Could our electricity prices be lower?
The answer, based on price reports from other jurisdictions, is probably yes; but it would involve alternative policy choices by Government and regulatory action from the Commission for Energy Regulation (CER).
In practice both Government and Regulator are constrained; the Government by EU Energy, Environment and Competition Policy and the CER has to operate within its mandate – a legislative framework and an energy policy set by the Irish Government in conformity with EU law. Thus the room for manoeuvre is limited and lots of interests have to be respected when contemplating major changes.
Achieving the best sustainable price outcome for consumers within the Irish and EU policy framework is the job of the CER. The CER is the economic regulator for the electricity sector. It structures the electricity generation and supply markets for competition and regulates the investments, revenues and tariffs of the electricity network companies in the interests of the final customer 1. As generation and network costs account for almost 90% of the cost of electricity to small businesses the performance issues are;
i) Is the CER’s market design effective in promoting competition to deliver sustainable and competitive wholesale electricity prices?
ii) Is the CER’s regulation of the grid and network investment effective?
Market design: The table below (Table 3/Figure 9) shows a decline in two important profitability measures for a group of generators representing 75% of the market – return on sales and return on investment 2. The steady decline in these ratios since 2010 suggests that competition has put downward pressure on prices and profitability margins. Independent economists such as Fitzgerald believe that the (Irish) Single Electricity Market has worked well for Irish consumers. However, the Irish market design is about to change, conforming to the EU model to facilitate cross-border competition and electricity trading, and care needs to be taken to ensure that Irish consumers are not disadvantaged 3,4.