Electricity watchdog needs to dispel doubts over prices
In so far as the existing grid allows, electricity across Ireland is generated from the most competitive plants and sold by suppliers operating in a competitive all-island marketplace. The theory is rather better than the reality.
The electricity grid is inadequately developed to allow full cross-border flows of electricity, particularly from south to north. The owners of the grid are ready to invest in an essential major upgrade and, regrettably, face unwelcome costly delays in gaining planning approval.
The sector regulators, north and south, the two governments, and the Single Electricity Market Committee [the SEMC] have no plan B, such is the technical and financial evidence that customers must be served by the major proposed grid development.
The regulatory authorities, working through the SEMC, are also developing significant changes to the way in which the all-island market will function. The current Single Market has been working without some of the more modern performance features that would come from a more advanced infrastructure and better trading conditions.
There is an imperative to further develop the Single Market not just to allow operational improvements but also to link the Irish market with the wider EU electricity markets, particularly with reference to the systems in Great Britain using the Moyle interconnector to Scotland and the newer and larger east-west interconnector from Ireland to Wales. The revised arrangements have been set out in a new model designated as the I-SEM (the integrated single electricity market).
An outline of the proposed I-SEM, published as a high-level design project, was made available in September. By agreement with the EU authorities, the I-SEM, which was originally expected to be operational from the end of 2016, has now been adjusted to aim for the end of 2017.
Despite the agreed ambitions and the EU requirement for a reshaping of the local model, the new design is facing criticism both from some potential participants and energy market specialists.
Much of the criticism of the I-SEM centres on uncertainties about the way in which the new all-island trading arrangements will work. Some of the caution links to the absence of an easily understood description of the working methods rather than the trading objectives. Phrases such as day-ahead and inter-day trading are the easy language of the professionals. For supply businesses, the methodologies are more complicated than the existing SEM.
There are emerging tensions as the work to operationalise the I-SEM continues under timetable pressure against the counter suggestions that there should be some rethinking. One large electricity supplier, not persuaded of improved outcomes, argues that "an independent third party review of I-SEM [high level design] is needed".
Professor John Fitzgerald, an acknowledged authority on EU energy policies, north and south, has suggested that "under the current circumstances, the correct approach is to delay making a decision and … seek to identify a more appropriate model that will be likely to benefit customers".
These well informed but unenthusiastic assessments are a cause for concern.
The Utility Regulator is more sanguine. The proposed I-SEM relies on a system that has been widely adopted elsewhere in the EU. The critical reactions may be more a reflection of the unknown than a reliable forecast of the impact of the I-SEM.
The challenge now is for the regulator to deliver a more persuasive educational message.
The I-SEM starts with the disadvantage that the all-island SEM Committee has in the past communicated poorly with interested parties. Decision-making has been inadequately explained. In addition, the two governments and two sets of regulators give the appearance of allowing the SEM Committee, with its multi-national membership, to assert, rather than explain, its rationale.
Electricity consumers, suppliers and generators, as well as the regulator, all have a strong interest in dispelling doubts about the impact of the I-SEM on electricity prices and profits.
These are questions which merit careful scrutiny in 2015.