ESB agrees to buy electricity from rival generators

Victor

This may be a misnomer as the ESB buy low and sell back high, charging the cost of transmission. more info www.cer.ie

ESB agrees to buy electricity from rival generators
From:ireland.com
Saturday, 21st December, 2002

The ESB yesterday agreed to purchase electricity from independent generators in a deal brokered by the energy regulator, Mr Tom Reeves.

The initiative is an attempt to foster investment in electricity-generation projects in the light of a possible power shortage in 2005.

However, the development means the State company might be obliged to purchase power at a price above its own production cost.

In addition, Mr Reeves's move indicates that the company will not be developing any new generating plants in the medium term.

The regulator's office said it was satisfied, following detailed consultation, that several independent groups had "strong interest" in entering the generation market through the competition.

Such groups are believed to include former Northern Ireland monopoly Viridian, which owns the only large-scale independent plant in the Republic, in north Dublin.

They are also thought to include: Ireland Power, a US-owned group that has planning permission to build a plant in west Dublin; and Aughinish Alumina, which is developing plans to develop a plant with German group E.ON at Aughinish Island in the Shannon Estuary.

Experts believe the electricity network could be vulnerable to a breakdown in 2005 because demand is rising beyond the growth in generation capacity. For example, the economic downturn has not diminished demand for power, which reached an all-time high last month.

But while the ESB is already obliged to reduce its share of the generation market to foster competition, many potential competitors have walked away from projects because they had difficulty with the structure and pace of deregulation.

The plan introduced yesterday will see Mr Reeves conduct a competition offering guaranteed contracts with the ESB to projects producing up to 400 megawatts of the power.

This is the typical scale of a large gas-fired power station, such as the newly opened one co-owned by the ESB and Statoil at Ringsend in Dublin.

In theory at least, the availability of guaranteed purchase contracts would secure the development of new generation because project owners would secure a return on their investment at a certain rate.

Potential investors have complained that the lack of certainty about the market structure and pricing has led to difficulty securing bank debt to fund their projects.

However, the price at which they will be able to sell power to the ESB has not yet been determined by Mr Reeves.

The regulator indicated yesterday that such contracts might be available to match the full production of a plant for periods of up to 10 years.

In addition, it is unclear when the process will be finalised. Mr Reeves said yesterday that details about the competition would be published "over the coming months".

But many industry figures believe that investors would have to be turning sod at their projects almost immediately to build any new power station in time to meet a projected shortage of electricity in 2005.

While the ESB said the arrangements introduced yesterday "would apply so as to reduce risk of a generation shortfall in 2005", it said that the time scales required to build new generation and maintain supply security were challenging.

Earlier this month, the national grid operator, EirGrid, warned of electricity shortages if no new stations were commissioned by 2005. In addition, the Competition Authority said the market structure had sent "extremely negative signals" to new entrants.

The ESB was "super dominant", the authority said, and the liberalisation of the market had "patently failed" to deliver competition since partial deregulation in 2000.