Léim ar aghaidh chuig an bpríomhábhar

Thursday, 2 Oct 2003

Vol. 1 No. 22

Electricity Regulation Act 1999 (Eligible Customer) (Consumption of Electricity) Order 2003.

We will now consider the Electricity Regulation Act 1999 (Eligible Customer) (Consumption of Electricity) Order 2003. I welcome the Minister for Communications, Marine and Natural Resources, Deputy Dermot Ahern. I support the call he made yesterday for roaming charges to be abolished. We had an interesting briefing session today from ComReg and the Consumers Association of Ireland. The major mobile telephone companies will appear before the joint committee on 15 October as part of our considerations of high mobile telephone charges.

I welcome the input of the joint committee on the issue of mobile telephone charges. When I commented on this issue at a conference yesterday, my intention was not to steal the committee's thunder in its consideration of the issue today. I realised only this morning that ComReg was to appear before it today.

The draft Electricity Regulation Act 1999 (Eligible Customer) (Consumption of Electricity) Order 2003, drawn up under the 1999 Act, relates to the further liberalisation of the electricity market in order to allow competition to take root and flourish for the benefit of consumers and the economy generally. Since February 2000, significant progress has been achieved in opening the market, but more remains to be done to bring about a fully open, competitive electricity market to underpin the future of the economy.

It is vital that we make the transition from a de facto monopoly to an open market and that we do so correctly. Bearing in mind the relatively long lead-in times for investment in the industry, the small size of our electricity system in comparison with our European Union partners, with the exception of Luxembourg, and that, unlike others, we are not significantly interconnected, we have adopted an incremental approach to the opening of the market. Currently, 40% of the market by volume, which equates to some 1,600 mainly large customers, is open to competition.

In effect, all large and many medium-sized companies are currently eligible to contract further electricity supplies from licensed electricity suppliers other than the ESB. In addition, customers can choose to have their electricity supplied from any licensed green or combined heat and power supplier.

The next steps in market opening - that is 56% with effect from 19 February 2004, followed thereafter by full market opening by 19 February 2005 - can only be done by positive resolution of both Houses of the Oireachtas which is the subject matter of our discussion today. The current 40% opening will go to 50% next year which is an important step in bringing full market opening to fruition. From February of next year, an additional 12,000 large industrial and commercial customers will be free to shop around for their electricity. This increase gives a meaningful signal to the market, in so far as it represents a seven-fold increase in the target customer base for independent players in the market. This further tranche of market opening should offer an incentive to new players to enter the market and it presents existing players with an important opportunity to grow their market share.

The market should be fully open by February 2005 when every customer and consumer will be free to choose his or her electricity supplier. The making of this order at an early stage, in fact, earlier than was originally intended, gives effect to the Government's commitment to full market opening in February 2005 and provides assurance and certainty to the market going forward. This is a significant advance in the timetable set down for the full liberalisation of the electricity directive, which is July 2007. We are going further and faster than was originally intended. To date, the opening of the market has had considerable success, with more than 40% of eligible customers switching to licensed suppliers other than the ESB and more than 24,500 customers moving to green suppliers. These figures are obviously set to grow at substantial levels as the market opening further advances.

I thank the Minister for his presentation. I wanted to ask the Taoiseach this question yesterday but I did not get a chance: why was the electricity Bill not published contemporaneously with this development in market opening? The electricity Bill was expected by now or at least later this year but now I understand that it is scheduled for next year. Would it not be preferable to have an idea of the future of the ESB and the structure of the energy market at the same time as this significant move which we are discussing? Publication of the Bill would allow us to observe how the Minister is thinking in regard to Eirgrid, the ESB and so on.

On green energy and renewables, there is wide dissatisfaction with the AER process. I accept that this is a separate issue, to some extent, but it will form a significant part of the 2010 target. Did the Minister get the same kind of vibes on the dissatisfaction from small entrepreneurs and farming interests in particular? Does the Minister intend that the AER process would be part of the electricity Bill? Is it intended to offer a different type of contest in the future?

How does liberalisation operate? Could I switch to Eirtricity at present? What if I want to switch to Viridian in 2005? We have spoken about the mobile phone market where two dominant operators exist, but how will electricity liberalisation work for the ordinary punter?

Our market is small - it is only some 4,500 or 5,000 MW, which is of a similar size to the electricity market in Kent, England. Italy currently imports some 17% of its capacity. Given the potential for blackouts, is the Minister concerned that the EU has put us in with the UK as a single entity with interconnector grids and so on? We are secure at present, but we could be affected in future by insecurities such as those which happened recently in the United States and Italy.

I thank the Deputy for his questions. On the Bill, while it is being given priority in my Department, it is complex legislation. I wrote to the Attorney General last June asking that it be given priority in his section. We hope to bring the Bill forward towards the end of the year, but that largely depends on getting it out of the Attorney General's office. The aim of the legislation is to consolidate existing legislation in this area. It will deal with the remaining regulatory and restructuring issues in regard to the industry and provide for the conversion of the ESB into a plc as well as implementing the provisions of the new electricity directive and other related regulations. There is quite an amount of work involved that we intend to complete as quickly as possible.

I am aware of the dissatisfaction with green energy and the AER programmes. In a competition environment there will always be some who are dissatisfied. I had absolutely no hand, act or part in giving out contracts to any of these people. It was done completely transparently and independently of me, as Minister. I accept that there has been criticism. The companies that secured the contracts came in at the lowest price. The price range was indicated at the start of the process. The companies and individuals that were successful were those which came in at the lowest price, in addition to qualifying in other categories, such as having full planning permission and so on.

Renewable energy, in itself, is expensive. For me to interfere in some way in what is an independent process and favour some individuals or companies would, in effect, impact on the consumer in terms of higher prices. I am more than happy with the overall process in that there has been a huge amount of interest. I understand that a number of companies are willing to come forward.

There are three.

I accept that. I have said time and again, both to the Department and those involved in the industry, that while there is a great deal of talk we need action. The farms need to get up and running quickly. Due to the huge interest in AER VI and the fact that there are successful companies, if some of the existing ones do not comply within a period of two years or so, we will take the contracts from them and give them to other people. Due to the level of interest I decided to see if the grid would take any extra capacity. My officials added in another 140 MW to the existing 578 MW, for which I hope we will get the consent of the EU Commission to allow some of the unsuccessful bidders to enter into a contract. The AER way of operating has had its day. I will issue a consultation paper in the very near future. After a quick round of consultation, we will state where we will go from here and whether we will adopt the UK or German model or a combination of some of the other operational methods.

On the security of supply, we are obviously all worried that the scenario that was evident in Italy, the United Kingdom and the United States will not happen here. The ESB is embarking on a €4 billion investment in the infrastructure from 2002 to 2007. I am assured that it will ensure that the country will be extremely well served. The history of some of the countries that now have problems shows that they have not invested in their infrastructure in certain locations and that they are now bearing the fruit of that in the very serious blackouts.

There are two issues concerning short-term and more medium-term to long-term capacity. I have had discussions with both the ESB and the CER on many occasions on the short-term capacity issues. Over the next year or so we will need extra capacity and arrangements have already been made to facilitate additional generation. It was said that there are no companies knocking on the door to get in and generate, but there are. A tender was put out by the CER for new power generators and there has been very significant interest in it. I understand that the CER will be able, before the end of the year, to grant a contract for the additional capacity that will come on board in the more medium to long-term. There is a fairly significant investment in infrastructure, which I hope will take care of the security of supply issues.

I thank the Minister for his presentation. During the Order of Business I was frustrated that, over the summer, which was the time allocated for the discussion, we have not been able to address this issue. It is a hugely important issue for general political discussion and I would welcome our being able to address it briefly today.

On liberalisation and opening up the market, I frequently hear people from various political backgrounds interested in the electricity area, not those who share my own perspective, voicing a recognition that the deregulation of the electricity market is not bringing the benefits that were expected. People across Europe are beginning to see that deregulation has been a disaster for the electricity market. We have seen, in the period of liberalisation of the past three years, electricity prices increase by 23%. We ended up paying a much higher price for the best new entrants, which we thought would be the cheapest, because they are financed privately, expect a very good return on capital and have higher interest rates. We find that our older plant, because it has depreciated, etc., was costing a lot less than we thought it would.

Increased liberalisation has resulted in increased costs, thus calling it into question. It also calls into question why we should be racing ahead of other countries in Europe to open up the market as much as possible. We bought into the European Commission policy of Jacques Delors about ten years ago in terms of deregulation. Is this a train we simply cannot stop or do we have a choice? We have a certain amount of choice in terms of choosing between 2007 and 2005 - we are opting for 2005. However, does the Minister not accept that a process that has resulted in an increase in prices of 23% when we expected a price decrease calls into question whether we have chosen the right policy and forces us to ask whether the whole electricity business - not just the grid network - benefits from greater State control, unlike other markets in which greater liberalisation might work?

On green electricity, the statutory instrument provides an opportunity to discuss the issue of the €4 billion investment in the national grid. If we do not steer that investment or the authorities in charge of it towards renewable energy, there will be negative consequences. I take the Minister's word that we can take an extra 140 MW on the grid at present - one is dealing with 800 or 900 MW of renewables. This is a fraction of what I believe is possible in terms of current grid capacity and in terms of its capacity if we start investing on the basis of developing renewable energy. I would like to see in the regulations we are preparing - it could be included in the electricity Bill - directions from the Minister to the regulator or the grid company stating the direction we want to go and that, by way of the €4 billion investment, we want to start favouring renewable energy. I do not see why this would not be possible. It is not happening at present.

When speaking to those concerned, one is told in response, "Sorry, the development of renewables may be the strategic, long-term thing to do, but our brief concerns the best new entrant and linking up to a power plant. What is involved with a 400 MW power plant is a lot easier than our trying to service a complex series of renewable providers." Individual operators are told, "We would like €50,000, please, before we even look at your proposal." Everything seems to be stacked against them in terms of gaining access to the grid and obtaining support for what they are trying to do and processing the forms.

While I accept the Minister's bona fides in terms of wanting to develop renewable energy and while nobody is blaming him personally for the failure of the AER system, we need to recognise that 139 MW of green power output over the past ten years represents an incredible under-performance given our wind resources. We need radical changes in policy to address this. It is not just a matter of the support mechanism; it is about the grid and the market mechanisms we will set up. There is not a proper market here in terms of liberalising markets. We are not selling apples and oranges but a very complex product and therefore we have to set up a very complex virtual market. It is very important that the detailed regulations in that market support and benefit renewables. I do sense from these regulations or any others that this is the direction in which we are heading.

On the latter issue, I do not disagree with many of the Deputy's comments. It is true that I have been somewhat frustrated by the lack of action in respect of renewable energy projects, as I stated to Deputy Broughan. Having said that, over the past year or so, I have had quite considerable contact with the CER in particular regarding the facilitation of green energy on the grid. It has made separate provision in the costings of electricity generally to allow for grid upgrades to facilitate renewable energy. In my most recent conversation with the CER, which was yesterday, it indicated that it is not oversubscribed in any way but, rather, undersubscribed by the renewable energy sector in terms of its ability to obtain assistance and some grid upgrade facility. That is something that may take a little time now that the AER VI is out of the way.

In my discussions with people in the energy business, to a certain extent there is a glazing over of the eyes when one mentions renewable energy. Many people will say that renewable energy, particularly wind energy, is not all it is made out to be regarding the fluctuation of wind on the grid. It might be no harm for the committee to examine the viability of renewable energy, particularly wind energy. One could say that this sector does not want renewable energy to impinge on its territory. In my conversation with the CER yesterday he again indicated that he has not received an invite from the committee. Perhaps the committee should meet him.

He is on our list. Due to the size of the Ministers Department he has overburdened this committee with different things to do.

It would be a fruitful meeting in which the committee could listen to him as he outlines all of the arguments relating to this sector. Investment in this sector is not like investing in something else and getting the fruits of it or even planning today for next year. If we are to build an interconnector between here and Britain, it will take at least ten years to construct. These are long-term planning and investments and the return on the investment would be significant. That is why many of the companies which look at energy on this island make their strategic decisions slowly. They need to know that they will have a relatively stable market.

This brings me to the original question of the opening of the market. As we are obliged to do it under EU legislation, I do not think we have any choice. More than in any other area that I had responsibility for in the opening up of markets, this is an area where one size does not fit all. The opening up of the market in Germany or Britain is quite different to the opening up of the market in Ireland. It is a huge task to bring competitors into the market. As other speakers have mentioned, we already have Viridian and Synergen in the market. The expressions of interest in the medium to long-term capacity problem are significant. I hope that a contract will be awarded in that respect by the end of the year.

There is good and bad in opening up the market. If it does bring competition and choice to the customer, then we should welcome it. Unless we do it, that will not happen.

Thank you, Minister. This concludes the joint committee's consideration of the motion.

I thank the Minister for attending today's meeting. The committee will devote the first quarter of next year to energy issues, starting with electricity regulation.

Do we get another crack at this regulation in the Oireachtas?

Yes, I think it goes back to the Dáil now.

Is it a bit like the television without frontiers directive.

It will be termed a positive resolution.

Can we suggest amendments?

It will go through automatically unless amendments are tabled. I am not exactly sure what the procedure is.

Do we have any other business? No. I thank members for their attendance today; I know they have had a hard week.