Electricity prices: differential between GB and NI has worsened since Single Electricity Market

Mick has already done a piece on the rise in electricity prices in Northern Ireland. In May Jim Allister asked a series of questions about electricity pricing here:

Question: Mr Jim Allister
(TUV – North Antrim)
To ask the Minister of Enterprise, Trade and Investment how the average cost of a household electricity bill in Northern Ireland compares to the average bill in Great Britain.

Answer: The average household electricity bill in Northern Ireland during 2010 is estimated at £496 per annum. This is for a standard credit customer with annual consumption of 3,300kWh of electricity and includes VAT.
This compares with an average bill during 2010 in England and Wales of £431 per annum, and £457 per annum in Scotland for similar customers and annual usage.

Possibly more interesting than the price difference is the effect of the Single Electricty Market between Northern Ireland and the RoI on prices:

Question: To ask the Minister of Enterprise, Trade and Investment (i) for her assessment of whether there was a trend of convergence in domestic prices between Northern Ireland and Great Britain prior to the introduction of the single electricity market on the island of Ireland; (ii) whether the single electricity market divergence has been to the detriment of Northern Ireland customers; and (iii) to detail local electricity prices compared to Great Britain and the Republic of Ireland in each of the last ten years.

Answer: Electricity prices in Northern Ireland have always tended to be higher than those in Great Britain. After many years of significant difference, there was a trend towards convergence in the period immediately prior to the introduction of the Single Electricity Market (SEM). However, in the post-SEM period, there has been a divergence once again. In comparing electricity prices between Northern Ireland and Great Britain it is necessary to take into account the different nature and size of the respective markets along with the different operating costs involved.
The Single Electricity Market (SEM) continues to run the cheapest generators available to meet demand across the whole island, hence minimising overall electricity costs and affording protection to consumers. An independent cost benefit analysis has estimated a net benefit of £45million for Northern Ireland from the SEM, most of which will benefit consumers. The SEM has also delivered greater security of supply for Northern Ireland, and has encouraged new investment in efficient generation on the island. Additionally, the Utility Regulator has been able to cancel unfavourable legacy generation contracts in Northern Ireland, and it is estimated that this will save consumers in excess of £80million over the next 5 years alone. The SEM has also provided greater transparency and therefore encouraged increased electricity supply competition, evidenced by Airtricity entering the retail domestic electricity market in Northern Ireland in June 2010.
In almost all of the last 10 years, domestic electricity prices in Northern Ireland have been higher than domestic electricity prices in Great Britain. Between 2004 and 2007 electricity prices in Northern Ireland were higher than in the Irish Republic. However since 2008, domestic electricity prices have generally been lower in Northern Ireland than in the Republic.
My Department will continue to work with the Utility Regulator and the energy industry to support initiatives aimed at putting downward pressure on retail electricity costs, which along with new electricity interconnection between Northern Ireland and the Irish Republic, and between Great Britain and the Republic, should see greater convergence between electricity prices as, in line with EU policy, greater market integration takes place.

Despite the supposed benefits of the Single Electricity Market there seems to have been a widening of the gap between NI and GB prices since the SEM was introduced. From Jim Allister’s website:

“I also had it confirmed that “there was a trend towards convergence (in NI/GB prices) in the period immediately prior to the introduction of the Single Electricity Market (SEM). However, in the post-SEM period, there has been a divergence once again.” It also revealed that since 2008, domestic electricity prices have generally been lower in Northern Ireland than in the Republic. Now, however, we are heading towards closing that gap

,

  • The post does not say why electricity is more expensive in NI. Is it the legacy of a poorer infrastructure or simply that there are more people living in Urban areas in GB and therefore less cable per household?

    There is nothing in this post that identifies something that is not being done correctly by our Government to minimise the electricity cost. We are not going to be able to turn the clock back on the SEM, so we have to just accept it.

    Sorry, Mr. Allister but as a Northern Ireland political issue, this is a “dead rubber”.

  • Comrade Stalin

    Seymour,

    Agreed. I know for sure that ten years ago when I lived in Dublin the price of gas and electricity were both markedly cheaper than they were in NI. NI always had the most expensive electricity anywhere in the UK or Ireland. The closing of the gap is probably explained by Irish government action to raise tax revenue in the face of the economic crisis.

  • The interconnectors are not very big. There is a definite limit on the power that can be sent from Scotland to NI, so it is not possible to always use the cheapest plants in Great Britain.

    Once the old nuclear power stations shut down, together with some coal-fired stations, NI will be sending wind-generated electricity over the interconnector to England.

  • Neville Bagnall

    A significant factor I would suggest is the generator type and therefore the input costs.

    For example

    More specifically in the case of Scotland:

    By comparison with Ireland

    The Republic is more dependent on fossil fuel generation than even GB, never mind the likes of France or Sweden. Show me that NI is less dependent than the Republic is, or that oil and gas would have a smaller share of a NI-only market and I might believe that the SEM has imposed an additional cost on NI consumers. Otherwise I’m inclined to think that SEM market savings have simply been swamped by increased fuel costs.

    The SEM-O annual report shows that the marginal price of generated electricity dropped from a trend price of over €80/MWh to a trend price of about €40/MWh in 2009 but rose again to €60/MWh in 2010. It was also at about that price in July 2011.

    I may be wrong (I haven’t checked in detail), but I think that would be a fair reflection of the trend in generation fuel costs.

  • Neville Bagnall
  • ayeYerMa

    There was some opinion a while back that the Republic may use the all-Ireland market as a dumping ground for the costs of it’s less efficient power generation methods. Is this the case here?

    From the Newsletter a year ago:
    http://www.newsletter.co.uk/community/columnists/does_electricity_interconnector_make_sense_1_1846551

    There is also a risk that the interconnector will hurt the wallets of local consumers in other ways. We currently share a centralised wholesale electricity pool with the Republic, which is supposed to increase efficiency and lower costs. Unfortunately it is not clear that this is happening as well as was hoped. The independent power stations have complained that the Irish state-owned power stations are rigging the market.

    Furthermore while legacy excess costs attached to the northern power stations are ring-fenced for northern consumers to pay, my sources tell me that the southern negotiators managed to get some of their excess costs dumped into the cross-border wholesale pool. This fear was exacerbated when DETI allowed the Irish state to buy SONI (System Operator Northern Ireland), the business that manages the flows of electricity into the system. NIE had been obliged to sell the business because of a potential conflict of interest, but it was sold to a buyer with an even greater potential conflict of interest!

    I, for one, am not reassured that the interconnector project will not be used by the Irish government to dump the excess costs of its inefficient, state-owned power stations onto consumers here.

  • ayeYerMa

    Does the fact that we are now dependent of the system in the Republic and have higher and higher costs now not push a much stronger case for a nuclear plant in Ireland? Surely an all-Ireland plant can be built on the UK side of the border and should have been part of the UK energy strategy?

  • DC

    Neville, you guys need to get yourselves some chicken shit incinerators:

    http://roseenergy.webbelief.com/dl/newsletter1.pdf

  • ThomasMourne

    PowerNI uses the excuse that price rises are determined by the wholesale market price.

    The wholesale market prices for oil and gas are lower now than they were in 2008 and are forecast to fall further when Libya is back in full working order.

    So why are fuel prices not below 2008 levels?
    And why are we paying big lumps of taxpayers’ dough to a toothless regulator?

  • Comrade Stalin

    Thomas,

    One of the more reasonable excuses is that the power companies buy their fuel in long term contracts to lock in a fixed price. So they can’t immediately cut prices, in the same way that a homeowner on a fixed rate mortgage won’t benefit from interest rate cuts. You’ll note that we have benefited from the reverse; energy prices for gas and electricity didn’t rise uniformly with world oil/gas prices but kicked in later.

    There is certainly massive profit taking and very little risk taking going on in the energy industry, though, that’s for sure.

  • Neville Bagnall

    Incinerators always give rise to local nimby objections, but that hasn’t stopped several proposals starting to make their way through the planning process. Hard as it is to get incinerator based generation plants, in the wake of Fukishima, I suspect nuclear would be nearly impossible.

    The ESB has replaced all its old peat stations with two new stations that can take peat or biomass, and is actively ramping up the biomass component of the fuel mix. The ESB generating stations are outlined at http://en.wikipedia.org/wiki/ESB_Group#Facilities

    You can find details of the 43 generating companies involved in the SEM at http://www.sem-o.com/JoiningTheMarket/Pages/MarketParticipants.aspx

    Most of the new independent generating capacity is either CCGT or Wind. For example example http://www.tynaghenergy.ie/about.asp and http://en.wikipedia.org/wiki/Meentycat_wind_farm Given that, and the way the market works, gas prices are a significant factor in setting the market price.

    It could be argued that forcing the ESB to divest itself of some generating capacity might improve competition, but it is already below 50% market share and I’d like to see some evidence (as opposed to claims) that it is able to rig the market.

    The whole point of the SEM is to improve competition, bring in new participants and bring transparency to the wholesale price of electricity on the island; is there any evidence that it has failed in that?

    It could be argued that the SEM policy favours renewable sources of energy over low-cost sources and that is keeping the price higher than it should be. It could also be argued that the SEM has failed to produce enough biomass units.

    Alternatively, it may simply be that windfarms and CCGT plants are easier to get off the ground. If so, other plants should come online over time and bring the overcapacity that will drive prices down.

    But we also need investment in two key areas. The grid needs strengthening, particularly on the western seaboard. And we need more interconnectors with GB and the continent. We won’t get the necessary growth in renewable capacity if the energy can’t be transferred out of the west and into the bigger markets.

    We need make sure we remain on target for full integration in Europes electricity market http://en.wikipedia.org/wiki/Super_grid

    Aside: I remember attending a seminar in the late 80’s where http://en.wikipedia.org/wiki/Eddie_O'Connor_(businessman) was the keynote speaker back when he was head of BnM. He was talking about diversification, the use of peat in pollution control, air filtration systems and peat exporting.

  • Neil

    There is certainly massive profit taking and very little risk taking going on in the energy industry, though, that’s for sure.

    Well, exactly. If a company makes the decision to buy oil/currency/etc. when it thinks the price is at it’s lowest in order to hedge their bets, and they turn out to be wrong then, generally speaking the company takes the hit, the MD gets blamed and they try not to make the mistake again.

    We’re paying extra now because NIE or whatever they’re called this week, made a stupid decision to buy oil when it was at it’s highest, so NIE can unilaterally pass on the pain to it’s consumers to keep it’s quite reasonable profits up.

    Elsewhere this would not be an option for the simple reason that energy providor ‘a’ might make a stupid mistake as outlined, but energy companies ‘b’, ‘c’ and ‘d’ won’t have done the same and can offer their energy at significantly lower prices. Providor ‘a’ has the stark but ultimately simple choice of stomaching the pain, or being uncompetitive and possibly going to the wall as people don’t want to pay 20% extra for exactly the same product.

    That’s the problem in NI. No real competition, so NIE can keep raising their prices and their profits as there’s really no-one else to hold them to account. Economy of scale type thing.