The Commissioner for Electricity Regulation, Mr Tom Reeves, has invited submissions on his proposals for the auction of "virtual capacity" on the ESB's network. The move is seen as vital to competition in the market. Mr Reeves proposes auctioning some 400 megawatts (MW) of capacity in one-MW tranches in a single round of bids.

Companies planning to establish independent power plants are expected to bid for such capacity, which they will sell to the "eligible market" of about 300 major industrial users of electricity.

Some 29 per cent of the electricity market became subject to competition last month, although the Minister for Public Enterprise, Ms O'Rourke, has indicated that the entire market will be opened by 2005.

The auction of capacity is viewed as a means of securing market share before independently produced electricity becomes available. The ESB will also be entitled to purchase capacity in this manner.

No single consortium will be entitled to secure more than 40 per cent of the available capacity, 160 MW, in the auction. While a reserve price for capacity has not yet been set, its indicative range will be £9,500-£11,000 per MW each calendar month.

The reserve price will be set at a discount to the ESB's average generation costs in order to stimulate the market.

This capacity component will be paid for on a continuous basis, while the energy used will be paid for on the basis of units used. The initial energy price, yet to be set, will be indexed monthly against published indices of fuel costs and foreign exchange rates for a weighted basket of the ESB's fuel and plant portfolio.

Contracts signed following the auction will be valid for one year from a defined start-date, which has yet to be set. Asked when the auction would begin, a spokesman for Mr Reeves said it would take place after the current consultation process. Submissions will be accepted until the end of the month.

A further auction of 400 MW and an additional 200 MW of capacity will take place in September next year, following a review.

Mr Reeves has also proposed auctioning "green" capacity. Under a similar arrangement, licensed suppliers will be able to enter the "green" market for electricity generated by the ESB. The proposals can be viewed on the regulator's website at www.cer.ie/