An all-Ireland energy market can only be good, providing efficiency, economies of scale, and choice, writes Patrick Haren
Last week Viridian's Huntstown power station came into commercial operation. The new, highly efficient gas-fuelled plant can supply up to 10 per cent of national demand. Its output is sold to customers in the competitive electricity market, and as the first fully independent power plant in Ireland, Huntstown represents the first tangible step towards the direction of an open and single electricity market on the island of Ireland.
But will the first step be followed by others? If the answer is "no", the question that needs an urgent answer is "why not?".
Experience tells us that two small markets on one small land mass cannot be efficient. Instinctively, we know that an open and competitive all-Ireland energy market can only be good, providing efficiency, economies of scale, and greater choice for customers.
An all-island electricity market, if efficiently implemented, would bring competitive prices and better service, and would deliver an environment which encourages investment and long-term commitment. In this context, the interests of efficient new generators and suppliers wishing to trade in the market are aligned with the interests of customers.
Electricity generation in the Republic of Ireland is already running close to capacity and demand is in danger of outstripping supply. Yet the customer still has no reason to be confident that current plans for the market's structure will lead to the required investment in new generation capacity.
Real choice and competitive pricing will not be available to customers if new independent generation capacity is not encouraged or is deterred by uncertainty, trading restrictions or unfavourable rules.
It is a given that a new generation plant will be needed. Demand continues to run at record levels and this week EirGrid drew attention to the urgent need for further generation capacity. Recent forecasts by ESB EirGrid and CER predict a measurable shortfall of generation capacity on the grid, which would significantly undermine the security of our electricity supply by 2005 if a new plant is not developed. If the ESB's older, less efficient, high-emissions plant fails or is pressed to close, this already-acute shortfall could become critical.
Given the significant development time-frame - and the minimum of 24 months required to build a new plant - decisions on new generation capacity need to be made shortly. But who will deliver the needed capacity?
To distant observers, the Irish electricity market looks small, difficult to enter, complicated to operate in and offers limited opportunity for real business development. For many outsiders, the Irish market, as it is currently formulated, does not stack up as an investment opportunity when you consider the size, efficiencies, logistics and opportunities available in countries such as Italy and Spain - and after 2007, elsewhere in mainland Europe.
Ultimately, it is the responsibility of policy-makers to develop the conditions for an effective all-island electricity market, and investors are looking to them for the strategic direction in energy policy that will support industry making major investments in Ireland.
Increased integration of the markets North and South offers additional opportunities for scale and for choice of supplier. Effective cross-Border interconnection offers the prospect of increased trading to the benefit of all customers. The opening of markets, driven by EU directives and by regulation, creates the conditions for competitive supply. Real competition in supply, as we have seen in Northern Ireland, has to be based on competitive sources of generation. A competitive generation base requires new investment, it requires the competitive tension of private-sector finance with a track record of delivering on cost, and it also requires the benchmarks of productivity which come with new entrants with new work practices.
The mechanics of the market in the Republic are biased against new entrants, and the current market structure is overwhelmingly concerned with protection of the incumbent. This includes rules restricting entrant suppliers to a small proportion of the market and provisions preventing the sale of competitively priced power to the ESB.
There is an opportunity to build on the present capacity need in the Republic to further the vision of an all-island electricity market. That vision should be for a more integrated market, with effective interconnection, delivering economies of scale and customer choice. It should have a time-scale for its realisation and combined policy initiatives from governments and regulators to accelerate its progress. It should allow for the achievement of the critical mass required to create effective competition in generation. It should reflect the benefits of private-sector finance as occurs elsewhere in a mixed economy.
Viridian Group has been at the forefront of developments in the competitive electricity markets North and South. Our investment of €255 million in Huntstown Power is a fundamental building-block in our strategic vision for electricity on the island, as is our joint investment with the ESB to upgrade the North-South interconnectors at Louth, and our €235 million investment in the Moyle interconnector which is traded daily to deliver power to the South. As a long-term player in the all-island energy market of the future, we intend to continue to work to advance the integration of markets North and South.
An open and competitive electricity market throughout Ireland will deliver choice and benefits to customers, new efficient infrastructure to the island, and investment opportunities for industry. To achieve this we must have a vision of what is possible, and a shared sense of urgency to deliver that vision.
Patrick Haren is chief executive of Viridian Group plcViridian Group's interests
Viridian Group's interests
Viridian Group's Irish energy interests include: Northern Ireland Electricity, regulated electricity transmission, distribution and supply in Northern Ireland; competitive Irish energy supply company Energia; the Huntstown power station near Dublin; the Moyle Interconnector, which links the Irish and Scottish electricity grids; and Northern Ireland Electricity Powerteam, a high-voltage electrical contractor.
Viridian Group's non-energy businesses include: Sx3, an information technology and outsourcing business, and Fleet Solutions Ireland, a vehicle supply and management company.