IDA Ireland welcomes the opportunity to engage with the Commission on the proposals contained in CRU 202281. Our comments below should be read in conjunction with the submission made by the Department of Enterprise, Trade and Employment (DETE), which we strongly endorse. The Department’s response directly addresses the questions posed in the consultation document, while our submission will focus more on drawing the Commission’s attention to the views of investors and the consequences of the proposals for Ireland’s ability to attract and sustain inward investment.
There are almost 1,700 Multinational Enterprises (MNE’s) operating in Ireland that directly employ more than 275,000 people. These companies account for 72% percent of total national exports and 70% percent of corporate tax revenue. They invest circa €19 billion in the economy each year in wages and salaries, €2.6 billion on Irish materials, €8.4 billion on services (including energy) and another €7.5 billion on capital investment. The firms operate across a range of industries including biopharmaceuticals, technology, engineering, medical devices, digital media, financial and business services etc.
Ireland’s ability to provide a secure and reliable supply of electricity has been one of the principal reasons underpinning our ability to attract investment and especially high value manufacturing activity. Unfortunately, there is increasing concern about Ireland’s ability to sustain this traditional strength. This reflects increasing system alerts and forced outage rates, unsuccessful capacity auctions and the evident failure to deliver adequate generation and transmission / distribution infrastructure to meet the needs of a growing economy. To compound matters, this failure extends to the timely provision of temporary, emergency back-up generation. As a result, CRU is now proposing a set of demand management initiatives that unfairly and disproportionately targets a relatively small number of companies to compensate for inadequate supply. This could have serious consequences.
From an electricity supply perspective, Ireland is now increasingly viewed as expensive, unpredictable, and relatively high risk. International investors will be potentially cautious about allocating capital to a location with these characteristics. Regrettably, the CRU proposals could reinforce this perception.
Our Concerns with the Consultation Process and Proposals.
Below we set out our concerns with the consultation process and some of the specific proposals.
In our view, the Commission’s proposals are unprecedented and will fundamentally alter the operating environment for some international companies in Ireland. The potential impact on these investors and other business enterprises across the country merits proper, detailed analysis, consideration of alternatives and a regulatory impact assessment. A very short two-week consultation period in the middle of August followed by a target implementation date from October 1st is wholly inadequate given the significance and potential impact of the new tariff regime. CRU will argue that the supply-side risks justify the short consultation period, but the fact is that our electricity system should not be in this precarious position in the first place.
Extremely Short Timeframe for Consultation and Implementation.
Given the risk of system stress, IDA fully understands the need to take steps to manage demand and ensure security of supply. However, the approach used to achieve the objective is equally important. Meaningful consultation and cooperation rather than a perceived fait accompli will deliver superior outcomes.
Increasing Costs in a High-Cost Environment.
The CRU proposals involve substantial additional costs that will be allocated to a relatively small group of very significant companies in terms of their economic impact and contribution to the exchequer.
There is no evidence to suggest that CRU has considered opportunities for cost minimization, a fairer and more equitable distribution of costs across the total population of electricity customers or the wider competitiveness implications of the proposals. This is contrary to Response 4 of the National Energy Security Forum (NESF) which requests the Commission to “review the price drivers behind electricity and natural gas bills (including network costs) with a view to mitigating cost increases for consumers and businesses in the near term” (emphasis added). We urge the Commission to actively consider burden-sharing arrangements with other key stakeholders.
We consider the proposed block tariff to be especially punitive on several clients and potentially distortionary in terms of the overall electricity marketplace. A potential 100% plus increase in tariff for some electricity users is extraordinarily high and will only add to the sense that Ireland is becoming a less cost competitive location for some investors.
There is a presumption in the proposals that Extra Large Energy Users (XLEUs) can respond flexibly to the new tariff regime and adjust their demand profile in response to the new price signals. However, many of our client companies operate highly complex, global supply-chain and time-sensitive manufacturing or data processing operations that may not facilitate the desired level of demand shifting and behavioural change. In this context, the new tariffs effectively penalise LEUs for their business model and a supply-side failure in Ireland that is not of their making.
Demand Management - Unrealistic Expectations and Lack of Incentives.
As the Commission is aware, Mandatory Demand Curtailment (MDC) and other demand management initiatives have been introduced over recent months. There is no evidence to suggest that there has been proper consideration of how the new tariffs take account of, or will interact with, these existing interventions. Has CRU considered any other incentives to realise the intended policy goals?
In our view, the published consultation paper (CRU202281) should be supplemented with roundtable and / or bilateral engagements with the potentially most impacted electricity users. Many LEUs including IDA clients are already actively engaged with Eirgrid and other stakeholders to identify ways in which they can assist the country to reduce the risk of system stress for all electricity users. The existing back-up generation capability possessed by many LEU’s, as well as potential excess contracted capacity, may provide an alternative means of boosting short-term supply while complementing appropriate demand management measures. We strongly urge the Commission to engage with these companies to help improve and optimize the response to current and future challenges.
Communications and Cooperation.
ConclusionThe proposals contained in CRU202281 are very significant and potentially damaging to Ireland’s reputation as a location for energy-intensive investment. There is a clear sense in which a small group of strategically important international companies are being targeted in response to the jurisdiction’s failure to adequately match electricity supply with demand. A better and more equitable way to address this problem should be identified and, in turn, linked to a coherent long-term investment plan for the energy transition that we must undertake. IDA looks forward to engaging with CRU and other key stakeholders to address and resolve the important issues raised by the consultation.
IDA Ireland, September 1st, 2022.
1. Do you have any comments on the amount and distribution of the proposed transmission security of supply revenue allocation of €100m for the tariff year 2022/23?
Appendix 1. Response to Selected Questions
Insufficient analysis to justify the allocation. Burden of adjustment falls on a very small cohort of firms. No competitiveness impact assessment. Inequitable and disproportionate.
2. Do Stakeholders have views on the collective suite of new proposals set out in this section?
Many of these proposed new tariffs involve situations which are unpredictable and as such cannot be planned for. The timeline for implementation does not allow for planning on the part of companies and as such may not yield the required behavioural change, which is one of the main objectives of the proposed measures. The classification of XLEUs by connection size only is unhelpful.
3. Should these arrangements be a temporary response to significant forecast security of supply costs for 2023 and 2024, or should a more enduring approach be considered?
Yes - the arrangements, if implemented, should at best be of a temporary nature and removed as early as possible, as they significantly and negatively impact Ireland’s competitiveness and attractiveness for inward investment. The full grid tariff review process (CRU/21/123) should be completed as soon as possible.
6. Do Stakeholders have views on the appropriateness, and level, of the proposed Increasing Block tariff, or the methodology used in the calculation of rates for 2022/2023?
This tariff is poorly targeted and potentially anti-competitive. Reconsider.
7. Do you have any comments on the treatment of new connections with regard to this proposed new tariff?
New connections being charged a higher tariff will send a negative signal to any potential new investor. Ireland will need new investment for the future as we become energy independent through investment in renewables and we need to win these investments now to support future grid capital expansion projects. This charge should not be levied.