ESB may have to sell on to independents

The ESB may be required by the European Commission to sell electricity from its new power station at Ringsend, Dublin, to independent suppliers, writes Arthur Beesley.

Such a requirement would be a setback for the State company as it would restrict returns from the €250 million plant. The power station is already expected to underperform for three years after its connection to the national grid is completed this summer.

It is thought, however, that the State company may have resolved to accept such a condition in return for an agreement by the EU competion directorate general to sanction the joint venture with Statoil, which will run the plant.

According to informed figures, the directorate general is discussing the possibility of invoking such a requirement to stimultate competition at the supply end of the market. The industry was partly deregulated two years ago but rivals to the ESB have been slow to emerge and a number of large investors have abandoned their plans.

Known as Synergen, the joint venture has been the subject of intense scrutiny by the EU at various times since it was notified two years ago. The ESB owns 70 per cent of the plant and Statoil holds the other 30 per cent.

The competition director general, Mr Mario Monti, has criticised the structure and pace of competition in the Irish market and an official in his office is known to have described the plant's connection agreement as a "violation of European law".

The agreement effectively meant that only one rival plant could gain access in Dublin to the grid, which is constrained. The construction of the rival plant, owned by the former Northern Ireland electricity monopoly Viridian, is almost complete. Because of concerns about the grid situation, the Government granted permission for the ESB's expenditure on the plant on condition that it would divest its stake in the initiative "if competition law makes it appropriate".

Divestiture would be a serious blow to the ESB. But informed figures believe "sensitive" discussions at the EU in the past fortnight have moved towards a requirement to sell a "substantial" amount of wholesale power to independent groups.

An ESB spokesman confirmed discussions were under way but would not comment further. Also declining to elaborate, a spokesman for the electricity regulator, Mr Tom Reeves, said: "I'll confirm that there are discussions going on between ourselves and Brussels."

On a very basic level, the EU could choose to accept or reject the joint venture. Yet with senior ESB figures said to have been very concerned in the past that divestiture may be required, it is thought that recent discussions have centred on the possibility of amending Synergen's contracts to sell the entire output of the plant to the ESB's supply division.

This would do little to stimulate competition in the generation market. But people with knowledge of the situation believe the ESB would take legal action against the EU to prevent divestiture. There is speculation that such an action would take years to resolve, with few alternative opportunities for opening the market likely to emerge.