The Creation of an All-Island Energy MarketThe Business Perspective 12th March 2004 Tanya Harrington IBEC Energy Executive IBEC-CBI JBI • IBEC-CBI Joint Business Council is a partnership of IBEC and CBI (NI) • The JBC represents the interests of business throughout the island of Ireland • Mission: – ‘to develop and sustain business co-operation within the island of Ireland and to address issues pertaining to international competitiveness.’ Outline •EU Energy Policy •Energy and Environmental Policy Context •Competitiveness •Environmental Obligations •Security of Supply/ Fuel Diversity Priorities •Market Opening and Design •Climate Change Measures •Renewable Energy •Infrastructure Provision •Long-Term •Medium Term •Short-Term Issues Recommendations New Policy Context • EU Energy Policy / ESI Trends Context • Energy and Environmental Policy New Policy Context EU Energy Policy / ESI Trends New Policy Context Energy and Environmental Policy • The issue of climate change overarches energy and indeed industrial policy formulation and will ultimately be a driver of fundamental change in the energy sector in Ireland, on this island and beyond • For this reason it can no longer be viewed as a policy that is ‘bolted on’ to the requirements of the energy sector Competing Priorities •Competitiveness •Security of Supply/ Fuel Diversity • Environmental Obligations Priorities Competing Priorities Competitiveness • 2003- 22,706 notified redundancies in the private sector in the Republic of Ireland. 106 jobs lost for each working day. • Competitiveness is not desirable- it is critical. • Electricity price increases of 28% since 2000 for Irish business. 3.5 times the rate of inflation, with no sign of abating! Competing Priorities Environmental Obligations • simultaneous needs of ensuring compliance with environmental obligations (across two jurisdictions) and the achievement of security of energy supplies, with an adequate diversity of fuels. • The creation of an all-island energy market should be encouraged to proceed where it can demonstrate benefit, while addressing this set of competing priorities Key Issues •Market Opening and Design •Climate Change Measures Issues •Renewable Energy •Infrastructure Provision Key Issues Market Opening and Design • Directive on the Internal Market in Electricity and Gas (2003/54/55 EC)- full market opening by 2007 – Full market opening in RoI market 2005 – Full market opening in NI market 2007 • Regulators in both jurisdictions are adopting differing approaches to market opening and wholesale trading arrangements Key Issues Climate Change Measures • Differing Kyoto targets- Different experiences of the implemented EU-ETS • No mirroring of arrangements North-South for the sake of ‘harmonisation’ (UK CCL) • Rather an integrated suite of measures which achieve environmental objectives at least economic cost • Urgent need for NA that are compatible with implemented EU-ETS Key Issues Renewable Energy • Major push for enhanced deployment of renewable energy and a mirroring of support mechanisms North-South • Yes where this adds competitive advantage to both jurisdictions and is technically feasible and affords an adequate diversity of fuel mix across the generation portfolio • No where this adversely affects business competitiveness (ESB National Grid Report) • As with fossil-fuel generation- full external costs must be internalised into the price Key Issues Infrastructure Provision • Construction of IC2 and Ring Main has driven gas transmission charges for TPA customers up by 70% in three years • Future infrastructure provision (electricity or gas) (E-W or N-S) should be approved after a cost/ benefit analysis has been conducted with appropriate financing arrangements for the provision of infrastructure supply ahead of demand. • Due cognisance of the interoperability of gas and electricity systems IBEC-CBI JBC Recommendations •Long-Term •Medium-Term •Short-Term Recommendations IBEC-CBI JBC Recommendations Long-Term • Business across both jurisdictions supports the overall strategic direction of the creation of an allisland energy market • Business welcomes the renewed political vigour and leadership shown by both administrations in moving this issue forward • Business welcomes the opportunity to contribute to on-going work in this area- Report • Appropriate regulatory and administrative arrangements will need to be identified in terms of governance of such a market across both jurisdictions IBEC-CBI JBC Recommendations Medium-Term • IBEC-CBI Joint Business Council recommends that a cost/ benefit analysis for a harmonsied all-island energy market be undertaken, at the earliest possible stage. • Thereafter, it will be critical to commence the process of convergence from a practical perspective and ensure that all new developments within either market are convergent and compatible with achieving an all-island energy market. IBEC-CBI JBC Recommendations Short-Term • OFREG and CER should work with OFGEM to enable suppliers from NI and RoI to access entire UK wholesale market • Optimal use of electricity interconnection, accompanied by development of suitable trading mechanisms • Single TSO charged with responsibility for planning and introducing efficiently utilised interconnection should be considered • In the interim, ESB National Grid and SONI should be given a specific remit for enhanced co-operation IBEC-CBI JBC Recommendations Short-Term • Government must work together to harmonise legislation, regulation, targets and overall policy direction • In the area of climate change, Governments should work to ensure (where possible) that the implementation of preferred policy measures mitigate the risk of market distortion on the island. • Governments should review the responsibilities and powers of Regulators in relation to the removal of barriers to competition and ensuring the appropriate regulation of market power of incumbents in both jurisdictions Conclusions • The creation of an all-island energy market and a future ‘regional market’ represents the correct strategic direction from the business perspective. • This is premised on the view that such a market will deliver enhanced economies of scale for investment, generation adequacy margin and network planning, a reduction in regulatory and trading costs and enhanced competition. • The cumulative effect of which should be an improvement in the competitiveness of business North and South and the attractiveness of Ireland North and South as a location for inward investment. • Business commends today’s initiative by both Governments and looks forward to working with the Governments of both jurisdictions towards the achievement of our joint goals.