JOINT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES díospóireacht -
Wednesday, 30 Jun 2004

ESB National Grid and EirGrid: Presentations.

Vice-Chairman (Mr. Finucane)

I welcome Mr. Kieran O'Brien, managing director of ESB National Grid. We will commence with a presentation followed by a question and answer session. I draw attention to the fact that members of the committee have absolute privilege but the same privilege does not apply to witnesses before the committee. It is generally accepted that witnesses would have qualified privilege but the committee cannot guarantee any level of privilege to witnesses appearing before it. Further, members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

We will also have a presentation from EirGrid. Copies of the presentations have been circulated to enable members to study them. I do not know if it is Mr. O'Brien's intention to go through the presentation as circulated. To speed up the process I would prefer to go into a question and answer session unless Mr. O'Brien wishes to make a small elaboration on his submission.

Mr. Kieran O’Brien

If it is acceptable, I would like to make a short introduction. I thank the Chairman and committee members. I would like to introduce my team - Mr. Andrew Cooke is manager of regulation and pricing, Mr. Pat Mangan is the technical manager of the power system and Ms Ann Scully manages the market for electricity.

The ESB National Grid is the transmission system operator or TSO. Under an EU directive dating to 1996 each member state has to designate a TSO and ensure a certain amount of independence for this entity from the rest of the industry. At the moment we are it. In future this function will be discharged by a new State company called EirGrid. As managing director of ESB National Grid, I report not to the chief executive of the ESB but to a special ESB committee of two members. These arrangements were put in place several years ago between the ESB and the Commission for Energy Regulation. In addition to managing the power system we also develop and operate the current market.

Where I considered it relevant, I referred in brief to the establishment of EirGrid in the document I circulated. However, the chairman of the EirGrid board is in a far better position to inform members of developments.

Competitiveness is a key issue for the country. I know it is close to the top of the Government's policy agenda. I made a few comments on the issue of electricity price. There have been some worrying developments in this regard in the past year or so. I also provided some information on the reliability of the industry because problems exist in that area. When power problems arose in California three years ago, the chief executive of Intel, Craig Barrett, publicly announced that he would no longer invest in California and singled out Ireland as one of a small number of locations with reliable power in which his company would consider future investment. We have created an excellent reputation for the Irish power industry. Mr. Barrett has lived up to his commitments and we must now live up to ours.

A few years ago we faced serious network difficulties. We have some good news on that front but I will not go into it any detail. The key breakthroughs have been our success in ESB National Grid in handling very tricky planning issues regarding new investment and also the success of ESB networks in lifting the constraint on using contractors for construction.

The reliability of the power system is also heavily impacted by the availability of generation and in this area the news is not so good. Investors are reluctant to invest in the Irish power industry because of a perceived high regulatory uncertainty. We also have extremely poor performance in our existing plant which gives rise to continual operating difficulty. My colleague, Mr. Pat Mangan, will fill the committee in on this if anyone wishes to pursue the matter further. In summary, in regard to reliability, there has been good progress on networks but the state of affairs in power generation is relatively poor.

I have also provided some comments on the electricity market. Most commentators now agree that the current electricity market does not work in terms of either exerting downward pressure on prices or incentivising new investment. The reasons for this have been well publicised by the Competition Authority, the International Energy Agency, the OECD and others. The major problem is the dominance of the incumbent ESB generation in the market and its perception by potential investors. Unless we take effective steps to solve this problem I would be quite pessimistic about where we are going in this regard. Either we wholeheartedly embrace competition as a policy and take the difficult structural decisions to resolve these issues or we accept we cannot take such difficult decisions and, therefore, we cannot rely very much on competition and markets and should do something else. At the moment we are stranded between these two policies and it is proving very expensive for our customers.

I have also included a section on renewable energy on which there has been a great deal of media comment in the past six months. We are committed to accommodating all generation on our power system and we value diversity in sourcing generation. Generators are required to adhere to certain technical standards when they connect to the network in order to avoid the sort of catastrophic collapses which we witnessed last year in the US, Sweden, Denmark and Italy. Until quite recently wind generators had considerable difficulty in complying with these standards. These difficulties are not unique to us and we have worked intensively with the industry over the past nine months in order to solve them. I am pleased to say by April this year we had broad agreement on the way forward and were able to set out an approach which would permit the immediate lifting of the current moratorium on our connections. The ground has now been properly prepared for a major advance in wind generation in Ireland. There is no longer any technical reason why we cannot reach wind penetration levels comparable with other EU countries over the next five years or so. I am confident we will exceed the target set out by the EU for renewable energy generation in 2010.

I referred briefly in the paper to interconnection. We are very supportive of the Minister's initiatives in this area. Our only caution is that an efficient operating interconnection of any scale would require extensive further investment in the transmission network. We are anxious that the cost and time to do this should be factored into the decision.

The Irish transmission system is complex, sophisticated and vital to the well-being of the nation. It is also vital that it remains in State ownership and is managed for the benefit of all. We support the Minister's view on this. Both Ministers with responsibility for energy on the island recently expressed strong support for an all-island market. We are fully in favour of this initiative. While the market may be facilitated by further interconnection between the North and the South we do not have to wait to get this started. We need to get a compatible set of trading arrangements in place immediately in order to get the market started. We will support these in whatever way we can. The ESB National Grid is committed to playing its part to ensure Irish electricity customers receive the best quality, the most reliable and the most economic power possible.

Vice-Chairman

It is my intention to invite the EirGrid people to make a brief presentation. There is somewhat of an overlap between EirGrid and the ESB National Grid. Delegation members can respond as appropriate during the question and answer session.

I welcome Professor Eddie O'Kelly, chairman of EirGrid. The format is that we will hear his presentation and then have a question and answer session. Before he introduces the officials accompanying him and makes his presentation, it should be noted that members of this committee have absolute privilege but that the same privilege does not apply to witnesses appearing before it. It is generally accepted that witnesses will have qualified privilege but the committee cannot guarantee any level of privilege to witnesses appearing before it. Further, members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the Houses, or an official by name, in such a way as to make him or her identifiable. Will Professor O'Kelly introduce his officials?

Professor Eddie O’Kelly

On behalf of the board of EirGrid I sincerely thank the Chairman for the invitation to attend today. The board very much appreciates the work of the committee in the electricity sector. I am accompanied by Dr. Eamon Cahill, who is a board member of EirGrid, and Niamh Cahill, who is the company secretary and company lawyer.

With the permission of the Chairman, I will try to summarise the main points I have made in the written presentation I sent to the committee last Monday. The board of EirGrid shares very much with the Minister, officials in the Department, the members of this committee, the Commissioner for Energy Regulation and the electricity industry in general the major frustration at the painfully slow progress that has been made in establishing EirGrid. In this context it would be most remiss of me not to include the frustration I know the staff of EirGrid feel, as well as that of the ESBNG staff, who feel their careers to be on hold while EirGrid is being set up. However, the board of EirGrid has done and is doing everything possible to expedite the setting up of the company.

I am particularly pleased to advise the committee, as noted in the written submission, that last Friday, after a wait of several months, I received from the Department a contract for the CEO designate. A board meeting is to take place this afternoon to consider the termination of this contract by the board, as is required under SI 328 of 2003, the so-called amending regulation. It is not my intention to blame anybody for the slow progress in setting up EirGrid. With the benefit of hindsight, my considered view is that it was inevitable, given the complexities of the issues involved.

EirGrid was established in 2001 under SI 445 of 2000 to perform the functions of the transmission system operator, TSO. Those functions are to "operate and ensure the maintenance of and, if necessary, develop a safe, secure, reliable, economic and efficient electricity transmission system". The 1996 European directive requires the establishment in each member state of an independent TSO charged with the operation, maintenance and, if necessary, development of the transmission system.

The board of EirGrid fully supports the approach taken in SI 445 of 2000 of setting up an independent company to fulfil the TSO role. The committee will be aware that this approach was endorsed by the Minister in his presentation to this committee on 10 March 2004. It is the belief of the board that the establishment of an independent TSO is a crucial step in encouraging competition in the electricity industry.

SI 445 of 2000 provides for the negotiation of an infrastructure agreement between the ESB and EirGrid to regulate the working arrangements between the two companies, particularly taking into account the separate roles of the two independent companies, namely, the ESB as transmission asset owner with rights regarding the construction of new transmission assets and the carrying out of the maintenance work on the transmission network, and EirGrid as an independent TSO with rights in relation to decisions in regard to the development of the transmission network as well as specifications on maintenance standards.

Despite a somewhat difficult beginning and a tortuous journey, as noted in the written submission, we have now reached the stage where ESB and EirGrid have both accepted a draft infrastructure agreement and there is every hope that EirGrid will approve it once a number of technical appendices are agreed.

SI 445 also provides for the development of a transfer scheme to cover the transfer of required human and physical resources from ESB to EirGrid. On this scheme, a number of the issues concerning physical resources have been agreed, but a few difficult issues, particularly regarding telecom related assets, remain to be resolved. Some progress has been made on separate accommodation for EirGrid. The current accommodation position is quite unsatisfactory in that ESB, ESBNG and EirGrid staff share the same building and social facilities, although there is some attempt at segregation. The board of EirGrid would regard a separate and distinct accommodation for EirGrid as the clearest possible indication of its existence as a separate company independent of the ESB and a positive inducement to transfer from ESB to EirGrid. The staff of EirGrid and ESB have been consulted on their preferred locations.

The capital needs of EirGrid have not yet been agreed, nor the manner of obtaining the agreed capital. A study has been carried out for the board of EirGrid in regard to the capital requirements of an independent EirGrid.

It is in regard to the transfer of staff from ESB to EirGrid that the greatest difficulties remain. The board of EirGrid is very conscious that in accordance with SI 445 of 2000, ESB is statutorily required under Regulation 13 to take the lead in the negotiations with ESB staff about transfer to EirGrid. The ESB also has a legal responsibility as employer to effect the transfer scheme for its employees.

The ESB board has done what it can to make EirGrid an attractive company in which to work. The board is conscious of the very high skill level of ESBNG's employees and the natural interests of such personnel in professional development and in having an attractive and challenging work environment where open communication and professional co-operation are cherished. EirGrid has every intention of being a modern company with a very strong customer focus as well as being a top-class employer. The EirGrid board takes great pride in the fact that ESBNG staff are held in high esteem world-wide and we want to do everything in our power to attract them to our company.

ESB initiated discussions with ESBNG staff about the transfer to EirGrid once the company was set up. Intensive negotiations continued during the protracted negotiations on the infrastructure agreement since staff were not prepared to conclude a transfer scheme in advance of that agreement. Negotiations on the transfer scheme recommenced in late 2002 and staff concerns at the time could be divided into three categories. The first related to issues on the proposed terms and conditions of employment in EirGrid. These are matters for the EirGrid board. The second category related to pension arrangements, which are by and large relevant to both ESB and EirGrid. The third category related to the issue of staff leaving ESB employment, including compensation sought by staff for the perceived disadvantages of same.

I understand the agreed list of issues between the ESBNG group of unions and ESB exceeded 100 items in late 2002. Considerable progress was made on the first category. The pension issue will need to be resolved before staff will transfer to EirGrid. Both ESB and EirGrid await approval of an agreed consolidated ESB pension document from the Department of Finance.

On the third category, a clarification meeting took place in May 2003, at which ESB representatives announced unilaterally to the ESBNG group of unions and EirGrid representatives present that it was suspending all further negotiations with ESBNG staff until a CEO of EirGrid was in place and the senior management staff of ESBNG had transferred to EirGrid. I hope movement over recent days on the contract of the CEO designate will assist in the unblocking of this embargo regarding the negotiations on the transfer scheme.

My written submission goes into detail on the difficulties encountered in drawing up a contract of employment for the CEO designate. This has been a particular area of extreme frustration for the board as it is not master of the situation. Being a non-executive board, it is most anxious to have its own CEO at the earliest possible date. Unfortunately, the lack of progress in this area has become a very convenient excuse for colleagues in the ESB and CER, and even colleagues in ESBNG, who may not be aware of all the circumstances regarding the setting up of EirGrid and as a result sometimes unnecessarily delay decisions in negotiations. The board of EirGrid is continuing to do everything possible to expedite the offering of a reasonable contract to the CEO designate. I hope we are now close to the end of this process and that the board will shortly have its own CEO.

EirGrid has had a rather difficult and frustrating existence to date. Nevertheless, the board has made progress and is resolute in its intention to take up the role of TSO at the earliest possible time. The board is very conscious of the excellent work being done on a daily basis by EirGrid staff who are, in effect, on secondment to ESBNG, and of the support the board has received from ESBNG staff during a very difficult period. I thank the committee for its attention and patience.

Vice-Chairman

Before I ask members to contribute I have some questions. Previously, Mr. McManus and his senior officials from the ESB appeared before the committee. He referred many of the questions we asked specifically to either EirGrid or the national grid and did not necessarily comment on them. A submission recently made by the energy regulator to the Minister seemed to be symptomatic of the frustrations experienced in getting EirGrid off the ground. He said that in the eyes of the energy regulator, the EirGrid model is making little progress, upon which he elaborates further.

Further to that, Professor O'Kelly has confirmed that there is a contract which may be acceptable to the new chief executive of EirGrid. It is interesting that the contract has been produced recently, considering the fact that this committee has made its interest in the matter known to the energy regulator and ESB officials. The committee has tried to find out what is happening in the tortuous process of getting EirGrid established. It now seems to have advanced to contract stage. In the context of advancing the process further, will Professor O'Kelly comment on what the regulator said about this process? Is this still the correct model in creating a separate entity such as EirGrid, divorced from the ESB? The regulator's statement is as follows:

Italy is the only member state other than Ireland that has opted for a similar type separation of owner and operator functions into completely separate companies à la the EirGrid model and is abandoning that approach. The Italian Government has recently introduced a Bill combining ownership and operation in the one State-owned entity.

The submission contains the following reference: "To wind up EirGrid and repeal the appropriate section of SI445/ 2000". There is therefore a very confusing jigsaw surrounding EirGrid because the energy regulator appears to have extreme reservations about EirGrid proceeding, yet the Minister has recently issued a contract in regard to the chief executive.

Will Professor O'Kelly clarify whether the energy regulator is correct and, if he is not, has the Minister acted contrary to his advice when he stated that EirGrid should proceed? Furthermore, if Italy opts out of this model, why is Ireland the only European country to pursue this model and can we be assured that it will be successful?

Professor O’Kelly

EirGrid is established under SI 445 which requires it to be a separate company. We believe that it is possible, with a degree of goodwill all around, to get EirGrid up and running. However, there are also many ways in which the EU directive in respect of an independent TSO could be achieved. SI 445 selects one method which is totally consistent with the directive. That is the one we are using and I believe we should continue with it.

We have an infrastructure agreement and we now have a contract for a CEO which the board will consider later today. Hopefully, we can put a CEO in place and, at that stage, there will be a certain unblocking of embargoes on negotiating a full transfer scheme which involves not only personnel but also physical resources. I hope that, with a CEO in place, issues can move forward quickly.

Vice-Chairman

If Mr. O'Brien wishes to elaborate further, he should feel free to do so. Perhaps Mr. O'Brien might wish to contribute something which is related to EirGrid.

Mr. O’Brien

I would be happy to contribute. The chairman of EirGrid is in place as the result of legislation. I have been in the industry for 33 years and have seen a fair bit of development. The model proposed for Ireland is fairly unusual by European standards. Undoubtedly it has failed in Italy. Even before the major security failures in Italy last year, it was already on the point of being repealed because it was not seen to be working.

There is no doubt that the split of responsibility for the transmission system creates many problems for allocating clear accountabilities for the security and operation of the system and presents many difficulties for independent generators, who continue to be concerned about the residual control the dominant entity might have over transmission. Nevertheless, the decision is a policy one. It is not for us to take. We accept that the Government took a policy decision and it is now our job to implement it.

The ESB national grid will do everything it can to implement the legislation as best it can. Whether it is to be changed or not is a matter for the Minister and the regulator. I can clearly understand why the regulator would be concerned about the failure of this model in Italy and I suggest that the best way of looking at the matter is to examine where successful energy markets operate. It is well known that the markets in Scandinavia are regarded as very successful. The markets in England and Wales also seem to be very successful. Those markets have had a much more fundamental separation of transmission from generation. However, it is a policy issue, whereas our job is to implement the law as it exists, which we will do.

Vice-Chairman

When the Government is making policy decisions on energy, would it not take account of the reservations of the energy regulator?

Mr. O’Brien

I cannot comment on relationships between the regulator and the Government.

Deputy Eamon Ryan

I thank the witnesses for their presentations. This is a huge area for discussion, therefore I would like to ask a question and come back again since there are many questions one could ask.

Mr. O'Brien stated that the current position was described in a recent leaked letter - in regard to which I know nothing - as an "inefficient oligopoly". Although this is probably an accurate description, it is remarkable because it is now public. Nonetheless, that is positive because it helps us to have a debate on the issue. In the context of being honest and direct, how would Mr. O'Brien describe the current position in respect of capacity and availability from the existing power generation plants? I was surprised to read in Mr. O'Brien's presentation that the ESB's power generation plants are, by international standards, relatively very young. In that context, does he have any views on the current availability of capacity, which is approximately 75% or 77%? Will he comment on that performance by the electricity generation business?

When the ESB power generation representatives came before this committee, they stated that three generators in particular were providing very poor performance and they also listed a number of those which were doing very well. However, on the day I forgot to ask which three were performing particularly badly. Which stations have been problematic in terms of supply availability?

There have been recent comments about how close we have come to forced outages in certain areas because of the lack of capacity to meet demand. Could Mr. O'Brien tell us, in a way the public would understand, the percentage risk of this next winter during peak periods? We may be obliged to shut off the electricity supply in certain parts of the country on a rolling basis due to lack of capacity. Would Mr. O'Brien say the chances of this happening were 20%, 50% or 80%? Can he give us an easy means of assessing this risk, given that in the next year we will not see any significant increase in capacity no matter what we do?

I was interested to hear in Mr. O'Brien's presentation that the current situation - what he described as an inefficient oligopoly - results in the ESB being the dominant price setter in nearly all cases, and also that prices are higher than they should be. Could he explain exactly what he means by this? Given that this market dominance exists and is hindering the development of new capacity or leading to higher prices than we would otherwise expect, can Mr. O'Brien tell me his proposed solution to this problem?

Would a 60% share of generation capacity still result in a market-dominant position for the ESB? I believe the ESB has set a strategic target of reducing its level of capacity to about 50%. Would that still be a market-dominating position? If so, what are his proposed solutions to this problem?

Could the people from the regulatory side tell us whether the European Union will allow us to go back to a centralised system in which the public monopoly provider has a genuine monopoly position? Is that out of the question?

I was interested in the point about the possible sell-off or leasing back of ESB power generation plant. Could we have more details on what that proposal would involve? What is Government policy in the area of market structure? We have moved halfway towards deregulation but we are currently stuck with an inefficient and low-price solution. I presume the Department is aware of these views. What is the Government's position?

Mr. O’Brien

I will allow my colleague Mr. Mangan to answer the questions on capacity and generation issues, but I will first answer the questions about the market. The term "inefficient oligopoly" is taken from a letter we wrote to the CER recently after the commission had sought comments about its current proposals for what is known as an LMP-type market. The commission decided to reconsider this based on comments from the industry. Any comments we made are no different from those we made in public nearly two years ago when there was consultation on this matter. Our views can be summed up succinctly but they are put much more cogently by the Competition Authority, with which we identify entirely in this matter.

There are two aspects to having a successful electricity market. One is to have an efficient structure in the market which deals, among other things, with dominance and to some extent with market share. I will come back to that, however. The other is what we call the market rules or market architecture. There is much complexity in terms of drawing up rules and so on. We seem to be focusing on rules. The problem is that unless one has an efficient structure there is no point in spending a lot of money on rules because there will not be competition. Our point has always been that one must get the structure right first and then one can follow on with rules.

The structure of market power is always an issue when it comes to liberalisation of a vertically integrated monopoly such as the ESB. This is certainly not the fault of ESB, which has done an excellent job for this country over the years. I worked for the company for many years. However, it is a fact that if we want to introduce competition we must do something about that dominance. Dominance results from price-setting ability, which is actually not particularly related to market share. It is related to a greater extent to the ability of the incumbent utility to set prices because it controls mid-merit plant, which starts up and shuts down every day. It is the control of that plant that determines prices. Even if ESB was to reduce its dominance to 60% or 40% of market share I suspect it would still control most of that plant.

This is well understood in the industry. It was a major issue in the UK in the early 1990s. The largest incumbent in the UK at this time had a 40% market share when the company was privatised. Within six or seven years it was down to under 12% and then there was competition. That was the level to which its market share needed to drop in order to reduce the company's price-setting ability. I emphasise that I am not blaming ESB for this - ESB owns its generation facilities and that is it.

When the Italians wanted to liberalise their industry, the incumbent utility, ENEL, which is probably five times the size of ESB, was told by the Italian Government to sell half its plant. When half the plant was sold it was told to sell another half. This was expected to create competition. I merely make the point that these are policy decisions, not our own decisions. If something is not done to sort out the structural issues of competition, spending money on rules and introducing new markets, new institutions and so on will not provide value for money for the customer. Our concern is that we could spend very large quantities of money - not just tens of millions but hundreds of millions of euro - trying to introduce market rules when the structure is not conducive to this.

We understand that there are political realities involved. If these structural decisions cannot be taken, some other solution must be found that does not depend on markets and recognises that competition will not play a major role in the allocation of resources in the industry. There are ways of going about this that could ultimately be made acceptable to the EU. The EU does not particularly like that kind of solution but it could possibly be dressed up appropriately.

Deputy Eamon Ryan

Could Mr. O'Brien give an example?

Mr. O’Brien

We identified 12 months ago that we would have a major capacity shortage in 2006. The CER instituted a competition for new capacity under which the ESB was to offer a power purchase agreement for ten or 12 years or whatever time was required in order to support that. That is a form of competition, although it is not a strong form and is frowned upon by the EU, but it is the only form that is working at the moment in Ireland in terms of generation. Perhaps some variant on that could be used. We must consider other methods. I am a natural liberaliser and I personally favour the competitive approach if it is possible. However, it is important that we be realistic. We do not want to be marooned between two policies, which is quite likely at the moment.

The Deputy mentioned cost. I raised the cost issue in the matter of availability and I will turn this over to my colleague. We think the lack of availability in our plants currently is probably costing about €75 million per year directly. If our plant was performing to international standards we would not need new generators - we have enough. There is much generation in the system and we have added enormous amounts over the last couple of years. The problem is that the performance of our current plant is extremely poor and that leads us to require more and more generation, which is an extra cost to the customer of about €75 million.

Vice-Chairman

Why is plant performance so poor?

Mr. O’Brien

I can tell the committee why it is not extremely poor. We employed a professional body to benchmark this against a large database in the United States and it has nothing to do with the age of the plant - most of the plant we benchmarked against is older than ours. It has nothing to do with the time available to carry out maintenance, because we have poor performing plant that is out of action for 30% of the time and there is plenty of time to maintain it. I can only say what the reasons are not; I would have to refer back to the plant owners to find out why these difficulties exist. It is not in line with our historical experience of international practice.

On specific plants, we are required to maintain confidentiality because these are commercial issues for the plant owners. We talk about the overall system, even though we have benchmarked individual plants. If the plant owners are happy for us to provide these figures, we will provide them to the committee but in the absence of such permission we cannot do it.

Mr. Pat Mangan

I will address the questions about capacity, availability and the current performance. The global availability of generating plant on the system is around 76%, which is well below the international norms and the typical performance over the last seven years, where we have achieved availabilities as high as 88% and typically in the 80% region. The plant in commission amounts to about 5,200 megawatts today, of which over 1,000 megawatts is unavailable because of scheduled maintenance or plant failure reasons. Another 200 megawatts of plant is to be added to the stock during the summer when a new peaking plant and a new peat fired plant will be commissioned, giving us a total plant of around 5,400 megawatts.

Expected peak demand this winter will be of the order of 4,500 megawatts, or perhaps a little higher, depending on the weather. If that fleet of plant performs well, we will meet the demand. If, however, it performs very badly there is a possibility that we will fail to meet the demand on certain occasions. This should not be regarded as an absolute disaster. A shortfall from time to time might mean that we would have to have rolling blackouts for a period of an hour or two at peak times. I expect, however, that if the plant performs well, we will meet demand this winter.

If we look ahead to the following winter, the picture is not quite so good. With growth in demand for electricity over the following year, we will depend on the commissioning of further generating plant. The competition held by the Commission for Energy Regulation has resulted in the awarding of contracts for two new plants to be commissioned by that winter. From what we can see of progress on the building of those plants, it is not obvious to us that they will be commissioned in time to meet the winter peak of 2005-6. At this stage, I cannot give any guarantees about our ability to meet demand.

Deputy Eamon Ryan

Given that we will have 5,400 megawatts next summer, and the expected demand is 4,500 megawatts, even if we reach 80% availability, significantly above the current level, we will still be below demand on occasion and will have to have rolling blackouts. The odds on that occurring are greater than 50%.

Mr. Mangan

There was very poor plant performance last winter and we had insufficient investment in new generation. We faced a small margin between demand and supply on many occasions, but we did not fail once to meet demand. Apart from the generating plant I have just described, we also have access to output from plants in Northern Ireland and we depend on imports from time to time. When we add those to the plant installed in the South, the situation is not as bad as it may appear.

Deputy Eamon Ryan

There is still, however, a high likelihood that we will not be able to meet demand on certain occasions in the next two years.

Mr. Mangan

I would not agree there is a high likelihood. The possibility is higher than we would like as prudent system operators but it is not high.

Deputy Eamon Ryan

There is still a likelihood. Sale and lease back of the generation stations was mentioned. What arrangement is being considered? What in Mr. O'Brien's opinion is Government policy on dominance and structure?

Mr. O’Brien

Sale and lease back is one way of removing the immediate operational control of the plant from the incumbent operator. There are other models. I chaired the system operator function in Alberta, Canada, for a number of years in a competitive market and there were similar difficulties there. An attempt was made to reduce market power through the use of long-term power purchase agreements which were interposed between the plant owners and the market so that people would bid with a portfolio of plants.

There are different ways to do it. We are trying to remove the immediate operational and market control of the plant from owners. It can be done through sale or an arrangement which removes control and gives a financial return to the owner in some way. There are many financial engineering approaches which could achieve the same thing. Sale and lease back is just one.

Deputy Eamon Ryan

It could be arranged so the asset would remain in State ownership, as is the case in Moneypoint. Is it feasible that management could be privately contracted while the asset would remain in State ownership?

Mr. O’Brien

There are many variants and we have not considered which would be the best; neither are we putting forward any particular mechanism. The incumbent price setting control must be removed if there is to be a successful market.

On Government policy on this matter, we interpret the legislation as it exists and follow instructions from the Commission for Energy Regulation. Beyond that, my understanding is that Government policy aims to move towards a more liberalised market and we will facilitate that in any way we can.

Deputy Eamon Ryan

Is ESB clear on Government policy?

Mr. O’Brien

Government policy is set out in legislation and that is what we implement. Regulatory arrangements are interpreted by the regulator. The regulator has accepted that the current market does not work, it does not put downward pressure on prices or incentivise new investment or maintenance of existing plant. Therefore, the regulator is looking for an alternative. We advised that before spending a significant amount on the alternative put forward - the LMP type market - one should rectify the dominance issue. The regulator has paused the introduction of that market and is seeking further submissions from participants and will make a decision based on them. We are awaiting the outcome of that consultation to see how we will move forward in market terms.

Senator Kenneally

I thank the delegations from the ESB National Grid and EirGrid for their presentations. In Mr. O'Brien's submission, he referred to the prevailing trend across European countries as being for electricity prices to fall. We have heard reports lately of the ESB seeking double digit increases. How can those two realities be married? What is the reality? Does that have anything to do with over-regulation, as Mr. O'Brien mentioned in his presentation? To whom is the Commission on Energy Regulation answerable or to whom should it be answerable? Does Mr. O'Brien think there are proper procedures in place?

Professor O'Kelly's references to staff intrigue me. Before he reached that point I had made a note to ask him how many staff EirGrid has because I could not understand how it would need any staff. He said it has 70 staff on secondment from the ESB who presumably would transfer to EirGrid, which is to have 150 staff. Does that 150 include the 70? Why are 70 extra people required when they appear to duplicate what is there?

There is a capacity of 5,200 megawatts. What is the capacity of others to produce electricity, through wind projects or other methods?

Mr. O’Brien

Any application for price increases is a matter for ESB, not for ESBNG. Our controllable costs are approximately 2% of the total bill which is a low cost, although we make a significant impact on the market in terms of other companies' costs. There was a downward price trend in the EU until 18 months ago when fossil fuel prices rose, making gas, coal and oil more expensive. We are more concerned with relative prices.

I have worked in the industry for over 30 years, for much of which time I have been learning that competitiveness is a key factor for our economic success. Electricity prices are a vital input into that. We want to compare our prices with other providers in Europe. Where once our prices were average in areas such as industrial electricity, they are now much higher in relative terms. Other European countries face the same set of fossil fuel price increases as we do. We are beginning to fall out of step with the rest of Europe, which is worrying. There is a lack of competitive pressure in the market to ameliorate this. That is a policy issue to which I do not have a solution.

As policy-makers the members of the committee must decide to whom the Commission for Energy Regulation is answerable. We have more than 200 staff, comprising 150 of our own staff and 70 from EirGrid. Three years ago when we began to take up our new duties there was much work to be done running a market, for instance, which we had never done before and providing open access transmission, which the Commission for Energy Regulation accepted required us to expand our staff. These people are highly experienced, 10% are from outside Ireland, 5% from outside Europe. We have trawled the world to find them. If they are hired into ESB we have the problem of ultimately transferring them to EirGrid. It was suggested, not unreasonably, that we hire them into EirGrid and second them to ESBNG. With that part of the puzzle in place we did not have to worry about transferring the staff. Those staff all work for ESBNG; there is no duplication. They work in separate areas and most of our market development people are new to this industry and were hired under the EirGrid name.

Professor O’Kelly

The staff situation is as Mr. O'Brien outlines it. The ESB in effect asked us to take on staff so that ESBNG could, in its duties as TSO, perform functions assigned to it by the Commission for Energy Regulation. This reduced the transferred bill subsequently because they remain our staff.

Senator Kenneally

The transfer has added work to the process.

Professor O’Kelly

This work is to develop a market and the functions of the TSO arising out of SI 445.

Vice-Chairman

What about additional costs?

Mr. O’Brien

Once one moves to a liberalised market and wants the TSO to provide, for example, open access transmission, anyone who wishes to build a power station is entitled to tell us it wants to build in such a place and connect to the power system. Even when it is unlikely all of the proposed power stations will be built, we must engineer the connections and make a commercial offer. Between 2000 and 2003, we provided connection offers for generation equal to the total amount of generation connected to the system from 1927 to 2000. That did not all go ahead. Some of it was wind generation, more was 400 megawatt units, which did not all start but that entails a significant overhead.

An advantage of an integrated industry is the ability to plan generation and transmission together. Once one decides to unbundle the industry to favour competition one incurs very significant increased costs because one can no longer co-ordinate generation and transmission planning. One must believe that, having incurred those costs, there will be a significant cost reduction from the market and competitive pressures that come into play. Our problem is that we have taken the first step, incurred the costs, and threaten to incur even more of them, but we are not driving down the price through competition.

Vice-Chairman

That was the objective. Most people assumed that the corollary to liberalisation was cheaper electricity, but Mr. O'Brien says that costs are enhanced without reducing electricity costs.

Mr. O’Brien

The Chairman has put it in a nutshell.

Mr. Mangan

We were asked what capacity is available to us, aside from the plant in commission that is centrally controlled, despatched and monitored by ESBNG. There are approximately 211 megawatts of wind power connected which contributes at varying levels. For example, today it was producing approximately 50 megawatts which happens when the wind blows at less than optimum speed for generating power. Some industrial customers have private generating capacity which they use as emergency plant or when they take advantage of the winter peak demand reduction incentive, the scheme which encourages containment of the peak. I cannot estimate the total amount of that because it is at the disposal of the owners of the generators, but it is unlikely to be more than 100 megawatts. We also have access to a generating plant in Northern Ireland, if it is available, which further eases the situation.

Senator O’Meara

I too welcome the delegations. The Chairman's last comments raised the issue I wanted to clarify, namely, that the integrated industry about which Mr. O'Brien spoke is what in effect we had. Under the influence of the EU and market liberalisation we have attempted to liberate that market but have not achieved that. There appears to be doubt over whether we will derive benefit from the liberalisation of the market. It is important that we put a figure on the cost of creating a competitive market from a public policy point of view. How much will it cost the consumer to artificially create a competitive market and when, if ever, will the consumer benefit? I sometimes wonder if a monster has been created in this case.

In the presentation, Mr. O'Brien claimed a regulated market solution is not the best one. Is there any other solution? Given the instability in the Middle East, oil prices will rise leading to increased electricity charges for the consumer. It is sensible, therefore, to look at increased use of alternative and renewable sources, such as wind farms.

EirGrid's presentation stated that the target set of 13.5% by 2010 is achievable, reflecting national targets under the Kyoto Protocol. Is it technically practical to have an increased reliance on wind energy? Is there a desire to expand wind energy production? I noted wind turbines being erected outside Nenagh and I am curious as to how the electricity generated is fed into the grid.

Vice-Chairman

Will the factors of cost and dominance give an indication of when the energy regulator will end the moratorium on further wind energy projects?

Mr. O’Brien

All electricity markets are artificial and cannot do without significant intervention. That does not make them wrong or ineffective, so long as they are properly managed. We call them administered markets and, if properly managed, they have been shown to be successful.

Arguments have been made that the Irish market is too small. I confess to a predilection towards market liberalisation. An all-Ireland electricity market within a year will have 8,000 megawatts of capacity with up to 60 generating units that can compete. I do not believe it is impossible to organise a competitive market with that amount of generation. Internationally, markets smaller than the Irish one operate efficiently. The incumbent's dominant position and market-setting power must be sorted one way or the other.

Based on international experience, I am sceptical of the regulated solution to the dominance issue. The regulated solution means that one company is dominant and will price the market to keep competitors out, but the regulator will keep an eye on it. The other side of the equation is an investor with €200 million building a power station but depending on the regulator to keep an eye on an entity - the dominant generator - 100 times its size. Most economic textbooks devote a chapter on why this system does not work well in practice. Most international experience of such a system is poor. Those markets that work well use a structured solution rather than a regulated one. A structured solution involves sale and leaseback to move the control of generation.

I am sceptical of the potential success of a regulated solution. However, it does not matter whether I am sceptical or the regulator is confident as it depends on what an independent investor thinks of entering such a market. Independent investors have informed us that they are negative towards this type of a market. In a regulated system, electricity prices are set in the regulator's office. Investors do not invest in such markets as they see too much political and regulatory risk involved. Investors invest on the basis that by performing better than the dominant company, they win and make money for their shareholders. Not being able to so is a huge disincentive. There are better markets to enter for an investor with €100 million.

We are happy that there are no technical barriers to further rapid expansion of the wind energy industry, which includes going beyond the 13.5% target. There may be cost and price issues that affect it. However, regulators and policy-makers rather than ourselves set policy on this issue. It is up to the policy-makers if they wish to use wind energy as a substitute to fossil fuelled energy production.

Our job is to ensure that any producer who wants his wind generated electricity to be fed on to the system can be accommodated. This is not about having enough wires in the system or expanding the grid to accommodate wind energy. It is about the short-term highly technical perturbations in the system that ensure that amount of generation can react and keep the system stable in complex situations.

If I may, I will ask Mr. Andrew Cooke to explain how private wind generators are fed into the system.

Mr. Andrew Cooke

Figures for wind appetite are helpful in understanding wind energy production. Approximately 200 megawatts are connected to the system. Offers have been accepted of a further 600 megawatts of generation, bringing the total to 800 megawatts. There is a misconception that the 600 megawatts offered has been impacted by the moratorium. It has not and will proceed. Bringing 800 megawatts on the system will bring Ireland to two thirds of its Kyoto requirements by 2006. A further 1,500 megawatts connected to the transmission and distribution system is being sought. With 800 megawatts, Ireland is second to Denmark in wind energy production in the EU. The further 1,500 megawatts would put Ireland top of the league of EU and global wind energy production.

Wind energy generation works like other forms. A motive force turns the turbine which turns an electricity generator and converts the motive force back into electricity. In a combustion plant, that process is achieved by the combusting oil, gas or coal. Hydroelectric production uses the force of water descending from the hills to turn the turbine. The force of the wind turns the turbine in wind energy production. All of the technologies have some differences. One key difference for wind energy production is that it cannot be stored.

Senator O’Meara

Does the electricity produced by the wind turbines go into meeting local demand?

Mr. Cooke

It depends on where the wind turbines are situated. Many of them are situated in comparatively isolated parts of the country where there would be little local demand. All wind generated electricity goes on to the transmission and distribution system which is interconnected throughout the country. One cannot quite measure which generation is serving which demand. It all goes into a pot, so to speak, and is delivered.

In order to lift the moratorium, two issues must be resolved. A decision is needed on certain technical criteria that we advanced in order to connect further wind to the system. We furnished those criteria to the commission on 22 March. The commission has issued a draft decision so a final decision is imminent. The other issue involved the preparation of the wind grid code on a unit by unit, turbine by turbine basis, necessary for connection to the system. After much constructive work with others in the industry, principally wind developers and wind turbine manufacturers, we developed a new version of the wind grid code which was furnished to the commission on 8 April. We believe a decision on approving that is also imminent. The commission held a consultation after we provided the grid code and there are one or two technical/economic issues outstanding involving a solution being proposed without its being clear who will pay for it. The commission is still working on those.

Vice-Chairman

I understand the points made regarding the technical considerations, the wind grid code and so on. What about the 1500 MW within the system and perhaps waiting for use until the end of this moratorium? Will they all be corresponded again if they do not conform to the criteria or will they be thrown out of the system because they do not conform in certain cases?

Senator O'Meara asked about the extra cost. I understand she was referring to EirGrid and so on. We see these carbon taxes coming up, the trading emissions and so on. The average electricity consumer would like to know what all this will add to his or her monthly bill. Will there be a cost reduction? It seems to me that it will lead to a price increase.

Mr. O’Brien

Regarding extra costs, one would need to do a quite sophisticated exercise to work them out. I will try to explain how some of these hidden costs might arise. We have incurred higher staff costs because we have many more functions to perform. Setting up a totally separate entity obviously involves extra costs because of extra overheads and so on. While that might be in the order of tens of millions of euro it is possibly not enormous compared to the €2.5 billion of total costs passing daily through the industry. If liberalisation were working I would say it was very good value.

It is important to take other costs into account. Once one separates the planning of generation and transmission we must respond with transmission development in response to various types of generation. In particular it is very important on most of our networks that generation should locate in the most advantageous place. For example, traditionally in Ireland we had a deficit of generation in Dublin and we generated power in north Kerry, Clare, the midlands - even a little in Cork. We transmitted the power to Dublin. There are two major 400 Kb lines from Moneypoint to Dublin.

No sooner did the liberalisation process begin than we began to develop an enormous surplus of generation in Dublin. We have far more generation in Dublin than we need there and the result is that we have had to reverse the function of the transmission system to get power out of Dublin. This has involved a great deal of investment.

One has to believe that competition will make this worthwhile at the end of the day, but we are advancing an investment in the transmission system of up to hundreds of millions of euro in order to accommodate this random location of generation around the system. Ours is a pretty small system to randomly locate a 400 megawatt generator. If one suddenly decides to locate such a generator in Longford, the flows on our power system change everywhere. They change in Wexford, west Kerry and Donegal. We have situations where, for example, a power plant is installed in Dublin and we then need to deal with a 110 Kb line in Ennis. This type of random location of generation is very difficult for us.

We brought this to the attention of the industry three years ago, noting in particular that the concentration in Dublin was a huge problem for us. In fairness to the Commission for Energy Regulation, it is now conscious of this, and locational marginal pricing was an attempt to incentivise the location of generators in the right places. I am not sure that it would have been adequate to do that.

I had significant experience in the late 1990s of chairing a company in the province of Alberta in Canada where they had a very advanced electricity industry and where we needed to encourage generation in an area around Calgary because to do so around Edmonton would have required us to build a lot of transmission. We just drew a circle around the area and told the industry we would pay it a certain sum per unit if it would locate some generation there. We worked out an attractive price. Alternatively we could have asked the industry to bid a price for it to locate generation there. Our action probably saved billions of dollars in terms of building transmission. That is the sort of solution we should be considering.

We should be much more specific in our small market with large generation sizes about where we locate generation, and offer incentives for it to be provided in the right places. I suspect that locational marginal pricing, while it was an attempt to do just that, will probably not give a sufficiently strong signal. That is an issue for us. The very large costs we are incurring in this area are not hidden. They are being incurred in investment in the networks as a result of some of the things we are doing in generation and they are quite considerable.

Deputy Fitzpatrick

I have found this discussion fascinating. It centres around three elements - costs, competition and continuity of supply.

Mr. O'Brien cited the CEO of Intel. His decision for moving the company from California related to guaranteed continuity of supply. That is what everyone wants with regard to electricity.

As committee members this is now our bailiwick. We are looking at a policy of liberalisation, designed to drive down the unit cost of electricity and it has had exactly the opposite effect. Listening to the speakers here today it is clear that we are driving up the unit cost of electricity, which makes the ESB look very good, because it generated, transmitted and sold as a seamless whole from producer to customer. Are we therefore going down the wrong road?

We are answerable to our constituents who are very conscious of the unit costs of electricity. They can tell to a cent what they pay to the ESB every month or two months. As a committee we must reconsider the policy, call in people to advise us and see if it is working. If it is not working we must inform the Government.

Mr. O’Brien

I favour competition if we can make it work, but we may need to re-think how we are going about it. I recommend that the committee take account of the very cogent argument put forward by the Competition Authority about two years ago when it commented on this matter. I am not sufficiently articulate to reproduce precisely what it said but the gist of it was that competition is best; that if one cannot have that, the second-best option is a well regulated vertically integrated utility, which is broadly what we had; and that third-best is what we currently have. Perhaps it is an example of where the best is the enemy of the good and we have to make some compromises. However, it is very much back in the policy arena.

Deputy Ferris

Like the previous Deputy, I have listened with great interest to the contributions from all the witnesses, as well as to those of the members. The buzzword here is "competition". The philosophy is that, where one has the maximum competition, one will bring down the costs for the user. That does not seem to have happened in this instance.

The witnesses mentioned random location in structural policy and locating generating infrastructure, an expression that jumped out at me. From the presentation and the fact that the policy may have been driven by politicians not expert in the field, it seems that it contributed towards the inefficiency of random location. In many areas where one has structured location to meet a cohesive supply, it has not achieved the intent.

Reference was also made to poorly performing plants which were operating inefficiently at well below capacity. There is apparently no sanction for that, and that is also not achieving the intent.

Perhaps we might return to wind energy. In practically every rural area, in the west of Ireland in particular, there are farmers trying to get county development plans to include an area of advantage for wind energy determined by elected representatives rather than by those with expertise. I find that counterproductive. I support wind energy, but there appear to be serious problems in the eventuality of the capacity not being forthcoming, leading to a shutdown. It contributes to the overall supply. Has anyone in the ESB initiated an investigation into wave energy?

From Professor O'Kelly's contribution, which I read just before coming in, I see that it has taken over three years to get this far. The cost must be quite enormous. There are senior counsel involved in court cases in this regard. The professor said that there had been complete harmony in ensuring the reliable and efficient functioning of the transmission system. The lead-in to that appears to have been fraught with indecision, which was perhaps not quite harmless. Have the unions been actively involved in those negotiations?

Professor O’Kelly

We have been heavily involved in the negotiations regarding the personnel side of the scheme to transfer human and physical resources from the ESB to EirGrid. The unions have been fully involved in that. When I mentioned harmonious relations in my written presentation, I was speaking about the day-to-day running of ESB national grid work. There is absolute harmony between EirGrid staff and ESB staff. There is no difficulty about that.

However, there were considerable difficulties regarding the negotiation of the infrastructure agreement, for example, the court case to which the Deputy referred. The difficulty there, in my personal view, was that EirGrid was set up to perform very serious functions, which its board also took seriously, reflecting on them and deciding that it wanted a level of control over the transmission system which, in the event, the CER was not willing to give it at that stage.

After further discussions and negotiations, and some senior counsel fees, we reached an agreement, which has been registered in the High Court, and the infrastructure agreement is now in existence. It is in draft form, since it is not absolutely finished. There are some technical appendices to complete. However, I understand that the CER is happy with that infrastructure agreement. Both ESB and EirGrid are happy with it. That is the current situation.

Mr. O’Brien

Perhaps we might return to the issues raised about 100 MW generation. We are broadly ad idem on that. There are problems associated with it, and if we could structure the location a little better, that would certainly help the transmission system operate better and keep down costs. I will skip the performance issue for a moment, since I will ask my colleague, Mr. Cooke, to come in on that.

Our job is to remove the technical barriers to getting more wind in the system, and we are making reasonably good progress on the wind industry. That matter is currently with the Commission for Energy Regulation, and I hope that we will get an increase. As my colleague mentioned, we have 200 MW in the system and have signed agreements for another 600 MW approximately. There is nothing stopping those 600 MW from going ahead, and much is going ahead. There will therefore be a very rapid increase in wind generation over the next few years one way or the other.

I do not profess to be expert on wave energy, which is a fairly new technology. It has been tried on one or two occasions off the Scottish and Norwegian coasts in the last few years without being very successful. I am not aware of anyone conducting research and development on it. However, if someone needs to connect to the grid to carry that out, we will have no difficulty facilitating a connection. As something small and experimental, we would not be putting any barriers in the way of that kind of technology.

Regarding the performance of plants, the CER recently introduced a penalty for availability, and there has been discussion of capacity mechanisms and so on. Perhaps Mr. Cooke might comment on that.

Mr. Cooke

Deputy Ferris said that there was no sanction for low availability under the current regulatory structure. That is essentially correct, at least to a first order. On the request of the commission approximately three years ago, we designed a capacity margin mechanism designed precisely to address that point and encourage better performance. Generators would receive higher payments if they performed well. One of the problems is that, because ESB generation plants would have been the primary target, given that most new entrants would be performing well with their modern technology, that incentive is effectively wiped out since, under other regulatory payment structures agreed between it and the CER, its overall revenue is not affected by how it performs in availability terms to a first order. The commission has recognised that. It is currently consulting the industry on possible mechanisms to incentivise further availability performance. We have responded in indicating how we believe certain proposals made by the commission could be improved in terms of their design. Hopefully some improvement will be possible.

I am conscious there was a question earlier about the 1,500 megawatts in the wind queue that I have not addressed. I am quite happy to take that, if the committee wishes.

Vice-Chairman

The ground rules have changed in ESB discussions with the CER. It is quite possible that given the new technical considerations and the new code that has been introduced, some of those in the 1,500 megawatt category waiting in the queuing system may not conform. Will they be given an opportunity to conform and lose their places in the queuing system or will those projects be thrown out which do not conform to the new guidelines?

Mr. Cooke

The way the structure works is that all parties connected to or using the transmission system have to conform with the grid code as currently written. However, we recognise, for example, in the more obvious case of generators already built or well advanced that these may not be able to conform with new rules. A derogation process is built into this. As system operators our review would certainly be sought in any derogations. The matter as to whether a plant is derogated or not is decided by the commission.

The ESB is not in the business of expecting people to do things that are either impossible or irrational. In the case of the project, say, that is completed or well under way, we would generally understand the need for a derogation and support it if it was sought.

Vice-Chairman

I am not talking about those that are completed or under way. I am talking about 1,500 megawatt capacity within the queuing system at present, which the ESB has not validated or given approval on. As regards those 1,500 megawatt projects it is quite possible - as discussions are taking place with the CER at present and reservations are being expressed about the wind turbines and other situations - that some of those applications within the system may not conform to the new guidelines. Will they be given a chance to respond to the new guidelines or will they be thrown out of the system? That is all I am asking.

Mr. Cooke

They certainly will not be thrown out of the queue. If we are aware that a generator has furnished us with information that is not in compliance with the grid code, we will make the generator aware of that fact. However, we would go ahead, process the connection and make an offer to that generator. We would also point out to it that prior to being allowed to operate in the system, it either needs to meet the grid code requirements or have a derogation from the commission. We would not alter its position in the queue, however. It would hold its position and get its offer in sequence with everyone else.

Vice-Chairman

I want to make a final point, just to leave that wind energy topic. Mr. O'Brien may recall when he met Deputy Kehoe and me in April last that I was particularly interested in solar and wind energy, as was Deputy Ferris. One will find any rural Member of the Oireachtas is interested in this area because the projects are happening around the country. My concern is not alone for the people within the queuing system. At least they are within the queuing system.

A moratorium exists at present with regard to applications being considered or further consideration being given. Under the county development plans where suitable locations are being considered for wind energy projects, further applications will be made. Expectations are being built up and somebody will have to say that the system is capable of only so much megawatt capacity from wind energy. I do not believe anyone is doing that at present. I know from previous applications - even in our own area where farmers have got permission for two or three wind turbines - there is a natural expectation that it will happen. The point is that it may not happen.

Mr. O’Brien

Our role is to try to remove the technical barriers to connections. We have succeeded in doing that, by and large. For large amounts of wind energy coming on to the power system the barriers, more than likely, will be the cost to the customer and economics. That is not our call. We will stand back and allow the regulator and policy makers decide on that.

Doubtless, it would be a major technical job, if one takes a system like ours with a big demand of 4,500 megawatts, to opt to meet 3,500 megawatts of that from wind. However, we live in an era where satellites fly around the moon, so these things may be done, at a cost. Once there is a willingness to incur the cost, wind generation may be taken to high levels within the system.

Chairman

If this is to increase the unit cost of electricity the punter may seriously question whether it is wise to go too far in the one direction.

Mr. O’Brien

The punter might seriously do that.

Deputy Broughan

I welcome Professor O'Kelly, Mr. O'Brien and their staff associates to the committee. I was on duty upstairs in Dáil Éireann and unfortunately missed the presentation. On reading Professor O'Kelly's presentation and the tortuous negotiations that went on over SI 445, is this really a case of the ESB talking to itself? In reality is it just one section of the ESB talking to another?

There was a rumour, for example, that officials were trying to leave ESB headquarters and were not allowed to. I am not sure if this was in the Sunday Business Post or one of the other Sunday newspapers. Some of these questions may have been asked already. Is it a case of the ESB arguing mightily with itself about these issues?

In that context should there have been full-scale legislation? On this side of the table, the Vice-Chairman, Senator Finucane, Deputy Eamon Ryan and myself are tired asking for the electricity Bill. At the moment there is a "little electricity Bill", as we call it, which increases the lending liability criteria for the ESB. We wonder, however, whether there should not have been a full-scale Bill regarding the national grid. Would it have been EirGrid's preferred option to move out of the type of morass which, from Professor O'Kelly's presentation, would appear to have existed over the last couple of years? He talks about being ringfenced and so on.

Obviously there are important industrial relations issues and the rights of staff in good jobs which we would like to see maintained, are critical. How is EirGrid operating as a company? I presume there will be a section on EirGrid in the great electricity Bill, whenever it occurs. On this side of the House, we expect to have a different Minister looking after this in a few months' time, following the reshuffle. Should that be a priority and does Professor O'Kelly believe there should be a legislative basis for it?

There appear to be contradictory elements to the presentation as regards EirGrid being the transmission system operator. It seems to be asserting it would be better if EirGrid actually controlled the transmission network - in other words if the transmission network was in the hands of, say, the national electricity delivery company, Mr. O'Brien says EirGrid has the responsibility of the transmission system operator and the resources, pending the establishing and investing in power, but the ESB will continue to own the transmission assets. It is said later that the transmission system operator needs to have control over operation, development and maintenance. Obviously this may be done by regulation, but are there are any examples in which whether EirGrid or the ESB, as the delivery company for the State, would always own the national grid?

We are extremely conscious of that, bearing in mind what happened in telecommunications. Yesterday and again this morning, we read that eNet has taken over. We are building a second infrastructure for telecommunication companies, effectively for broadband, a subject that is of great interest to this committee. It would be amazing - in fact, criminal - if we were to make the same mistake twice. This Government has made a grotesque mistake as regards telecoms and it would be criminal this was to go the same route.

I wonder if Professor O'Kelly feels there will be enough in SI 445 or should matters be looked at more fundamentally to ensure the national grid always remains the property of the Irish people, which is the view of the Labour Party? We are vehement on that point, as I believe is the current Minister, Deputy Dermot Ahern. He has stated this on a number of occasions as he unveiled his social democratic credentials in recent weeks.

I hear a number of colleagues, Deputy Fitzpatrick among others, raising the issue of pricing. What is the point of this? We had a recent 24% price increase that affects our constituents and small business in particular. I am a community director of a number of small business centres, where energy costs are critical. They are facing the prospect of another increase of 13% or 14%.

A number of EU countries, for example France, seem to have their own energy policy, renewables, nuclear power and so on. Did not low energy prices, together with our outstanding education system, drive the Celtic tiger? People invested because our electricity was so cheap. Surely a key factor of economic growth was the price of electricity which did not move for years and years. In real terms there was a decisive decrease in the cost of energy. The price of electricity is not at the EU average cost.

What is the point in paying people to build generators as well as a gold plated transmission network which we may not need? Does Mr. O'Brien have concerns that the emperor has no clothes? It is critical we avoid the situation that arose in California. We do not want the market to develop similarly to the telecoms market. Is Mr. O'Brien concerned about price rises and will he make a submission to the regulator on the impact they might have on our economy?

The security issue is related to deregulation and privatisation because we would not have a security issue if we had not taken the path where the ESB was prevented from embarking on additional generation. The second Huntstown plant is not mentioned, although I presume it is going ahead.

Was Mr. O'Brien disappointed yesterday at reports about the interconnector? Like other spokespersons, I received a very fine briefing from Mr. O'Brien some months ago and he emphasised the importance of operating in larger markets if we are to utilise the massive resource of wind and wave power, which he and his colleagues have spoken about so eloquently

Is there disappointment that the second interconnector may not go ahead? The Minister for Communications, Marine and Natural Resources, Deputy Dermot Ahern, stated yesterday that he has no qualms about it and as far as he is concerned things are moving, but the media reports are different. The possibility of being part of a two islands market seems to have receded. Is Mr. O'Brien concerned at that? What is the outlook for the MAE, given the hiatus?

Vice-Chairman

Is Mr. O'Brien talking to himself and what answers is he getting?

Mr. O’Brien

We have an input into the debate without any rancour or push. We have always recognised that it is the policymakers who must make decisions and we live with the policy.

The first question related to location - and the chairman ofEirGrid plcmay like to come in on this. In order to expedite the move to EirGrid, early last I formed a group of my own staff. One of the issues in relocating staff who have been located in one area for a long time is to get their general support and agreement for it. We found a location in the general area, where the staff were satisfied to move and we took that forward as far as we could go.

Certain issues occurred last Christmas relating to the regulator's letter to the Minister questioning whether something else should be looked at. To some extent that affected EirGrid's view and the chairman will subsequently explain that.

I also talked to the chief executive of ESB and said if there was interest in the ESB side in making this happen, we could initiate it without worrying about EirGrid. At the time, there was not an interest in doing this, so it has lapsed to some extent. We would have been very happy to progress with that move, even as ESB National Grid. It would be a good signal to the industry if we were not located contiguous with ESB and we would have favoured doing that.

The chairman of EirGrid may wish to comment on that and I will come back to all the other issues later.

Professor O’Kelly

I will deal with an earlier point on whether, in relation to the infrastrucural agreement, the ESB staff is talking to ESB staff. Regrettably to a certain extent it is, because EirGrid has no executive staff of its own at this point. It has not got a chief executive officer. The ESB National Grid staff have rather kindly taken on the job of negotiating the infrastructure agreement with other ESB staff. In an earlier dispute the ESB board and the EirGrid board got involved and matters moved forward. Once an agreement was reached on the principles under which this infrastructural agreement should be negotiated, the two sets of staff worked very hard to implement this agreement.

Let me emphasise at all stages that EirGrid is a company and the board of EirGrid has certain duties to the company. That in itself has probably caused some difficulties. The duties of directors to ensure that the company will survive and that it does not have undue liabilities and so on are all related to that fiduciary duty.

There was an issue as well about the transmission assets. I can honestly say as chairman of EirGrid that the issue of assets has never been discussed by EirGrid; it has never come up as an issue. We accept fully the position as outlined in SI 445 where it is absolutely clear that the assets remain within the ESB. It is the transmission asset owner and we are to be the operator.

We merely control the flow of power through the system. In doing that we determine the maintenance standards, whereas the ESB as transmission asset owner has the right to add any constructions to the network on foot of our development plans and also to the maintenance of the system. Such a model can work, but obviously it takes a large degree of co-operation between ESB and EirGrid.

EirGrid, ESB and ESB National Grid staff are all located in the same building. There is an attempt at some degree of segregation and ring-fencing, but it is quite unsatisfactory and the EirGrid board is adamant that it must have a separate location from the ESB. However, as Mr. O'Brien has mentioned, we need the agreement of the CER to get our own accommodation and that agreement has not yet been fully forthcoming.

Whether we like it or not, the delay in putting a CEO in place at Eirgrid has been used on many occasions to delay negotiations. That is very unfortunate. We brought the negotiations to a certain level, for example we hope to have accommodation for 204 staff. We also canvassed staff at Eirgrid and the ESB on a preferred location and we have a location in mind. Thus far we have not signed a lease or bought a building because we have not received permission to do so. I can honestly say that the Eirgrid board is absolutely frustrated about this, among other things.

Vice-Chairman

Who has to grant permission for that?

Professor O’Kelly

Essentially the CER would have to approve an agreement between Eirgrid and the ESB. The ESB is clearly part of the transfer scheme and both entities have to make an arrangement that is satisfactory to the CER. I have a letter on file, which is quite understandable given the history. Just before Christmas, the CER issued a paper which stated that the model was not working and that it wanted to change things. The Minister made it perfectly clear at his presentation here on 10 March that the Eirgrid model was in place. I have a letter on file which states that until Eirgrid has a CEO there is no question of its getting separate accommodation.

Deputy Broughan

The problem is that the Government has not made up its mind as to how it will proceed. If the staff are being held in the building, they are like prisoners. The Government is just not thinking on where it should go. In the past two years, this committee has not known where the Government wants to go. All we know is that there is market failure with increased prices.

Professor O’Kelly

The Minister and his Department have made it perfectly clear to the board that they want Eirgrid to be set up as a separate company. There have been some difficulties which I outlined, certain frustrations and delays. We got a contract today to consider and that is part of the process. We hope to move forward, but there is no doubt that there have been delays. Things are moving into place now and we can see some progress in the short term.

Vice-Chairman

I think it was Shakespeare who claimed that procrastination is the thief of time. Eirgrid has probably had a bellyful of it at this stage.

Dr. Eamon Cahill

Professor O'Kelly has carried this Eirgrid business since the beginning because he has had very little back-up. Any staff we have work for the ESB national grid, keeping the electricity system going.

We should separate a few issues here. There are policy issues and operational issues. We are clear that we know what the Government wants us to do. Getting there requires many operational decisions through the Departments which slow the process up. The Government may decree that Eirgrid is to be a separate company, while the statutory instrument states that Mr. O'Brien is to be the CEO designate. The business of getting the CEO designate into position is down to a whole series of agreements to square many circles. We find that the legal language of the statutory instrument is perfect from a policy point of view, but it is hopelessly inadequate to deal with these complex issues.

These complex issues are often human issues such as moving people from A to B. The CEO is one of these people and getting him from A to B has proved to be an enormous problem, because there are conflicting rules and regulations which the Departments and Ministers have to obey. Like everyone else covered by the statutory instrument, we decided that the CEO should move to Eirgrid and be no worse off than if he had stayed with the ESB. That is a very simple concept, yet it is some job trying to get it through because of the regulations that exist in the public service. The individual details have taken a great length of time to resolve.

Vice-Chairman

Our concern is that if it is Government policy, is the Government being frustrated in its decision by certain forces? Who are these people frustrating the decision? We had Mr. Padraig McManus and the chief people of the ESB in here last week. Practically every question on the national grid and Eirgrid went unanswered by the officials because we were told that they were autonomous units. If obfuscation is occurring, why is this the case?

The energy regulator, Mr. Tom Reeves, came before the committee last March. He reassured us on what was going on in Eirgrid. We asked him for a copy of his letter to the Minister for the purposes of the committee's work, which he gave us. In this letter, he basically told the Minister to forget about Eirgrid, before moving on to other proposals. The Minister recently put out the contract for a CEO and let us hope that it will be finalised so we can move on.

From the point of view of this committee, which has studied this energy policy, there is a fog of confusion out there. It is dragging on and on. Either the statutory instrument is applicable or it is not. If it is applicable, who is obstructing it? Who is holding it up?

Deputy Broughan

I wanted to ask the chief executive about the transmission and the interconnector.

Mr. O’Brien

Deputy Broughan asked quite a number of questions. I share everyone's frustration entirely. The Deputy mentioned the sub-committee of the board of ESB, to which I report. There are clearly confidentiality issues, governance issues and a relative amount of independence that make things difficult. All I can say is that this approach was agreed between the ESB and the Commission for Energy Regulation. I implemented that and I had no say in the matter.

Deputy Broughan also spoke about the control of networks and so on. Once the legislation was passed, we did out best to implement that arrangement. Clearly, it is creating problems, particularly for generators. For example, if we implement a locational marginal pricing market, a generator will see a different price for electricity at each node on the network. The price will depend not only on the bids of various players but also on whether circuits are available.

If a company which is maintaining the network, in this case the incumbent generator, ESB, decides it does not want to work overtime at the weekend and the network is out for a couple of days longer, this will change the price of electricity received by generators in the area. It is a major difficulty for a generator contemplating investment that the network owner, which is also the dominant incumbent generator, can essentially vary the price of electricity. This perception is a significant difficulty in this situation.

Another point in regard to the control of a network is that most of the successful markets - those of Norway, Sweden, Finland, England and Wales - have gone for a much greater separation of transmission from generation. However, this is entirely a policy matter and we will implement whatever policy the Government puts forward. At present, the policy is to divide the responsibility between ESB National Grid and ESB. We try to do nothing other than implement that policy.

Deputy Broughan

Is the transmission system operator the same entity in the other countries referred to?

Mr. O’Brien

The transmission system operator is a separate company which owns the transmission in those countries.

Deputy Broughan

So it is the operator and the owner in those countries.

Mr. O’Brien

Yes. I was asked what was the point of all of this, which reflects on some of the issues I raised earlier in that if we do not do this properly, there is not much point in doing it. Equally, it is true that some of the decisions which must be taken are difficult ones.

To take the case of France, the French Assembly yesterday passed initial legislation in regard to allowing private funding into Electricité de France, one of the largest power utilities in the world. In order to succeed in that, the politicians have had to put up with a campaign of resistance which has involved the blacking out of the Elysée Palace, the Eiffel Tower, a number of railway stations, Bordeaux Airport, which was blacked out two days ago, and the interconnector to Spain. Much aggravation is associated with reforming the power industry in any country and France is no different from Ireland in this respect. Nevertheless, a beginning has been made there.

The Deputy specifically raised the issue of interconnection in the context of recent newspaper reports. I know no more of these reports than the Deputy. I understand that the regulator has written to the Minister providing some initial information to him in regard to his contacts and his request for proposals. While I do not have a copy of that letter and, therefore, do not know what it states, we are ready to respond in whatever manner is necessary in regard to the interconnector.

I strongly caution that we need to think about an operating interconnector as more than just a wire under the sea with two converter stations at either end. For ESB National Grid in particular, it will require a major re-jigging and probably significant investment in our own networks on land. If one considers the example of the Moyle interconnector from Northern Ireland to Scotland, the heads of agreement between Northern Ireland Electricity and Scottish Power were signed in 1991. I think both were private companies at that stage, but it was only ten years later that the interconnector was commissioned. The delays were not associated with putting a wire across the sea but with the building of the land networks associated with it. We should not feel that we will be immune to such delays.

This project is not just concerned with a wire under the sea. In order to operate correctly, it requires significant investment on land, possibly on either side but certainly on ours. The time and cost associated with this should be factored into the interconnector project. Having said that, we are very supportive of interconnectors. As a transmission system operator, we can never have enough circuits and equipment in the system. It makes Mr. Mangan's job easier all the time and we will always support this.

Deputy Broughan

Would it change the dynamics of this market?

Mr. O’Brien

It certainly would help but I would caution about the effect it might have on market dominance. For example, some 500 megawatts is little more than the equivalent of a new 400 megawatt generator. How much it would affect generating plant remains to be seen. However, I want to make it clear that it would certainly be positive.

The Deputy referred to the outlook for the market arrangements for electricity, MAE. I understand the regulator is reconsidering the LMP model with a view to perhaps varying it slightly. He has asked for proposals. We will certainly put forward a proposal that would encompass what we call a gross pool arrangement. It would be a much simpler market than an LMP market and would at least have a single price. It would be relatively cheap and simple. We would put that option into the pot for consideration and we will support it if that is what the regulator wishes.

Deputy Eamon Ryan

I thank Mr. O'Brien for his patience in answering so many questions. On blackouts, can he give a summary of what would happen if, for example, there was a general strike in our power industry? There seems to be a tradition among power industry unions that if one group goes out, all do. Therefore, we would lose all of the ESB plants. Will Mr. O'Brien review what ESB National Grid, as transmission operator, would do in such circumstances? Who would get power and who would lose it? What preparation has been made for this?

With regard to the market mechanism, Mr. O'Brien recommends that the Commission for Energy Regulation looks at an alternative system to the LMP, a gross pool system which would offer a single price. Reading between the lines, it seems the LMP is not only being reviewed but being put aside. It has been discussed in "Yes, Minster" speak which suggests it is dead and buried. Therefore, we are looking at a new market mechanism. If we moved to a gross pool system, how could we include signals so that another operator would not locate in, for example, Ringsend, thinking it was a good location to ship in coal or gas? How would one achieve such a local development in a gross pool market system?

What is Mr. O'Brien's long-term analysis in terms of grid investment? By "long-term", I mean that the grid we are investing heavily in at present will be operating in 30 to 50 years' time. My analysis for that period is that the price of fossil fuels will increase significantly, given that peak oil production will be have been passed. Even regarding gas, which might last slightly longer, supply is at the end of a very long pipeline.

I would hope that in 30 years we would have moved to using a very significant proportion of renewable energy. Should ESB National Grid not invest in the grid in the context of such long-term time horizons or is it considering a shorter five or ten year time horizon? If it is taking investment decisions with regard to a renewable future, would it not be better to develop a grid in the areas where there are likely to be greater wind energy resources but also possibly biomass and other resources? Is ESB National Grid investment demand-led or production-led in terms of considering the likely future sources of production?

While I understand the Chairman's concern that we might have too much wind energy, given that we have only 200 megawatts the realisation of his concern is still a long way off. However, I am reassured as to the sea change coming from ESB National Grid as to there being no technical barriers to wind energy. Mr. O'Brien might confirm that the new turbine technology, which all turbines will use, has the potential to support the grid in times of outages due to lightning strikes or changes in voltage or frequency, and will be beneficial.

In such circumstances, what amount of wind energy will we have? In five to ten years, we could introduce significantly more than 2,000 megawatts, a figure suggested by the Garrad Hassan report some years ago. How much wind energy can we produce in the short term, whatever about in the long term when we begin to develop storage technologies to hold on to the wind energy?

My next question is for Professor O'Kelly. I understand that the national control centre, NCC, in the ESB office on Fitzwilliam Street has recently been refurbished. A new control room, akin to something from a James Bond film, has been established to manage the minute by minute regulation of the national grid. Why was a refurbishment which must have involved a significant cost undertaken in an office building which the ESB is not planning to retain?

I take Mr. O'Brien's point that it is for the Oireachtas to set policy, not the ESB National Grid itself, but does he think it a good idea for the committee to review the policy regarding ownership of the transmission assets?

Mr. O’Brien

I shall answer the question regarding the grid investment and ask some of my colleagues to address the other questions. We consider the national grid to be the transmission business. There are a lot more wires in the distribution business but they are at lower voltage. We are talking about the 400, 220, and most of the 110 kv system, in which we will invest approximately €630 million over five years. In planning those investments we take at least a 10 year horizon and often up to 15 years. We do not normally take a 30 year horizon but we look perhaps as far as 20 years into the future, and we are always seeking projects that will be robust under different generation scenarios.

We are demand-led in terms of our investment and we have an official instruction from the Commission for Energy Regulation which prohibits us from undertaking transmission investment ahead of demand. For example, the commission prohibited us from supplying new transmission services to the far west of the country before demand for such services was evident. That is the policy we implement and it is somewhat different from the roads programme, for example, whereby roads are being built to encourage demand.

Deputy Eamon Ryan

Does Mr. O'Brien agree that wind resources will never be effectively developed unless the policy decision is changed to allow for production-led rather than demand-led investment in the national grid?

Mr. O’Brien

There is one exception to this policy in that we have been asked to facilitate the development of wind clusters in conjunction with the Department of Communications, Marine and Natural Resources and wind energy interests. This project may well involve the imposition of some specific transmission infrastructure to cope with wind clusters. This is one area in which we have been able to take a production-led approach. My colleague, Ms Ann Scully, can provide more information on this and on the gross pool issue.

Ms Ann Scully

The gross pool is a modification option which should be considered for the current system. It addresses some of the concerns raised by participants in the CER's consultation process. Regarding the locational signals that could be included, there are various mechanisms such as the transmission loss factors and the locational transmission usage system charges which reflect the impact generation has on the different network flows. One of the issues to be considered as part of any modification is whether those signals need to be refined or made more predictable. These mechanisms are focused on the identification of the cost imposed by generation and the investment that is required to support generation in a particular area.

The ESB National Grid produces the various reports that identify areas on the network where there is scope for generation to be connected. We said earlier that locational marginal pricing, LMP, factors this more directly into the energy price but there is some concern about whether LMP will give sufficiently stable signals to affect location. There are other mechanisms which could be included with the gross pool to encourage location of generation in particular areas.

A working group was set up in conjunction with the Department and various industry participants which facilitated the grouping of wind farms in specific locations. The idea was that such groupings might trigger greater reinforcement for the national gird to build upon once the wind farm process was in place. That approach is currently being utilised on a couple of wind farms.

Mr. O’Brien

I shall ask my colleague Mr. Cooke to provide more information on wind energy developments.

Mr. Cooke

There have been major advances in wind turbine technology in the last few years and new technologies are emerging which will support some elements of grid operation such as frequency and voltage control. A lot of the work involved in the revised grid code was related to this and attempted to marry the system requirements with the capabilities of emerging technologies. We hope that those technologies will develop further given that wind is now such a significant element of energy policy in many countries. Some of the technology is unproved but we anticipate its success in supporting some aspects of the national grid operation.

Now that the technological barriers are largely removed, we must look to the next limit which may constrain our endeavours in the area of wind energy. If one considers a situation where 2,000 megawatts of wind is installed on a 4,000 megawatt system, if the wind is to be allowed to run at 2,000 megawatts, it must be possible to ramp up the remaining generation rapidly in the event that the wind dies and its output reduces substantively. It is technically possible to do this but it comes down to a question of economics as to the benefits of running the 2,000 megawatt non-wind generation at non-optimum economic positions, a case of running a comparatively expensive plant in the system because it offers a very quick response.

Further work is being conducted to examine such issues as the distributions of wind output across the country and the speed with which large-scale changes in wind output happen on a national basis. What one is left with is essentially an economic question regarding the amount of money which should be spent to accommodate wind energy and whether it should be paid for by the wind turbine developers or the customer.

Deputy Broughan

Are there different types of generators? Have countries such as Finland, which has a massive bank of nuclear power, a decisive advantage in introducing renewable forms of energy?

Mr. Cooke

Probably not because nuclear generation is comparatively unresponsive to changes in the output of other plants. Our open cycle gas turbines are relatively fast. Hydro is also fast but we now have quite limited hydro resources as a percentage of the overall generation.

Deputy Eamon Ryan

Mr. Cooke has observed the problem of the cost of running such a plant at peak periods and having to turn it on for short periods of time. Does he agree that the cheapest and most energy-efficient approach in terms of future development is to reduce that peak using small-scale smart technology to even out the demand? There is then less of a cost problem in meeting that peak, which is the real problem. If the peak is levelled out, other plants can be effectively managed to fit around the wind generation.

Mr. Cooke

There are really two separate issues here although evening out the peak is certainly helpful. The reduction incentive introduced by the ESB last year was successful in that regard, and we intend to expand it this year. It will reduce the risk of failure to meet demand for other customers and help with the overall amount of generation required in the system because the peak is lower. Wind is not a peak issue - it is capable of substantively contributing to the overall demand at any time of the day. However, it can fall away rapidly and another suitable plant is required to respond to that. That is a cost.

Chairman

I know members of the committee are interested in this matter. We will be examining the synergy module and meeting with other players who may raise further issues. As a result we may invite the ESB back at a later date.

I am anxious to conclude as I must speak on a Bill in the Seanad at 2 p.m.

Mr. Eamon Ryan

Can I have two minutes on what might happen in the event of a strike and a black-out?

Mr. Mangan

The easiest way to answer the Deputy's question is to describe how we dealt with a similar situation in 1991 when there was a major electricity strike. On that occasion the amount of generating plant left available was about two-thirds of that required to meet the actual demand. The ESB had to implement rolling black-outs, or what we call rota load shedding. We published the rota for load shedding, or disconnection of customers, in the national papers so that people had some foreknowledge of when they would be likely to have electricity during the day. Customers were without electricity for one-half to two-thirds of daylight hours but electricity was available all night because demand falls off then.

We are now in a position to implement rota load shedding should a strike occur, although I have no idea whether that will happen. We are mobilising teams of people to implement load shedding if necessary and to update plans to deal with it.

I would like to address the issue of why we relocated the national control centre to the ESB's head office. We had an ageing control centre with obsolete technology and the manufacturer informed us they would no longer support existing software and hardware. The ESB postponed the replacement of these systems as long we reasonably could because of the uncertainty surrounding the establishment of EirGrid plc and the issue of location. However, we had to act prudently and replace the control centre before the equipment ceased to be supported by the manufacturer.

We delayed a decision regarding location as long as was possible while still meeting our contractual obligations with the suppliers of equipment and systems. When no decision was made about the relocation of the TSO we had no choice but to install it in head office. It was commissioned in May 2004. It can be moved to a new location if necessary, although that would take time and expense. However it is feasible to move the control centre. It requires the installation of new telecommunication links and the moving of equipment. We have taken the first step in locating the stand-by control centre, which takes over should the main centre fail, in a non-ESB building. We are partly on the road to relocation.

Mr. Eamon Ryan

If all the ESB plants go down then what is left, one-third or one-quarter less power?

Mr. Mangan

If all the ESB plants disappeared, there would be little power left. However, I do not expect that to happen. In 1991, except for a few, the only generators left were the ESB's and there was still two-thirds power. It depends on the actions of the trade unions and the impact they seek to have. In the event of only non-ESB plants being available we would only have a small amount of power.

Mr. Eamon Ryan

Perhaps one hour a day?

Mr. Mangan

About 25% power.

Mr. Eamon Ryan

Perhaps one, two or three hours of electricity a day per house?

Mr. Mangan

Possibly, but I do not expect that situation to arise. The experience of 1991 shows that it is likely to be different.

Chairman

Is the ESB involved in a wave energy project in Denmark?

Mr. O’Brien

The ESB National Grid is not involved in a wave energy project. It is possible that other sections of the ESB are, but I do not know.

Chairman

I thank the witnesses for their responses to the questions. It has been an interesting session. The members of this committee are interested in the subject of energy. We wish the ESB well with EirGrid plc. We will possibly invite the delegation to come before the committee again in the future.

The joint committee adjourned at 1.35 p.m. Sine die.