Single EU Electricity Market may Result in Higher Costs for Irish Consumers

A single EU electricity market may result in higher costs for Irish consumers, according to the Economic and Social Research Institute (ESRI) in a paper published today. The paper says incentives for wind and wave and tidal generation should be scrapped.

The paper, A Review of Irish Energy Policy (the link to the report should be activated on the ESRI page on Wednesday), says the all-Ireland electricity market, which dates from 2007, is working well and it concludes the price of electricity is about right as a result. However, it points out that the EU is moving rapidly towards an integrated electricity market, and sees the development as likely to create extra costs for Irish consumers.

The paper, authored by Prof. John FitzGerald, says the context for Irish energy policy has changed dramatically in the last four years. The economic crisis, the evolving EU policy context and recent developments in technology require new approaches to domestic energy policy. While the objectives of policy remain the enhancement of competitiveness, ensuring a secure energy supply, and tackling the problem of climate change, the changing external context requires some new solutions.

FitzGerald says that even if oil and gas prices result in higher electricity prices in the future, it is not sensible to use scarce resources to subsidise electricity prices. Furthermore, any windfall gains from free electricity permits should accrue to the exchequer.

While current policy on promoting renewable electricity may be broadly consistent with the strategic aims of Irish energy policy, there are aspects of market design and of the support scheme for renewable energy (REFIT) which could result in substantial unnecessary costs falling on Irish consumers. FitzGerald says the current support scheme for onshore wind is probably too generous – – the additional sum payable where prices are high should be dropped for new investors.

Prof. FitzGerald says incentives for offshore wind and wave and tidal generation are not appropriate as it is premature to incentivise substantial investment in such technologies. This aspect of current policy could prove very expensive for the Irish economy, while bringing little or no environmental benefits. The Irish electricity market may also need to be adjusted to ensure that the level of investment in intermittent renewable generation is appropriate.

Ireland should contribute to a review of EU policy on renewables, as current European policy is likely to increase the cost of reducing emissions while providing limited security of supply advantages.

While the costs to Ireland from the inappropriate configuration of EU policy may be small, the potential costs to the EU economy as a whole are likely to be significant. Ireland should also contribute to the next stage of EU policymaking to ensure that the approach to managing greenhouse gas emissions from agriculture is efficient from both an economic and an environmental point of view.

The paper says EU policy on energy security is developing in the light of changing circumstances. The extension of the current arrangements for cross-country co-operation in the event of a shortage of oil to the gas market is important for Ireland. It is to be welcomed that the EU is also developing clear rules on gas transmission through member states. Domestic security of energy supply requires that the Corrib gas field is brought to production as rapidly as possible.

(finfacts)

[mappress]

Source: finfacts, April 27, 2011; Image: geni