I want to say at the outset that I am sure Senator Lanigan knows my efforts in relation to the timing of my announcement last week. If it had any bearing or any significance in relation to the by-election in the Laois-Offaly constituency, I can assure him I would have found a better time to do it than on the day before President Reagan arrived at Shannon Airport. The decision was made after many months of examination in my Department. I welcome the opportunity to expand on the statement here in the Seanad and I thank the Seanad for giving me that opportunity.
The House is no doubt aware that the Government, at their meeting on 30 May 1984 decided that, following consideration of the ESB's strategic plan, the generation of electricity from peat-fired stations is to continue with little change, in accordance with revised arrangements between the ESB and Bord na Móna.
Earlier proposals by the ESB would have involved the closure of certain old peat-fired generating stations, and would have had a serious impact on the volume of peat production by Bord na Móna, on its employment, its financial viability, and indeed its continued existence.
These proposals arose because of the difficulties facing the ESB at present. To tackle these difficulties the ESB in 1983 drew up a five year strategic plan, 1983-88, having as its primary objective, regarded as very commendable by the Government, the achievement of substantial improvement in the economics of its operations. This plan was drawn up by the board and management of the ESB on their own initiative and responsibility.
It is the case that the ESB now has substantial excess generating capacity. There are many reasons for this, for example, a sharp cut back in demand for electricity mainly due to the recession; the high cost of electricity, as indeed of all energy; generating capacity provided to burn Kinsale gas and the provision of the Moneypoint generating capacity to come on stream over the next three to five years as a measure to reduce dependence on oil. This new plant programme will add further to capacity; the cost of servicing this capital will overhang the board's finances for years. It is likely that the years of continued vigorous expansion by the ESB are at an end and that for a considerable period the paramount need is to deal with the over-capacity and over-manned situations and to achieve cost reduction.
It was against this background that the ESB in 1983 drew up the five year strategic plan. Its status is that it was transmitted to the Minister for Energy but it was later the agreed understanding that for proposals in it which directly or indirectly had implications for matters relating to areas of Government policy, the approval of the Minister and Government would be required. The plan is based on a number of assumptions, one being that recovery from the recession will be slow and consequently growth in electricity demand will also be slow. The plan set out the measures proposed by the ESB to accelerate the transition of the board from a high growth expansionist organisation to a low growth stable one.
In brief, the measures are to reduce costs by way of reduced staff numbers, improvements in administration and accounting procedures and greater control of overheads generally. It envisaged the de-commissioning of older generating stations both oil and peat and the old Arigna coal station. These stations included two sod peat stations and three milled peat stations, all supplied by Bord na Móna, four small 5MW stations supplied by private producers, three oil fired stations — one completely and two partially — and one small gas fired station. Later, revision of certain of these closure proposals was submitted.
The plan envisages greater efficiency in operation of the generating system with a view to achieving economies. When the present generating programme has been completed no further generation projects will be needed until well into the next decade. It also proposes strict economies in premises construction. No further head office or headquarters development is envisaged before 1990 and other premises development will be limited to absolute priority cases.
In the area of distribution the plan proposes greater efficiency to reduce distribution system losses and reduction of stockholding costs. A reduction of staffing by 5 per cent per annum through better organisation, planning and work methods is also proposed. The plan also foresees scope for further investment in consultancy activities.
In the marketing area the plan envisages the maintenance of a strong presence for electricity in the energy market, the development of new uses for electricity as well as shaping and increasing loads to give a satisfactory financial contribution. The development of tariff structures which achieve financial objectives and which support load shaping and load building is also proposed. The plan emphasises the strategic importance to the organisation of special arrangements with the suppliers of native energies to assist price moderation and stability.
The ESB's proposals on peat generation closures and on use of Bord na Móna production, and the price for it, were the subject of extensive re-examination by the two boards at the request of the Minister for Energy. Over the past few months the ESB and Bord Na Móna have, accordingly, examined the whole area of turf usage for electricity generation and the important matters of volume take and prices to be paid for supplies. In addition, a full review of the case for and against completion of the 3rd 300 MW unit at Moneypoint has been carried out. This was to test the merits of proceeding with this unit or to see if, by deferral, significant capital cost savings could be made. It was not because Moneypoint 3 was a cause of the proposed peat closures. I am glad to say that the review of the third Moneypoint unit has been concluded, and I expect to be putting the outcome of the review to the Government shortly.
The original strategic plan included proposals to close 733 MW of generating capacity in 14 stations which the ESB maintains are high-cost and low merit.
Because of the obvious implications for the continued operations of Bord na Móna, the Government insisted that the two boards should get together and jointly consider the ESB proposals. Following protracted negotiations the following modified proposals emerged: the sod peat stations at Portarlington and Allenwood will continue in operation until the Bord na Móna bogs supplying them run out. This is expected to occur in 1986-87 for Portarlington and over the years 1988 to 1990 for Allenwood; the A units in the milled peat stations at Ferbane and Rhode will continue in operation at reduced load factors. The ESB has pointed out that these are old stations and that the objectives of the lower load factors is to prolong the lives of the plants without the necessity to incur large capital investment; the milled peat station at Bellacorick will continue in operation subject to plant availability.
The ESB also put forward modified proposals relating to the four small 5 MW sod peat stations and the 15 MW coal fired station. The stations at Gweedore and Cahirciveen would continue in operation and the stations at Miltown Malbay and Screebe would close, as proposed originally. The ESB pointed out that the load factors at Miltown Malbay and Screebe have been low for many years due to the unsatisfactory level of sod peat deliveries. The cost of a unit of electricity sent out from the stations is also very high. The stations at Gweedore and Cahirciveen have a better unit cost.
The ESB also stated that the anticipated delivery levels of sod peat at these two stations have generally been maintained over the years and reasonable load factors were attainable. In regard to the 15 MW coal-fired station, which is located at Arigna and is supplied by local colleries, the ESB plans to keep that station in operation as long as no major investment becomes necessary at the generating plant and suitable coal continues to be available from local sources at economic rates.
There is no change in the original proposals, as set out in the ESB strategic plan, to reduce capacity at Tarbert, Great Island and Marina and to close Ringsend. The proposals relating to Tarbert, Great Island and Marina are only for part closure. There will still remain a substantial generating capacity of 500 MW at Tarbert, 120 MW at Great Island and 145 MW at Marina. These and the other proposals in the strategic plan do not directly affect the future of Bord na Móna, and decisions relating to them come within the management responsibilities of the ESB.
The impact of the ESB proposals, which I outlined earlier, on the price which consumers have to pay for their electricity had been very significant. This is a matter for continuing representations to me and my colleagues in Government, particularly by industry which fears the effects these high prices will have, ultimately, on their competitiveness and in turn on employment. I, therefore, welcome the wide-ranging measures in the ESB's strategic plan to contain or reduce costs.
It was against this background also that an inquiry group of personnel from the Departments of Energy, Finance and Industry, Trade, Commerce and Tourism with a representative from Irish industry was set up to carry out a detailed review of ESB prices for electricity. The group is chaired by an independent chairman who is managing director of a major electricity utility in Denmark. Its main terms of reference are to identify costs which are higher in Ireland compared with other countries, to identify and analyse the reasons for these higher costs and to make recommendations to achieve lower prices in the short and long terms. The group held its first meeting early in September 1983 and submitted an interim report in November 1983 on those factors which in their view were susceptible to speedy quantification. The final report of the Inquiry Group will be due in about six to eight weeks.
The ESB is a fundamental service organisation which brings an essential commodity to industry and society at large. It is highly thought of in general by the public and regarded as having done an excellent job in the past: its record of achievement stretches from the Shannon scheme of the twenties to the modern gas-fired plant of the eighties, and no element of prejudicial thinking against this State-owned and operated utility lies behind the inquiry to which I have just referred.
The ESB is a very large and pervasive institution; it was recently ranked as Ireland's number one company in an independent survey; it has over one million customers, operates under largely monopoly powers but it has some rival energy marketers; it provides integrated services from fuel input to electricity at the consumer's meter, and is one of the largest and most important borrowing and investment institutions apart from the State itself, borrowing as it does against the credit of the State.
It is not surprising, therefore, that at regular intervals its operations should come under close external scrutiny because the Government have a clear responsibility to ensure that everything which can reasonably be done to mitigate cost pressures on electricity prices is, in fact, being done. I am not unmindful that with long lead times on projects such as Moneypoint, major changes on the very volatile energy scene can occur and that phasing for such changes is often not a matter of total freedom.
The principal elements of cost in an integrated electricity undertaking, such as the ESB, arise from the cost of fuel, the cost of the money used to buy generation plant and distribution lines, and the cost of paying for the employees and the materials they need to do their job. I do not have to remind Senators that fuel costs have outstripped inflation over the past decade, and have dragged inflation upwards. The fuels used by ESB have significantly increased in price, reaching nearly 50 per cent of the cost of a unit of electricity at one stage before being moderated by the introduction of native natural gas. In fact, native fuels — peat, gas and hydropower — supply most of ESB's fuel requirements at the moment. The situation will change as the ESB moves to cheaper coal when the Moneypoint stations begin generation.
It has been the policy of successive Governments to increase the prices charged for native fuels towards an international market level. Like all policies on sensitive and important matters, it requires careful evaluation. Certainly, there are two points of view here which are in apparent conflict. One is that the State should ameliorate the damage caused by high fuel prices by selling the resources it controls at lower than market clearing prices, difficult as that would be to arrive at in certain cases. The opposite contention is that the Government should not give away the State's natural resources but should secure a fair price for what they sell and that this fair price is struck by as close adherence to the marketplace as possible. The money obtained is then available to the State for its general expenditure.
The present policy, as it relates to natural resources of gas and peat, does not immediately require parity with world prices, so that the the shock of abrupt changes in prices is cushioned to some extent for the user. It tries to adjust the price to world market levels so that the State gets a fair return for depleting and non-renewable resources. It avoids causing a major swing to one energy source as opposed to another, due to price advantage, unless and until such a long term policy were seen as warranted. To maintain the prices of native resources at low levels would have two additional disadvantages worth noting. First, it attracts investment into projects based on the supposition of cheaper than market level energy supplies; as a country which is a large net importer of energy, such projects are inappropriate to our situation.
Secondly, it divides the benefit which could otherwise be gained from market pricing among classes of users who are not necessarily the most needy or deserving in the community. It would deprive the Government of that last choice. We are all, in a sense, conscious of financial pressures on businesses and indeed on family finances. But this makes it all the more necessary that any benefits which are to be distributed for reasons of social policy should be applied directly, and effectively, to those in most need of assistance.
In milled peat, we have an indigenous resource, for which successive Governments affirmed it as their policy that it should be developed. That policy was not and is not determined solely by reference to the competitiveness of peat with all other ESB fuels on an international basis. But I believe the price should be one which puts no unfair burden on the ESB. I believe that an ongoing future can be secured for milled peat use in power generation at a price for Bord na Móna which allows it to carry through its production programme as Government policy requires, always granted an acceptable level of efficiency.
On the question of a secure future for milled peat use I must say that one of the most unhelpful suggestions made over the past few months was the one claiming that the completion of Moneypoint 3 threatened the viability of milled peat stations. In fact, at present demand growth rates, after completion of Moneypoint 3, one half of the country's electricity will be fuelled from coal. Another one-quarter or less will be provided by hydro and by present production levels of milled peat.
The last quarter must be provided either from gas, imported oil, or further developments which would use coal. It is not per se the existence of new facilities which would curtail the use of milled peat. In fact, it was the higher cost of producing electricity from milled peat than from an increase in production at oil-fuelled generating stations which led the ESB in its first proposals to wish to turn away from milled peat in the near term.
As I mentioned earlier, the ESB and Bord na Móna have been reviewing the important matters of volume take and prices to be paid for turf supplies. I am pleased to say that, arising from this review, the prices of turf supplies to ESB power stations have been settled at levels which are fair to Bord na Móna and impose no unfair burden on the ESB.
In addition, the ESB is also required to enter into a commitment to take an agreed volume of peat each year from Bord na Móna. This coupled with the new price structure will ensure the future continued operations of Bord na Móna.
Under the original ESB proposals, the effect on Bord na Móna would have been to pose a serious threat to the continued employment of some 2,500 people. With the revised arrangements there should not be any significant effect on Bord na Móna employment on the bogs supplying the generating stations involved.
I would like to conclude by saying I believe it is in the best interests of the ESB consumers and its suppliers of indigenous fuels for the Government to continue their policy of national assessment of the critical elements in the generation of electricity and that the revised proposals under the ESB's strategic plan which are being implemented will ensure the continued operation of peat fuelled generating stations.
