Electricity Prices & Competition

Transcription

1 CER Presentation on Electricity Prices & Competition SEAI Conference, July 2010

2 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

3 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

4 CER is led by 3 Commissioners: Michael G. Tutty, Chairman Dermot Nolan, Commissioner Garrett Blaney, Commissioner Who is the CER? Full details of the CER s role at &

5 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

6 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

7 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

8 Electricity Price Drivers Gross Electricity Generation % from Fossil Fuels, Eurozone

9 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

10 Electricity Price Drivers Providing a hedge, renewables are increasing - currently 15% of consumption

11 Source: Bloomberg Fuel Prices since July 08

12 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

13 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

14 Financial Contracts (1)

15 Financial Contracts (2) Directed Contract Prices ( /MWh)

16 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

17 LEU 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 semester

18 LEU 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 2010

19 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 PSO LEU s networks charges reduced by 50m per annum Permanent measure LEU Contribution - 36m

20 Retail Market Big changes in the market place: Deregulation 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

21 Deregulation LEU Sector LEU Market Share (Customers) - Q LEU Market Share (GWh) - Q 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%.

22 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 Deregulation - Next Steps 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

23 Consumer Survey Published by CER and the UR on 14 th 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 offerings

24 Consumer Survey: LEUs

25 Switching Data Total Market Switches LEU Switches 0 0 Q Q Q Q Q Q Q Q Q Q Q Q Total Market switches in 2009 = 454,956 Total LEU switches in 2009 = 267 or 17%

26 Questions and Answers