ESB powers its way to €250m profit

dahamsta

ESB powers its way to €250m profit
ESB profits surge 50pc to €250m

Can someone please explain to me why a company 95% owned by the State and 5% by the workers is making that kind of money; and why the ESB was allowed to raise it's prices when "improved profits were down to greater efficiencies"?

Thanks,
adam

Well If they are re-investing it back in the network I don't necessarilly have a problem with it.

It is not easy to quantify what is an acceptable level of profit in this industry, given the expense involved in building and keeping generation capacity.

It is at least state owned so, not the debacle that is Eircom, ie our nations telecoms infrastructure in private greedy hands.

On the bright side, year on year future profits for a state owned company like this one would make it more difficult to justify price rises, which in this sector are (because the state owns the company) more open to public opinion regarding the price of the product and value for money.

I think we are still far from being the most expensive country in Europe for Electricity and that is remarkable given our population spead/demographics.

mm

Scruff

i think its because they say they are actually making a loss on the power generating side here in ireland cause the prices are too low.
Most of the ESB's profit comes from their international power management section (not sure what the names of all the ESB sub divisions are). i remember reading a while back that they won a 10 year contract in the states to manage a huge chunk of the electricity grid, in the south east region i think.
They win a lot of international contracts like this and a.f.a.i.k. that where they make most of their money.

star gazer

lol down to greater efficiencies, that's a good one. One word, monopoly. Minimal competitors in it's core business area. This gives it steady income from which to fund foreign investments and pay dividends (would i be reaching if i mentioned Stealth Tax?). One has to question how the regulator saw fit to grant yet another price rise for January (between 4%&6% i think, depending on the business area) when profits are so good.

Victor

The reason for the price increases is to encourage new entrants to the market.

The profits are overstated as they are making 2,000 staff redundant at a cost fo €300m over 3-4 years and they opted to take the full cost of that charge in the accounts last year or the year before.

Think of those profits being invested on fibre to every house?

mike65

Great! Lets sell it off, who's gonna buy shares?!

Mike.

star gazer

The reason for the price increases is to encourage new entrants to the market.
Victor

Yeah i guess that makes some sense, but the problem is you put the ESb into such a strong financial position that it can muscle out any new entants that try to get a serious foothold in it's core market.
The ESB or an ESB controlled company was involved in 95% of the government contracts for renewable wind energy. Of course they could out bid everyone because the bidding was for the price to sell to the ESB, which means the bidding could take a loss while the ESB itself would get cheaper energy. (Just as an example)
If i were to think globally i guess that general electric would have started out a bit like our little ESB. Imagine that ESB the global corporation.

MagicBusDriver

The ESB network needs huge work. The state has come very close to black outs recently.

Victor

Originally posted by MagicBusDriver
The ESB network needs huge work. The state has come very close to black outs recently.

Most of those concerns have been dealt with with (a) wind farms (b) the new stations in Blanchardstown, Poolbeg and Ringsend.

I honestly thinks that the current structure of the ESB (core services, retail electricity, retail goods, transmission (NGrid) and generation (PowerGen)) should be split up.

The government should keep the NGrid transmission network (and not have an eircom style local loop debacle or a California-Enron scenario) and some core services.

Retail electricity should be sold off, probably in blocks to prevent a private monopoly (most areas have duplicate infrastructure to allow continuation of service despite network damage).

PowerGen should be sold off in blocks with a group of stations being sold every two years for the next 10 years. Hydro stations should go to a single company run by local authorities who often combine ESB reservoirs with their water works (e.g. Leixlip, Inniscarra).

And of course the sooner the carbon tax the better. I wonder if it will be before or after privatisation.

Qadhafi

Shouldnt they be putting the cash into building more windfarms to meet kyoto and all?

I know recently that they built the Windfarm of the east coast on the at sand bar but we need a lot more. I think we can get up to 25% of our power from windfarms.

When i was in Germany on a research trip they were building a huge number, and were confused when they met me because building a windfarm here is hugely more productive (i dont have the exact figure) than in Germany!!

mike65

I think I heard it said on radio when talking about the Irish Sea wind bank that Germany has the least ammount of wind per area per second in Europe....

Mike.

Victor

Originally posted by Qadhafi
I know recently that they built the Windfarm of the east coast on the at sand bar but we need a lot more. I think we can get up to 25% of our power from windfarms.

There are plans for about 4 of them from different companies from Arklow to Kish.

oneweb

Originally posted by MagicBusDriver
The ESB network needs huge work. The state has come very close to black outs recently.

Ironically earlier today we suffered a half hour "major" power loss. D12, on the other hand, was estimated to take 3 hours to be back up, according to the emergency info line.

bonkey

Originally posted by star gazer
The ESB or an ESB controlled company was involved in 95% of the government contracts for renewable wind energy.

Really? I was of the impression that the ESB had been prevented by the government from building stations over the last decade, despite pointing out the shortfalls which would arise, in order to create a market for competition to enter into the de-monopolised generation game. It would seem foolish in the extreme for the government to do this, and then to simply allow ESB to "own" all the bids.

Do you have any links for this?

Of course they could out bid everyone because the bidding was for the price to sell to the ESB, which means the bidding could take a loss while the ESB itself would get cheaper energy. (Just as an example)

Since the splitting of generation from distribution as seperate "sub-entities", there is a requirement on each not to make a loss. This means that the generation side of the business must stand or fall on its own.

Furthermore, each individiual station is given its own cost per MWh, and the distribution side of the business is required to buy a sufficient quantity to meet its demands starting with the lowest-price and working upwards.

That makes subsidisation of the nature that you're describing virutally impossible, as the only way that ESB could win the bid is by showing that their individual station proposal was cheaper than the alternatives.

MagicBusDriver
The ESB network needs huge work. The state has come very close to black outs recently.

No, it doesn't need "huge work". Ireland has one of the best power-systems in Europe, and has enjoyed significantly lower charges than our EU neighbours for most of the past 2 decades.

The only significant problem it suffers at the moment is that it has no spare capacity, meaning that if anything goes offline, powershortages will probably ensue, and peak winter demand can be problematic.

This situation has been forecast by ESB for the last decade, at least. The government prevented them from doing anything about it, in order to create a situation where there was an immediate demand for generating capacity upon the demonopolisation of power generation.

And none of that is a problem with the network, which is the distribution side of the business, anyway.

As for Victor's suggestion of splitting ESB up and selling it off...I can't say I see any major benefit in doing that, I have to say. I agree that generation and distribution should be seperate, but to all intensive purposes they already are from what I've seen and heard (talking to some ESB people, from station-managers upwards mostly). They are about as interconnected as Dublin Bus and Iarnrod Eireann are nowadays.

The first thing that would happen is that anyone buying one of the more efficient stations would raise its charges but only enough so that it did not fall outside the envelope of what the distribution network had to buy. To do any less would be simply atrocious business acumen - selling to a captive market at anything less than the price which optimises profit.....unthinkable.

That would cover most of our more sizeable stations, which would result in a very real, very rapid increase in electricity costs to the consumer, and to what end? What would we gain out of such privatisation?

There are also a number of other issues with privatising the generation network, such as certain (hydro and possibly wind) stations being kept manned instead of being converted to being automated, as they were significant employers in the area. There is also the question of the waterway ownership and responsibility of the Hydro arm.

All in all, I just don't see a great benefit in the privatisation option, and a hell of a lot of risk.


jc

star gazer

http://www.onbusiness.ie/2003/0709/esb.html
http://archives.tcm.ie/breakingnews/2003/07/09/story105451.asp
http://www.iwea.com/pressrealeases/230703.pdf

48 contracts 48 go to the ESB it seems that the ESB are just the best business in town and we should be glad to have them as our friendly monopoly.

The ESB or an ESB controlled company was involved in 95% of the government contracts for renewable wind energy.

I would doubt that statement, the worlds largest sea based wind farm is currently being built off Arklow with no involvement by the ESB.

There are seven wind turbines already up which you can see from the N11 and they are huge, each wing being about 45 metres across.

They when fully operational are expected to produce 520 megawatts of power, which is enough to meet the needs of more than 400 industrial electricity users or 500,000 homes.

mm

mike65

The Arklow bank is the work of General Electric and Airtricity.

The ESB has gone out of its way to block independent wind energy suppliers by refusing to consider them for the various contracts for renewables that were awarded this year. They seem to be particuarly annoyed at airtricity and instead award contracts to various ESB subsidaries so as things stand the worlds largest off-shore wind farm will not be supplying the national power company.

http://216.239.59.104/search?q=cache:xjZuSinAVX0J:www.friendsoftheirishenvironment.net/article.php%3Fsid%3D1734+ESB+contract+airtricity&hl=en&ie=UTF-8

Mike.

SkepticOne

Not sure I agree with you here.

Originally posted by bonkey
The first thing that would happen is that anyone buying one of the more efficient stations would raise its charges but only enough so that it did not fall outside the envelope of what the distribution network had to buy. To do any less would be simply atrocious business acumen - selling to a captive market at anything less than the price which optimises profit.....unthinkable.

If, however, each generating company has to put in a bid per MWh (as I understand it) and the distribution company has to satisfy demand starting from the cheapest and working upwards, this would tend to reward the most efficient generating companies - hence over time prices should come down.

That would cover most of our more sizeable stations, which would result in a very real, very rapid increase in electricity costs to the consumer, and to what end? What would we gain out of such privatisation?

Optimising profit in a competitive market should bring costs down.

There are also a number of other issues with privatising the generation network, such as certain (hydro and possibly wind) stations being kept manned instead of being converted to being automated, as they were significant employers in the area.

But if their jobs are redundant, should the bill payers be picking up the tab?

All in all, I just don't see a great benefit in the privatisation option, and a hell of a lot of risk.

I do think that the transmission network needs to stay in public hands with a prohibition on getting into the generating market and strict non-discrimination rules about buying power.

In addition, a "polluter pays" principle should also be imployed which would encourage alternative renewable sources of energy.

bonkey

Originally posted by SkepticOne
Optimising profit in a competitive market should bring costs down.

But Ireland isn't big enough to have a significantly competitive market. To have one would mean that even if all our energy needs were being met, with spare capacity to the levels required etc. etc., the govt. should allow the building of new stations which would drive older, less efficient ones out of business? To what extent? Should the impact on local empoyment be even a consideration if someone wanted to build a new station in location X which would effectively render the output from location Y redundant, thus forcing the station to close?

Very quickly, you would end up with the nation being supplied by a small number of "super-suppliers", who could just as easily form a cartel on prices as remain in competition with each other.....unless you regulate the entire industry which isn't exaclty competetive.

In addition, a "polluter pays" principle should also be imployed which would encourage alternative renewable sources of energy.

I agree with this entirely...regardless of whether or not the stations were privatised...although it would still mean that in the short term the consumer would still get hit by the cost, as it would be passed along the line until such stations were rendered obsolete.

jc

bonkey

Originally posted by SkepticOne
If, however, each generating company has to put in a bid per MWh (as I understand it) and the distribution company has to satisfy demand starting from the cheapest and working upwards, this would tend to reward the most efficient generating companies - hence over time prices should come down.

Wouldn't it also make it impossible for a semi-state body to artificially select a less-competetive quote in a tendering process?

jc

Capt'n Midnight

Say anything you want about the ESB - but remember

- We do have about the cheapest electricity in Europe
- We don't have ENRON type problems with ESB
- We don't have major blackouts like UK/Italy/Denmark/NY
(ENI - the Italian encumbant had to import electricity because monopoly rules meant it couldn't expand)
- If there is the tiniest chance of getting Internet access or Telephony over ESB copper I don't want that screwed up in the way Eircom have gone.
- In fact Eircom shows soo many reasons why we should not privitise the ESB and I don't believe it shows any reason why we should.
- ESB international are actually well recognised for their overseas work - are you sure all the profit is locally generated.

PS. €250m does not get you very far when you want to build infrastructure for a whole country.

SkepticOne

Originally posted by bonkey
But Ireland isn't big enough to have a significantly competitive market.

I'm not doubting you here for a minute, but do you have any reports backing this up?

To have one would mean that even if all our energy needs were being met, with spare capacity to the levels required etc. etc., the govt. should allow the building of new stations which would drive older, less efficient ones out of business? To what extent? Should the impact on local empoyment be even a consideration if someone wanted to build a new station in location X which would effectively render the output from location Y redundant, thus forcing the station to close?

Harsh as it may sound, yes, I believe that if someone wants to set up a generating facility that is so efficient that it puts another station out of business (taking into account the polluter pays principle), it should be allowed to do so.

Of course, if this is a significant possibility then Ireland would indeed have a competitive market.

As to whether stations would close, it is possible that even with reduced output from a given plant, it would still be worth keeping it open to a private investor if capital costs were significant. I'm not an expert but I would imagine that setting up a new power station would incur heavy capital costs in addition to running costs.

Very quickly, you would end up with the nation being supplied by a small number of "super-suppliers", who could just as easily form a cartel on prices as remain in competition with each other.....unless you regulate the entire industry which isn't exaclty competetive.

There would need to be close monitoring by the CA. For me, this would be the main danger.

SkepticOne

Originally posted by bonkey
Wouldn't it also make it impossible for a semi-state body to artificially select a less-competetive quote in a tendering process?

The semi-state body being the distribution company? Yes, but this is what you want isn't it? Only when the cheapest has been fully exhausted would power from the next cheapest be bought.

SkepticOne

Originally posted by Capt'n Midnight
- We don't have ENRON type problems with ESB
- We don't have major blackouts like UK/Italy/Denmark/NY
(ENI - the Italian encumbant had to import electricity because monopoly rules meant it couldn't expand)
- If there is the tiniest chance of getting Internet access or Telephony over ESB copper I don't want that screwed up in the way Eircom have gone.
- In fact Eircom shows soo many reasons why we should not privitise the ESB and I don't believe it shows any reason why we should.

I think a lot of the problems in other countries comes from trying to privatise everything. I think most of the problems above would not occur if the distribution company is kept in public hands. Wrt telephony, it would be the distribution company that would get involved in this as this would be the infrastructure owner. If you are going to have either local monopolies or a national monopoly then ithe distribution company should stay in state hands.

bonkey

Originally posted by SkepticOne
The semi-state body being the distribution company? Yes, but this is what you want isn't it? Only when the cheapest has been fully exhausted would power from the next cheapest be bought.

I was referring to the current allegations that the selection process is biased

jc

star gazer

But Ireland isn't big enough to have a significantly competitive market. To have one would mean that even if all our energy needs were being met, with spare capacity to the levels required etc. etc., the govt. should allow the building of new stations which would drive older, less efficient ones out of business? To what extent? Should the impact on local empoyment be even a consideration if someone wanted to build a new station in location X which would effectively render the output from location Y redundant, thus forcing the station to close?
bonkey

Isn't that the nature of competition within our island? Whereas in the past a power station was a massive capital investment and i would agree that X could lose tens if not hundreds of million if it went out of business, these days a wind turbine is not as big a financial burden and the size of a windfarm can begin at one.

- ESB international are actually well recognised for their overseas work - are you sure all the profit is locally generated.
Capt'n Midnight

They don't specify in their accounts where the profits come from:

http://www.esb.ie/main/downloads/about_esb/Accounts_02.pdf

I think if they had a choice, they would probably prefer to pay 12.5% here rather than other tax levels.

I would doubt that statement, the worlds largest sea based wind farm is currently being built off Arklow with no involvement by the ESB
Man

I realise that, i was refering to a specific tendering process

http://archives.tcm.ie/breakingnews/2003/07/09/story105451.asp
"Dermot Ahern, the Minister for Natural Resources, has signed 48 contracts for the provision of green energy. "

While i agree that privatising a monopoly will still leave a monopoly, distribution system aside, there should be enough room for more than one electricity supplier, the best scenario being that three or four equally sized companies compete on a real basis(ie. no cartels).

Capt'n Midnight

re: Only when the cheapest has been fully exhausted would power from the next cheapest be bought.

In the UK they had a gas turbine power station that was only used at peak time (when everyone put the kettle on after Coronation St. on Wednesday during the colder months..)

This makes it very expensive if you average the cost of the power from that station over the full year..

Also there are manufacturing companies in the north of England that could use lots of electricity, but because of the guarantees they have with the power service - they actually make more money by closing down the factories. The power company pays them for NOT using electricity at peak time... because it would cost more to supply them.

I think we have enough examples of privitisations where profits were made at the expensise of investment in infrastructure. And in most cases the prices have gone up and the Govt had to step in to provide this infrastructure out of Tax payers money. UK water companies / Rail companies / Bus companies / Eircom.

Just mention by the way anyone remember Dublin Gas - worth £2m on the stock market - so the govt invested £50m into them... - should have bought them out.

SkepticOne

Originally posted by Capt'n Midnight
re: Only when the cheapest has been fully exhausted would power from the next cheapest be bought.

In the UK they had a gas turbine power station that was only used at peak time (when everyone put the kettle on after Coronation St. on Wednesday during the colder months..)

This makes it very expensive if you average the cost of the power from that station over the full year..

Ignoring the "after Coronation St. on Wednesday" hyperbole for a moment, have you considered the possibility that this may be the best way to run such a station, that some stations may be suited specifically to peak time supply? This would be in contrast to renewable forms of energy which are forced to rely on external factors.

A brief reading of what is available on the web indicates that gas turbines are indeed used for peak time supply since - relative to other factors - fuel is the expensive commodity.

A power station operating in peak time only I would regard as a good thing, since that would mean that the market price is coming down and companies are finding their niches.

Although there would be maintainance costs, in a competitive market, these would have to be bourne by the supplier and not the consumer.

I think we have enough examples of privitisations where profits were made at the expensise of investment in infrastructure. And in most cases the prices have gone up and the Govt had to step in to provide this infrastructure out of Tax payers money. UK water companies / Rail companies / Bus companies / Eircom.

Again, the problem with the water companies is that regional monopolies were formed. Rail-track in the UK is also a monopoly. Eircom has a wholesale monopoly. The only thing I would argue for is that the only the generation side be liberalised and that the distribution infrastructure be kept in public hands. AFAIK, this is what is being proposed.

Victor

There is also the matter of diversity of supply and social responsibility factors - running peat and coal statiosn that would close under a free market with a carbon tax in place. We would become 100% dependant on gas during a calm winter (when it's really cold).

Originally posted by bonkey
Very quickly, you would end up with the nation being supplied by a small number of "super-suppliers", who could just as easily form a cartel on prices as remain in competition with each other.....unless you regulate the entire industry which isn't exaclty competetive.

But we already have this - ESB, ESB "Independant", Airtricity and Veridian (Northern Ireland), plus a number of micro suppliers (>5MW).

Originally posted by star gazer
Isn't that the nature of competition within our island? Whereas in the past a power station was a massive capital investment and i would agree that X could lose tens if not hundreds of million if it went out of business, these days a wind turbine is not as big a financial burden and the size of a windfarm can begin at one.

They problem with windfarms is they are very expensive to set up (but very cheap to run and decommission). This is why the wholesale price of electricity is going up - to make windfarms more profitable quicker.

Originally posted by Capt'n Midnight
In the UK they had a gas turbine power station that was only used at peak time (when everyone put the kettle on after Coronation St. on Wednesday during the colder months..)

Pumped water and nuclear are handy for this also. Pumped water can generate within seconds, gas turbines take a few minutes to get up and running.

Originally posted by Capt'n Midnight
Also there are manufacturing companies in the north of England that could use lots of electricity, but because of the guarantees they have with the power service - they actually make more money by closing down the factories. The power company pays them for NOT using electricity at peak time... because it would cost more to supply them.

I think this happens in some places here, but it would depend on how much energy the company uses and how easy it is to stop / start production.

Floater

Originally posted by star gazer

They don't specify in their accounts where the profits come from:

http://www.esb.ie/main/downloads/about_esb/Accounts_02.pdf

These accounts were prepared under 1927 legislation (http://193.120.124.98/ZZA27Y1927.html) and do not comply with current International Accounting Standards (for what they are worth!). The reporting terminology they use is quaint and the information minimalist. The ESB have no obligation AFAICS to disclose to the masses where their profits come from in any detail and the basis on which their profits have been computed.

The minimalist segmental information provided is almost illegible (col headings) and lacks clarity of definition. Anyone with a good grade in "Leaving Cert Accounting" could do a lot better!

Floater

Victor

Originally posted by star gazer
They don't specify in their accounts where the profits come from:http://www.esb.ie/main/downloads/about_esb/Accounts_02.pdf I think if they had a choice, they would probably prefer to pay 12.5% here rather than other tax levels.

They are attributing most of thier profits to the transmission network - see page 56 of the report.

Civilian_Target

Originally posted by Qadhafi
Shouldnt they be putting the cash into building more windfarms to meet kyoto and all?

Probably, but you have to remember, wind power poses fundamental problems for the grid. Windfarms will work when there's wind, and they will generate as much power as there is wind. The problem is, however, that there's more demand for power during the day and early evening (particularly in Winter), but there's not necessarily more wind at these times to match it, in fact, there rarely is. That's why putting a large percentage of the grid on wind energy is a bad idea, because you need a lot more backup power plants ready to roll when there's no wind. Same goes for wave, solar, etc. The only dependable forms of renewable energy, that can be scaled to meet demand are hydro (becuase you just let out more water), biomass (you just let out more gas) or tidal (because the tide is predictable).

A much better idea would be to expand or increase the efficiency of our hydo plants (since we have a lot of rivers too, and plenty of rainfall to keep them full) or build new ones, as well as increasing wind/wave power, but keeping it within a certain percentage of total electricty generation.

Thats my 3c

Civilian_Target

Floater

Originally posted by Victor
They are attributing most of thier profits to the transmission network - see page 56 of the report.

While the ESB are attributing most of their profits to “networks” it’s all down to transfer pricing as to how they allocate revenues and costs between generation and networks. All they say is that it is in accordance with “ESB’s arrangements for internal trading”. The numbers don’t really give one a clue in terms of generation / transmission at a real arm’s length basis as to where economic profitability lies.


Floater

Postscript:

If I was an independent generator delivering my output via the ESB network I would be asking myself why so much of the ESB’s profits have been attributable to networks.

It would suggest to me that the transfer pricing they use internally is skewed in favour of the transmission network to book most of the profit in that unit. Which would imply that networks are getting an “unfairly high” share of the per kw charge the customer pays compared with the producer (be it ESB or independent).

Despite the increases in price paid by end users for electricity, and the shortage of generating capacity, there hasn’t been a lot of new capacity from the independent sector. Irish electricity prices are no longer low either!

Floater

Originally posted by Civilian_Target
The only dependable forms of renewable energy, that can be scaled to meet demand are hydro (becuase you just let out more water), biomass (you just let out more gas) or tidal (because the tide is predictable).

A much better idea would be to expand or increase the efficiency of our hydo plants (since we have a lot of rivers too, and plenty of rainfall to keep them full) or build new ones, as well as increasing wind/wave power, but keeping it within a certain percentage of total electricty generation.

I have seen no mention of the Airtricity wind turbine kit off Wicklow taking advantage of wave/tidal movements at the base of the unit as an additional energy source. The cables are in place. Wake up GE!

Ireland is not short of wind and wave energy around the coast. Probably enough to break the back of EU electric energy demand ad-infinitum. Germany is closing down nuclear over the next fifteen years. Surely it is time that the EU took research into wind and wave seriously?

Floater

Good article here

star gazer

They are attributing most of thier profits to the transmission network - see page 56 of the report.
Victor

I know i saw that, i just knew that there was no way for us to know where the earnings were coming from, at home or abroad. If the transmition network thing is true than they really are making the majority of their profits in Ireland because the Irish network, i presume is their biggest 'network' by a long way.

See page sixteen of the report where in 2001 they paid €25,000,000 in corporation tax (got a €45,000,000 refund for i guess a big investment) on a €200,000,000million profit and paid just under €20,000,000 on €250,000,000million profit. It seems fishy.

Victor

Originally posted by star gazer
I know i saw that, i just knew that there was no way for us to know where the earnings were coming from, at home or abroad. If the transmition network thing is true than they really are making the majority of their profits in Ireland because the Irish network, i presume is their biggest 'network' by a long way.

Page 59 hints at domestic profits being €196m (€33.443m divided by 16%). Leaving €55m in foreign operations (presumably a lot of ESB International comes under "foreign operations "). This would imply domestic margins of 9.5% and foreign margins of 27% (seems high).

Originally posted by star gazer
See page sixteen of the report where in 2001 they paid €25,000,000 in corporation tax (got a €45,000,000 refund for i guess a big investment) on a €200,000,000million profit and paid just under €20,000,000 on €250,000,000million profit. It seems fishy.

I think that’s down to the varying rates over the last few years and the nominal loss they had in 2000 (they took all the redundancy costs in one year). In fact you will see they got this €45m Corporation Tax back from the government because of this.

Originally posted by Floater
Good article here

Offshore wind involves additional costs in installation, cabling and maintenance, with existing plants generating at 4.5-7 US cents per kWh - twice the cost of developments on land.

This isn't much use when wholesale electrical prices are in the order of €0.03

Floater

Originally posted by Victor
quote:
Offshore wind involves additional costs in installation, cabling and maintenance, with existing plants generating at 4.5-7 US cents per kWh - twice the cost of developments on land.

This isn't much use when wholesale electrical prices are in the order of €0.03

According to CER 03201 a new gas powered station costs 4.7c/kWh today (of which 2.91c is for the gas supply).

If the wholesale market price is 3c (you don't state your source for this), it only pays for the gas consumed. Of course you can always sell your output directly to the end user - which is what airtricity do.

However when you look at CER 03100 it is apparent that there is a wide range of market prices for electricity depending on hour of day and month of year etc - rising to € 614/MW winter time peak in the South West - ie 20 x the 3c figure you quote.

Which brings me back to my original point - the ESB's transmission network is getting too large a share of the pie (the cents per kw pie the end user pays). This is distorting the market and is almost certainly a factor in the absence of new capacity.

Floater

www.cer.ie
www.airtricity.com

star gazer

Bottom line, the ESB is highly profitable at the moment. There is a twisted use of logic saying that competition is good for getting in greater market efficiencies and so cheaper prices, but what is needed is a price increase to give competition a chance to come in. The justification was to improve the lot of the consumer and yet we get stuck with the price increases. The trend continues. The government get their juicy dividend, voluntary redundancies get hundreds of thousands and profits get invested abroad to some extent. It's a funny old world.

Victor

Originally posted by Floater
If the wholesale market price is 3c (you don't state your source for this), it only pays for the gas consumed.

This was a figure that was generally bandied about when the first tranche of deregulation happened - perhaps it was 3p/kWh - 3.81c/kWh and price has since risen.

Originally posted by Floater
Of course you can always sell your output directly to the end user - which is what airtricity do.

Not quite, they generate their own electricity, sell it to NGrid at a low price and buy it back (on a top up and spill over basis) at a higher price. That is unless they have direct access to their client via their own network and don't go through NGrid.

Originally posted by Floater
rising to € 614/MW winter time peak in the South West - ie 20 x the 3c figure you quote.

Do you mean €614/MWh? This only .614c/kWh.

Floater

Originally posted by Victor


quote:

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Originally posted by Floater
Of course you can always sell your output directly to the end user - which is what airtricity do.

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Not quite, they generate their own electricity, sell it to NGrid at a low price and buy it back (on a top up and spill over basis) at a higher price. That is unless they have direct access to their client via their own network and don't go through NGrid.

You are splitting hairs! The buy and sell back transaction with NGrid is how they pay NGrid for transporting their green electricity to their customer.

I brought the issue up to highlight that an independent producer did not HAVE to sell their output to the wholesale market at the low prevailing wholesale market price. They can retail their output too.

quote:

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Originally posted by Floater
rising to € 614/MW winter time peak in the South West - ie 20 x the 3c figure you quote.

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Do you mean €614/MWh? This only .614c/kWh.

No I don't. 1MW = 1000 kW
€614 / 1000 = 0,614 € (ie Euro not cents)

I had to pinch myself too when I came up with the number first!

Please see http://www.cer.ie/CERDocs/cer03100.pdf sec 5.14 table 5 for a table of price variations by time of day. Any journalist who conveys to his readers a 3c / hour message for wholesale electricity prices hasn't a clue of what he is writing about.

Floater

Victor

http://home.eircom.net/content/irelandcom/topstories/1635628?view=Eircomnet

Bord Gais claims liberalisation could cost it €103m
From:ireland.com
Thursday, 9th October, 2003

Bord Gáis has estimated that opening up the gas market in 2004/05 could cost it more than €103 million.

The company's estimate has yet to receive approval from the Commission for Energy Regulation (CER) and further discussions are planned.

A spokesman for the regulator said it would not sign off on any figure until it heard from the gas market opening working group, which is made up of industry representatives and Bord Gáis personnel.

In order to recover the full amount, Bord Gáis must get approval from the energy regulator, Mr Tom Reeves.

Bord Gáis has estimated the cost at €103.4 million, although the company claims this would be spread over several years and, consequently, would not affect the price of gas in the newly liberalised market.

Bord Gáis intends to recover the full cost through a transportation tariff on all end users of the gas distribution system.

A large part of its estimate relates to information technology costs. According to Bord Gáis, its capital expenditure on IT infrastructure will amount to €19.3 million.

However, in talks between the CER and Bord Gáis, the issue of how much individual IT staff need to be paid has arisen.

Bord Gáis has claimed that its contract and full-time IT staff should be paid according to its internal scales, but the CER has raised questions about the rates involved, with Bord Gáis requesting that some staff be paid €110,000 per annum.

The issue of who is going to operate the IT systems in the newly liberalised market prompted Mr Reeves to make comments directly to Bord Gáis during the summer.

In the letter of June 10th - seen by The Irish Times - Mr Reeves sets out stringent conditions governing Bord Gáis's future operation of IT systems. The letter was addressed to Bord Gáis chief executive Mr Gerry Walsh.

The CER, along with several potential entrants to the gas market, is anxious to ensure that, if Bord Gáis operates the new gas distribution system, competitors are not put at a disadvantage.

The CER is particularly keen to ensure that Bord Gáis's distribution business does not operate in any way alongside its supply business, Bord Gáis Supply. This is because there could be conflicts of interest.

In the letter, Mr Reeves tells Bord Gáis he wants "firewalls", or some kind of separation, between different Bord Gáis business units.

He also insists that a code of conduct "educating the employees of Bord Gáis Éireann" about information security be drawn up and given to the CER for approval.

It is understood that Bord Gáis has addressed this issue and workshops for employees have taken place.

There must be "a level playing field regarding access to infrastructure services", according to Mr Reeves.

Floater

Originally posted by Victor
http://home.eircom.net/content/irelandcom/topstories/1635628?view=Eircomnet

Presumably he means a "Chinese Wall" rather than a "Firewall"?

What's the betting that when all is done on opening the market, most of BGE's profits will be attributable to the pipeline and distribution networks? Not to mention the fact that gas will cost a lot more when we get "competition"!

Crazy one size fits all EU policies.

Floater

Victor

What I'd love is for you gas meter to be connected by fibre optic to BGEs headquarters and they reduce their meter-reading staff numbers while making a fortune on the cable.

ronano

Ok i'm not that indepth on the issue but we have among the cheapest electricy rates in europe and if anyone mooted the idea of privatiste it,well i just reckon on pure economies of scale it would make no sense, also how often has there beena price hike on esbs part,inflation yada yada etc

Floater

Originally posted by ronano
Ok i'm not that indepth on the issue but we have among the cheapest electricy rates in europe and if anyone mooted the idea of privatiste it,well i just reckon on pure economies of scale it would make no sense, also how often has there beena price hike on esbs part,inflation yada yada etc

The production of electricity is open to private generators.

ESB electricity prices have been increased twice over the past year or so, ostensibly to make it profitable for others to compete with the ESB.

You have half privatisation as it stands and you are paying for it.

Floater

RainyDay

Don't expect price reductions to result from competition in the electricity market. Have a read of A high price to pay for the power and the glory and California Reamin': California and the Power Pirates for some enlightenment, e.g.

Shortly after the California market opened for business, for example, an Enron trader sold the state about 5,000 megawatts of power to go over a 15 megawatt line. That's like trying to pour a gallon of gasoline into a thimble-it can't be done. This forced the system operator, the agency that actually keeps our lights on, to make costly emergency purchases, blowing market prices through the roof. Enron, knowing in advance of the panic it would create, could earn a super-profit.

and

San Diego's power distribution company told me that Duke Power of North Carolina ordered them to shut down a plant during a shortage period-an order the California firm refused. Merely by holding back the power from a single generator, the power merchants could make the electricity from their other plants worth more than gold.

Note that Enron's fun & games were not restricted to California.

What happened in California borders on criminal;
needless to say Enron were involved

Yep - and they were involved in the UK too. Thatcher's energy minister John Wakeham joined the Enron board shortly after he 'deregulated' the UK power market, but that was just co-incidence, I'm sure.

Victor

This puts quite a different spin on it. “Ngrid needs the money to upgrade”.

http://www.sbpost.ie/web/DocumentView/did-512735996-pageUrl--2FThe-Newspaper-2FSundays-Paper-2FNews.asp

CER vows to put clamp on power price rises
02/11/03 00:00
By Eamon Quinn, Business Editor

Price shocks from the dominant supplier ESB will be curtailed, as electricity bills for domestic and business consumers rise more closely in line with inflation, the Commission for Energy Regulation (CER) has vowed.

The watchdog has, however, strongly defended sanctioning power price rises that will see bills climb by an unprecedented inflation-busting 20 per cent over three years.

The regulators have justified the price hikes as being necessary to fund a "huge" €3billion investment in the transmission and distribution network. Little money had been spent since power poles were put up across the country in the 1940s and 1950s.

"It is regulated. Expect more modest increases, is the way I would put it," said Eugene Coughlan, CER deputy commissioner. The era of the large price increases are at an end unless oil prices surge unexpectedly, he told The Sunday Business Post in an interview. "We had had very cheap prices because there was no investment taking place."

Prices rose by an average 9 per cent in the first year of the review at a time when consumer prices were increasing at half the rate. The CER conceded that price rises had been dramatic, but were necessary for infrastructure improvements that had been set at `off' for 50 years.

The regulators maintain they were necessary because the investment switch of the transmission and distribution networks had been set at `off' for the past 50 years.

The CER will decide on the winner by next month of a competition to build an extra 450MW power plant. It will also deliver to government a report on the future of the coal-burning Moneypoint power plant by the end of the year.

http://www.sbpost.ie/web/DocumentView/did-210969196-pageUrl--2FThe-Newspaper-2FSundays-Paper-2FNews.asp

Energy market competition heats up
02/11/03 00:00
By Eamon Quinn, Business Editor

There is a flurry of activity in the power generation market. The power watchdog, the Commission for Energy (CCER), will next week announce the preferred bidders from six contenders to supply new power capacity of up to 450MW.

The commission will also report to government by year-end on the future of coal-burning at Moneypoint power station, and ensure that the lights keep burning this winter by arranging the purchase of costly diesel generators.

Meanwhile, it will continue to rein in the dominant power supplier ESB.

But the business customers who pay for the light and power, those who make the goods and services and who hire the staff to keep the economy rolling, can be forgiven for feeling they have been overlooked.

Multinational corporations in Ireland expressed anger when electricity prices were hiked two years ago amid accusations that the power watchdog was being hoodwinked by the ESB.

They are now in the second year of electricity bills that will have climbed by an inflation busting 20per cent in three years.

Prices in the first year of the review rose by an average 9 per cent at a time when consumer prices were increasing at half that rate. Companies - big and small - will be keeping a close eye on the commission's review next September, which will set prices for 2005.

The commission has vowed that the era of huge price increases is at an end. "Prices will rise at a more modest rate," said Eugene Coughlan, deputy commissioner at the CER.

According to the commission, price hikes were necessary because there had been virtually no investment in the transmission and distribution networks for the past 50 years. Many prices hadn't increased since 1986, the watchdog said.

It said a €3 billion investment over five years in the distribution network has accounted for the bulk of the price increases.

Coughlan rejects claims that the watchdog was hoodwinked by the ESB. "It is regulated. We had very cheap prices because there was no investment. Now price reflects the investments. The next price review will be next year, to take effect from January 2005. Expect more modest increases."

The commission's most pressing issue is awarding the contract to supply the 450MW increased capacity required to plug the energy gap anticipated from 2005.

The six contenders are believed to be as follows: AES, the giant American operator, which is competing from its power plant in Kilroot in Co Antrim; Aughinish Alumina from Co Limerick; Ireland Power Energy, owned by US bank Babcock and Brown, which is planning to generate power from Mulhuddart in Co Dublin; Mountside Properties from Tynagh in Co Galway, backed by Martin Blake formerly of the Honey Clover meats group; Scottish and Southern, the British electricity and gas supplier, which, with Bord Gais, plans to build in Co Meath; and Viridian, the Northern Ireland Electricity firm, which is seeking to add capacity alongside its existing plant at Huntstown in Co Dublin.

The 450MW power plant will cost around €250 million to build. Contenders will seek to cover the construction costs and make a profit from the prices they charge for the electricity.

The commission is confident it has enough power to meet demand - forecast to reach a peak of 4,500MW this winter. Demand hit a new record peak of 4,300MW last January.

On the generating side, existing capacity has reached 5,470MW, with the interconnectors from the North able to supply an additional 300 MW through Co Louth or the stand-by links in Co Fermanagh.

Nonetheless, the ESB has bought in 104MW emergency generators this year at a cost of €50 million.

The new market regulations being put in place by the commission will allow for the development of an all-island market by February 2006, according to Cliona McNally, transmission manager at the Commission.

bonkey

From one of the quoted horror stories :

Shortly after the California market opened for business, for example, an Enron trader sold the state about 5,000 megawatts of power to go over a 15 megawatt line. That's like trying to pour a gallon of gasoline into a thimble-it can't be done.

Sure...and if you think that NGrid will be as incompetently run, expect the same.

I would point to the sterling reputation and history the national grid has, though, before expecting them to make such monumental fsckups.

jc