Competition in the Electricity Market

Today, the Competition Authority have announced that they are to investigate Ireland’s soaring electricity and gas prices. Specifically with regards to electricity prices, ESB prices are set to go up in January 2007 by 20%.

Here’s a tip for the Competition Authority. According to Value Ireland research, there is no competition for Irish consumers in the electricity market. You can buy from the ESB, and that’s it. Read the research article here.

Irish domestic consumers now pay 51% more for their electricity than the EU average. From January, Irish consumers will pay about 17.5% per cent more for electricity than their British counterparts. Ireland could have the third highest electricity prices in the EU by January with this most recent price increase.

We’re told that this is because of increasing costs of the raw material used to create electricity – oil and gas. Yet we’ve seen the wholesale prices of these materials fall recently. And if that was really the case, why have we seen electricity prices increasing about four times as fast in Ireland as price rises in the 15 countries of the pre May 2004 EU, according to figures published by Eurostat earlier this year.

But wait a minute. We’re told in a Deloitte report that Irish consumers are forking out an extra €100m on their electricity bills due to poor management at the ESB. The debacle at the Rhodes powerstation is a great example of this poor management. We’ve also been told in the press that wages for some individuals working at the ESB Poolbeg generating station in Dublin running to €140,000 including overtime!

These huge costs within the ESB are on top of the €77m dividend that the ESB paid to the Government in 2005, which brought dividend payments from the ESB over the previous three years to €175m.

So we’re paying higher costs because of the inefficiency of the ESB. Yet the ESB expected in 2005 to make a profit of around €300m.

The numbers here are staggering. Is there nothing that can be done to address the numerous issues here in order for us to have lower electricity costs?

The Government will claim that there’s little they can do in the short term. But there is! The Government currently charges 13.5% VAT on electricity compared to 6% in the UK. This provides a further €360m annually to the Government finances. Even reducing this VAT rate to the same as the UK would save Irish consumers nearly €100 per year.

Finally, there is a tiny flicker of light at the end of the tunnel, as expensive as that may cost us. It is expected that the Public Service Obligation (PSO) will be removed from all electricity bills in 2007. This saving is a result of the steadily improving competitive position of wind power, which has resulted in a reduction in the annual PSO levy imposed on domestic consumers. This levy will be set at zero in 2007 and will result in annual domestic electricity bills falling by whopping €11.

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