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Electricity Regulation
2012
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Electricity
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Research
irelandArthur Cox
Ireland
Alex McLean, Patrick McGovern and Jennifer Burke
Arthur Cox
1
Policy and law
What is the government policy and legislative framework for the
electricity sector?
Overall policy responsibility for the sector lies with the minister for
communications, energy and natural resources. In this capacity, the
minister is advised by a range of other statutory bodies including the
Commission for Energy Regulation (CER) and Sustainable Energy
Authority Ireland (SEAI).
The principal legislation governing the electricity industry in
the Republic of Ireland is the Electricity Regulation Act 1999, as
amended (1999 Act), which provides for the establishment of a
regulatory framework for the introduction of competition in the
generation and supply of electricity in the Republic of Ireland and
established the CER as the national regulatory authority responsible
for overseeing the liberalisation of Ireland’s energy sector including
granting licences for the generation, transmission, distribution and
supply of electricity.
Government policy in the Irish electricity sector is driven principally by the relevant EU directives. The European Communities
(Internal Market in Electricity) Regulations 2000 (the 2000 Regulations) completed the transposition of Directive 96/92/EC of the
European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity (Directive
96/92/EC). The European Communities (Internal Market in Electricity) Regulations 2005 (the 2005 Regulations) were promulgated to
transpose the requirements of Directive 2003/54/EC of the European
Parliament and of the Council of 26 June 2003 concerning common
rules for the internal market in electricity and repealing Directive
96/92/EC (Directive 2003/54/EC).
The European Communities (Internal Market in Electricity) Regulations 2010 (the 2010 Regulations) represent the first step taken
in Ireland towards the transposition of Directive 2009/72/EC of the
European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity. The 2010
Regulations provide, inter alia, for the strengthening of independent
regulation, better levels of consumer protection, the licensing of a
public electricity supplier, the designation of a supplier of last resort
and the enhancement of security of supply provisions. The European
Communities (Renewable Energy) Regulations 2011 (as supplemented by the Sustainable Energy Act 2002 (Section 8(2))(Conferral of Additional Functions – Renewable Energy) Order 2011) have
transposed Directive 2009/28/EC on the promotion of use of energy
from renewable sources.
The Irish electricity sector underwent fundamental reform with
the establishment on 1 November 2007 of a single electricity market
(SEM) encompassing the Republic of Ireland and Northern Ireland.
Key characteristics of the SEM include a gross mandatory pool with
central commitment, a single system of marginal price transmissionconstraint payments and the introduction of capacity payments.
92
The Energy (Miscellaneous Provisions) Act 2006 and the Electricity
Regulation (Amendment) (Single Electricity Market) Act 2007 provide the legal basis for the SEM in Ireland, including establishment
of a SEM Committee of the CER.
A March 2007 government White Paper, Delivering a Sustainable Energy Future for Ireland, proposes future development of the
energy sector for 2007 to 2020 around the central pillars of increasing security, sustainability and competitiveness of energy supply.
2
Organisation of the market
What is the organisational structure for the generation, transmission,
distribution and sale of power?
Ireland has been increasingly liberalising its energy sector for more
than a decade and significant steps have been taken at a regulatory
level to facilitate competition in generation and supply. In practice,
however, the number of new market entrants has been relatively low
to date. The current state of the market is as follows:
Generation
Full competition has been introduced in the generation sector in Ireland and competitive pressure in the Irish market has been further
increased by the establishment of the SEM. The generation market is fully liberalised and there has been increased competition in
recent years. The state owned incumbent Electricity Supply Board
(ESB), recently rebranded as ESB Electric Ireland, has disposed of
some generation assets to reduce its market share and renewables
have been promoted through a price support regime for wholesale
purchases of renewable energy (REFIT). The electricity market was
fully de-regulated on 4 April 2011 when the CER stopped setting
the prices of ESB Electric Ireland. In 2010 the government applied
to the European Commission for state aid approval for a successor
scheme to RE-FIT 2006 although this is now being revisited by the
new government. The government White Paper of 2007 includes the
aim of reducing the ESB’s market share to 40 per cent in generation
in an all-island (Republic of Ireland and Northern Ireland) context
by 2010. January 2009 saw the finalisation of a deal under the ESBCER Asset Strategy Programme in which Spanish utility Endesa SA
purchased from ESB the 216MW Great Island and 589MW Tarbert
plants, four 50MW peaking plants and two brownfield sites. Endesa
plans to re-power Great Island with a 431MW CCGT plant and
Tarbert with a 285MW mid-merit plant. The only other large-scale
independent power plants not contracted to the ESB and supported
by public service obligation levies are the Viridian-owned 343MW
CCGT Huntstown Power Plant and the 401MW CCGT Huntstown
Phase II Power Plant (commissioned in 2002 and 2007 respectively).
Bord Gais Eireann also constructed a 445MW CCGT generation station at Whitegate, County Cork which was commissioned in 2011.
At least a further 6,000MW of conventional projects are currently
in a queue for connection to the electricity network.
Getting the Deal Through – Electricity Regulation 2012
Arthur Cox
ireland
Transmission
The CER may modify licences or authorisations with or without
the consent of the holder. Standard form licences and authorisations
have been published by the CER. On 30 August 2007, the CER
published simplified authorisation and licensing procedures for generators with capacities less than 1MW and less than 10MW. The
relevant procedures are set out in the Electricity Regulation Act 1999
(section 16(3a)) Order 2008 and the Electricity Regulation Act 1999
(section 14(1a)) Order respectively.
The transmission system is owned by the ESB. On 1 July 2006, a
newly established independent state-owned company, EirGrid, took
over the role of transmission system operator (TSO). Pursuant to section 14(2A) of the 1999 Act, only EirGrid may be granted a licence to
act as TSO, and pursuant to section 14(2B) of the 1999 Act, only the
ESB may be granted a licence to act as transmission asset owner. At
present, independent analysis is being carried out and a stakeholder
engagement process is being conducted in relation to the proposed
transfer of ownership of the electricity transmission assets from the
ESB to EirGrid.
4
Market operation
Since the establishment of the SEM on 1 November 2007, the role
of market operator for the island of Ireland has been discharged by
a contractual joint venture between EirGrid and its Northern Ireland counterpart System Operator Northern Ireland (SONI), known
as the single electricity market operator (SEMO). EirGrid holds a
SEMO licence under section 14(j) of the 1999 Act and is exempted
from the need to hold a licence in Northern Ireland. SONI holds a
corresponding licence in Northern Ireland and an exemption under
section 14(2F) of the 1999 Act. SONI was acquired by EirGrid in
March 2009.
Distribution
The distribution system is currently owned and operated by the ESB.
Pursuant to section 14(2C) of the 1999 Act, only the ESB may be
granted a licence as distribution system operator (DSO). The European Communities (Internal Market In Electricity) (Electricity Supply Board) Regulations 2008 provide for the establishment of an
independent subsidiary of the ESB to operate the distribution system.
ESB Networks Limited, a new ring-fenced subsidiary within the ESB
group charged with the operation and management of the electricity
distribution system, was established in December 2008.
Supply
Full retail contestability was introduced on 19 February 2005. Customers do not have to change from the ESB public electricity supplier, but a significant number of larger customers have chosen to do
so, with Energia (a Viridian Group subsidiary), Airtricity, the ESB
Electric Ireland and the state-owned incumbent gas supplier Bord
Gais Eireann being active in this market. Bord Gais Eireann successfully entered the domestic electricity supply market in February 2009
and recorded unprecedented levels of customer switching. Airtricity
(which was acquired by Scottish and Southern Energy in 2008) has
also re-entered the domestic market, launching a significant switching campaign in July 2009.
Regulation of electricity utilities – power generation
3
Authorisation to construct and operate generation facilities
What authorisations are required to construct and operate generation
facilities?
The key administrative authorisation required to construct a generation facility is an authorisation to construct or reconstruct a generating station issued by the CER pursuant to section 16 of the 1999 Act.
The criteria to which the CER may have regard in determining an
application for such an authorisation are prescribed under the Electricity Regulation Act 1999 (Criteria for Determination of Authorisations) Order 1999 (SI No. 309 of 1999) and the 2005 Regulations
(the latter amending section 18 of the 1999 Act). Other authorisations such as planning permission are also required.
The key administrative authorisation required to operate a generation facility is a licence to generate electricity issued by the CER
pursuant to section 14(1)(a) of the 1999 Act. Other operational permits such as an integrated pollution prevention and control licence
are also required.
www.gettingthedealthrough.com
Interconnection policies
What are the policies with respect to interconnection of generation to
the transmission grid?
In accordance with Directive 2003/54/EC, the 1999 Act requires
the TSO to offer transparent and non-discriminatory terms for connection to and use of the transmission system. The CER may issue
directions to the TSO specifying connection terms from time to time,
including in relation to matters to be specified in a connection agreement or use of system agreement, the terms and conditions of a connection offer, the manner in which costs will be shared between the
TSO and connection applicants and the time for making or refusing
to make a connection offer.
Ireland and Northern Ireland operate a shallow connection charging policy. A Grid Code was submitted by the ESB and approved by
the CER pursuant to the 2000 Regulations in 2001. The Grid Code
is now developed and maintained by EirGrid and was most recently
modified in March 2011. A distribution code was submitted by the
ESB and approved by the CER in 2000. This too has been modified on a number of occasions, including in preparation for SEM.
ESB Networks Limited as licensed distribution system operator is
responsible for developing and maintaining the distribution code. In
2004, the CER also approved a separate operating code within the
Grid Code, which is only applicable to wind generators, with a view
to addressing technical difficulties in connecting wind to the grid.
Such technical difficulties have led to the development of a group
processing procedure for wind generation.
5
Alternative energy sources
Does government policy or legislation encourage power generation
based on alternative energy sources such as renewable energies or
combined heat and power?
The 1999 Act requires the minister and the CER, when carrying
out their duties, to have regard to the need to promote the use of
and support research and development in relation to renewable, sustainable or alternative forms of energy. The SEM provides for special trading rules for renewable, sustainable and alternative energy
sources. Examples of support for generation based on alternative
energy sources such as renewable energies or combined heat and
power include:
Renewable energy feed-in tariff (REFIT)
In 2006 the Department of Communications, Marine and Natural Resources (DCMNR) (now Department of Communications,
Energy and Natural Resources (DCENR)) published terms and
conditions for participation in REFIT, a e119 million programme
to support construction of in excess of 400MW of renewable generation from 2006 to 2010. The programme supports electricity
generation powered by biomass, hydropower or wind and follows
on from the six alternative energy requirement (AER) programmes,
which began in 1993. REFIT differs from the AER programmes in
that it involves a fixed ‘feed-in’ support for each technology rather
than least cost support determined by competitive process. For the
first time, the purchase price of the electricity can be negotiated
between generators and suppliers, and suppliers other than the ESB
are entitled to financial support to purchase electricity generated.
93
irelandArthur Cox
In October 2009, the minister announced details of support
prices under the REFIT scheme for new categories of renewable
energy generated in Ireland, namely biomass AD CHP, offshore
wind and ocean energy (wave and tidal). The scheme is intended
to incentivise construction of the estimated 4,600MW of installed
generating capacity necessary to achieve current government targets
of 40 per cent of electricity consumption from renewable sources by
2020 but support for this scheme is currently being re-examined by
the new government.
Group processing
To facilitate processing of applications for connection of wind generation to the grid, the CER has directed the system operators to
operate a group processing procedure. Under group processing, connection applications from prospective renewable generators are processed by the system operators under defined criteria simultaneously
in batches or gates, with the eligible applications broken into geographical groups depending on their level of interaction. Applications
equating to 1,300MW were processed in gate 2. On 16 December
2008, the CER published its direction on gate 3, directing EirGrid
and ESB Networks to issue connection offers to a further 3,900MW
of renewable generation projects. A ‘grid development strategy’
under which each applicant will be granted firm connection to the
network in order of the anticipated speed with which the required
deep transmission reinforcement works can be built will apply.
Planning
The Planning and Development (Strategic Infrastructure) Act 2006
amends the Planning and Development Act 2000 so that planning
applications for wind farms with more than 50 turbines or an output of greater than 100MW may be made directly to the Planning
Board (which otherwise hears appeals, rather than local authorities)
if the board considers that the project is of strategic, economic or
social importance; contributes substantially to fulfilling the National
Spatial Strategy or regional planning guidelines; or would have a
significant effect on the area of more than one planning authority.
In addition, new wind energy development guidelines for planning
authorities (2006) and a circular in relation to planning permission
expiring before grid connections are secured (2008) were issued by
the minister for the environment, heritage and local government (as
he was then known).
Priority dispatch
The 1999 Act requires the TSO to give priority to generating stations
using renewable, sustainable or alternative energy sources. Given Ireland’s renewables target of 40 per cent by 2020, the SEM Committee
consulted in 2009 on what priority dispatch might consist of in a
market where over 40 per cent of generation qualified for ‘priority’. A proposed decision paper based on this consultation was published on 2 September 2010 with a request for further comments. It
proposed that generation with mandatory priority dispatch (renewable generators) would be afforded the greatest degree of priority. It
also stated that it would consider aligning the market schedule with
the dispatch schedule only where ‘material harm’ would be caused
to consumers if this was not done. Any such decisions have been
deferred by the SEM Committee until an assessment framework for
material harm has been prepared.
6
Climate change
What impact will government policy on climate change have on the
types of resources that are used to meet electricity demand and on
the cost and amount of power that is consumed?
met predominantly by wind generation, which has a (close to) zero
marginal cost of production. It is anticipated that this will depress the
wholesale energy price in the SEM. However, increased market costs
are anticipated in terms of constraint and capacity costs.
As noted above, achievement of climate change targets has been
incentivised by the REFIT renewable support mechanism. This support mechanism is backed by a public service obligation levy order
(made pursuant to the Electricity Regulation Act 1999 (Public Service Obligations) Order 2002, as amended), which provides for the
recovery of the costs of the scheme from consumers. It is anticipated
that the cost of the PSO payments (represented as a per MW charge
on consumer bills) will increase as the system marginal price in the
SEM falls. This was the case in 2010 when a significantly increased
PSO levy resulted in a 5 per cent increase in electricity bills.
In an effort to dis-incentivise the production of greenhouse gas
emissions and encourage renewables, a new carbon excise tax on the
supply of fossil fuels was introduced in 2010 that applies to holders
of greenhouse gas emission permits, albeit with substantial reliefs
available.
In May 2009 the government launched an Energy Efficiency
Action Plan which targets 20 per cent energy efficiency savings by
2020. A 33 per cent energy efficiency target applies to the public sector. The Action Plan builds upon the Energy Efficiency Action Plan
submitted to the European Commission in 2007 in compliance with
Directive 2006/32/EC of the European Parliament and of the Council
of 5 April 2006 on energy end-use efficiency and energy services and
repealing Council Directive 93/76/EEC.
7
Government policy
Does government policy encourage or discourage development of new
nuclear power plants? How?
Generation of electricity in Ireland from nuclear energy is prohibited by law. Section 18(1) of the 1999 Act obliges the minister to
specify the criteria according to which an application to the CER
for an authorisation to construct a generation station is determined.
Section 18(6) prohibits such an order from providing for the use of
nuclear fission in the generation of electricity. The government White
Paper of 2007 stated the government’s commitment to maintain the
statutory ban on nuclear energy in Ireland. The government further
committed to articulate its strong position in relation to nuclear generation and transboundary safety concerns in Europe in the context
of the EU Energy Strategy.
Regulation of electricity utilities – transmission
8
Authorisations to construct and operate transmission networks
What authorisations are required to construct and operate
transmission networks?
The key administrative authorisation required to operate a transmission network is a licence to discharge the functions of the TSO in
accordance with the 2000 Regulations, issued by the CER pursuant
to section 14(1)(e) of the 1999 Act. Pursuant to section 14(2A) of the
1999 Act only EirGrid may be granted a licence as TSO.
The key administrative authorisation required to construct a
transmission network is a licence to discharge the functions of the
transmission asset owner in accordance with the 2000 Regulations,
issued by the CER pursuant to section 14(1)(f) of the 1999 Act. Pursuant to section 14(2B) of the 1999 Act only the ESB may be granted
a licence as transmission asset owner. The 1999 Act also provides for
the construction of direct lines.
In order to achieve its targets under the Climate Change and Energy
Package, the Irish government has set a target of 40 per cent electricity production from renewable sources by 2020. This target will be
94
Getting the Deal Through – Electricity Regulation 2012
Arthur Cox
9
ireland
Eligibility to obtain transmission services
Who is eligible to obtain transmission services and what requirements
must be met to obtain access?
Any person is entitled to apply to the TSO for connection to the
transmission system, provided that if the person is not an eligible
customer or does not hold a licence under section 14 of the 1999 Act
or an authorisation to construct or reconstruct a generating station
under section 16 of the 1999 Act, any offer from the TSO must be
subject to the person becoming an eligible customer or obtaining a
licence or authorisation.
The only circumstances in which the TSO can refuse to make a
connection offer to an applicant are set out in section 34(4) of the
1999 Act and include: where the CER is satisfied that it is not in the
public interest; where it would result in a breach of the 1999 Act, the
Regulations made under the 1999 Act, the Grid Code or any condition of any licence or authorisation; or where the applicant does not
undertake to be bound by the terms of the Grid Code.
Following consultation with the TSO and DSO, the CER issued
a decision on 6 October 2004 in relation to the terms for connection
to and use of the transmission and distribution systems.
Key features of the decision are that:
• subject to certain limited exceptions, all connection offers shall
be made within 70 business days of receipt of a complete application and all connection offers shall be valid for a period of 70
business days; and
• all connection applicants shall be required to post a capacity
bond of e10,000 per MW as a condition precedent to offer
acceptance.
Some elements of transmission connection policy have been harmonised in Ireland and Northern Ireland under the SEM arrangements,
including the introduction of a harmonised transmission charging
policy. In 2009 the CER approved a number of changes to its Electricity Network Connection Policy. These changes relaxed a number
of requirements, including in relation to capacity bonds, for renewable and distribution-connected generators in particular.
10 Government incentives
Are there any government incentives to encourage expansion of the
transmission grid?
Given that the ownership and operation of the transmission grid in
Ireland is not open to competition, no such government incentives
exist. The transmission asset owner receives a regulated rate of return
on transmission assets. An all-island grid study focusing on development of the grid for optimal fuel diversity was published in January
2008. This contributed to the development of a Grid Development
Strategy (Grid 25) by the TSO.
11 Rates and terms for transmission services
Who determines the rates and terms for the provision of transmission
services and what legal standard does that entity apply?
The CER may give directions from time to time in respect of the basis
for charges for the use of and connection to the transmission system.
Section 35 of the 1999 Act provides that the ESB shall (within such
time as the CER may direct) prepare a statement setting out the basis
upon which charges are imposed for use of and connection to its
transmission system. Section 35(4) provides that charges for connection to or for the use of the transmission system shall be calculated
so as to enable the ESB to recover the appropriate proportion of
the costs directly or indirectly incurred in carrying out all necessary
work; and a reasonable rate of return on the capital represented by
such costs.
www.gettingthedealthrough.com
The CER conducts a revenue review every five years to determine the revenues that the ESB may earn in order to cover the cost
of providing the network. The next five-year review will cover the
period 2011 to 2015 and will set out the total allowed revenues over
that period. Tariffs for the use of the transmission system are set
annually by the CER.
Section 34 of the 1999 Act provides that the CER may give
directions providing for the matters to be specified in an agreement
for connection to and use of the transmission system; the matters
to be specified in an agreement for use of the transmission system;
the terms and conditions upon which an offer for connection to the
transmission system is made; and the methods for determining the
proportion of the connection costs (direct or indirect) to be borne by
each of the applicants for connection and the ESB.
Section 34(8) of the 1999 Act provides that the ESB shall not
discriminate unfairly between persons or classes of persons when
providing for use of the transmission system or where offering terms
for the carrying out of works for the purpose of connection to the
transmission system.
12 Entities responsible for assuring reliability
Which entities are responsible for assuring reliability of the
transmission grid and what are their powers and responsibilities?
Under regulation 8 of the 2000 Regulations, the TSO has the exclusive function of operating and ensuring the maintenance of and, if
necessary, developing a safe, secure, reliable, economical and efficient
electricity transmission system. This includes the TSO planning for
the long-term ability of the transmission system to meet reasonable
demands for the transmission of electricity and contributing to the
security of supply through adequate planning and operation of transmission capacity and system reliability. In practice, with the advent
of SEM, this is done in consultation with SONI.
Under regulation 18 of the 2000 Regulations, the TSO and
transmission system owner shall enter into an infrastructure agreement which shall, among other things, provide for the maintenance
and development of the transmission system. The infrastructure
agreement between EirGrid and the ESB was approved by the CER
and came into effect in 2006. There are conditions in the respective
licences granted by the CER to the TSO and transmission system
owner relating to the reliability of the transmission grid and these
conditions can be enforced by the CER.
Under condition 15 of section C of the TSO licence, the TSO
shall, following consultation with the distribution system operator,
the transmission system owner and the Northern Ireland system
operator, establish transmission system security and planning standards that are subject to the approval of the CER. The TSO shall
be responsible for operating, ensuring the maintenance of and, if
necessary, developing the transmission system in accordance with
such standards.
Under condition 8 of section C of the TSO licence, the TSO shall,
in consultation with the Northern Ireland system operator, prepare
a development plan for the development of the transmission system
in order to guarantee security of supply for the following five calendar years, such plan being revised annually and subject to CER
approval.
Under regulation 28 of the 2005 Regulations, the CER is under
a duty to monitor security of supply of electricity, which includes the
monitoring of the quality and level of maintenance of the transmission networks and taking such measures as it considers necessary to
protect security of supply.
95
irelandArthur Cox
Regulation of electricity utilities – distribution
Regulation of electricity utilities – sales of power
13 Authorisation to construct and operate distribution networks
What authorisations are required to construct and operate distribution
networks?
16 Approval to sell power
What authorisations are required for the sale of power to customers
and which authorities grant such approvals?
The key administrative authorisation required to construct or operate a distribution network is a licence to discharge the functions of
the distribution system operator issued by the CER pursuant to section 14(1)(g) of the 1999 Act. Pursuant to section 14(2C) of the
1999 Act, only the ESB may be granted a licence as distribution
system operator. The European Communities (Internal Market In
Electricity) (Electricity Supply Board) Regulations 2008 provide for
the establishment of an independent subsidiary of the ESB, ESB Networks Limited, to operate the distribution system.
The CER has the authority under under section 14(1)(b) of the
1999 Act to grant a licence to supply electricity to eligible customers. (Note: the CER’s authority to grant licences to supply all final
customers with electricity (i) from ‘green’ sources or (ii) produced
using combined heat and power was repealed by Regulation 12 of
the European Commission (Renewable Energy) Regulations 2011.
14 Access to the distribution grid
Who is eligible to obtain access to the distribution grid and what
requirements must be met to obtain access?
Any person is entitled to apply to the DSO for connection to the
distribution system, provided that if the person is not an eligible
customer, does not hold a licence under section 14 of the 1999 Act
or an authorisation to construct or reconstruct a generating station
under section 16 of the 1999 Act, any offer from the DSO must be
subject to the person becoming an eligible customer or obtaining a
licence or authorisation.
The only circumstances in which the DSO may refuse to make
a connection offer to an applicant are set out in section 34(4) of the
1999 Act and include: where the CER is satisfied that it is not in the
public interest; where it would result in a breach of the 1999 Act, the
Regulations made under the 1999 Act, the distribution code or any
condition of any licence or authorisation; or where the applicant does
not undertake to be bound by the terms of the distribution code.
15 Rates and terms for distribution services
Who determines the rates or terms for the provision of distribution
services and what legal standard does that entity apply?
Section 35 of the 1999 Act provides that the ESB shall (within such
time as the CER may direct) prepare a statement setting out the basis
upon which charges are imposed for use of and connection to its
distribution system. The CER may give directions from time to time
in respect of the basis for charges for the use of and connection to
the distribution system. Section 35(4) provides that charges for connection to or for the use of the distribution system shall be calculated
so as to enable the ESB to recover the appropriate proportion of
the costs directly or indirectly incurred in carrying out all necessary
work; and a reasonable rate of return on the capital represented by
such costs. The CER conducts a periodic revenue review every five
years to determine the revenues that the ESB may earn in order to
cover the cost of providing the network. The next five-year review
will cover the period 2011 to 2015 and will set out the total allowed
revenues over that period. Tariffs for the use of the distribution system are set annually by the CER.
Section 34 of the 1999 Act provides that the CER may give directions providing for: the matters to be specified in an agreement for
connection to and use of the distribution system; the matters to be
specified in an agreement for use of the distribution system; the terms
and conditions upon which an offer for connection to the distribution system is made; and the methods for determining the proportion
of the connection costs (direct or indirect) to be borne by each of the
applicants for connection and the ESB.
Section 34(8) of the 1999 Act provides that the ESB shall not
discriminate unfairly between persons or classes of persons when
providing for use of the distribution system or where offering terms
for the carrying out of works for the purpose of connection to the
distribution system.
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17 Power sales tariffs
Is there any tariff or other regulation regarding power sales?
No. There is no longer a need for tariffs since, for the purposes of
deregulation, ESB was this year rebranded as ESB Electric Ireland
(until January 2012 when it will be known as Electric Ireland) and
entered the domestic retail market.
18 Rates for wholesale of power
Who determines the rates for sales of wholesale power and what
standard does that entity apply?
The spot price of wholesale electricity in Ireland is a single marginal (pool) price determined by reference to an unconstrained unit
commitment and production schedule, the objective of which is to
set prices to minimise the cost of production. The single electricity
market operator calculates half-hourly market prices, in accordance
with the market trading rules, which were developed by the CER
in conjunction with its Northern Irish counterpart under section
9BA(1) of the 1999 Act.
Since the implementation of the SEM, reserve prices for auctions of Directed Contracts (contracts for differences which hedge
the system marginal price) have been used as benchmark forward
prices for electricity. The quantity and pricing of directed contracts
are set by the regulators.
19 Public service obligations
To what extent are electricity utilities that sell power subject to public
service obligations?
The minister may direct the CER to impose public service obligations
in relation to the security of supply, regularity, quality and price of
supplies, environmental protection (including energy efficiency and
climate protection) and use of indigenous energy sources on the ESB
or holders of licences to generate or to supply electricity. Extensive
use has been made of this power with public service obligations
imposed in relation to renewable support, indigenous fuel sources
and for security of supply. Until recently, only the ESB had been
subject to public service obligations. However, the Electricity Regulation Act 1999 (Public Service Obligations) (Amendment) Order 2008
now imposes a requirement on each supplier specified in schedule
3 of that order to have available to it and purchase an amount of
electricity contracted under the REFIT scheme.
Regulatory authorities
20 Policy setting
Which authorities determine regulatory policy with respect to the
electricity sector?
Overall policy responsibility for the electricity sector lies with the
minister. However, responsibility for day-to-day regulation of the
sector rests with the CER. In the context of the SEM, the CER is
required to liaise closely with its counterpart in Northern Ireland,
the Northern Ireland Authority for Utility Regulation. All decisions
concerning SEM matters must be made by the SEM Committee.
Getting the Deal Through – Electricity Regulation 2012
Arthur Cox
ireland
Update and trends
The impact of the proposed UK reforms, particularly the feed-in
tariff with contract for difference (FIT CfD) that is proposed to
replace the current renewable obligation system and the carbon
floor will be important not just for Northern Ireland but for the
Republic of Ireland due to the all-island Single Electricity Market,
particularly as it could potentially lead to a distortion of the SEM
merit order.
It is intended that the final smart metering system should
ideally be able to integrate with existing enterprise systems
and emerging smart networks systems. It should, further, have
a lifespan of 15 to 20 years, incorporate open standards and
interoperability between meter and system vendors and be
capable of handling the large data flows and high levels of cyber
security. The CER conducted trials during 2009 and 2010 of
9,680 electricity smart meters in Irish homes and businesses.
The results were positive and the CER are now launching a
consultation on the possible design of a national smart meter rollout programme. A decision on a national roll-out and its design is
due to be made in October 2011.
21 Scope of authority
What is the scope of each regulator’s authority?
The CER’s roles include establishing arrangements for trading in
electricity, determining electricity tariffs, issuing licences and authorisations, approving terms of access to the distribution and transmission systems and resolving disputes in respect of the same, advising
the minister on the effect of electricity generation in relation to sustainability and international agreements and the development of the
electricity industry, promotion of competition and renewable energy
generation, ensuring security of supply and protecting the interests
of final customers. Recent amendments to the 1999 Act give the
CER power to take all actions it considers necessary to participate
in the SEM and provide for the CER’s objectives and functions as
they relate to the SEM.
22 Establishment of regulators
How is each regulator established and to what extent is it considered
to be independent of the regulated business and of governmental
officials?
The CER is the independent national regulatory authority and is
entirely independent of the ESB. However, the minister retains certain
reserve powers to give directions to the CER. These include directions in respect of the criteria in accordance with which an application for an authorisation may be determined by the CER, public
service obligations which the CER is required to impose on licence
and authorisation-holders and the definitions of combined heat and
power, and renewable, sustainable or alternative sources of energy.
23 Challenge and appeal of decisions
To what extent can decisions of the regulator be challenged or
appealed, and to whom? What are the grounds and procedures for
appeal?
Decisions of the CER on the granting of an electricity supply or generation licence under section 14 or an authorisation to construct a
generating station under section 16 of the 1999 Act, and decisions of
the CER on modification of the terms of such licences or authorisations already granted can be appealed to the minister within 28 days
of the making of the decision.
The minister must then set up an independent appeal panel that
will have all the powers and duties of the CER that are necessary to
carry out its function. The panel will have certain powers of the High
Court in relation to production of documents and attendance of witnesses and may confirm the refusal to grant a licence or authorisation
or direct the CER to grant a licence or authorisation with or without
www.gettingthedealthrough.com
conditions. In the case of modification of a licence or authorisation
the appeal panel may either confirm the modification or direct the
CER not to make it.
Provision is also made for application for judicial review through
order 84 of the Rules of the Superior Courts. Such an application
must be made promptly or in any event within two months of the
decision in question. The application for leave to apply for judicial
review will only be granted if the High Court is satisfied that there
are substantial grounds for contending that the decision is invalid or
ought to be quashed. An application for judicial review may be made
in respect of decisions of either the minister or the CER.
Acquisition and merger control – competition
24 Responsible bodies
Which bodies have the authority to approve or block mergers or other
changes in control over businesses in the sector or acquisition of
utility assets?
From 1 January 2003, mergers and acquisitions involving companies
that conduct business on the island of Ireland and that fall within the
terms of the merger provisions contained in the Competition Act 2002
must be notified to the Irish Competition Authority and may only be
implemented following clearance from the Competition Authority.
25 Review of transfers of control
What criteria and procedures apply with respect to the review of
mergers, acquisitions and other transfers of control? How long
does it typically take to obtain a decision approving or blocking the
transaction?
The Competition Act provides that a merger or acquisition occurs if
two or more undertakings, previously independent of one another,
merge or one or more undertakings acquire control of another undertaking. The Competition Act also applies to certain asset acquisitions. The first two tests are modelled on the EC Merger Control
Regulation. In addition, full-function joint ventures, namely, a joint
venture that will perform on an indefinite basis all the functions of
an autonomous economic entity, constitute a merger under the Competition Act.
A merger or acquisition is notifiable where, in the most recent
financial year, the worldwide turnover of each of two or more of the
undertakings involved is not less than e40 million, each of two or
more of the undertakings involved in the merger or acquisition carries on business in any part of the island of Ireland and the turnover
in Ireland of any one of the undertakings involved is not less than
e40 million. Previously, the concept of ‘carrying on business in the
island of Ireland’ caught many foreign to foreign transactions, but
from 12 December 2006, the Competition Authority has operated
a de minimis test so that only undertakings which have a physical
presence in the island of Ireland coupled with any sales to customers
located in the island of Ireland or undertakings which make sales of
at least e2 million to customers in the island of Ireland now satisfy
the test. Mergers involving media businesses are subject to further
notification requirements. The Competition Act also provides that
mergers or acquisitions that do not satisfy the financial thresholds
may nonetheless be notified to the Competition Authority voluntarily
by any of the parties involved.
The obligation to notify arises when a merger or acquisition is
agreed or will occur if a public bid that is made is accepted. If the
transaction is notifiable, each of the undertakings involved must
notify the Competition Authority within one month of the conclusion of the agreement or the making of the public bid. In general, a
notification is made jointly by the undertakings involved.
The Competition Authority must issue a determination within
one month after receipt of the notification or, where the Competition
Authority requests information within the first month, one month
97
irelandArthur Cox
after receipt of the requested information (this date is known as the
‘appropriate date’). The time limit of one month is extended to 45
days where the parties submit proposals. The Competition Authority
will publish its determination within two months of notification on
its website with due regard for commercial confidentiality setting out
its reasons to approve the transaction. If the Competition Authority
cannot conclude at the end of the first phase that the transaction will
not substantially restrict competition in goods or services in the state,
the Competition Authority will carry out a full investigation leading
to a second-phase determination. This decision must be taken within
four months of the appropriate date. An appeal on a point of fact or
law may be taken to the High Court in relation to a second-phase
determination prohibiting a merger or allowing it subject to conditions. An appeal may be taken from a decision of the High Court to
the Supreme Court on a point of law only.
26 Prevention and prosecution of anti-competitive practices
Which authorities have the power to prevent or prosecute anticompetitive or manipulative practices in the electricity sector?
Competition law in Ireland is contained in the Competition Act and
enforced through proceedings in the Irish courts. Proceedings may
be taken by the Irish Competition Authority, the director of public
prosecutions and private parties.
The Competition Authority can undertake investigations of suspected infringements of the Competition Act either on its own initiative or on foot of a complaint. The Competition Authority cannot
take a binding decision of its own establishing an infringement of the
Competition Act; rather, the Competition Authority must take either
civil or criminal proceedings in the courts to establish an infringement of the Competition Act.
Under the 1999 Act, the CER must have regard to the need to
promote competition in the supply of electricity. The CER must
also monitor licensees to ensure that they conform to all conditions
and requirements of their licences. Under the terms of the standard
licence to supply electricity, a licensee that is in a dominant position
in the market for supply of electricity and also has a generation business is prohibited from giving or receiving cross-subsidies between
the licensee’s supply business and any other business of the licensee.
A dominant supplier is also prohibited from predatory pricing or
discrimination in supply. The standard licence to generate electricity also contains a prohibition on cross-subsidies and discriminatory
pricing, which is applicable to licensees in a dominant position in the
market for the generation of electricity.
The Competition Authority has entered into a cooperation agreement with the CER. The stated purposes of the agreement are to
facilitate cooperation between the Competition Authority and the
CER in the performance of their respective functions in so far as they
relate to issues of competition between undertakings; to avoid duplication of activity by the Competition Authority and the CER; and to
ensure as far as practicable consistency between decisions made or
other steps taken by the Competition Authority and the CER.
As regards the SEM, any abuse of a dominant position in the
market, or any arrangement with the object or effect of distorting
competition, would, by definition, affect a market in more than one
member state (at least Ireland and the UK). The applicable law is
likely therefore to be articles 101 and 102 TFEU under which the
European Commission has jurisdiction. However, under Council
Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in articles 101 and
102 of theTFEU, full power to apply articles 101 and 102 including investigations is awarded to national competition authorities; so
the Irish Competition Authority and the UK Office of Fair Trading
(OFT) could take jurisdiction. In Northern Ireland, the Northern
Ireland Authority for Utility Regulation and the OFT’s competence
includes the enforcement of EC law.
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27 Determination of anti-competitive conduct
What substantive standards are applied to determine whether conduct
is anti-competitive or manipulative?
Irish competition law is modelled on European Union competition
law. In particular, the competition rules contained in sections 4 and
5 of the Competition Act are based on articles 101 and 102 of the
TFEU, respectively.
Section 4(1) of the Competition Act prohibits all agreements
between undertakings, decisions by associations of undertakings and
concerted practices, which have as their object or effect the prevention, restriction or distortion of competition in Ireland. Section 6 of
the Competition Act provides that an undertaking that enters into
or implements an agreement or decision or engages in a concerted
practice that is prohibited by section 4(1) or article 101(1) of the
TFEU shall be guilty of a criminal offence. However, an agreement
that falls within section 4(1) but which satisfies certain conditions set
out in section 4(5), which are the same as criteria set out in article
101(3) of the TFEU, is not prohibited.
Section 5(1) of the Competition Act prohibits the abuse by one or
more undertakings of a dominant position in trade for any goods or
services in Ireland or any part of Ireland. Section 7(1) provides that an
undertaking that acts in a manner prohibited by section 5(1) or by article 102 of the TFEU, shall be guilty of a criminal offence. A dominant
position is not defined in the Competition Act, although it has been
interpreted by the Irish High Court, which has applied the test of dominance developed by the Court of Justice of the European Communities.
28 Preclusion and remedy of anti-competitive practices
What authority does the regulator (or regulators) have to preclude or
remedy anti-competitive or manipulative practices?
The competition rules are enforced through proceedings in the Irish
courts. The proceedings can be taken by the Competition Authority,
the director of public prosecutions and private litigants. As noted
above, the Competition Authority, unlike the European Commission
for the purposes of the application of EU competition law, does not
have the power to adopt its own binding decisions or to unilaterally
impose fines. This inability to impose a decision does not preclude
the Competition Authority from investigating alleged infringements
of competition law or from using their extensive powers of investigation which include the ability to conduct unannounced visits to
premises and private dwellings and the compelling of individuals
to attend at the offices of the Competition Authority and to answer
questions under oath.
The Competition Act introduced a distinction between certain
types of agreements that may be taken to infringe section 4(1). The
Competition Act created what is known as a hard-core offence. The
Competition Act provides that hard-core offences will be presumed
to have as their object the restriction of competition unless the
defendant can prove otherwise. Hard-core offences can attract the
imposition of prison terms for a maximum of five years, thus making
such an offence arrestable.
In addition to prison terms on conviction on indictment of a
hard-core offence, an undertaking may be liable to a penalty of up
to e4 million or 10 per cent of its turnover in the previous financial
year. In relation to all other criminal offences an undertaking may
be liable to a maximum fine of e3,000 on summary conviction or
a maximum fine of e4 million or 10 per cent of the turnover in the
previous financial year on conviction on indictment. All other types
of infringements of section 4(1) and section 5(1) may result in civil
proceedings and criminal proceedings but cannot result in arrest or
the imposition of prison terms.
The CER may direct the holder of a licence or authorisation to
construct or reconstruct a generating station, or to take such measures as are necessary to cease the contravention of a condition or to
prevent a future contravention.
Getting the Deal Through – Electricity Regulation 2012
Arthur Cox
ireland
International
Transactions between affiliates
29 Acquisitions by foreign companies
Are there any special requirements or limitations on acquisitions of
interests in the electricity sector by foreign companies?
31Restrictions
What restrictions exist on transactions between electricity utilities and
their affiliates?
There are no special domestic requirements or limitations on acquisitions of interests in the electricity sector by foreign companies.
However, it is noted that under the new Third Energy Package, the
European Commission has retained a right to be involved in any
proposed acquisition of a European transmission network business
by a non-EU entity.
Where the licensee is in a dominant position in the market for the
supply of electricity and the licensee also owns a generation business,
the standard electricity supply licence prohibits the giving or receiving of cross-subsidies between the licensee’s business of the supply
of electricity, authorised by the licence and any other business of the
licensee or of an affiliate or related undertaking of the licensee.
Where the licensee is in a dominant position in the market for the
generation of electricity, the standard electricity generation licence
prohibits the giving or receiving of cross-subsidies between the licensee’s business of the generation of electricity, authorised by the licence
and any other business of the licensee or of an affiliate or related
undertaking of the licensee. General competition principles relating
to transactions between dominant companies and affiliates are also
relevant.
30 Cross-border electricity supply
What rules apply to cross-border electricity supply, especially
interconnection issues?
The only electricity interconnector between the island of Ireland (and
therefore the SEM) and Great Britain is the 500MW HVDC Moyle
Interconnector, which began operation in April 2002. Available
capacity is offered in annual and monthly auctions. A new 500MW
HVDC interconnector between Ireland and Wales is scheduled for
completion in 2012. This may result in a number of changes to the
SEM market rules to ensure full compliance with congestion management guidelines. The transmission systems between Ireland and
Northern Ireland are connected by a twin circuit 275kV AC connection, almost 30 miles in length. With the advent of the SEM, this
interconnection has been subsumed into the all-island transmission
networks and so, by definition, capacity is allocated by means of an
implicit auction. A second north–south circuit is currently under construction. Pursuant to recent amendments to the 1999 Act the CER
may grant authorisations to construct an interconnector, with section
16(1) of the 1999 Act prohibiting construction of an interconnector
unless an appropriate authorisation has been granted.
Alex McLean
Patrick McGovern
Jennifer Burke
32 Enforcement and sanctions
Who enforces the restrictions on utilities dealing with affiliates and
what are the sanctions for non-compliance?
According to the 1999 Act, it is the responsibility of the CER to
enforce the terms and conditions of a supply or generation licence.
If the CER believes that the conditions of a licence are being contravened, it may in the first instance issue a direction to the licensee to
refrain from specified practices and then apply to the High Court for
an order requiring compliance with the direction.
If the CER decides not to issue a direction it may issue a determination that a licensee has committed a specified breach. Both
directions and determinations in relation to contravention of licence
conditions are to be notified to the licensee and published in a
national newspaper. Ultimately, the CER has the power to revoke a
licence if the licensee fails to comply with a direction, a determination or an order.
alex.mclean@arthurcox.com
patrick.mcgovern@arthurcox.com
jennifer.burke@arthurcox.com
Earlsfort Terrace
Tel: +353 1 618 0000
Dublin 2
Fax: +353 1 618 0618
Irelandwww.arthurcox.com
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