Energy and the Northern Ireland Economy: Manufacturing NI

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 YOU!stephenkelly@manufacturingni.org