, smart services and low carbon transition, but also on the requirements EirGrid will have for investment over the next period. In the PR5 decision they were provided with a significant investment in investment potential, but also an ability to execute flexibility in that. The rapidity of change in decarbonisation and technologies that facilitate this means that what they believe is the best option now for technology and price may actually change during that period. There are new facilities within that price review that allow such flexibility to be executed.

The second piece that Dr. McGowan mentioned, which is quite important, relates to the three legs of the stool I mentioned, namely, the revenue from producing energy; the capacity revenue, which was stated; and the work stream on system services. The single electricity market, SEM, committee, the commission and our colleagues in the Utility Regulator in Northern Ireland are working on a new suite of system services to provide the incentives for existing and future generators to provide that other revenue stream. That is a bridging revenue stream where, as energy may come down capacity, and system services in particular, will come up as a new revenue stream. We will invite new technologies to help us meet that overarching target.

There was a brief question on interconnection. We anticipate that there will likely be further interconnection beyond the two interconnectors that are currently in the pipeline. There is certain interest in the market but there have been no formal applications to us in that regard. We also note that in recent months, the UK's Office of Gas and Electricity Markets, Ofgem, has been considering that further interconnection to Ireland is a possibility or likelihood.

Separately, looking much further down the line, there may come a point in time where exporting our energy through electrons via cables may be overtaken by a potential to export using green hydrogen in particular. There is a lot of investment in that regard, especially as we move a long way beyond what we need with offshore resources. We need to make sure the value proposition is there to continue investing and to turn the natural resource into an opportunity for national wealth. In the context of export, it is important to keep those on the line.

Chairman

If I could come in on that point, on which Deputy Farrell would probably be thinking along the same lines, Mr. Gannon has just touched on the global opportunity and referred earlier to the trilemma and the balancing remits of the regulator. Is this a fourth leg? It is not an official remit of the regulator to drive that, but it is an opportunity that Ireland has. If it is not the regulator's remit, although Mr. Gannon has recognised it as something that Ireland should pursue, is that a danger? Does something need to happen to give the commission a statutory responsibility to pursue the global opportunity that is there for Ireland?

Mr. Jim Gannon

As an economic regulator we would follow national policy, but we would also involve ourselves in the dialogue that would feed into that national policy, including the preparation of the climate action plan. Separately, it is within our remit to advise the Minister on decarbonisation. Again, we would follow a policy brief that we would be given. At the moment, we are certainly aware of technological improvements and aware of the kinetic energy recovery systems, KERS, with regard to offshore wind and floating offshore wind, and also green hydrogen. We keep ourselves aware of where the technology is and where the economic opportunity may be, in order that organisationally we might be ready when the time comes. Indeed, it is one of the areas where we are considering looking at our own resourcing in that readiness space.

Deputy Alan Farrell

I have two supplementary questions if that is okay. They might flow into the answers. Perhaps it might be helpful to the committee if the CRU could outline the capacity of the interconnectors for export at the moment, versus what we might be aiming for in the future.

With regard to the comments made about smart metering, has the Data Protection Commission ruled that energy usage data is captured by the GDPR, or is it an assumption on the part of the CRU? Perhaps the CRU representatives could provide us with more information on that.

Mr. John Melvin

There is currently 1,000 MW of interconnection between Ireland and Great Britain: 500 MW connecting Northern Ireland to Scotland and 500 MW connecting Ireland to Wales. There is a new 500 MW interconnector currently in development to connect Ireland to further south in Wales. There is also a 700 MW Celtic interconnector in development to connect Ireland to Brittany in north-west France.

On the smart metering question, it is established in the European context under GDPR that the half-hour data are considered to be personal data. That changed as part of a move from opting in to taking services, to opting in to taking services from earlier versions of the smart metering project, which would have said "opting out". That move to GDPR and that clarity drives the customer choice piece to give the half-hour data to their supplier.

Chairman

I thank Mr. Melvin and I thank Deputy Farrell. We will move now to Deputy Costello.

Deputy Patrick Costello

I thank the Chairman. As a visitor to the committee I appreciate the time.

Reference was made to one of the CRU's strategic priorities being protecting and empowering customers. I want to focus on this and particularly a very vulnerable group, who I believe are being treated very unfairly. These are the customers who are on prepay meters. The ability of the customer to compare prices and choose to switch does not apply to this group. Equally, in the CRU's own handbook the protections around disconnection do not apply to this group. The prices charged to this group are crazy. The prices are significantly above those paid by anyone who is on a bill, and they are significantly above the prices paid by those who pay by direct debit. Essentially, these users are paying a premium to be on these services. They are often forced to be on those services, whether it is through their own vulnerabilities or through poverty, or because the choice is forced on them by the rental property situation. It is completely out of their hands. If we consider other countries, there have been attempts to regulate the price that prepay users pay, through using social tariffs or through caps to prevent the sort of price gouging we see here.

Earlier today the CRU stated that it sets the rules by which providers compete. The witnesses spoke about the importance of a well-designed market. The price segmentation, and often forced or unavoidable price segmentation and market segmentation by prepaying meters is essentially allowing market failure, which is something that a regulator should be stepping in to act on. What is the CRU guys doing to protect this vulnerable sector of customers?

What research has the CRU done into the cost of the poverty premiums that vulnerable users are forced to pay? There was a question earlier about what levers are available. In the same vein, what levers are available to the CRU to protect and empower these customers? What levers does it need to enable it to protect and empower these customers?

Ms Aoife MacEvilly

I will start by going through the types of prepay options available to customers at the moment. We have financial hardship meters which are available to customers who get into debt. By definition those customers are struggling to pay their bills and this is offered to them as one option but it is not the only option. They may also choose payment plans or different ways to address the debts they are in. If they choose a financial hardship meter, they are not paying a premium. The financial hardship meter is provided by ESB networks. The cost is socialised in the same way that all standard metres are socialised meaning we all pay for them. There is no additional cost charged to those customers. There is no additional price increase associated with those customers. Those customers switch to the prepay option with the same tariff that they would have been on with their supplier beforehand, whether it is a standard or a discounted tariff. There is no differential in the unit cost.

We also have what we call lifestyle choice prepay options. It is a competitive market offering. Some of the bigger suppliers offer it and there are a couple of dedicated prepay suppliers. Those are at the customer's choice. Those suppliers are offering a premium product. They tell us that they are also supporting customers with better information to help them reduce their overall costs. They tell us that where we see a standard estimated annual bill for the year, their customers do better than that because they reduce their consumption based on the information they get. Either way, that is a choice for that customer. The supplier handbook sets out that when those companies are signing customers up to that product, they are required to explain to them the additional cost associated with the product. Obviously, those customers also have the choice to switch away from those suppliers or switch between those suppliers at any time. That right is grounded in law in addition to the protections we have put in place in the market.

The Deputy mentioned rental properties where there is a lack of choice and we would like to understand that a bit better. When a customer is renting, they are still the final customer. They are the account holder with whoever their supplier is. It is absolutely their right to switch supplier. If there happens to be a prepayment meter installed when they move in and they want to switch to another prepay offering, it is their right to do so. I checked with our customer care team to understand if we were aware of cases where rental customers were somehow being prohibited from switching. That has not been brought to its attention through complaints. If there are examples of this, we can also write to the Residential Tenancies Board to reiterate that it is not appropriate for a landlord to dictate what supplier or product a customer would choose. It is not something that has come to our attention.

We understand that customers with financial hardship meters face challenges. We know it is particularly difficult at the moment because when they are paying their credit, they are usually paying down debt. It is not all of them; some of them may have cleared the debt. The remaining credit will not stretch as far given current high prices. That is why we support Government interventions such as the €200 electricity credit and so on.

I want to be clear that those customers are not paying a premium. The prices relating to prepay offerings are made clear to customers who are paying what we would show in our annual energy market monitoring report as high prices and they have choices about whether that is the right option for them. Many customers really like that option because it avoids them getting into debt. That is ultimately a key selling point for those. They are not getting into debt and have control. They are not being hit with bill shocks, which is a big problem for many customers on bill pay at the moment, and they are in control. That is effectively the offering that those suppliers make.

Ms Kavanagh might like to talk more about the protections for vulnerable customers.

Ms Karen Kavanagh

As Ms MacEvilly said, there is a framework. The supplier handbook captures the various codes of practice and there is a code relating to pay-as-you-go customers. In addition, we have a code for vulnerable customers that sets out explicit provisions for those customers with that defined in law. The handbook specifies that prepayment meters may not be suitable for those customers and there are obligations on suppliers to make that absolutely clear to customers at the point of sign-up to ensure they are aware of how the prepayment functions and what the implications are for not keeping up with the payments, and to check in with those customers regularly, at least once a year, to ensure there has been no change in their status and to ensure it is still an appropriate form of payment.

I believe we provided the handbook in the pack we sent to the committee. There is a very comprehensive suite of obligations on suppliers relating to both prepayment and vulnerable customers. We audit this regularly to see how suppliers are delivering on this and, if there are issues, to see what needs to be remedied. We have been actively working with our consumer stakeholder group in the context of recent rising prices to understand what specific things are happening on the ground beyond the baseline level of protections that we have set out.

As Ms MacEvilly said, we take soundings through our customer care team to hear the practical experience of those agencies that are working directly with customers and are better informed of the specific issues that customers experience. As she said, the issue relating to people who are renting has not been raised with us. We would be happy to look at that and try to understand how it is happening. As she also said, final customers are the contracting party with the supplier and they should enjoy all the customer protections outlined in the supply handbook.

Deputy Patrick Costello

I wonder how many people are aware that complaining to the CRU is an option or that the CRU exists. With no offence to the witnesses, they are behind the scenes in a way. Absence of complaints is not a fair marker of absence of a problem. This is a significant issue when I talk with constituents and I would not raise it if I did not think it was.

Ms MacEvilly said that providers must assess people for the suitability for prepay meters and must provide information about the increased costs. Are they also required to provide information on the increased risk of disconnection or losing power that those with prepay meters face? What oversight is there to ensure providers are meeting their obligations? The witnesses said providers tell the CRU that they provide the information. What does the regulator do to ensure they are living up to standards there?

When I look at the prices charged by the prepay meters it just screams that this is some sort of market failure. A forced market segmentation is allowing runaway prices. These customers are very vulnerable and need that protection and empowerment. The customer choice, which from the CRU's perspective is essential to a well-designed market, is just not available to these people. This appears to be a market failure.

What are we doing to step in and correct that market failure? If the CRU does not have the tools to do that, what tools would it need to be able to step in and correct the market failure that is currently leaving prepay customers in a very vulnerable situation?

Chairman

I ask the witnesses to be brief. Deputy Costello arrived after we agreed there would be a two-minute period for questions and then go on to subsequent rounds. The Deputy is welcome to come back in on a subsequent round, but I want to be fair to other members who have indicated. I invite Ms MacEvilly to respond to those questions as briefly as she can.

Ms Aoife MacEvilly

It is fair to say that there would not be instant name recognition for CRU. However, we have stepped up some of our advertising activity because it is important that customers know that they are protected and that they have rights - rights as vulnerable customers, rights to complain and rights to be protected against disconnection. That is something we will build on.

Generally, it is important that they get the information at the point where they need it. For example, how one makes a complaint to CRU is on the back of every customer's bill. One goes through the initial stages with the supplier first and then the customer comes to us. We will step up our activities in that regard because it is very important that customers know there is somebody on their side. I agree that just because it has not come up as a specific complaint to our team it does not mean it is not happening. We are genuinely interested in understanding if there is a pocket or an issue out there that has not been brought to our attention. We would be very grateful for some insight on that so we can look further to see what is going on.

I will ask Ms Kavanagh to speak about what information has to be given by the prepay suppliers about how the product works. However, I will say that I do not believe we are at a stage of agreeing that there is a market failure regarding a premium product being charged a premium price, so long as customers really understand what they are getting into and that they have the right to leave if it is not a suitable product for them.

Ms Karen Kavanagh

The suppliers have to make sure that customers are aware. The handbook requires that they have processes and procedures in place to ensure that at the sign-up they make customers aware of how the product works, what the consequences are if they fall behind, in that they will lose energy, and also why it may or may not be suitable for them. Following on from that and in terms of the oversight of that, we audit regularly and we do it on a risk-based approach. We would look at different areas at different times based on input from our consumer stakeholder group, the complaints that we receive or other own-initiative investigations. In doing that we are not just looking for a reassurance that they have done it, but we will look in detail at the requirements on each of the suppliers. In the case of electricity suppliers in terms of pay-as-you-go, we would require detailed information such as showing us their processes, showing us the training they have provided to their customer service representatives and showing us how they check to make sure that they have not missed a notification of a vulnerable customer. We will look in detail at those processes and we publish the reports on those audits. They are available and we can provide a list of the audits we have done over the last number of years. There is very detailed oversight.

There is also a feedback loop where we identify issues. We get the supplier to make sure that it remedies it, but we also notice if there are areas of good practice and we will incorporate that into the next iteration of the handbook. The customer protection framework is evolving. It is learning from the lived experience of customers and, ultimately, improving as we move along, taking account of new services and smart services as discussed earlier.

Chairman

Thank you, Ms Kavanagh. I have an additional question. Is the CRU resourced sufficiently to deal with the concerns and complaints the public might have about their energy bills? Are they getting a prompt response? Is all that okay or is it something that needs to be examined?

Ms Aoife MacEvilly

We see this as an area that will be growing in importance in our organisation. As part of our submission of the strategy we have looked for more resources in that area.

Markets are going to become more complex for customers to engage with . We will have to provide more support for more complicated offerings, set rules and monitor and then deal with complaints as they arise. That is an area we will be seeking to grow in our team.

Chairman

Thank you. I will go to the second round and call Senator Boylan.

Senator Lynn Boylan

I will follow up on what Deputy Costello said. For people listening at home, the CRU has a role to protect consumers and to help them to reduce energy costs. There appears to be a very hand-off approach by the CRU. It does not seem to want to make direct interventions in the market. I listened to the discussion about the prepay tariffs. Across the water, there are capped default tariffs. In the CRU's letter to the committee it stated that it had not seen the evidence to warrant an intervention. What evidence did it look at in that? The CRU refers to the risk of energy companies fleeing the market. However, is it not true that we have a more robust regulatory environment, thanks to the CRU, for energy companies trying to set up in Ireland, and that this is part of the reason energy companies have left? It was not about the change in the tariff but the fact that the proper checks and balances were not put in before energy companies set up in Britain.

I discussed the PSO levy with the witnesses on the last occasion they were before the committee. In the North, the levy is designed so that householders pay a smaller contribution than industry. Is the CRU looking at that as a way to bring down costs for households?

Smart meters are about reducing peak demand. What intervention has been made to ensure that the suppliers are encouraging people to use the smart meters? A freedom of information request from the ESB showed that hundreds of people have opted out of smart meters and have gone back to daytime and night-time tariffs. There is clearly an issue in that regard.

There is also the issue of switching. It drives many people mad to hear that they should shop around or switch. The last energy poverty strategy, which lapsed in 2019, clearly pointed to the fact that there are barriers to people switching. Social Justice Ireland has repeatedly stated that there are barriers to people switching. In its role as regulator what is the CRU doing to overcome those barriers, to identify what they are and how to help people to do it? There appears to be a very hands-off approach from the CRU when it comes to making direct interventions in the market.

Ms Aoife MacEvilly

I do not necessarily agree that we do not make direct interventions. The supplier handbook is a direct intervention. It sets out a very detailed set of rules for how a supplier interacts with customers with regard to advertising, marketing, signing up a customer and every aspect of the customer journey with billing and so forth. That, in itself, is quite a significant intervention. As Ms Kavanagh explained, we follow that up with audits to ensure suppliers are complying properly with those rules. We will take action and require suppliers to come into compliance with the handbook. Those are all interventions in the market. Where we see new areas, and the most recent addition to the handbook was on smart metering, we set the rules and we will absolutely seek to enforce compliance with them. Those are interventions. When we-----

Senator Lynn Boylan

Why not have default tariffs? Why not regulate the costs that energy suppliers are charging to customers? That is a very direct intervention.

Ms Aoife MacEvilly

It is, yes. I appreciate that, but to do that would also have potentially negative impacts on competition. In order to do that we would have to have a very significant evidence base to suggest that customers would be better off if we did it, and we do not have that. Our last major review of retail markets was in 2017 and we looked at all aspects of how competition was working to the benefit of customers. What we found from that was that, overall, competition is delivering benefits for customers.

Senator Lynn Boylan

However, we have the most expensive costs in the EU when it comes to wholesale prices.

Ms Aoife MacEvilly

We have costs that are at the euro area average.

We believe competition is delivering benefits in the form of value and choice to customers. We found it is the customers who switch or are active in some way who are gaining greater benefits. Therefore, our interventions at the time were to promote greater activity or support customers in switching. The first of our three main interventions was the estimated annual bill, the objective being to have an easy point of comparison for customers. One of the issues we found was that customers were really confused by supplier offers. If confused, they tended to make no choice. That was a genuine barrier. We did work with the ESRI behavioural economists on this to support an intervention around better information for customers. Another intervention concerned the three-month notification, which means that when suppliers are coming to the end of their contract, they give due notice to customers that would facilitate their ability to switch. I have momentarily forgotten the third intervention. I am sure somebody can remind me.

Mr. John Melvin

The prompt?

Ms Aoife MacEvilly

The three-month prompt.

Mr. John Melvin

Did Ms MacEvilly mention that?

Ms Aoife MacEvilly

I did.

We are willing to take action where we see that our doing so will benefit customers. Where we see there are issues whereby customers are not being well served, we will address them, potentially through additional rules in the supplier handbook. We are available to make interventions.

Price control is the area that people tend to think of most immediately, but we have seen from the UK market that the price cap has had a detrimental effect on customers, who are now suffering not only from the underlying price increases but also from the costs associated with suppliers that failed because of the intervention. A balance must be struck between ensuring we do not create greater customer harm in our interventions and ensuring we have a strong evidence base to support any intervention we make.

Senator Lynn Boylan

What is the position on the PSO levy by comparison with the levy in the North, where it is designed to ensure households pay a smaller contribution than businesses?

Ms Aoife MacEvilly

On the PSO levy, households do pay a smaller contribution at a gross level than businesses. The methodology for dividing the PSO levy between large energy users, SMEs and customers is set out in legislation. With the levy, we follow the law, which is based on Government policy. It is not an area of policy that we can pick up ourselves. Our understanding is that the methodology developed regarding how the levy is allocated between businesses and domestic customers is based on state aid notifications, which inform the legislation. It is an area in which the CRU is not the rule-setter; it follows the rules. However, if there were an initiative to investigate the methodology, we would support the Department or other body involved.

On smart meters, we were asked about the difference between, say, the people with a day–night–peak arrangement and people on day–night meters who are looking to switch back. An anomaly we are addressing is that people on day–night meters were at some points getting a cheaper night rate than people on standard smart tariffs with day, night and peak rates. We are addressing the anomaly through the network charges to ensure it will not arise and that there will be a further incentive to move to smart meters. Day–night meters tend to be for people with electrical heating or high energy consumption in the home and smart meters are not for everyone, so we want the solution to deliver for everyone. This is an area we are addressing.

Do my colleagues have any issues we might come back to?

Mr. Jim Gannon

We constantly remain interested in hearing about other perceived barriers to switching. The Consumer Stakeholder Group has several voices in this regard but other barriers that are identified can be tackled.

Senator Lynn Boylan

Did the CRU feed into the energy poverty strategy the last time around?

Ms Aoife MacEvilly

I believe we engaged with the Department on it at the time.

Senator Lynn Boylan

Is Ms MacEvilly concerned that it has been lapsed for the past three years and that there is no update on when we will get a new one? The review of the implementation of the energy poverty strategy was due last year but we have not had that either.

Ms Aoife MacEvilly

It does not affect our role in protecting customers. From our point of view, we still have all the same policy drivers to support people who are having difficulty paying bills and vulnerable customers, as defined in the law. It does not necessarily impact the work we do and the priority we accord to protecting customers.

Deputy Jennifer Whitmore

I have a couple of follow-up questions on the issue of data centres. The first is on the consultation itself. In its direction to the data centres, the CRU states, "Having considered the submissions received in response to consultation, the CRU remains of the view that it is not currently appropriate to impose a moratorium." Did the regulator's entire policy in this area come from the input from the consultation period? I believe seven submissions made during the consultation period have not been made publicly available. Why did the CRU decide to keep them confidential? Were the submissions from data centres? Is it appropriate for the submission of an entity seeking to influence or participate in policymaking in this area to remain confidential and unavailable for public scrutiny?

My other question partly relates to what Senator Boylan said about a hands-off approach. Is the CRU sufficiently robust in its regulation in this area? The regulator's information on the assessment criteria and its decision states the CRU directs EirGrid and ESB Networks "to assess applications by reference to the following assessment criteria". That is very loose language. A couple of months after the document came out, EirGrid itself decided to impose a moratorium on a locational basis, which was a step that the CRU had decided against. The regulator has the ability to direct organisations to employ certain measures. Why does it not use this more direct and robust approach to regulation, and why does it leave a lot up to the entities it is regulating?

Mr. Jim Gannon

There are two main thrusts. I will try to ensure that I capture everything the Deputy asked about. In the first instance, we had more than 50 respondents in the consultation process. For us, that is nearly a record-setting level. We took more time than we had anticipated in producing our work. In the end, we took an additional three or four weeks because we had 50 responses that we absolutely wanted to go through and take into consideration.

With regard to confidentiality, if a body is entering a consultation response that it believes to be commercially sensitive or confidential, we ask that this be declared. Consequently, the submission would not be released. We allow that so that when people give us their consultation responses, they will be as open as possible. People often provide us, in our capacity as an economic regulator, with material that is more commercially sensitive or that they perceive to be such. We offer confidentiality to people to try to get their perspectives. That would not prefer them with-----

Deputy Jennifer Whitmore

On that, is it possible to anonymise the information so the general thrust of the seven submissions could be made public? The CRU would not necessarily need to make public who made the submissions or information that could be deemed commercially sensitive. Since the CRU itself says its direction or document is heavily influenced by the consultations, it is important to have transparency regarding their content. I acknowledge that the majority of the submissions have been put online. However, if there are seven that have not been made available, could the regulator not give some indication as to where they came from and what they were requesting?

Mr. Jim Gannon

I am trying to remember back to the specific narrative that accompanied the direction in that case, but generally we outline the issues that would have been raised in general terms in the consultations. That would encompass those raised by the seven. Oftentimes we would have common issues raised across a number of different respondents, so we would not go into detail saying who had responded in any event. If issues are raised, we take them into consideration. If they are deemed to be confidential or commercially sensitive by the correspondent, we would refer them with no greater or lesser rigour than we would those who have not been declared commercially sensitive, so if issues are raised, they are addressed by our consultation response.

The second part of it was with regard to the direction itself. Again, we went out with a direction that said we reserve a right to impose a moratorium if that is deemed necessary. We have asked EirGrid to report back to us periodically on the effectiveness of the measure to ensure it is having the necessary effect, but we did direct it to consider those assessment criteria in its understanding and with regard to the expertise and the specific technical knowledge it has with regard to constrained areas concerning the scale and nature of some projects that come to it for grid connection. That is just a level of detail of expertise that is only in the transmission system operator with the engineers and models it has. EirGrid would understand better whether things should be allowed go forward in particular areas or as they bring different mitigation measures. It is to provide a framework EirGrid can use to protect security of supply as it considers these applications, but it has the expertise to really understand the level of challenge posed by the applicants.

Chairman

Okay.

Deputy Jennifer Whitmore

Sorry, Chairman, I have a question related to that. EirGrid has essentially said there is a need to bring in these locational moratoriums and has essentially put that in place. Is the CRU going to revise its documentation now to reflect that those with expertise have said this is what needs to happen?

Mr. Jim Gannon

No, we have given EirGrid the tools necessary to protect security of supply as it processes applications. In certain areas in certain regions, depending on the mitigation measures data centres bring with them, it may be more or less difficult for data centres to get connections in those areas. Again, that is where the expertise EirGrid has allows it to consider the assessment criteria and then come to a determination.

Deputy Jennifer Whitmore

Okay. I thank Mr. Gannon.

Chairman

I thank the Deputy. We will have time for a third round, so if she wants to stick with us, I will bring her in again. Deputy Bríd Smith is next.

Deputy Bríd Smith

I thank the Chairman. I want to go back a bit over old ground. We have had a discussion with Deputy Costello and Senator Boylan about the prepay and the protection of customers. I have just had a text from a prepay customer who tells me the standing charge for one of these prepay meters has gone up in the past couple of weeks from €1.20 a day to €1.50 a day. That might sound like the price of a cup of flat white coffee to some people, but over the course of a week it is more than a tenner. That is a lot for people who are vulnerable and poor because they must put money in the meter on a day-to-day basis. Will the CRU officials comment on that? Did they know about it? Was there an application put in to the CRU to ask if prices could be raised, or how does it work? It strikes me a 25% increase in the standing charge for our most vulnerable sections of the population is something that should have been brought to the commission's attention and something it should have been able to refuse, at least at the current time, because the overall costs of energy are soaring so much that this is an absolutely unfair burden on that section of the population.

A wider aspect that strikes me as this meeting goes on, and I listen to the answers to all the various questions, is that the discussion about well-designed markets being a real tool to deliver change around security, sustainability and price is very questionable when you look at soaring cost to ordinary people at the moment. That statement Ms MacEvilly has just made is very questionable.

It is also becoming more and more apparent the role of the CRU is to ensure the future is funded, as in the ability to move to 95% renewables. That is absolutely right and I totally agree with that. It is wonderful and all the rest of it. It is about ensuring the future of the private energy market is funded so it can connect to the national grid as it moves to delivering renewable energies. However, where are the criteria that demand those renewable energy companies must pay for all that facilitation by the population to prepare them to be able step into this market? I ask because I recently attended a seminar where a global expert on energy told us there is nowhere in the world, absolutely nowhere he said, where renewable energy is delivered by private companies without a huge cost to the state into which they deliver that energy. In other words, this idea of well-designed markets as a real tool to deliver change is absolute nonsense. We had a thing called the ESB here that, before it was deregulated, provided us with the cheapest electricity in Europe and turned on the lights everywhere up and down the country. As Ms MacEvilly said, markets are getting more and more complex. Why all this complexity? This is an essential service society needs for the wheels to turn, people to live, hospitals and schools to function and people to stay warm, yet it is becoming one of the most complex profitable sections of activity in this country. The regulator is failing to live up to its name unless it steps in and does something about this.

Chairman

I invite the commission to respond. There are some very interesting questions there.

Ms Aoife MacEvilly

I thank the Deputy. In respect of price increases whether for prepay or bill pay customers, the requirement is the customers are given a 30-day notification of any price increase. There is no requirement for suppliers to seek approval or otherwise from the CRU. It is, and has been for many years, a competitive market and what keeps price pressure on, if you like, is the fact that if customers see price increases they will vote with their feet and go to cheaper offerings. On the specific price increase the Deputy is referring to, I am not sure I had specific knowledge of that but it is not a requirement for the companies to seek approval or otherwise from us.

I absolutely acknowledge the challenge of increasing prices, whether it is standing charges or unit charges or prepay or bill pay, is really difficult for customers. I fully acknowledge that. Driving this is the global, and particularly European, increase in the cost of gas that is obviously having a direct impact on gas bills and an equal one on electricity because gas is one of our primary fuels for power generation. It is driven by those factors and while competition can keep downward pressure, ensure companies pass on price reductions as quickly as possible and ensure they offer as much value and choice as they can to their customers and to attract new customers, it cannot eliminate that underlying cost surge we have seen in the gas markets in Europe, which is unprecedented. The Deputy will be aware Ministers at an EU level and all energy regulators at an EU level are working collaboratively to see what we can do. That is why we have the toolkit. Many of the tools are around supporting competitive markets on the basis this is what will mitigate as best we can the impacts for customers. The toolkit includes options to support switching for customers and obviously interventions around the €200 electricity credit, which we are happy to support.

What is driving the complexity is customers want different things from electricity supplies. They want better information. They want the ability to control their costs or have knowledge of them to understand what is driving consumption in their home and what they can do to reduce that consumption. Customers are, for example, very keen to get involved in microgeneration.

Much of the complexity will come from exporting and payments for exports, which is a new set of complexity. Many of the Deputies here spoke about customers being able to engage in some of the market activity. This is what is driving the complexity. At the heart of that, the onus is on us to also make this navigable for customers and, particularly, customers who perhaps do not have the ability to, for example, invest in microgeneration, retrofit their homes or whatever they might wish to do. Give them simple things, such as time-of-use tariffs where a person might decide not to turn on the washing machine between 5 p.m. and 7 p.m. because that is expensive, but instead turn it on after 8 p.m. because that is cheap. Really simple things, such as that, are making it simple for customers. I agree that there is an absolute onus on us to provide that clarity and simplicity of choice for customers in the context of increasing complexity.

I might turn to Mr. Gannon on the renewable costs, if he wants to come in on that one. The question was around the fact that private companies are supported by State intervention. I think that was what Deputy Smith's question was.

Mr. Jim Gannon

My colleague Mr. Melvin mentioned earlier that it is national policy to meet a climate target and that is supported by the delivery of renewables. That is now aligned to the Climate Action and Low Carbon Development (Amendment) Act, which is legally binding. It is a matter of creating a competitive process to generate the best price that consumers in this State will have to support as we meet that national climate goal for 2030. That is, again, linked to the legally binding Act.

The Department runs the renewable electricity support scheme. We advise them with regard to competition and competition ratios. However, again, it is about providing a competitive market to make sure whoever wins and delivers has bid in as competitively as possible and that a competitive price is secured.

Chairman

I think all of Deputy Smith's questions were answered. I will not presume they were answered as satisfactorily as she would have liked.

Deputy Bríd Smith

I have loads more questions but I am not getting answers that I can accept as being reasonable in light of the crisis we are facing. Therefore, I am kind of giving up at this stage. I will go back and talk to the people who are suffering the most and try to mobilise a bit of attention on what the Government and the CRU are doing - or not doing - to help them.

Chairman

I might add to Deputy Smith's question. I ask the regulators to go back to that trilemma of decarbonisation, energy security or independence and, indeed, the cost of energy to the consumer that we talked about. It seems that Ireland is in a unique position where our decarbonisation potential can serve those other two challenges. It behoves us to expedite the decarbonisation so that we can create our own energy and control that system and market rather than relying, as we are at the moment, on fossil fuels from Russia, which are driving energy costs and impacting on people's energy costs, as well as having a detrimental impact on energy poverty.

I am wondering about the CRU's position. Obviously, it is bound by the policy framework that is there and is pursuing it diligently. However, is it undertaking any analysis? Is there a position of the CRU with respect to accelerating or expediting that decarbonisation challenge? It is very difficult. There is no question about that. There is so much that needs to be done to get to where we want to go, let alone to get there more quickly. However, is it something we need to look at? Is there an analysis being done? Does the CRU perhaps have a position that is more ambitious than the Government's is at the moment?

Mr. Jim Gannon

As an economic regulator, we follow Government policy. We report to the Government and follow Government policy. We are ambitious with regard to decarbonisation.

We are ambitious with regard to making sure that the lights stay on. In order to access the economic opportunity contained in our climate ambitions and climate action plan, again not just treating it as an imposition to reach a target but treating it as an opportunity ultimately to generate wealth, things need to be built. Be they interconnectors, wires on shore, onshore or offshore wind farms, smart meters to make sure that people can contribute and benefit from the SEM or, ultimately, gas or decarbonised gas pipelines, it is all infrastructure that needs to be built to bring kilowatt hours and energy to our citizens. We want to decarbonise that also.

The required investment to build this infrastructure has to come from somewhere. That is the key challenge that we face. We need to make sure that we invest to get to the point where we are decarbonised, less exposed to the vagaries of the international energy market and can export to our national benefit. We will need to invest and we will need infrastructure. We want it delivered as cost-effectively as possible, whether that is through our network companies or through the suppliers that operate in the market. As it is delivered cost-effectively, we want to protect the consumers in their interaction with those suppliers in that marketplace. It is a challenge. To reach that place where we are accessing this opportunity, infrastructure and investment are required.

Chairman

I am very happy to hear Mr. Gannon state that very clearly.

Deputy Richard Bruton

I wish to return to the topic of smart meters again. We have close to 1 million of them in family homes or in other users. How many of those are currently delivering savings, where people are able to use off-peak electricity and renewable electricity? The impression I get is that it is a small number but maybe I am wrong.

While there may be GDPR restrictions, it seems that we could develop a code of practice. We could be spelling out to customers the potential savings that are there. What active effort is being put into getting that close to 1 million connections to help manage our demand more efficiently? That is what will bring down carbon. It will ensure that we are not using gas or coal. We will be using the renewable source when it is on the grid.

I agree with the analysis that Mr. Gannon put forward, that to decarbonise we need to invest in infrastructure and we need to push up the price of carbon because otherwise, these alternative fossil fuels will be cheap. Where we have infrastructure in place and considerable effort has gone into rolling out smart meters, it seems unforgivable that there is blockage to delivering on that potential. I would like to explore that a bit further. It is hardly the case that the GDPR can stand in the way of a decarbonisation strategy by allowing consumers to use power in a smarter way in the long term. We need to get over that data and develop alternative ways of allowing people to utilise this benefit.

Mr. John Melvin

I thank the Deputy for his question. At some point late in 2021, 500,000 meters were installed. I do not think we are quite at the 1 million figure yet.

Deputy Richard Bruton

The published figure is 720,000. However, I presume that if the programme is going on, it has gone well up ahead of that.

Mr. John Melvin

I will not argue with the Deputy on the numbers. With regard to the number of customers who are actively using the smart services, that is a smaller number.

I will look across to my colleague and say it would have been in the tens of thousands. I am told it would have been around 40,000 plus of those customers. What we are doing to prompt customers to let them know of the potential benefits of engaging with the smart meters on their walls involved creating a smart metering services primer with the help of the ESRI. This was a piece of information that was tested using customer behaviour trials where different types of information were tested to see whether they would prompt customers to make these changes. Would a table or graphic prompt customers to make these changes? A rigorous assessment process as to the effectiveness of these primers was put together with the ESRI in late 2020 and early 2021.

There will be a requirement on suppliers to issue this smart services primer to customers with smart meters. The requirement to issue this primer is time-bound. Smart meters can assist customers. In customer behaviour trials that formed the early part of the smart metering programme, the smart meters enabled customers to reduce peak consumption by something in the order of 8% and to obtain an annual saving of the order of 2%. Both those figures were tested robustly through the customer behaviour trials.

Regarding sharing detailed data with a supplier, however, this is taken to be personal data and, therefore, does come under the GDPR. What we can do is seek to encourage customers to use the meters on the wall and to use them to use less energy and less expensive energy and, if they have the full half hour data, to potentially use more energy when the carbon intensity of the grid is low. More and more consumers will need to be engaged with the energy system for the transition to be successful. That is as much as I can add at the moment.

Senator Alice-Mary Higgins

I was late in joining the session so I apologise if I go over ground that may have been covered. I am extremely concerned about what I heard during the last few questions and answers. There seems to be almost an abdication of responsibility regarding the fundamental public policy goals we must achieve and even on the CRU's own strategic plan in terms of enabling security of supply and driving a low-carbon future. In everything we hear, there seems to be almost an abdication of responsibility for that to citizens as consumers. There is all this discussion of the competitive market and encouraging consumers to make choices and I worry that we are setting up to somehow blame individual citizens if we do not achieve the transition we need. We need to be really clear that the State has a responsibility and the CRU has a responsibility and significant powers and leverage as a regulator and that this power and leverage it has as a regulator are not simply around encouraging every citizen to think that it is his or her job to get the companies to do better or to reward companies with better policies. Lots of people are not in a position to do that. Many people who rely on electricity meters are particularly vulnerable.

Regarding security of supply, I do not accept the question of the daily amount and whether people can afford to access electricity with that daily figure. Security of supply for those people falls under the remit of the regulator to address. I am also very concerned about the idea that people can switch. Not everybody is in a position to shop around. For example, people with a disability are not necessarily in a position to choose certain hours of the day.

I do not want to get to a position where people are told they should be running it from midnight to 2 a.m. and that is the only way they will get the cost.

Chairman

To be fair to the witnesses, that is old ground so could the Senator come to her questions?

Senator Alice-Mary Higgins

I will come to my questions. I reacted quite strongly because I was concerned. The position on data centres has changed but we still do not have that assurance that it will only be on renewable energy as we look at a moratorium. Given that we know that different kinds of data are being processed that may need to be prioritised if we have an energy crunch, what do the witnesses think about having public data centres as the main method, as is the case in other European countries, which companies can access and that allow for tighter regulation?

In terms of the levies, given that we see the market is driving up the price of gas, should we be looking for levies at the production end? Rather than focusing so many policy tools at the consumption point, what are the policy tools at the production point even potentially including levies at the production point or payments relating to shareholders that we should be using to regulate the energy market and make the transition?

Ms Aoife MacEvilly

Throughout our contributions, we have outlined a number of areas in which the CRU as the energy and utilities regulator is taking action. Many, if not most, of them are actions we require energy companies to undertake. We discussed the price controls under which we require ESB Networks and EirGrid to deliver the infrastructure, services and innovation that are needed to support security of supply and decarbonisation. We also spoke about the measures we take on the wholesale and retail markets in terms of market design and rules through which we either compel or incentivise the competitive market players, generators and suppliers to deliver more for customers and the public and to deliver innovative approaches to solving our decarbonisation, new generation capacity such as renewables or fossil fuels and security of supply. We spoke about the rules we place on suppliers and the work we do to ensure they meet their obligations.

We also have a role in protecting and empowering customers. It is both sides of that equation - not one or the other. It is a cornerstone of national and EU policy to put the customer and citizen at the heart of the transition to give him or her those options to enable him or her to play a role and potentially benefit from the transition. We think it necessary for us to give customers those options - not compel them but provide the options that might be most suitable for them and their circumstances regardless of whether they are in a position to afford or invest in their homes or simply want to make simple choices that will make things cheaper but also support decarbonisation. We think it is in the public interest to do that.

This does not in any way set aside the importance of the work we also do in protecting vulnerable customers - customers who for reasons of age, health or other circumstances should not be disconnected. This is an area we take very seriously. We have outlined the work we do in setting the rules to support vulnerable customers and the work we undertook up to late last year to audit suppliers to ensure they are protecting vulnerable customers in line with the rules in line with the rules and identifying good practice we might build into new rules.

All of those activities are equally important. None of them takes priority. It is not about focusing solely on customer incentives and innovation at the expense of protection. Both are necessary. I might ask Mr. Gannon to answer the question about data centres.

Mr. Jim Gannon

For clarity, and to make sure I can answer, will the Senator repeat the question?

Senator Alice-Mary Higgins

We heard very serious concerns before last summer about the level of potential consumption of energy by data centres. We had a somewhat disappointing discussion about this matter in the autumn. Since then, new guidance has been given, new progress has been made and new measures have been taken, however, I am concerned when we see what is happening in Ennis and in other places. There may be situations where large-scale data centres go ahead even though we do not, as yet, have a hard requirement that they can only be powered by means of renewable energy, for example. In other European countries, most large-scale data centres are publicly run - such is the case in Norway - and private customers can access them. Is that a better model if we want to ensure energy security? This would recognise the fact that data centres play a role, while ensuring tighter regulatory control rather than having a preponderance of private data centres being built in Ireland, as is the case at present, that could give rise to a real energy crunch in the near future.

Chairman

The Senator has raised the issue of the type of data that is processed and stored in data centres. This is an important question. Are we discerning between the different kinds of data for which data centres in this country are being built? The last thing we want is to build large offshore wind farms that keep cryptocurrency mining operations going.

Senator Alice-Mary Higgins

That is the exact example I would give. It is a case of cryptocurrency versus the hospital data we need to keep going. I thank the Chair for adding that.

Mr. Jim Gannon

I will answer what I can. Some of it is a bit outside our remit. At the end of November, we came out with our direction to the system operators which put in place the set of assessment criteria they should use to ensure the security of supply would be protected as they assess data-centre connection offers. We reserved the right, at that time, to bring in a moratorium, should that be required. We asked the system operators, EirGrid in particular, to report to us on the effectiveness of the measure to make sure the security of supply piece is protected.

To be frank, I was not aware that in some jurisdictions, or perhaps many, data centres are provided and invested in as a public utility and that private operators use them. It is a model I was not aware of. The type of data that may be stored there and any prioritisation falls outside our remit. What I will say is that in the climate action plan, published at the end of 2021, the Department of Enterprise, Trade and Employment was tasked with updating the Government policy statement on data centres. I expect that some of those broader issues will likely be brought into that discussion, notwithstanding the fact that we will be involved in that discussion with the Department as it progresses the review of the policy statement.

On the question of prioritisation of quality, the type of data stored, and the approach to public data centres, in Ireland there are some developer and operator-owned data centres that are developed by the entity that ultimately uses them. There are also other intermediaries that develop data centres for use by others.

Senator Alice-Mary Higgins

If security of supply was addressed in this note, why was the decarbonisation issue not addressed at the same time? If they are two of the four strands in the strategy, to address the security of supply rules but not to have added in clear and hard rules on the requirement of, for example, renewable or zero-carbon energy seems to be an opportunity missed.

Mr. Jim Gannon

I responded to a similar question earlier. Importantly, at that time it was a measure we were trying to bring in to ensure the security of supply in the medium-term. We indicated that we expected data centres would bring themselves to less carbon-intensive options for a number of different reasons. First, because they tend to be cheaper particularly as the carbon price increases and, second, because their environmental, social and governance mandates, which are internal corporate mandates, push them towards decarbonisation options.

Some of the dialogue we had with data centre operators indicated that they were also moving in that direction.

Senator Alice-Mary Higgins

I think it is an area that needs regulation, not market vulnerability.

Chairman

We are into our third round of questions for which we have a few minutes.

Senator Lynn Boylan

We will not get very enthusiastic about the last questions. I have two questions on which to finish. I refer to the temporary gas generators. The idea of seven generators have been floated. Gas generators have a 25-year to 30-year life expectancy, based on revenue and the investment put into them for a return. We have been told they are temporary until we get the off-shore wind energy on stream and they will be used less frequently because they are backup generators. When I submitted a parliamentary question to the Minister, Deputy Eamon Ryan, about the risk analysis that has been done and the potential financial impact to the State under the Energy Charter Treaty, he said it was the responsibility of the CRU. What work has the CRU done in analysing the exposure to the State around those gas powered generators? If, in ten years' time, we have hydrogen and off-shore wind energy on stream and we want to phase out those gas terminals, what research has been done on that exposure?

My final question is on the guarantees of origin. I know the CRU has rules on that in its handbook. By way of an example, Energia tells its customers that is offering energy that is, supposedly, 100% renewable. However, Energia runs the Huntstown gas-powered plant. This is clearly greenwashing. If it is not within the CRU's powers to address it or to go stronger to make the public aware that this is greenwashing, does it need more powers to tackle providers that are trying to fool customers who are trying to do the right thing by using energy suppliers that are supposedly offering renewable energy?

Mr. Jim Gannon

On the first question, in terms of the development of the volumes we believe we need for the coming years, we rely on the data and analysis underpinning the generation capacity statement that EirGrid produces to state the type of capacity it needs in the coming years. We then seek that capacity. That capacity can be provided by wind energy, solar PV or gas. In the coming years, we need a portfolio of gas facilities to match wind energy as we develop that wind portfolio. It is likely that they will be used less frequently over time. Businesses that bid in the auction processes perform the analysis as to how much they might or might not use. Competition forces them to push that down to the lowest price possible. In terms of insights into what technologies might develop faster or slower, will we get long-term batteries that are cheaper than they are now? Will we get system services that are better than they are now? Will hydrogen come in and be cost effective in 10, 20 or 30 years' time? Generally, businesses that are competing and bidding against each other and are keeping each other - I hesitate to use the word - honest, would bring natural competition to the sector. So, basically-----

Senator Lynn Boylan

Sorry, I may not have been clear in my question. What is the exposure to the State, in the context of the provisions of the Energy Charter Treaty, if the expected revenue of those gas suppliers diminishes? Under the Energy Charter Treaty, their profits and future profits are banked into the treaty. If there is a change in the policy framework that affects their future profits, the State is exposed under the provisions of the treaty. The Minister said it was the responsibility of the CRU to do that risk assessment.

Mr. Jim Gannon

But if there is a change in national policy-----

Senator Lynn Boylan

If it is decided that we do not want to rely on gas anymore and that we have a mix of fuel that is completely decarbonised.

Chairman

If a fossil fuel player enters the market, and expects to make profits into the future based on building a new plant, which brings about policy changes-----

Mr. Jim Gannon

I understand and I will take it in two parts. The capacity contracts offered for new generators are either for a one-year or ten-year period. They would be offered that capacity contract for a ten-year period and not for the operational duration of the plant. With regard to risk, I presume if national policy changed to the extent that a ten-year contract would be-----

Senator Lynn Boylan

I can give an example in respect of the Dutch. In 2009, they had an issue because gas prices were very high so they invited in coal plants on a temporary basis to try to bring down the cost of energy to consumers. We then saw the Urgenda Foundation case, where the Dutch were told they were not doing enough to meet climate targets. They decided to phase out the two coal-fired power plants and the country is facing a €4 billion compensation package on the basis of that policy decision. That is because it signed the Energy Charter Treaty. What risk assessment has the CRU done with respect to inviting gas-powered plants to fix a temporary issue around demand?

Mr. Jim Gannon

I do not believe we are discussing a temporary issue but rather about ensuring capacity. The commitment made in the capacity contract is for ten years. That is the window in which EirGrid look forward and ten years is a relatively short window in terms of predicting what other technologies might come in to compete with existing technologies.

Chairman

Mr. Gannon stated earlier that it is the capacity element of the contract that might be agreed that would drive them to build the plant rather than the ongoing operational revenues.

Mr. Jim Gannon

The capacity and system services auctions that will come in will likely be two of the larger revenue streams, as opposed to the energy one.

Senator Lynn Boylan

On that basis, you could look at the Spanish position. They changed the tariffs they were paying to renewable energies. That was on the back of the financial crash. They are facing an €800 million compensation package because they changed the tariffs being offered to renewable energy. Again, I ask if a risk analysis has been carried out by the CRU for the provisions of the Energy Charter Treaty?

Mr. Jim Gannon

No.

Chairman

It is a good question and these cases are springing up all around Europe where states are being brought to court by private companies that had expected to make profits. The Dutch example involving Urgenda Foundation in the Netherlands is notable. It is something to be looked at in order that we can have confidence we will not be left exposed.

Ms Aoife MacEvilly

We will take that away with us.

Senator Lynn Boylan

There is also the question around guarantees of origin.

Ms Aoife MacEvilly

The guarantees of origin are established under an EU system that enables generators to effectively purchase the green value, if you like, of renewable generation. It is done in a way that is monitored and guaranteed through the EU. It is managed in Ireland through EirGrid and us. The Senator is probably aware it is a pooled market and the fact that Energia owns the Huntstown station does not mean an Energia customer will get those molecules into his or her home any more than the fact the company owns wind farms in Donegal means somebody will get those molecules into a home. Energy or electricity from the pool is effectively what people get.

There is a methodology through this system of guarantees of origin whereby suppliers can augment the natural level of renewables that come through. Members know this is approximately 40% over a year in our system. It also involves imported value of renewables in other locations in Europe. Our role is in verifying that if a supplier offers this 100% green service, it either has through the public service obligation levy the entitlement to call that portion of the electricity green or can do so through the purchase of these EU guarantees of origin.

It has been a challenge for customers to understand. As the Senator has said, the numbers end up looking like we might have 100% renewables because so many suppliers have invested in supporting these guarantees of origin. It looks like it even makes up 120% of our electricity.

From the customer's perspective, if a supplier states the supply is 100% green, we can stand over whether the supplier has the contracts to prove that. What we have been thinking about is trying to explain to customers what this is and what it is not. It is a contractual entitlement to the "greenness" of the electricity rather than a guarantee that every molecule or unit of electricity coming into a home came directly from a wind farm. We have been thinking about how to explain that because it is a complex area. We do not want customers to feel like they are being greenwashed because suppliers are genuinely buying the contractual right through an EU system that is verified and verifiable. At the same time, if customers believe this means every unit is green, it should be made clear that this is not exactly what it means. It is just about explaining what it is and is not. I may have explained that poorly.

Senator Lynn Boylan

The Austrian system is quite good with regard to transparency and it is a model that could be used to make it much clearer to customers that what Ms MacEvilly explained is the case and not every molecule of energy is 100% green. If somebody is advertising 100% renewable energy, it is misleading.

Ms Aoife MacEvilly

We have thought about seeing if there is a way of differentiating between the electricity that is renewable by virtue of it being part of the PSO-supported electricity and other portions. If people are supporting the PSO portion, it can be their portion of green energy, if you like. The question is what portion of the 100% is from these guarantees of origin. It is a question of helping people to understand. It is something we have considered internally but not quite got our heads around doing it in a way that would not potentially make things more confusing, to be honest. I use 100% green electricity because I see value in it.

Senator Lynn Boylan

In Britain they found that drove down investment in renewable energy. That was a committee review of guarantees of origin.

Chairman

I have a related question on the communications element. We have very interesting conversations in this committee room week in and week out. Senator Boylan might agree with that sentiment. The CRU is doing very good work in the energy and regulatory space. I suggest the witnesses might agree there is a major communications challenge for us as politicians and the regulator. We have not yet finalised our work plan for the year yet but I hope we can address the communications challenge that we have. In the energy regulator space the challenge is very nuanced and I accept it will be very difficult.

I suggest it should be a priority of the regulator to try to explain to the public in general what we are trying to do, why we are trying to do it and the challenges we have. There are probably no immediate answers to many of these questions but as we go further into our efforts in climate action, these matters will become very real for customers across the State, so the communications piece is absolutely critical for all of us. I am not asking for a comment but if the witnesses wish to do so, they are welcome.

Ms Aoife MacEvilly

We welcome such a sentiment and it is very helpful.

Chairman

The witnesses may also be glad to know that although we have not yet agreed our work plan, we will do much more on the broader energy element in the next few months. We may well have the witnesses back here sooner rather than later. We will certainly have other stakeholders before us as well. We really want to figure out how we can meet this vast challenge that we have as quickly as possible. We will publish details of the various sessions we will have in the next few months.

I expect that we will be asking the witnesses to come before us again. I thank them very much for their engagement with us today. It really was thorough. I thank the members of the committee as well. We are all being educated and we will only get tougher and scrutinise the CRU even more as we go forward but we do really appreciate its representatives very thorough and honest engagement with us today. I look forward to further engagements in the future.

The joint committee adjourned at 2 p.m. until 11 a.m. on Tuesday, 22 February 2022.