A NEW ESB subsidiary should be set up as the single buyer" of electricity from all power generators and contracts for new power stations should be awarded through open tendering according to a consultation paper from the Department of Transport Energy and Communications.

With the EU Electricity Directive due to come into force in Ireland by February 19th, 2000, the Department has set out its proposals for implementing the directive. Under the directive, the ESB will have to compete to produce electricity for large users.

The Minister, Mr Dukes, stressed that there would be "extensive consultation before final decisions are taken". Interested parties have been invited to submit their comments to the Department by June 30th.

To ensure that investors will build generators to serve the Irish market, the Department is proposing that the ESB set up a new subsidiary which would act as the buyer of all electricity generated. It would be responsible for ensuring that sufficient generating capacity was maintained to meet demand, which is expected to grow by about 5 per cent a year and for buying power at the lowest possible price.

This option, chosen over a fully competitive market approach would ensure competition in the small Irish market, according to Department official Mr Robin McKay.

Because Ireland is a small market, the Department feels that investors would not commit the capital required to build large-scale power stations on a speculative basis. Even if they did, "there would probably not be enough competition to minimise prices", according to Mr McKay.

For this reason, its preferred option is the "single buyer" approach. ESB's Power Procurement Business would buy electricity under 15-year contracts from the generators which win the contracts to provide power stations. Generators would get guaranteed prices for the duration of their contracts.

Only about one third of ESB's sales would be affected by the implementation of the EU Directive. Customers accounting for 28 per cent of electricity sales will be able to choose where they buy their electricity. This will rise to 32 per cent in 2003. ESB will remain the monopoly supplier for all other customers.

Large power users using more than 100 giga watt hours (GWh) a year such as Aughinish Alumina and Intel will automatically qualify for choice of supplier. They will be able to buy from the ESB, from the new single buyer or from independent producers outside the Republic.

About six or seven large users account for 8 per cent of ESB sales and will automatically qualify for choice of suppliers. Submissions have been invited on bow to determine who should qualify for choice under the remaining 20 per cent of sales.

A new State agency, independent of the ESB, is proposed to manage the day-to-day operation of power stations to ensure a reliable supply and impartiality in the running order of stations.

An independent regulator is proposed to control prices for ESB's monopoly activities, to review proposals by the ESB single buyer subsidiary for new generating capacity and to regulate tendering arrangements.

The consultation paper states that ESB is to remain a single State-owned company, will continue to operate the distribution system and will have a monopoly on sales to customers who do not qualify for choice of supplier.