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Gnáthamharc

Energy Resources.

Dáil Éireann Debate, Thursday - 1 April 2004

Thursday, 1 April 2004

Ceisteanna (58)

Olwyn Enright

Ceist:

58 Ms Enright asked the Minister for Communications, Marine and Natural Resources the reason the cost of electricity here has increased dramatically relative to other EU member states; and the cost factors related to Ireland that do not relate to other EU states that can explain the fact that energy costs here are now the second highest in the EU. [10183/04]

Amharc ar fhreagra

Freagraí scríofa

I wish to point out that I do not have a function in relation to the pricing of electricity. The Commission for Energy Regulation was given the responsibility for regulating ESB's tariffs to its franchise customers under the European Communities (Internal Market in Electricity) Regulations 2000. Previously, ESB would, by custom and practice, have sought Government approval before increasing its tariffs.

According to EUROSTAT July 2003 data, prices for domestic customers were at the European average while those for industrial and commercial users were second highest. It should be remembered that large scale customers and many SMEs are free to purchase electricity from suppliers other than ESB.

The CER set about a process of rebalancing tariffs ahead of full market opening in 2005, which is required to ensure that all tariffs fully reflect the cost of supplying different categories of customers. This action is set against a backdrop where tariffs had risen by a total of only 3.5% in nominal terms between 1986 and 2001, compared to 52.5% inflation in the same period, leading to a situation where eventually generation costs were being under-recovered and grid investment was postponed. The increases approved by the CER to date have brought tariffs more into line with costs, thereby helping to prevent under-recovery and improving the investment climate; neither private investors nor the ESB could justify investment in new plant in the absence of cost reflective pricing.

Measures would have been needed in any event to make the tariffs more cost reflective in light of the need to undertake a major infrastructural investment programme on the electricity transmission and distribution systems and to install additional generation capacity to meet increasing demand. In that regard, it is worth noting that energy infrastructure is paid for by the users and not the State as is the case, for example, of roads and water.

Given the substantial infrastructural investment requirements in Ireland and the fact that networks in mainland Europe are mature in investment terms and heavily interconnected, a direct comparison with our European counterparts of unit costs for use of the transmission and distribution systems is not meaningful. These costs are being driven by major infrastructural investment of approximately €4 billion between 2002-07, of which €1 billion approximately relates to transmission development and €3 billion approximately relates to distribution. However, because the networks are regulated monopoly activities, it is an imperative of regulation to seek to incentivise a downward pressure on the cost of providing these services.

When comparing the cost of electricity in Ireland relative to other EU member states, it is important to bear in mind the issue of peripherality. Ireland's geographic position as a small island economy poses structural difficulties which cannot be easily addressed. Generation costs must be seen from the perspective of these inherent characteristics of the Irish electricity market, that is, small in comparison to other EU member states, not significantly interconnected and hence, limited access to other competitive markets and a lack of relatively cheap indigenous resources.

Natural gas now accounts for more than 40% of fuel used for electricity generation in Ireland and this proportion is increasing. As the Deputy may be aware, indigenous gas supplies are limited here leading to a strong reliance on imports and the transportation costs via the interconnector place a significant premium on prices. Landed prices for natural gas in Ireland are between 20% and 25% higher than those paid by our mainland European counterparts. This fact contributes to placing Irish electricity prices at a considerable disadvantage relative to the European average benchmark.

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