Aghada deal shows ESB has the power

Business Opinion/ John McManus:The decision to approve another power plant for the ESB appears to make a nonsense of any notion that the Government is serious about an energy policy that puts the interests of consumers of any variety at its heart.

What it does seem to indicate is that the Government is content to pay lip service to the OECD, the European Commission and anyone else who wants more competition, while putting its own political interests first. The good news for the ESB is that at the moment, its interests and the Government's coincide.

The justification for such a sweeping statement lies in the Minister for Communication, Marine and Natural Resource's failure to seize the best opportunity in years to force through some real change at the ESB and by extension the electricity market.

Noel Dempsey justified his decision to give the go-ahead for the ESB to spend €300 million on a new plant at Aghada on several grounds, the most significant being the risk of power shortages from 2009 onwards as the island's demand for electricity starts to outstrip the capacity of its ageing stock of power stations.

The Aghada plant could be operational as soon as 2009 as the ESB already has planning permission for the site and it is debatable whether any of the other potential and current players in the market could have a plant of such size operational in such a tight time frame.

The Minister covered his posterior by insisting that Aghada's output must be sold to another supplier, rather than directly to ESB customers. He also said the ESB could be forced to sell the station if it does not fulfil its commitment to divest of some capacity by 2010 as agreed with the commissioner for energy regulation, Tom Reeves.

It seems like a reasonable compromise but two points are obvious. The first is that it is hard to see how the imposition of a third party between the ESB and the consumer could do anything but push up the price of electricity for consumers, unless the ESB gave it away for free, which is not going to happen.

But more pertinently, Dempsey could have made his approval for Aghada conditional on a real timetable for divestment by the ESB instead of the rather aspirational document agreed with the regulator.

To date all the ESB has agreed to do is sell or close plants equivalent to around 30 per cent of the current market capacity or 1,300 megawatts (mw). The only firm commitment is to sell two emergency generation plants at Rhode, Co Offaly, and Tawnaghmore, Co Mayo, as well as the sites of two former peat- burning plants at Shannonbridge, Co Offaly, and Lanesboro, Co Longford. As for the remaining 1,000mw, the ESB has merely agreed to make available other sites with a capacity of 300mw by the end of this year and 700mw by 2010.

The vague nature of the agreement opens to the door to endless rounds of negotiations, prevarication and fancy footwork by the ESB. As a framework for someone to plan their entry into the electricity market, or expand their existing presence, it is next to useless.

Dempsey appears to have missed a golden opportunity to force the ESB to translate this aspiration into a firm plan to close and dispose of specific assets to a detailed timetable. He would have been able to do this because the ESB was desperate to build Aghada, as it needs modern, efficient plant if it is to compete with new entrants. As things stand it has not only got its new plant, it has also managed to retain the initiative as far as shedding capacity goes and thus delay the evil day.

What has Dempsey got in return? At a minimum he has ensured that there will be no embarrassing blackouts this side of the general election. The ESB's powerful trade unions lobbied hard for the company to be allowed build the new power station as they can clearly see the benefits for their members of the ESB retaining its dominant position. Indeed, they have if anything adopted a more hardline approach than their employer, objecting to the imposition of conditions such as the selling of the power produced at Aghada to other energy companies.

Industrial action is still on the cards, although the unions are expected to fall into line following the acceptance last week by the ESB board of the Minister's conditions.

The other reason that Dempsey blinked is that he knows as well as anyone in politics that the closure of an ESB station has the potential to blow up into a very nasty local issue, particularly in rural areas, that could spill over on to the national stage. Forcing the ESB to nail its colours to the mast now might have speeded up the entry of new players and brought about lower prices for consumers, but would have contributed little to getting the Government re-elected if it sparked a series of protests or industrial action.

It will be interesting to see what happens come June, when the ESB is due to agree a detailed plan with the regulator for shedding capacity. Will Tom Reeves have the mettle to call a halt to Aghada - which is within his powers - when the ESB starts playing games? Will Dempsey or his successor back him up?

jmcmanus@irish-times.ie