Electricity Prices & Competition - CER Presentation on - SEAI Conference, July 2010
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CER Presentation on
Electricity Prices &
Competition
SEAI Conference, July 2010
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 • Retail market price deregulation
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 electricity to customers
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 2nd 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 Gross Electricity Generation % from Fossil Fuels, Eurozone
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 yearElectricity Price Drivers • Providing a hedge, renewables are increasing - currently 15% of consumption
Fuel Prices since July „08 Source: Bloomberg
Gas Prices & the SEM • Natural gas accounts for c. 60% of generation and is the prime driver of the SEM wholesale price - the SMP Source: Bloomberg
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 • To be administered by CER
Financial Contracts (1)
Financial Contracts (2) • Directed Contract Prices (€/MWh)
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-pricesLEU Prices
Electricity & Gas Prices in Ireland
2nd Semester, July - December 2009
• 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 semesterLEU Prices - Ireland & EU
Irish Business Electricity Prices Compared to EU 27 - all taxes
included
Based on data from SEAI report on Electricity & Gas Prices in Ireland – May 2010LEU 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
• LEU Contribution - €36mRetail 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 yearDeregulation
LEU Sector
LEU Market Share (Customers) - Q4 2009 LEU Market Share (GWh) - 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%.Deregulation
- Next Steps
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 tariffConsumer Survey
Published by CER and the UR on 14th June:
– 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 offeringsConsumer Survey: LEUs
Switching Data
Total Market Switches LEU Switches
200000 160
180000
140
160000
120
140000
100
120000
100000 80
80000 60
60000
40
40000
20
20000
0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2
2009 2009 2009 2009 2010 2010 2009 2009 2009 2009 2010 2010
Total Market switches in 2009 = 454,956 Total LEU switches in 2009 = 267 or 17%Questions and Answers
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