Huge power prof­its are hit­ting busi­ness con­sumers heav­ily

Belfast Telegraph - Business Telegraph - - Platform - By Stephen Kelly, Chief Ex­ec­u­tive of Man­u­fac­tur­ing NI

The prob­lems with the ill-fated Re­new­able Heat Ini­tia­tive have dom­i­nated head­lines pre- Christ­mas and since the New Year. With a po­ten­tial cost over­run of some £490m over 20 years, it rightly gained the fo­cus of the public and politi­cians con­cerned about the im­pact these costs may have on public ser­vices and the need to take ac­tion to pull costs into line.

Dur­ing the ‘ heat’ of the RHI de­bate, en­ergy reg­u­la­tors in North­ern Ire­land and the Re­pub­lic pub­lished a re­port on how well the elec­tric­ity gen­er­a­tors on the is­land are do­ing. The ‘Gen­er­a­tor Fi­nan­cial Per­for­mance in the Sin­gle Elec­tric­ity Mar­ket (SEM)’ re­port crept out on De­cem­ber 20 to lit­tle fan­fare. It con­tains some star­tling read­ing for hard-pressed elec­tric­ity con­sumers — both busi­ness and do­mes­tic. Elec­tric­ity gen­er­a­tion, sold in what’s known as the all-is­land SEM whole­sale mar­ket, usu­ally makes up around half of a typ­i­cal elec­tric­ity bill.

It is the largest sin­gle item fol­lowed by the costs to run and in­vest in the net­work, money to op­er­ate the mar­kets and its sys­tems, and in­creas­ingly gov­ern­ment pol­icy charges to sup­port re­new­ables, en­ergy ef­fi­ciency and other ar­eas. What’s left is a mar­gin for the sup­pli­ers, the peo­ple who send cus­tomers the bill col­lect­ing the money for all the other parts of the sec­tor as well as the gov­ern­ment taxes and levies. So, as the largest part of the bill, if our whole­sale mar­ket op­er­ates ef­fi­ciently and if the prof­itabil­ity en­joyed by gen­er­a­tors is fair, then bills are re­duced and we can pro­vide com­pet­i­tive elec­tric­ity prices for all con­sumers.

What the Gen­er­a­tor Per­for­mance re­port does show, how­ever, is huge mar­gins and mas­sive prof­its at the ex­pense of the con­sumer. In 2015, some €906m (£782m) was made in op­er­at­ing profit across all the gen­er­a­tors, a mar­gin of some 34%. And, af­ter one-off im­pair­ment charges are ex­cluded, there was a net profit of some €355 (£306m), a mar­gin of 15%. These are record numbers since these re­ports have be­gun to be pub­lished and mar­gins only dreamt about in man­u­fac­tur­ing and other parts of our econ­omy. It’s also 30 times more than what RHI will cost this year.

The ‘ body politic’ is rightly con­cerned about any RHI squan­der. But so too should it be con­cerned about ex­ces­sive prof­its in our elec­tric­ity gen­er­a­tors.

It may not be tax money to be spent on schools, roads or hos­pi­tals, but this is money do­mes­tic con­sumers spend on heat­ing their homes and feed­ing their fam­i­lies and money which busi­ness would much rather spend on buy­ing equip­ment, win­ning new or­ders and em­ploy­ing more peo­ple.

As Miche­lin said when they sadly chose to close Bal­ly­mena rather than an­other fac­tory, “our en­ergy bill in North­ern Ire­land last year was £9m — it has been an Achilles heel for us”.

Sadly, the new ‘Econ­omy 2030’ plan launched for con­sul­ta­tion last month of­fers lit­tle hope that this ‘Achilles heel’ will be ad­dressed.

All that is of­fered is the prom­ise of an­other plan, an en­ergy plan whose in­di­ca­tor of success is sim­ply to mea­sure if there’s enough power be­ing gen­er­ated. Any new Ex­ec­u­tive must set a tar­get for af­ford­able com­pet­i­tive en­ergy prices for con­sumers.

This will pro­vide the di­rec­tion for reg­u­la­tors and mar­ket op­er­a­tors to take ac­tion, and fi­nally pro­vide fair prices for con­sumers and not just large prof­its for the gen­er­a­tors.

Feel­ing heat: mas­sive prof­its are be­ing made at the ex­pense of con­sumers

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