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Presentation by Stephen Kelly of Manufacturing NI to the NICVA Centre for Economic Empowerment Masterclass on Energy Markets in Northern Ireland (17 October 2014) This presentation covers the cost of energy and its impact on Northern Ireland business, especially large manufactures, and the importance of this to the economy. The difference between the cost of generation and the price paid, where the policy priorities lie, how manufacturers are coping with high costs and what the response should be.
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ENERGY MARKETS IN NI
NICVA Briefing
Why is manufacturing important?
Far from being a twilight part of our economy, manufacturing generates annual sales approaching £20 billion, directly employing almost 80k people, supporting production and employment in a wider supply chain and creating jobs and strong communities in every constituency across Northern Ireland.
You are just as likely to see world-beaters in rural communities as you are in technology centres and industry parks.
What’s the ambition?
“Europe must re-industrialize. The target
is 20% of GDP”. EU Director General for Enterprise and Industry, Daniel Calleja Crespo
Manufacturing currently represents an estimated 12.5% of GDP.
Just think what achieving 20% would do for the local economy
and for communities right across Northern Ireland!
But, this is only possible if we resolve the issue of
competitiveness.
How do we get there?
The issue isn’t one of demand, quality of innovation…
… the issue is the cost of doing business.Richard Ramsay, Chief Economist, Ulster Bank
Our vision…
To create the most competitive region
in Europe in which to start, sustain
and grow a manufacturing business,
thus creating wealth and work.
THE PROBLEM
WITH ENERGY
The third largest input cost for business after labour and materials.
NI manufacturers suffer the 2nd most expensive electricity in Europe.
Our electricity is 20% more expensive than Republic of Ireland.
It’s the same picture for smaller companies – either the 2nd or 3rd most expensive Electricity in Europe.
Only “Very Small” (up to 20mwh) businesses enjoy something near a European median
THE
FUNDAMENTAL
POLICY PROBLEM
Energy “Trilemma”
Affordable
SustainableSecure
Energy “Trilemma”
Affordable
SustainableSecure
Government policy, investment and targets
NO Government policy or targets
Our Executive MUST set a
target to provide cost
competitive not just secure
and sustainable electricity
HOW? WHERE IS
THE MONEY?
Generation andFuel costs
Impairment and Capacity Costs
Generator Margins
Add-Ons (PSO etc)
Network Costs20%
Retail Margin
5%
Typical Business Customer Bill
Little can be done Sorted! Dealt with by Price Control
Minimal wins – Competitive
market
Generation andFuel costs
Impairment and Capacity Costs
Generator Margins
Add-Ons (PSO etc)
Network Costs20%
Retail Margin
5%
Typical Business Customer Bill
Where customers need intervention and strong
regulation!
Little can be done Sorted! Dealt with by Price Control
Minimal wins – Competitive
market
Generation andFuel costs
Impairment and Capacity Costs
Generator Margins
Add-Ons (PSO etc)
Network Costs20%
Retail Margin
5%
Efforts should concentrate where the big wins are
Network charges, dealt with by CMA
This EXCLUDES the actual
cost of generation and fuel!
Just to run the system!
Generator Financial Performance in the Single Electricity Market (SEM) – May 2013
There was a commitment to update and publish this report in Q1 of 2014… it has still to be published!
Are our Regulators (N & S) designing a new market without a contemporary analysis or understanding of how the participants in this market are performing?
As a minimum, this information has not been disclosed to customers! Why?
Just a word about gas…
Gas, where available, is an obvious choice – cheaper, more competitive
However, there’s been sudden rises in ‘conveyancing’ charges
News of the closure of a major manufacturer, representing 5% of all the gas volume, will add £1m of charges to all customers
What are manufacturers doing?
Onsite generation if they can find the investment AND afford the
scandalous cost of connection
Energy Reduction if they a can get the capital
Aggregating supply if network operators will get their act together
Leaving!
Anything to get their bills down!
The impact?
As customers go off grid or lost to NI, all the costs are shared amongst a smaller group of customers
Broader shoulders, but weaker knees!
What needs done…
There are fundamental interventions which need immediately addressed:
We need to set an NI Executive target for affordable, cost competitive energy.
the allocation of network charges across customer groups must be cost reflective
excessive profits for generators and the SEM Operators must be addressed
What needs done…
There are fundamental interventions which need immediately addressed:
Competition to address the cost of making connections
Drill down and ensure ‘add-on’ costs from NI government policy are in the interests of customers
Support for on-site generation and efficiency
Finally…
We need a customers collective. Representative groups from domestic and business consumers to come together and demand affordable and cost competitive energy.
THANK [email protected]
