EU competition law to force higher costs on Irish households

Cash-strapped householders could face higher electricity prices by 2017 due to a redesign of the Irish electricity market.

According to research by the Economic and Social Research Institute (ESRI), the introduction of EU regulations on electricity trading will result in costs and prices becoming less transparent — likely impacting on consumers here.

Currently, the Irish electricity market is dominated by one firm — the ESB, the legacy monopolist. However, its impact on the electricity market here is minimised through regulation and monitoring of the bids of generators.

The electricity market here is currently undergoing a redesign in order to comply with the new regulations. However, the ESRI has warned that this redesign, which will be effective in 2017, will have implications for the manner in which competition in the market is ensured.

“Specifically, regulation of generators’ bids will become more challenging under the new design, and costs and prices will be less transparent. All of this is likely to have consequences for electricity consumers,” read the report.

One of the research note authors, Muireann Lynch said Ireland’s low levels of advance trading and ability to connect with cheaper European markets — key drivers of competition — will be “severely limited” under the redesign.

“This means that the main tool remaining for regulators to ensure competitive prices for consumers is continuous monitoring and regulation of the bids made by generators, and of the legacy monopolist in particular,” said Dr Lynch. “However, the new market structure may not lend itself as easily to monitoring and regulation as the current market,”

Dr Lynch highlighted the impact a dominant player in a concentrated market could have on prices.

“There are also changes being made to the way the fixed costs of generators are compensated, by means of a capacity payment mechanism,” she said. “However, this capacity payment mechanism is vulnerable to the exploitation of market power by a dominant firm.”

She added that increased regulation of the dominant player in the market was needed to ensure competition.

“Under the current design plans, it seems unlikely that there will be a satisfactory way of ensuring a competitive outcome in the capacity payment mechanism unless there is regulation of all the bids made by the dominant firm,” she said.

Sarah Ryan, director of campaigns for consumer network OneBigSwitch, called on the Government to heed the ESRI warnings.

“Before tax is applied, Irish consumers are already paying the highest rate per kWh for electricity across the EU, any further changes that will further inflate this difference needs to be seriously addressed,” she said. “Irish consumers cannot be expected to shoulder the burden of a new market system when we already pay the highest rates for electricity as it stands.”

Ms Ryan said the Government and regulator now had “plenty of time to plan and minimise the potential inflationary impact the new market system will have on pricing”.