The cost of triple regulation

There has been some consternation about the announced energy levy. See Times, Examiner, and Independent (in decreasing order of accuracy).

The CER has announced an increase of the PSO levy (currently near zero) to a total of €157 mln a year. This is a levy on a connection, €33/yr for households and €99/yr for small businesses. Large companies pay a levy that depends on the capacity of their connection: €14/kVA/yr. The method of payment and the distribution of costs makes perfect sense if the PSO levy would be for security of supply (in the sense of avoiding black-outs), but that is only €14 of the €157 mln.

These are small amounts, but the costs are unnecessary. About €72 mln will be a subsidy for peat, and about €43 mln will be a subsidy for wind. That is, we subsidise carbon dioxide emissions and subsidise the reduction of carbon dioxide emissions at the same time!

Tuohy et al reckon that 0.9 mln tonnes of carbon dioxide can be avoided if we do away with the peat subsidies, and save €70 mln. On average, that is €78/tCO2, but their estimate of the marginal cost is €19,500/tCO2! Today’s spot price for emission permits is €14/tCO2.

I am not aware of a detailed study of the implications of the REFIT scheme on emissions and costs. REFIT is part subsidy and part price guarantee, so back of the envelop calculations are more likely to confuse than to illuminate. Suffice to say that REFIT subsidises carbon dioxide emission reduction.

The prime instrument for emission reduction is, of course, the EU ETS. I would think that that is enough. I do not understand why we would also subsidise emissions and emission reduction — and we would save €115 mln while simplifying regulations.

Some say that we need REFIT to meet the renewables obligation, but the EU will likely scrap that as some of the big Member States cannot meet theirs. Besides, it has yet to be established that REFIT is an effective and cost-effective way to meet the renewables obligation. Both renewables and peat are said to help with security of supply (in the sense of import dependence), but that is just another word for import substitution, and the available analysis has not gone much beyond hand-waving.

So, for now, I would think we would be better off without (most of) the PSO levy.

40 thoughts on “The cost of triple regulation”

  1. Probably easy to do this in comparison to putting cost discipline onto whole energy sector.
    Whats the average wage at the peat power generators? 120K?

  2. You have to separate out the PSO from the REFIT (which is a component of it). The peat subsidy is nominally a security of supply payment (works out at about 2c / kWh, so that’s quite a price); in reality, it is of course a subsidy to the midlands (every time a tonne of peat is consumed the security of supply situation is worsened).

    The purpose of the REFIT is primarily to enable wind farms to be made bankable. ETS will not help in this regard – at least not unless a mechanism existed by which the wind farm saw any direct benefit from the supply of carbon-free electricity.

    By offering the developers of wind farms a low but nonetheless guaranteed price for their output the projects are made bankable. The price when the scheme was 5.9c / kWh, a lot less than the 8.8c/kWh for the ‘Best New Entrant’ and a lot less than the 15c ex VAT a householder pays. Says a lot about the supplier and ESB/Eirgrid margin in the middle.

    This was all achieved at remarkably low cost, with the CO2 benefits of almost 1c / kWh being (in the early years of the scheme) substantially more valuable than the cost of the price support.

    So triple regulation – no. A cheap way of aiding the bankability of projects which have a higher ratio of capital cost to revenue than an oil platform – yes.

  3. It’s amazing how the use of acronyms may be used to conceal reality. A public service obligation (PSO) is an obligation which may be imposed on the provider of a public service to provide service to some consumers or in some areas or to provide a type of service which, ordinarily, the provider would not consider economic. In some instances a levy may be imposed to finance the provision of this service. But there is no requirement for a regulator to impose a levy to finance the pursuit of a particular policy policy. (The UK gas regulator in the mid ’90s, Clare Spottiswoode, famously refused to impose a levy to finance house insulation declaring that “it was not her duty as a regulator to act as a tax collector for the government”.)

    This levy has only a vestigial relationship with the public interest. It is a “protect jobs in the Midlands” and a “feed the wind generation subsidy chasers” levy and the CER should have no role in this nonsense.

    But the CER is involved because it has gotten itself tangled in a complex web. Part of the reason that the PSO levy was set to zero in the last couple of years is that the ESB was prepared to devote some of its windfall from the EU ETS to net out the costs incurred. The new carbon levy (windfall tax) being imposed on the ESB removes this option and the ESB needs all the cash the regulator can gouge from consumers to finance its investments and the acquisition of the NI networks without significantly increasing its borrowings.

    This goes to the heart of the political deal between FF and the Greens. Mr. Cowen protects peat-fired generation jobs in the Midlands and Minister Ryan has the regulator gouging consumers to finance the ESB’s implementation of his green whizzo schemes.

  4. @Conor
    The price guarantee in REFIT is a subsidy (in the economic sense of the word) even if, as you probably correctly assert, it reduces the costs of borrowing for wind power.

    I do not know whether it is cheap or expensive as I have yet to find a serious analysis.

  5. There has to be a way to allow traditional turbidary rights to cut and foot turf while moving away from industrial scale stripmining of same…

  6. @Brian Lucey:
    The solution is simple: allow the extraction of turf only when it is cut by hand and moved from the bog using a donkey with creels or a turf-boat. No industrial-scale machinery — but no tractors either.
    bjg

  7. @Richard
    Re. Import Substitution

    Your equation of energy security with import substitution is misplaced.
    In a graphic which I never seen repeated elsewhere, the EPA pointed out that in 2000, “fuel inputs of almost 5 million Tonnes of Oil Equivalent (TOE) produced only 2 million TOE of electricity. In total, approximately 59 per cent of energy inputs are ‘lost’ during the production process. (See Indicator 12 Energy Efficiency on p.29 of the pdf of the report Environment in Focus 2002 http://www.epa.ie/downloads/pubs/other/indicators/epa_indicators_2002.pdf)*

    What else do we import, at world market prices, knowing beforehand that we are going immediately to waste 40 percent of it?* Surely in makes sense to substitute these kinds of imports with resources that we have to hand, even if we have to import that machinery needed to exploit these resources.

    The debate on the PSO levy hides a more serious issue which Paul Hunt has raised again and again ie. government policy on the structure of the electricity generation and transmission businesses in Ireland.

    It appears that current Government policy (Green Party inspired) is to tell the state owned entities that have energy assets( ESB, BGE, BnM, Coillte landbanks, Eirgrid) to get as much RE onto the system as possible. There has been little or no attempt to design a market structure that would assist the development and investment in renewable energies over time.

    As an example within the last 12 months, BGE accounts suggest that it paid in excess €500m for SWS, after ESB had let it be known that the portfolio of mainly wind generation assets was not worth that. See Sunday Business Post report here http://www.thepost.ie/story/?jp=eyeycwidau. This expenditure (of state-guaranteed funds, implicit if not actual) did not add one extra MW of generating capacity in this state.

    *The EPA text also pointed out that “A further 14.8 per cent of electricity produced is ‘lost’ during the transmission and distribution stage.” Does ESB still have an effective monopoly on building transmission lines for Eirgrid, at monopolisitic prices?

  8. @Donal
    That’s a bit mercantilist. International trade should be driven by comparative advantage. Ireland is a small country, and therefore imports a large share of lots of things — 100% of cars, kiwis and Gucci handbags, for instance.

    Electricity is an essential input, so we should probably have some fuel stored in case the market folds — but that is no reason not to import during normal times.

  9. @Donal

    You’re correct. When you use fossil fuels to produce electricity about 60% of the energy is wasted. At least with wind and hydro you get 100% of energy you capture. In many European countries they make use of much of the 60% that we loose by using it for district heating.

    Also in relation to peat and security of supply, I heard John Fitzgerald once say that it would do more for energy security to leave the peat in the ground. Then if we ever have a real energy crisis again we can take it out of storage and start utilising it!

  10. @ Donal

    For 2008, the electricity supply efficiency (final electricity consumption over primary energy consumption) was 49% [Figure 11 of SEAI’s ‘Energy in Ireland 2009’:http://www.seai.ie/Publications/Statistics_Publications/EPSSU_Publications/%5D.

    This is actually pretty good compared with America’s 34% [Figure 8.0 of EIA’s ‘Annual Energy Review 2008’: http://www.eia.doe.gov/aer/%5D.

    A large part of the difference comes from the fuel used for electricity generation and the age of the power plants. A 20 year old coal plant might have a 35% thermal efficiency, a new coal plant can get 47%, a new CCGT can get 58% and a new nuclear plant gets 33% [Table 10.4 of the IEA’s World Energy Outlook 2009: http://www.iea.org/W/bookshop/add.aspx?id=388%5D.

    Depending on the temperature of the exhaust heat, you can put it to various uses. Economical use of this heat typically requires continuous steady heat demand in close proximity to a power plant. Ireland doesn’t have much heavy industry, and a substantial part of what we have is not suitable for CHP. Cement manufacture uses 20% of Irish industrial non-electrical energy, but the kilns require heat in excess of 1,000 C whereas the exhaust temperature from an OCGT might be just 500 C.

    For district heating we don’t have nearly as many heating degree days as Denmark for example, and we also like front and back gardens, so population density is lower also. Prospects for future district heating are low according to SEAI’s 2009 ‘CHP Potential in Ireland’ (http://www.seai.ie/Publications/Your_Business_Publications/).

    The government’s 2001 National Climate Change Strategy set a target of 377MW of CHP by the end of this year from the then current 122MW. The target excluded the large CHP plant at Aughinish Alumina. If you take that away from the current total (282MW operational at end of 2008), we have exactly the same 122MW as when the target was set. The 2007 Energy White Paper set another target of 400MW by end of 2010 (likely to be undershot by about 100MW). The white paper also set a provisional target of 800MW by 2020 – don’t hold your breath.

  11. @karl,

    unfortunately peat bogs are slow carbon sinks, about 0.25-1 tCO2/Ha/y.

    there is about 1 million Ha of peatland remaining, so that equates to €3.75m – €15m assuming a carbon price of €15/tCO2.

  12. Can we at least take some comfort that the Irish government is not simultaneously giving funding both to the IPCC (http://www.ipcc.ie) to protect the bog, and to Bord na Mona to dig it up – or are they inconsistent there too?

  13. @Karl, bg
    Approximately, the amount of carbon released into the atmosphere when burning peat is the same as the amount of carbon captured in the bog.

    Let’s be generous and assume that we subsidize peat burning at 78 euro/tCO2. The market value of CO2 is 14 euro/tCO2. So, we spend 78 euro to destroy 14 euro, which makes 92 euro/tCO2.

    Fortunately, we do this for about 1 million tonnes only.

  14. We are obliged to subsidise the peat generating plants until 2017 and 2019 if memory serves me right. Co-firing with biomass kicks in around the same time. EPA emissions projections for electricity have some unusual and counter intuitive results.

  15. @Richard
    Noted

    @Eamon Keane
    Thanks for that update and international comparison

    I still wonder about the kind of market that the Government is trying to create/manage/manipulate when
    1) one wholly state-owned electricity company thinks it not worthwhile to buy a portfolio of wind assets;
    2) another wholly state-owned energy company pays over €500m to buy the same portfolio of wind assets.

    It will be interesting to see who benefits from the PSO.

    It strikes me that the barons are out control (and all that implies for costs being imposed in whimsical ways on the rest of us), given the absence of the kind of coherent policies that Paul Hunt and others have long argued for.

    Given that
    • 3bn people have joined the capitalist system during the past 20 years, as Intel’s Craig Barratt pointed out earlier this year;
    • The pressures this implies on resources and prices, not just this year but for years to come;
    • The long lead times and usable life of equipment needed to generate and distribute electricity;
    • The island of Ireland is very windy due to geography and ‘atmospherics’ ;
    • the technical feasibility and operational viability of generating electricity using a fuel that is not subject to world market prices;

    the issue remains of how to design a market structure for electricity to give us some comparative advantage.

  16. Thank you, Donal, for alluding to my continuous wittering about the requirement for efficiency in production, investment in and consumption of energy – though I expect any readers who notice switch off.

    The ‘received wisdom’ that is EU energy policy – to which Ireland, for all sorts of uniquely Irish reasons, subscribes more enthusiastically than most – is based on three ‘pillars’: competition (which should be about efficiency, but, more often than not, isn’t), sustainability (now dominated by decarbonisation) and security of supply (frequently interpreted as national control of ‘strategic’ assets). Although Eurocrats and national policy-makers may be aware that there are inherent conflicts between the policy objectives mandated implicitly by these ‘pillars’, they seem to see this as a challenge that may be overcome by imposing increasing numbers and layers of targets and associated policy and regulatory instruments and mechanisms. Richard’s post on ‘triple regulation’ is an excellent example of this in a specific area of the energy sector in one small member-state. There are (rapidly becoming countless) numbers of these examples at the EU level and throughout all member-states.

    And any evidence of inadequate progress towards meeting these targets is treated as an invitation to devise and impose more, and more complex, instruments and mechanisms. It is rapidly approaching Santayana’s definition of fanatacism: redoubling your efforts when you have forgotten your aim – previously highlighted by the late, lamented Tony Judt in a broader critique of the institutional EU (http://www.guardian.co.uk/books/2010/aug/08/tony-judt-obituary).

    When one adds national political and policy imperatives as these EU-level policies and instruments are transposed into national legislation and regulation there is the potential for weird and wonderful – and seriously economically damaging – outcomes. And so we come to Ireland.

    There is a huge gulf between the critique of economic policy presented on this site – and on others – (valuable and all as it is) – and presented in more detail by the principal contributors in other fora and publications – and the actual process of policy-making and implementation. Policy is formulated behind the scenes by ministers, special advisers and senior department officials seeking to balance the demands of various vested interests – and with an eye on the concerns of a handful of backbencher TDs who might threaten to press the ‘nuclear button’ and deprive the government of its Dail majority.

    That this gulf exists is understandable and appropriate (policy formulation by web-site would have no legitimacy – nor am I suggesting that this is the intention on this board), but the gulf is an abyss into which all manner of valid critiques disappear without trace (and the rebuttal and diversionary capability of the government spin-machine is overwhelming). So it should be no surprise that so much bad policy is implemented.

    Can we build a public discourse across this gulf? Yes, we can – and we have to. But it requires the elected representatives of the people to make the first move.

    In the meantime, and in the context of Richard’s original post, we are relying on the Asset Review Group (hopefully expliting the item in its ToR – “To review where appropriate, relevant investment and financing plans, commercial practices and regulatory requirements affecting the use of such assets in the national interest”.

  17. It is extraordinary the lengths the government will go to impoverish its own people and subsidise uneconomic pursuits, in this alternative energy. Just extraordinary

  18. Higher energy costs means less jobs, higher prices of goods and services to the consumer and higher costs to produce goods and services. Less disposable income, less competitiveness and less incentive for firms to set up in a country with the 3rd highest energy costs in Europe and still rising.

    The main component of costs for businesses remain the myriad charges being imposed by government, semi state bodies, city and county councils who run themselves so inefficiently that they are loss making and totally dependent on borrowing to provide services and pay salaries.

    All of them are looking for any excuse to raise taxes. Straw and camel come to mind. Call them what they like congestion charges, levies, contributions, donations etc. Fact is, they are taxes conjured up by government who know they will cause more job losses.

    ESB charges are disgracefully high, in a company that is often perceived to be run for the benefit of its workforce and powerful unions rather the consumer. Eamon Ryan is responsible for reducing costs not increasing them and there is no excuse.

    The regulator is another retired public servant. This time, from the department of finance. Could they not get anybody else to do this job? Are we that short of suitably qualified personnel? Why is someone that has been sheltered that has never run even a small business given this important job, to act as intermediary between a semi state body and consumers of electricity? He is beholden to the government and has proved it over and over showing little if any independent resolve. Why is someone on a very substantial government pension given a second job when so many suitably qualified people are out of work? Is this just another quango? If I know what he is going to say before he speaks and I do know, with unerring accuracy. Why then do we need the pretense of a regulator at all? He is no more independent in his job than was the financial regulator in fact there are more than enough similarities between the two.

    Far too many entrepreneurs that risked starting businesses had to fold their tent and sell them off cheap because they could not handle the ESB monopoly.

    Last time I had dealing with the ESB they told me that they did not pull cables through conduits anymore. They did have the telephone number of some contractors, Polish guys who were willing to this inferior work but not for a 100K a year I bet. When that was done they could do the connections.

    Every one of these costs regardless of whether it is disguised as a carbon tax, bog tax whatever, is putting workers out of work and sending out the wrong message. There is little doubt that the ESB with their stratospheric energy costs and their obsession with wrong footing private sector companies contributed and contribute disproportionately to the current cataclysm. I fully expect the ongoing sabotage of the national competitiveness to continue.

  19. Could I just deal with a factual error in what Robert Browne says about me as energy regulator. I am not a retired public servant and am not in receipt of a pension from anybody. I moved from the Department of Finance to the European Investment Bank in 2000 and was appointed to my present position in 2004. Robert may have picked this up from Joe Duffy but he should not believe everything he hears on Liveline!

  20. It is encouraging that Commission Chairman Tutty takes an interest in the diccussions on this board – or, perhaps, his attention was drawn to the factual error that he has so promptly and appropriately corrected?

    Despite my critique of energy policy and regulation in Ireland, I have considerable sympathy for Commission Chairman Tutty and his fellow Commissioners. Beginning with the legislation that established the Commission in 1999 a continuous stream of Acts of the Oireachtas has granted powers and imposed duties on the Commission that a competent legislature, seeking to ensure an appropriate separation of policy, regulation and the ownership of the dominant regulated businesses in the public interest, would not have countenanced.

    It is truly an invidious position being compelled to deal with both an abrogation of policy responsibility and serious policy failures by successive governments. Members of regulatory bodies in other jurisdictons to whom I have spoken found it difficult to comprehend the duplicity of government, the extent of damage to consumers’ interests and the sustained incompetence of the legislature.

    Some indicated that, were they confronted with such circumstances, they would have no option but to resign. I expect in Ireland this would not be a realistic option. In other jurisdictions there would be a possibility that resignation might compel government and the legislature to confront their failings and to initiate appropriate reforms and that the professional reputations of individuals would not be destroyed – indeed they might even be enhanced. In Ireland I suspect that the government spin machine would go into over-drive, professional reputations would be destroyed, every sinew would be strained to demonstrate there was “no problem” and the Minister would appoint new commissioners promptly.

    It seems that so many powers have been granted to, and duties imposed on, the Commission that any consideration of refrom that would be in the interests of consumers and the economy would present an ‘appalling vista’.

    In the meantime the interests of consumers and the economy continue to be damaged.

  21. Apologies to Michael Tuffy for the above error. It was indeed stated on Liveline that you were retired from the DoF and the Podcast of that interview is still available online.

    This levy which will cause increases of up to 5% in electricity charges has become somewhat totemic of what is wrong with the country. This is not entirely your fault as you rightly point out that we are one of the most highly dependent countries for fossil fuels, save Italy, in Europe. You told us that we must ask ourselves Why energy costs are going up. Have you compared the salaries, pensions and share ownership entitlements of our workers with similar workers doing like work across the EU?

    Our over dependency was bad planning by ESB. When oil was $10 a barrel they failed to invest in alternative energy strategies that would deliver for the country. Failure for which the consumer tax payer is now being asked to bear the burden of even as they pay the third highest electricity prices in Europe.

    For the extraordinary large remuneration package that the chief executive of the ESB is provided with we are entitled to assume that proper strategic analysis, investment and diversification into the various energy alternatives would have been a given. Why must we constantly play catch up? Yes, it is a great company for those that work in it but not for those that consume its products that is the bottom line.

    ESB employees and executives have been masterful at planning and executing salary increases and leveraging ESOP. Why was there not the same degree of planning when it came to investing in Irelands renewable energy imperatives including R & D leading to badly needed manufacturing jobs? As regulator, you have rewarded these gross inefficiencies by unerringly passing on the costs to the end user. It is the easy option the soft target but in truth no longer a viable option. . The perception is that energy regulation is a one way circuit the phases of which are always upward only. It is down the cost of electricity has to come not up. Down means more jobs, up means less jobs that is an easy mantra to remember.

  22. @Robert Browne,

    I’m sure Commission Chairman Tutty is well able to defend himself if he so chooses, but I think much of your fire at both the Commission and the ESB is misdirected.

    As in the banking crisis, the fault lies at the door of successive governments and of an Oireachtas that failed to scrutinise draft legislation properly or to impose restraint, in the public interest, on an over-mighty executive.

    It was successive governments that decided that (a) the ESB and BGE should remain as financially integrated businesses, (b) there should be no direct Exchequer financing of the huge investment pursued by these businesses during the last decade and (c) the Commission should have responsibility to implement policies in relation to security and diversity of supply, renewable energy and the protection of jobs in the midlands – a policy responsibility that should have remained with government subject to scrutiny and restraint by the Oireachtas. This is why we have the ‘triple regulation’ highlighted by Richard in his post.

    Why do you think the Commission is empowered to set prices and tariffs – and not the maximum prices and tariffs determined by regulators in other jurisdictions? It is to ensure that the Commission can award the ESB and BGE the excessively high cash flows they require to finance their activities in the absence of any direct finance from the majority shareholder. It is precisely the same, but on a much smaller scale, in relation to the PSO levy. The Commission is empowered and has a duty to determine and apply this levy. There is no indication that the Commission sought this power and duty, but it is obliged statutorily to make the determination and apply the duty.

    It is for these reasons, in addition to the deeply flawed and, for consumers, extremely costly application of primary EU legislation to establish competition in gas and electricity, that Irish electricity and gas prices are among the highest in the EU. The Commission, perhaps, deserves some credit for, stoically and uncomplainingly, standing as the whipping boy receiving much underinformed and undeserved criticism – when the justifiable fury should be directed at successive governments. However, given its duties to ensure efficiency in the regulated businesses and to protect the interests of final consumers while these businesses are being financed inefficiently and the interests of comsumers gravely damaged, one wonders if being stoical and uncomplaining is genuinely in the public and national interest.

    And there is no point in criticising the management and the staff of the ESB or BGE. These are commercial bodies pursuing their interests within the parameters of explicit and implicit government policy. It would be irrational for the staff of these businesses not to seek to maximise their pay and conditions in the face of governments prepared to buy industrial peace. In addition, even significant reductions in the pay of manangement and staff would have a very limited impact on final prices – without any consideration of the cost of the disruption this would cause. And any reduction would pale into insignificance compared to the additional excessive costs being imposed on consumers as a direct result of government policies.

    And to protect their interests the managements of the ESB and BGE are, very sensibly and rationally, given Minister Ryan what he wants in terms of network integration on the island, extending and enhancing the network to hook-up wind generation, a commitment to long-term de-carbonisation and to EVs (all ESB), investing in wind power and supplementary generation and developing a ‘competitive’ electricity supply business (both BGE). And it is fnal consumers who are paying for all this without any proper assessment of the economic costs and benefits.

    It is time to focus on the principals (the Government and the Department) and not on the agents (the CER, the ESB and BGE).

  23. While any price increase in electricity is unwelcome, could I put some reality around the effect that this will have. I posted elsewhere here in reference to the National Competitiveness Council’s report on the Costs of Doing Business in Ireland about the low share of overall costs in industry that’s accounted for by energy costs (let alone electricity costs).

    SEI showed similar results in their 2007 report on Energy in Industry. In that report they show that 94% of all industrial enterprises spend less that 3% of their costs on electricity and this cohort of enterprises generate 93% of industrial value added and 92% of industrial employment.

    So at the upper margins of both the share of electricity costs and the forthcoming price increase will see costs increase for the majority of industrial enterprises of 0.15% (3% x 5%) at most. Is 0.15% increase in costs significant? I don’t know but perhaps someone here does.

    Some other facts. Between the second half of 2008 and the end of 2009, Eurostat data show that electricity to Irish industry fell by 17.3% – the third largest fall in the EU. During the same period French electricity price increased by 6.3%. I wonder did French economists jump up and down about this? Ok I accept that our prices are much higher than in France but it shows the danger in looking at just percentages rather than looking at the full picture.

  24. @ Paul, Richard

    Well then are we back to just another hand wringing exercise. I look at the bottom line which is electricity prices are far too high driving people and businesses into insolvency. I really don’t want to hear ” I was only following rules”. If the “rules” and the laws of nature dictate then why do we need a CER at all? At this stage, of our national insolvency, rules may need to be broken and not just the odd one or two. We are looking for leadership here and we are getting the opposite. Cowen should come out of hiding and stop this 5 % increase but if he did that the Greens would pull the plug (pardon the pun) and that would be the end of FF for at least a decade. If you want me to say this is political, then, Yes! It is.

    As a business person I look at results. if the results are bad, and they are very bad in the case of the ESB. Then, I ignore all the paid government and semi state publicists and spin doctors telling me black is white and that the ESB is a very well run company. It is, for the workers but not for the consumers. It is delivering electricity but not at prices that are in any way competitive. It is causing business failures and misery for many people. Richard, as an aside, where do you stand on Nuclear power being generated in this country or is James Lovelock wrong on nuclear?

    It is of little compensation to people on dole or the businesses struggling that their electricity provider is making 450 million in profits.

  25. @BigEnd,

    How full a picture do you want? The current policy and regulatory arrangements are imposing a €500 million a year deadweight loss on Irish electricity and gas consumers. This means they could get exactly the same service and supplies for €500 million less a year.

    I agree that, across the board, for large industrials energy costs may not comprise a large share of their cost base, but some ICT players are quite energy intensive. In addition, there has been a re-balancing of electricity tariffs to reduce the tariffs to large industrials by increasing those to smaller volume consumers.

    The real economic damage is being done to households and small businesses – and it is only part of the damage being inflicted by high public sector and semi-state charges.

  26. @Robert
    Nuclear is irrelevant. We need to replace MoneyPoint before 2025, and we cannot plan and build a nuclear power plant by then.

    Paul Hunt’s first contribution on this thread correctly gives the political rationale for the PSO levy.

  27. @Robert,

    You are right. It is political, but it is based on the suppression, distortion, avoidance and ignoring of any economic analysis that might reveal the reality. Also remember that the Department, the CER, the ESB and BGE are the biggest sources of demand for energy consulting services. He who pays the piper calls the tune. Even suppliers competing with the ESB and BGE have no interest in contesting the levels of regulated costs once they are applied to them in the same way as they are applied to the ESB and BGE supply businesses. And the ESRI, probably the principal source of independent and competent analysis, is fettered by the fact that its Energy Policy Research Centre is being funded more than 50% by the Department and major, unnamed energy sector stakeholders.

    But you can be assured the truth will out eventually, even if, as in the case of the banking fiasco, it requires the sky to fall in.

  28. @Paul Hunt
    I’m aware of the big picture, it was actually the little picture I was trying to understand. If the vast majority of industrial enterprises have such a low share of electricity cost in their overall costs how is it possible that this increase will trigger massive job losses that some are predicting?

    I do agree that household consumers are probably now subsidising business electricity consumers.

  29. @BigEnd
    That’s exactly the problem. The sky will not fall in, and the power sector will continue to extract rents which are smallish for the consumers but biggish for producers.

    The PSO levy is a good example: It’s less than 3 euro per household per month. It’s 72 mln euro per year for the ESB.

  30. @Big End,

    Without having access to detailed data, most of which would probably be confidential, it’s difficult to form a view. And we should not discount a bit of scaremongering, special pleading, etc. But, for some, it could be getting close to the last straw. One of the attractions for FDI in the mid to late ’90s was very low electricity and gas prices that, for all sorts of reasons, were being held below the economic cost of supply; they’ve since gone through the roof. We also need to remember that, given the transfer pricing, tax minimisation games being played we should look at costs in Ireland net of imports. Energy costs might comprise a larger chunk of those and if they’re higher than they need be they eat into the bottom line.

  31. @Richard,

    I agree that the sky won’t fall in. That was a tad melodramatic. But the celestial pillars constructed by the Dept., CER, ESB & BGE might not be as robust as they would like to think. They might not sustain rigorous scrutiny by the Asset Review Group, and even if they were to, I suspect that they would be vulnerable to any due diligence accompanying possible asset sales. And the requirement for these, in the context of the state balance sheet deleveraging that Colm McCarthy is keen on, may become more pressing while the depths of the Anglo pit remain unplumbed.

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