Fine Gael Stimulus Plan

The Irish media has referred a lot in recent days to the Fine Gael stimulus plan, so I decided to go take a look at it. A one-sentence summary of the plan is that it would see the government borrowing an additional €11 billion over the period 2010-2013 and spending this on a set of energy, environmental and communications projects.

The plan is, to put it mildly, puzzling. The main source of funds is the Pension Reserve Fund, which our politicians (untrained in the sophisticated distinction between gross and net debt) apparently view as free money. In addition, the investments will be financed by a special bond issued to “the Irish public” and to “pension funds and international markets”. The plan states that the NPRF will be “replenished” with dividends from state companies carrying out these investments and from the sale of some state assets (of course, these state assets could be sold even without borrowing €11 billion).

I do not claim to be an expert in the microeconomics of Irish energy or communications markets, but it seems pretty far-fetched to think that these investments would pay back to the taxpayer at anything other than a very long horizon. I’d be interested to know what others think on this.

Next week’s budget will see the government raising taxes and cutting expenditure on front-line services, with painful adjustments totalling €4 to €6 billion likely to occur. However, few doubt that this adjustment is necessary. Against that background, the opposition’s plan to borrow an extra €11 billion to spend on a bunch of energy projects just seems to me to be very strange.

27 thoughts on “Fine Gael Stimulus Plan”

  1. It’s sometimes hard to reconcile all the Keynesian madness going around with the ascetic mood among Irish policymakers concerning the current state of the fiscus. This, I think, explains the difficulty Fine Gael have in finding the right balance.

    From a supply side point of view, of course, there is no need to dig these holes and then fill them back in. Investments that can pay a good return are always worth making, regardless whether the state is flush with cash, near broke, or entirely bankrupt. On the other hand, foolish, bravado flagship projects (CIEs Interconnector, anyone?) that are a waste of money should never be financed by taxpayers money, no matter how big the budget surplus appears to be.

    The concern with overspending is that our creditors will stop buying our bonds, or that we won’t be able to pay them back. If the projects in question represent good value for money, then neither of these two fears are justified.

    This requires an honest, transparent Cost-Benefit Analysis procedure, to replace the current Department of Finance guidelines, which are steeped in mystery and dubious client confidentiality clauses. With the right CBA procedure in place, it probably would be possible for the government to spend (or coordinate the spending of private money) on an awful lot of energy products. After all, IEA’s medium term outlook for oil prices is $120/barrel. That fact isn’t going away.

  2. The interconnector could well be one of the best investments for Dublin in the NDP, but we don’t know because no cost-benefit has been published, or perhaps even undertaken.

    FG’s plan for such a stimulus seems bizarre to say the least. Would it not make more sense to invest in projects with good cost-benefit prospects and, in tandem, do more with less in the public sector on the current side, i.e. wholesale public sector reform, they should do more with less. Maybe that way the need for tax rises can be sensibly limited and ultimately taxes reduced.

  3. I expect Fine Gael, if it is so minded, will be able to respond appropriately to Prof. Whelan’s dissmissive reaction to its proposed stimulus package, but, a somewhat deeper understanding of the context and circumstances of Irish energy, communications and water infrastructure might result in a more reasoned assessment of the neccesity for, and the validity of, the proposal.

    Prof. Whelan might find the following observations useful

    1. In my reading of the document I have no sense that FG intends to treat investment by the NPRF as “free money”. Rather than being invested in other assets and businesses, Fine Gael proposes to invest €9 billion from the NPRF in new Irish infrastructure. The liability would remain, ultimately, to Irish citizens who fund this reserve and expect to benefit from it in the future. The investment would be made on the basis that it would generate returns at least equal to returns that the NPRF would generate from alternative investments. The Utilities Commission proposed by Fine Gael would ensure that the revenues generated from the use of this infrastructure would be sufficient to generate these returns. The exposure of the NPRF to Irish infrastructure could be wound down over time as specific assets and business units were sold off.

    2. Yes, of course, all of the semi-states could be sold off without having recourse to the NPRF, but (a) it is unlikely that appropriate market values would be secured in current markets – though there is an appetite for secure low-risk returns, (b) it would take time to restructure the businesses for sale, to enact legislation and to establish appropriate regulation and (c) an immediate investment stimulus is required to expand and enhance the productive capacity of the Irish economy and to counteract the contractionary impact of continuing reductions in the current budget deficit.

    3. The energy regulator, the CER, has been captured, not so much by the ESB and BGE – the businesses it is regulating, but by successive governments who have not advanced any direct Exchequer financing of huge investment by these businesses over the last 10 years, but have allowed these businesses to build empires (both at home and outside the state) at consumers’ expense. The CER has set prices and revenues for these businesses that compel consumers to pay up-front for a share of investment and then to pay for the full return and recovery of these investments. This, combined with Ireland’s dependence on imported fossil fuels for electricity generation, has resulted in Irish gas and electricity prices being among the highest in the EU and this has massively increased the cost base for all businesses and contributed to the significant deterioration in Ireland’s international competitiveness.

    The ultimate irony is that these semi-states are “competiting” with each other in the supply of electricity. The resulting price reductions reflect the reductions other EU member-states are experiencing, but Ireland’s relative cost disadvantage remains unchanged. For example, the ESB is significantly undergeared for a business of its nature; BGE has increased its gearing to “compete” with the ESB. Consumers are paying through the nose for the electricity and gas networks and this is a major part of the unnecessary cost wedge.

    Fine Gael’s proposal has the significant merit of vesting these businesses in a new semi-state holding company, bringing them to heel, restructuring and recapitalising them, applying effective regulation and ensuring that they focus on the purpose for which they were established – providing efficient and reliable energy supplies to Irish consumers (and not empire-building).

    4. The Government is congratulating itself on the recent approval of the go ahead for an East-West electricity interconnector; this should have been constructed years ago and a second should now be up for approval. This would have exposed Irish electricity suppliers to lower cost electricity supplies from the UK and all Irish consumers would have benefitted. Following the construction of the first gas interconnector, the government of the day decided to ignore the LNG import option and approved a second gas interrconnector. Now an LNG import facility is being constructed, Corrib gas will come onstream and the second gas interconnector (and, possibly, partt of the first), effectively, will be redundant, but Irish consumers will continue to pay it. Ireland is over-piped and undergassed; consumers are paying for it and this is another part of the unnecessary cost wedge. Some write-down of these silly investments will be required and an integration of the gas transmission systems on the islands of Ireland and Britain is required to introduce effective competition into the Irish gas market.

    5. On broadband investment, Fine Gael’s proposal could be viewed as an attempt to resolve some of the detrimental outcomes of the bodged privatisation of Eircom. And, in relation to water supplies, a single body replacing the disjointed activities of 31 local authorities has to make some sort of organisational and economic sense.

    I hold no brief for Fine Gael, but I found its proposal innovative and well thought-through – even if, In their shoes, I would have been far more radical.

  4. “Sorry I am to say, that a history of public works in Ireland would be a history of jobs [rip-offs], which has and will prove of much worse consequence, than may be at first apparent; it has given a considerable check to permitting grants of money. Administration seeing the uses to which it has been applied, have viewed these misapplications, as they term them, of the public money with a very jealous eye. […] how melancholy a consideration is it, that in a kingdom which from various causes had been so fortunate as to see a great portion of public treasure annually voted for public purposes, so abominably misapplied, and pocketed by individuals, as to bring a ridicule and reproach upon the very idea of such grants. There is such a want of public spirit, of candour and of care for the interests of posterity in such a conduct, that it cannot be branded with an expression too harsh, or a condemnation too pointed: nor less deserving of severity is it, if flowing from political and secret motives of burthening the public revenues to make private factions the more important.” Arthur Young *A Tour in Ireland: with general observations on the present state of that kingdom made in the years 1776, 1777, and 1778, and brought down to the end of 1779* Messrs Whitestone, Sleater, Sheppard, Williams, Burnet, Wilson, Jenkin, Wogan, Vallance, White, Beatty, Byrn, and Burton, Dublin 1780

  5. We need to be careful of CBA’s. As I think I recall, they showed, among other things, that the DART would be a bad idea, and that bypassing towns also would be a bad idea.

  6. re. Paul Hunt’s comment

    West-East electricity interconnector
    To what extent was the Government decision, announced on Sunday last, based on favouring “national champions” ? Will it displace a private sector initiative for another West-East interconnector, which the promoters claim will cost one-third of the Eirgrid interconnector?

    http://www.independent.ie/business/irish/imera-furious-over-bias-in-electricity-link-tender-1691948.html

    LNG facility on Shannon.
    It is not yet clear if this is actually being built, although An Bord Planála granted permission to Shannon LNG in March 2008.
    http://www.pleanala.ie/casenum/PA0002.htm

    In June 2008, this decision was challenged in a High Court action. I do not know what the current status of that action is.

    Despite much effort over decades, there has been little success in getting that kind on investment into the Shannon estuary. Aughinish Alumina and ESB’s Moneypoint power station have been built over the past 30 years. There was full planning permission for an oil refinery near Tarbert, but it was not built.

  7. Donal,

    Any suggestion of favouritism will be hotly disputed by the State bodies involved. The Irish civil service is renowned for ensuring that the decisions they prepare for Ministers will not be subject to legal challenge. My understanding is that previous governments and the CER held off on allowing the ESB to build the link in the hope that a “merchant” link would be built. Imera came to the party quite late in the day and it is possible that a Government/CER decision in principle had been made once the much delayed separation of Eirgrid from the ESB had been effected. Once the final decsion to proceed has been made the link will be built and paid for. There is still considerable uncertainty as to whether generators, suppliers and traders on both sides of the Irish Sea would be prepared to make the commitments to reserve and pay for the capacity on the Imera link to make this viable. As to the difference in costs being advanced by Imera, this is a matter for the technical experts in this area, but Eirgrid may be incurring extra costs to ensure the link is fully integrated with the onshore transmission network.

    A slightly more Machievellian explanation for the delay in approval would focus on the policy/regulatory desire to keep the bulk price of electricity high to atrract new entrants in generation to reduce the ESB’s market share. Now that the ESB’s market share has been reduced and Endesa, BGE, Airtricity and Viridian are active in the market the link that will low the entry of lower-priced British supplies may be approved.

    In either case, the result is that, for the best part of the last 10 years, Irish consumers have being paying over the odds for electricity.

    In the absence of user contractual commitments to long-term, tradable, firm capacity on gas or electricity lines (aka Coasian property rights, after Sir Ronald Coase the 1991 Nobel Laureate and used extensively in the US gas pipeline market) investment decisions of this nature will always be murky – and this is the case for gas and electricity throughout the EU.

    Once an investment is committed it is included in the Regulatory Asset Base (RAB) and the CER will make sure final consumers will pay for it, irrespective of the ensuing benefits. The inclusion of some doubtful investments (and the overvaluation of some assets in the electricity and gas RABs) is another reason Irish consumers are paying over the odds for electricity and gas.

    As for Shannon LNG, the project, not surprisingly, attracted the attention of the local, national and international Build Absolutely Nothing Anywhere Near Anybody (BANANA) brigade. However, the High Court action could serve as a valuable, objective assessment of the public health and safety issues – for which, one would expect, the project sponsors have prepared. It is to be hoped that the action, unlike the Corrib gas terminal controversy, will focus on these issues.

    All this is taking us a long way from the Fine Gael proposal, which, while not perfect, is advancing sensible policy, structural, regulatory and financial arrrangments to address these types of issues, to provide an investment stimulus and to bring some measure of relief to final consumers.

  8. I have read in the press (can’t find source, sorry) that the reason for high electricity prices here is to encourage competitors to the ESB to enter the market. The EU wants competition and the government has tried to facilitate this by having the regulator fix prices artificially high.

    Does anyone have facts to bolster/disprove this?

  9. @Brian J Goggin

    A hit! If I wished to damage a country that could threaten mine, I would … plant … persons who would arrange corruption of the populace and institutions for a few centuries or so. Any chance we could track down these ruffians?

  10. Just remember not to waste stimulus on anything represented by paper:-

    Mish has an insight into how valuable all those sub prime, alt A mortgages may be:

    Banks Walk Away On Foreclosures

    Homes, who wants ’em? No one it seems.

    Please consider Banks Starting to Walk Away on Foreclosures.

    Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff’s sale had been set, and notices about the foreclosure process were piling up in her mailbox.

    Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss.

    So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name.

    “I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable.

    City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate.

    In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.

    In Buffalo, where officials said the problem had reached “epidemic” proportions in recent months, the city sued 37 banks last year, claiming they were responsible for the deterioration of at least 57 abandoned homes; the city chose a sampling of houses to include in the lawsuit, even though the banks had walked away from many more foreclosures. So far, five banks have settled.

    In Kansas City, Rachel Foley, a lawyer who handles housing cases, said bank walkaways were “a rare occurrence two to three years ago.”

    “We’re seeing them dumped more and more at the moment,” she said.

    In Ms. James’s case, it has been impossible to determine who canceled the sheriff’s sale, since her last mortgage holder went out of business. Even the city clerk’s records did not provide an answer.

    “Nobody has any idea who owns what or who’s responsible,” said Judy Fox, Ms. James’s lawyer at the Notre Dame Legal Aid Clinic. “It’s a very common story.”

    Abandoned Homes, Abandoned Cities

    The above tactics are fueling something I talked about last week in America’s Abandoned Cities.

    Property abandonment is getting so bad in Flint that some in government are talking about an extreme measure that was once unthinkable — shutting down portions of the city, officially abandoning them and cutting off police and fire service.

    Homes in Flint and other such areas, have indeed fallen to their true value (less than zero). No one wants them at any price. Moreover there’s little incentive for anyone to do anything about this. Thus the discussion involves “shutting down portions of Flint, officially abandoning them and cutting off police and fire service.”

    Our throw-away society has effectively reached a new level of efficiency: the throw-away city.

    Walk Away Recap

    I have talked about Walking Away on many occasions. Here is a sampling.

    * January 28, 2008: 60 Minutes Legitimizes Walking Away
    * January 29, 2008 The Business of Walking Away
    * February 07, 2008 Moral Obligations Of Walking Away
    * February 15, 2008 Businesses Advised To Walk Away
    * April 15, 2008 Walking Away: The Next Mortgage Crisis
    * March 25, 2009 America’s Abandoned Cities

    Everyone is looking for a way out. Some are angry that home owners are waking away from houses sticking banks with properties. What about banks walking away from houses? What about cities abandoning sections of cities?

    Imagine praying to be foreclosed on then having the bank walk away from the foreclosure sale because your home is no longer an asset to anyone. You don’t have to imagine it, it’s happening.

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com
    Click Here To Scroll Thru My Recent Post List

  11. Interconnectors make sense when demand for energy is increasing…… growth? Now? Seriously in doubt.

    Import substitution is also tricky as mal-investment internationally means that the true long term values of imports may have changed. Substituting for them may be a hit or miss affair.

    Better to invest in the only major productivity increase that has worked in the last decade: WWW! We need more porno at light speed. It would save infrastructure costs but would not create many jobs. In the long term it would save on oil, motor vehicle imports etc. Business and study could be done online.
    How about excellence in Medicine and academia generally? A large trend is for those who can afford to upgrade degrees. We need an online Uni that can get world wide coverage. Obviously not in banking or economics…. or politics.
    Comparative advantage perhaps? Rainfall etc?

    But energy is only in demand if there is growth. Maybe in ten years?

  12. On the interconnector, citing ESRI work in progress:
    In principle, an interconnector is a commercial prospect. The arbitrage opportunities between the electricity markets in Ireland and Great Britain are sufficiently large to earn back the investment cost in 2-4 years.

    The company Imera apparently agrees, and is seeking to build two interconnectors as a private investor.

    EirGrid also wants to build one, underlining the commercial attraction, and is seeking support from public finance to further boost their expected profits.

    Not all interconnectors are created equal. The EirGrid one is considerably more expensive than the Imera one, I guess primarily because the EirGrid interconnector is almost twice as long. That said, Imera is taken a bet on improvements in the grid in North Wales while EirGrid is connecting into more reliable power.

    In sum, interconnection is probably good. The need to throw public money at it is less obvious.

  13. In response to Paul Power:

    The simplest questions are often the most difficult to answer. The fact that Irish electricity and gas prices are among the highest in the EU cannot be disputed – more emphatically so when the impact of taxes is removed, but the full panoply of State bodies involved in this area ranging from the ESB and BGE, through the DCENR, the CER to Sustainable Energy Ireland are engaged in an effort to explain this away, muddy the waters, offer spurious explanations, etc. Some recent examples include: the SEI which put in a serious effort late last year to avoid the obvious in:

    http://www.sei.ie/Publications/Statistics_Publications/EPSSU_Publications/Understanding_Electricity_and_Gas_Prices/Understanding%20Electricity%20and%20Gas%20Prices.pdf

    The usual hoary old chestnuts about imported fossil fuel share in the electricity generation mix, peripheral EU country and the requirement to catch up on a huge backlog in investment in the elctricity system were offered. Plus a highly dubious attempt was made to show that on PPP terms Irish prices weren’t so high after all.

    The ESB advanced the hoariest chestnut of them all in evidence to the Oireachtas Joint Cttee on Comm., Energy & Nat. Res. on 10 Dec. 2008:

    http://debates.oireachtas.ie/DDebate.aspx?F=MAJ20081210.xml&Node=H2#H2

    This is that the low density and dispersity of population results in three times more network per customer than the EU average. The ESB, of course, failed to mention that customers remote from the network make significant capital constributions to connection costs. These are just eamples of the on-going effort.

    It is true that all these factors play some role in Ireland’s higher prices, but, in most cases, they are conveniently outside the control of all these State bodies. Every effort is made to avoid objective assessment of the costs they do control. In the face of this publicly funded barrage of misinformation and obfuscation it is impossible for an independent investigator to acquire incontrovertible evidence of the real reasons.

    But, despite often angry and intemperate denials, it is possible to sketch out the principal factors within national control. Both the ESB and BGE maintained price freezes from the late 1990s into the early 2000s. In the ESB’s case this reduced profitability and allowed it to impose some wage discipline, staff re-organisation and working practice changes on its infamously militant Group of Unions. But it also, in the absence of direct Exchequer financing and with a statutory limit on its borrowings, restricted its ability to finance much needed investment in generation and networks. And low prices layered on continuing economic growth massively increased the demand for network investment. Enter the CER which was empowered to set prices and tariffs that would allow the ESB to finance a huge surge in investment without any direct Exhequer financing and a limited increase in in its already low gearing. Consumers ended up paying up-front for a big share of the investment and then paying for the full recovery of, and return on, all investment. Once the CER started regulating the ESB’s network revenues took off like a rocket. It is clear that the ESB’s network revenues had to increase, but more efficient financing would have minimised the impact on consumers. An emergency act increased the ESB’s borrowing limit in 2004, but that did little for the gearing of network investment. The ESB was more keen to use this firepower to expand its overseas operations.

    It is the same story for BGE’s network revenues – and they are recovering some dodgy interconnector investments as well. Its borrowing limit has also been increased and it is using this firepower to expand its empire both in the Republic and Northern Ireland.

    To add to this, the 1997-2002 government which established the CER, decided that the ESB’s effective monopoly in generation should be ended. This is in line with the thrust of EU primary legislation but there are no specific provisions that require the final objective of reducing the ESB’s share to 40% on the island of Ireland. As a result the ESB was prevented from investing in new – and badly-required – generation capacity. The CER set a Best New Entrant (BNE) price for bulk electricity supplies that was far higher than the average bulk price that would be yielded by the ESB and this was intended to attract new entrants in generation. The economics appeared impeccable. The price would be set by the marginal cost of new supplies and new entrants would throng to Ireland. Unfortunately, it didn’t happen quite like that. Prospective new entrants required further assurances and long term contracts at guaranteed high prices before they would enter the market – and the CER obliged by approving deals whose terms are, of course, commercially confidential.

    Consumers have being paying these high prices for almost 10 years. Somehow it didn’t seem to register that the true marginal cost of additional supplies was the cost of lower-priced UK supplies via an interconnector. The decision on such an investment was, unsurprisingly, delayed.

    And to top it off, considerable expense was incurred, all of which was defrayed via prices to final consumers, to open the market to full retail competition and to create an all-island electricity market.

    Some “competition” is emerging in the elctricity market, but it is simply passing on the electricity prices decreases being experienced elsewhere in the EU. The underlying domestically-controllable cost wedges remain in place and Ireland’s international competitveness in this area is being worsened.

    Although this narrative may be doumented via material in the public domain, all of the State bodies involved would vehemently deny the conclusions drawn. Ergo stalemate.

  14. @Richard: “That said, Imera is taken a bet on improvements in the grid in North Wales while EirGrid is connecting into more reliable power.”

    Is Imera perhaps counting on the replacement of the Wylfa nuclear power-station? There were reports in January that HMG (or rather the Nuclear Decommissioning Authority) was considering Wylfa and three other sites where replacement nuclear power-stations might be built.

  15. Paul, the SEI document attributes the PPP adjustment to a straight comparison of consumer electricity prices across the Eurozone to Eurostat!. This is a new one on me. Does Eurostat believe that comparisons between prices in Dublin and Wicklow also need a PPP adjustment?

  16. Richard,

    Your reference to ESRI work in progress seems to suggest that, with an interconnector, the differential between the day ahead prices in both markets would not be altered significantly, that the principal direction of flow would be from Britain to Ireland and that the investment would be recovered relatively rapidly – relative, that is, to the usual technical or economic life of these investments.

    This may, indeed, be the case, but it doesn’t tally with my understanding that interconnection between two previously isolated markets with reasonably transparent price discovery will, in the absence of congestion, generate a basis differential between the prices that will approximate the short run costs of increasing (or decreasing) flows on the interconnector.

    In this way most of fixed costs of the interconnector will be internalised in the prices in both markets. However, it may that large-scale interconnection is required to achieve this effect. Smaller scale interconnection (along the lines being considered) might not generate this price equalising effect and one would expect British generators and suppliers having an incentive to reserve (and pay for) capacity on the interconnectors.

    The only Irish supplier/generator which is likely to benefit is the ESB which is restricted to a maximum generation market share of 40% on the island of Ireland, has been compelled to divest generation plant and would probably be prepared to divest, shut down or mothball older, less efficient and less available plants if cheaper UK supplies were available. All other recent market entrants would be unwilling or unable to curtail production.

    Therefore, it is probably not surprising that Eirgrid, although it is operationally – but not in ownership terms – separate from the ESB, being given the go ahead.

    In any event, Irish consumers should gain from interconnection, but the ESB’s supply business will also gain and other Irish-based generators will lose – ie, unless they have rock solid supply contracts guaranteed by the CER which means that Irish consumers’ gains will be very limited. The impact on the British market is likely to be small.

    The situation for the gas market is a little different as it is unlikely, despite the efforts of the regulators (both North and South) to create a single all-island gas market, that this market will have the liquidity to generate transparent and continuous price discovery. If this proves to be the case, the most effective means of means of moving toward a degree of price equalisation across the markets on the islands of Ireland and Britain is to integarte the transmission networks on both islands. Irish consumers would gain unambiguously from this, but it would be a hard sell as British consumers would be likely to lose somewhat – though it would be close to being neglible in per capita terms.

  17. Colm,

    The answer to your question, probably, is yes. Eurostat used to collect prices by major city on the continent (many of which had their own municipal supply businesses). The SEI, not surprisingly, seized on the Eurostat finding that, on a PPP basis, many prices in Ireland are lower than the EU average. This is another way of saying that household gas and electricity costs are lower as a share of consumer disposable income than the EU average. This is true – and may explain why the over-charging here hasn’t provoked public outrage – but over-charging is over-charging even if consumers have incomes higher than the EU average to pay the bills. In addition, businesses in the traded sector pay little attention to PPP adjusted prices. They are looking at a cost line and the impact on their bottom line (and comparing it with that of their competitors in the continent or that of other plants in their group located there). Using an EU-27 average distorts the picture because it includes 12 new entrants whose prices, in many cases, have yet to reflect economic costs and where incomes are well below EU averages. The comparison, if it is to be made at all, should be with Ireland’s major EU trading partners or with EU-15 – or with the other Eurozone countries.

    This is an excellent example of the publicly-funded distortion of statistics that we are up against.

  18. @Brian

    Imera is betting that:
    (a) Wylfa will be replaced;
    (b) Wylfa will be kept open long enough to recoup the investment (recall that Anglesey is to close, so that there will be excess electricity in North Wales); or
    (c) North Wales will be properly connected to the grid in England and Wales.

    The probability of each is lowish, but the sum may be high enough.

  19. Richard,

    Thank you for the enlightenment and for the link. I am doing some work on the potential to compete the internal EU market in gas and, in passing, was interested to see whether some of the concepts that are applicable there are also applicable in the case of electricity interconnection. You have helped to clarify some of the reasons why not.

    This suggests that the differential between Irish and British electricity prices will be sustained indefinitely. It may also be inferred that, for gas, a continuation of the current arrangements will sustain a continuing differential between Irish and British gas prices.

    I suspect that only full integration of the transmission networks on both islands (thereby internalising interconnector costs in a single price on both islands) will help to move final prices on both islands closer.

    All this has taken us a long way from the original post on Fine Gael’s stimulus plan (which, I believe should be considered further), but I suspect this thread has petered out.

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