Electricity’s high cost, very much due to the ESB’s quasi-monopoly, is a millstone on our prospects of recovery
LAST YEAR I did some work for the California-based search engine Cuil. A friend, Drogheda-native Tom Costello, is the chief executive and among other things, he asked me to seek out Irish companies which would host our European data centre. His ops people crunched the numbers and delivered the bad news: the cost of power made Ireland far too expensive as a location.
Though other countries offered a similar service a lot cheaper, Cuil eventually decided to stick with Ireland. We traded off the high power costs against Ireland’s excellent internet connectivity to the US and Aer Lingus’s direct route to San Francisco which made Dublin a convenient location. Without our chief executive’s instinct to stick by the Oul Sod, Cuil would have crossed Ireland off the list without checking for those soft factors. The experience showed me how dangerous high power costs are to our national interest. We are unnecessarily driving international business out of the country and strangling native enterprise at birth.
If Eamon Ryan took electricity in hand, it’s possible he could finally justify the Greens’ appalling decision to put Fianna Fáil back in power. So what is the problem and what can he do about it? It suits the ESB to point the finger at external problems, which are real, in an effort to divert attention from our internal problems, which are equally problematic.
The price we pay for a unit of electricity is broken down into three parts. The biggest, about 60-65 per cent, is the cost of generation and that is heavily dependent on fuel imports. The price of British gas has the single biggest impact on our bills. About 20 per cent of your bill is the cost of carrying electricity around the national grid. The remainder is the cost of supply – metering and billing your use.
The normal domestic user is probably oblivious to the fact that in each of these markets – generation, transmission and supply – there is competition. Sadly, it is a limp, lily-livered breed of competition that creates more problems than it solves. It is not so bad in the generation market, but transmission and supply are mongrel pups providing us with the worst of all worlds.
First, let’s take a look at generation and those gas bills. They are only going in one direction – the wrong one – so we need to wean ourselves off fuel imports. We are ramping up renewable sources of power like wind, but even Airtricity would acknowledge that they are only part of the solution.
The other part requires us to get over our primitive fear of nuclear power. It doesn’t make economic sense to build our own power stations, but there is a plan to build an inter-connector between here and France where 80 per cent of their power comes from nuclear energy. Nuclear is clean and cheap and the only way we can save money and the planet. The Germans are bitterly regretting giving in to the Greens and closing many of their nuclear power stations. They are increasing output from the stations they didn’t close and are importing the shortfall from, yes, France. It is dishonest of anyone to pretend we can ignore nuclear and the plans for the Ireland/France inter-connector show that some people understand that, even if they won’t admit it.
That inter-connector is at least five years away and meanwhile, we should sort out the ESB. Its anomalous status as a publicly-owned, commercial company is a big problem. The Government appoints a board but we all know it is run by the unions for the unions. It makes just enough money to ward off criticism but without any of the true commercial pressures that would force it to achieve real efficiency.
The ESB’s so-called independence in a competitive market allows the Government to pretend that market forces will provide answers. But in this pseudo-competitive market, the ESB and An Bord Gáis are immovable incumbents sitting on a huge customer base which competitors find impossible to penetrate. The market cannot function when an expensive advertising campaign for ESB Networks promotes the brand of the ESB, even though they are officially separate companies doing separate jobs. The result is consumer ignorance.
Did you know you could save 10 per cent on your bills by switching to Airtricity with a phone call? Most people don’t. That’s called market failure, a legal status that allows the Government to act.
The Minister has two options. As sole shareholder of the ESB he could flog them or flog them off. Personally I prefer the first option. It was such fun last week when Brian Lenihan stamped his feet and got some heads. Imagine if the Minister for Energy did some ministering and demanded that the ESB run their company in a way that benefited the nation and not union members. It’s our company. Is it really beyond the realms of possibility that we start running it to suit ourselves? Forget about making a profit. All efforts should go to reducing the price of electricity; that would profit the nation.
Alternatively, he should break it up, sell it and deliver actual competition which would deliver the efficiencies that would drive down prices. I’m not entirely convinced that such actual competition can happen in our small market but experts say it should work. The trick is to do something other than crossing our fingers. The Minister has power. Unless he does something with it, the price we pay for our power will just keep rising.