Consumer the loser as market fails to compete

Competition:Ireland's energy market is still uncompetitive and State-dominated despite moves towards reform in 2006, writes Emmet Oliver.

When it comes to the global energy scene, most observers agree on a few central truisms. The Danes are good at renewables - 20 per cent of their annual requirement is met by wind turbines. The French are good at nuclear - 58 nuclear stations satisfy approximately 80 per cent of the country's annual energy demands.

The Greeks are good at value for money - according to a report by Eurostat in July, Greece had the lowest electricity prices in the EU. As for competition, the British are not bad at that - there are 14 gas and electricity companies supplying domestic customers in the UK.

Japan has radical plans to push the share nuclear has of national energy output from 30 to 40 per cent by 2030 at the latest. The US is giving oil and gas producers financial incentives to drill for oil in previously off-limit portions of the Gulf of Mexico.

As for Ireland, well, the main problem is that our energy market has not excelled or shown signs of innovation in any particular area. Energy consultants tend to award high marks to countries that excel in one of four areas: competition; value for money; security of supply, or the promotion of renewables.

While all four areas are important, security of supply is the one with true geopolitical implications, as everyone learned in Europe during 2006.

A dispute between Russia and the Ukraine at the start of the year resulted in supplies to Ukraine being cut off for a period of time. The resort to cutting off supplies by Russia spooked European political opinion, who are increasingly worried about their dependence on Russian oil and gas supplies.

In Ireland over the last decade, due to a combination of political indifference and regulatory inertia, our energy market has stagnated. We have failed to get value for money or a competitive marketplace and our record, at least to date, on renewables has not been worth celebrating.

As for security of supply, the record has been poor with low availability among our ageing stations and a large number of amber alerts each year.

In many ways, it is impossible to achieve all four objectives simultaneously. Denmark is a prime example. Green energy there is a genuine national priority and it leads the way on wind in particular. Irish renewable companies like Airtricity constantly cite the Danish model as being the classic example of how to replace fossil fuel energies with clean green sources. Denmark however also has the highest household electricity prices in Europe, according to Eurostat, at €23.62 for 100 kilowatt hours.

Despite this, at least the Danes can take solace from their falling dependence on imported fossil fuels, even if their household bills are a little steep.

In Greece they can avail of rock bottom electricity prices (€7 for 100 kilowatt hours), but the development of renewables, as a proportion of overall output, is low and the country's electricity infrastructure has performed poorly in recent years.

But in Ireland the problem is that we have not managed to tick any of four boxes. Prices here are now among the highest in the EU. A report released in recent days by Forfás pointed out that industrial electricity prices rose by 52.7 per cent in Ireland between 2000 and 2006, compared to the more modest increase of 28.9 per cent in the EU.

The last set of figures from Eurostat, released in July and covering 2005, put the Republic way ahead of the UK in terms of prices for the average household consumer, even before the latest increases are added into the calculations.

The development of renewables has also been slow, with wind energy companies expressing frustration about getting grid connections and the Commission for Energy Regulation, led by Tom Reeves, complaining about too much stimulation of the sector.

Admittedly, in this area ambition is present, with Minister for Communications Noel Dempsey hoping to see renewables providing 15 per cent of total electricity consumed by 2015.

The Minister's Green Paper, released in early October, talked bravely about making renewables a cornerstone of our energy policy.

Being far-sighted often requires controversial decisions though, of which there has been a lack in the energy market for several years.

One only has to ponder the lamentable lack of competition in the household electricity market to see that far-sighted or controversial decision-making has not been a priority among the political classes when it comes to energy.

When liberalisation and competition for the electricity market was talked about a few years ago, there was a major response from the Irish business world. Entrepreneurs like Denis O'Brien, with his company E-Power, sought to slay the ESB dragon. Interest outside Ireland was also strong with big US companies like Duke Energy, a Fortune 500 group, applying for a licence to supply power here.

Not all the interest may have been welcome mind you - Enron for example was granted a licence by the Commission for Energy Regulation.

Ultimately, the brave new world of electricity competition never materialised - at least not for the humble householder. In fact, in many ways the position has deteriorated for the household customer. Not only have prices gone up sharply, but some of the potential competitors to the ESB, which were meant to ultimately drive down prices, have left the market.

Airtricity did in February when it said it could no longer supply its 8,000 household customers because of the costs involved. It blamed "regulatory failure" for its decision. The large German utility RWE also signalled its intention to exit.

RWE, at North Wall Quay, Dublin, had plans at one stage to develop a gas and electricity business in the Republic but it found it hard to compete with incumbents like ESB and Bord Gáis.

Disappointing production results from the Seven Heads field, where it had a major share, also came as a blow.

Providing competition for ESB has become the preserve of Viridian, but there is only so much it can do; it still only has one power plant, although it is developing a second plant.

It is also worth remembering that the ESB itself is not seeking to increase its market share and is now more than happy to build up its overseas interests.

There are plans, courtesy of the commission, to get the ESB to divest power stations with a total output of 1,300 megawatts. But, even against that background, few observers are optimistic about competition sweeping through the household segment any time soon.