Seanad Éireann debate -
Wednesday, 21 Feb 2007

Vol. 186 No. 5

Electricity Regulation (Amendment) (Single Electricity Market) Bill 2006: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

Minister of State at the Department of Communications, Marine and Natural Resources (Mr. J. Browne)

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

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

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

An SEM committee will be established which will make regulatory decisions in regard to SEM matters. The SEM committee will simultaneously be a sub-committee of both the CER and its Northern Ireland counterpart, the Northern Ireland Authority for Energy Regulation. Provisions are included to allow for modifications to licences to ensure both existing licensees and new entrants can participate in the SEM. Provisions are also included for the establishment of a market operator, MO, to carry out the day to day trading and settlement functions for the market.

To put the Bill in context, I will speak briefly on the background to, and rationale for, the establishment of the all-island single wholesale electricity market, SEM. The creation of the new market is set in the context of long-standing co-operation between the two jurisdictions, North and South, on common energy issues.

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

Both Administrations have a shared interest in more competitive energy markets, reduced energy costs and improved reliability of supply. The mutual benefits to be gained by working together on this agenda are already evident and I believe that what has been achieved to date offers a model of best practice in developing co-operation between North and South. This co-ordinated approach is also set in the context of the European Union's single market for electricity and gas and the growing regionalisation of energy markets.

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

It outlines a blueprint for co-operation in a number of key areas, including electricity, gas and sustainable energy. The creation of an all-island energy market will bring benefits to the island as a whole. These benefits include a larger, single market with competitive energy prices, greater security and diversity of supply, a more attractive investment location and a robust, integrated infrastructure.

The key short-term priority within the framework agreement is the introduction of the single wholesale electricity market and there is strong political commitment, North and South, to deliver the market by the target date of 1 November 2007. A key task for both Governments is to ensure an appropriate legal framework is in place to underpin the SEM. Implementing the market requires similar legislation to be enacted simultaneously in both jurisdictions.

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

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

I wish to outline the main provisions of the Bill. Section 4 amends the Electricity Regulation Act 1999 by providing for the establishment of a SEM committee to carry out single market regulatory functions on behalf of the CER. A corresponding provision is being made in the Northern Ireland legislation so that the same statutory framework is in place for effective decision making for the market North and South. Up to seven members can be appointed to the SEM committee under ministerial warrants from among the members and staff of both regulatory authorities, the CER in Ireland and the NIAER in the North. A member who is independent of both regulators will complete the committee.

The CER and the NIAER will work together through the SEM committee to exercise their respective regulatory functions. In compliance with section 5, the two regulatory authorities will jointly publish a statement setting out the procedures and working arrangements of the SEM committee. Appropriate provision is made in both section 8 of the Bill, and in the Northern Ireland Order in Council, to facilitate the sharing of all relevant information to accommodate the carrying on of all-island market business and to ensure that appropriate protections apply to such information.

The functions necessary to establish and operate the market are conferred on the CER by section 7. These functions will include the making of regulations for the purpose of trading in electricity on an all-island basis, including the trading and settlement code. All licensees will be required to trade all electricity generated by them through the SEM and an appropriate threshold will be established to be applied to different classes of licensees in fulfilment of this requirement. These provisions will be mirrored by the NIAER in the North.

The day-to-day trading and settlement of the SEM will be carried out by a market operator established by licence under section 12. The market operator licence will include appropriate terms and conditions relating to participation in, and operation of, the SEM. The market operator function will be jointly carried out by the two transmission system operators, EirGrid in the South and SONI in the North. Provisions allowing the market operator to recoup costs from market participants in facilitating participation in the trading arrangements under the SEM are set out in section 14. Licensing provisions in sections 12 and 13 allow for modifications to licenses to ensure that both existing licensees and new entrants can participate in the SEM. The associated publication process for such modifications and breaches of licence terms and conditions is set out in section 16.

Section 9 sets out the principal objectives of the Minister, the CER and the SEM committee in carrying out their respective functions regarding the SEM. These include a primary objective of protection of the interests of consumers of electricity on an all-island basis by promoting effective competition between market players participating in the SEM. Other stated objectives include the need to ensure that all reasonable demands for electricity are met, the need to ensure co-ordinated regulation of the market, the need to have transparent pricing in the SEM and the need to avoid unfair discrimination between consumers in Ireland and Northern Ireland.

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

The establishment of the SEM will bring a range of benefits. It will facilitate improved competition and investment opportunities by expanding the market, and the exploitation of efficiencies and economies of scale in areas such as generation of reserves, plant mix and fuel usage. It will also introduce more transparent and equitable trading arrangements. An all-island electricity market will have approximately 2.5 million electricity customers, 1.8 million in Ireland and 0.7 million in Northern Ireland. While this is relatively small in the EU context, it is still a considerably larger market than the two single markets operating independently, and will provide an improved base for the entry of new market participants in generation and supply.

This market dynamic should also serve to increase the competitive pressure on prices while providing some economies of scale for market participants. A single market will also lead to a reduced duplication of functions thereby realising cost savings. The strategic benefits for the island will include increased market size, shared reserve costs, shared fuel diversity costs, a boost to investor confidence and a more competitive environment for the island as a whole.

The costs and benefits that are expected from the establishment of the SEM have been subjected to independent analysis by consultants. The findings of a cost benefit analysis to assess the long-term economic impact of the SEM are positive and indicate an estimated net social benefit of €155 million present value over a ten year period. The benefit share is split roughly evenly between North and South and mostly accrues to customers, approximately an 80:20 split between customers and generators.

In addition to these benefits, the study suggests that a range of other benefits will accrue from the SEM. These benefits include improved competition, reduced market power, environmental savings and enhanced effectiveness of the regulators from pooling of experience. In addition to the long term cost benefit analysis, the regulatory authorities have carried out an analysis of the likely short-term price impact of the new market. The initial findings indicate that, at current fuel price projections, a small increase is possible in the first year of operation, 2008, due to start-up costs. This is countered by a small decrease in price projected in the second year of operation.

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

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

Mr. Finucane

Fine Gael will support the passage of the Bill. The Minister has stated he is not in favour of the privatisation or dismantling of the ESB. Our experiences with Eircom were unfortunate, a matter to which we referred when discussing ComReg. Harsh words were spoken about the difficulties consumers have with Eircom with regard to connection and repair. It is a classic example of how privatisation does not work. When the State owned the telecommunications structure there was significant capital investment. Private companies that move in aim to placate their shareholders by making a sizeable profit and often in pursuit of that do not install the necessary infrastructure because that involves an associated cost. This is a small market for electricity and that is why we support this legislation.

There is growing concern at the increased cost of electricity. Any progress, whether through the proposed single electricity market, or the interconnector facilities about which we often speak, will be a success if it leads to a reduction in electricity prices. While the domestic consumer has no alternative because there is no choice, the industrial consumer has some choice of electricity provider. Domestic consumers, however, voice concern to us politicians about the escalating cost of electricity. Anybody in this House could see a dramatic difference in his or her electricity bills between 2005 and 2007. It is sad that the Minister for Communications, Marine and Natural Resources takes a large dividend from the ESB, possibly between €70 million and €80 million a year. Is it not possible to reduce the electricity bills instead of taking a dividend?

Senator Kenneally and I sit on the Oireachtas Joint Committee on Communications, Marine and Natural Resources which has met significant industrial players who have voiced concern at the escalating cost of electricity for their companies. I will not name them but most are well-known large companies which are major users of electricity. They are concerned about their long-term viability and their competitiveness because of the escalating cost of electricity and other charges. We should not take for granted industries which have been here for some time. They make the point that in the past they had the possibility of negotiating the best possible price based on their use but they cannot do that now unless they go to competitors in the marketplace.

I acknowledge the importance of the unique North-South co-operation proposed in this Bill that will benefit both parts of the island. I accept that the all-island market will be of benefit and that economies of scale, of which both sides can avail, should ensue. This is the first positive news about energy we have heard in a long time. The Minister has overseen a shocking drift in energy policy. I recognise that a paper was produced recently which was expensive because the consultants received more than €1 million and we waited for some time to see its contents and now await a further paper on energy.

There has been far too little movement on interconnection, renewables, import substitution and energy conservation. With the change of Government, which I hope will happen, there will be a change in mind-set. The Fine Gael-Labour Government, which I hope will be in place before the summer, will change that.

The Department of Communications, Marine and Natural Resources and the Commissioner for Energy Regulation have made noises in recent weeks to suggest this issue is being examined, despite the circumstances mentioned having existed for some months. I hope they will act in unison to the benefit of the consumer. Benefits will also accrue from the availability of more interconnectors. These will be North-South as well as east-west. As my colleague, Deputy Durkan, stated in the Dáil this will be of great benefit to the operation of electricity and gas markets but it should be recognised that the United Kingdom already has access to the nuclear sector. The traditional methods are fine but we should not use this new situation as a means to slow the development of alternative energy sources.

In terms of the economic independence of the grid we must be mindful that easy options in the North-South market could slow development of the alternative energy sector. We must be forceful about this because people tend to take easy options when the going gets rough. The easy option would be to draw on the cheaper electricity generated by nuclear energy in the United Kingdom and Europe. This would be good for the country but we must ensure we proceed to develop the alternative energy sector.

There are many forms of alternative energy and I am aware environmental issues arise whenever any type of energy is generated. Some say, correctly, that wave generated electricity will affect the development of shores and sandbars. We can develop significant transport to reduce emissions as required and as mentioned in discussions on the previous Bill before the House. Emissions will never be removed entirely but we can improve the situation dramatically and with scientific progress it is hoped ways can be found to reduce the environmental impact of energy usage generally.

I very much welcome the developments at Moneypoint because I grew up in Foynes, on the Shannon estuary, and have long been concerned about the sulphur dioxide spewing into the atmosphere from Moneypoint. The confluence of the winds drives this upwards and along the estuary around the Foynes area. Research shows that approximately 50% of the entire sulphur dioxide emissions in this country are in the Shannon estuary area. I am seriously concerned about those emissions. The changes in Moneypoint to improve this are better late than never and I welcome them. The community has tolerated what has been happening for a long time, which was most unfair.

Other forms of alternative energy are readily available and can and should be developed in this country. If we are to make this electricity market work we must examine the alternatives and develop them to the best of our ability without taking the easy option to escape reality and make excuses when things do not happen. Enlarging the energy market and delivering economies of scale do not offer complete solutions because both parts of the island will need to develop the energy sector significantly in response to population and economic growth.

Economies of scale must be borne in mind. If Ireland had the same population density as the Netherlands, its population would be approximately 48 million and its energy requirements would be massive. It is good that the electricity grid will be jointly operated by the Northern and Southern authorities. We should sing from the same hymn sheet and ensure prices are not arbitrarily increased in either jurisdiction. Prices should increase or decrease as the market demands, having due regard to the needs of industrial and domestic consumers.

Fine Gael has made proposals in its Energy for the Future document, which I again call on the Government to adopt. They include the removal of all excise duty on bio-fuels produced from renewable energy crops; promotion of combined heat and power facilities, especially in regions which have poor energy infrastructure such as many parts of the west and north west; grants of between €500 and €3,500 to encourage householders to convert to renewable energy for home heating; reform of the VRT system, through the establishment of energy efficient labelling for motor vehicles, with lower and higher rates of VRT for fuel efficient and inefficient vehicles, respectively; creating a market for bio-fuels by legislating that all motor fuels must include a blend of fuel from renewable sources such that all petrol sold would include a 5% bioethanol mix and all diesels would contain a 2% biodiesel mix; requiring all public transport and public service vehicles to convert, where practical and feasible, to forms of bio-fuel; establishing a centre of excellence for alternative energy charged with ensuring that Ireland develops a world class alternative energy sector.

Regardless of the continued instability in oil prices, the Government must take on board Fine Gael's energy policy and incorporate it in the forthcoming national plan. It would thereby put in place energy conservation measures such as vehicle labelling; development of biofuels; home heat conservation through insulation; use of alternatives; and a major plan to develop the alternative energy industry and the necessary supports to guarantee security of supply. Such a move would not only conserve and replace energy and develop the energy sector but would also draw public attention to the necessity to take such steps, involving both the industrial and domestic consumers who rely heavily on reliable energy sources.

An increase in British reliance on nuclear power will have nothing but harmful effects on Ireland. While the British Government is right to analyse its energy policy, nuclear power is not the way forward. Putting in place a new generation of nuclear power stations will inevitably lead to a rise in nuclear waste and much of this will be reprocessed at Sellafield. Those who operate Sellafield have already received warnings from the EU, covered up leaks and falsified documents. As a result, the facility must be closed as soon as possible. The increased risk to the Irish people from a rise in the amount of nuclear waste reprocessed 100 miles off the Irish coast at this appalling facility is unacceptable.

A new generation of nuclear power stations would give rise to a new generation of prime terrorist targets. There are nuclear stations even closer to Ireland than Sellafield. I refer, for example, to Wylfa in Anglesey, which will almost certainly be extended under Prime Minister Blair's expansion plans. I am concerned that, like Wylfa, many of the new stations may be situated just off the Irish coast along the UK's west coast. The Government and politicians on all sides must intervene to make it clear that an increase in the number of UK nuclear stations will be extremely hazardous to Ireland. Renewable sources, particularly the UK's wind, wave and tidal energy resources, should be utilised to meet its energy needs instead of increasing reliance on the nuclear option. If that does not happen, there is still the possibility of taking legal action in respect of the new generation of nuclear stations.

Mr. Kenneally

I welcome the Bill and congratulate the Minister on facing up to and dealing with a situation that has particular relevance and in respect of which there is a sense of urgency.

Never in the history of the State have we been so dependent on a substantial, regular and guaranteed source of energy. With the entry of new players into the market, everyone needs to know precisely where they stand and how those new players can compete on a level playing pitch and be guaranteed rights and access to the market. Equally, the public needs to know that there will always be an energy supply, particularly as regards electricity. For all the criticisms levelled at it, electricity has served this nation extremely well, sometimes in difficult economic and budgetary conditions.

Traditionally, the ESB has been the dominant force in the Irish electricity market. This is hardly surprising when one considers that it has been the only supplier almost since the foundation of the State. I previously paid tribute in the House to the service the ESB has given to this country and its people. While I fully realise that there were deficiencies and that we have all had our problems with some aspect of its operations from time to time, the performance of the company has been exemplary. As we prepare for a major change in electricity supply and distribution and with more and more companies entering the electricity market, it would be wrong to forget the service the ESB provided to the fledgling State and the technical and financial difficulties the company was often obliged to overcome.

We must recognise, however, that we live in a new Ireland with a new economy, a larger population and a vastly greater demand for energy. The sector must, like everyone else, move with the times. A reliable electricity infrastructure, providing quality performance, is vital for Ireland's socio-economic development. The huge voltage transmission system is similar to our motorways and our broadband telecommunications network and is a component of the backbone infrastructure that supports the economy. In turn, the transmission network forms the backbone of the electricity supply system in Ireland. It is a meshed network of high voltage lines and cables for the transmission of electricity supplies throughout the country.

Electricity peak demand is forecast to increase by approximately 20% over the period of the transmission development plan 2006-10, which was issued early last year. In addition to the 532 MW generation connected to the transmission system towards the end of 2005, connection agreements in respect of a further 770 MW of generation capacity have been signed. All of this is expected to be connected by 2010.

The development plan sets out the development projects that will have been initiated to meet these future needs and discusses the potential for further development in the next five years. The main features of the plan, which involve developments in all parts of the country, include the extension of the 220 kV system into the north west; expansion of the 400 kV system to provide necessary bulk transfer capacity out of Dublin and Moneypoint; strengthening of the networks in and around Athlone, Castlebar, Cavan, Cork city, Galway, Letterkenny, Meath Hill, Newbridge, Tullamore and Wexford; connection of eight new distribution operator system operator stations; connection of ten new generators to the transmission system; reduction of high short-circuit levels in Dublin and Tarbert; strengthening of the Dublin-Louth corridor; and a second major interconnector with Northern Ireland.

In the current era, it is no longer prudent to depend on just one supplier in respect of our electricity needs and the forthcoming developments to which I refer illustrate the importance of guaranteeing continuity of supply and bringing competition into the market. Ireland is a small island with a small population and it makes sense to have an all-island market.

When the ESB was established — a period when we needed a reliable and constant supply of electricity to fuel our growth — there was precious little public capital available and very little investment money within the private sector. The ESB provided the required stability and we should be grateful to it for that. However, the Ireland of today is not that which obtained in the 1930s. Our needs are now different and far greater.

Security of supply is an important issue and the role that natural gas plays in this regard is often forgotten. For example, natural gas accounted 44% of electricity generated in 2005. In light of the significance of natural gas in the generation fuel mix, security of its supply is a key issue, particularly when one considers that Ireland is heavily dependent on imported natural gas. The Commission for Energy Regulation, is satisfied that the existing infrastructure is capable of meeting anticipated demand in the coming years. It is also satisfied that there are appropriate measures in place to protect security of supply of natural gas. Such measures include interacting with the UK transmission system operator to identify any issues affecting the importation of gas to Ireland and to establish procedures for managing the impact on Ireland's gas supplies of any supply emergencies in the UK.

There is adequate precedent for co-operation between our two islands. One month ago, 16 ESB crews travelled to the UK to help restore power to the thousands of homes that were left without electricity following some of the worst storms there in 17 years. The 16 crews and their managers set off in ESB vehicles to work in the Manchester and Liverpool areas under the direction of Manweb, the networks utility in the area. The Minister congratulated the crews and commented that the sharing of resources at times of need is an important factor in cross-country co-operation. Other measures in place and highlighted by the Commission for Energy Regulation include the establishment of a task force on emergency procedures to ensure a co-ordinated response to a supply issue affecting natural gas on both the gas and electricity systems would minimise any impacts on customers and requiring large thermal generation to be capable of generating on an alternative fuel and requiring five days on-site storage of same.

This is perhaps a good opportunity to refer to the controversy regarding the bringing ashore in Mayo of gas from the Corrib field. This has been stoutly and resolutely resisted by a small number of local people, supplemented by imported protestors with few, if any, links with the area and seemingly little consideration for the future of this country and successive generations of its children. If there are still perceived deficiencies in Shell's handling of the gas pipeline or any other element of its essential operation, I have no doubt the Minister and officials of his Department are well capable, if allowed, of discovering a way to address them in a comprehensive and amicable fashion. As the protests go on and as more information becomes available, the credibility of the protest diminishes considerably. It is to be hoped some formula can be found sooner rather than later to fully resolve the issues, but I doubt that all of the protestors are open to such a course. The majority of the local population do not have a problem and the minority do not have an acceptable solution.

An all-Ireland market for electricity will encourage competition among a growing number of players and will inevitably result in economies of scale. There can be sharing of strategic costs and a greater security of supply generally to customers. This will hopefully lead to lower prices, but that will also depend on international fuel price escalations which are totally outside our control. Other than that, competition should help to drive down prices and keep them in check in the same way it does across the entire economy. We see this from other markets, where prices are lower because of competition. We do not need to look beyond our own country to see the beneficial effects of that.

In Britain it is estimated that 11 million out of 26 million consumers have changed supplier, while 8 million out of 20 million gas consumers have changed their supplier. The comparative figure in the republic is only 40,000 and most of those are probably on the commercial side. Those figures are a couple of years old at this stage, but I have no reason to believe they have changed substantially in the meantime. In due course in this country, experience will result in much greater flexibility and less blind loyalty in the customer base.

As the market grows in Ireland, people will have an even greater opportunity to change supplier if they so wish. It will be in everyone's best interests to be more efficient and to hold onto their customer base. The transfer capability of the existing North-South interconnector is restricted, especially for transfers from south to north. The provision of a second interconnector has been studied and costed and will be provided sooner rather than later. The benefits to the island as a whole from the existing interconnector from Northern Ireland to Scotland and a proposed interconnector between Ireland and Wales will not be fully realised without further North-South investment. The next step in meeting our goals is to have a simple wholesale market for trading electricity which spans the entire island.

The Bill envisages that the new market will provide for a common set of trading arrangements that will apply to both Ireland and Northern Ireland. These will be set out in licensing and contractual arrangements agreed with market participants. Day to day trading will be managed by a single market operator that is established by the two transmission system operators, EirGrid and System Operator Northern Ireland, SONI, as a contractual joint venture. An all-island long-term objective would be that by the end of the decade we would expect to see an all-island competitive electricity market where legacy costs have largely disappeared, where the generating plant mix is much more efficient and environmentally sustainable, and where customers are able to exercise real choice in their selection of supplier.

In recent times most people have come to the realisation that there is not an endless supply of energy-giving fuels. It has also dawned on us that we must rein in our rampant destruction of the environment and that we must start now. We may not be, by any measure, the worst offenders or the greatest sinners in regard to the production of carbon emissions, but we must play our part and be seen to. We must not, of course, continue to exceed our quotas under the Kyoto agreement. There is recent evidence that we have slowed the increase.

It would not take a great deal of effort on our part to reduce the demand for energy. We need only look at the waste of electricity and gas to realise we can do much better. Many lights can be switched off and many machines, from industrial to personal computers, printers, televisions, battery chargers, overnight central heating — the list is endless — can be switched off when not in use to effect considerable savings. The "Power of One" campaign can teach us a great deal.

After some thought, I have come to the conclusion that we are nothing less than spendthrift when it comes to energy. Who has not left on lights that are not required, used clothes driers when the sun is shining, maintained heating at too high a temperature, left the heating running when they are away overnight, failed to put a lagging jacket on the hot water tank, used the hot water tap for simple hand-washing or opened a window instead of turning down the heat? The list is endless. None of these makes a great deal of difference in isolation but together they make a significant saving and, multiplied by a large percentage of the population, the difference can be enormous. The simple message is that if we do not increase our demand for energy, we will not have to produce more and the benefits are great and visible all round.

The debate about electricity generation by nuclear power is still ahead of us. On the one hand is the acceptance of electricity from another country generated by nuclear power, on the other is our continued use of fossil fuels which are rapidly diminishing, particularly by the burning of coal, which, by any standards, is a dirty process. There is also the debate about alternative and renewable energy resources such as wind and wave power, biofuels and hydro-electric. Most of these are being used, but not by any means to the fullest extent. If we were to develop fully these other systems, we would have sufficient generation capacity, with standby access to gas and oil, to do us well into the future.

The nuclear debate lurks in the shadows but like so many other contentious issues in this country, it will be upset by extremist opinion on both sides. I have no desire to promote nuclear energy but when the debate starts, please let it be reasoned, measured and logical.

This Bill is a necessary step forward and further evidence that the country is growing up and leaving the constraints of a less than happy past behind us. I commend it to the House.

Mr. Quinn

How many Australians does it take to change a lamp bulb? The answer, according to the newspaper today, is every one of them. Yesterday, the Australians announced that the traditional lamp bulb, which has been used throughout the world for more than 125 years, will be outlawed in favour of the more effective and energy efficient lamp bulbs currently available. The traditional lamp bulb apparently wastes 90% of the energy it uses. The new lamp bulbs are more expensive but are far more efficient. Given that the Minister, Deputy Noel Dempsey, was responsible for introducing the plastic bag levy and received accolades from around the world for doing so, he should consider taking on board this policy.

The concept and the figures I read this morning were startling. Australia is imposing the ban in 2010 and in three years the traditional lamp bulb will be outlawed. The benefits appear to be huge. I mention this because previous speakers have referred not only to energy regulation but also to the challenges, threats and opportunities facing us with regard to carbon emissions and the Kyoto agreement. There is little doubt that the way we use energy and electricity will influence our way of life and our ability to maintain our traditional way of life in the years ahead.

I have no difficulty welcoming this Bill. On an island of this size, there are obvious economies of scale that can be gained by operating one electricity market rather than two. To put this in perspective, even the single market catering for the whole island of Ireland will be always a small market by European standards. That is why, in the long run, we must look beyond the confines of this island in organising our electricity supplies and think not just on an all-island basis but also from a regional perspective.

My reservations about the Bill are fundamental. I am concerned as to whether we have got the regulation of energy right. The present system of regulation, put in place largely at the behest of the EU, consistently acts against the interests of the customer and, by doing so, puts several important national interests at risk. The driving force behind the regulatory process is the creation of a competitive and profitable marketplace at any cost, even if that works against the interests of the customers in that marketplace. If that is the case, it is a crazy situation and one that should not continue.

From a customer's point of view, there are two main priorities with regard to energy. The first is guarantee of supply, that when one turns the switch, a light actually comes on. In the past 20 years we in Ireland have come to assume this will always happen. In some other countries, hotels supply a candle beside a bed because of a lack of guarantee of supply. A national electricity market needs, therefore, to be organised so that the available generating capacity always keeps ahead of peak demand, with a suitable level of reserve constantly available. Traditionally, Ireland has always had that guarantee of supply. It is ironic that in recent years, since this regulatory system was put in place, the issue of security of supply has raised its head. The regulator's first priority, before everything else, should be to provide an assured supply of electricity.

The second important issue to the customer is the price paid for energy. Naturally, people want to get their electricity as cheaply as possible. In many ways, it is a grudge purchase. From the national point of view, however, it is even more important that energy prices are kept to an absolute minimum.

There are two reasons for this, both of which bear on national competitiveness, an issue I have raised in the House on many occasions. Energy costs flow directly into the cost of living, so any increases are directly and immediately reflected in our inflation figures. When the rate of inflation rises, the cost of all items we buy rises as the multiplier effect kicks into action. That is bad for businesses that must compete on international markets. It is made worse when these businesses are also hit directly by increases in their energy costs. It is nationally important to keep electricity prices low. A sharp increase in electricity prices, such as those the regulator sanctioned in the latter part of 2006, can have a severe impact on our ability to compete as a trading nation in markets around the world. That should give us reason to pause. If we are concerned about national competitiveness, as I believe we should be, we must attach a high priority to containing our energy costs to the maximum extent possible. However, that priority, regardless of whether it is shared by the Government, certainly does not seem to be shared by the energy regulator.

The Minister will recall what happened last September. On the basis of what turned out to be a temporary peak in the price of oil, the regulator made the erroneous assumption that oil prices would remain at that peak level for the whole of the following year. He therefore sanctioned increases in the price of electricity to cover that assumption. This was a truly disastrous mistake and only partly undone.

The current price of electricity is still too high. If we need proof of that, we only have to look at the spectacle of the ESB paying the Government a dividend of €350 million from its excess profits. The ESB has no business paying the Government a dividend at all. It should make no more profits than are necessary to invest in its business and provide for its growth. The €350 million, which disappeared into the maw of the Department of Finance never to be heard of again, is money from electricity customers that should never have been taken from them in the first place.

This is not small change. It amounts to €300 for every household. A figure such as €350 million is hard to understand. It is easier to understand a figure of €300 for every household, a significant part of each one's total annual electricity bill. It is not just about robbing €300 from each family, serious as that is in itself. Robbing each family of this amount just adds to the cost of living and to the spiral of inflation, delivering another body blow to our national competitiveness.

We are the envy of the world in how we have transformed the economy since 1987. Last year I was asked to give several speeches on the Celtic tiger success story in Latin America. I stated there are several reasons but one is our ability to compete. We recognised national competitiveness was important and kept costs low. We are in danger of letting this slip from our minds.

Is our system of energy regulation part of the solution or part of the problem? Our experience so far would lend credence to the theory that it has become part of the problem. A basic question must be addressed. If we fail to address it, we do so at our peril. Have we got our energy regulation right or have we gone astray? If we have gone astray, as I believe there is at least a risk that we have, then it is incumbent on us to acknowledge that fact and take remedial action. If we do not, we will be laying up problems for the future that will become increasingly difficult to resolve as time goes on.

While I support the Bill, I have some concerns about it. We have led the world in other areas. Ireland, for example, is admired around the world for its plastic bag environmental levy, which the Minister, Deputy Noel Dempsey, introduced. However, we cannot be afraid to challenge our traditional thinking in energy generation and regulation.

Mr. Leyden

I welcome legislation that will help improve the rights of the consumer. This Bill legislates for a single electricity market on the island of Ireland and anticipates that the consequence of this will be a greater sharing of resources, more competition and ultimately a drop in prices. The basis for this Bill has been in place since 2000 and this legislation will formalise it. The Leader of the House was previously involved in the drafting of the legislation. Prior to the Good Friday Agreement and cross-Border co-operation, this would not have been possible. This is one of the benefits from the approach being taken. A devolved Administration and Minister in the North responsible for this area would also assist in enhancing this benefit.

Ireland is a small island and the creation of one electricity market makes sense. As far as a reduction in energy prices is concerned, I welcome this change. The proposed increases from 1 January were severe. The idea behind the joining of both markets is that it will provide a larger market which will attract the entry of new energy providers. If the market is seen as sufficiently attractive to providers, this will bring down prices.

There must be a better deal for electricity consumers. I have spoken before about the outrageous prices consumers must pay for what is an essential service. It is important to use electricity in the most efficient way possible. Senator Quinn's comments on the experience in Australia was interesting. Similar moves are being made in Cuba, where the authorities are active in this regard. The measures being taken by the Australian authorities sound draconian but there is no choice in the matter; we must all take severe action. It would be difficult to enforce legislation imposing restrictions in the style of light bulbs that may be used. Such initiatives are worthwhile, however, and I ask the Minister to consider the developments in this regard in Australia.

The message about using electricity efficiently is being passed on to consumers, who not only wish to improve the environment but are also becoming aware that the efficient use of electricity will reduce their bills. When electricity prices increase, however, will these savings be obvious to the consumer? If their bills are the same or even higher, it may seem that the efforts they make to become more efficient are for naught.

The division of the electricity market on this island into North and South is economically unfeasible if we wish to ensure a better deal for consumers. I have already mentioned the importance of a larger market in attracting energy providers. On joining the two markets there is the question of making efficient the generation and provision of electricity. There is a duplication of electrical plant north and south of the Border, one that flies in the face of efficient energy provision. This is particularly evident in County Donegal where the supply was previously brought up from the south, instead of coming from Northern Ireland. The northern part of the country would be clearly more efficiently served from the Northern counties. This Bill will facilitate that improvement.

Another provision of the Bill is that it will require all providers to make available to the grid all the electricity they generate. This means that if they generate more than a certain amount of kilowatts, they are legally compelled to provide that electricity to Irish consumers. This will ensure an efficient use of energy and will presumably have the knock-on effect of bringing down prices.

At current estimates, the price of electricity will rise by between 0.3% and 3.0% in 2008, with a reduction coming in 2009. These figures are based on calculations taking into account the current use of fuel to generate electricity. While I welcome legislation that seeks to rationalise the market to provide a better deal for consumers, I also recognise that the generation of electricity is dependent on other markets, especially that in fossil fuels.

Any reduction in energy costs should be achieved alongside greater efficiency in domestic and commercial use of that energy. This is being achieved in many cases. Other sources of energy apart from fossil fuels should be explored. While good work on this is being carried out by agencies such as Sustainable Energy Ireland, more should be done. I commend the Minister on the inclusion in the budget of many measures for the provision of alternative and sustainable energy.

The Minister may be in a position to respond to the statements made by Mr. Eddie O'Connor on the "Today with Pat Kenny" show during the week.

Mr. Finucane

The Minister responded well on "Morning Ireland".

Mr. Leyden

I welcome his response. It is difficult to keep up with all the various radio programmes on both local and national radio. I heard Mr. O'Connor's statement in which he compared the regime here to the one in Texas. He claimed it took some 72 months to be allowed to feed into the national grid using the method of electricity generation he operates.

In regard to energy conservation, most modern electrical appliances have an automatic turn-off facility. Newer televisions sets, for example, will turn off rather than go on stand-by, which was extremely expensive. Ensuring televisions are completely shut down saves considerable electricity and is also safer. The "Mooney" programme on RTE Radio 1 has run a campaign asking consumers to switch off appliances. Such information campaigns can make a great difference and prevent massive wastage. A general awareness of what is achieved by one person turning off a light bulb can have an enormous impact on overall consumption of electricity.

I previously made the point that there is a difference between the standing charges for rural and urban electricity consumers, with the former paying a far higher rate than their urban counterparts. The regulator makes the provisions in this regard and I appreciate that it is not the Minister's direct responsibility. It is an issue worthy of detailed examination. Rural electricity consumers have been paying for the capital equipment for a long time. Electricity was introduced in rural areas in the 1950s and the standing charges have increased steadily. One might live within a few yards of a town but pay a higher rate if one is deemed to be located in the rural rather than the urban area. It is unfair that people living in rural areas, including those in the Minister's constituency in County Meath, must pay a higher standing charge than those living in nearby villages and towns such as Navan, for example.

This Bill represents a great achievement for the Minister, particularly its arrangements for North-South co-operation. I recall a time when the interconnector was constantly attacked and disrupted. There is now a completely different atmosphere, which was achieved through the work of the Minister and the Government. The Anglo-Irish Agreement, Good Friday Agreement and St. Andrews Agreement have led to the current situation where the Minister can bring forward this legislation and, vitally, make it work. Nobody will impede the implementation of its provisions on either side of the Border and the devolved Administration will be very much in tune with the Minister's intentions. His British counterparts are working with him in this regard and I assume legislation is being processed in the British Parliament to allow this to happen. The Minister might comment on that.

I support this Bill and welcome the expansion of the market and new regulations it will bring. Irish consumers will benefit from it.

Minister for Communications, Marine and Natural Resources (Mr. N. Dempsey)

I am pleased to have the opportunity to conclude the Second Stage discussion on this Bill. I thank all the Senators who contributed to this debate. I hope to discuss some of the points they made in greater detail on Committee Stage.

In response to Senator Leyden's last point, this legislation is being produced in parallel with the corresponding legislative provisions of the British Government in respect of the North. We have an obligation to synchronise the timescale of the legislation with that in Westminster. The order in council for the single electricity market legislation for the North was to be laid before the British Parliament on 19 February and will be considered by both Houses of Parliament in the week beginning 12 March. Once this is completed, by 21 March, the order in council will be made at Privy Council. It is hoped that we will have concluded our business here by that time.

This Bill is a key element of a suite of measures that will allow the Government to continue to drive forward a progressive energy agenda. The enactment of the Bill will underpin the establishment of the single wholesale electricity market on the island of Ireland. Like Senator Quinn, I hope this development will be to the benefit of all consumers, both individuals and industrial and commercial consumers. We should place the Bill and the creation of the new single market in the context of long-standing co-operation between the two jurisdictions on common energy issues. What has been achieved to date offers a model of best practice in developing co-operation between North and South. It is fair to say that of all the areas of co-operation and discussion, energy may be the area in which the most tangible progress was made in the last decade. I thank Members for the general welcome they have given the Bill and for their comments, some of which I will deal with now.

Senator Finucane referred to the potential benefits for consumers, especially domestic, from an enlarged market. While the focus of this legislation is on the wholesale side of the market, the long-term cost benefit analysis being carried out indicates a net social benefit of approximately €150 million over ten years. That benefit will be shared almost equally between North and South, with a slightly greater benefit accruing to the North.

Senator Quinn spoke about regulation and I do not take issue with the points he made. However, it is a similar situation to that of the man looking for directions who was told he should not start from where he was. We are halfway through a system which, with hindsight, was not the best possible model. However, we are stuck with it and must make the best of it. There is something perverse about the system but I do not blame the regulator because he must work within the regulations handed down from Europe.

One of the mistakes made in Europe was attempting a one size fits all model for the entire European market. We are a small peripheral nation at the edge of Europe with a small market and very little interconnection, which should have been taken into account at the time, although not in the form of special pleading. To put it crudely, Europe tried to introduce more competition by encouraging more players into the market to increase competitiveness. However, to make participation attractive in a market such as Ireland, with no interconnector and at a remove from the European mainland, the only way is to push up the price of electricity. That is not good for consumers, business or industry.

I do not disagree with Senator Quinn's analysis. However, we cannot persuade Europe to change the regulatory system, although I have raised the matter on a number of occasions. We must work within it and find ways other than raising the price of electricity to make it attractive for other players to enter the market. Some of what is in the Green Paper and what Senators will see in the White Paper, such as the decision by CER last November on licensing the Aghada plant, give an indication of where we want to go. We want to reduce the dominance of the ESB in the market, to make it more attractive for others to compete. As Senator Kenneally said earlier, it is easy to criticise the ESB for inefficiency, and such criticisms have been well made by a number of people, but we should balance it by acknowledging the very good job it has done over the years when nobody else was interested in the market. Time moves on, however, and business and consumers are entitled to expect legislators to seek to mitigate costs as quickly as possible.

A number of Senators, from all sides, said the competitiveness of the economy had to be the overriding consideration rather than the protection of monopolies or the ESB. We want to continue with a strong ESB but do not want that strength to be at the expense of consumers and industry because the general economy would lose out. I presume Senator Quinn was referring to a five-year dividend of €350 million because the dividend paid to the State last year was approximately €70 million. ESB profits were approximately €350 million but, because we have instructed it to act commercially, it must secure a rate of return so that it can borrow to continue to finance the major upgrade it has undertaken.

Senator Kenneally stressed the need for market certainty and stability, which is an essential point that goes to the core of the issue. Throughout the process we have held widespread consultations involving all the players. I have met utility companies and other stakeholders, such as regulators North and South, and have received no negative feedback. That consultation has enabled us to make the progress we have made. The licensing provisions in this Bill are phrased particularly to ensure a level and competitive playing field, which is very important.

Senator Leyden made a number of points on energy efficiency, as did Senator Finucane. That is not related to this Bill but will be a very important part of energy policy in future. Senator Finucane expressed the wish that Fine Gael would be in power after May so that it could look after these issues.

Mr. Finucane

The Minister will pass on the torch.

Mr. N. Dempsey

I will not rise to the bait in that regard. No matter who is in power, and I have a good idea who it will be, it is important that the focus on energy efficiency continues.

A number of Senators asked about the benefit of the interconnector and the single electricity market, SEM. The SEM represents stage 1 in the creation of a regional electricity market in Ireland. Stage 2 will be facilitated by interconnection to the UK system and onwards to the system in continental Europe. We are committed over the lifetime of the White Paper to becoming a regional market, in line with EU energy policy. We are working with the UK towards that goal and the UK is working with France, the Netherlands and Belgium, among others. Within ten years there will be a regional market where electricity will be bought and sold and will flow in both directions and obviously the interconnectors are important to that. I had discussions with EirGrid and the CER on Monday to ensure substantial progress is being made. I am satisfied the dates we have at present, not later than 2012 for the east-west system and 2011 for the north-south system, can be met. It is always a risk to predict how long the planning process will take but assuming everything goes well, we will meet those targets.

I thank Senators for their welcome for the provisions of this Bill. It is important that we work together on this and I look forward to more detailed consideration on Committee Stage next week, with the overall objective of adding the Bill to the Statute Book as soon as possible, staying in line with the timetable in Westminster.

Question put and agreed to.

An Leas-Chathaoirleach

When is it proposed to take Committee Stage?

Mr. Kenneally

On Tuesday, 27 February 2007.

Sitting suspended at 12.45 p.m. and resumed at 2.30 p.m.