I can confirm that I and my Department have considered the Forfas Statement on the Costs of doing Business in Ireland. I note the findings of this report that, on average, labour costs dominate business costs (59%), followed by property costs (11%), utility costs (9%), transport (4%), with all other costs accounting for 17% of the total costs. I have also noted the finding that utility costs, including electricity costs, are less competitive when compared to the benchmarked locations.
This finding is consistent with the message of the Energy Policy Green Paper: Towards a Sustainable Energy Future for Ireland. The Green Paper notes that Ireland's small energy market, peripheral position in Europe and exposure to sustained high global oil and gas prices pose particular challenges in terms of competitive energy costs.
This Green Paper also outlines options for the future direction of energy policy based on the three pillars of:
security of supply;
environmental sustainability and;
It acknowledges that Ireland's continued economic growth and competitiveness depends on a reliable and competitively priced energy supply and sets out two overarching policy objectives to ensure the competitiveness of Irish energy supply:
effectively liberalising gas and electricity sectors by implementing energy market mechanisms, and
enabling competition by reforming institutional arrangements and market structure.
The Green Paper lists a number of key policy targets aimed at delivering these objectives. A central target is the introduction of the Single Electricity Market (SEM) in 2007, which is designed to provide a larger market with more competitive energy prices. The proposed use of a Capacity Payment Mechanism is designed to encourage new market players to invest in power generation.
The continued liberalisation of the electricity and gas markets is also designed to further enhance competition. This includes the full opening of the natural gas market to augment the fully open and contestable electricity market. This is provided for in the Energy (Miscellaneous Provisions) Bill 2006.
In relation to reforming institutional arrangements and market structure, the Green Paper favours the retention of a strong commercially viable ESB and the retention of certain strategic electricity assets, including networks and certain generation assets, in State ownership for the long term.
Enhanced competition in generation will act as a catalyst for improvements in operation and maintenance costs, productivity, availability, flexibility and innovation. In order to mitigate ESB's dominance in mid-merit price-setting I am also giving consideration to the option of creating a ‘landbank' of suitable sites, to offer a predictable pattern of access to suitable generation sites in Ireland for new entrants to this market. This would remove a significant barrier to new entry and has been used successfully elsewhere to encourage new entry.
The Green Paper also sets out the Government's intention to undertake a comprehensive review of the energy regulatory framework. This will be initiated following the introduction of SEM in 2007, with a view to positioning regulation to meet the energy challenges up to 2020.
Under the Electricity Regulation Act 1999, the regulation of energy tariffs falls within the remit of the Commission for Energy Regulation, (CER), the independent regulator for electricity and gas. I do not have any function in this matter. I am advised that the CER has indicated that it will hold a consultation on the introduction of a fuel cost variation mechanism in electricity tariffs by the end of this year.
Under EU Regulations in relation to the Internal Energy Markets the CER has a direct legal obligation to protect the interests of final customers of electricity and to take account of the needs of vulnerable customers.
In relation to the CER's pricing policy, all decisions are made following full consultation which is open to all consumers, which outlines the proposed decision and full details of the drivers behind the decision. The CER's pricing policy includes a full assessment of the impact of proposed tariffs on all categories of customer. Decisions are made based on delivering value for money for electricity and gas customers while maintaining a secure supply and demand balance and ensuring sufficient investment in the network infrastructure to support Ireland's expanding economy.
The CER also progressed work on developing specific consumer panels for the gas and electricity sectors. This proposal has now been superseded by the establishment of the National Consumer Agency (NCA) by the Minister for Enterprise, Trade and Employment. The Agency's remit is to represent and progress consumers' interests across all economic sectors. It is also envisaged that the Agency will provide a strong consumer voice in the regulated sectors including energy.
The CER is working closely with the NCA to ensure that the consumer has a strong voice and input on energy tariffs. I very much welcome the fact that both are collaborating to put in place appropriate arrangements including a memorandum of understanding on information sharing and consultation and cooperation.