Dáil Éireann Debate, Thursday - 1 April 2004
1 Mr. Coveney asked the Minister for Communications, Marine and Natural Resources the reason, in the past two years, energy costs here have risen so dramatically; and the action he is taking to bring energy costs back in line with the rest of the EU. [10324/04]
Amharc ar fhreagraAs the Deputy will be aware, as Minister I no longer have any function in relation to the pricing of electricity. The CER was given statutory responsibility for regulating ESB tariffs in 2000. Previously, the ESB would, by custom and practice, have sought Government approval before increasing its tariffs. On a positive note, in terms of EU comparisons, according to EUROSTAT July 2003 data, prices for domestic customers were at the European average. However, those for industrial and commercial users were at the higher end of the scale. Large-scale customers and many SMEs are free to purchase electricity from suppliers other than the ESB.
In the interests of competition, I have decided that full market opening will come on stream in February 2005, two years ahead of EU requirements. From that date, all electricity customers will be free to source their requirements from whomever they choose. In advance of the full opening of the market, the CER is taking action to make all electricity tariffs fully cost-reflective. This is to ensure that the costs of generation and investment in the grid are recovered. This was not the case in the past and acted as a major disincentive to investment in generation, transmission and distribution networks. Such a situation is no longer tenable. Cost-reflective tariffs are required to support funding of the €4 billion project from 2002 to 2007 in investment underway in the network grid. This is essential to avoid blackouts and grid system failures.
When comparing the cost of electricity in Ireland relative to costs in the EU, it is important to make fair comparisons bearing in mind the issue of peripherality. Ireland's geographic position as a small island economy poses structural difficulties which cannot be easily addressed. Networks in mainland Europe are also mature in investment terms and heavily interconnected across land borders. The Irish market is the second smallest market in Europe next to Luxembourg. It is not yet significantly interconnected. This is being addressed by the recent Government decision to develop two East-West 500 MW interconnectors. We also lack relatively cheap indigenous resources and must rely heavily on imported fuel supply sources, all of which contribute to higher costs.
Turning to gas prices, the price charged to consumers for natural gas is made up of two main elements: the cost of transporting the gas and the cost of the quantity of gas being supplied. In October 2003, the Commission for Energy Regulation approved a 6.8% rise in gas transmission tariffs, the fourth rise in such tariffs since 2000. The increase resulted from the cost of BGE's infrastructure investment programme, which included the second Scotland-Ireland interconnector, the lC2, and the pipeline to the west, an investment in the region of €750 million. Additional factors were the closure of Irish Fertiliser Industries and the slower than expected rate of growth in the economy, and in gas demand. For the next four years, increases in the transmission tariffs are expected to be close to the rate of inflation.
From 1 April 2003, Bord Gáis Éireann's supply tariffs for its franchise customers were increased by 9.1 %. The increase affected all domestic, small and medium industrial and commercial customers but not those large gas consumers who can source their gas from other suppliers.
Additional information not given on the floor of the House
Domestic gas prices in Ireland had been subject to a price freeze since the middle 1980s despite steep increases in the market price in recent years, particularly in the UK where Bord Gáis Éireann, BGE, sources most of its gas. BGE had been able to sustain the price freeze because it held a number of favourable long-term supply contracts. The first of these contracts ended in early 2003 and, as a result, the price rise was unavoidable.
The Deputy will be aware that the regulator has postponed a decision on the price of gas. Current prices for domestic customers are to remain in place until 30 September while the regulator undertakes a review of prices in the franchise market.
I accept many of the points made by the Minister regarding the reasons for the increased costs. Would he agree that many of those factors existed five years ago, when seven countries were more expensive than Ireland in terms of industrial and commercial electricity pricing? We have now moved close to the top of the list, just behind Italy, in terms of the cost of energy. Does the Minister agree that it is not a valid argument to say that the increased costs are as a result of upgrading the grid, since other European countries must also upgrade their networks and grids? Are we so different? Is this the only country which must have to pay for such an upgrade? Apart from the difference of Ireland being an island — the same difference applied five years ago — what is so different now, when the whole of the EU is supposedly moving towards a market liberalisation approach in this area?
Will the Minister comment on the increasingly held view that we now have the worst of all worlds in our energy market, because we have neither the consistency of a state monopoly, with its attendant capacity to increase generation, nor the benefits of competition or liberalisation in the marketplace? There is no reduction in prices nor any significant increase in choice. Does the Minister agree it is time to reconsider the model we have been adopting for the last three to four years, either by taking a more aggressive competitive approach, or else reverting to the previous situation, which at this stage is probably impossible?
The Deputy will understand that as a result of EU directives, we were required in effect to depoliticise the pricing issue, so that we now have an independent energy pricing regulator who regulates the price based on the rate of return to which companies should be entitled because of the investments they have made. Significant investment is required in Ireland because as a result of economic growth we have probably one of the highest demands on electricity. It is estimated that in the next couple of years we will demand 3% to 4% year on year increases in electricity capacity because of the economic situation. That is not so in other European countries.
We cannot escape the fact that Ireland is a peripheral island which in relation to gas, and especially electricity, is not interconnected in the way it otherwise is in Europe. That dictates the position. Our indigenous resource is mainly gas, and there is a possibility that we will become over-reliant on it, unlike other European countries which have other energy sources. Much of this is dictated by the type of policy we have in Ireland, and will continue to have, regarding nuclear energy. It is not a case of comparing like with like. I emphasise again that the domestic consumers are at the EU average regarding electricity prices. For industry, Irish prices are somewhat higher than the EU average, but there is open competition, so companies can choose their providers.
