UPGRADING THE electricity network over the past five years has resulted in cost overruns totalling €150 million, reports commissioned by the energy regulator have found.
The overruns, which will ultimately be paid for by electricity customers, were caused mainly by land access issues. On some projects, pylons were sabotaged, staff attacked or contractors forced to stop work, according to two reports by UK consultants Sinclair Knight Merz.
Electricity prices went up almost 5 per cent this month, partly because of an increase in transmission charges to pay for upgrading the network.
The Commission for Energy Regulation commissioned the two reports into Eirgrid and ESB Networks (ESBN) as part of its review of electricity and distribution prices between 2006 and 2015. They analyse the costs incurred by the two semi-States in the last five years and their estimation of costs over the coming five years.
The reports find wages in Irish utilities are among the highest in Europe. Hourly labour costs in Irish utilities are 1.8 times those in manufacturing, compared to an EU average of 1.4. The wage gap is widening in Ireland, whereas competition in other EU states has caused it to narrow. The consultants say ESB Networks has incurred pension deficit costs of €201 million. The regulator is considering whether these should be borne by customers.
Following the reorganisation of the ESB, Eirgrid was given responsibility for planning new high-voltage transmission lines and upgrading existing ones, and operating them once built. ESBN, which bears the cost of the overruns, is responsible for building them.
The report on ESBN says its overspend amounts to 30 per cent of the overall cost of projects. Only about half of the planned infrastructure was actually delivered during the last five years. Over this period, cost savings of €70 million were achieved, giving an overall overspend of about €80 million.
Asked by the consultants about the overspends, ESBN said there was a reluctance to contact landowners about projects for fear that “opposition will mobilise”.
It added that there was very little experience with very high voltage lines, most of which were built before the Celtic Tiger and “before farmers wanted to build houses at every available opportunity”. “Things may be better now that the economy is weak and no new houses are being built.”
One project, at Srananagh in Co Sligo, incurred a cost overrun of €30 million on an original estimate of €66 million. This included an extra €15 million spent on wayleaves and other landowner costs, €7.5 million on contractors and €3.75 million on security and renting depots. Staff working on the project have been physically attacked and tower stubs cut with anglegrinders.
The consultants say it is important lessons are learned but adds that ESBN and Eirgrid are putting in place measures to minimise problems in future. It says Eirgrid is increasingly using “the full power of the law” to ensure access to sites and allow construction to proceed.
“More generous arrangements have also been put in place with farming organisations which, in tandem with the depressed economy and housing market, appears to be overcoming many of the wayleave and land access issues.”
The reports attribute “significant” project cost overruns to material and labour cost issues and disruptions caused by site access issues. As a result, only half the anticipated additional infrastructure was delivered in the past five years.
Despite these problems, the consultants say they are satisfied that investments were made in as efficient a manner as possible.
A spokesman for Eirgrid acknowledged the size of the problem on major transmission projects but said high land and equipment prices during the boom were also factors.
The reports say ESBN has funded severance costs of €135 million from its own resources. As a result, staff numbers dropped 287, from 3,758 to 3,471. Further staff reductions of 329 are planned over the next five years.
