ESB prepares for power struggle with EU suppliers

THE ESB expects to face strong competition from other EU power operators, especially British utilities, when the market is liberalised. The company market has warned that opening the will lead to higher prices for domestic users, although business users should enjoy reductions.

Energy ministers meet in Brussels next Thursday to negotiate a deal which will see up to 35 per cent of the electricity market opened up to competition from outside suppliers. For Ireland, which is understood to have pressed for just 20 per cent of the market to be liberalised, the deal will mean the arrival of competition for the ESB.

It will also mean that larger users, such as Siemens and Aughinish Alumina, will be able to buy power cheaper. "What we are looking for is choice," says Rosemary Steen, assistant director of trade and industry affairs at the Irish Business and Employers Confederation (IBEC).

"Energy is an important cost factor," she says, "accounting for up to 20 per cent of manufacturing costs for some Irish companies." She says the perception among industry is that competition can only benefit the end user. IBEC says whatever deal is finally agreed will not disadvantage Irish industry and every country must be competing at the same level.

For its part, the ESB is believed to have sought liberalisation of just 12-15 per cent of the market. "The final figure is irrelevant," says an ESB spokesman, "we have been gearing up for competition for years." The ESB believes that the already privatised UK utilities will quickly turn their attention to the Irish market once it is liberalised.

The market will be attractive to outside interests because Ireland has the highest growth rate for electricity usage in the European Union. "Ireland has to be seen as an opportunity for other electricity companies," says one analyst.

Northern Ireland Electricity (NIE) has said it will vie for part of the Irish market. Its chief executive Mr David Haren has said the company plans to enter the market by bidding to build power stations in the Republic and supplying large corporate customers here.

The Irish electricity market is a growing and lucrative one and the top 250 large corporate customers account for around 25 per cent of it.

For the past 10 years the market has been growing at around 5 per cent each year. It could grow by as much as 6 per cent this year. Therefore, new generating capacity will be required.

It is in generating electricity that the real competition will emerge, the ESB says. Generating electricity accounts for around 60 per cent of the costs of production.

The EU directive proposes two systems of introducing liberalisation. Under the Third Party access system, countries must allow any generating company which meets basic standards to enter the market. The second system is the Single Buyer system which means that a monopoly buyer of electricity, yet to be set up in Ireland would decide when a new power station was required and would then put the contract out to tender. The single buyer would then sell power to the distributor.

However, Ireland and others will have to accept that a certain proportion of large scale users - such as Aughinish - will be able to bypass the single buyer and negotiate directly for supplies as "eligible consumers". It is the threshold at which a user becomes an "eligible consumer" which is at issue among EL energy ministers.

It is also understood that several large Irish companies have examined the possibility of building a power station which would supply power directly to them.

Others say that if NIE gets the go ahead to build an interconnector between the North and Scotland, this, combined with the interconnector between the North and the Republic (which is not being used to any great extent), will provide important "back up supplies.

It will provide a further element of competition in the market.

NIE's intention to compete here does not disturb the ESB. "Our prices are 30 per cent lower than NIE's for domestic users and 25 per cent lower than the EU average," says the ESB spokesman. "Prices for industrial users are 8 per cent lower, compared to EU and around 13 per cent lower than NIE's prices." The ESB says it is currently cross subsidising domestic users because of its price structure. It also points out that it must get Government permission before implementing price rises.

The ESB was granted a 6.5 per cent rise in electricity prices this year, to be spread over the next three years. When fully implemented it will bring in an extra £65 million.

"Tariffs are a big issue," says the spokesman. He points out that regardless of liberalisation, there will still be some form of price regulation.

The Minister for Transport, Energy and Communications, Mr Lowry, won an important concession for Ireland's position at the last energy ministers meeting. Ministers agreed to retain a public service commitment - this is effectively a guarantee that the ESB will not be financially disadvantaged by having to supply remote rural areas or by being required to use peat as fuel in power stations.

The Minister has said that this agreement will prevent cherry picking of larger corporate customers.

The ESB has not been standing still. It intends to invest £1,500 million in its systems during the next five years. Of this, approximately, £1,000 million will be spent on network refurbishment, including distribution lines, transmission systems and transformers.

A further £500 million will be spent on generating capacity.

The Competitiveness Cost Review (CCR) which was recently concluded with the ESB unions will see the semi state undergo major restructuring.

An important part of the run up to a liberal market, it will save the ESB £60 million a year when fully implemented in three years. It will also involve 2,000 redundancies.

The ESB argues that it is well used to competition. It is already involved in joint ventures in other countries through its independent subsidiary ESB International which this week reported sales of £66 million for 1995 - up from £46 million in 1994.

In fairness to the ESB, its prices have been reasonably competitive in the past and will probably remain so in the future," says Rosemary Steen. "It will be well able for competition." However, whatever percentage of liberalisation is finally agreed, industry sources say it will put pressure on the ESB. The semi state can take some comfort in the fact that the changes, if decided next Thursday, will not come into play until 1999.