CER Presentation on
Electricity Prices &
Competition
Agenda
• Who is the CER and what are our
functions?
• What are the electricity price drivers?
• Recent fuel price trends and SEM prices
• Market contracts
• End-user retail prices
Who is the CER?
• CER is Ireland‟s independent energy
regulator
• CER regulates Ireland‟s natural gas and
electricity markets in the interests of
customers
• CER‟s role is to ensure a safe, secure and
competitive supply of natural gas and
Who is the CER?
• CER is led by 3 Commissioners:
– Michael G. Tutty, Chairman
– Dermot Nolan, Commissioner
– Garrett Blaney, Commissioner
• Full details of the CER‟s role at www.cer.ie
& www.allislandproject.org
What are our functions?
• Regulate the wholesale market with NI - Single
Electricity Market (SEM)
• Regulate energy networks - set access terms
and prices
• Regulate end prices - electricity “Roadmap”
• Licence and monitor market players
• Customer protection and complaints resolution
• On-shore and new upstream safety functions
Electricity Price Drivers
• Generation is single biggest price driver: over
half of a typical customer‟s bill
• Networks is 2
nd
biggest driver: about 1/3 of a
customer‟s bill; less for LEUs
Electricity Price Drivers
• Over 80% of our generation comes from
fossil fuels, with gas the dominant fuel
=> international fuel price, especially gas, is
the key driver of generation costs and
therefore Irish electricity prices - much
more than in most EU countries
Electricity Price Drivers
Electricity Price Drivers
• Generation:
– Main reason why elec prices in Irl are higher than in many European
countries is our fossil fuel dependence - & also why end-prices are lower than last year
– Fossil fuel prices tend to be volatile: peak in „08 followed by fall followed by recent rise!
• Networks:
– Capex and low population densities are the cost drivers
– CER published “PR3” proposals last week, with a slight cut in average network tariffs overall this October
• PSO:
– Govt. scheme, administered by CER, to support primarily wind & peat; cost estimated as €195m for next tariff year
Electricity Price Drivers
• Providing a hedge, renewables are increasing
-currently 15% of consumption
Fuel Prices since July „08
Gas Prices & the SEM
• Natural gas accounts for c. 60% of generation and is the prime
driver of the SEM wholesale price - the SMP
Carbon
• Full cost of carbon emitted is
included in the cost of electricity
• Due to fuel mix, we pay the cost of
carbon on most of our electricity
• 2010 carbon spot price has
increased as per graph
• Gens receive certain number of free
carbon credits - Govt. has
introduced a carbon levy to recover
windfall gain, with intention to pass
this on to LEUs
Financial Contracts (2)
Financial Contracts (3)
• Non-Directed Contracts (NDCs):
– All Financial Contracts other than DCs
– Predominantly sold by ESB PG and NIE PPB to date
– Also PSO-Related Contracts, with reserve price set by RAs – All sold as 2-way CfDs to date
– Multilateral Trading Facility with competitive auctions
• More flexibility encouraged by RAs:
– Contracts being offered throughout the year, with monthly contracts being offered for first time: see AIP website
• 2010/11 Tariff Year: higher prices than DCs due to rising fuel
prices; fuel prices putting upward pressure on end-prices
LEU Prices
• Irish electricity prices remain above the European average, but
moved closer to the average for most consumers
• Prices for business fell for all levels of consumption, ranging
from:
– 5% drop for small business (band IA)
– to a 10% drop for the largest consumers (band IF)
• Medium to large business (bands ID to IF):
– 4% to 6% above the EU average, down from 10% to 13% above in the previous semester
Electricity & Gas Prices in Ireland
LEU Prices - Ireland & EU
Based on data from SEAI report on Electricity & Gas Prices in Ireland – May 2010
Irish Business Electricity Prices Compared to EU 27 - all taxes included
LEU Customer Credits
• 2010/11 Tariff Year:
– Continuation of LEU customer credits
• Financed by alternative means
• At a reduced level, to be phased out further in
2011/12
– Rebalancing of networks charges
• LEU‟s networks charges reduced by €50m per annum
• Permanent measure
– PSO
Retail Market
Deregulation
Big changes in the market place:
• Increased competition in generation & supply in recent years
• Entry of BGES and Airtricity to the domestic market
CER Roadmap consultation paper published Dec ‟09:
• Consulting on the circumstances under which the price control should be removed from ESB CS
CER Roadmap decision paper published April „10:
• Decided on criteria under which the price controls will be removed
• CER competition review found high level of competition in LEU & all business markets: to be price de-regulated in October.
• Domestics also seen very high switching rates: if this continues and ESB re-branding takes place, de-regulation expected next year
Deregulation
LEU Sector
LEU Market Share (GWh) - Q4 2009 LEU Market Share (Customers) - Q4 2009
Criteria for deregulation of LEU market sector - More than two active suppliers in the market
- Two of which have a consumption market share of 10% or more - The combined market share (GWh) of ESBIE & ESB PES is 50%.
Competition Reviews:
• Forward looking view of market share, switching rate etc. • Forecast Deregulation Decision, one month ahead of go-live • Next review to be published in July
ESB Rebranding - additional requirement for the domestic
price de-regulation
Market Monitoring bi-annual publication to include:
• Number of suppliers
• Market Share (GWhs) for all suppliers
• Switching – total level of switches and switching between competitors
• Revenue – revenue earned for all suppliers to determine profitability
• Range of tariffs on offer and average prices paid by customers by tariff
Deregulation
- Next Steps
Consumer Survey
Published by CER and the UR on 14
thJune:
– Research conducted by the Research Perspective
– Covered consumer attitudes to, and awareness of, electricity supply competition and associated issues
Key Findings For LEU Customers:
– 92% of LEU switchers found the process very easy or easy – 86% saw their electricity bills reduced as expected;
– Cost of electricity is a significant business challenge for LEUs – LEUs are interested in more frequent price revisions, and
would consider switching to suppliers who could provide additional information on usage or dual fuel offerings
Switching Data
Total Market Switches
LEU Switches
Total LEU switches in 2009 = 267 or 17% Total Market switches in 2009 = 454,956
0 20000 40000 60000 80000 100000 120000 140000 160000 180000 200000 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 0 20 40 60 80 100 120 140 160 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010
