Inefficiency and high labour cost blamed for expensive electricity

Report on ESB: A consultants' report commissioned by the Government has criticised high labour costs and inefficiencies at ESB power plants, which it maintains are adding around €100 million to costs compared with similar operations abroad.

The report by Deloitte, published yesterday by the Department of Marine and Natural Resources, says Irish electricity prices are notably higher than elsewhere in Europe.

"For small domestic customers, prices are the second highest in Europe and 51 per cent above the European average," it states.

It says that a coincidence of factors including a high dependency on imported oil and gas, poor power generation availability,high demand for electricity, and higher than average labour costs were contributing to higher prices

It estimates that labour costs in the power generation sector were generally 20-30 per cent above European comparators.

The report says the average payroll cost in the ESB power generation sector is around €94,500. It states that the average staff cost at the Poolbeg gas turbine plant in Dublin is €144,000.

The report maintains that ESB facilities are only available to generate power 80 per cent of the time compared with around 90 per cent abroad.

It states that 66 per cent of electricity is currently generated through the use of oil or gas, a far higher figure than in other European countries. "Our analysis indicates that the fuel mix factor alone accounts for approximately 70 per cent of the differential between Irish and European generation costs," it states.

The report says that the cost of using the electricity transmission and distribution networks accounts for around 35 per of domestic bills and 15 per cent of charges to industry.

Deloitte argues that while the development of competition in the electricity sector would not immediately change the fuel diversity situation, it would provide a catalyst for more rapid improvement in levels of operational costs, productivity availability, flexibility and innovation.

The report says the dominance of the ESB has raised barriers to the entry of competitors in the area of generation and supply.

"The lack of independent entry of new generation capacity and the availability of ESB generation has led to ESB themselves being allowed to build new facilities to address capacity deficit issues. Despite a shortage of generation and the political and regulatory willingness to support new generation entrants, only one independent new player in the market (Huntstown) has entered without the support of long-term contracts from the ESB," it states.

The report says that without change to the current structure, there will be no effective and sufficiently strong downward pressure on price.

It says that there is a case for the retention of a strong, commercially viable ESB and it rejects mass privatisation, including the sale of the ESB networks or of Eirgrid.

The report recommends the sale by auction of two of the ESB's generation portfolios and three supply packages.

It also proposes that the ESB networks be removed from the ESB group but retained in State hands as an independent entity.

It says land at ESB plants could be managed by the regulator and leased by potential new entrants.